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| UG > SEC Filings for UG > Form 10-Q on 14-May-2009 | All Recent SEC Filings |
14-May-2009
Quarterly Report
FORWARD LOOKING STATEMENTS
Statements made in this Form 10-Q which are not purely historical are forward-looking statements with respect to the goals, plans, objectives, intentions, expectations, financial condition, results of operations, future performance and business of the Company. Forward-looking statements may be identified by the use of such words as "believes," "may," "will," "should," "intends," "plans," "estimates," or "anticipates" or other similar expressions.
Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our control) could cause actual results to differ materially from those set forth in the forward-looking statements. In addition to those specific risks and uncertainties set forth in the Company's reports currently on file with the SEC, some other factors that may affect the future results of operations of the Company are: the development of products that may be superior to those of the Company; changes in the quality or composition of the Company's products; lack of market acceptance of the Company's products; the Company's ability to develop new products; general economic or industry conditions; intellectual property rights; changes in interest rates; new legislation or regulatory requirements; conditions of the securities markets; the Company's ability to raise capital; changes in accounting principles, policies or guidelines; financial or political instability; acts of war or terrorism; and other economic, competitive, governmental, regulatory and technical factors that may affect the Company's operations, products, services and prices.
Accordingly, results actually achieved may differ materially from those anticipated as a result of such forward-looking statements, and those statements speak only as of the date they are made. The Company does not undertake, and specifically disclaims, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.
OVERVIEW
The Company is a Delaware corporation that conducts research, product development, manufacturing and marketing of cosmetic ingredients, personal and health care products, pharmaceuticals, and specialty industrial products. All of the products that the Company manufactures, with the exception of its RENACIDIN IRRIGATION®, are produced at its facility in Hauppauge, New York, and are marketed through marketing partners, distributors, wholesalers, direct advertising, mailings, and trade exhibitions. Its most important personal care product line is its LUBRAJEL® line of water-based moisturizing and lubricating gels. It also sells two pharmaceutical products for urological uses. Those products are sold primarily through the major drug wholesalers, which in turn sell the products to pharmacies, hospitals, nursing homes and other long-term care facilities, and to government agencies, primarily the Veteran's Administration.
The Company's pharmaceutical products are distributed primarily in the United States. Its personal care products are marketed worldwide by five marketing partners, of which International Specialty Products Inc. ("ISP") purchases the largest volume of products from the Company. Approximately one-half of the Company's personal care products are sold, either directly or through the Company's marketing partners, to end-users located outside of the United States.
The Company recognizes revenue when products are shipped, title and risk of loss pass to the customers, persuasive evidence of a sales arrangement exists, and collections are reasonably assured. An allowance for returns, based on historical experience, is taken as a reduction of sales within the same period the revenue is recognized.
The Company has been issued many patents and trademarks and intends, whenever possible, to make efforts to obtain patents in connection with its product development program.
CRITICAL ACCOUNTING POLICIES
As disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008 the discussion and analysis of the Company's financial condition and results of operations are based on its financial statements, which have been prepared in conformity with U.S. generally accepted accounting principles. The preparation of those financial statements required the Company to make estimates and assumptions that affect the carrying value of assets, liabilities, revenues and expenses reported in those financial statements. Those estimates and assumptions can be subjective and complex, and consequently actual results could differ from those estimates and assumptions. The Company's most critical accounting policies relate to revenue recognition, concentration of credit risk, inventory, pension costs, patents, and income taxes. Since December 31, 2008, there have been no significant changes to the assumptions and estimates related to those critical accounting policies.
The following discussion and analysis covers material changes in the financial condition of the Company since the year ended December 31, 2008, and a comparison of the results of operations for the three months ended March 31, 2009 and March 31, 2008. This discussion and analysis should be read in conjunction with "Management's Discussion and Analysis or Plan of Operation" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2008.
RESULTS OF OPERATIONS
Sales
For the three-month period ended March 31, 2009, net sales increased by $863,944 (28.5%) as compared with March 31, 2008. The change in net sales for the three-month period ended March 31, 2009 was almost entirely attributable to increases in sales to two of the Company's customers. Although there were increases and decreases in sales volumes among its other customers, the net increases to these two customers accounted for over 98% of the total sales increase for the quarter ended March 31, 2009.
(b) Pharmaceuticals: Pharmaceutical gross sales decreased by $56,088 (7.9%) for the three months ended March 31, 2009 compared with the same period in 2008. On April 1, 2008, the Company implemented a 4% price increase on its pharmaceutical products, which resulted in customers purchasing slightly larger than normal volumes in advance of the price increase. That was not repeated in the first quarter of 2009 because the pharmaceutical price increase for 2009 is not being implemented until May 1, 2009. The Company expects revenue from pharmaceutical sales for the full year to equal or exceed 2008 volume.
(c) Medical (non-pharmaceutical) products: Gross sales of the Company's medical products increased $599,921 (150.0%) for the three-month period ended March 31, 2009 when compared with the comparable period ended March 31, 2008. Sales of one of the Company's medical products to one of its primary customers increased by approximately $347,000 (495.0%) in the three-month period ended March 31, 2009 when compared to the comparable period in 2008. The Company has been advised that this increase is primarily due to the customer bringing in substantial amounts of additional inventory while it moves its manufacturing operations to Mexico This customer has already purchased over 85% of its entire 2008 sales volume in the first quarter of 2009. The Company expects sales to this customer to decline significantly for the remainder of this year while the operations are being transferred, but still expects sales to this customer to be at least 40% above last year's levels by the end of the year.
(d) Industrial products: Gross sales of the Company's industrial products decreased $6,465 (21.8%) for the three-month period ending March 31, 2009 when compared with the comparable period in 2008.
In addition to the above changes in sales, net sales allowances increased by $18,034 (29.0%) for the three months ended March 31, 2009 when compared with the same quarter in 2008. This increase was primarily due to increases in allowances for distribution fees.
Cost of Sales
Cost of sales as a percentage of sales decreased to 39.7% for the three months ended March 31, 2009 from 40.8% for the comparable period in 2008. This decrease was primarily due to a decrease in cost of the Company's most significant raw material.
Operating Expenses
Operating expenses consist of selling, general, and administrative expenses. Operating expenses increased $50,673 (7.7%) for the three months ended March 31, 2009 compared with the comparable period in 2008. This increase was primarily attributable to increases in payroll and payroll-related expenses.
Investment income decreased $36,725 (28.6%) for the three months ended March 31, 2009 when compared with the comparable period in 2008. This decrease was mainly attributable to a decrease in interest rates and to lower returns on investments in 2009.
Provision for Income Taxes
The provision for income taxes increased by $159,200 (38.3%) for the three months ended March 31, 2009 when compared with the comparable period in 2008. This increase is mainly due to an increase in income from operations before taxes of $475,173 (37.9%) in 2009 when compared with 2008.
The Company's effective income tax rate increased to 33.2% for the three months ended March 31, 2009 compared with 33.1% for the comparable period in 2008.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased by $1,192,975 to $14,429,655 at March 31, 2009 from $13,236,680 at December 31, 2008. The current ratio increased to 9.7 to 1 at March 31, 2009 from 6.2 to 1 at December 31, 2008. The increase in the current ratio was primarily due to the effect of a decrease in dividends payable.
During the three-month period ended March 31, 2009 the average period of time that an account receivable was outstanding was approximately 34 days. The average period of time that an account receivable was outstanding during the three-month period ended March 31, 2008 was 45 days, which was mainly due to a few customers who were paying more slowly than normal at that time.
The Company believes that its working capital is and will continue to be sufficient to support its operating requirements for at least the next twelve months. The Company does not expect to incur any significant capital expenditures for the remainder of 2009.
The Company generated cash from operations of $1,764,429 and $1,011,137 for the three months ended March 31, 2009 and March 31, 2008, respectively. The increase was primarily due to an increase in net income and a decrease in receivables days outstanding.
Cash provided by investing activities for the three-month period ended March 31, 2009 was $247,940, while cash used in investing activities for the three-month period ending March 31, 2008 was $411,028. This increase was primarily due to a decrease in purchases of plant equipment and marketable securities and an increase in the redemption of marketable securities.
Cash used in financing activities was $1,387,000 for the three months ended March 31, 2009 and March 31, 2008. These activities were mainly related to dividend payments
There were no cash flows in investing or financing activities from discontinued operations during 2009 and 2008.
Please see Note 4 to the Financial Statements for a description of recent accounting pronouncements, including the expected dates of adoption and the anticipated impact on the financial statements.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off balance sheet transactions that have, or are reasonably likely to have, a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The information to be reported under this item is not required of smaller reporting companies.
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