<TABLE>
IGI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended June 30, Six months ended June 30,
1995 1994 1995 1994
<CAPTION>
<S> <C> <C> <C> <C>
Net sales $ 8,221,326 $ 7,467,899 $15,338,252 $14,418,242
Cost of sales 4,029,582 3,524,133 7,326,819 6,926,196
---------- ---------- ---------- ----------
Gross profit 4,191,744 3,943,766 8,011,433 7,492,046
Selling, general
and administrative
expenses 2,877,166 2,673,567 5,586,768 5,299,237
Research and
development
expense 357,315 251,460 701,130 495,477
Research revenues (200,750) - (600,750) -
---------- ---------- ---------- ----------
Operating profit 1,158,013 1,018,739 2,324,285 1,697,332
Interest expense 294,829 249,800 573,659 438,358
Interest income (63,511) (10,878) (103,178) (10,878)
---------- ---------- ---------- ----------
Income from continuing
operations before
provision for
income taxes 926,695 779,817 1,853,804 1,269,852
Provision for
income taxes 273,000 88,000 556,000 254,000
---------- ---------- ---------- ----------
Income from
continuing operations 653,695 691,817 1,297,804 1,015,852
---------- ---------- ---------- ----------
Loss from discontinued operations -
spinoff of biotechnology business
segment net of income tax benefits:
Loss from
operations (763,004) - (763,004) -
Estimated
loss on disposal (1,000,000) - (1,000,000) -
---------- ---------- ---------- ----------
Net (loss)
income $(1,109,309) $ 691,817 $ (465,200) $1,015,852
=========== ========== =========== ==========
Income (loss) per common
and common
equivalent share:
From continuing <C> <C> <C> <C>
operations $ .07 $ .08 $ .13 $ .11
From discontinued ====== ====== ====== ======
operations ($ .18) $ - ($ .18) $ -
====== ====== ====== ======
Net (loss)income ($ .11) $ .08 ($ .05) $ .11
====== ====== ====== ======
Average number of common
and common <C> <C> <C> <C>
equivalent shares 9,846,495 9,115,777 9,811,911 9,114,427
========= ========= ========= =========
The accompanying notes are an integral part of the
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
IGI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
ASSETS 1995 1994
----------- -----------
<CAPTION>
<S> <C> <C>
Current assets:
Cash and equivalents $ 872,899 $ 953,976
Accounts receivable,
less allowance for doubtful
accounts of $181,000 8,431,027 7,276,843
Inventories 8,661,267 8,075,147
Current deferred taxes 36,641 36,641
Prepaid expenses and other
current assets 958,306 912,496
----------- -----------
Total current assets 18,960,140 17,255,103
----------- -----------
Notes receivable,
less current maturities 432,694 570,589
----------- -----------
Property, plant and equipment - at cost:
Land 417,011 416,011
Buildings and improvements 6,483,160 6,356,842
Machinery and equipment 8,253,236 7,981,998
Construction in progress 2,266,422 1,182,821
----------- -----------
17,419,829 15,937,672
Less accumulated depreciation (7,818,561) (7,454,437)
----------- -----------
9,601,268 8,483,235
----------- -----------
Deferred income taxes 1,370,005 1,370,005
Net assets of biotechnology
business segment 2,070,928 2,066,303
Other assets 880,135 756,607
----------- -----------
$33,315,170 $30,501,842
=========== ===========
Continued
The accompanying notes are an integral part of the
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
IGI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, Continued
(Unaudited)
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
----------- ------------
<CAPTION>
<S> <C> <C>
Current liabilities:
Note payable to bank $ 4,521,000 $ 3,790,000
Current maturities of long-term debt 12,090 29,338
Accounts payable 1,855,554 1,580,349
Accrued payroll 95,679 498,880
Other accrued expenses 587,140 660,989
Income taxes payable 12,824 15,184
Deferred income taxes 9,390 9,390
----------- -----------
Total current liabilities 7,093,677 6,584,130
----------- -----------
Deferred income taxes 113,075 187,075
----------- -----------
Long-term debt, less current maturities 10,013,882 10,019,138
----------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 30,000,000
shares authorized; 9,349,097 and
9,018,637 shares issued in 1995
and 1994, respectively 93,491 90,186
Additional paid-in capital 23,616,908 20,390,726
Deficit (4,818,132) (4,352,932)
----------- -----------
18,892,267 16,127,980
Less treasury stock; 179,789 and 156,145
shares, at cost, in 1995 and
1994, respectively (2,634,373) (2,253,123)
Stockholders' notes receivable (163,358) (163,358)
----------- -----------
Total stockholders' equity 16,094,536 13,711,499
----------- -----------
$33,315,170 $30,501,842
=========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
IGI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
1995 1994
----------- ----------
<CAPTION>
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (465,200) $1,015,852
Reconciliation of net (loss) income to net
cash (used by) provided from used by
operating activities:
Depreciation and amortization 418,246 431,844
Provision for loss on accounts
receivable and inventories 35,000 60,000
Accrual for estimated loss on disposal 1,000,000 -
Issuance of stock to 401(k) plan 20,646 23,167
Change in deferred income taxes (74,000) -
Changes in operating assets and liabilities:
Accounts receivable (1,154,184) (856,965)
Inventories (621,120) 172,673
Prepaid and other assets (45,810) (148,563)
Accounts payable and accrued expenses (201,845) 492,840
Income taxes payable/refundable (2,360) 255,527
Net cash (used by) provided from operating ---------- ----------
activities (1,090,627) 1,446,375
---------- ----------
Cash flows from investing activities:
Capital expenditures, net (1,482,157) (527,576)
Collections of notes receivable - 2,500
Decrease (increase) in notes receivable
from officer 137,895 (10,817)
Decrease (increase) in other assets 24,520 (126,196)
Increase in goodwill (202,170) -
Increase in net assets
of biotechnology business segment (1,004,625) (2,265,915)
---------- ----------
Net cash used by investing activities (2,526,537) (2,928,004)
---------- ----------
Cash flows from financing activities:
Net borrowings under line
of credit agreements 731,000 1,585,000
Payments of long-term debt (22,504) (36,428)
Proceeds from exercise of common
stock options 327,591 32,508
Proceeds from sale of common stock 2,500,000 -
Net cash provided from ----------- ----------
financing activities 3,536,087 1,581,080
----------- ----------
Net (decrease) increase in cash and equivalents (81,077) 99,451
Cash and equivalents at beginning of year 953,976 880,797
----------- ----------
Cash and equivalents at June 30, 1995 and 1994 $ 872,899 $ 980,248
=========== ==========
The accompanying notes are an integral part of the
consolidated financial statements.
</TABLE>
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying consolidated financial statements have been prepared by
IGI, Inc. without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission, and reflect all adjustments which, in the
opinion of management, are necessary for a fair statement of the results for
the interim periods presented. All such adjustments are of a normal
recurring nature.
Certain information in footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles has been condensed or omitted pursuant to
such rules and regulations, although the Company believes the
disclosures are adequate to make the information presented not misleading.
It is suggested that these financial statements be read in conjunction with
the financial statements and the notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1994.
2. Net Income Per Common Share
Net income per share of common stock is computed by dividing
net income by the weighted average number of shares of common stock and
common stock equivalents, if dilutive, outstanding during the three and six
month periods ended June 30, 1995 and 1994. Common stock equivalents
include shares issuable upon the exercise of dilutive common stock options.
Fully diluted earnings per share approximate primary earnings per share.
3. Inventories
Inventories are valued at the lower of cost or market using
the last-in, first-out (LIFO) method and consist of the following:
<TABLE>
June 30, 1995 December 31, 1994
-------------- -----------------
<CAPTION>
<S> <C> <C>
Finished Goods $3,101,142 $2,704,408
Work-in-process 2,901,426 2,925,494
Raw Materials 2,658,699 2,445,245
--------- ----------
Total $8,661,267 $8,075,147
========== ==========
</TABLE>
Inventory values computed under the first-in, first-out
(FIFO) method approximate the values determined using LIFO.
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
4. Discontinued Operations
On March 17, 1994, IGI's Board of Directors voted to dispose
of the biotechnology business segment through the combination of its
majority-owned subsidiaries Molecular Packaging Systems, Inc. ("MPS") and
Novavax, Inc. and the subsequent tax-free spinoff to the IGI's shareholders.
On March 20, 1995, the Company received a favorable ruling from the IRS that
the Spinoff will be tax-free to IGI and its shareholders and the Company
intends to dispose of this segment during 1995. The Company recorded a
reserve of $1,000,000 at December 31, 1994 for estimated losses through the
then anticipated disposal date of June 30, 1995. Due to delays in the timing
of the Spinoff, the anticipated disposal date has been changed to September
30, 1995. As a result, the Company has incurred expenses related to the
biotechnology business segment in excess of the reserve established at year
end and has recorded an additional $1,000,000 reserve for expenses through the
disposal date. Since the operations of MPS and Novavax comprise all of IGI's
biotechnology business segment, the Consolidated Financial Statements of IGI
for the three and six month periods ended June 30, 1995 and 1994 report the
results of the biotechnology business segment as discontinued operations.
The components of the losses from discontinued operations
for the three and six month periods ended June 30, 1995 and 1994 were:
<TABLE>
Three months ended June 30, Six months ended June 30,
1995 1994 1995 1994
----- ----- ----- -----
<CAPTION>
<S> <C> <C> <C> <C>
Selling, general
and administrative $ 486,347 $ 565,707 $ 848,999 $ 990,729
Research and development
expenses, net 884,092 576,538* 1,544,005 1,245,976*
Credit for income taxes (315,000) (197,094) (630,000) (363,094)
---------- ---------- ---------- ----------
Operating losses 1,055,439 945,151 1,763,004 1,873,611
Charge operating losses
against reserve for
loss on disposal (292,435) (945,151) (1,000,000) (1,873,611)
---------- ---------- ---------- ----------
763,004 - 763,004 -
Accrual for loss on
disposal 1,000,000 - 1,000,000 -
Net loss from
discontinued
operations $1,763,004 $ - $1,763,004 $ -
========== ========= ========== ==========
</TABLE>
* Includes $125,000 payments in the three and six months ended June 30, 1994,
product development and licensing agreements or detailed agreements in
principle which have been reflected as a reduction in research and
development expenses.
The components of the net assets of biotechnology business segment at
June 30, 1995 and December 31, 1994 were:
<TABLE>
1995 1994
------ ------
<CAPTION>
<S> <C> <C>
Net current assets $ 421,592 $ 442,707
Property, plant and equipment, net 1,441,575 1,549,666
Deferred patent costs, net 1,207,761 1,073,930
Accrual for estimated loss on disposal (1,000,000) (1,000,000)
---------- ----------
$2,070,928 $2,066,303
========== ==========
</TABLE>
5. Equity Transaction
In January 1995, the Company received $2,500,000 from an
industry partner for 226,655 shares of the Company's common stock under
an August 1993 agreement.
<PAGE>
IGI, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Three months ended June 30, 1995 compared to 1994
- -------------------------------------------------
Sales increased by $753,000 or 10%. All of the divisions in the
Company's continuing operations had sales increases during the second quarter
of 1995 compared to the same period a year ago, led by a $204,000 or 61%
increase in product sales in the Cosmetic and Consumer Products segment.
Gross profit increased by $248,000 or 6% due principally to the increased
sales volume. As a percentage of sales, gross profit was 51% down from 53%
for the second quarter of 1994. This decrease was due to increased sales of
lower margin vaccine products and manufacturing capacity variances in the
Cosmetic and Consumer Product segment.
Selling, general and administrative expenses increased $204,000 or 8%
due principally to variable marketing and distribution costs related to the
higher sales volume. As a percentage of sales, the expenses were 35%, down
from 36% in the second quarter of 1994. Research and development expenses
increased by $106,000 or 42% due to stepped up development in applications
of the Novasome and Ultrasponge technologies in the Cosmetic and Consumer
Products segment, principally for flavors, paints and cosmetic applications.
During the second quarter of 1995, the Company entered into licensing and
research agreements for the Company's technologies and recognized $201,000
under these agreements as research revenues.
Interest expense increased by $45,000 or 18% due principally
to increased borrowings at higher rates. Interest income increased $53,000
from higher returns on the Company's invested cash. The provision for income
taxes is lower than the statutory rate due principally to the utilization of
research and development tax credits.
During the second quarter of 1995, the Company incurred expenses of
$1,055,000 for its Biotechnology segment, of which $763,000 was in excess of
the $1,000,000 estimate for these expenses that was established at
December 31, 1994. Due to delays in the Spinoff of the biotechnology business
segment the Company has established an additional reserve of $1,000,000 for
losses of this operation through September 30, 1995.
Six months ended June 30, 1995 compared to 1994
- -----------------------------------------------
Sales increased by $920,000 or 6% due principally to a $340,000 or 55%
increase in product sales in the Company's Cosmetic and Consumer Product
segment and a $254,000 or 4% increase in international sales of the Company's
Animal Health Products. International sales accounted for $6,127,000 or 40%
of the Company's total sales. All of the divisions in the Company's
continuing operations had sales increases when compared to the first six
months of 1994. Gross profit increased $519,000 or 7% due principally to the
higher sales volume. As a percentage of sales, gross profit was 52%, the
same as 1994.
<PAGE>
IGI, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Selling, general and administrative expenses increased
$288,000 or 5%, due principally to variable distribution costs related to the
higher sales volume. As a percentage of sales, these expenses were 36%, down
from 37% for the first six months of 1994. Research and development expenses
increased $206,000 or 42% due to stepped up development in applications of
the Novasome and Ultrasponge technologies in the Cosmetic and Consumer
Product segment, principally for flavors, paints and cosmetic applications.
During the first six months of 1995, the Company entered into licensing and
research agreements for the Company's technologies and recognized $601,000
under these agreements as research revenues.
Interest expense increased by $135,000 or 31% due principally to
increased borrowings at higher rates. Interest income increased $92,000 from
higher returns on the Company's invested cash. The provision from income
taxes was lower than the statutory rate due principally to utilization of
research and development tax credits.
Liquidity and Capital Resources
- -------------------------------
On March 17, 1994, IGI's Board of Directors voted to dispose of the
biotechnology business segment through the combination of its majority-owned
subsidiaries Molecular Packaging Systems, Inc. ("MPS") and Novavax, Inc. and
the subsequent tax-free spinoff to the IGI's shareholders. On March 20,
1995, the Company received a favorable ruling from the IRS that the Spinoff
will be tax-free to IGI and its shareholders and the Company intends to
dispose of this segment during the third quarter of 1995. For the six months
ended June 30, 1995, the Company has incurred $1,763,000 in losses related to
its biotechnoloy business segment of which $1,000,000 were reserved for at
December 31, 1994 related to this segment. The Company intends to complete
the Spinoff by September 30, 1995 and has reserved an additional $1,000,000
to cover expenses for this segment through the effective date. Since the
operations of MPS and Novavax comprise all of IGI's biotechnology business
segment, the Consolidated Financial Statements of IGI for the three and
six-month periods ended June 30, 1995 and 1994 report the results of the
biotechnology business segment as discontinued operations.
The Company is negotiating with its commercial bank to increase its
existing loan agreement by $4 million. As contemplated by the terms of the
proposed Spinoff, the Company plans to pay Novavax up to $6 million for
a fully paid license to use the Novasome Technology in its business. The
Company intends to fund this requirement through borrowings under its
modified credit facilities. Subsequent to the Spinoff, Novavax will have
significant funding requirements to meet the costs associated with the
development of human pharmaceutical and vaccine products. After the Spinoff,
Novavax is expected to have adequate funding to meet its short-term cash
requirements. It is expected that Novavax will be required
to seek additional funding to finance its future operations. There are no
assurances, however, that these funds will be obtained or, if obtained, will
be sufficient to meet its research efforts which will include eventual human
clinical trials. IGI will have no further funding obligations to Novavax
after the Spinoff.
<PAGE>
IGI, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company used $1,091,000 for operating activities due principally to
increases in inventories, relating primarily to new products being introduced
during the third quarter, and accounts receivable related to the increase in
international sales. The Company used $2,527,000 in investing activities for
capital expenditures to build and equip its new 25,000 square foot research,
marketing and production facility in Buena, New Jersey as well as for the
funding of expenses incurred by its biotechnology business segment,
which is reported as a discontinued operation. Funding for the Company's
operating and investing activities were provided by borrowings under the
Company's working capital line of credit.
At August 5, 1995 the Company had short term investments of $869,000 as
well as $800,000 available under its revolving credit agreement and $1,240,000
under the working capital line of credit. Subsequent to the Spinoff of the
biotechnology business operations, funds generated from the continuing
operations and existing bank credit facilities are expected to be sufficient
to meet the Company's cash requirements for its operations. In January 1995,
SmithKline Beecham purchased 226,655 shares of Common Stock of the Company
for the sum of $2,500,000. Proceeds from this transaction were used to repay
bank debt. The Company will require additional funds to expand its
business. The Company is negotiating an increase in its existing bank credit
facility contingent on the Spinoff being completed. No assurance can be
given that the Company will be successful in obtaining the required funds,
and, if not, the Company may be required to cut back on its expansion plans
or otherwise appropriately modify its business strategy.
<PAGE>
IGI, INC. AND SUBSIDIARIES
Part II OTHER INFORMATION
Item 1 - Legal Proceedings
There are no material legal proceedings pending to which the
Company is a party.
Item 2 - Changes in Securities
The constituent instruments defining the rights of the
holders of any class of securities were not
modified nor were the rights evidenced by any class of registered
securities materially limited or
qualified during the period covered by this report.
Item 3 - Defaults Upon Senior Securities
No defaults occurred during the period covered in this
report.
Item 4 - Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on May
9, 1995, the following proposals were adopted by the vote specified below:
<TABLE>
Proposal For Withheld
<CAPTION>
<S> <C> <C>
1. Election of Directors:
Dick Cheney 6,935,160 94,020
John P. Gallo 6,926,335 102,845
Edward B. Hager, M.D. 6,928,150 101,030
Jane E. Hager 6,890,310 138,870
Constantine L. Hampers, M.D. 6,937,170 92,010
Henry A. Malkasian 6,926,610 102,570
John O. Marsh, Jr. 6,933,920 95,260
Terrence O'Donnell 6,925,320 103,860
David G. Pinosky, M.D. 6,930,210 98,970
</TABLE>
2. Ratification of Coopers & Lybrand as independent auditors for
the 1995 fiscal year.
<TABLE>
Number of Shares:
<CAPTION>
<S> <C>
For 6,959,940
Against 35,820
Abstain 33,420
</TABLE>
<PAGE>
IGI, INC. AND SUBSIDIARIES
Part II OTHER INFORMATION (continued)
3. To approve an amendment to the Company's 1991 Stock Option Plan (i)
increasing the number of shares of Common Stock authorized for issuance from
1,200,000 to 1,900,000, (ii) limiting to 100,000 the number of shares for
which options may be granted in any calendar year to any one person and (iii)
providing that options may be granted to consultants and advisors to the
Company.
<TABLE>
Number of Shares
<CAPTION>
<S> <C>
For 3,373,054
Against 716,051
Abstain 65,447
</TABLE>
4. To consider and vote upon a stockholder-proposed resolution relating to
the location of the Company's annual meetings.
<TABLE>
Number of Shares
<CAPTION>
<S> <C>
For 754,087
Against 3,321,614
Abstain 164,251
</TABLE>
<PAGE>
IGI, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IGI, INC.
(Registrant)
Date: August 14, 1995
By:
Donald J. MacPhee
Vice President
(Principal Financial
and Accounting Officer)
<TABLE>
EXHIBIT 11
IGI, INC. AND SUBSIDIARIES
COMPUTATION OF NET (LOSS) INCOME PER COMMON SHARE
(Unaudited)
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------- ----------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income from
continuing operations $ 653,695 $ 691,817 $ 1,297,804 $1,015,852
Loss from discontinued
operations (1,763,004) - (1,763,004) -
Net (loss) income ----------- ---------- ----------- ----------
for primary earnings
per share $(1,109,309) $ 691,817 $ (465,200) $1,015,852
=========== ========== =========== ==========
Primary:
Weighted average
shares outstanding 9,161,546 8,797,452 9,136,327 8,794,659
Common stock equivalents
(net of common stock
deemed reacquired)
based on average
market price 684,949 318,325 675,584 319,768
Total equivalent ---------- ---------- ---------- ----------
shares for primary
computation 9,846,495 9,115,777 9,811,911 9,114,427
========== ========== ========== ==========
Per Share Amounts:
Primary:
Income from <C> <C> <C> <C>
continuing operations $ .07 $ .08 $ .13 $ .11
Loss from ===== ===== ===== =====
discontinued operations $(.18) $ - $(.18) $ -
===== ===== ===== =====
Net (loss) income $(.11) $ .08 $(.05) $ .11
===== ===== ===== =====
</TABLE>
Fully diluted earnings per share have been omitted as they approximate
primary earnings per share.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 872,899
<SECURITIES> 0
<RECEIVABLES> 8,431,027
<ALLOWANCES> 181,000
<INVENTORY> 8,661,267
<CURRENT-ASSETS> 18,960,140
<PP&E> 9,601,268
<DEPRECIATION> 7,818,561
<TOTAL-ASSETS> 33,315,170
<CURRENT-LIABILITIES> 7,093,677
<BONDS> 0
<COMMON> 93,491
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 33,315,170
<SALES> 15,338,252
<TOTAL-REVENUES> 15,338,252
<CGS> 7,326,819
<TOTAL-COSTS> 5,687,148
<OTHER-EXPENSES> (103,178)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 573,659
<INCOME-PRETAX> 1,853,804
<INCOME-TAX> 556,000
<INCOME-CONTINUING> 1,297,804
<DISCONTINUED> (1,763,004)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (465,200)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
