<TABLE>
IGI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(thousands, except per share information)
Three months ended March 31,
1996 1995
---- ----
<CAPTION>
<S> <C> <C>
Net sales $ 8,626 $ 7,117
Cost of sales 3,845 3,297
------- -------
Gross profit 4,781 3,820
Selling, general and
administrative expenses 3,372 2,710
Research and development expenses 538 344
Research revenues - (400)
------- -------
Operating profit 872 1,166
Interest expense, net 478 239
------- -------
Income before provision for
income taxes 394 927
Provision for income taxes 118 283
------- -------
Net income $ 276 $ 644
Net income per common and
common equivalent share $ .03 $ .07
Average number of common and
common equivalent shares 9,629 9,777
The accompanying notes are an integral part
of the consolidated financial statements. IGI, INC. AND SUBSIDIARIES
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands)
March 31, December 31,
ASSETS 1996 1995
---- ----
<CAPTION>
<S> <C> <C>
Current assets:
Cash and equivalents $ 149 $ 169
Accounts receivable, less allowance
for doubtful accounts of $306 8,639 8,456
Inventories 8,866 9,000
Current deferred taxes 55 55
Prepaid expenses and other
current assets 1,291 762
------- -------
Total current assets 19,000 18,443
Notes receivable, less current
maturities 276 285
Property, plant and equipment - at cost:
Land 625 625
Buildings 9,250 9,054
Machinery and equipment 8,768 8,656
------- -------
18,643 18,335
Less accumulated depreciation (8,462) (8,225)
------- -------
10,181 10,110
Deferred income taxes 2,791 2,791
Other assets 946 702
------- -------
$33,194 $32,331
======= =======
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)
(Amounts in thousands)
March, 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
<CAPTION>
<S> <C> <C>
Current liabilities:
Note payable to bank $ 8,825 $ 8,048
Current maturities of long-term debt 3,217 2,415
Accounts payable 2,468 2,447
Accrued payroll 295 461
Other accrued expenses 588 772
Income taxes payable 131 17
------- -------
Total current liabilities 15,524 14,159
Long-term debt, less current
maturities 8,818 9,624
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value,
30,000 shares authorized;
9,444 and 9,441 shares issued
in 1996 and 1995 respectively 94 94
Additional paid-in capital 18,131 18,130
Deficit (6,603) (6,879)
------- -------
11,621 11,346
Less treasury stock; 174 and 176
shares at cost, in 1996 and 1995,
respectively (2,581) (2,609)
Stockholders' notes receivable (189) (189)
------- -------
Total stockholders' equity 8,852 8,548
------- -------
$33,194 $32,331
======= =======
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)
(Amounts in thousands)
Three months ended March 31,
1996 1995
---- ----
<CAPTION>
<S> <C> <C>
Cash flows from operating
activities:
Net income $ 276 $ 644
Reconciliation of net income to
net cash used by operating
activities:
Depreciation and amortization 259 220
Provision for loss on accounts
receivable and inventories 30 30
Issuance of stock to 401(k) plan 28 6
Change in deferred income taxes - 283
Changes in operating assets and
liabilities:
Accounts receivable (183) (345)
Inventories 104 (337)
Prepaid and other assets (529) (580)
Accounts payable and accrued
expenses (328) (567)
Income taxes payable/refundable 114 (2)
------- ------
Net cash used by operating
activities (229) (649)
------- ------
Cash flows from investing
activities:
Capital expenditures, net (308) (825)
Increase (decrease) from notes
receivable from officer 9 (54)
(Increase) decrease in other
assets (266) 42
Increase in net assets of
biotechnology segment - (865)
------- ------
Net cash used by investing
activities (565) (1,702)
------- ------
Cash flows from financing
activities:
Net borrowings (repayments)
under line
of credit agreements 777 (380)
Payments of long-term debt (4) (18)
Proceeds from exercise of
common stock options - 125
Proceeds from common stock
subscribed - 2,500
------- ------
Net cash provided from financing
activities 773 2,227
------- ------
Net decrease in cash and
equivalents (21) (124)
Cash and equivalents at beginning
of year 169 954
------- ------
Cash and equivalents at March 31,
1996 and 1995 $ 148 $ 830
======= ======
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. These financial statements
should 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, 1995.
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 month periods ended
March 31, 1996 and 1995. 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: (Amounts in
thousands)
<TABLE>
March 31, 1996 December 31, 1995
-------------- -----------------
<CAPTION>
<S> <C> <C>
Finished Goods $3,458 $3,104
Work-in-process 2,593 2,851
Raw Materials 2,815 3,046
------ ------
Total $8,866 $9,000
====== ======
Inventory values computed under the first-in, first-out (FIFO) method
approximate the values determined using LIFO.
</TABLE>
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
4. Business Segments
Summary operating results for the Company's Animal Health and
Cosmetic and Consumer Products
segments for the three month periods ended March 31, 1996 and
1995 appear below: (Amounts in
thousands)
<TABLE>
Animal Cosmetic and
1996 Health Consumer Products Corporate Consolidated
- ---- ------ ----------------- --------- ------------
<CAPTION>
<S> <C> <C> <C> <C>
Net sales $ 8,010 $ 616 - $ 8,626
Gross profit 4,267 514 - 4,781
Operating
profit
(loss) 1,981 (300) (809) 872
1995
- ----
Net sales $ 6,705 $ 412 - $ 7,117
Gross profit 3,454 366 - 3,820
Operating
profit
(loss) 1,423 448 (705) 1,166
</TABLE>
<PAGE>
IGI, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Three months ended March 31, 1996 compared to March 31, 1995
- ------------------------------------------------------------
The Company's Animal Health segment had operating profits of
$1,975,000, an increase of $557,000 or 39% over the first quarter of 1995.
This increase was offset by operating losses of the Company's Cosmetic and
Consumer Products segment of $300,000 (which had operating profits of
$448,000 during the first quarter of 1995) and corporate expenses of
$809,000, an increase of $103,000 or 15% over 1995. The operating loss of
the Cosmetic and Consumer Products segment was due to costs associated with
the market introduction of the Nova Skin Care product line. Consolidated
operating profit decreased $294,000 or 25% during the first quarter of
1996. (See Note 4 of Notes to the Consolidated Financial Statements).
Sales increased $1,509,000 or 21%. All of the Company's animal health
sales divisions had increases over the first quarter of 1995. Sales of
animal health products, which include poultry vaccines and companion pet
products, increased by $1,319,000 or 20%. International sales of these
products increased by $785,000 or 27% and accounted for $3,685,000 or 46% of
animal health products sales and 43% of the Company's total sales, up from 43%
and 41%, respectively, for the same period last year. Sales of cosmetic and
consumer products were $616,000, an increase of $200,000 or 49% compared to
1995. Sales in this segment consisted principally of products manufactured for
Estee Lauder. The Company recorded product sales by its Nova Skin Care
division during the first quarter of 1996.
Gross profit increased $962,000 or 25% due principally to the higher
sales volume. As a percentage of sales, gross profit was 55% up from 54%
for the first quarter of 1995. This improvement was due to increased sales
of higher margin cosmetic products.
Selling, general and administrative expenses increased $662,000 or 24%.
Selling and marketing expenses related to the Nova Skin Care product line
accounted for $387,000 of the increase. Variable costs associated with the
higher sales volume of animal health products are the principal component of
the remaining expense increases.
Research and development costs increased $193,000 or 56%. This increase
was the result of stepped-up product development activities in both the
animal health and cosmetic and consumer products segments. The Company had
no research revenues during the first quarter of 1996 compared to $400,000
for the same period of 1995. The Company continued to pursue research
revenues from industry partners, however, the timing of such revenues is
usually dependent upon the completion of feasibility studies by potential
partners.
Net interest expense increased by $239,000 or 100% due to higher
borrowings which were required during 1995 to fund the operations of the
Company's former biotechnology business segment (Novavax) and to fund the
$5,000,000 license payment which was made in connection with the spinoff of
Novavax in December 1995. The provision for income tax is lower than the
statutory rate, due principally to the utilization of research and
development tax credits.
<PAGE>
IGI, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
The Company used $229,000 for operating activities. Accounts receivable
turnover ratio was 3.99 compared to 3.89 for the year ended December 31,
1995. Accounts receivable balances due from Mexico and Latin America were
33% of the total receivable balance compared to 30% at December 31, 1995 and
the Company believes the net amounts are fully collectible. Mexico and
certain Latin American countries are important markets for the Company's
poultry vaccines and other products. These countries have historically
experienced varying degrees of political unrest and economic and currency
instability. Because of the volume of business transacted by the Company in
those countries, continuation or the recurrence of such unrest or instability
could adversely affect the businesses of its customers in those countries or
the Company's ability to collect its receivables from such customers, which
in either case could have a material adverse effect on the Company's future
operating results. The inventory turnover ratio for 1996 was 1.73, compared
to 1.81 for the year ended December 31, 1995. The Company believes its
reserves for inventory obsolescence and accounts receivable are adequate.
The Company used $565,000 in investing activities principally for capital
expenditures. Funding for the Company's operating and investing activities
were provided by borrowings under the Company's working capital line of
credit.
At May 7, 1996 the Company had $1,155,000 of available borrowing
capacity under its $10 million working capital line of credit and no
borrowings available under its $10 million revolving line of credit. Funds
generated from operations and existing bank credit facilities are expected
to be sufficient to meet the Company's short-term cash requirements. The
Company has current maturities of long-term debt of $800,000 per quarter
commencing June 30, 1996. The Company believes that cash generated from
operations as well as available borrowings under its credit facilities will
be sufficient to meet its short-term obligations. However, over the long
term the Company will require additional funds to finance its operations.
The Company currently expects that it would seek to obtain such funds from
additional borrowing arrangements and/or a sale of debt or equity
securities. There can be no assurance that funds required by the Company in
the future will be available to the Company on terms satisfactory to the
Company, if at all. The inability to obtain needed funding on satisfactory
terms may require the Company to reduce certain of its planned expenditures,
scale back its operations or enter into financing arrangements on terms which
it would not otherwise accept and would have a material adverse effect on
the Company's business and financial results.
<PAGE>
IGI, INC. AND SUBSIDIARIES
Part II OTHER INFORMATION
Item 1 - Legal Proceedings
- --------------------------
On February 6, 1996, Johnson & Johnson and its wholly-owned
subsidiary Ortho-McNeil, Inc. (collectively, "J&J") filed a lawsuit against
the Company and its subsidiary, Igen, Inc. and its former subsidiary
Micro-Pak, Inc. in the United States District Court for the District of New
Jersey alleging trademark infringement and trademark dilution. J&J alleges
that the Company's use of the names NOVA SKIN, NOVA SKIN CARE, and
NOVA-AESTHETICS infringes on rights associated with J&J's trademark RENOVA
for a prescription drug. J&J has also moved for a preliminary injunction
seeking to prohibit the Company's use of the NOVA SKIN, NOVA SKIN CARE, and
NOVA-AESTHETICS names on the Company's newly-launched line of skin care
products sold through dermatologists. On March 19, 1996, following a period
of expedited discovery, the Court held an evidentiary hearing on the motion
for preliminary injunction. The Court has not yet issued a ruling on this
motion.
Since 1988, the Company has used the trademark NOVASOME in connection with
the lipid vesicle encapsulation technology it developed, including in
connection with skin care products. In addition, numerous other companies
use the term NOVA in a wide variety of product and corporate name
formulations. The Company is vigorously defending this lawsuit and believes
that the outcome of the proceedings will not have a material adverse effect on
the Company's financial position or results of operations.
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
- ------------------------------------------------------------
None
Item 5 - Other information
- --------------------------
None
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
--------
Exhibit 11 - Computation of Net Income Per Common Share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
-------------------
None
<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: May 13, 1996
By:
-------------------
Donald J. MacPhee
Vice President
(Principal
Financial
and Accounting
Officer)
<TABLE>
EXHIBIT 11
IGI, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(Unaudited)
(thousands, except per share information)
<CAPTION>
Three months ended
March 31,
1996 1995
------ ------
<S> <C> <C>
Net income for primary
earnings per share $ 276 $ 644
Weighted average shares outstanding 9,266 9,111
Common stock equivalents
(net of common stock deemed
reacquired) based on
average market price 363 666
Total equivalent shares for
primary computation 9,629 9,777
Per Share Amounts:
Primary:
Net income $ .03 $ .07
Fully diluted earnings per share have been omitted as they
approximate primary earnings per share.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 149
<SECURITIES> 0
<RECEIVABLES> 8,639
<ALLOWANCES> 306
<INVENTORY> 8,866
<CURRENT-ASSETS> 19,000
<PP&E> 18,643
<DEPRECIATION> 8,462
<TOTAL-ASSETS> 33,194
<CURRENT-LIABILITIES> 15,524
<BONDS> 0
<COMMON> 94
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 33,194
<SALES> 8,626
<TOTAL-REVENUES> 8,626
<CGS> 3,845
<TOTAL-COSTS> 3,910
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 478
<INCOME-PRETAX> 394
<INCOME-TAX> 118
<INCOME-CONTINUING> 276
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 276
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
