SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Fiscal Year Ended Commission File No.
December 31, 1996 1-8568
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IGI, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 01-0355758
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Wheat Road and Lincoln Avenue, Buena, NJ 08310
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(Address of principal executive offices) (Zip code)
(609) 697-1441
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Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Common Stock ($.01 par value)
Registered on the American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
<PAGE>
The aggregate market value of the Registrant's Common Stock, par value $.01 per
share, held by non-affiliates of the Registrant at March 14, 1997, as computed
by reference to the closing price of such stock, was approximately $36,000,000.
The number of shares of the Registrant's Common Stock, par value $.01 per share,
outstanding at March 14, 1997 was 9,433,599 shares.
Documents Incorporated by Reference:
Portions of the Proxy Statement to be sent to stockholders in
connection with the annual meeting to be held on May 13, 1997, are
incorporated by reference into Items 10, 11, 12, and 13 (Part III) of
this Report.
<PAGE>
Part I
Item 1. Business
IGI, Inc. ("IGI" or the "Company") was incorporated in Delaware in
1977. Its executive offices are at Wheat Road and Lincoln Avenue, Buena, New
Jersey. The Company is a diversified company engaged in two business segments:
o Animal Health Business - production and marketing of animal health
products such as poultry vaccines, veterinary pharmaceuticals and other
products, including nutritional supplements and grooming aids; and
o Consumer Products Business - production and marketing of cosmetic and
consumer products such as skin care products and shampoos.
Strategy
The Company's business strategy for its operations is as follows:
o Continue growth of the Animal Health Products Business, especially in
the international markets, through new product development and
intensified product registration (for licenses in foreign countries)
and marketing efforts.
o Continue growth of the Consumer Products Business through expanded
efforts to develop and market additional cosmetic and dermatologic
products utilizing the licensed Novasome(R) technology internally
through the Company's skin care division and externally through
industry partners and customers.
o Continue development of consumer product applications of the
technologies licensed from the Company's former subsidiary, Novavax,
Inc. (the "Novavax Technologies"), including flavors, beverage and food
additives, coatings, paints and chemicals.
o Explore opportunities for strategic transactions in its two business
segments.
Business Segments
The following table sets forth the revenue and operating profit (in
thousands) of each of the Company's two business segments for the periods
indicated:
1996 1995 1994
---- ---- ----
Revenue
Animal Health Products $ 31,444 $ 29,510 $ 27,471
Consumer Products 3,696 1,711 1,477
Operating Profit (Loss)*
Animal Health Products 7,108 6,459 6,057
Consumer Products (796) (159) 296
* Excludes corporate expenses of $4,097, $3,056 and $2,845 for 1996, 1995 and
1994, respectively. (See Note 15 of Notes to Consolidated Financial Statements.)
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License of Technology from Former Subsidiary
In December 1995, IGI distributed its ownership of its majority-owned
subsidiary, Novavax, Inc. ("Novavax"), in the form of a tax-free stock dividend,
to IGI stockholders. Novavax had conducted the Biotechnology Business segment of
IGI, which had been reported as a discontinued operation. In connection with the
distribution, the Company paid Novavax $5,000,000 in return for a fully paid-up,
ten-year license (the "IGI License Agreement") entitling it to the exclusive use
of the Novavax Technologies in the fields of (i) animal pharmaceuticals,
biologicals and other animal health products; (ii) foods, food applications,
nutrients and flavorings; (iii) cosmetics, consumer products and dermatological
over-the-counter and prescription products (excluding certain topically
delivered hormones); (iv) fragrances; and (v) chemicals, including herbicides,
insecticides, pesticides, paints and coatings, photographic chemicals and other
specialty chemicals; and the processes for making the same (collectively, the
"IGI Field"). IGI has the option, exercisable within the last year of the
ten-year term, to extend the exclusive license for an additional ten-year period
for $1,000,000. Novavax has retained the right to use its Novavax Technologies
for all applications outside the IGI Field, including human vaccines and
pharmaceuticals.
Novavax Technologies
Novasome Lipid Vesicles
While artificial lipid vesicle encapsulation technology has existed for
four decades, the Company believes that it was one of the first companies to
produce highly stable, versatile artificial lipid vesicles and structures of
various types from low-cost, readily available materials in commercial
quantities. The major advantages of Novasome lipid vesicles over other liposomes
are as follows:
Versatility, Stability, Scale-up and Low Cost
o Novasome lipid vesicles may be made from a number of inexpensive, readily
available chemicals, called amphiphiles, including fatty alcohols and
acids, ethoxylated fatty alcohols and acids, glycol esters of fatty acids,
glycerol fatty acid mono and diesters, ethoxylated glycerol fatty acid
esters, glyceryl ethers, fatty acid diethanolamides and dimethylamides,
fatty acylsarcosinates, "alkyds" as well as phospholipids.
o Novasome lipid vesicles have a large, stable central core that allows them
to entrap and deliver a wide variety of substances that may be too large or
disruptive for phospholipid vesicles, including lipids, solvents,
particulates and perfluorocarbons as well as aqueous materials.
o Novasome lipid vesicles can be varied according to the intended cargo and
can be engineered to release cargo in response to a variety of factors.
o Novasome lipid vesicles can be made to provide acceptable stability under a
variety of conditions, such as wide variations of alkalinity, acidity,
temperature, shear, detergents, solvents, enzymes and others.
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o Novasome lipid vesicles can be made in large quantities in a continuous
flow process that does not use organic solvents. The patented Novamix(TM)
production machinery permits the blending of reagents under controlled
conditions, and enables the composition of the Novasomes to be adjusted to
customize their structure and release properties.
Micellar Nanoparticles
Micellar nanoparticles ("MNP") are submicron-sized lipid structures.
MNP have different structural characteristics (e.g., do not have lipid bilayers)
and are generally smaller than Novasome lipid vesicles. MNP, like Novasome
vesicles, are made from the family of materials derived from amphiphilic
surfactants and can be tailored for particular uses. They exhibit encapsulating
and many other properties similar to Novasome vesicles, but differ in other
properties. MNP are very stable and can be prepared in commercial quantities at
a reasonable cost. The Company believes MNP may have commercial applications in
its Consumer Products segment.
Novavax holds 36 U.S. patents and a number of foreign patents covering
its Novavax Technologies (including a wide variety of component materials, its
continuous flow vesicle production process and its Novamix production
equipment).
Animal Health Products Business
IGI manufactures and markets a broad range of animal health products
used in pet care and poultry production. The Company sells these products in the
United States and over 50 other countries principally under two trade names:
Vineland Laboratories and EVSCO Pharmaceuticals. The Company also sells
veterinary products to the over-the-counter ("OTC") pet products market under
the Tomlyn label.
Poultry Vaccines
The Company produces and markets poultry vaccines manufactured by the
chick embryo, tissue culture and bacteriological methods. The Company produces
vaccines for the prevention of various chicken and turkey diseases and has 80
vaccine licenses granted by the United States Department of Agriculture ("USDA")
(See "Government Regulation"). The Company also produces and sells, under its
Vineland Laboratories label, nutritional, anti-infective and sanitation products
used primarily by poultry producers.
The Company manufactures poultry vaccines at its USDA approved facility
in Vineland, New Jersey and sells them, primarily through its own sales force of
11 persons, directly to large poultry producers and distributors in the United
States and, through its export sales staff, to local distributors in other
countries. The sales force is supplemented and supported by technical and
customer service personnel. The Company's vaccine production in the United
States is regulated by the USDA. Sales of poultry vaccines and related products
accounted for approximately 57% of the Company's sales in 1996, 60% in 1995 and
59% in 1994.
The Company has two poultry vaccines licensed by the USDA which use the
Novavax
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Technologies and is continuing development efforts on new vaccine applications
of these technologies.
The Company's principal competitors in the poultry vaccine market are
Intervet America, Inc., Solvay Veterinary, Inc. and Rhone-Merieux Select
Laboratories, Inc. The Company believes that it is one of the largest domestic
poultry vaccine producers. The Company competes on the basis of product
performance, price, customer service and availability.
Veterinary Products
The EVSCO line of veterinary products is used by veterinarians in
caring for dogs and cats, and includes pharmaceuticals such as antibiotics,
anti-inflammatories and cardiac drugs, as well as nutritional supplements,
vitamins, insecticides and diagnostics. Product forms include gels, tablets,
creams, liquids, ointments, powders, emulsions and diagnostic kits. EVSCO also
produces professional grooming aids for dogs and cats.
EVSCO products are manufactured at the Company's facility in Buena, New
Jersey and sold through distributors to veterinarians. The facility operates in
accordance with Good Manufacturing Practices ("GMP") of the federal Food and
Drug Administration ("FDA") (See "Government Regulation".) Principal competitors
of the EVSCO product line include Solvay Veterinary, Inc., Vet-Kem, a division
of Sandoz Pharmaceuticals Corp., Schering Corp., and Mallinckrodt, Inc. The
Company competes on the basis of price, marketing, customer service and product
qualities.
The Tomlyn product line includes pet grooming, nutritional and
therapeutic products, such as shampoos, grooming aids, vitamin and mineral
supplements, insecticides and OTC medications. These products are manufactured
at the Company's facility in Buena, New Jersey, and sold directly to pet
superstores and through distributors to independent merchandising chains, shops
and kennels. Tomlyn's largest selling product line is the Nova Pearl(TM) line of
shampoos which is based upon the Novasome lipid vesicle encapsulation technology
and provides combined moisturizing, cleaning and conditioning.
Sales of the Company's veterinary products are handled by 27 sales
employees. Most of the Company's veterinary products are sold through
distributors. Sales of veterinary products accounted for approximately 32% of
the Company's sales in 1996, 35% in 1995 and 36% in 1994.
Consumer Products Business
IGI's Consumer Products segment is primarily focused on the continued
commercialization of the Novasome technology for skin care applications. These
efforts have been directed toward the internal development of high quality skin
care products that the Company markets directly and through collaborative
arrangements with major cosmetic and consumer products companies. IGI is
continuing to work with several cosmetics, personal care products, and OTC
pharmaceutical companies for various commercial applications of Novavax
Technologies. Because of their ability to encapsulate skin protective agents,
oils, moisturizers, shampoos, conditioners, skin cleansers and fragrances and to
provide both a controlled and a sustained release of the encapsulated materials,
Novasome
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lipid vesicles are well-suited to cosmetics and consumer product applications.
For example, Novasome lipid vesicles may be used to deliver moisturizers and
other active ingredients to the deeper layers of the skin or hair follicles for
a prolonged period; to deliver or preserve ingredients which impart favorable
cosmetic characteristics described in the cosmetics industry as "feel,"
"substantivity," "texture" or "fragrance"; to deliver normally incompatible
ingredients in the same preparation, with one ingredient being shielded or
protected from the other by encapsulation within the Novasome vesicle; and to
deliver pharmaceutical agents to and/or through the skin.
The Company is presently producing Novasome vesicles for various skin
care products, including those marketed by the Prescriptives Division of Estee
Lauder under that company's "All You Need" brand name as well as products for
Lauder's "Resilience" brand. The Company also produces and sells Novasome
vesicles to Revlon for use in lines of skin moisturizers manufactured and
marketed by Revlon as its "Results" product line and by Revlon's Almay Division
in its "Time Off" product line.
Sales of the Company's Consumer Products were principally based on
formulations using the Novasome encapsulation technology. Such sales
approximated 11% of the Company's sales in 1996 and 5% in each of 1995 and 1994.
Nova Skin Care
In February 1996, under the Nova Skin Care label, IGI launched its own
line of Novasome-based alpha hydroxy acid skin care products. At the end of
December 1996, the Company entered into a license agreement with Glaxo Wellcome
("Glaxo"), which grants Glaxo the exclusive right to market this product line in
the United States to physicians, including but not limited to dermatologists.
Under the terms of the agreement, which was amended in January 1997, IGI will
manufacture and distribute these products to Glaxo customers. IGI retains the
rights to market this product line to non-physicians in the U.S., and in all
markets abroad. In connection with the settlement of a trademark infringement
lawsuit filed against the Company by Johnson & Johnson, IGI has agreed to
discontinue the use of the trademark Nova Skin Care.
Other Applications
The versatility of the Novavax Technologies combined with the Company's
commercial production capabilities allow the Company to target large, diverse
markets. Through product collaborations and license agreements, the Company is
seeking to develop additional products for this business segment. The Company is
evaluating affiliations with potential industry partners. The efforts for the
development of additional products require extensive testing, evaluation and
trials, and therefore no assurance can be given that commercialization of these
products with Novasome vesicles will be successful.
The Company has encapsulated retinoids in Novasome vesicles in
collaboration with Johnson & Johnson. Retinoids are derivatives of retinoic acid
and are effective in the treatment of acne and thought to be effective in the
treatment of various age-associated skin disorders. Encapsulation of retinoids
in Novasome vesicles is designed to prolong stability and reduce irritation and
provide a sustained release of certain active ingredients to treat
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these disorders. The Company expects revenues from this application during 1997.
International Sales and Operations
A staff of 12 persons based in Buena, New Jersey and 5 individuals
based overseas handle all sales of Company products outside the United States.
The Company's sales personnel and veterinarians travel abroad extensively to
develop business and support customers through local distributors. Exports
consist primarily of poultry vaccines, although the Company also exports some
veterinary pharmaceuticals and pet care products. Exports of vaccines require
product registration or licensing by foreign authorities. The Company has over
630 product registrations and licenses in over 50 countries outside the United
States and has over 1,000 registrations pending. The Company intends to increase
its marketing efforts of these products into new key markets, including Brazil
and China.
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 adversely impact the Company's future
operating results.
In 1996, sales to international customers of $13,680,000 represented
39% of the Company's sales, the same percentage as 1995 and 1994. (See Note 11
of Notes to Consolidated Financial Statements.)
Manufacturing
The Company's manufacturing operations include production and testing
of vaccines, lotions, pills and powders; packaging, bottling and labeling of the
finished products; and packing and shipment for distribution. Approximately 100
employees are engaged in manufacturing operations. The raw materials included in
these products are available from several suppliers.
The Company produces quantities of Novasome lipid vesicles adequate to
meet its current needs for cosmetics and consumer product and animal health
product applications. In 1995, the Company completed and began operating a new
facility for marketing staff and Novasome vesicle product development. This
facility also houses production facilities for consumer products. (See
"Properties".)
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Research and Development
The Company's poultry vaccine research and development efforts are
directed towards developing more efficient single and multiple-component
vaccines, developing vaccines to combat new diseases and incorporating the
Novasome lipid vesicle technology into existing vaccines. The Company is
concentrating its veterinary pharmaceutical research and development efforts on
the use of Novasome lipid vesicle technology for various veterinary
pharmaceutical and OTC pet care products. The Company's consumer products
research and development efforts are directed towards liposomal encapsulation to
improve performance and efficacy of cosmetics, consumer products, flavors and
dermatologic products. Under its license agreement with Novavax, the Company has
the right to continue to use the Novavax Technologies to develop new products in
the IGI Field.
In addition to its internal research and development efforts, which
involve 13 employees, the Company encourages the development of products in
areas related to its present lines by making specific grants to universities.
Research expenses for IGI's continuing operations were $2,013,000, $1,345,000
and $1,212,000 in 1996, 1995 and 1994, respectively.
Patents and Trademarks
All of the names of the Company's major products are registered in the
United States and all significant foreign markets in which the Company sells its
products. Under the terms of the IGI License Agreement, IGI has an exclusive
ten-year license to use the Novavax Technologies in the IGI Field. Novavax holds
36 U.S. patents and a number of foreign patents covering its Novavax
Technologies (including a wide variety of component materials, its continuous
flow vesicle production process and its Novamix production equipment).
IGI intends to engage in collaborations, sponsored research agreements,
and preclinical and/or field testing agreements in connection with its future
products as well as clinical testing agreements with academic and research
institutions and U.S. government agencies, such as the National Institutes of
Health and the Department of Agriculture, to take advantage of their technical
expertise and staff and to gain access to clinical evaluation models, patents
and related technology. Consistent with pharmaceutical industry and academic
standards, and the rules and regulations under the Federal Technology Transfer
Act of 1986, these agreements may provide that developments and results will be
freely published, that information or materials supplied by the Company will not
be treated as confidential and that the Company may be required to negotiate a
license to any such developments and results in order to commercialize products
incorporating them. There can be no assurance that the Company will be able to
obtain any such license at a reasonable cost or that such developments and
results will not be made available to competitors of the Company on an exclusive
or nonexclusive basis.
Government Regulation
The production and marketing of the Company's products and its research
and development activities are subject to regulation for safety, efficacy and
quality by numerous governmental authorities in the United States and other
countries. The Company's development, manufacturing and marketing of poultry
biologics are subject to regulation in
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the United States for safety and efficacy by the USDA in accordance with the
Virus Serum Toxin Act of 1914. The development, manufacturing and marketing of
pharmaceuticals are subject to regulation in the United States for safety and
efficacy by the FDA in accordance with the Food, Drug and Cosmetic Act.
In the United States, pharmaceuticals and vaccines are subject to
rigorous FDA regulation including preclinical and clinical testing. The process
of completing clinical trials and obtaining FDA approvals for a new drug is
likely to take a number of years, requires the expenditure of substantial
resources and is often subject to unanticipated delays. There can be no
assurance that any product will receive such approval on a timely basis, if at
all.
In addition to product approval, the Company may be required to obtain
a satisfactory inspection by the FDA covering the manufacturing facilities
before a product can be marketed in the United States. The FDA will review the
manufacturing procedures and inspect the facilities and equipment for compliance
with applicable rules and regulations. Any material change by the Company in the
manufacturing process, equipment or location would necessitate additional FDA
review and approval.
Whether or not FDA approval has been obtained, approval of a
pharmaceutical product by comparable governmental regulatory authorities in
foreign countries must be obtained prior to the commencement of clinical trials
and subsequent marketing of such product in such countries. The approval
procedure varies from country to country, and the time required may be longer or
shorter than that required for FDA approval. Although there are some procedures
for unified filing for certain European countries, in general each country has
its own procedures and requirements.
In addition to regulations enforced by the USDA and the FDA, the
Company also is subject to regulation under the Occupational Safety and Health
Act, the Environmental Protection Act, the Toxic Substances Control Act, the
Resource Conservation and Recovery Act and other present and potential future
federal, state or local regulations. The Company's research and development
involves the controlled use of hazardous materials, chemicals, viruses and
bacteria. Although the Company believes that its safety procedures for handling
and disposing of such materials comply with the standards prescribed by state
and federal regulations, the risk of accidental contamination or injury from
these materials cannot be completely eliminated. In the event of such an
accident, the Company could be held liable for any damages that result and any
such liability could exceed the resources of the Company.
Employees
At February 28, 1997, the Company had 209 full-time employees of whom
75 are in marketing, sales, distribution and customer support, 100 in
manufacturing, 13 in research and development, and 21 in executive, finance and
administration. Certain services were provided by IGI to Novavax through June
30, 1996 on a transitional basis while Novavax built its support systems and
staff. The Company has no collective bargaining agreement with its employees,
and believes that its employee relations are good.
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Item 2. Properties
The Company owns land and buildings housing offices, laboratories and
production facilities in four locations in New Jersey. The Company also owns a
warehouse and sales office space in Gainesville, Georgia. In addition, the
Company leases office space in Virginia and warehouses in New Jersey,
California, Mississippi, and Arkansas.
The Company's poultry vaccine production facilities are located in
Vineland, New Jersey, where the Company owns several buildings situated on
approximately 16 acres of land. These buildings, containing 90,000 square feet
of usable floor space, house offices and facilities used for the production of
poultry vaccines. They were constructed and expanded from time to time between
1935 and 1992. The Company intends to renovate certain of these facilities in
the future to expand its vaccine production capacity to meet expected growth in
existing poultry vaccines and to provide production of new vaccines.
In Buena, New Jersey, the Company owns a facility used for the
production of veterinary pharmaceuticals and consumer products. The facility was
built in 1971, expanded in 1975 and its production capacity was increased in
1992. The facility presently contains 41,200 square feet of usable floor space
and is situated on eight acres of land. The Company's executive and
administrative offices are also located in Buena, New Jersey in a 10,000 square
foot building situated on six acres of land. In 1995, the Company completed and
began operating a 25,000 square foot production, product development, marketing,
manufacturing and warehousing facility for cosmetic, dermatologic and personal
care products on this site.
Each of the properties owned by the Company is subject to a mortgage
held by Fleet Bank-NH and Mellon Bank. Except as discussed above, the Company
believes that its current production and office facilities are adequate for its
present and foreseeable future needs.
Item 3. 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 alleged that the Company's use of the
names NOVA SKIN, NOVA SKIN CARE, and NOVA-AESTHETICS infringed on rights
associated with J&J's trademark RENOVA for a prescription drug. In January 1997,
the Company and J&J reached an agreement settling this litigation.
On November 15, 1996, Embrex, Inc. ("Embrex") filed a lawsuit against
the Company in the United States District Court for the Eastern District of
North Carolina alleging patent infringement. Embrex alleges that IGI, through a
Distributor Agreement with Service Engineering Corp. ("Service Engineering"), is
infringing on U.S. Patent No. 4,458,630, entitled Disease Control in Avian
Species by Embryonal Vaccination, which Embrex has licensed from the USDA.
Embrex is seeking to enjoin IGI from selling Service Engineering's egg injection
systems and unspecified damages. Pursuant to the Distributor
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Agreement, Service Engineering is paying for the litigation and has agreed to
indemnify the Company for any losses. The lawsuit is in the discovery stage.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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Executive Officers of the Registrant
The Company's executive officers hold office until the first meeting of
the Board of Directors following the annual meeting of stockholders and until
their successors are duly chosen and qualified. For information concerning
officers who are also directors of the Company, please refer to Item 10 of this
Report. Information concerning other executive officers is as follows:
<TABLE>
<CAPTION>
Officer Principal Occupation and Other Business
Name Age Since Experience During Past Five Years
- ---- --- ------- ----------------------------------------
<S> <C> <C> <C>
Kevin J. Bratton 48 1983 Vice President and Treasurer of IGI, Inc.
since 1983.
Stephen G. Hoch 58 1991 Vice President of IGI, Inc. since 1991.
Surendra Kumar 61 1985 Vice President of IGI, Inc. since 1985.
D.V.M., Ph.D.
Donald J. MacPhee 45 1987 Vice President of IGI, Inc. since 1990 and
Chief Financial Officer of IGI, Inc. since
1987.
Lawrence N. Zitto 54 1985 Vice President of IGI, Inc. since 1985.
</TABLE>
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Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
There were 1,005 stockholders of record as of March 14, 1997. The
Company has never paid cash dividends on its Common Stock. The payment of
dividends is restricted by the Company's Loan Agreement with Fleet Bank-NH and
Mellon Bank, N.A. to a maximum 25% of earnings in any year and to retained
earnings in excess of $1,000,000. See Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity and Capital
Resources.
The principal market for the Company's Common Stock ($.01 par value)
(the "Common Stock") is the American Stock Exchange (symbol: "IG"). The
following table shows the range of high and low trading prices on the American
Stock Exchange for the periods indicated.
High Low
---- ---
1995
- ----
First quarter $17 1/2 $11 5/8
Second quarter 16 1/8 13
Third quarter 15 7/8 11 1/2
Fourth quarter 12 3/4 6 3/8*
1996
- ----
First quarter $ 8 1/4 $ 6 3/8
Second quarter 9 1/2 6 1/4
Third quarter 7 3/4 5
Fourth quarter 6 7/8 5 1/8
* On December 12, 1995, the Company distributed to its shareholders all
of the Common Stock of Novavax owned by the Company. Each IGI shareholder
received one share of Common Stock of Novavax for each share of Common Stock of
the Company held on November 28, 1995. The Common Stock of IGI began trading
"ex-dividend" on December 13, 1995.
Recent Sales of Unregistered Securities
On October 16, 1996, the Company issued a warrant to purchase 60,000
shares of Common Stock to The Research Works, Inc. as consideration for certain
consulting and research services. The warrant is exercisable at $7.00 per share
and expires on October 16, 2001.
No underwriters were involved in this transaction. The warrant issued
to The Research Works, Inc. was not registered under the Securities Act of 1933
in reliance upon an exemption set forth in Section 4(2) of the Securities Act of
1933 relating to sales by an issuer not involving any public offering.
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Item 6. Selected Financial Data
Five-Year Summary of Selected Financial Data
(in thousands, except per share information)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $ 35,140 $ 31,221 $ 28,948 $ 28,005 $ 24,435
Gross profit 18,993 15,789 15,013 14,839 13,143
Operating profit 2,215 3,245 3,508 3,386 2,492
Income from
continuing
operation 93 1,508 1,969 1,765 1,342
Loss from
discontinued
operations* -- (4,034) (1,700) (5,943) (1,276)
Net income (loss) 93 (2,526) 269 (4,178) 66
Income (loss) per
share:
From continuing
operations .01 .16 .22 .20 .15
From discontinued
operations .00 (.42) (.19) (.66) (.14)
Net income (loss) .01 (.26) .03 (.46) .01
Cash dividends on
common stock -- -- -- -- --
December 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Balance Sheet Data:
Working capital $ 3,667 $ 4,284 $ 10,671 $ 12,411 $ 11,507
Total assets 34,794 32,331 30,502 26,005 27,501
Long-term debt
(excluding current
maturities) 6,893 9,624 10,019 8,798 7,826
Stockholders' equity 9,968 8,548 13,711 12,321 15,267
Average number of
common and common
equivalent shares 10,021 9,725 9,155 9,049 8,999
</TABLE>
* In March 1994, IGI's Board of Directors voted to dispose of its Biotechnology
Business segment through the combination of certain majority-owned subsidiaries
and the subsequent tax-free Distribution of its ownership of the combined entity
to IGI's shareholders. The distribution of this segment occurred on December 12,
1995. The Consolidated Financial Statements of IGI present this segment as a
discontinued operation. (See Note 2 of Notes to Consolidated Financial
Statements.)
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The Company had net income in 1996 of $93,000, or $.01 per share,
compared to a net loss of $2,526,000, or $.26 per share, in 1995. Income from
continuing operations decreased by $1,415,000. Operating profit decreased
$1,030,000, or 32%, compared to 1995. The Animal Health Products segment
generated operating profits in 1996 of $7,108,000, an increase of $649,000, or
10%, over 1995 due to the increased sales volume. The Consumer Products segment,
despite a $1,985,000 increase in sales revenue, had an operating loss of
$796,000 compared to an operating loss in 1995 of $159,000 on $1,711,000 in
sales. The Company launched a line of Novasome-based alpha-hydroxy acid products
in February 1996 under the name of Nova Skin Care. Product sales of these
products were $402,000, which were offset by selling and marketing costs
associated with the market introduction of these products of $1,917,000 and
research and development costs of $500,000. At the end of December 1996, the
Company entered into a license and supply agreement with Glaxo Wellcome, Inc.
("Glaxo"). The agreement grants Glaxo the exclusive right to market the Nova
Skin Care product line in the United States to physicians including but not
limited to dermatologists. Under the terms of the agreement IGI will manufacture
and distribute these products to Glaxo customers. IGI retains the rights to
market this line to non-physicians in the U.S., and in all markets abroad. The
agreement provides for Glaxo to: 1) pay royalties to IGI based on Glaxo's sales
to physicians, 2) pay a $1,000,000 advance royalty to IGI which will be credited
against royalties earned after 1997, and 3) pay for all selling and marketing
costs associated with sales of these products to physicians.
The operating results of these segments do not reflect unallocated
corporate expenses of $4,097,000, $3,056,000 and $2,845,000 for the years ended
December 31, 1996, 1995 and 1994, respectively, which were charged to the
segments in determining the Company's operating profit. (See Note 15 of Notes to
Consolidated Financial Statements.)
1996 Compared to 1995
Sales increased $3,919,000, or 13%, to $35,140,000. The growth occurred
in both of the Company's business segments. Sales of Animal Health Products in
1996 increased 7% to $31,444,000, or 89% of total sales, compared with
$29,510,000, or 95% of 1995 sales. Poultry vaccines sales accounted for
$20,119,000 or 57% of the Company's total sales. International sales of Animal
Health Products increased $1,447,000 or 12%, principally to countries in the
Asia/Pacific marketplace, including China, Malaysia, Indonesia and Taiwan.
Domestic sales of poultry vaccines remained at 1995 levels. Companion pet
product sales increased $612,000, or 6%, to $11,325,000. Tomlyn sales, which are
directed to the over-the-counter pet marketplace, increased $526,000, or 21%, in
domestic sales, while international sales of these products increased $147,000,
or 95%, over 1995 levels. Sales of Consumer Products increased $1,985,000, or
116%, to $3,696,000 and accounted for 11% of Company sales, up from $1,711,000,
or 5% of 1995 total sales. This increase was due principally to continued
expansion of the number of products containing the Company's proprietary
Novasome technology sold to Estee Lauder, resulting in a $1,100,000 increase
over 1995. Sales of the Company's Nova Skin Care products, which were launched
in
16
<PAGE>
February 1996, accounted for $402,000 of sales. Marketing rights to these
products (Novasome-based alpha-hydroxy acids) in the United States to physicians
have been licensed to Glaxo.
The Company's gross profit increased $3,204,000 or 20%, with much of
the increase attributable to the sales growth. As a percentage of sales, gross
profit improved to 54% from 51% during 1995. The significant factor in the gross
profit margin improvement was the increased sales volume of higher margined
consumer products. These sales increased the utilization of the Company's skin
care manufacturing facility which started producing products in 1995.
Selling, general and administrative expenses increased $2,997,000 or
25%. As a percentage of sales, these expenses were 42%, up from 38% in 1995.
This increase relates, in part, to the variable selling and distribution costs
associated with the higher sales volume. Selling and marketing costs associated
with the Nova Skin Care product line were $1,917,000, an increase of $1,667,000
over 1995. In February 1997, the Company reduced its workforce by 14 employees,
most of whom were associated with the Nova Skin Care line.
Research and development expenses increased $668,000 or 50% over 1995,
due principally to increased new product development efforts in the both of the
Company's business segments. These efforts were directed to developing the Nova
Skin Care product line and other topical applications of the Novasome
technology. The Company continues to develop new vaccines for poultry. The
Company had $162,000 of research revenue in 1996, compared to $731,000 in 1995.
Net interest expense increased $861,000 or 77% due to higher borrowings
which were required to fund the 1995 operating losses of the Company's former
biotechnology business segment and the $5,000,000 license payment that was made
in connection with the spinoff of Novavax in December 1995. In connection with
the settlement of a lawsuit brought against the Company related to employment
contracts of certain IGI employees with their former employers, the Company
incurred charges of $175,000, for which the Company has issued shares of IGI
common stock. Although, the Company is seeking reimbursement for these charges
under its insurance policy,this amount is included in other expense.
The provision for income taxes on continuing operations was lower than
the statutory rate due principally to subsidiary company operating losses
reported on a separate return basis for state income tax purposes and research
and development tax credits offset non-deductible expenses. See also Notes 1, 2
and 7 of Notes to Consolidated Financial Statements.
1995 Compared to 1994
Sales increased 8% in 1995 to $31,221,000. The growth was principally
attributable to increases in poultry vaccine sales, both domestically and
internationally. Poultry vaccine sales were $18,797,000, or 60% of the Company's
sales. International and domestic poultry vaccine sales experienced growth rates
of 14% and 7%, respectively during 1995. The domestic increase was attributable
to the introduction of a new Rispen poultry vaccine during the second half of
1995. The Company expects the sales of this product to continue to
17
<PAGE>
increase during 1996. The international poultry sales increase relates directly
to the increased product registration activities, particularly in the
Asia/Pacific marketplace, which experienced a 24% sales increase. Companion pet
product sales increased $225,000, or 2%, to $10,713,000, although international
sales of these products declined, particularly in Europe. Tomlyn sales,
experienced a 28% increase, due principally to the placement of these products
in pet superstores. Increased sales to Estee Lauder contributed to a $234,000 or
16% growth in the Consumer Products division.
The Company's gross profit during 1995 increased $776,000 or 5%, with
much of the increase related to sales growth. As a percentage of sales, gross
profit dropped from 52% during 1994 to 51% in 1995. Significant factors in the
gross margin reduction were increased sales of certain lower-margin poultry
vaccines, fixed costs associated with the Company's new manufacturing facility,
which was operating below full capacity, and the discontinuance of certain
product lines.
Selling, general and administrative expenses in 1995 increased
$1,256,000, or 12%, due in part to variable costs associated with the higher
sales volume and additional reserves established for international accounts
receivables. Selling and marketing costs relating to the Company's new Nova Skin
Care division were $250,000. These costs include introductory advertising,
sampling and tradeshows as well as sales and marketing management. Research and
development expenses increased by $132,000, or 11%, due to stepped up
development in the Consumer Products segment, principally for the Nova Skin Care
dermatologic product line. The Company intends to continue to increase its
research and development efforts in all of its businesses, with particular
emphasis on developing new poultry vaccines and developing additional products
for the Nova Skin Care division. During 1995, the Company recognized $731,000 in
research revenues, an increase of $348,000, or 91%, over 1994.
Interest expense increased $233,000, or 23%, due to the higher
borrowings required to meet the operational demands of the biotechnology
business segment.
The provision for income taxes on continuing operations was lower than
the statutory rate due principally to subsidiary company operating losses
reported on a separate return basis for state income tax purposes, research and
development tax credits and a reduction in the valuation allowance offset by
non-deductible expenses. See also Notes 1, 2 and 7 of Notes to Consolidated
Financial Statements.
Liquidity and Capital Resources
Under the terms of the December 1995 distribution, the Company paid
Novavax $5 million for a fully paid-up license to use the Novavax Technologies
in its business. IGI funded the $5,000,000 payment to Novavax from borrowings
under its bank loan agreement which has been amended to reflect the
Distribution. The Amended Loan Agreement with Fleet Bank-NH and Mellon Bank
provides for:
o $12,000,000 revolving credit facility with interest contingent upon
certain financial ratios at the end of each quarter. Effective January
1, 1996, the interest rate shall not exceed prime plus 1 1/2%. The
amount available under the revolving credit facility decreases by
$857,000 on the last day of each quarter from September 30, 1996
18
<PAGE>
through December 31, 1999. At December 31, 1996, the Company had
outstanding borrowings of $10,285,000 under this facility and the
interest rate was 9.25%.
o $10,000,000 working capital line of credit renewable annually on July
1, with interest on the outstanding borrowings contingent upon certain
financial ratios at the end of each quarter. Effective January 1, 1996,
the interest rate shall not exceed prime plus 1%. At December 31, 1996,
the Company had $358,000 available under this facility and the interest
rate was 8.75%.
The loan Agreement restricts the payment of dividends to a maximum 25%
of earnings in any year and to retained earnings in excess of $1,000,000.
The Company was in default of certain financial covenants during the
year ended and at December 31, 1996. The banks have waived such defaults and
have amended certain of the financial covenants in the loan agreement effective
as of January 1, 1997. The Company believes the working capital line of credit
will be renewed on July 1, 1997.
The Company's operating activities provided $521,000 of cash during
1996. Cash was provided from net income and non-cash charges to operations for
depreciation, amortization and loss reserves. These amounts were offset, in
part, by increases in accounts receivables, inventories and other current
assets. The accounts receivable turnover ratio for 1996 was 4.09 compared to
3.89 for 1995. The accounts receivable balances due from Mexico and Latin
America were 27% of the total receivable balance as of December 31, 1996 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 adversely impact the
Company's future operating results. The growth in inventories relates
principally to new animal health products that the Company began selling during
the third quarter of 1996 as well as products for the Nova Skin Care division
which were launched in February 1996. The inventory turnover ratio for 1996 was
1.75, 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 $854,000 for investing activities, principally
capital expenditures for the Company's manufacturing operations. Funding for the
Company's operating and investing activities were provided by borrowings under
the Company's working capital line of credit and proceeds from the exercise of
common stock options.
At April 2, 1997, after paying the March 31, 1997 payment of $857,000
due under the revolving credit facility, the Company had $876,000 of available
borrowing capacity under the working capital line of credit and no borrowings
available under the revolving credit facility. 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 $857,000 per quarter. The Company believes that cash generated
from operating activities as well as available borrowings under its line of
credit facility will be sufficient to meet these obligations. However, over the
long-term, the
19
<PAGE>
Company will require additional funds to expand its business. 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.
Factors That May Affect Future Results
The industry segments in which the Company competes are constantly
changing and are subject to significant competitive pressures. The following
sets forth some of the risks which the Company faces.
Highly Leveraged
The Company has historically applied the operating profits from its
animal health products business to fund the development of its consumer products
business and its former biotechnology business, Novavax, Inc., which was
distributed to the Company's stockholders in December 1995. Therefore, the
Company is currently highly leveraged and will need additional capital to
finance the expansion of its animal health products and consumer products
businesses. No assurance can be given that such funds will be obtained when
required or, if obtainable, on terms that are favorable to the Company.
Due to the $5,000,000 payment to Novavax for the IGI License Agreement,
which was funded by bank borrowings, and operating losses associated with the
development and launch of the Nova Skin line, the Company was in violation of
certain covenants in its bank credit agreements during the year and at December
31, 1996. The banks have waived such defaults as of December 31, 1996 and have
amended certain of the financial covenants in the loan agreement effective as of
January 1, 1997. No assurance can be given that if the Company violates credit
agreement covenants in the future, the banks will issue waivers or modify the
agreements to remove any such defaults or violations.
The Company has a $10,000,000 line of credit which is renewable on an
annual basis. The Company believes the line of credit will be renewed by the
banks effective as of July 1, 1997.
Intense Competition in Consumer Products Business
The Company's Consumer Products Business competes with large,
well-financed cosmetics and consumer products companies with development and
marketing groups that are experienced in the industry and possess far greater
resources than those available to the Company. There is no assurance that the
Company's consumer products can compete successfully against its competitors or
that it can develop and market new products that will be favorably received in
the marketplace. In addition, certain of the Company's customers that use the
Company's Novasome lipid vesicles in their products may decide to reduce their
purchases from the Company or shift their business to other suppliers.
Price Competition in Poultry Vaccine Business
The Company has encountered increasingly severe competition from
international
20
<PAGE>
producers of poultry vaccines, particularly increased price competition coupled
with a downward trend in vaccine prices.
Foreign Regulatory and Economic Considerations
The Company's business may be adversely affected by foreign import
restrictions and additional regulatory requirements. Also, unstable or adverse
economic conditions and fiscal and monetary policies in certain Latin American
countries, an increasingly important market for the Company's animal health
products, could adversely affect the Company's future business in these
countries.
Rapidly Changing Marketplace for Animal Health Products
The emergence of pet superstores, the consolidation of distribution
channels into a smaller number of large, more powerful companies and the
diminishing traditional role of veterinarians in the animal health business may
adversely affect the Company's ability to expand its animal health business and
to operate this business at the gross margin levels historically enjoyed by the
Company.
Effect of Rapidly Changing Technologies
The Company expects to rely on the features of the Novavax Technologies
to market and expand its line of internally-developed dermatologic products.
However, if its competitors develop new and improved technologies that are
superior to the Company's technologies, the Company's products could be less
acceptable in the marketplace and therefore the Company's planned expansion of
its line of personal care and dermatologic products could be adversely affected.
Regulatory Considerations
The FDA may determine that the Company's alpha hydroxy acid-based
products are "drugs" and therefore should be subject to the expensive and
sometimes protracted FDA regulatory approval. Also, certain of the Company's
products may not be approved for sales overseas on a timely basis, thereby
limiting the Company's ability to expand its foreign sales.
Accounting Standards Changes
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share."
This Statement establishes standards for computing and presenting earnings per
share (EPS) and applies to entities with publicly held common stock or potential
common stock. This Statement is effective for financial statements issued for
periods ending after December 15, 1997, earlier application is not permitted.
This Statement requires restatement of all prior-period EPS data presented. The
Company is currently evaluating the impact, if any, adoption of SFAS No. 128
will have on its financial statements.
21
<PAGE>
Income Taxes
The Company has a net deferred tax asset in the amount of $3.2 million
as of December 31, 1996. The largest deferred tax assets relate to the
$5,000,000 license payment to Novavax which will be deducted over the ten-year
period as the related products are sold and the royalties incurred and to net
operating loss carryforwards. Management believes that the Company's deferred
tax asset will be realized through the reversal of existing temporary
differences and the utilization of net operating loss carryforwards and the
prepaid license against future taxable income. The minimum level of future
taxable income necessary to realize the Company's recorded deferred tax asset at
December 31, 1996, is approximately $7.6 million. There can be no assurance,
however, that the Company will be able to achieve the minimum levels of taxable
income necessary to realize its deferred tax assets. The net operating loss
carryforwards expire in 2010 and there are no limitations on their use.
Management believes that it will be able to utilize these carryforwards. The
Company's consolidated federal taxable income (loss) varies from its
consolidated financial statement income (loss). In 1994, taxable income was
higher due to the establishment of reserves for losses on discontinued
operations; in 1995 and 1996, taxable income was lower as the reserves were
utilized.
Item 8. Financial Statements and Supplementary Data
The financial statements and notes thereto listed in the accompanying
index to financial statements (Item 14) are filed as part of this Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
22
<PAGE>
Part III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is contained in part under the
caption "Executive Officers of the Registrant" in PART I hereof, and the
remainder is contained in the Company's Proxy Statement for the Company's Annual
Meeting of Stockholders to be held on May 13, 1997 (the "1997 Proxy Statement")
under the captions "PROPOSAL 1 -- ELECTION OF DIRECTORS" and "Beneficial
Ownership of Common Stock" and is incorporated herein by this reference. The
Company expects to file the 1997 Proxy Statement within 120 days after the close
of the fiscal year ended December 31, 1996.
Officers are elected on an annual basis and serve at the discretion of
the Board of Directors.
Item 11. Executive Compensation
The information required by this item is contained under the captions
"EXECUTIVE COMPENSATION" and "Director Compensation and Stock Options" in the
Company's 1997 Proxy Statement and is incorporated herein by this reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is contained in the Company's
1997 Proxy Statement under the caption "Beneficial Ownership of Common Stock"
and is incorporated herein by this reference.
Item 13. Certain Relationships and Related Transactions
The information required by this item is contained under the caption
"Certain Relationships and Related Transactions" appearing in the Company's 1997
Proxy Statement and is incorporated herein by this reference.
23
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Financial Statements:
Report of Independent Accountants
Consolidated Balance Sheets, December 31, 1996 and 1995
Consolidated Statements of Operations for the years ended December 31,
1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
Schedule II. Valuation and Qualifying Accounts and Reserves.
Schedules other than those listed above are omitted for the
reason that they are either not applicable or not required or
because the information required is contained in the financial
statements or notes thereto.
Condensed financial information of the Registrant is omitted
since there are no substantial amounts of "restricted net
assets" applicable to the Company's consolidated subsidiaries.
(3) Exhibits Required to be Filed by Item 601 of Regulation S-K.
The exhibits listed in the Exhibit Index immediately preceding
such exhibits are filed as part of this Annual Report on Form
10-K.
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 27, 1997 IGI, Inc.
By: /s/ Edward B. Hager
-------------------------
Edward B. Hager,
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacity and on the date indicated.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ Edward B. Hager Chairman of the Board March 27, 1997
- -------------------
Edward B. Hager
/s/ John P. Gallo President and Director March 27, 1997
- -------------------
John P. Gallo
/s/ Donald J. MacPhee Principal Financial and March 27, 1997
- --------------------- Accounting Officer
Donald J. MacPhee
- --------------------- Director
Terrence D. Daniels
/s/ Jane E. Hager Director March 27, 1997
- -----------------
Jane E. Hager
/s/ Constantine L. Hampers Director March 27, 1997
- --------------------------
Constantine L. Hampers
/s/ Terrence O'Donnell Director March 27, 1997
- ----------------------
Terrence O'Donnell
/s/ Paul D. Paganucci Director March 27, 1997
- ---------------------
Paul D. Paganucci
/s/ David G. Pinosky Director March 27, 1997
-------------------
David G. Pinosky
</TABLE>
25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of IGI, Inc.:
We have audited the consolidated financial statements and financial
statement schedule of IGI, Inc. and subsidiaries as listed in Item 14(a) of
this Form 10-K. These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and the disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of IGI, Inc. and
subsidiaries at December 31, 1996 and 1995 and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 27, 1997
F-1
<PAGE>
IGI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
(amounts in thousands)
ASSETS 1996 1995
-------- ---------
Current assets:
Cash and cash equivalents ........................ $ 317 $ 169
Accounts receivable, less allowance
for doubtful accounts of $238
and $306 in 1996 and 1995, respectively ......... 8,709 8,456
Receivable due under royalty agreement ........... 1,000 --
Inventories ...................................... 9,357 9,000
Current deferred taxes ........................... -- 56
Prepaid expenses and other current assets ........ 1,217 762
-------- --------
Total current assets .......................... 20,600 18,443
-------- --------
Notes receivable ................................... 162 285
-------- --------
Property, plant and equipment - at cost:
Land .......................................... 625 625
Buildings ..................................... 9,382 9,054
Machinery and equipment ....................... 9,241 8,656
-------- --------
19,248 18,335
Less accumulated depreciation ...................... (9,121) (8,225)
-------- --------
10,127 10,110
-------- --------
Deferred income taxes .............................. 3,159 2,791
Other assets ....................................... 746 702
-------- --------
$ 34,794 $ 32,331
======== ========
Continued
The accompanying notes are an integral part
of the consolidated financial statements.
F-2
<PAGE>
IGI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, Continued
December 31, 1996 and 1995
(amounts in thousands
except share information)
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
-------- --------
Current liabilities:
Notes payable to bank .............................. $ 9,642 $ 8,048
Current maturities of long-term debt ............... 3,443 2,415
Accounts payable ................................... 2,665 2,447
Accrued payroll .................................... 470 461
Other accrued expenses ............................. 675 772
Income taxes payable ............................... 38 16
-------- --------
Total current liabilities ....................... 16,933 14,159
-------- --------
Long-term debt, less current maturities .............. 6,893 9,624
-------- --------
Deferred income from royalty contract ................ 1,000 --
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 30,000,000
shares authorized; 9,572,681 and 9,440,681
shares issued in 1996 and 1995, respectively .... 96 94
Stock subscribed ................................... 175 --
Additional paid-in capital ......................... 19,115 18,131
Deficit ............................................ (6,786) (6,879)
-------- --------
12,600 11,346
Less treasury stock; 164,082 and 176,356 shares
at cost, in 1996 and 1995 respectively ........... (2,518) (2,609)
Stockholders' notes receivable ..................... (114) (189)
-------- --------
Total stockholders' equity ...................... 9,968 8,548
-------- --------
$ 34,794 $ 32,331
======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
F-3
<PAGE>
IGI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
(thousands, except share and per share information)
1996 1995 1994
----------- ---------- ------------
<S> <C> <C> <C>
Net sales ................................................................ $ 35,140 $ 31,221 $ 28,948
Cost of sales ............................................................ 16,147 15,432 13,935
----------- ---------- ----------
Gross profit ............................................................. 18,993 15,789 15,013
Selling, general and administrative expenses ............................. 14,927 11,930 10,675
Research and development expenses ........................................ 2,013 1,345 1,212
Research revenues ........................................................ (162) (731) (382)
----------- ---------- ----------
Operating profit ......................................................... 2,215 3,245 3,508
Interest expense ......................................................... (1,984) (1,269) (1,036)
Interest income .......................................................... -- 146 67
Other income (expense), net .............................................. (202) 7 10
----------- ---------- ----------
Income from continuing operations before
provision for income taxes .............................................. 29 2,129 2,549
(Benefit) provision for income taxes ..................................... (64) 621 580
----------- ---------- ----------
Income from continuing operations ........................................ 93 1,508 1,969
Loss from discontinued operations -- Distribution of biotechnology
segment, net of income tax benefits:
Loss from operations ................................................. -- (4,034) (700)
Estimated loss on disposal ........................................... -- -- (1,000)
----------- ---------- ----------
Net income (loss) ........................................................ $ 93 $ (2,526) $ 269
=========== ========== ==========
Income (loss) per common and common equivalent share:
From continuing operations ........................................... $ .01 $ .16 $ .22
=========== ========== ==========
From discontinued operations ......................................... $ -- $ (.42) $ (.19)
=========== ========== ==========
Net income (loss) .................................................... $ .01 $ (.26) $ .03
=========== ========== ==========
Average number of common and common
equivalent shares ....................................................... 10,021,288 9,725,230 9,155,231
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-4
<PAGE>
IGI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
(thousands, except
per share information)
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................ $ 93 $(2,526) $ 269
Reconciliation of net income (loss) to net cash
used by operating activities:
Depreciation and amortization .................... 992 836 843
Provision for loss on accounts
receivable and inventories ..................... 83 788 272
Accrual for estimated loss on disposal ........... -- -- 1,000
Issuance of stock to 401(k) plan ................. 91 69 50
Benefit for deferred income taxes ................ (73) (101) (220)
Stock option compensation expense ................ 156 -- --
Litigation settlement in common stock ............ 175 -- --
Changes in operating assets and liabilities:
Accounts receivable .............................. (213) (1,321) (457)
Inventories ...................................... (480) (1,570) 438
Prepaid and other assets ......................... (455) 151 (303)
Accounts payable and accrued expenses ............ 130 939 449
Income taxes payable/refundable .................. 22 1 46
Reimbursement from former subsidiary ............. -- 250 --
Net assets of biotechnology segment .............. -- (226) (2,501)
------- ------- -------
Net cash provided from (used by) operating activities 521 (2,710) (114)
------- ------- -------
Cash flows from investing activities:
Capital expenditures, net ......................... (913) (2,397) (1,834)
(Increase) decrease in other assets ............... 59 (5) (132)
License payment to former subsidiary .............. -- (5,000) --
Net assets of biotechnology segment ............... -- (360) (549)
------- ------- -------
Net cash used by investing activities ............... (854) (7,762) (2,515)
------- ------- -------
Cash flows from financing activities:
Net borrowings under line of credit agreements .... 1,594 4,258 1,345
Borrowings under revolving credit agreement ....... 12 2,000 1,250
Payments of long-term debt ........................ (1,714) (9) (85)
Proceeds from exercise of common stock options .... 589 938 192
Proceeds from sale of common stock ................ -- 2,500 --
------- ------- -------
Net cash provided from financing activities ......... 481 9,687 2,702
------- ------- -------
Net (decrease) increase in cash and equivalents ..... 148 (785) 73
Cash and cash equivalents at beginning of year ...... 169 954 881
------- ------- -------
Cash and cash equivalents at end of year ............ $ 317 $ 169 $ 954
======= ======= =======
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-5
<PAGE>
IGI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Additional
Common Stock Stock Paid-In Notes
(thousands, except share information) Shares Amount Subscribed Capital Receivable
--------- ---------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994 ................................ 8,920,147 $ 89 $ -- $ 18,971 $ (163)
Exercise of stock options, including tax benefits of $219 93,218 1 709
Adjustment of valuation allowance ....................... 660 660
Issuance of stock to 401(k) plan ........................ 5,272 -- 51
Net income ..............................................
------------------------------------------------------------------
Balance, December 31, 1994 .............................. 9,018,637 90 -- 20,391 (163)
Exercise of stock options, including tax benefits of $279 193,815 2 1,152
Issuance of stock to 401(k) plan ........................ 1,574 -- 44
Issuance of stock to industry partner ................... 226,655 2 2,498
License payment to former subsidiary, net of a deferred
tax benefit of $1,700 ................................. (3,300)
Distribution of biotechnology business segment .......... (2,654)
Payment of stockholders' notes receivable ............... 74
Reclass of stockholders' notes receivable ............... (100)
Net loss ................................................
------------------------------------------------------------------
Balance December 31, 1995 ............................... 9,440,681 94 -- 18,131 (189)
Exercise of stock options, including tax benefits of $79 132,000 2 666
Issuance of stock to 401(k) plan ........................ 1
Settlement of litigation ................................ 175
Tax benefit of license payment to former subsidiary .... 161
Value of non-employee stock options ..................... 156
Repayments of shareholders' notes ....................... 75
Net income .............................................
------------------------------------------------------------------
Balance, December 31, 1996 .............................. 9,572,681 $ 96 $ 175 $ 19,115 $ (114)
==================================================================
<CAPTION>
Total
Treasury Stockholders'
Deficit Stock Equity
---------- ---------- --------
<S> <C> <C> <C>
Balance, January 1, 1994 ................................ $ (4,622) $ (1,954) $ 12,321
Exercise of stock options, including tax benefits of $219 (299) 411
Adjustment of valuation allowance ....................... 660
Issuance of stock to 401(k) plan ........................ 51
Net income .............................................. 269 269
------------------------------------
Balance, December 31, 1994 .............................. (4,353) (2,253) 13,712
Exercise of stock options, including tax benefits of $279 (381) 773
Issuance of stock to 401(k) plan ........................ 25 69
Issuance of stock to industry partner ................... 2,500
License payment to former subsidiary, net of a deferred
tax benefit of $1,700 ................................. (3,300)
Distribution of biotechnology business segment .......... (2,654)
Payment of stockholders' notes receivable ............... 74
Reclass of stockholders' notes receivable ............... (100)
Net loss ................................................ (2,526)
------------------------------------
Balance December 31, 1995 ............................... (6,879) (2,609) 8,548
Exercise of stock options, including tax benefits of $79 668
Issuance of stock to 401(k) plan ........................ 91 92
Settlement of litigation ................................ 175
Tax benefit of license payment to former subsidiary .... 161
Value of non-employee stock options ..................... 156
Repayments of shareholders' notes ....................... 75
Net income ............................................. 93
------------------------------------
Balance, December 31, 1996 .............................. $(6,786) $ (2,518) $ 9,968
====================================
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of the Business
IGI, Inc. ("IGI" or the "Company") is a diversified company engaged in two
business segments. The Animal Health Products business produces and markets
animal health products such as poultry vaccines, veterinary products,
nutritional supplements and grooming aids. The Consumer Products business
produces and markets cosmetic and consumer products such as skin care products
and shampoos.
Principles of Consolidation
The consolidated financial statements include the accounts of IGI, Inc. and its
wholly-owned and majority-owned subsidiaries. The Company's financial statements
include 100% of the losses through December 12, 1995 of its formerly majority-
owned subsidiary Novavax, Inc. ("Novavax"). All intercompany accounts and
transactions have been eliminated.
Cash equivalents
Cash equivalents consist of short term investments with initial maturities of 90
days or less.
Inventories
Inventories are stated at the lower of cost (last-in, first-out basis) or
market.
Property, Plant and Equipment
Depreciation of property, plant and equipment is provided for under the
straight-line method over the estimated useful lives as follows:
Useful Lives
------------
Buildings and improvements 10-30 years
Machinery and equipment 3-10 years
Repair and maintenance costs are charged to operations as incurred while major
improvements are capitalized. When assets are retired or disposed of, the cost
and accumulated depreciation thereon are removed from the accounts and any gains
or losses are included in operations.
Amortization
Cost in excess of net assets of businesses acquired, which is included in other
assets, is amortized on a straight-line basis over 40 years. The Company
periodically evaluates the carrying amount of this asset using cash flow
projections and net income and if warranted, impairment would be recognized.
F-7
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. Summary of Significant Accounting Policies, (continued)
Income Taxes
The Company records income taxes under the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". SFAS 109
requires the asset and liability method of accounting for income taxes. Under
the asset and liability method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. Under
SFAS No. 109, the effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date. A valuation
allowance is recorded based on a determination of the ultimate realizability of
future deferred tax assets.
Stock-Based Compensation
Compensation costs attributable to stock option and simliar plans are recognized
based on any difference between the quoted market price of the stock on the date
of grant over the amount the employee is required to pay to acquire the stock
(the intrinsic value method under Accounting Principles Board [APB] Opinion 25).
Such amount, if any, is accrued over the related vesting period, as appropriate.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires companies
electing to continue to use the intrinsic-value method to make pro forma
disclosures of net income and earnings per share as if the fair-value-based
method of accounting had been applied.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Significant estimates include allowances for excess and obsolete inventories,
allowances for doubtful accounts and other assets and provisions for income
taxes and related valuation allowances. Actual results could differ from those
estimates.
Long-Lived Assets
Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
The provisions of SFAS No. 121 require the Company to review its long-lived
assets for impairment on an exception basis whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable through future cash flows. If it is determined that an impairment
has occurred based on expected future cash flows, then the loss is recognized in
the income statement. The adoption of SFAS No. 121 did not have an effect on the
Company's consolidated financial statements.
Financial Instruments
The Company's financial instruments include cash and cash equivalents, accounts
receivable, notes receivable and long-term debt. The carrying value of these
instruments approximates the fair value.
F-8
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. Summary of Significant Accounting Policies, (continued)
Accounting Standards Changes
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share." This
Statement establishes standards for computing and presenting earnings per share
(EPS) and applies to entities with publicly held common stock or potential
common stock. This Statement is effective for financial statements issued for
periods ending after December 15, 1997, earlier application is not permitted.
This Statement requires restatement of all prior-period EPS data presented. The
Company is currently evaluating the impact, if any, adoption of SFAS No.
128 will have on its financial statements.
Revenue Recognition
Revenues earned under research contracts are recognized when the related
contract provisions are met.
Reclassification
Certain previously reported amounts have been reclassified to conform with the
current period presentation.
2. Corporate Activities
Distribution of Biotechnology Segment
On March 17, 1994, IGI's Board of Directors voted to dispose of the
biotechnology business segment through the tax-free distribution to IGI's
shareholders of its ownership of Novavax.
On December 12, 1995 (the "Distribution Date"), IGI distributed to the holders
of record of IGI's common stock, at the close of business on November 28, 1995,
one share of common stock of Novavax for every one share of IGI common stock
outstanding (the "Distribution").
In connection with the Distribution, the Company paid Novavax $5,000,000 in
return for a fully-paid-up, ten-year license entitling it to the exclusive use
of Novavax's technologies in the fields of (i) animal pharmaceuticals,
biologicals, and other animal health products; (ii) foods, food applications,
nutrients and flavorings; (iii) cosmetics, consumer products and dermatological
over-the-counter and prescription products (excluding certain topically
delivered hormones); (iv) fragrances; and (v) chemicals, including herbicides,
insecticides, pesticides, paints and coatings, photographic chemicals and other
specialty chemicals; and the processes for making the same. The Company has the
option, exercisable within the last year of the ten-year term, to extend the
License Agreement for an additional ten-year period for $1,000,000. Novavax
retained the right to use its Novavax Technologies for all other applications,
including human vaccines and pharmaceuticals. At the time the terms of the IGI
License Agreement were fixed, including the license payment, all of the
directors of IGI were also directors of Novavax and these terms were
unilaterally established by IGI. As of December 31, 1995, three directors of IGI
were also directors of Novavax. The Company has presented the payment under the
License Agreement as a capital contribution in its financial statements to
reflect the intercompany nature and substance of the transaction. The form was
structured as a prepaid license agreement to address various considerations of
the Distribution, including tax and financing considerations. For tax purposes,
the transaction has been treated as a prepaid license agreement. IGI has no
further obligations or intentions to fund Novavax.
F-9
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. Corporate Activities, (continued)
Distribution of Biotechnology Segment, (continued)
Components of the losses from discontinued operations for each of the two years
in the period ended December 31, 1995 were:
(amounts in thousands) 1995 1994
------- --------
Selling, general and administrative .............. $ 2,103 $ 1,762
Research and development expenses, net ........... 3,648 2,485*
Credit for income taxes .......................... (717) (797)
------- -------
Operating losses ................................. 5,034 3,450
Accrual for loss on disposal ..................... (1,000) (2,750)
Estimated loss on disposal ....................... -- 1,000
------- -------
Net loss from discontinued operations ............ $ 4,034 $ 1,700
======= =======
* Includes $475,000 of initial payments in 1994 on product development and
licensing agreements or detailed agreements in principle which have been
reflected as a reduction in research and development expenses.
The Company had anticipated the effective date of the Distribution to be June
30, 1995. Due to delays in the final distribution of Novavax, the Company
incurred costs in excess of the $1,000,000 estimated loss of disposal of its
biotechnology business segment. These costs related to increased research and
development expenses for products in the initial FDA approval process.
The components of the net assets of the biotechnology segment at December 12,
1995 were:
(amounts in thousands)
Net current liabilities ..................................... $ (56)
Property, plant and equipment, net .......................... 1,401
Deferred patent costs, net .................................. 1,309
-------
$ 2,654
=======
The distribution of the net assets of the Company's biotechnology business
segment as of the Distribution Date are recorded in the accompanying financial
statements as a reduction in additional paid-in capital.
Equity and Other Transactions
In August 1993, the Company entered into an agreement with an industry partner
for the testing of Novavax's patented Novasome lipid vesicle encapsulation
technology as a microcarrier and adjuvant for various human vaccines. The
Company received $1,000,000 in exchange for 99,700 shares of the Company's
common stock. In December 1994, the partner exercised its option to enter into
an exclusive license agreement by agreeing to pay the Company $475,000 for the
use of the technology in certain applications and additional research funding.
This amount is included in the loss from discontinued operations in 1994.
Additionally, the partner exercised its option to purchase shares of the
Company's common stock. In January 1995, the Company issued 226,655 shares of
its common stock for $2,500,000. This agreement was amended in December 1995 in
connection with the Distribution. Under the terms of the amended agreement, the
industry partner has the option to purchase up to approximately $6,800,000 of
IGI Common Stock and approximately $3,700,000 of Novavax Common Stock,
concurrently. These amounts were determined, pursuant to the agreement, by
calculating the average ratio of closing prices of IGI and Novavax common stock
for the first twenty days following the Distribution. The price per share for
Novavax's and IGI's common stock was to be determined on the date of exercise
and was capped at an aggregate combined price per share of $13.00. This option
expired unexercised in 1996.
F-10
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. Supplemental Cash Flow Information
Cash paid for income taxes and interest during the years ended December 31,
1996, 1995, and 1994 was as follows:
(amounts in thousands) 1996 1995 1994
------ ------ -------
Income taxes paid (refunded), net ......... $ 41 3 $ (43)
Interest .................................. 1,955 1,236 931
In addition, during the years ended December 31, 1996, 1995, and 1994, the
Company had the following non-cash financing and investing activities:
(amounts in thousands) 1996 1995 1994
------ ------ ------
Tax benefits of exercise of
common stock options ..................... $ 79 $ 279 $ 219
Distribution of the
biotechnology segment .................... -- 2,904 --
Treasury stock repurchased ................ -- 356 299
Tax benefit of license payment to
former subsidiary ........................ (161) -- --
Receivable under royalty agreement......... 1,000 -- --
4. Inventories
Inventories as of December 31, 1996 and 1995 consisted of:
(amounts in thousands) 1996 1995
------ ------
Finished goods ........................... $3,570 $3,104
Work-in-process .......................... 2,975 2,851
Raw materials ............................ 2,812 3,045
------ ------
$9,357 $9,000
====== ======
If the first-in, first-out (FIFO) method of accounting for inventories had been
used, inventories would have been $844 and $307 lower than reported in 1996 and
1995, respectively.
5. Long-Term Debt
Long-term debt as of December 31, 1996 and 1995 consisted of:
(amounts in thousands) 1996 1995
------ -------
Revolving credit facility ...................... $10,285 $12,000
Other debt due in annual
installments through December
1999 with interest at 9% ...................... 51 39
------- -------
10,336 12,039
Less current maturities ........................ 3,443 2,415
------- -------
$ 6,893 $ 9,624
======= =======
F-11
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. Long-Term Debt, (continued)
In December 1995, the Company and its banks reached an agreement to amend the
loan agreement. The amended and restated loan agreement provides for:
o $12,000,000 revolving credit facility with interest contingent upon
certain financial ratios at the end of each quarter. The interest rate
shall not exceed prime plus 1 1/2% effective January 1, 1996. The
amount available under the revolving credit facility decreases by
$857,000 on the last day of each quarter from September 30, 1996
through December 31, 1999. At December 31, 1996, the Company had
outstanding borrowings of $10,285,000 under this facility and the
interest rate was 9.25%.
o $10,000,000 working capital line of credit, renewable annually on July
1, with interest on the outstanding borrowings contingent upon certain
financial ratios at the end of each quarter. The interest rate shall
not exceed prime plus 1% effective January 1, 1996. The aggregate
amount outstanding under the agreement at December 31, 1996 was
$9,642,000. The average amounts outstanding during 1996 and 1995 were
$8,759,000 with a weighted interest rate of 9.2% and $4,461,000 with a
weighted interest rate of 8.7%, respectively. At December 31, 1996, the
Company had $358,000 available under this facility and the interest
rate was 8.75%.
A commitment fee of 1/2% is payable on the unused portion of the working capital
line and 1/4% on the unused revolving credit facility. The agreement requires
the Company to maintain certain financial ratios and comply with other
non-financial covenants, and also restricts the payment of cash dividends to not
more than 25% of the net income in any one year and to retained earnings in
excess of $1,000,000.
The Company was in default of certain financial covenants during the year ended
and at December 31, 1996. The banks have waived such defaults and have amended
certain of the financial covenants in the loan agreement effective as of January
1, 1997. The Company believes the working capital line of credit will be renewed
on July 1, 1997.
Aggregate annual principal payments on long-term debt, for the five years
subsequent to December 31, 1996 and thereafter are as follows:
(amounts in thousands) Year $
---- -------
1997.................. $ 3,443
1998.................. 3,446
1999.................. 3,447
-------
$10,336
=======
All of the Company's assets are pledged as collateral under the terms of the
loan agreement. As of December 31, 1996 and 1995, there were no outstanding
equipment leases.
F-12
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. Stock Options
Under the 1983 Incentive Stock Option Plan, options have been granted to key
employees to purchase a maximum of 500,000 shares of common stock. Options,
having a maximum term of 10 years, have been granted at 100% of the fair market
value of the Company's stock at the time of grant. Options outstanding under
this plan at December 31, 1996 are generally exercisable in cumulative
increments over four years commencing one year from the date of grant.
Under the 1989 and 1991 Stock Option Plans, options may be granted to key
employees, directors and consultants to purchase a maximum of 500,000 and
1,900,000 shares of common stock, respectively. Options, having a maximum term
of 10 years, have been granted at 100% of the fair market value of the Company's
stock at the time of grant. Both incentive stock options and non-qualified stock
options may be granted under the 1989 Plan and the 1991 Plan. Incentive stock
options are generally exercisable in cumulative increments over four years
commencing one year from the date of grant. Non-qualified options are generally
exercisable in full beginning six months after the date of grant.
In 1991, the Company's Board of Directors adopted a Non-Qualified Stock Option
Plan. The plan provides that options may be granted to consultants, scientific
advisors and employees to purchase a maximum of 250,000 shares of common stock.
Options outstanding under this plan at December 31, 1996 are generally
exercisable in cumulative increments over four years commencing one year from
the date of grant.
In addition, non-qualified stock options have been granted to officers and
directors at prices equal to the fair market value of the Company's stock on the
date the options were granted. Exercise of the majority of these options may be
made at any time during a ten year period commencing on the date of grant.
Stock option transactions in each of the past three years under the
aforementioned plans in total were:
<TABLE>
<CAPTION>
Plan Non-Qualified Plan
-------------------------------------------- --------------------------------------------
Weighted Weighted Weighted
Share Price Per Share Average Price Shares Price Per Share Average Price
----- --------------- ------------- ------ --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
January 1, 1994 shares
under option 1,399,778 $ 1.30 - $ 9.88 $ 6.27 427,770 $ 1.22 - $ 6.80 $ 4.15
Granted 408,500 $ 5.59 - $ 8.91 $ 7.86 -- -- --
Exercised (6,000) $ 4.70 - $ 5.67 $ 5.04 (87,218) $ 1.22 - $ 6.80 $ 3.30
Cancelled (8,750) $ 5.02 - $ 9.88 $ 7.01 -- -- --
December 31, 1994 shares
under option 1,793,528 $ 1.30 - $ 9.88 $ 6.63 340,552 $ 1.38 - $ 6.80 $ 4.37
Granted 346,500 $ 6.63 - $ 9.39 $ 7.35 -- -- --
Exercised (190,763) $ 1.30 - $ 9.88 $ 3.73 (3,052) $ 1.38 $ 1.38
Cancelled (9,750) $ 6.72 - $ 9.72 $ 7.47 -- -- --
December 31, 1995 shares
under option 1,939,515 $ 3.64 - $ 9.88 $ 7.04 337,500 $ 1.38 - $ 6.80 $ 4.40
Granted 381,000 $ 5.13 - $ 7.69 $ 6.04 -- -- --
Exercised (82,000) $ 4.70 - $ 6.96 $ 6.33 (50,000) $ 1.38 $ 1.38
Cancelled (29,500) $ 5.67 - $ 9.48 $ 7.31 (1,000) $ 6.80 $ 6.80
------- ----------------
December 31, 1996 shares
under option 2,209,015 $ 3.65 - $ 9.88 $ 6.89 286,500 $ 3.97 - $ 6.80 $ 4.92
========= =============== ======== ======= ================
Shares subject to outstanding
options exercisable at
December 31, 1995 1,386,003 $ 6.94 337,500 $ 4.40
========= ======== ======= ======
December 31, 1996 1,665,619 $ 7.01 286,500 $ 4.92
========= ======== ======= ======
</TABLE>
F-13
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. Stock Options, (continued)
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for option grants to directors and employees pursuant to the
stock option plans. The Company has recorded compensation expense of $156,000 in
1996 for options granted to consultants. Had compensation cost for all grants
under the Company's stock option plans been determined based on the fair value
at the grant date consistent with the provisions of SFAS 123, the Company's net
income and income per share would have been reduced to the pro forma amounts
indicated below:
(thousands, except per share information) 1996 1995
------- ---------
Net income (loss) - as reported ................ $ 93 $ (2,526)
Net loss - pro forma ........................... $ (823) $ (3,270)
Income (loss) per share - as reported .......... $ .01 $ (.26)
Loss per share - pro forma ..................... $ (.08) $ (.34)
The pro forma information has been determined as if the Company had accounted
for its employee stock options under the fair value method of SFAS 123. The fair
value for these options was estimated at the grant date using the Black-Scholes
option pricing model with the following assumptions for 1996 and 1995:
Dividend yield ............................ 0%
Risk free interest rate ................... 5.51% - 7.10%
Estimated volatility factor ............... 33.07% - 43.45%
Expected life ............................. 6 - 9 years
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts. SFAS 123 does not apply to awards prior to 1995, and
additional awards in future years are anticipated.
The following table summarizes information concerning outstanding and
exercisable options as of December 31, 1996.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- --------------------
Range of Weighted Average
Exercise Number of Remaining Exercise Number of Weighted Average
Prices Options Life (Years) Price Options Exercise Price
- ------ ------- ------------ ----- ------- --------------
<S> <C> <C> <C> <C> <C>
$ 3.00 to $ 4.00 55,000 1.00 $ 3.91 55,000 $ 3.91
$ 4.00 to $ 5.00 313,000 2.70 $ 4.75 313,000 $ 4.75
$ 5.00 to $ 6.00 633,000 6.650 $ 5.54 366,500 $ 5.38
$ 6.00 to $ 7.00 599,250 7.856 $ 6.68 417,729 $ 6.67
$ 7.00 to $ 8.00 427,550 6.982 $ 7.44 415,050 $ 7.43
$ 8.00 to $ 9.00 249,000 8.100 $ 8.55 168,250 $ 8.57
$ 9.00 to $10.00 218,215 5.871 $ 9.64 217,090 $ 9.64
------- -------
$ 3.65 to $ 9.88 2,495,515 6.453 $ 6.66 1,952,619 $ 6.70
</TABLE>
In connection with the Distribution, holders of options to purchase IGI common
stock as of the Distribution Date were granted options to purchase Novavax
common stock and substitute options to purchase IGI common stock. Exercise
prices of the options were based on the relative market capitalization of IGI
and Novavax on the record date and the 20 trading days immediately following the
record date to restore holders of each option to the economic position prior to
the Distribution Date. The prices related to stock option transactions have been
adjusted to reflect the terms of the substitute options.
In connection with the exercise of 25,000 and 67,218 stock options in 1995 and
1994, respectively, the Company received approximately 23,644 and 26,300 shares
of its common stock as consideration for the exercise price of the options. The
total value of the shares used as consideration for the exercise of stock
options was $381,250 and $298,770 in 1995 and 1994, respectively, which has been
recorded as treasury stock.
F-14
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. Income Taxes
The provision (benefit) for income taxes included in the consolidated statements
of operations for the years ended December 31, 1996, 1995 and 1994 is as
follows:
(amounts in thousands) 1996 1995 1994
----- ----- -----
Continuing operations:
Current tax expense:
Federal ........................................ $-- $ 718 $ 797
State and local ................................ 9 4 3
----- ----- -----
Total current ................................... 9 722 800
----- ----- -----
Deferred tax (benefit) expense
Federal ........................................ 78 6 (222)
State and local ................................ (151) (107) 2
----- ----- -----
Total deferred .................................. (73) (101) (220)
----- ----- -----
Total (benefit) provision from continuing
operations ..................................... (64) 621 580
===== ===== =====
Discontinued operations:
Current tax benefit:
Federal and state .............................. -- (718) (797)
----- ----- -----
Total provision (benefit) for income taxes ....... $ (64) $ (97) $(217)
===== ===== =====
The provision for income taxes differed from the amount of income taxes
determined by applying the applicable Federal tax rate (34%) to pretax income
from continuing operations as a result of the following:
(amounts in thousands) 1996 1995 1994
----- ----- -----
Statutory provision .............................. $ 10 $ 723 $ 860
Non-deductible expenses .......................... 66 66 57
State income taxes, net of federal benefit ....... (70) (46) 2
Research and development tax credits ............. (42) (40) (68)
Reduction in valuation allowance ................. -- (83) (271)
Other, net ....................................... (28) 1 --
----- ----- -----
$ (64) $ 621 $ 580
===== ===== =====
Gross deferred tax assets (liabilities) included in the consolidated balance
sheets as of December 31, 1996 and 1995, consist of the following:
(amounts in thousands) 1996 1995
-------- --------
Property, plant and equipment ........................ $ (689) $ (969)
Prepaid license agreement ............................ 1,802 1,700
Net operating loss carryforwards ..................... 1,687 1,727
Tax credit carryforwards ............................. 418 384
Other future deductible temporary differences ........ 168 149
Other future taxable temporary differences ........... (183) (76)
------- -------
3,203 2,915
Less: valuation allowance ............................ (44) (69)
------- -------
Deferred taxes, net .................................. $ 3,159 $ 2,846
======= =======
F-15
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. Income Taxes, continued
Current and deferred tax benefits resulting from a prepaid license agreement and
the exercise of stock options not credited to the consolidated statements of
operations for the years ended December 31, 1996 and 1995, include the
following:
(amounts in thousands) 1996 1995
------ ------
Additional paid-in capital:
License payment to former subsidiary ............... $ 161 $1,700
Exercise of stock options .......................... 79 279
------ ------
$ 240 $1,979
====== ======
In 1994, due to the Distribution, the Company re-evaluated the recoverability of
its deferred tax assets and as such, adjusted its valuation allowance to reflect
new estimates. Management has determined, based on the Company's history of
prior operating earnings and its expectations for the future, that operating
income of the Company will more likely than not be sufficient to recognize fully
these net deferred tax assets.
Operating loss and tax credit carryforwards for tax reporting purposes as of
December 31, 1996 are as follows:
(amounts in thousands) $
-----
Federal:
Operating losses (expiring through the year 2011) .................... 4,193
Research tax credits (expiring through the year 2011) ................ 404
Alternative minimum tax credits (available without expiration) ....... 14
8. Net Income per 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 year. Common Stock Equivalents include
shares issuable upon the exercise of dilutive common stock options. Fully
diluted earnings per share approximate primary earnings per share.
9. Commitments and Contingencies
The Company leases manufacturing and warehousing space, machinery and equipment
and automobiles under non-cancelable operating lease agreements expiring at
various dates through 1998. Rental expense aggregated approximately $317,000 in
1996, $282,000 in 1995, and $186,000 in 1994. Future minimum rental commitments
under non-cancelable operating leases as of December 31, 1996 are as follows:
(amounts in thousands) Year $
---- --
1997.................... 62
1998.................... 48
1999.................... 43
2000.................... 32
2001.................... 32
F-16
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. Commitments and Contingencies, continued
The Company has entered into employment contracts with expiration dates of
December 31, 1999 with certain officers which provide that these officers are
entitled to continuation of their salaries if they are terminated without cause
prior to their contract expiration date. Aggregate compensation through 1999
under these agreements approximates $2,516,000.
10. Litigation
Certain claims, suits and complaints arising in the ordinary course of business
have been filed or are pending against the Company and its subsidiaries. In the
opinion of management, after consultation with legal counsel, all such matters
are adequately covered by insurance or, if not so covered, are without merit or
are of such kind, or involve such amounts, as would not have a significant
effect on the financial statements of the Company if disposed of unfavorably.
In February 6, 1996, Johnson & Johnson and its wholly-owned subsidiary
OrthoMcNeil, Inc. (collectively, "J&J") filed a lawsuit against the Company and
its subsidiary, Igen, Inc. and its former subsidiary Micro-Pak, Inc. in United
States District Court for the District of New Jersey alleging trademark
infringement and trademark dilution. In January 1997, the Company and J&J
reached an agreement settling this litigation.
11. Export Sales
Export revenues by the Company's domestic operations accounted for approximately
39% of the Company's total revenues in 1996, 1995, and 1994. The following table
shows the geographical distribution of the export sales:
(amounts in thousands) Year ended December 31,
1996 1995 1994
------- ------- -------
Latin America .................. $ 5,023 $ 5,064 $ 4,867
Asia/Pacific ................... 5,932 4,574 3,692
Europe ......................... 1,502 1,308 1,817
Africa/Middle East ............. 1,223 1,288 984
------- ------- -------
$13,680 $12,234 $11,360
======= ======= =======
Related net accounts receivable balances at December 31, 1996, 1995 and 1994
approximated $5,000, $4,921 and $4,264, respectively.
F-17
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
12. Certain Relationships and Related Party Transactions
The Company has notes receivable from certain of its employees. The total of
these notes is $162,000. All of these loans are evidenced by demand notes
bearing interest at prime rate plus 1/4% and are collateralized by shares of IGI
common stock. Remaining balances of these notes from officers are included in
the stockholders' equity as stockholders' note receivable and all other notes
receivable are included in notes receivable in the accompanying Consolidated
Balance Sheets. The Company has recognized interest income from these notes of
$15,000, $39,000 and $34,000 for the years ended December 31, 1996, 1995 and
1994, respectively.
13. Employee Benefits
The Company has a defined contribution retirement plan (401(k)), pursuant to
which employees who have completed one year of employment with the Company or
its subsidiaries as of specified dates may elect to contribute to the Plan, in
whole percentages, up to 18% of compensation, subject to a minimum contribution
by participants of 2% of compensation and a maximum contribution of $9,240 in
1996, 1995 and 1994. The Company matches 25% of the first 5% of compensation
contributed by participants and contributes on behalf of each participant $4 per
week of employment during the year. All contributions of the Company are made
quarterly in the form of the Company's Common Stock ($.01 par value) and are
immediately vested. The Company has recorded charges to expense related to this
plan of approximately $115,000, $103,601 and $62,200 for the years 1996, 1995
and 1994, respectively.
14. Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentration of
credit risk consist principally of cash and cash equivalents. The Company places
its cash and cash equivalents with two high credit quality financial
institutions. Export receivables include customers in several key geographic
areas; of these, Mexico and other 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 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 adversely impact the Company's future
operating results.
F-18
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. Business Segments
Summary data related to continuing operations for the three years ended December
31, 1996 appears below:
(amounts in thousands)
Animal Health Consumer
Products Products Corporate Consolidated
------------- -------- --------- ------------
1996
Net sales .................... $31,444 $ 3,696 $ -- $35,140
Operating profit (loss) ...... 7,108 (796) (4,097) 2,215
Depreciation and
amortization ................ 835 157 -- 992
Identifiable assets .......... 28,649 6,145 -- 34,794
Capital expenditures ......... 715 198 -- 913
1995
Net sales .................... $29,510 $ 1,711 $ -- $31,221
Operating profit (loss) ...... 6,460 (159) (3,056) 3,245
Depreciation and
amortization ................ 820 16 -- 836
Identifiable assets .......... 29,380 2,951 -- 32,331
Capital expenditures ......... 745 1,652 -- 2,397
1994
Net sales .................... $27,471 $ 1,477 $ -- $28,948
Operating profit (loss) ...... 6,057 296 (2,845) 3,508
Depreciation and
amortization ................ 837 6 -- 843
Identifiable assets .......... 25,942 2,494 -- *28,436
Capital expenditure .......... 558 1,276 -- 1,834
* Net of net assets of biotechnology business segment of $2,066,000 for 1994.
F-19
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(amounts in thousands)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
------ ------ ----- ------ ------
Additions
Balance at (1) Charged to (2) Charged to
beginning of costs and other accounts Balance at
Description period expenses describe Deductions end of period
----------- ------------ -------------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994:
Allowance for doubtful accounts ..................... $ 140 $ 108 - $ 67(A) $ 181
Inventory valuation allowance ....................... 497 164 - 154(B) 507
Other asset valuation allowance ..................... 186 -- - -- 186
Amortization of goodwill ............................ 68 8 - -- 76
Amortization of other intangibles ................... 388 76 - -- 464
Valuation allowance on net
deferred tax assets .............................. 3,160 652 - 932(C) 2,880
Year ended December 31, 1995:
Allowance for doubtful accounts ..................... $ 181 $ 142 - $ 17(A) $ 306
Inventory valuation allowance ....................... 507 645 - 459(B) 693
Other asset valuation allowance ..................... 186 -- - -- 186
Amortization of goodwill ............................ 76 9 - -- 85
Amortization of other intangibles ................... 464 58 - -- 522
Valuation allowance on net
deferred tax assets .............................. 2,880 69 - 2,880(D) 69
Year ended December 31, 1996:
Allowance for doubtful accounts ..................... $ 306 $ (40) - $ 28(A) $ 238
Inventory valuation allowance ....................... 693 123 - 199(B) 617
Other asset valuation allowance ..................... 186 -- - -- 186
Amortization of goodwill ............................ 85 8 - -- 93
Amortization of other intangibles ................... 522 87 - -- 609
Valuation allowance on net
deferred tax assets ............................... 69 -- - 25(D) 44
</TABLE>
(A) Relates to write-off of uncollectible accounts.
(B) Dispositions of obsolete inventories.
(C) Incorporates $660 reversal of valuation allowance relating to the exercise
of stock options, included in additional paid in capital and $271 reversal of
valuation allowance relating to research and development tax credits, credited
to costs and expenses.
(D) Related to spin off of certain discontinued operations during 1995.
F-21
<PAGE>
EXHIBIT INDEX
Exhibits marked with a single asterisk are filed herewith, and
exhibits marked with a double asterisk reference management contract,
compensatory plan or arrangement, filed in response to Item 14 (a) (3)
of the instructions to Form 10-K. The other exhibits listed have
previously been filed with the Commission and are incorporated herein
by reference.
(3) (a) Certificate of Incorporation of IGI, Inc., as amended.
[Incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-8, File No. 33-63700, filed
June 2, 1993.]
(b) By-laws of IGI, Inc., as amended. [Incorporated by reference
to Exhibit 2 (b) to the Company's Registration Statement on
Form S-18, File No. 2-72262-B, filed May 12, 1981.]
(4) Specimen stock certificate for shares of Common Stock, par value
$.01 per share. [Incorporated by reference to Exhibit (4) to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989, File No. 0-10063, filed April 2, 1990 (the
"1989 Form 10-K".)]
** (10) (a) IGI, Inc. 1983 Incentive Stock Option Plan. [Incorporated by
reference to Exhibit A to the Company's Proxy Statement for the
Annual Meeting of Stockholders held May 11, 1983.]
** (b) IGI, Inc. 1989 Stock Option Plan. [Incorporated by reference to
the Company's Proxy Statement for the Annual Meeting of
Stockholders held May 11, 1989.]
** (c) Employment Agreement by and between the Company and Edward B.
Hager dated as of January 1, 1990. [Incorporated by reference
to Exhibit (10) (c) to the 1989 Form 10-K.]
** (d) Extension of Employment Agreement by and between the Company
and Edward B. Hager dated as of March 11, 1993. [Incorporated by
reference to Exhibit (10) (d) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992, File No.
0-10063, filed March 31, 1993 (the "1992 Form 10-K".)]
** (e) Extension of Employment Agreement by and between the Company and
Edward B. Hager dated as of March 14, 1995. [Incorporated by
reference to Exhibit (10) (e) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994,
File No. 0-10063, filed March
1
<PAGE>
31, 1995 (the "1994 Form 10-K".)]
** (f) Employment Agreement by and between the Company and John P.
Gallo dated as of January 1, 1990. [Incorporated by reference
to Exhibit (10) (d) to the 1989 Form 10-K.]
** (g) Extension of Employment Agreement by and between the Company
and John P. Gallo dated as of March 11, 1993. [Incorporated
by reference to Exhibit (10) (g) to the 1992 Form 10-K.]
** (h) Extension of Employment Agreement by and between the Company
and John P. Gallo dated as of March 14, 1995. [Incorporated
by reference to Exhibit (10) (h) to the 1994 Form 10-K.]
2
<PAGE>
(i) Rights Agreement by and between the Company and Fleet National
Bank dated as of March 19, 1987. [Incorporated by reference
Exhibit (4) to the Company's Current Report on Form 8-K, File
No. 0-10063, dated as of March 26, 1987.]
(j) Amendment to Rights Agreement by and among the Company, Fleet
National Bank and State Street Bank and Trust Company dated as
of March 23, 1990. [Incorporated by reference to Exhibit
(10) (g) to the 1989 Form 10-K.]
(k) Second Amended and Restated Loan Agreement by and between
Fleet Bank-NH, Mellon Bank, N.A. and IGI, Inc., together
with its subsidiaries, dated December 13, 1995. [Incorporated
by reference to Exhibit (10) (o) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995, File No.
1-8568, filed March 29, 1996 (the "1995 Form 10-K".)]
* (l) First Amendment to Second Amended and Restated Loan Agreement
by and between Fleet Bank-NH, Mellon Bank, N.A. and IGI, Inc.,
together with its subsidiaries, dated March 27, 1996.
(m) Second Amendment to Second Amended and Restated Loan Agreement
by and between Fleet Bank-NH, Mellon Bank, N.A. and IGI, Inc.,
together with its subsidiaries, dated June 26, 1996.
[Incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1996, File No. 1-8568, filed November 14, 1996 (the "September
30, 1996 Form 10-Q".)]
(n) Third Amendment to Second Amended and Restated Loan Agreement
by and between Fleet Bank-NH, Mellon Bank, N.A. and IGI, Inc.,
together with its subsidiaries, dated August 23, 1996.
[Incorporated by reference to Exhibit 10.2 to the September 30,
1996 Form 10-Q.]
3
<PAGE>
* (o) Fourth Amendment to Second Amended and Restated Loan Agreement
by and between Fleet Bank-NH, Mellon Bank, N.A. and IGI, Inc.
together with its subsidiaries, dated November 13, 1996.
* (p) Fifth Amendment to Second Amended and Restated Loan Agreement
by and Between Fleet Bank-NH, Mellon Bank, N.A. and IGI, Inc.,
together with its subsidiaries, dated March 27, 1997.
** (q) IGI, Inc. Non-Qualified Stock Option Plan. [Incorporated by
reference to Exhibit (3) (k) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1991, File
No. 0-10063, filed March 30, 1992 (the "1991 Form 10-K".)]
** (r) IGI, Inc. 1991 Stock Option Plan. [Incorporated by reference to
the Company's Proxy Statement for the Annual Meeting held May 9,
1991.]
** (s) Amendment No. 1 to IGI, Inc. 1991 Stock Option Plan as approved by
Board of Directors on March 11, 1993. [Incorporated by reference
to Exhibit 10 (p) to the 1992 Form 10-K.]
** (t) Amendment No. 2 to IGI, Inc. 1991 Stock Option Plan as approved by
Board of Directors on March 22, 1995. [Incorporated by reference
to the Appendix to the Company's Proxy Statement for the Annual
Meeting of Stockholders held May 9, 1995.]
(u) Form of Registration Rights Agreement signed by all purchasers of
Common Stock in connection with private placement on January 2,
1992. [Incorporated by reference to Exhibit (3) (m) to the 1991
Form 10-K.]
(v) License Agreement by and between Micro-Pak, Inc. and IGEN, Inc.
[Incorporated by reference to Exhibit (10) (v) to the 1995 Form
10-K.]
(w) Registration Rights Agreement between IGI, Inc. and SmithKline
Beecham p.l.c. dated as of August 2, 1993. [Incorporated by
reference to Exhibit (10) (s) to the 1993 Form 10-K.]
* (11) Computation of net income per common share.
* (21) List of Subsidiaries.
* (23) Consent of Coopers & Lybrand L.L.P.
* (27) Financial Data Schedule
4
EXHIBIT (10) (l)
March 27, 1996
IGI, Inc. and Subsidiaries
Wheat Road and Lincoln Avenue
Buena, New Jersey 08310
Re: First Amendment to Second Amended
and Restated Loan Agreement
Dear Sirs:
Reference is made to the Second Amended and Restated Loan Agreement,
dated as of December 13, 1995, by and among Fleet Bank-NH, Mellon Bank, N.A.,
and IGI, Inc. and certain of its subsidiaries (the "Loan Agreement"). All
capitalized terms used herein without definition have the respective meanings
ascribed to them in the Loan Agreement.
This will confirm our agreement to grant a one-time covenant waiver
under the Loan Agreement, to amend the Loan Agreement, and to clarify the
application of certain provisions thereof, as follows:
1. Certain Waiver. By their execution and delivery hereof, the Lenders
hereby
permanently waive, as of December 31, 1995, compliance with the minimum
Current Ratio covenant pursuant to Section 5.09A of the Loan Agreement. Such
waiver shall only be applicable in this specific instance and for the specific
date, and shall not be deemed a waiver (or an agreement to grant a waiver) with
respect to any other covenant or for any other time period.
2. Certain Amendment. Section 5.09A of the Loan Agreement is hereby
amended so as to read in full as follows:
"Section 5.09A. Current Ratio. As at the end of each quarter of each
Fiscal Year commencing with the quarter ending March 31, 1996,
maintain a Current Ratio of not less than 1.10 to 1."
3. Certain Clarification. In all calculations of Operating Income for
the Fiscal Year ended December 31, 1995 and each quarter therein, the Borrowers'
loss from discontinued operations shall constitute an item of "other expense"
within clause (d) of the definition of Operating Income contained in Section
1.01 of the Loan Agreement.
Except as expressly set forth herein, all of the terms and conditions
of the Loan Agreement shall remain unmodified and in full force and effect.
Kindly confirm the Borrowers' agreement to the foregoing by
countersigning a counterpart copy of this letter in the spaces provided below.
Very truly yours,
FLEET BANK-NH
By:__________________________________
MELLON BANK, N.A.
By:__________________________________
Acknowledged, Confirmed
and Agreed to:
IGI, INC.
By:_______________________________
IGEN, INC.
By:_______________________________
IMMUNOGENETICS, INC.
By:_______________________________
BLOOD CELLS, INC.
By:_______________________________
EXHIBIT (10) (O)
As of November 13, 1996
IGI, Inc. and Subsidiaries
Wheat Road and Lincoln Avenue
Buena, New Jersey 08310
Re: Fourth Amendment to Second Amended
and Restated Loan Agreement
Dear Sirs:
Reference is made to the Second Amended and Restated Loan Agreement,
dated as of December 13, 1995, by and among Fleet Bank-NH, Mellon Bank, N.A.,
and IGI, Inc. and certain of its subsidiaries (as heretofore amended, the "Loan
Agreement"). All capitalized terms used herein without definition have the
respective meanings ascribed to them in the Loan Agreement.
This will confirm our agreement to amend the Loan Agreement, as
follows:
1. Certain Amendment. Section 5.08 of the Loan Agreement is hereby
amended so as to read in full as follows:
"Section 5.08. Net Income. In each quarter of each Fiscal Year as
set forth below, achieve Net Income of not less than the minimum
amount set forth below for such fiscal quarter:
Quarter Ending Minimum Net Income
-------------- ------------------
September 30, 1996 $100,000
December 31, 1996 $300,000
March 31, 1997 $500,000
June 30, 1997 $500,000
September 30, 1997 $500,000
December 31, 1997 $500,000
March 31, 1998 $625,000"
and each quarter
thereafter
Except as expressly set forth herein, all of the terms and conditions
of the Loan Agreement shall remain unmodified and in full force and effect.
Kindly confirm the Borrowers' agreement to the foregoing by
countersigning a counterpart copy of this letter in the spaces provided below.
Very truly yours,
FLEET BANK-NH
By:___________________________________
MELLON BANK, N.A.
By:___________________________________
Acknowledged, Confirmed
and Agreed to:
IGI, INC.
By:___________________________________
IGEN, INC.
By:___________________________________
IMMUNOGENETICS, INC.
By:___________________________________
BLOOD CELLS, INC.
By:___________________________________
EXHIBIT (10) (p)
FIFTH AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AGREEMENT
AGREEMENT (this "Agreement"), made as of this 27th day of March, 1997,
by and among FLEET BANK-NH, a trust company organized under the laws of New
Hampshire ("Fleet"); MELLON BANK, N.A., a national banking association
("Mellon"); and IGI, INC., a Delaware corporation ("IGI"), IGEN, INC., a
Delaware corporation ("IGEN"), IMMUNOGENETICS, INC., a Delaware corporation
("ImmunoGen"), and BLOOD CELLS, INC., a Delaware corporation ("BCI"). Fleet and
Mellon are hereinafter sometimes individually referred to as a "Lender" and
collectively referred to as the "Lenders", and IGI, IGEN, ImmunoGen and BCI are
hereinafter sometimes individually referred to as a "Borrower" and collectively
referred to as the "Borrowers".
W I T N E S S E T H:
WHEREAS, the Lenders and the Borrowers are parties to a Second Amended
and Restated Loan Agreement between them dated as of December 13, 1995 (as
amended to date, the "Loan Agreement"), the terms and conditions of which are
hereby incorporated herein by reference; and
WHEREAS, the Borrowers have requested certain waivers and amendments
with respect to the covenants, terms and conditions of the Loans under the Loan
Agreement; and
WHEREAS, the Lenders are willing to grant such waivers and amendments
upon the terms and conditions contained in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereby agree as follows:
1. Definitions.
(a) Except as otherwise defined herein, all capitalized terms used in
this Agreement have the respective meanings ascribed to them in the Loan
Agreement.
(b) The following new definitions are hereby added to Section 1.01 of
the Loan Agreement in their appropriate alphabetical order:
"EBITDA" shall mean, as to the Borrowers on a consolidated basis as of
the date of determination thereof, an amount equal to the sum of: (a) Net Income
for the four (4) consecutive fiscal quarters of the Borrowers then ended (except
that, in calculating Net Income for purposes of determining EBITDA, full effect
shall be given to, and the Borrowers will be required to deduct, any and all net
losses (net of any related tax savings thereon) of the type described in clause
(b) of the definition of Net Income), plus (b) all federal and state income
taxes paid or accrued in respect of such fiscal period as reflected on the
consolidated statement of income of the Borrowers for such period, plus (c) all
Interest Expense paid or accrued in such fiscal period, plus (d) all amounts
deducted by the Borrowers in such fiscal period for depreciation of tangible
assets, plus (e) all amounts deducted by the Borrowers in such fiscal period in
respect of amortization of good will and/or other intangible assets.
"Senior Debt to EBITDA Ratio" shall mean, as of any date of
determination thereof, the ratio of Senior Debt as of such date to EBITDA for
the four (4) consecutive fiscal quarters of the Borrowers ended on such date.
2. Replacement of Existing Notes.
Each of the Notes outstanding immediately prior to the execution and
delivery of this Agreement shall be superseded and replaced by new Notes in
substantially the forms attached hereto as Exhibits A-1, A-2, B-1 and B-2,
respectively, and such replacement Notes shall, from and after the effectiveness
of this Agreement, be deemed to be the Fleet Revolving Credit Note, the Mellon
Revolving Credit Note, the Fleet Line of Credit Note, and the Mellon Line of
Credit Note, respectively, for all purposes of the Loan Agreement, Security
Documents and other agreements and instruments under and pursuant to the Loan
Agreement.
3. Modification of Certain Financial Covenants.
(a) Section 5.08 of the Loan Agreement is hereby amended so as to read
in full as follows:
Section 5.08. Net Income. In each quarter of each Fiscal Year as set
forth below, achieve Net Income of not less than the minimum amount set forth
below for such fiscal quarter:
Quarter Ending Minimum Net Income
-------------- ------------------
March 31, 1997 $200,000
June 30, 1997 $400,000
September 30, 1997 $500,000
December 31, 1997 $500,000
March 31, 1998 $625,000
and each quarter
thereafter
(b) Section 5.09 of the Loan Agreement is hereby amended so as to read
in full as follows:
Section 5.09. Indebtedness to Capital Base Ratio. As at the end of each
quarter of each Fiscal Year, maintain an Indebtedness to Capital Base Ratio of
not more than (a) 2.50 to 1 from January 1, 1997 through June 30, 1997, (b) 2.00
to 1 from July 1, 1997 through September 30, 1997, and (c) 1.50 to 1 from and
after October 1, 1997.
(c) Section 5.10 of the Loan Agreement is hereby deleted from the Loan
Agreement effective as of December 31, 1996, and replaced with the following new
Section 5.10, which is hereby incorporated into the Loan Agreement by this
reference:
Section 5.10. Senior Debt to EBITDA Ratio. As at the end of each
quarter of each Fiscal Year, maintain a Senior Debt to EBITDA Ratio of not more
than (a) 3.0 to 1 from December 31, 1997 through September 30, 1998, and (b)
2.50 to 1 from and after December 31, 1998.
(d) Section 5.11 is hereby deleted from the Loan Agreement effective as
of December 31, 1996.
(e) Each Compliance Certificate delivered pursuant to Section 5.04(d)
of the Loan Agreement shall include a detailed calculation of EBITDA, in
addition to all other information and calculations required to be stated or
included therein.
4. Waivers of Certain Financial Covenant Defaults.
(a) The Lenders hereby waive the Events of Default which have occurred
under and in respect of (i) Section 5.08 of the Loan Agreement as of December
31, 1996, and (ii) Section 5.11 of the Loan Agreement as at the end of the
Fiscal Year ended December 31, 1996; and the Lenders hereby agree not to assert
such Events of Default or any of the Agent's or the Lenders' remedies solely in
respect of such Events of Default.
(b) The waivers set forth in this paragraph 4 shall only apply to the
specific matters stated and only in the specific instances and as of the
specific dates and for the specific periods stated herein; and nothing contained
in this Agreement shall be deemed to constitute the Lenders' agreement or
consent to any other waiver or forbearance of any kind (whether of like or
unlike nature) at any other time, in any other instance, or under any other
circumstances.
5. Waiver Fees.
In the event that, at any time from and after the date of this
Agreement, the Borrowers shall request any waiver or forbearance by the Lenders
in respect of any Event of Default (including but not limited to Events of
Default under Sections 5.08 through 5.10 of Loan Agreement), and the Lenders
agree to grant such waiver and/or forbearance, the Borrowers shall pay to the
Agent (for allocation and payment 60% to Fleet and 40% to Mellon) the sum of
$10,000 for each such waiver or forbearance, which fee shall be charged
separately for each covenant under which waiver or forbearance is sought or
required, regardless of whether such Events of Default arise out of the same
acts, events, conditions or circumstances or occur as of the same dates or at
the same time. The Borrowers hereby acknowledge that the Lenders have required
the imposition of such fees as a result of the frequency with which the
Borrowers have historically required and requested waivers and/or forbearances
in respect of Events of Default, and that such fees constitute fair and
reasonable charges in respect of the additional risk normally entailed by the
occurrence of Events of Default and the additional investigation and diligence
prompted thereby. The Borrowers further acknowledge that such fees may be
charged and collected in addition to any other conditions or payments (payable
then or thereafter) which the Lenders may require in connection with any
particular waivers or forbearances. The foregoing notwithstanding, in the event
and to the extent that the Lenders' receipt of any fees under this paragraph 5
would cause the aggregate amounts paid or agreed to be paid for the use,
forbearance or detention of the indebtedness under and pursuant to the Loan
Agreement to exceed the maximum amount permitted under Applicable Law, then the
fees under this paragraph 5 shall be subject to reduction as and in the manner
provided in the Notes.
6. Representations and Warranties.
The Borrowers hereby confirm that (a) all representations and
warranties made by the Borrowers in the Loan Agreement are true and correct on
and as of the date hereof, and (b) no Default or Event of Default (other than
those waived pursuant to paragraph 4(a) above) has occurred and is continuing on
the date hereof.
7. Conditions Precedent.
The effectiveness of this Agreement and the amendments to be effected
hereby are expressly subject to (a) the execution and delivery of this Agreement
by the Borrowers and the Lenders, (b) the execution and delivery by the
Borrowers to the respective Lenders of the replacement Notes contemplated by
paragraph 2 above, (c) the payment by the Borrowers to the Agent (for allocation
and payment 60% to Fleet and 40% to Mellon) of an amendment and restructuring
fee in the aggregate amount of $40,000, and (d) the truth and accuracy, at the
time of satisfaction of the conditions set forth in the foregoing paragraphs
7(a), 7(b) and 7(c), of the Borrower's representations and warranties contained
in paragraph 6 above.
8. No Novation; Confirmation and Reaffirmation.
(a) Each of the Borrowers hereby reaffirms all of its representations
and warranties in the Loan Agreement (as amended hereby) and the Security
Documents on and as of the date hereof, as if expressly made on and as of the
date hereof.
(b) Each of the Borrowers hereby confirms the ongoing validity of all
of the Obligations outstanding on the date hereof (including but not limited to
Obligations under the Notes), and further acknowledges, confirms and agrees that
none of the amendments effected by this Agreement constitutes a novation of any
of the Obligations outstanding on the date hereof or immediately prior to the
effectiveness of this Agreement.
(c) Each of the Borrowers hereby reaffirms the validity of all of the
liens and security interests heretofore granted to the Agent as collateral
security for the Obligations, and acknowledges that all of such liens and
security interests, and all collateral heretofore pledged as security for the
Obligations, continue to be and remain collateral for the Obligations (whether
now existing and/or hereafter arising, including but not limited to the Bridge
Advances) from and after the effectiveness of this Agreement.
9. Ongoing Force and Effect.
Except as and to the extent expressly provided in this Agreement, all
covenants, terms and conditions of the Loan Agreement shall remain unchanged and
in full force and effect. All references to the Loan Agreement contained in the
Notes and the Security Documents shall hereafter mean and refer to the Loan
Agreement as amended by this Agreement, and all references to the Notes
contained in the Loan Agreement and the Security Documents shall hereafter mean
and refer to the Notes as amended and supplemented pursuant to this Agreement.
10. Miscellaneous.
(a) The Borrowers will jointly and severally reimburse the Lenders and
the Agent upon demand for all out-of-pocket costs, charges and expenses of the
Lenders and the Agent (including, without limitation, the reasonable fees and
disbursements of counsel to the Lenders and the Agent) in connection with the
preparation, execution and delivery of this Agreement, the replacement Notes
pursuant to paragraph 2 above, any and all further agreements and instruments in
connection herewith, and any amendments, modifications, consents, waivers or
enforcement action in connection herewith.
(b) This Agreement shall be governed by and construed in accordance
with the laws of the State of New Hampshire (without giving effect to principles
of conflicts of laws).
(c) Neither this Agreement nor any provision hereof may be waived,
amended or modified except by means of a written agreement signed by the party
to be charged therewith, and then only in the specific instance and for the
specific purpose stated therein.
(d) This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns, except that
none of the Borrowers shall have any right to assign any of its rights or
obligations hereunder or any interest herein without the prior written consent
of the Lenders.
(e) Each of the Borrowers hereby consents to the jurisdiction of all
courts (state and federal) sitting in the State of New Hampshire, and of all
courts from which an appeal may be taken from any of such courts, for the
purpose of any suit, action or other proceeding arising out of any of its
obligations hereunder or with respect to the transactions contemplated hereby.
Each of the Borrowers hereby expressly waives any and all objections which it
may have as to venue in any of such courts, and also hereby knowingly WAIVES
TRIAL BY JURY in any such suit, action or other proceeding.
(f) The paragraph headings in this Agreement are included for
convenience of reference only, and shall not affect the construction or
interpretation of any of the provisions hereof.
(g) This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original, but all of which shall together constitute
one and the same instrument.
(h) The parties acknowledge and agree that each of them and its counsel
have reviewed and negotiated the terms and provisions of this Agreement, and
have contributed to its final form; accordingly, any rules of construction to
the effect of construing ambiguities against the drafting party shall not be
employed in the interpretation of this Agreement, which shall be construed
fairly as to all parties hereto and not in favor of or against any particular
party who might generally have been responsible for the preparation hereof.
(i) This Agreement is intended for the sole and exclusive benefit of
the parties hereto and their respective successors and permitted assigns, and no
other person or entity shall have any right to rely on this Agreement or to
derive any benefit herefrom absent the express written consent of the party to
be charged with such reliance or benefit.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first set forth above.
FLEET BANK-NH
By: ___________________________
MELLON BANK, N.A.
By: ___________________________
IGI, INC.
By: ___________________________
IGEN, INC.
By: ___________________________
IMMUNOGENETICS, INC.
By: ___________________________
BLOOD CELLS, INC.
By: ___________________________
STATE OF NEW HAMPSHIRE )
) ss:
COUNTY OF ___________ )
On the _____ day of March, 1997, personally appeared before me
________________, of Fleet Bank-NH, who acknowledged that he is the _________ of
Fleet Bank-NH, and that said instrument was signed by him on behalf of said
corporation by due authority.
------------------------------------
Notary Public
My Commission Expires:
- ------------------------
STATE OF _________ )
) ss:
COUNTY OF ________ )
On the _____ day of March, 1997, personally appeared before me
________________, of Mellon Bank, N.A., who acknowledged that he is the
_________ of Mellon Bank, N.A., and that said instrument was signed by him on
behalf of said corporation by due authority.
------------------------------------
Notary Public
My Commission Expires:
- ------------------------
STATE OF NEW JERSEY )
) ss:
COUNTY OF ________ )
On the _____ day of March, 1997, personally appeared before me
________________, of IGI, Inc., who acknowledged that he is the _________ of
IGI, Inc., and that said instrument was signed by him on behalf of said
corporation by due authority.
------------------------------------
Notary Public
My Commission Expires:
- ------------------------
STATE OF _________ )
) ss:
COUNTY OF ________ )
On the _____ day of March, 1997, personally appeared before me
________________, of IGEN, Inc., who acknowledged that he is the _________ of
IGEN, Inc., and that said instrument was signed by him on behalf of said
corporation by due authority.
------------------------------------
Notary Public
My Commission Expires:
- ------------------------
STATE OF NEW JERSEY )
) ss:
COUNTY OF ________ )
On the _____ day of March, 1997, personally appeared before me
________________, of Immunogenetics, Inc., who acknowledged that he is the
_________ of Immunogenetics, Inc., and that said instrument was signed by him on
behalf of said corporation by due authority.
------------------------------------
Notary Public
My Commission Expires:
- ------------------------
STATE OF NEW JERSEY )
) ss:
COUNTY OF ________ )
On the _____ day of March, 1997, personally appeared before me
________________, of Blood Cells, Inc., who acknowledged that he is the
_________ of Blood Cells, Inc., and that said instrument was signed by him on
behalf of said corporation by due authority.
------------------------------------
Notary Public
My Commission Expires:
- ------------------------
EXHIBIT 11
COMPUTATION OF NET INCOME PER COMMON SHARE
(amounts in thousands except share and per share information)
For the years ended December 31,
1996 1995 1994
Income from continuing operations $ 93 $ 1,508 $ 1,969
Loss from discontinued operations -- (4,034) (1,700)
----------- ----------- -----------
Net income (loss) for primary
earnings per share $ 93 $ (2,526) $ 269
=========== =========== ===========
Weighted average shares
outstanding 9,323,440 9,173,156 8,803,979
Common stock equivalents
(net of common stock
deemed reacquired)
based on average market price 697,848 552,074 351,252
----------- ----------- -----------
Total equivalent shares for
primary computation 10,021,288 9,725,230 9,155,231
=========== =========== ===========
Per share amounts:
Primary:
Income from continuing operations $.01 $ .16 $ .22
==== ===== =====
Loss from discontinued operations $ -- $(.42) $(.19)
==== ===== =====
Net income (loss) $.01 $(.26) $ .03
==== ===== =====
Fully diluted earnings per share have been omitted as they approximate primary
earnings per share.
EXHIBIT 21
LIST OF SUBSIDIARIES OF IGI, INC.
IGEN, Inc., a Delaware corporation
ImmunoGenetics, Inc., a Delaware corporation
Marketing Aspects, Inc., a Delaware corporation
Blood Cells, Inc., a Delaware corporation
Flavorsome, Ltd., a Delaware corporation
Vista, Inc., a Virgin Island corporation
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
of IGI, Inc. on Form S-8 (No. 2-90713), the Registration Statement of IGI, Inc.
on Form S-8 and S-3 (No. 33-35047), the Registration Statement of IGI, Inc. on
Form S-8 and S-3 (No. 33-43212), the Registration Statement of IGI, Inc. on Form
S-8 and S-3 (No. 33-47777), the Registration Statement of IGI, Inc., on Form S-3
(No. 33-54920), the Registration Statement of IGI, Inc. on Form S-8 (No.
33-58479) and the Registration Statement of IGI, Inc. on Form S-8 (No. 33-65249)
of our report, dated March 27, 1997, on our audits of the consolidated financial
statements and financial statement schedule of IGI, Inc. and subsidiaries as of
December 31, 1996 and 1995, and for each of the three years in the period ended
December 1996, which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 9, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Financial Statements of IGI, Inc. for the year ended December 31,
1996 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.000
<CASH> 317
<SECURITIES> 0
<RECEIVABLES> 8,947
<ALLOWANCES> 238
<INVENTORY> 9,357
<CURRENT-ASSETS> 20,600
<PP&E> 19,248
<DEPRECIATION> 9,121
<TOTAL-ASSETS> 34,794
<CURRENT-LIABILITIES> 16,933
<BONDS> 0
0
0
<COMMON> 96
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 34,794
<SALES> 35,140
<TOTAL-REVENUES> 35,140
<CGS> 16,147
<TOTAL-COSTS> 16,778
<OTHER-EXPENSES> 202
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,984
<INCOME-PRETAX> 29
<INCOME-TAX> (64)
<INCOME-CONTINUING> 93
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<NET-INCOME> 93
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