<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File No.
JUNE 30, 2000 001-08568
IGI, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 01-0355758
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
WHEAT ROAD AND LINCOLN AVENUE, BUENA, NJ 08310
(Address of principal executive offices) (Zip Code)
856-697-1441
Registrant's telephone number, including area code
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
--- ---
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
Common Shares Outstanding at August 11, 2000
10,247,442
1
<PAGE> 2
ITEM 1. FINANCIAL STATEMENTS
PART I FINANCIAL INFORMATION
IGI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
(THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Sales, net $ 7,694 $ 8,504 $ 15,354 $ 16,832
Licensing and royalty income 717 358 1,511 773
------------ ----------- ------------ ------------
Total revenues 8,411 8,862 16,865 17,605
Cost and expenses:
Cost of sales 4,970 4,335 9,287 8,780
Selling, general and administrative expenses 3,210 3,553 6,510 7,168
Product development and research expenses 433 320 865 636
------------ ----------- ------------ ------------
Operating profit (loss) (202) 654 203 1,021
Interest expense (income), net (564) 843 1,335 1,665
------------ ----------- ------------ ------------
Income (loss) before provision for income taxes 362 (189) (1,132) (644)
Benefit for income taxes 148 57 596 193
------------ ----------- ------------ ------------
Net income (loss) $ 510 $ (132) $ (536) $ (451)
============ =========== ============ ============
Basic and diluted income (loss) per common share $ .05 $ (.02) $ (.05) $ (.05)
Basic and diluted weighted average number of 10,181,873 9,550,191 10,154,386 9,534,883
common shares outstanding
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE> 3
IGI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 2000
(UNAUDITED) DECEMBER 31, 1999
----------- -----------------
(amounts in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 443 $ 416
Accounts receivable, less allowance for doubtful accounts 6,701 6,061
of $431 and $354 in 2000 and 1999, respectively
Licensing and royalty receivable 720 432
Inventories, net 9,905 8,762
Current deferred taxes, net 1,096 1,096
Prepaid and other current assets 766 348
----------- ---------
Total current assets 19,631 17,115
Property, plant and equipment, net 9,858 9,781
Deferred income taxes, net 5,349 4,754
Deferred financing costs 1,566 1,678
Investments 263 144
Other assets 477 390
----------- ---------
Total Assets $ 37,144 $ 33,862
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility 7,364 5,708
Current portion of long-term debt 11,686 11,225
Current portion of notes payable 829 408
Accounts payable 5,468 4,268
Accrued payroll 296 253
Due to stockholder - 115
Accrued interest 536 164
Other accrued expenses 2,001 2,150
Income taxes payable 10 15
----------- ---------
Total current liabilities 28,190 24,306
Long-term debt, net of discount and current portion 6,901 10,758
Deferred income 298 327
Detachable stock warrants - 3,696
----------- ---------
Total Liabilities 28,488 28,329
----------- ---------
Commitments and contingencies - -
Stockholders' equity:
Preferred stock $.01 par value, 1,000,000 authorized, - -
none outstanding
Common stock $.01 par value, 50,000,000 shares authorized; 103 102
10,314,140 and 10,133,183 shares issued in 2000 and 1999,
respectively
Additional paid-in capital 24,286 20,628
Accumulated deficit (14,092) (13,556)
Less treasury stock, 105,510 shares at cost in
2000 and 1999, respectively (1,641) (1,641)
----------- ---------
Total stockholders' equity 8,656 5,533
----------- ---------
Total Liabilities and Stockholders' Equity $ 37,144 $ 33,862
=========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
IGI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
2000 1999
---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (536) $ (451)
Reconciliation of net loss to net cash (used by) provided by operating
activities:
Depreciation and amortization 550 474
Amortization of deferred financing costs and debt discount 112 --
Write-off of other assets -- 70
Provision for loss on accounts receivable and inventories 792 231
Recognition of deferred revenue (148) (70)
Benefit for deferred income taxes (595) (194)
Accrued interest expense relating to put feature of warrants (154) --
Stock compensation expense:
Non employee stock options 36 44
Directors' stock issuance 50 168
Changes in operating assets and liabilities:
Accounts receivable (650) (125)
Inventories (1,925) (259)
Receivables under royalty agreements (288) (43)
Prepaid and other assets 332 41
Accounts payable and accrued expenses 1,466 826
Income taxes payable (5) --
Short-term notes payable, operating (329) (275)
-------- --------
Net cash (used by) provided by operating activities: (1,292) 437
-------- --------
Cash flows from investing activities:
Capital expenditures (548) (461)
(Increase) in other assets (166) (185)
-------- --------
Net cash used by investing activities (714) (646)
-------- --------
Cash flows from financing activities:
Borrowings under capital expenditures facility 257 --
Borrowings under revolving credit agreement 17,800 --
Repayments of revolving credit agreement (16,144) --
Proceeds from exercise of common stock options and
purchase of common stock 120 --
-------- --------
Net cash provided by financing activities 2,033 --
-------- --------
Net decrease in cash and equivalents 27 (209)
Cash and equivalents at beginning of period 416 1,068
-------- --------
Cash and equivalents at end of period $ 443 $ 859
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared by IGI,
Inc. without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC"), and reflect all adjustments which, in the
opinion of management, are necessary for a fair statement of the results for
the interim periods presented. All such adjustments are of a normal recurring
nature. Certain previously reported amounts have been reclassified to conform
with the current period presentation.
Certain information in footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the SEC, although the Company believes the disclosures are
adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the financial statements and
the notes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999 (the "1999 10-K Annual Report").
2. DEBT AND STOCK WARRANTS
On October 29, 1999, the Company entered into a $22 million senior bank
credit agreement ("Senior Debt Agreement") with Fleet Capital Corporation
("Fleet") and a $7 million subordinated debt agreement ("Subordinated Debt
Agreement") with American Capital Strategies, Ltd., ("ACS").
On April 12, 2000, ACS amended its Subordinated Debt Agreement with the
Company whereby the "put" provision associated with the original warrants
granted to purchase 1,907,543 shares of the Company's common stock was
replaced by a "make-whole" feature. The "make-whole" feature requires the
Company to compensate ACS, in either Common Stock or cash, at the option of
the Company, in the event that ACS ultimately realizes proceeds from the sale
of its Common Stock obtained upon exercise of its warrants that are less than
the fair value of the Common Stock upon exercise of such warrants. Fair value
of the Common Stock upon exercise is defined as the 30-day average value
prior to notice of intent to sell. ACS must exercise reasonable effort to
sell or place its shares in the marketplace over a 180-day period, beginning
with the date of notice by ACS, before it can invoke the make-whole
provision.
The Company recorded a non-taxable $1,073,000 provision reflected as interest
expense for the mark-to-market adjustment for the fair value of the "put"
warrant for the three month period ended March 31, 2000. A non-taxable
reduction of interest expense of $1,431,000 was recognized in the second
quarter ended June 30, 2000, reflecting a decrease in the fair value of the
warrants from April 1 to April 12, 2000. As a result of the April 12, 2000
amendment, the remaining liability at April 12, 2000 of $3,338,000 was
reclassified to paid in capital. The April 12, 2000 amendment required the
Company to file a shelf Registration Statement with respect to resales of
shares acquired by ACS by October 9, 2000. If the registration is not filed
by this date, the Company will be required to reverse the $1,431,000 interest
expense reduction.
In connection with the amendment to the Subordinated Debt Agreement, ACS also
agreed to defer the payment by the Company of the cash portion of interest on
subordinated debt for the period April 1, 2000 to July 31, 2000. Payment of
the cash portion of interest on subordinated debt will be due at the end of
each subsequent three month period thereafter. Furthermore, the existing
additional interest component at the rate of 2% was increased to 2.25%, which
is payable at the Company's election in cash or in Company Common Stock. The
increase of .25% in the additional interest component will be in effect
through March 2001, at which time the additional interest component rate will
be adjusted back down to 2%.
On June 26, 2000, the Company entered into an Asset Purchase Agreement dated
as of June 19, 2000 (the "Vineland Agreement"), with Vineland International,
a general partnership which has changed its name to Lohmann Animal Health
International (the "Buyer"). The Vineland Agreement provides for the sale
(the "Vineland Sale") by the Company to the Buyer of the assets associated
with the business of manufacturing, marketing, licensing and selling poultry
vaccines and related equipment conducted by the Vineland Laboratories
division of the Company. In exchange for receipt of such assets, the Buyer
will assume certain Company liabilities, in the aggregate, equal to
approximately $2,300,000 and will pay the Company cash in the amount of
$12,500,000, of which $500,000 will be placed in an escrow fund to secure
potential obligations of
5
<PAGE> 6
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
the Company relating to final purchase price adjustments and indemnification.
The Company's Board of Directors has approved the filing of a proxy
statement. The SEC is conducting a review of the proxy statement. The sale is
contingent on a majority approval of the holders of the outstanding shares of
the Company's stock. The Company projects a $300 after tax gain on the
Vineland sale offset by a $525 after tax extraordinary loss on the early
extinguishment of debt.
On June 26, 2000, the Company entered into Amendment No. 2 to Note and Equity
Purchase Agreement with ACS. Pursuant to the Second Subordinated Amendment,
the Company received $500,000 and issued to ACS $500,000 of Series C Senior
Subordinated Notes due September 30, 2000 (the "Series C Notes"); and ACS
waived compliance with certain financial covenants applicable to Borrower
contained in the Subordinated Debt Agreement and modified certain interest
payment dates with respect to the Notes. In addition, the Second Subordinated
Amendment permits the Company to issue additional Series C Notes on July 31,
2000 to pay the interest then due and payable on the Notes and the Series C
Notes. The Company will issue, in the beginning of August 2000, to ACS an
additional Series C Note in the aggregate principal amount of approximately
$300,000 for the interest due.
Also, on June 26, 2000, the Company entered into a Second Amendment to Loan
and Security Agreement dated as of June 23, 2000 (the "Second Senior
Amendment") with Fleet, the Senior Lender. Pursuant to the Second Senior
Amendment, the Company obtained an "overadvance" of $500,000 under the
Revolving Loan (the "Overadvance"), repayable in full on the earlier to occur
of September 22, 2000 or the date of the consummation of the Vineland Sale.
Under the Second Senior Amendment, the Senior Lender agreed to forbear from
exercising its right to accelerate the maturity of the Senior Loans upon the
default by the Borrower under certain financial covenants (the "Forbearance
Covenants") until the first to occur of: (a) September 22, 2000, (b) the
date on which any default, other than a default under the Forbearance
Covenants, occurs under the Senior Debt Agreement, as amended; or (c) the
date of the termination of the Vineland Agreement.
This Agreement may be terminated at any time prior to the closing by mutual
consent of the Buyer and the Seller, or by either the Buyer or the Seller:
1. if the transaction contemplated is not consummated on or
before the date that is three (3) months after the date of
this Agreement (September 19, 2000), unless the failure to
consummate the transaction is the result of a material breach
of this Agreement by the party seeking to terminate this
Agreement; provided, however, that the passage of such period
shall be tolled for any part thereof (but not exceeding ninety
(90) days in the aggregate) during which any party shall be
subject to a non-final order, decree, ruling or action
restraining, enjoining or otherwise prohibiting the
consummation of the transaction;
2. If any Governmental entity issues an order, decree or ruling
or takes any other action permanently enjoining, restraining
or otherwise prohibiting the transaction and such order,
decree, ruling or other action shall have become final and
non-appealable;
3. If the stockholders of the Seller do not approve this
Agreement and transaction.
Under the Second Senior Amendment, the Senior Lender agreed to release its
security interests in and liens on all property to be transferred by the
Company to Buyer pursuant to the Vineland Sale (the "Vineland Collateral")
upon consummation of the Vineland Sale. The release of the Vineland
Collateral is conditioned upon the application of the proceeds of the
Vineland Sale, net of certain closing and other costs approved by the Senior
Lender, to repay the Loans, the Overadvance and the Series C Notes as
follows: (i) first to repay the Overadvance in full; (ii) second, to repay
that amount of the outstanding Revolving Loan equal to 85% of certain of the
accounts receivable transferred to the Buyer pursuant to the Vineland Sale;
(iii) third, to repay that amount of the Revolving Loan equal to 100% of the
Revolving Loan made with respect to inventory transferred pursuant to the
Vineland Sale; (iv) fourth, to repay in full the total amount of Capital
Expenditure Loans then outstanding; (v) fifth, to repay in full the total
amount of the Term B Loan then outstanding; (vi) sixth, to repay the Term A
Loan in an amount sufficient to reduce the outstanding principal balance of
the Term
6
<PAGE> 7
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
A Loan to $2,705,000; (vii) seventh, to pay the Series C Notes in an amount
not to exceed $826,798.93; and (viii) eighth, to repay any portion of the
then outstanding Revolving Loan.
The debt agreements contain various affirmative and negative covenants, such
as minimum tangible net worth and minimum fixed charge coverage ratios. The
covenants under the debt agreements were further amended on April 12, 2000.
The financial covenants are dependent upon continued improved operating
results. The Company remains highly leveraged; as a result, access to
additional funding sources is limited. The Company's available borrowings
under the revolving line of credit facility are dependent on the level of
qualifying accounts receivable and inventory. Unfavorable product sales
performance since April 1, 2000 has limited the available borrowing capacity
of the Company under the revolving line of credit facility. If the Company's
product sales do not improve or the Company is not successful in meeting its
financial obligations, it could result in a default under its loan agreements
and any such default, if not resolved, could lead to curtailment of certain
of its business operations, sale of certain assets or the commencement of
insolvency proceedings by its creditors. The Company believes it will be able
to continue to be in compliance with its debt covenants through at least
January 1, 2001 unless the sale of the Vineland Division is not approved by
the shareholders. The Company believes the Vineland Sale will be approved by
its shareholders. If the sale is not approved, the Company believes it will
be able to consummate another asset sale, business restructuring and/or other
activities such that it would remain in compliance with the covenants through
at least January 1, 2001.
3. PER SHARE DATA
Per share data is computed based upon the weighted average number of shares
of common stock, adjusted for the potential conversion of dilutive common
stock equivalents. The fully dilutive earnings per share data is not shown
since the dilutive and basic are equal on June 30, 2000.
4. INVENTORIES
Inventories are valued at the lower of cost, using the first-in, first-out
("FIFO") method, or market.
Inventories at June 30, 2000 and December 31, 1999 consist of:
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Finished goods $ 4,010 $ 2,445
Work-in-process 3,676 3,853
Raw materials 2,219 2,464
-------- --------
Total $ 9,905 $ 8,762
======== ========
</TABLE>
5. REGULATORY PROCEEDINGS AND LEGAL PROCEEDINGS
The Company is subject to review, oversight and periodic inspections by
governmental regulatory agencies such as the U.S. Securities and Exchange
Commission (the "SEC"), the U.S. Department of Agriculture ("USDA"), the
federal Food and Drug Administration ("FDA") and the New Jersey Department of
Environmental Protection ("NJDEP") and the local department of health.
FDA INSPECTION OBSERVATIONS
On July 5, 2000, the FDA completed its inspection of the Company's Companion
Pet Products division and issued an inspection report on Form FDA 483. The
July 5, 2000 FDA report includes several unfavorable observations of
manufacturing and quality assurance practices and products of the division.
The Company is currently compiling its responses to the July 5, 2000 FDA
report. In an effort to address a number of the FDA's stated concerns, on May
24, 2000, the Company discontinued production and shipment of Liquichlor and
on June 1, 2000 temporarily stopped production of Cerumite, both products of
the Pet Products Division. The
7
<PAGE> 8
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
aggregate annual sales volume for these products for the fiscal year ended
December 31, 1999 was $1,059,000.
Upon receipt of the Company's formal response to the July 5, 2000
observations, the FDA will evaluate the Company's response and will determine
the ultimate outcome of the FDA inspection. An unfavorable outcome could
result in fines, penalties and the potential halt of the sale of certain
regulated products, any or all of which could have a material, adverse effect
on the Company. The Company has incurred $634,000 year to date in related
expenses to improve production, to meet documentation, procedural and
regulatory compliance.
SEC INVESTIGATION
On July 26, 2000, the Company reached an agreement in principle with the
staff of the SEC to resolve matters arising with respect to the informal
investigation of the Company commenced by the SEC in April 1998. Under the
agreement, which will not be final until approved by the SEC, the Company
neither admits nor denies that the Company violated the financial reporting
and record-keeping requirements of Section 13 of the Securities Exchange Act
of 1934, as amended, for the fiscal years 1995, 1996 and 1997. Further, in
the agreement, the Company agrees to the entry of an order to cease and
desist from any such violation in the future. There is no monetary penalty.
The investigation and settlement focus on fraudulent actions taken by former
members of the company's management. Upon becoming aware of the fraudulent
activity, IGI, through its Board of Directors, immediately commenced an
internal investigation which led to the termination of employment of those
responsible. IGI then cooperated fully with the staff of the SEC and
disclosed to the Commission the results of the internal investigation.
NJDEP ACTION
On April 6, 2000, officials of the New Jersey Department of Environmental
Protection inspected a company storage site in Buena, New Jersey and issued a
Notice of Violation relating to the storage of waste materials in a number of
trailers at the site. The Company has established a disposal and cleanup
schedule and has commenced operations to remove materials from the site.
Small amounts of hazardous waste were discovered and the Company was issued a
notice of violation relating to the storage of these materials. The Company
is cooperating with the authorities and expects the assessment of fines or
penalties. The Company has expensed the full cost of $160,000 related to the
disposal and cleanup.
COHANZICK PARTNERS, LP ACTION
On April 14, 1999, a lawsuit was filed in the U.S. District Court for the
Southern District of New York by Cohanzick Partners, LP, against IGI, Inc.
and certain of its present and former directors, officers and employees. The
suit, which sought approximately $420,000 in actual damages together with
fees, costs and interests, alleged violations of the securities laws, fraud,
and negligent misrepresentation concerning certain disclosures made and other
actions taken by the Company in 1996 and 1997. The Company has settled this
action without the expenditure of Company funds.
8
<PAGE> 9
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. BUSINESS SEGMENTS
Summary data related to the Company's reportable segments for the six-month
periods ended June 30, 2000 and 1999 appear below:
<TABLE>
<CAPTION>
POULTRY COMPANION PET CONSUMER
VACCINES PRODUCTS PRODUCTS CORPORATE * CONSOLIDATED
-------- -------- -------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED JUNE 30:
2000
Revenues $ 3,203 $ 3,374 $ 1,834 $ -- $ 8,411
Operating profit (loss) (98) (79) 1,167 (1,192) (202)
1999
Revenues 3,261 3,608 1,993 -- 8,862
Operating profit (loss) (287) 1,161 1,155 (1,375) 654
SIX MONTHS ENDED JUNE 30:
2000
Revenues 6,392 6,703 3,770 -- 16,865
Operating profit (loss) (479) 573 2,419 (2,310) 203
1999
Revenues 7,127 6,927 3,551 -- 17,605
Operating profit (loss) (414) 2,170 2,005 (2,740) 1,021
</TABLE>
*Notes:
(A) Unallocated corporate expenses are principally general and administrative
expenses.
(B) Transactions between reportable segments are not material.
9
<PAGE> 10
IGI, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis may contain forward-looking
statements. Such statements are subject to certain risks and
uncertainties, including those discussed below or in the Company's 1999
10-K Annual Report, that could cause actual results to differ materially
from the Company's expectations. See "Factors Which May Affect Future
Results" below and in the 1999 10-K Annual Report. Readers are cautioned
not to place undue reliance on any forward-looking statements, as they
reflect management's analysis as of the date hereof. The Company
undertakes no obligation to release the results of any revision to these
forward-looking statements which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
anticipated events.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO JUNE 30, 1999
The Company had net income of $510,000 or $.05 per share, for the three
months ended June 30, 2000 as compared to a net loss of $132,000, or $.02
per share, for the second quarter ended June 30, 1999. The increase in net
income was primarily the result of the reduction of interest expense of
$1,431,000 reflecting the decrease from April 1, 2000 to April 12, 2000 in
the fair value of a "put" provision related to warrants granted to ACS. On
April 12, 2000 the ACS Subordinated notes were amended, whereby the "put"
provision was replaced by a "make-whole" feature.
Total revenues for the quarter ended June 30, 2000 were $8,411,000, which
represents a decrease of $451,000 or 5%, compared to revenues $8,862,000,
for the quarter ended June 30, 1999. The decrease is due to lower
Companion Pet and Consumer Product revenues. Companion Pet Product revenue
decreased $234,000 or 7% primarily due to lost revenues from a product
recall and a decrease in shipments by distributors who are reducing
inventory to increase their inventory turnover. Consumer Product revenue
decreased $159,000 or 8% mainly from reduced sales to Estee Lauder of
$508,000 offset by higher licensing and royalty income of $358,000
primarily from Johnson & Johnson due to new product introductions by it.
Poultry Vaccine revenue decreased $58,000 or 2% as a result of lost
customers of the Company's Vineland Division.
Cost of sales increased by $635,000, or 15%, from the quarter ending June
30, 1999. As a percentage of revenues, cost of sales increased from 49% in
the quarter ended June 30, 1999 to 59% in the quarter ended June 30, 2000.
The resulting decrease in gross profit from 51% in 1999 to 41% in 2000 is
the result of unusual charges of $536,000 for consulting and other related
costs for Petcare Products documentation, procedural and regulatory
compliance issues, $154,000 for hazardous waste removal and $335,000 for
Pet Product recall and inventory related reserve. In addition, on May 17,
2000, an oil tank spill occurred at the Poultry Vaccine Vineland facility,
in which $167,000 in expenses were incurred to clean up the oil spill.
Excluding the unusual charges above of $1,192,000, this would have
resulted in a 55% gross profit for the quarter.
Selling, general and administrative expenses decreased by $343,000, or
10%, from $3,553,000 in the quarter ended June 30, 1999 to $3,210,000 in
the quarter ended June 30, 2000. As a percentage of revenues, these
expenses were 40% of revenues for the quarter ended June 30, 1999 compared
to 38% in the quarter ended June 30, 2000. Selling and marketing expenses
decreased by $38,000 compared to the same period last year principally
related to lower vaccine selling expenses. General and administrative
expenses decreased by $305,000, or 22% compared to the second quarter
1999, primarily as a result of decreased professional fees, management
compensation and additional cost saving measures implemented.
Product development and research expenses increased by $113,000 or 35%,
compared to the quarter ended June 30, 1999. The increase is mainly for
additional research staff to work on new and existing projects.
Net interest expense changed by $1,407,000, from $843,000 net interest
expense for the three months ended June 30, 1999 to net interest income of
$564,000 for the three months ended June 30, 2000. The decrease is a
result of the amendment of the ACS Subordinated notes, whereby the "put"
provision associated with the original warrants granted to purchase
1,907,543 shares of the Company's stock was replaced by a "make-
10
<PAGE> 11
IGI, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
whole" feature. The interest expense reduction of non-taxable $1,431,000
reflects the decrease in the fair value of the warrants from April 1, 2000
to April 12, 2000.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO JUNE 30, 1999
The Company had a net loss of $536,000, or $.05 per share, for the six
months ended June 30, 2000 as compared to a net loss of $451,000, or $.05
per share, for the six months ended June 30, 1999. The increase in the net
loss compared to the prior year was primarily due to decreased revenues
and increased cost of sales offset by decreased operating expenses and
decreased interest expense.
Total revenues for the six months ended June 30, 2000 were $16,865,000,
which represents a decrease of $740,000, or 4%, from revenues of
$17,605,000 for the six months ended June 30, 1999. The decrease in
revenues was primarily attributable to decreased Poultry Vaccine and
Companion Pet sales partially offset by increased Consumer revenues.
Poultry Vaccine revenue decreased by $735,000 or 10% as a result of
limited production capacity and lost customers at the Company's Vineland
business. Management has sought to modernize its Vineland poultry vaccine
equipment and facilities and to increase production capacity. Limited
production capacity and old equipment, combined with increased
requirements for higher super potency and larger volume vaccines has
continued to limit Vineland's ability to produce sufficient quantities of
vaccines. Companion Pet Products revenues decreased $224,000 or 3% under
the comparable six months in 1999 due to lost revenues from a product
recall and a decrease in shipments by distributors who are reducing
inventory to increase their inventory turnover. Consumer Products revenues
increased $219,000, or 6%, for the six months of 2000 as a result of
licensing and royalty income. Licensing and royalty income increased by
$738,000 or 95% over the comparable period last year as a result of
increased license revenue from Johnson & Johnson due to it's new product
introductions.
Cost of sales increased by $507,000, or 6%, from the six months ended June
30, 1999. As a percentage of revenues, cost of sales increased from 50% in
the six months ended June 30, 1999 to 55% in the six months ended June 30,
2000. The resulting decrease in gross profit from 50% in 1999 to 45% in
2000 is the result of unusual charges of $634,000 for consulting and other
related costs for Petcare Products documentation, procedural and
regulatory compliance issues, $160,000 for hazardous waste removal and
$335,000 for Pet Product recall and inventory related reserve. In
addition, on May 17, 2000, an oil tank spill occurred at the Poultry
Vaccine Vineland facility. $167,000 in expenses was incurred to clean up
the oil spill. Excluding the unusual charges above of $1,296, 000, this
would have resulted in a 53% gross profit for the six months ended June
30, 2000.
Selling, general and administrative expenses decreased by $658,000, or 9%,
from $7,168,000 in the six months ended June 30, 1999 to $6,510,000 in the
six months ended June 30, 2000. As a percentage of revenues, these
expenses were 41% of revenues for the six months ended June 30, 1999
compared to 39% in the six months ended June 30, 2000. Selling and
marketing expenses decreased by $65,000 compared to the same period last
year principally related to lower vaccine selling expenses. General and
administrative expenses decreased by $593,000, or 22% compared to the six
months ended 1999, primarily as a result of decreased professional fees,
management compensation and director fees and additional cost saving
measures implemented.
Product development and research expenses increased by $229,000, or 36%,
compared to the six months ended June 30, 1999. The increase is
principally for additional research staff to work on new and existing
projects.
Net interest expense decreased $330,000, or 20%, from $1,665,00 for the
six months ended June 30, 1999 to $1,335,000 in the six months ended June
30, 2000. The decrease is a result of the amendment of the ACS
Subordinated notes, whereby the "put" provision associated with the
original warrants granted to purchase
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IGI, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
1,907,543 shares of the Company's stock were replaced by a "make-whole"
feature. The non-taxable interest expense reduction of $1,431,000 reflects
the decrease in the fair value of the warrants from April 1, 2000 to April
12, 2000.
LIQUIDITY AND CAPITAL RESOURCES
On April 12, 2000, ACS amended its Subordinated Debt Agreement with the
Company whereby the "put" provision associated with the original warrants
granted to purchase 1,907,543 shares of the Company's common stock was
replaced by a "make-whole" feature. The "make-whole" feature requires the
Company to compensate ACS, in either Common Stock or cash, at the option
of the Company, in the event that ACS ultimately realizes proceeds from
the sale of its Common Stock obtained upon exercise of its warrants that
are less than the fair value of the Common Stock upon exercise of such
warrants. Fair value of the Common Stock upon exercise is defined as the
30-day average value prior to notice of intent to sell. ACS must exercise
reasonable effort to sell or place its shares in the marketplace over a
180-day period before it can invoke the make-whole provision.
The Company recorded a non-taxable $1,073,000 provision reflected as
interest expense for the mark-to-market adjustment for the fair value of
the "put" warrant for the three month period ended March 31, 2000. As a
result of the amendment, the liability recognized related to the warrants
was reclassified as a component of equity without a future mark-to-market
adjustment effective April 12, 2000. A non-taxable reduction of interest
expense of approximately $1,431,000 was recognized in the second quarter
reflecting a decrease in the fair value of the warrants from April 1,
2000.
In connection with the amendment to the Subordinated Debt Agreement, ACS
also agreed to defer the payment by the Company of the cash portion of
interest on subordinated debt for the period April 1, 2000 to July 31,
2000 until July 31, 2000. Payment of the cash portion of interest on
subordinated debt will be payable at the end of each subsequent three
month period thereafter. Furthermore, the existing additional interest
component at the rate of 2% was increased to 2.25%, which is payable at
the Company's election in cash or in Company Common Stock. The increase of
.25% in the additional interest component is in effect through March 2001,
at which time the additional interest component rate is adjusted back down
to 2%.
The debt agreements contain various affirmative and negative covenants,
such as minimum tangible net worth and minimum fixed charge coverage
ratios. The covenants under the debt agreements were further amended on
April 12, 2000. The financial covenants are dependent upon continued
improved operating results. The Company remains highly leveraged and as a
result, access to additional funding sources is limited. The Company's
available borrowings under the revolving line of credit facility are
dependent on the level of qualifying accounts receivable and inventory.
Unfavorable product sales performance since April 1, 2000 has limited the
available borrowing capacity of the Company under the revolving line of
credit facility. If the Company's operating results deteriorate or product
sales do not improve or the Company is not successful in meeting its
financial obligations, it could result in a default under its loan
agreements and any such default, not resolved, could lead to curtailment
of certain of its business operations, sale of certain assets or the
commencement of insolvency proceedings by its creditors.
On June 26, 2000, the Company entered into an Asset Purchase Agreement
dated as of June 19, 2000 (the "Vineland Agreement"), with Vineland
International, a general partnership which has changed its name to Lohmann
Animal Health International (the "Buyer"). The Vineland Agreement provides
for the sale (the "Vineland Sale") by the Company to the Buyer of the
assets associated with the business of manufacturing, marketing, licensing
and selling poultry vaccines and related equipment conducted by the
Vineland Laboratories division of the Company. In exchange for receipt of
such assets, the Buyer will assume certain Company liabilities, in the
aggregate, equal to approximately $2,300,000 and will pay the Company cash
in the amount of $12,500,000, of which $500,000 will be placed in an
escrow fund to secure potential obligations of the Company relating to
final purchase price adjustments and indemnification.
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IGI, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
On June 26, 2000, the Company entered into Amendment No. 2 to Note and
Equity Purchase Agreement with ACS. Pursuant to the Second Subordinated
Amendment, the Company received $500,000 and issued to ACS $500,000
aggregate principal amount of Series C Senior Subordinated Notes due
September 30, 2000 (the "Series C Notes"); and ACS waived compliance with
certain financial covenants applicable to Borrower contained in the
Subordinated Debt Agreement and modified certain interest payment dates
with respect to the Notes. In addition, the Second Subordinated Amendment
permits the Company to issue additional Series C Notes on July 31, 2000 to
pay the interest then due and payable on the Notes and the Series C Notes.
The Company will issue in the beginning of August 2000, to ACS an
additional Series C Note in the aggregate principal amount of
approximately $300,000.
Also, on June 26, 2000, the Company entered into a Second Amendment to
Loan and Security Agreement dated as of June 23, 2000 (the "Second Senior
Amendment") with Fleet Capital Corporation ("Fleet"), the Senior Lender.
Pursuant to the Second Senior Amendment, the Company obtained an
"overadvance" of $500,000 under the Revolving Loan (the "Overadvance"),
repayable in full on the earlier to occur of September 22, 2000 or the
date of the consummation of the Vineland Sale. Under the Second Senior
Amendment, the Senior Lender agreed to forbear from exercising its right
to accelerate the maturity of the Senior Loans upon the default by the
Borrower under certain financial covenants (the "Forbearance Covenants")
until the first to occur of: (a) September 22, 2000, (b) the date on which
any default, other than a default under the Forbearance Covenants, occurs
under the Senior Debt Agreement, as amended; or (c) the date of the
termination of the Vineland Agreement.
Under the Second Senior Amendment, the Senior Lender agreed to release its
security interests in and liens on all property to be transferred by the
Company to Buyer pursuant to the Vineland Sale (the "Vineland Collateral")
upon consummation of the Vineland Sale. The release of the Vineland
Collateral is conditioned upon the application of the proceeds of the
Vineland Sale, net of certain closing and other costs approved by the
Senior Lender, to repay the Loans, the Overadvance and the Series C Notes
as follows: (i) first to repay the Overadvance in full; (ii) second, to
repay that amount of the outstanding Revolving Loan equal to 85% of
certain of the accounts receivable transferred to the Buyer pursuant to
the Vineland Sale; (iii) third, to repay that amount of the Revolving Loan
equal to 100% of the Revolving Loan made with respect to inventory
transferred pursuant to the Vineland Sale; (iv) fourth, to repay in full
the total amount of Capital Expenditure Loans then outstanding; (v) fifth,
to repay in full the total amount of the Term B Loan then outstanding;
(vi) sixth, to repay the Term A Loan in an amount sufficient to reduce the
outstanding principal balance of the Term A Loan to $2,705,000; (vii)
seventh, to pay the Series C Notes in an amount not to exceed $826,798.93;
and (viii) eighth, to repay any portion of the then outstanding Revolving
Loan.
The Company's operating activities used $1.3 million of cash during the
six-month period ended June 30, 2000. The Company utilized approximately
$714,000 cash in investing activities, primarily for capital expenditures
for the Company's manufacturing operations. Cash utilized in the Company's
operating and investing activities were provided by the Company's
financing activities, which primarily related to increased borrowings
under the line of credit facility and capital expenditures facility.
REGULATORY PROCEEDING AND LEGAL PROCEEDINGS
The Company is subject to review, oversight and periodic inspections by
governmental regulatory agencies such as the U.S. Securities and Exchange
Commission (the "SEC"), the U.S. Department of Agriculture ("USDA"), the
Federal Food and Drug Administration ("FDA") and the New Jersey Department
of Environmental Protection ("NJDEP") and the local department of health.
13
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IGI, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
FDA INSPECTION OBSERVATIONS
On July 5, 2000, the FDA completed its inspection of the Company's
Companion Pet Products division and issued an inspection report on Form
FDA 483. The July 5, 2000 FDA report includes several unfavorable
observations of manufacturing and quality assurance practices and products
of the division. The Company is currently compiling its responses to the
July 5, 2000 FDA report. In an effort to address a number of the FDA's
stated concerns, on May 24, 2000, the Company discontinued production and
shipment of Liquichlor and on June 1, 2000 temporarily stopped production
of Cerumite, both products of the Pet Products Division. The aggregate
annual sales volume for these products for the fiscal year ended December
31, 1999 was $1,059,000.
Upon receipt of the Company's formal response to the July 5, 2000
observations, the FDA will evaluate the Company's response and will
determine the ultimate outcome of the FDA inspection. An unfavorable
outcome could result in fines, penalties and the potential halt of the
sale of certain regulated products, any or all of which could have a
material, adverse effect on the Company. The Company has incurred $634,000
year to date in related expenses to improve production, to meet
documentation, procedural and regulatory compliance.
SEC INVESTIGATION
On July 26, 2000, the Company reached an agreement in principle with the
staff of the SEC to resolve matters arising with respect to the informal
investigation of the Company commenced by the SEC in April 1998. Under the
agreement, which will not be final until approved by the SEC, the Company
neither admits nor denies that the Company violated the financial
reporting and record-keeping requirements of Section 13 of the Securities
Exchange Act of 1934, as amended, for the fiscal years 1995, 1996 and
1997. Further, in the agreement, the Company agrees to the entry of an
order to cease and desist from any such violation in the future. There is
no monetary penalty.
The investigation and settlement focus on fraudulent actions taken by
former members of the company's management. Upon becoming aware of the
fraudulent activity, IGI, through its Board of Directors, immediately
commenced an internal investigation which led to the termination of
employment of those responsible. IGI then cooperated fully with the staff
of the SEC and disclosed to the Commission the results of the internal
investigation.
NJDEP ACTION
On April 6, 2000, officials of the New Jersey Department of Environmental
Protection inspected a company storage site in Buena, New Jersey and
issued a Notice of Violation relating to the storage of waste materials in
a number of trailers at the site. The Company has established a disposal
and cleanup schedule and has commenced operations to remove materials from
the site. Small amounts of hazardous waste were discovered and the Company
was issued a notice of violation relating to the storage of these
materials. The Company is cooperating with the authorities and expects the
assessment of fines or penalties. The Company has expensed $160,000 year
to date related to the disposal and clean up.
COHANZICK PARTNERS, LP ACTION
On April 14, 1999, a lawsuit was filed in the U.S. District Court for the
Southern District of New York by Cohanzick Partners, LP, against IGI, Inc.
and certain of its present and former directors, officers and employees.
The suit, which sought approximately $420,000 in actual damages together
with fees, costs and interests, alleged violations of the securities laws,
fraud, and negligent misrepresentation concerning certain disclosures made
and other actions taken by the Company in 1996 and 1997. The Company has
settled this action without the expenditure of Company funds.
14
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IGI, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
FACTORS WHICH MAY AFFECT FUTURE RESULTS
HIGHLY LEVERAGED AND DEBT COVENANT COMPLIANCE
The Company remains very highly leveraged and subject to restrictive
covenants and restraints which are contained in its Senior Debt Agreement,
as amended, and its Subordinated Debt Agreement, as amended.
The debt agreements contain various affirmative and negative covenants,
such as minimum tangible net worth and minimum fixed charge coverage
ratios. Furthermore, the Company's available borrowings under the
Revolving Loan are dependent upon the level of the Company's qualifying
accounts receivable and inventory. Also, the Company's ability to repay
the Overadvance and the Series C Notes is dependent upon the consummation
of the Vineland Sale on or before September 21, 2000.
The Company believes that it can achieve the required financial
performance and timely consummate the Vineland Sale; however, there can be
no assurance that the Company will be successful in doing so. If the
Company is not successful in meeting its financial covenants and timely
closing the Vineland Sale, a default could occur under the debt agreements
and any such default, if not resolved, could lead to curtailment of
certain the Company's business operations, sale of certain assets or
commencement of insolvency proceedings by the Company's creditors.
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(R) lipid
vesicles in their products may decide to reduce their purchases from the
Company or shift their business to other suppliers.
COMPETITION IN POULTRY VACCINE BUSINESS
The Company is encountering increased price competition from other
producers of poultry vaccines.
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 and Far Eastern countries, increasingly important markets
for the Company's animal health products, could adversely affect the
Company's future business in these countries.
RAPIDLY CHANGING MARKETPLACE FOR PET PRODUCTS
The emergence of pet superstores, the consolidation of distribution
channels into fewer, more powerful companies and the diminishing
traditional role of veterinarians in the distribution of pet products
could adversely affect the Company's ability to expand its animal health
business or to operate at acceptable gross margin levels.
EFFECT OF RAPIDLY CHANGING TECHNOLOGIES
The Company expects to license its technologies to third parties which
would manufacture and market products incorporating these technologies.
However, if its competitors develop new and improved technologies
15
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IGI, INC. AND SUBSIDIARIES
that are superior to the Company's technologies, its technologies could be
less acceptable in the marketplace and therefore the Company's planned
technology licensing could be materially adversely affected.
REGULATORY CONSIDERATIONS
The Company's poultry vaccines and pet products are regulated by the USDA
and the FDA respectively which subject the Company to review, oversight
and periodic inspections. Any new products are subject to expensive and
sometimes protracted USDA and FDA regulatory approval, which ultimately
may not be granted. 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.
INCOME TAXES
The Company had net deferred tax assets in the amount of approximately
$5.9 million as of December 31, 1999 and $6.1 million as of June 30, 2000.
The largest deferred tax asset relates to $3.7 million of net operating
loss carryforwards. After considering a $955,000 valuation allowance at
June 30, 2000, management believes the Company's remaining net deferred
tax assets are more likely than not to be realized through the reversal of
existing taxable temporary differences, the sale of certain state net
operating losses, and the generation of sufficient future taxable
operating income to ensure utilization of remaining deductible temporary
differences, net operating losses and tax credits. The minimum level of
future taxable income necessary to realize the Company's net deferred tax
assets at June 30, 2000, was approximately $21 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 net deferred tax assets.
Federal net operating loss carryforwards expire through 2019. Significant
components expire in 2007, 2018 and 2019. Also federal research credits
expire in varying amounts through the year 2019.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
On April 12, 2000, ACS amended its Subordinated Debt Agreement with the
Company whereby the "put" provision associated with the original warrants
granted to purchase 1,907,543 shares of the Company's common stock was
replaced by a "make-whole" feature. The "make-whole" feature requires the
Company to compensate ACS, in either Common Stock or cash, at the option
of the Company, in the event that ACS ultimately realizes proceeds from
the sale of its Common Stock obtained upon exercise of its warrants that
are less than the fair value of the Common Stock upon exercise of such
warrants. Fair value of the Common Stock upon exercise is defined as the
30-day average value prior to notice of intent to sell. ACS must exercise
reasonable effort to sell or place its shares in the marketplace over a
180-day period before it can invoke the make-whole provision.
As a result of the amendment, the liability recognized related to the
warrants was reclassified as a component of equity without a future
mark-to-market adjustment effective April 12, 2000. A reduction of
interest expense of $1,431,000 was recognized in the second quarter
reflecting a decrease in the fair value of the warrants from April 1 to
April 12, 2000.
16
<PAGE> 17
PART II OTHER INFORMATION
Item 1 - Legal Proceedings
On July 26, 2000, the Company reached an agreement in principle with the
staff of the SEC to resolve matters arising with respect to the informal
investigation of the Company commenced by the SEC in April 1998. Under the
agreement, which will not be final until approved by the SEC, the Company
neither admits nor denies that the Company violated the financial
reporting and record-keeping requirements of Section 13 of the Securities
Exchange Act of 1934, as amended, for the fiscal years 1995, 1996 and
1997. Further, in the agreement, the Company agrees to the entry of an
order to cease and desist from any such violation in the future. There is
no monetary penalty.
The investigation and settlement focus on fraudulent actions taken by
former members of the company's management. Upon becoming aware of the
fraudulent activity, IGI, through its Board of Directors, immediately
commenced an internal investigation which led to the termination of
employment of those responsible. IGI then cooperated fully with the staff
of the SEC and disclosed to the Commission the results of the internal
investigation.
On April 14, 1999, a lawsuit was filed in the U.S. District Court for the
Southern District of New York by Cohanzick Partners, LP, against IGI, Inc.
and certain of its present and former directors, officers and employees.
The suit, which seeks approximately $420,000 in actual damages together
with fees, costs and interests, alleged violations of the securities laws,
fraud, and negligent misrepresentation concerning certain disclosures made
and other actions taken by the Company in 1996 and 1997. The Company has
settled this action without the expenditure of Company funds.
Item 2 - Changes in Securities and Use of Proceeds
None.
Item 3 - Defaults Upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports
(a) Exhibits:
Exhibit 27.1 Financial Data Schedule for six months ended June 30,
2000
(b) Reports on Form 8-K. The following reports on Form 8-K have been filed
during the quarter for which this report is filed:
Form 8-K filed June 19, 2000 on which Item 5 was completed to announce
the resignation of the Company's Chief Financial Officer, Manfred
Hanuschek.
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IGI, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IGI, Inc.
(Registrant)
Date: August 11, 2000 By: /s/Paul Woitach
------------------------------------
Paul Woitach
President and Chief Executive Officer
Date: August 11, 2000 By: /s/Domenic N. Golato
------------------------------------
Domenic N. Golato
Senior Vice President and Chief
Financial Officer
18
