-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qn8Ba7yID4j183VBTWwWTotQX3PGVeZd9UTXikYSIAng6LLTsVWOFtCtZ7cD/ZPV AGSU4ZPrhvvFGfEKdB0Idg== 0000910647-03-000293.txt : 20030811 0000910647-03-000293.hdr.sgml : 20030811 20030811164846 ACCESSION NUMBER: 0000910647-03-000293 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IGI INC CENTRAL INDEX KEY: 0000352998 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 010355758 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08568 FILM NUMBER: 03835007 BUSINESS ADDRESS: STREET 1: WHEAT RD AND LINCOCN AVE STREET 2: P O BOX 687 CITY: BUENA STATE: NJ ZIP: 08310 BUSINESS PHONE: 6096971441 MAIL ADDRESS: STREET 1: WHEAT ROAD AND LINCOCN AVE STREET 2: P O BOX 687 CITY: BUENA STATE: NJ ZIP: 08310 FORMER COMPANY: FORMER CONFORMED NAME: IMMUNOGENETICS INC DATE OF NAME CHANGE: 19870814 10-Q 1 igi-10q2.txt BODY OF FORM 10-Q 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, 2003 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.) 105 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 ----- ----- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes No X ----- ----- The number of shares outstanding of the issuer's class of common stock, as of the latest practicable date: Common Shares Outstanding at July 24, 2003 is 11,396,865. ITEM 1. Financial Statements PART I FINANCIAL INFORMATION IGI, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share information) (Unaudited)
Three months ended June 30, Six months ended June 30, --------------------------- ------------------------- 2003 2002 2003 2002 ---- ---- ---- ---- Revenues: Product sales, net $ 718 $ 889 $ 1,523 $ 1,743 Licensing and royalty income 168 175 371 384 ---------- ---------- ---------- ---------- Total revenues 886 1,064 $ 1,894 2,127 Cost and expenses: Cost of sales 355 359 685 754 Selling, general and administrative expenses 852 671 1,352 1,328 Product development and research expenses 157 143 303 267 ---------- ---------- ---------- ---------- Operating loss (478) (109) (446) (222) Interest income (expense) 2 (119) 8 (303) Other income, net - - - 58 Loss on early extinguishment of debt - (2,654) - (2,654) ---------- ---------- ---------- ---------- Loss from continuing operations before provision for income taxes (476) (2,882) (438) (3,121) Provision for income taxes - - 2 6 ---------- ---------- ---------- ---------- Loss from continuing operations (476) (2,882) (440) (3,127) ---------- ---------- ---------- ---------- Discontinued operations: Income (loss) from operations of discontinued business - (521) - (401) Gain on disposal of discontinued business 169 12,468 169 12,468 ---------- ---------- ---------- ---------- Net income (loss) (307) 9,065 (271) 8,940 Mark to market for detachable stock warrants - 229 - (133) ---------- ---------- ---------- ---------- Net income (loss) attributable to common stock $ (307) $ 9,294 $ (271) $ 8,807 ========== ========== ========== ========== Basic and Diluted Earnings (Loss) Per Common Share Continuing operations $ (.04) $ (.24) $ (.04) $ (.29) Discontinued operations .01 1.06 .02 1.07 ---------- ---------- ---------- ---------- Net income (loss) per share $ (.03) $ .82 $ (.02) $ .78 ========== ========== ========== ========== Weighted Average of Common Stock and Common Stock Equivalents Outstanding Basic and diluted 11,400,449 11,300,454 11,392,063 11,286,574
The accompanying notes are an integral part of the consolidated financial statements. 2 IGI, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share information)
June 30, 2003 (unaudited) December 31, 2002 ------------- ----------------- ASSETS Current assets: Cash and cash equivalents $ 1,572 $ 1,999 Accounts receivable, less allowance for doubtful accounts of $21 and $35 in 2003 and 2002, respectively 422 460 Licensing and royalty income receivable 146 166 Inventories 175 209 Prepaid expenses and other current assets 328 146 -------- -------- Total current assets 2,643 2,980 Property, plant and equipment, net 2,786 2,862 Other assets 79 87 -------- -------- Total assets $ 5,508 $ 5,929 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 18 $ 18 Accounts payable 82 115 Accrued payroll 68 71 Other accrued expenses 517 551 Income taxes payable 10 16 -------- -------- Total current liabilities 695 771 Deferred income 418 485 Long-term debt 166 164 -------- -------- Total liabilities 1,279 1,420 -------- -------- Stockholders' equity: Common stock $.01 par value, 50,000,000 shares authorized; 13,321,705 and 13,262,657 shares issued in 2003 and 2002, respectively 133 133 Additional paid-in capital 23,674 23,644 Accumulated deficit (18,224) (17,953) Less treasury stock, 1,924,840 and 1,878,640 shares at cost in 2003 and 2002 respectively (1,354) (1,315) -------- -------- Total stockholders' equity 4,229 4,509 -------- -------- Total liabilities and stockholders' equity $ 5,508 $ 5,929 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 3 IGI, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited)
Six months ended June 30, ------------------------- 2003 2002 ---- ---- Cash flows from operating activities: Net income (loss) $ (271) $ 8,940 Reconciliation of net income (loss) to net cash used in operating activities: Gain on disposal of discontinued operations (169) (12,468) Depreciation and amortization 128 182 Gain on sale of marketable securities - (58) Write down of EVSCO facility to net realizable value - 632 Amortization of deferred financing costs and debt discount - 275 Loss on early extinguishment of debt - 2,654 Provision for accounts receivable and inventories 7 11 Recognition of deferred revenue (67) (67) Interest expense related to subordinated note agreement - 41 Stock-based compensation expense - Directors' stock issuance 26 32 Changes in operating assets and liabilities: Accounts receivable 51 (153) Inventories 14 647 Receivables under royalty agreements 20 95 Prepaid expenses and other assets (7) 44 Accounts payable and accrued expenses (70) (2,295) Income taxes payable (6) (4) Discontinued operations - working capital changes and non-cash charges (6) (8) ------- -------- Net cash used in operating activities (350) (1,500) ------- -------- Cash flows from investing activities: Capital expenditures (45) (46) Proceeds from sale of assets - 550 Proceeds from sale of marketable securities - 58 Decrease (increase) in other assets 1 (46) Proceeds from sale of discontinued operations, net of direct costs - 16,700 ------- -------- Net cash provided by (used in) investing activities (44) 17,216 ------- -------- Cash flows from financing activities: Borrowings under revolving credit agreement - 5,958 Repayment of revolving credit agreement - (8,284) Prepayment fees on paydown of debt - (273) Repayment of debt - (9,516) Borrowings from EDA loan 11 182 Repayments of EDA loan (9) (6) Proceeds from exercise of common stock options and purchase of common stock 4 16 Purchase of treasury shares (39) - ------- -------- Net cash used in financing activities (33) (11,923) ------- -------- Net increase (decrease) in cash and equivalents (427) 3,793 Cash and equivalents at beginning of period 1,999 10 ------- -------- Cash and equivalents at end of period $ 1,572 $ 3,803 ======= ========
The accompanying notes are an integral part of the consolidated financial statements. 4 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 presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. Certain information in footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the SEC, although the Company believes that the disclosures contained herein are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002 (the "2002 10-K Annual Report"). 2. Discontinued Operations On May 31, 2002, the shareholders of the Company approved, and the Company consummated, the sale of the assets and transfer of the liabilities of the Companion Pet Products division, which marketed companion pet care related products. The Companion Pet Products division, which is presented as a discontinued operation, incurred a loss from operations of $521,000 and a gain of $12,468,000 from the sale of the Companion Pet Products division for the three months ended June 30, 2002. During the three months ended June 30, 2003, the Company received an insurance settlement of $169,000, net of legal costs, for damages incurred by the Company as a result of the heating oil leak at the Companion Pet Products site (see Note 6). For the six months ended June 30, 2002, the Company incurred a loss from continuing operations of $401,000 and a $12,468,000 gain on the sale of the Companion Pet Products division. A $169,000 profit from the settlement mentioned above was realized for the comparable period in 2003. 3. Debt In the prior year, the Company received a $246,000 loan commitment from NJEDA to provide partial funding for the costs of investigation and remediation of the environmental contamination discovered at the Companion Pet Products facility in March 2001. The loan requires monthly principal payments over a term of ten years at a rate of interest of 5%. The Company has received funding of $207,000 through June 30, 2003. 4. Inventories Inventories are valued at the lower of cost, using the first-in, first-out ("FIFO") method, or market. Inventories at June 30, 2003 and December 31, 2002 consist of:
June 30, 2003 December 31, 2002 ------------- ----------------- (amounts in thousands) Finished goods $ 19 $ 52 Raw materials 156 157 ---- ---- Total $175 $209 ==== ====
5. Stock-Based Compensation Compensation costs attributable to stock option and similar plans are recognized based on any difference between the quoted market price of the stock on the date of grant over the amount the employees and directors are required to pay to acquire the stock (the intrinsic value method). No stock-based employee or director compensation cost is reflected in net income (loss) for options that have been granted, as all options granted under the plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Since the Company uses the intrinsic value method, it makes pro forma disclosures of net income (loss) and net income (loss) per share as if the fair-value based method of accounting had been applied. 5 IGI, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued If compensation cost for all grants under the Company's stock option plans had been determined based on the fair value at the grant date consistent with the provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," the Company's net income (loss) and net income (loss) per share would have changed to the pro forma amounts indicated below:
Three months ended June 30, Six months ended June 30, --------------------------- ------------------------- 2003 2002 2003 2002 ---- ---- ---- ---- Net income (loss) - as reported $(307) $9,294 $(271) $8,807 Deduct: Total stock-based employee and directors compensation expense determined under fair value based method 10 285 15 416 ----- ------ ----- ------ Net income (loss) - pro forma $(317) $9,009 $(286) $8,391 ===== ====== ===== ====== Income (loss) per share-as reported Basic and diluted $(.03) $ .82 $(.02) $ .78 Income (loss) per share - pro forma Basic and diluted $(.03) $ .80 $(.03) $ .74
6. Regulatory Proceedings and Legal Proceedings On April 6, 2000, officials of the New Jersey Department of Environmental Protection inspected the Company's storage site in Buena, New Jersey and issued Notices of Violation (NOV's) relating to the storage of waste materials in a number of trailers at the site. The Company established a disposal and cleanup schedule and completed the removal of materials from the site. The Company continues to discuss with the authorities a resolution of any potential assessment under the NOV's and has accrued the estimated expense of the penalties that may be assessed under such NOV's. On March 2, 2001, the Company discovered the presence of environmental contamination resulting from a heating oil leak at its Companion Pet Products site. The Company immediately notified the New Jersey Department of Environmental Protection and the local authorities, and hired a certified environmental contractor to assess the exposure and required clean up. Based on the initial information from the contractor, the Company originally estimated the cost for the cleanup and remediation to be $310,000. In September 2001, the contractor updated the estimated total cost for the cleanup and remediation to be $550,000. A further update was performed in December 2002 and the final estimated cost was increased to $620,000, of which $149,000 remains accrued as of June 30, 2003. It is currently anticipated that the majority of the remediation will be completed by the end of the summer of 2003. Subsequently, there will be periodic testing and removal performed, which is projected to span over the next five years. The estimated cost of such future monitoring is included in the accrual. 7. Recent Pronouncements The Company adopted SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections", effective January 1, 2003. As a result of adoption, the Company's loss from early extinguishment of debt realized in the second quarter of 2002 has been presented within continuing operations, rather than presented as an extraordinary item. The Company adopted SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" effective January 1, 2003. SFAS No. 146 addresses the financial accounting and reporting of expenses related to restructurings initiated after 2002, and applies to costs associated with an exit activity (including a restructuring) or with a disposal of long-lived assets. Those activities can include eliminating or reducing product lines, terminating employees and contracts, and relocating plant facilities or personnel. Under SFAS No. 146, a company will record a liability for a cost associated with an exit or disposal activity when the liability is incurred and can be measured at fair value. The provisions of SFAS No. 146 are effective prospectively for exit or disposal activities initiated after December 31, 2002, and therefore did not have an impact on the Company's consolidated financial statements. 6 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 without limitation those discussed below or in the Company's 2002 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 2002 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 update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Results of Operations Three months ended June 30, 2003 compared to June 30, 2002 The Company had a net loss attributable to common stock of $307,000, or ($.03) per share, for the quarter ended June 30, 2003 compared to net income attributable to common stock of $9,294,000, or $.82 per share, for the quarter ended June 30, 2002. Total revenues for the quarter ended June 30, 2003 were $886,000, compared to $1,064,000 for the quarter ended June 30, 2002. The decrease in revenues was primarily due to lower product sales to Estee Lauder offset by increased product sales to Vetoquinol and new customers. As a percentage of product sales, cost of sales increased from 40% in the quarter ended June 30, 2002 to 49% in the quarter ended June 30, 2003. The resulting decrease in gross profit from 60% in the quarter ended June 30, 2002 to 51% in the quarter ended June 30, 2003 is due to the change in mix to lower gross profit products and underabsorbed fixed costs. Selling, general and administrative expenses increased $181,000, or 27%, from $671,000 in the quarter ended June 30, 2002. As a percentage of revenues, these expenses were 63% of revenues in the second quarter of 2002 compared to 96% in the second quarter of 2003. The increase is primarily due to a $202,000 severance expense accrued in the quarter ended June 30, 2003 for the cost of the benefits to be provided by the Company under a severance package to the Company's current President and Chief Executive Officer upon his resignation from office. Product development and research expenses increased $14,000, or 10%, compared to the quarter ended June 30, 2002. The increase is a result of additional projects that are being worked on for existing and potential new customers. Interest expense decreased $121,000 from interest expense of $119,000 in the quarter ended June 30, 2002 to interest income of $2,000 in the quarter ended June 30, 2003. The decrease was a result of the pay-down of debt in the prior year using the proceeds from the sale of the Companion Pet Products division. Discontinued operations in the quarter ended June 30, 2002 consisted of a loss of $521,000 from operations from the Companion Pet Products division, offset by the gain of $12,468,000 from the sale of the Companion Pet Products division, which occurred on May 31, 2002. The $169,000 of income from discontinued operations in the quarter ended June 30, 2003 is a result of an insurance settlement, net of legal costs, received for the damages arising from the heating oil leak at the Company's Companion Pet Products site. Six months ended June 30, 2003 compared to June 30, 2002 The Company had a net loss attributable to common stock of $271,000, or ($.02) per share, for the six months ended June 30, 2003 compared to net income attributable to common stock of $8,807,000, or $.78 per share, for the six months ended June 30, 2002. Total revenues for the six months ended June 30, 2003 were $1,894,000, which represents a decrease of $233,000, or 11%, from revenues of $2,127,000 for the six months ended June 30, 2002. The decrease in revenues was primarily due to lower product sales to Estee Lauder and two other customers offset by increased product sales to Vetoquinol and new customers. Cost of sales, as a percent of product sales, increased from 43% for the six months ended June 30, 2002 to 45% for the six months ended June 30, 2003. The resulting decrease in gross profit from 57% in the six months ended 7 IGI, INC. AND SUBSIDIARIES ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) June 30, 2002 to 55% in the six months ended June 30, 2003 is the result of the change in mix to lower gross profit products and underabsorbed fixed costs. Selling, general and administrative expenses increased $24,000, or 2%, from $1,328,000 for the six months ended June 30, 2002. As a percent of revenues, these expenses were 62% of revenues for the first six months of 2002 compared to 71% for the first six months of 2003. The increase is primarily due to a $202,000 severance expense accrued in the second quarter of 2003 for the cost of the benefits to be provided by the Company under a severance package to the Company's current President and Chief Executive Officer upon his resignation from office, offset by a decline in salary expense due to staff reductions after the sale of the Companion Pet Products division. Product development and research expenses increased $36,000, or 13%, compared to the six months ended June 30, 2002. The increase is a result of additional projects that are being worked on for existing and potential new customers. Interest expense decreased $311,000 from interest expense of $303,000 for the six months ended June 30, 2002 to interest income of $8,000 for the six months ended June 30, 2003. The decrease is due to lower interest rates and the pay down of the Company's debt on May 31, 2002 using the proceeds from the sale of the Companion Pet Products division. Discontinued operations for the six months ended June 30, 2002 consisted of a $401,000 loss from discontinued operations offset by a $12,468,000 gain from the sale of the Companion Pet Products division. The $169,000 of income from discontinued operations for the six months ended June 30, 2003 is a result of an insurance settlement, net of legal costs, received for damages arising from the heating oil leak at the Company's Companion Pet Products site. Liquidity and Capital Resources The Company's operating activities used $350,000 of cash during the six months ended June 30, 2003 compared to $1,500,000 used in the comparable period in 2002. Payments for environmental remediation costs and prepaid insurance premiums were the major use of cash in 2003. In 2002, cash from the proceeds from the sale of the Companion Pet Products division was utilized to pay down accounts payable and accrued expenses. The Company used $44,000 of cash during the six months ended June 30, 2003 for investing activities compared to cash generated of $17,216,000 from investing activities for the comparable period in 2002. The majority of 2003's investing activities was for the purchase of computers and machinery and equipment, while 2002's activity primarily was cash generated from the sale of the Companion Pet Products division, a former corporate office building and marketable securities. The Company's financing activities utilized $33,000 of cash in the six months ended June 30, 2003 compared to $11,923,000 used in the comparable period in 2002. The cash utilized in 2003 was primarily for the purchase of Company stock as part of a stock buy-back program which was authorized in December 2002, offset by funding and payments of the EDA loan. In 2002 cash was utilized to payoff the Fleet Capital Bank and American Capital Strategies debt using the proceeds from the sale of the Companion Pet Products division. The Company's principal sources of liquidity are cash from operations and cash and cash equivalents. Management believes that existing cash and cash equivalents and cash flows from operations will be sufficient to meet the Company's foreseeable cash needs for at least the next year. However, there may be acquisition and other growth opportunities that require additional external financing. Management may, from time to time, seek to obtain additional funds from the public or private issuances of equity or debt securities. There can be no assurance that such financings will be available or available on terms acceptable to the Company. There have been no material changes to the Company's contractual commitments as reflected in the 2002 10-K Annual Report. 8 IGI, INC. AND SUBSIDIARIES ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Regulatory Proceeding and Legal Proceedings On April 6, 2000, officials of the New Jersey Department of Environmental Protection inspected the Company's storage site in Buena, New Jersey and issued Notices of Violation (NOV's) relating to the storage of waste materials in a number of trailers at the site. The Company established a disposal and cleanup schedule and completed the removal of materials from the site. The Company continues to discuss with the authorities a resolution of any potential assessment under the NOV's and has accrued the estimated expense of the penalties that may be assessed under such NOV's. On March 2, 2001, the Company discovered the presence of environmental contamination resulting from a heating oil leak at its Companion Pet Products site. The Company immediately notified the New Jersey Department of Environmental Protection and the local authorities, and hired a certified environmental contractor to assess the exposure and required clean up. Based on the initial information from the contractor, the Company originally estimated the cost for the cleanup and remediation to be $310,000. In September 2001, the contractor updated the estimated total cost for the cleanup and remediation to be $550,000. A further update was performed in December 2002 and the final estimated cost was increased to $620,000, of which $149,000 remains accrued as of June 30, 2003. It is currently anticipated that the majority of the remediation will be completed by the end of the summer of 2003. Subsequently, there will be periodic testing and removal performed, which is projected to span over the next five years. The estimated cost of such future monitoring is included in the accrual. Factors Which May Affect Future Results The industry in which the Company competes is subject to intense competitive pressures. The following sets forth some of the risks which the Company faces. 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 well established and experienced in the industry and possess far greater financial and other 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. Effect of Rapidly Changing Technologies - --------------------------------------- In the future, the Company expects to sublicense its Novasome(R) technologies to third parties, who would manufacture and market products incorporating the technologies. If the Company's competitors develop superior technologies, the Company's technologies could be less acceptable in the marketplace and therefore the Company's planned technology sublicensing could be materially adversely affected. American Stock Exchange (AMEX) Continuing Listing Standards - ----------------------------------------------------------- On March 28, 2002, the Company was notified by AMEX that it was below certain of the Exchange's standards for continued listing. Specifically, under applicable AMEX listing standards, in order to remain listed the Company was required to reflect income from continuing operations and net income for 2002 and a minimum of $4,000,000 in stockholders' equity by December 31, 2002. On April 25, 2002, the Company submitted a plan of compliance to AMEX. On June 12, 2002, AMEX notified the Company that it had accepted the Company's plan of compliance and had granted the Company an extension of time to regain compliance with the continued listing standards by December 31, 2002. The loss from continuing operations for the year ended December 31, 2002 reflected tax expense resulting from a change in the New Jersey tax law that was retroactive to January 1, 2002. As a result of this tax expense, the Company determined that it would have a loss from continuing operations for 2002. The Company notified AMEX of this issue on November 14, 2002 after release of the Company's 2002 third quarter results. In February 2003, the Company contacted AMEX after release of the Company's 2002 year-end results. On April 14, 2003, the Company received formal notification from AMEX that the Company was deemed to be in compliance with all AMEX requirements for continued listing on AMEX. 9 IGI, INC. AND SUBSIDIARIES ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Critical Accounting Policies There have been no material changes to the Company's critical accounting policies as reflected in the 2002 10-K Annual Report. 10 IGI, INC. AND SUBSIDIARIES ITEM 3. Quantitative and Qualitative Disclosures about Market Risk The Company does not utilize financial instruments for trading purposes and holds no derivative financial instruments which could expose the Company to significant market risk. The Company's primary market risk exposure with regard to financial instruments is changes in interest rates. The Company's cash equivalents consist primarily of investments in mutual funds. Management believes, based on the current interest rate environment, that a 100 basis point change in interest rates would have an immaterial impact on interest income. ITEM 4. Controls and Procedures The Company's Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of June 30, 2003, and based on their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective. The evaluation referred to above did not identify any changes in the Company's internal control over financial reporting that occurred during the quarter ended June 30, 2003 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 11 IGI, INC. AND SUBSIDIARIES PART II OTHER INFORMATION ITEM 1. Legal Proceedings None. 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 The Company held its 2003 Annual Meeting of Stockholders on May 20, 2003 to vote on two proposals. Proxy statements were sent to all shareholders. The first proposal was for the election as directors of the following seven people: Earl K. Lewis, John F. Ambrose, Stephen J. Morris, Terrence O'Donnell, Constantine L. Hampers, Donald W. Joseph, and Frank Gerardi. All seven directors were elected with the following votes tabulated:
Total votes Total votes withheld Name of director for each director from each director ---------------- ----------------- -------------------- Mr. Lewis 9,086,063 1,925,662 Mr. Ambrose 8,162,363 2,849,362 Mr. Morris 9,086,063 1,925,662 Mr. O'Donnell 9,086,063 1,925,662 Dr. Hampers 8,162,363 2,849,362 Mr. Joseph 9,086,063 1,925,662 Mr. Gerardi 10,811,925 199,800
The second proposal was for the ratification of the appointment of independent auditors for the year 2003. The appointment of the current auditors, KPMG LLP, was ratified, with the following votes tabulated:
For Against Abstain --- ------- ------- 9,432,042 327,948 1,251,735
ITEM 5. Other Information None. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.99 Settlement Agreement and Release 31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of the Chief Financial Officer as pursuant to Section 302 the Sarbanes-Oxley Act of 2002. 32.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as enacted under Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as enacted under Section 906 of the Sarbanes-Oxley Act of 2002. 12 IGI, INC. AND SUBSIDIARIES PART II OTHER INFORMATION, continued (b) Reports on Form 8-K A report on Form 8-K was filed on July 2, 2003, reporting that on June 27, 2003, IGI's Board of Directors unanimously elected Frank Gerardi as Chairman of the Board of Directors to fill the vacancy in office resulting from the resignation of Earl Lewis. Separately, on June 27, 2003, John Ambrose, the Company's President and Chief Executive Officer, announced his intention to step down as President and Chief Executive Officer on December 31, 2003, or at such earlier date as the Chairman of the Board determines is appropriate. 13 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 12, 2003 By: /s/ John F. Ambrose ------------------------------------ John F. Ambrose President and Chief Executive Officer Date: August 12, 2003 By: /s/ Domenic N. Golato ------------------------------------ Domenic N. Golato Senior Vice President and Chief Financial Officer 14 EX-10 3 igi-1099.txt EXHIBIT 10.99 Exhibit 10.99 SETTLEMENT AGREEMENT AND RELEASE This Settlement Agreement and Release ("Agreement") is made by and between IGI, Inc., successor to Medatz, Inc. and ImmunoGenetics, Inc. (hereafter" IGI") and LEXINGTON INSURANCE COMPANY ("LEXINGTON"). IGI and LEXINGTON are collectively referred to herein as the "PARTIES" to this Agreement. WHEREAS, IGI was, at the request of the New Jersey Department of Environmental Protection, required to remediate environmental contamination at or from 711 Harding Highway, Buena, New Jersey ("the Site"). WHEREAS, IGI asserts defense and indemnification coverage from Lexington due to contamination at or from the Site pursuant to Policy: 5558837 (EFFECTIVE 01/01/84 - 01/01/85) WHEREAS, LEXINGTON disputes IGI's claim to coverage; WHEREAS, without admission of any kind, and to avoid the costs, efforts and further delays, IGI and LEXINGTON desire to amicably and in good faith resolve all issues relating to indemnification and defense by entering into this Agreement. NOW, THEREFORE, in consideration of and in reliance upon the recitals, promises, covenants, understandings, obligations set forth herein, the PARTIES hereto mutually agree as follows: 1. PAYMENT BY LEXINGTON In accordance with the terms set forth herein, and contingent upon receipt of an executed copy of this Agreement by IGI, LEXINGTON will pay to IMMUNOGENETICS the sum of ONE HUNDRED SEVENTY-FIVE THOUSAND DOLLARS AND ZERO CENTS ($175,000.00). Said payment is to be made within sixty (60) days after execution of this Agreement by IGI and shall be deemed complete upon First Class Mail to Flaster/Greenberg, counsel for IGI. 2. RELEASE BY IGI In consideration for the above payment, IGI hereby releases, remises, and forever discharges LEXINGTON and any other company corporately affiliated with the American International Group (including, but not limited to, those entities identified on Exhibit 1 attached hereto and incorporated herein by this reference), and their predecessors, successors, assigns, parent corporations, subsidiaries, affiliates, and agents, and the officers, directors, employees, agents shareholders and representatives of any of them (hereinafter referred to as "RELEASEES") from any and all duties, liabilities, responsibilities, defense costs or obligations for, related to or with regard to any and all Claims whether past, present, or future, known or unknown or asserted or unasserted (including, but not limited to, claims for bad faith, malicious prosecution, statutory or regulatory violation or punitive or other extra-contractual damages of any type), arising out of or related to the "Claims" related to the Site. Upon execution of this Release, and payment of the sums identified in Paragraph I of this agreement, RELEASEES shall have no further duties or obligations based upon, arising out of or related in any way to the Policies with respect to any Claims released hereunder. As used herein, "Claim(s)" shall mean any and all duties, liabilities, responsibilities, or obligations, including, but not limited to claims for bodily injury, personal injury, property damage, clean up costs, remediation, and investigation costs for, related to, or with regard to any demand, claim, liability or suit request for relief, action or forbearance of any kind, proceeding and/or notices of partial or total responsibility (including Potential Responsible Party or "PRP" notices) made, asserted, threatened or filed against IGI arising at or related to the Site. Notwithstanding the above, it is understood that, as used herein, "Claim(s)" excludes any claim arising out of any Natural Resources Damages that may be brought by the New Jersey Department of Environmental Protection, the USEPA, or any other state or federal agency, against IGI. For the purposes of this agreement, "Natural Resources Damages" shall be understood to be defined as that term is defined in the Spill Compensation and Control Act. As used herein, "Policies" shall mean any and all policies issued by LEXINGTON or any of the RELEASEES. However, "Policies" shall be understood to exclude all General Liability policies issued, by LEXINGTON or any of the RELEASEES, to IMMUNOGENETICS effective September 30, 1982 through December 31, 1983. IGI warrants and agrees as of the effective date of this Release that it has not assigned, conveyed, or otherwise transferred any claims, demands, causes of action, rights or obligations related herein, to any other person or entity, nor shall IMMUNOGENETICS hereafter do so. Possession of this original or originally signed counterpart Settlement Agreement and Release by the Releasee shall constitute conclusive proof to LEXINGTON and to any other person of the effectiveness of this Settlement Agreement and Release. 3. INDEMNIFICATION BY IGI In consideration for the above payment, IGI hereby agrees to indemnify LEXINGTON for any Environmental Claims relating to the Site made by any individual, entity, or federal, state or local agency up to the sum of ONE HUNDRED SEVENTY-FIVE THOUSAND DOLLARS AND NO CENTS ($175,000.00). Furthermore, IGI agrees to defend and hold harmless LEXINGTON from and against for any claim or demand made by any individual or entity insured or alleging an insured interest under any of the Policies, arising out the activities of or any action initiated by IGI or on its behalf. 4. NO ASSIGNMENT IGI and LEXINGTON represent and warrant that they have not and will not in any matter assign, transfer, convey, sell or purport to assign, transfer, convey or sell any entity or person any claim or right arising out of or connected with any entity or person any claim or right arising out of or connected with the matters released herein. 5. CONSTRUCTION, USE, DISCLOSURE, ETC. OF THIS AGREEMENT A. As the product of arms-length negotiation, the PARTIES hereto agree that this Agreement shall be construed according to the rules of construction generally applicable to negotiated contracts between parties of equal bargaining strength, and not according to any special rules of construction applicable to contracts of adhesion and/or insurance contracts. The language in all parts of this Agreement shall be construed as a whole according to this meaning. B. The Agreement is entered into solely to avoid the costs, efforts and delays of litigation, and is intended as a good faith compromise of disputed claims. Negotiation of, execution of, and performance of obligations under this Agreement shall not be construed as an admission that any coverage exists under any LEXINGTON Policies for defense or indemnity with respect to the Environmental Claims; nor does this Agreement or the fact or amount of the payments pursuant to this Agreement evidence that any Party hereto embraces or rejects any theory of liability or coverage under the LEXINGTON Policy. In furtherance of the intentions expressed herein, the PARTIES stipulate that this Agreement has no evidentiary or precedental value with respect to the meaning of any insurance policy or provision. C. The terms of this Agreement, and the existence and content of all letters, notes, memoranda, reports, communications, conversations and discussions relating to this Agreement are confidential, and neither IGI or LEXINGTON, nor their respective employees, agents, or attorneys shall disclose such information to any person without the prior written consent of the other party to this Agreement; provided, however, that such information may be disclosed without the consent of the other party. 1. if required by operation of law or by court order; 2. to the officers, directors, employees, agents, attorneys, corporate affiliates (including officers, directors, employees, agents, attorneys thereof), auditors, lenders, investment bankers, or trade creditors of the PARTIES to this Agreement; 3. in litigation or arbitration seeking to enforce the terms of this Agreement; or 4. to a reinsurer, retrocessionaire or auditor of LEXINGTON, or in litigation or arbitration with a reinsurer, retrocessionaire, or auditor of LEXINGTON. D. This Agreement constitutes the entire Agreement between the PARTIES with respect to the matters addressed herein. Except as specifically set forth in this Agreement, there are no representations, warranties or inducements, whether oral, written, expressed or implied, that in any way affect or condition the validity of this Agreement or alter its terms. This Agreement may be amended only by written instrument executed by the PARTIES hereto. 6. MISCELLANEOUS PROVISIONS A. Each Party hereto expressly agrees that it shall bear its own costs and attorneys' fees with respect to this Agreement and the negotiations in connection therewith. B. The PARTIES represent and warrant that: 1. The execution and delivery of this Agreement has been duly and validly authorized and approved by all requisite action required under applicable law and that no further action is necessary to make this Agreement valid and binding. 2. Each person executing this agreement warrants that he or she has the authority and power to execute this Agreement from the Party on whose behalf he or she is executing. C. This Agreement may be executed in multiple counterparts and each counterpart shall be deemed to be an original, all of which together constitute the same Agreement. All counterpart signature pages shall be read as through one, and they shell have the same force and effect as though all signers had signed a single signature page. IN WITNESS WHEREOF, each Party hereto has executed this Agreement as of the date(s) of shown below: IGI, INC. Date: 6/5/03 By: /s/ Domenic Golato ------ -------------------------------- Its: Chief Financial Officer AIG Technical Services, Inc. on behalf of LEXINGTON INSURANCE COMPANY/ RELEASEES Date: 6/6/03 By: /s/ Debra K Neb ------ ---------------------------------- Its: Manager EXHIBIT I --------- C. V. Starr and Co. Starr International Company, Incorporated American International Group, Inc. La Interamericana Co. de Seg. de Vida, S.A. American Int'l Reins. Co., Ltd. Seguros Interamericana, S.A. American Int'l Assur. Co. (Bermuda) Ltd. American Int'l Assur. Co. Ltd. (H.K.) Australian Amer. Assur. Co. Ltd. American Int'l Assur. Co. Ltd. (N.Z.) Australian Amer. Assur. Co. Ltd. (N.Z.) P.T. Asuransi AIU Indonesia P.T. (Ltd) Asuransi Jiwa lkrar Abadi Australian Amer. Assur. Co. Ltd. Fiji Philippine American Life Ins. Co. Philam Insurance Company, Inc. Philippine American Accident Ins. Co., Inc. The Philippine American Assur. Co., Inc. Pacific Union Assurance Company AIG Life Insurance Company American Int'l Life Assur. Co. of New York American Int'l Life Ins. Co. of P.R. American Life Insurance Company ALICO S.A. ALICO Deutschland Lebensversicherung American Int'l Ins. Co. Ltd. American lnt'l Life Ins. Co. (St. Dom.) American Life and General Ins. Co., Ltd. American Life Ins. Co. Trinidad, Ltd. Compagnie D'Assurance D'Haiti, S.A. Delaware American Life Insurance Co. Jamaican American Life Ins. Co., Ltd. La Seguridad de Panama, Co de Reaseg. SA AIU Insurance Company American Home Assurance Company AIG Hawaii Insurance Company, Inc. Transatlantic Holdings, Inc. Putnam Reinsurance Company Transatlantic Reinsurance Company American Int'l Ins. Co. of Delaware Birmingham Fire Ins. Co. of Pa. China America International Ins. Co. Ltd. China America Ins. Co., Ltd. (Del.) China America Ins. Co., Ltd. (N.Y.) Commerce and Industry Ins. Co. American Int'l Ins. Co. Commerce and Industry Ins. Co. of Canada The Insurance Company of the State of Pa. Landmark Insurance Company Landmark Insurance Company (U.K.), Limited National Union Fire Ins. Co. of Pitt., Pa. American Int'l Surplus Lines Ins. Co. Lexington Insurance Company Japan Int'l Acc. & Fire Ins. Co. Ltd. National Union Fire Ins. Co. of La. NHIG Holding Corporation New Hampshire Insurance Company American Fidelity Company American Global Insurance Company Granite State Insurance Company Illinois National Insurance Company New Hampshire Indemnitv Co. Inc. United Guaranty Corporation United Guar. Residential Ins. of NC United Guar. Residential Ins. Co. United Guar. Comm. Ins. Co. United Guar. Comm. Ins. Co. of NC United Guar. Credit Ins. Co. Audubon Insurance Company Audubon Indemnity Companv American Int'l Underwriters Overseas, Ltd. American Int'l Ins. Co. of Ireland American Int'l Ins. Co. of P.R. La Interamericana Co. de Seg. Generales Cameroon American Insurance Co., S.A. "Hellas" Insurance Company La Seguridad de Centroamerica, Co. de Seg Seguirdad De Centroamerica, Finanzas Interamericana Co. de Seg. Gerais Unity Insurance Company Limited Universal Insurance Company Ltd. European American Excess Reins., Ltd. La Interamericana Co. de Seg. Generales American Int'l Underwriters Philip. Inc. Philippine Home Assurance Corporation Egyptian American Insurance Company Hungarian American Insurance Company Polish American Insurance Company Ltd. Romanian American Insurance Co. Ltd. The Uganda American Ins. Co. Limited A. I. Lloyd's Insurance Company Abeille General Ins. Co. (USB) Nichido Fire & Marine Ins. Co. Ltd. (USB) Union & Phenix Espanol Ins. Co. (USB) AIG Technical Services, Inc. AIG Claim Services, Inc. American International Adjustment Company, Inc. Union Atlantique de Reassurances AIG Europe (U.K.) Limited L'Union Atlantique d' Assurances, S.A. American Fidelity Company American International Specialty Lines Insurance Co. AIG National Insurance Company EX-31 4 igiq2311.txt EXHIBIT 31.1 Exhibit 31.1 CERTIFICATION OF JOHN F. AMBROSE PRESIDENT & CHIEF EXECUTIVE OFFICER OF IGI, INC. ----------------------------- I, John F. Ambrose, President & Chief Executive Officer of IGI, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of IGI, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors: a) all significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial data; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; Date: August 12, 2003 /s/ John F. Ambrose ------------------------------------ John F. Ambrose President & Chief Executive Officer 15 EX-31 5 igiq2312.txt EXHIBIT 31.2 Exhibit 31.2 CERTIFICATION OF DOMENIC N. GOLATO CHIEF FINANCIAL OFFICER OF IGI, INC. ----------------------------- I, Domenic N. Golato, Chief Financial Officer of IGI, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of IGI, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors: a) all significant deficiencies in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant's ability to record, process, summarize and report financial data; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; Date: August 12, 2003 /s/ Domenic N. Golato ------------------------------------ Domenic N. Golato Chief Financial Officer 16 EX-32 6 igiq2321.txt EXHIBIT 32.1 Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ENACTED UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 --------------------------------------------- In connection with the Quarterly Report of IGI, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John F. Ambrose, President and Chief Executive Officer of the Company, state and certify, pursuant to 18 U.S.C. [SECTION] 1350, as enacted under [SECTION] 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company as of June 30, 2003 (the end of the period covered by the Report). Date: August 12, 2003 /s/ John F. Ambrose ------------------------------------ John F. Ambrose President & Chief Executive Officer 17 EX-32 7 igiq2322.txt EXHIBIT 32.2 Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ENACTED UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 --------------------------------------------- In connection with the Quarterly Report of IGI, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Domenic N. Golato, Senior Vice President and Chief Financial Officer of the Company, state and certify, pursuant to 18 U.S.C. [SECTION] 1350, as enacted under [SECTION] 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company as of June 30, 2003 (the end of the period covered by the Report). Date: August 12, 2003 /s/ Domenic N. Golato ------------------------------------ Domenic N. Golato Chief Financial Officer 18 -----END PRIVACY-ENHANCED MESSAGE-----