Back to GetFilings.com
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.
----------------- -------------------
September 30, 2002 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 [ ]
The number of shares outstanding of the issuer's class of common stock, as
of the latest practicable date:
Common Shares Outstanding at November 7, 2002
11,374,158
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 Nine months ended
September 30, September 30,
-------------------- --------------------
2002 2001 2002 2001
---- ---- ---- ----
Revenues:
Sales, net $ 861 $ 700 $ 2,604 $ 2,771
Licensing and royalty income 285 367 669 926
------ ------ ------- -------
Total revenues 1,146 1,067 3,273 3,697
Cost and expenses:
Cost of sales 342 276 1,096 801
Selling, general and administrative
expenses 567 696 1,895 2,051
Product development and research
expenses 152 123 419 433
Non-recurring charges - 605 - 605
------ ------ ------- -------
Operating profit (loss) 85 (633) (137) (193)
Interest income (expense) 9 (192) (294) (607)
Other income, net - - 58 -
------ ------ ------- -------
Profit (loss) from continuing operations
before provision for income taxes and
extraordinary item 94 (825) (373) (800)
Provision for income taxes 935 15 941 29
------ ------ ------- -------
Loss from continuing operations before
extraordinary item (841) (840) (1,314) (829)
Discontinued operations:
Loss from operations of discontinued business - (89) (401) (458)
Gain (loss) on sale of discontinued businesses (36) - 12,432 283
------ ------ ------- -------
Profit (loss) before extraordinary item (877) (929) 10,717 (1,004)
Extraordinary loss from early extinguishment
of debt - - (2,654) -
------ ------ ------- -------
Net profit (loss) (877) (929) 8,063 (1,004)
Mark to market for detachable stock warrants - 115 - 219
------ ------ ------- -------
Net profit (loss) attributable to common stock $ (877) $ (814) $ 8,063 $ (785)
====== ====== ======= =======
Basic and Diluted Net Profit (Loss) per
Common Share
Continuing operations $ (.07) $ (.06) $ (.12) $ (.05)
Discontinued operations - (.01) 1.05 (.02)
Extraordinary loss - - (.23) -
------ ------ ------- -------
Net profit (loss) attributable to common stock $ (.07) $ (.07) $ .70 $ (.07)
====== ====== ======= =======
Basic and diluted weighted average
number of common shares outstanding 11,766,288 11,198,550 11,448,290 10,873,211
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)
September 30, 2002 December 31, 2001
------------------ -----------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,580 $ 10
Accounts receivable, less allowance for doubtful accounts
of $133 and $122 in 2002 and 2001, respectively 480 286
Licensing and royalty income receivable 195 255
Inventories 258 89
Prepaid expenses and other current assets 73 134
Assets of discontinued operations - 5,597
-------- --------
Total current assets 3,586 6,371
-------- --------
Property, plant and equipment, net 2,879 3,392
Deferred financing costs - 659
Other assets 90 117
-------- --------
Total assets $ 6,555 $ 10,539
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Revolving credit facility $ - $ 2,326
Current portion of long-term debt 18 7,478
Accounts payable 85 773
Accrued payroll 107 93
Accrued interest - 111
Other accrued expenses 935 692
Income taxes payable 938 12
Liabilities of discontinued operations - 1,474
-------- --------
Total current liabilities 2,083 12,959
Deferred income 519 620
Long term debt, net of current portion 168 -
-------- --------
Total liabilities 2,770 13,579
-------- --------
Detachable stock warrants - 1,145
Stockholders' equity (deficit):
Common stock $.01 par value, 50,000,000 shares authorized;
11,374,158 and 11,243,720 shares issued in 2002 and 2001,
respectively 114 112
Additional paid-in capital 23,656 22,436
Accumulated deficit (18,670) (26,733)
Less treasury stock at cost, 1,878,640 and 0 shares in 2002
and 2001, respectively (1,315) -
-------- --------
Total stockholders' equity (deficit) 3,785 (4,185)
-------- --------
Total liabilities and stockholders' equity (deficit) $ 6,555 $ 10,539
======== ========
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)
Nine months ended September 30,
-------------------------------
2002 2001
---- ----
Cash flows from operating activities:
Net profit (loss) $ 8,063 $ (1,004)
Reconciliation of net profit (loss) to net cash used in
operating activities:
Gain on sale of discontinued operations (12,432) (283)
Gain on sale of marketable securities (58) -
Write down of EVSCO facility to net realizable value 632 -
Depreciation and amortization 235 166
Amortization of deferred financing costs and debt discount 275 433
Extraordinary loss on early extinguishment of debt 2,654 -
Non-recurring impairment of long lived asset charges - 605
Provision for accounts and notes receivable and inventories 21 (3)
Recognition of deferred revenue (101) (101)
Interest expense related to subordinated note agreements 41 123
Directors' stock issuance 41 68
Changes in operating assets and liabilities:
Restricted cash - 102
Accounts receivable (203) 255
Inventories (181) 92
Receivables due under royalty agreements 60 102
Prepaid expenses and other assets 86 (12)
Accounts payable and accrued expenses (599) (1,579)
Deferred revenue - 525
Income taxes payable 926 17
Change in net assets of discontinued operations (896) 125
-------- --------
Net cash used in operating activities (1,436) (369)
-------- --------
Cash flows from investing activities:
Capital expenditures (54) (78)
Capital expenditures for discontinued operations (8) -
Proceeds from sale of marketable securities 58 -
Proceeds from sale of property, plant and equipment 550 150
Increase in other assets (32) (21)
Proceeds from sale of discontinued operations 16,427 237
-------- --------
Net cash provided by investing activities 16,941 288
-------- --------
Cash flows from financing activities:
Borrowings under revolving credit agreement 5,958 14,921
Repayment of revolving credit agreement (8,284) (14,779)
Repayment of debt (9,516) (416)
Borrowings from EDA loan 197 -
Repayment of EDA loan (11) -
Proceeds from issuance of shares under stock
subscription agreement - 250
Proceeds from exercise of common stock options and
purchase of common stock 36 74
Treasury shares purchased (1,315) -
-------- --------
Net cash provided by (used in) financing activities (12,935) 50
-------- --------
Net increase (decrease) in cash and cash equivalents 2,570 (31)
Cash and cash equivalents at beginning of period 10 69
-------- --------
Cash and cash equivalents at end of period $ 2,580 $ 38
======== ========
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 the
Company 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 the disclosures 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, 2001
(the "2001 10-K Annual Report").
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company's
continuation as a going concern is dependent upon its ability to generate
sufficient cash from operations or other sources in order to meet its
obligations as they become due. If the Company's operating results
deteriorate or product sales do not improve, then it could lead to a
curtailment of certain of its business operations or the commencement of
bankruptcy or insolvency proceedings by the Company or its creditors. There
can be no assurance, however, that management's plan will be successful. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
On February 7, 2002, the Company announced that it had entered into a
definitive agreement for the sale of substantially all of the assets of its
Companion Pet Products division to Vetoquinol U.S.A., Inc., an affiliate of
Vetoquinol, S.A. of Lure, France. Under the terms of the agreement, the
Company received at closing cash consideration of $16,700,000. In addition,
specified liabilities of the Company's Companion Pet Product division were
assumed by Vetoquinol U.S.A. The cash consideration was subject to certain
post-closing adjustments. In October 2002, the post-closing adjustment was
finalized, and an amount of approximately $446,000 was paid by the Company
to Vetoquinol U.S.A.
The transaction also includes a sublicense through December 13, 2015 by the
Company to Vetoquinol U.S.A. of specified rights relating to the patented
Novasome(R) microencapsulation technology for use in specified products and
product lines in the animal health business, as well as a supply
relationship under which the Company will supply to Vetoquinol U.S.A.
certain products relating to the patented Novasome(R) microencapsulation
technology.
The Company recorded a significant gain upon the closing of the
transactions. The Company has accounted for the Companion Pet Products
division as a discontinued operation. In accordance with EITF No. 87-24,
"Allocation of Interest to Discontinued Operations", the Company has
allocated a portion of interest expense to discontinued operations for all
periods presented.
Certain amounts have been reclassified in the December 31, 2001 consolidated
balance sheet to conform to the September 30, 2002 presentation.
2. Discontinued Operations
On September 15, 2000, the shareholders of the Company approved, and the
Company consummated, the sale of the assets and transfer of the liabilities
of the Vineland division, which produced and marketed poultry vaccines and
related products. The buyer assumed liabilities of approximately
$2,300,000, and paid the Company cash in the amount of $12,500,000, of which
$500,000 was placed in an escrow fund to secure potential obligations of the
Company relating to final purchase price adjustments and indemnification.
In March 2001, the Company negotiated a
5
resolution and received approximately $237,000 of the escrowed funds. In
addition, the Company reduced an accrual by $46,000 for costs related to the
sale. The Company's results reflect a $283,000 gain on the sale of the
Vineland division for the nine months ended September 30, 2001.
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 buyer assumed liabilities of approximately $986,000, and paid
the Company cash in the amount of $16,700,000. The Company's results reflect
a $12,432,000 gain on the sale of the Companion Pet Products division for
the nine months ended September 30, 2002. The gain is net of direct costs
incurred by the Company in connection with the sale and the reduction in the
purchase price resulting from post-closing adjustments. During the third
quarter ended September 30, 2002, the gain on the sale of the Companion Pet
Products division was reduced by $36,000. This primarily reflects the final
settlement of the post-closing adjustment. The Companion Pet Products
division incurred a loss of $401,000 for the nine months ended September 30,
2002. The results for the nine months ended September 30, 2002 included an
impairment charge of $630,000 included in loss from discontinued operations
related to the Companion Pet Products warehouse (see Note 6). Also, upon
the sale, the Company paid all of its debt and interest owed to Fleet
Capital Corporation ("Fleet") and American Capital Strategies, Ltd. ("ACS").
As a result, the Company incurred a $2,654,000 extraordinary loss from early
extinguishment of debt in connection with the prepayment fees paid to Fleet
and ACS and the write-off of the ACS debt discount.
3. Debt and Stock Warrants
On October 29, 1999, the Company entered into a senior bank credit agreement
("Senior Debt Agreement") with Fleet and a subordinated debt agreement
("Subordinated Debt Agreement") with ACS. These agreements enabled the
Company to retire approximately $18,600,000 of outstanding debt with its
former lenders.
Upon the sale of the Vineland division in 2000, the amount of debt pursuant
to the Senior Debt Agreement was reduced. The Senior Debt Agreement
provided for i) a revolving line of credit facility of up to $12,000,000,
which was reduced to $5,000,000 after the sale of the Vineland division,
based upon qualifying accounts receivable and inventory, ii) a $7,000,000
term loan, which was reduced to $2,700,000 after the sale of the Vineland
division, and iii) a $3,000,000 capital expenditures credit facility, which
was paid in full and cancelled after the sale of the Vineland division. The
borrowings under the revolving line of credit bore interest at the prime
rate plus 1.0% or the London Interbank Offered Rate plus 3.25%. The
borrowings under the term loan credit facility bore interest at the prime
rate plus 1.5% or the London Interbank Offered Rate plus 3.75%. Upon the
sale of the Companion Pet Product division on May 31, 2002, the revolving
line of credit facility, the term loan, and accrued interest were paid in
full.
Borrowings under the Subordinated Debt Agreement bore interest, payable
monthly, at the rate of 12.5%, ("cash portion of interest on subordinated
debt"), plus an additional interest component at the rate of 2.25%,
("additional interest component") which was payable at the Company's
election in cash or in Company Common Stock. If not paid in this fashion,
the additional interest component was capitalized to the principal amount of
the debt. The Subordinated Debt Agreement was to mature in October 2006.
In connection with the Subordinated Debt Agreement, ACS received warrants to
purchase 1,907,543 shares of IGI Common Stock at an exercise price of $.01
per share. Upon the sale of the Companion Pet Products division on May 31,
2002, the Subordinated Debt and accrued interest were paid in full.
The warrants issued to ACS contained a right (the "put") to require the
Company to repurchase the warrants or the Common Stock acquired upon
exercise of such warrants at their then fair market value under certain
circumstances, including the earliest to occur of the following: a) October
29, 2004; b) the date of payment in full of the Senior Debt and Subordinated
Debt and all senior indebtedness of the Company; or c) the sale of the
Company or 30% or more of its assets. The repurchase was to be settled in
cash or Common Stock, at the option of ACS. Due to the put feature and the
potential cash settlement which was outside of the Company's control, the
warrants were initially recorded as a liability which was marked-to-market,
with changes in the market value being recognized as a component of interest
expense in the period of change.
6
The warrants issued to ACS were valued at issuance date utilizing the Black-
Scholes model and initially recorded as a liability of $2,842,000. A
corresponding debt discount was recorded at issuance, representing the
difference between the $7,000,000 proceeds received by the Company and the
total obligation, which included principal of $7,000,000 and the initial
warrant liability of $2,842,000. The debt discount was written off in
connection with the payoff of the Subordinated Debt.
On April 12, 2000, ACS amended its Subordinated Debt Agreement with the
Company whereby the put provision associated with the original warrants was
replaced by a make-whole feature. The make-whole feature required the
Company to compensate ACS, in either Common Stock or cash, at the option of
the Company, in the event that ACS ultimately realized proceeds from the
sale of the Common Stock obtained upon exercise of its warrants that were
less than the fair value of the Common Stock upon exercise of such warrants.
Fair value of the Common Stock upon exercise was defined as the 30-day
average value prior to notice of intent to sell. ACS was obligated to
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
could invoke the make-whole provision. As a result of the April 12, 2000
amendment, the recorded liability at April 12, 2000 of $3,338,000 was
reclassified to equity.
As noted above, the make-whole feature required the Company to compensate
ACS for any decrease in value between the date that ACS notified the Company
that they intend to sell some or all of the stock and the date that ACS
ultimately disposed of the underlying stock, assuming that such disposition
occurred in an orderly fashion over a period of not more than 180 days. The
shortfall could be paid using either cash or shares of the Company's Common
Stock, at the option of the Company. Due to accounting guidance that was
issued in September 2000, the Company reflected the detachable stock
warrants outside of stockholders' equity (deficit) as of December 31, 2001,
since the ability to satisfy the make-whole obligation using shares of the
Company's Common Stock was not totally within the Company's control because
the Company might not have had a sufficient quantity of authorized and
unissued shares to satisfy the make-whole obligation.
ACS had the right to designate for election to the Company's Board of
Directors that number of directors that bears the same ratio to the total
number of directors as the number of shares of Company Common Stock owned by
it plus the number of shares issuable upon exercise of its warrants bore to
the total number of outstanding shares of Company Common Stock on a fully-
diluted basis, provided that so long as it owned any Common Stock, or
warrants or any of its loans are outstanding, it had the right to designate
at least one director or observer on the Board of Directors. ACS designated
their member to the Board of Directors at the May 16, 2001 annual meeting of
shareholders.
The Senior Debt Agreement and the Subordinated Debt Agreement, as amended,
contained various affirmative and negative covenants, such as minimum
tangible net worth and minimum fixed charge coverage ratios. Due to the
Company's non-compliance as of December 31, 2001 with certain of the
covenants, the Company classified all debt owed to ACS and Fleet as current
liabilities.
On June 26, 2002, the Company received notice from ACS that it was
exercising the warrant for purchase of 1,907,543 of the Company's shares.
ACS opted to satisfy payment of the exercise price through the use of the
cashless exercise provisions of the warrant. The Company issued 1,878,640
fully paid up net shares to ACS on July 7, 2002. Based on the provisions of
the make-whole feature, the fair value of the Common Stock was $.67 per
share as of the notification date.
On July 19, 2002, the Company's Board of Directors approved the purchase of
the 1,878,640 shares from ACS for $.70 per share. The Company completed the
purchase on July 29, 2002 for $1,315,000 and classified the shares as
treasury shares.
On July 29, 2002, ACS's designated Board member resigned from IGI's Board of
Directors.
7
4. Inventories
Inventories are valued at the lower of cost, using the first-in, first-out
("FIFO") method, or market. Inventories at September 30, 2002 and December
31, 2001 consist of:
September 30, 2002 December 31, 2001
------------------ -----------------
(amounts in thousands)
Finished goods $ 52 $84
Raw materials 206 5
---- ---
Total $258 $89
==== ===
5. Regulatory Proceedings and Legal Proceedings
Settlement of U.S. Regulatory Proceedings
In March 1999, the Company reached a settlement with the Departments of
Justice, Treasury and Agriculture regarding investigations and proceedings
that they had initiated earlier. The terms of the settlement agreement
provided that the Company enter a plea of guilty to a misdemeanor and pay a
fine of $15,000 and restitution in the amount of $10,000. The Company
entered a plea of guilty on March 28, 2002. The fine and restitution of
$25,000 were paid using some of the proceeds from the sale of the Companion
Pet Products division. In addition, the Company was assessed a penalty of
$225,000 and began making monthly payments to the Treasury Department which
continued through the period ending January 31, 2002. The settlement did not
affect the inquiry that was being conducted by the SEC, nor did it affect
possible governmental action against former employees of the Company.
In April 1998, the SEC advised the Company that it was conducting an inquiry
and requested information and documents from the Company, which the Company
voluntarily provided to the SEC. On March 13, 2002, the Company reached a
settlement with the staff of the SEC to resolve matters arising with respect
to the investigation of the Company. Under the settlement, the Company
neither admitted nor denied 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 three years ended December 31,
1997. Further, the Company agreed to the entry of an order to cease and
desist from any such violation in the future. No monetary penalty was
assessed.
The SEC's investigation and settlement focused on alleged fraudulent actions
taken by former members of the Company's management. Upon becoming aware of
the alleged fraudulent activity, the Company, through its Board of
Directors, immediately commenced an internal investigation, which led to the
termination of employment of those responsible. The Company cooperated
fully with the staff of the SEC and disclosed to the SEC the results of the
internal investigation.
In April 2000, the FDA initiated an inspection of the Company's Companion
Pet Products division and issued an inspection report on Form FDA-483 on
July 5, 2000. The July 5, 2000 FDA report included several unfavorable
observations of manufacturing and quality assurance practices and products
of the division. On May 24, 2000, in an effort to address a number of the
FDA's stated concerns, the Company permanently discontinued production and
shipment of Liquichlor, and permanently stopped production and sale of
Cerumite on June 1, 2000 and Cardoxin on September 8, 2000. The Company
responded to the July 5, 2000 FDA report and prepared the required written
procedures and documentation on product preparation to comply with the FDA
regulations. The FDA returned for a final inspection in June 2001 and
provided a summary of findings on August 28, 2001. The FDA report indicated
that no objectional conditions were noted and stated that the Company was in
compliance. In March 2001, the Company signed a supply agreement to
outsource the manufacturing of products for the Companion Pet Products
division, and ceased manufacturing operations at the Companion Pet Products
manufacturing facility.
8
Other Pending Regulatory Matters
On April 6, 2002, officials of the New Jersey Department of Environmental
Protection inspected the Company's storage site in Buena, New Jersey and
issued Notices of Violation 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 is cooperating with the authorities and does not expect to incur
any material fines or penalties.
On March 2, 2001, the Company discovered the presence of environmental
contamination resulting from an unknown heating oil leak at the Companion
Pet Products manufacturing site. The Company immediately notified the New
Jersey Department of Environmental Protection and the local authorities, and
hired a 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, of which $260,000 remains accrued as
of September 30, 2002. As a result of the increase in estimated costs, the
Company recorded an additional $240,000 of expense during the third quarter
of 2001.
The majority of the remediation remaining will be completed by the end of
2002. Subsequently, there will be periodic testing and removal performed,
which is projected to span over the next five years.
6. Non-recurring Charges
In the first quarter of 2001, the Company decided to outsource the
manufacturing for the Companion Pet Products division. The Company reached
its decision to accelerate the outsourcing process (originally anticipated
to be completed by June 2001) due primarily to the discovery on March 2,
2001 of the presence of environmental contamination resulting from an
unknown heating oil leak at the Companion Pet Products manufacturing site,
at which time the Company ceased its manufacturing operations at the
facility. On March 6, 2001, the Company signed a supply agreement with a
third party to manufacture products for the Companion Pet Products division.
On March 8, 2001, the Company terminated the employment of the manufacturing
personnel at this facility.
During the three months ended March 31, 2001, the Company recorded non-
recurring charges related to the cessation and shutdown of the manufacturing
operations at the Companion Pet Products facility of $751,000. This initial
estimate was subsequently increased during the third quarter of 2001 by
$240,000 for additional expenses, offset by a grant from the State of New
Jersey for $81,000, for a total net charge of $910,000. The net charge of
$910,000 is included in the loss from operations of discontinued business.
The Company applied to the New Jersey Economic and Development Authority
(NJEDA) and the New Jersey Department of Environmental Protection (NJDEP)
for a grant and loan to provide partial funding for the costs of
investigation and remediation of the environmental contamination discovered
at the Companion Pet Products facility. On June 26, 2001, the Company was
awarded a $81,000 grant and a $246,000 loan. The $81,000 grant was received
in the third quarter of 2001. The loan, which will require monthly
principal payments, has a term of ten years at a rate of interest of the
Federal discount rate at the date of the closing with a floor of 5%. The
Company received funding of $197,000 under the loan during the first nine
months of 2002.
During September 2001, the Company committed to a plan of sale for its
corporate office building. An impairment charge of $605,000 was recorded
in the third quarter of 2001 to reflect the difference between the selling
price, less related selling costs, and the net book value of the building.
The Company sold the building during February 2002 and received net proceeds
of $550,000.
9
The composition and activity of the non-recurring charges incurred during
the nine months ended September 30, 2001 are as follows (amounts in
thousands):
Reduction of Cash Net accrual at
Description Amount assets Expenditures September 30, 2002
- ----------- ------ ------------ ------------ ------------------
Impairment of property and
equipment $ 314 $ (314) $ - $ -
Environmental clean up costs,
net of State grant 469 - (209) 260
Impairment of corporate office
building 605 (605) - -
Write off of inventory 91 (91) - -
Plant shutdown costs 21 (11) (10) -
Severance 15 - (15) -
------ ------- ----- ----
$1,515 $(1,021) $(234) $260
====== ======= ===== ====
As a result of the Company's presentation of the Companion Pet Products
division as a discontinued operation, certain of these charges are included
in discontinued operations since they relate to the Companion Pet Products
division.
The Company also recorded an impairment charge of approximately $630,000
during the second quarter of 2002 to decrease the carrying value of the
Companion Pet Products warehouse, which was not included in the sale of the
Companion Pet Products division in May 2002. The Company reduced the
carrying value to its estimated net realizable value of $100,000. The
impairment charge was included in discontinued operations as the warehouse
was used by the Companion Pet Products division up until the sale of the
business.
7. Income Taxes
In July 2002, New Jersey approved the Corporation Business Tax Reform
legislation. A major provision of the act was the suspension of the
utilization of net operating loss carryforwards for calendar years 2002 and
2003. The Company has significant net operating losses from prior years,
which it had intended to use to offset the entire gain on the sale of the
Companion Pet Products division. The impact of this new legislation, which
is approximately $925,000 as of the enactment date, is required to be
reflected as a component of continuing operations. The Company is still in
the process of assessing the impact of the other provisions within this new
legislation.
8. Recent Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets."
SFAS No. 141 requires that the purchase method of accounting be used for all
business combinations initiated or completed after June 30, 2001. SFAS No.
141 also specifies criteria that must be met for intangible assets acquired
in a purchase method business combination to be recognized and reported
separately from goodwill, noting that any purchase allocable to an assembled
workforce may not be accounted for separately. SFAS No. 142, which was
effective January 1, 2002, requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually in accordance with the provisions of SFAS No.
142. SFAS No. 142 also requires that intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets."
As of the January 1, 2002 adoption date of SFAS No.142, the Company had
unamortized goodwill of approximately $190,000, which was subject to the
transition provisions of SFAS Nos. 141 and 142. In connection with the sale
of the Companion Pet Products division on May 31, 2002, the goodwill was
written off.
10
In August 2001, the FASB issued SFAS No. 144, which supersedes both SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" and the accounting and reporting provisions of APB
Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions" (Opinion 30), for the
disposal of a segment of a business (as previously defined in that Opinion).
SFAS No. 144 retains the fundamental provisions in SFAS No. 121 for
recognizing and measuring impairment losses on long-lived assets held for
use and long-lived assets to be disposed of by sale, while also resolving
significant implementation issues associated with SFAS No. 121. For
example, SFAS No. 144 provides guidance on how a long-lived asset that is
used as part of a group should be evaluated for impairment, establishes
criteria for when a long-lived asset is held for sale, and prescribes the
accounting for a long-lived asset that will be disposed of other than by
sale. SFAS No. 144 retains the basic provisions of Opinion 30 on how to
present discontinued operations in the income statement but broadens that
presentation to include a component of an entity (rather than a segment of a
business). Unlike SFAS No. 121, an impairment assessment under SFAS No. 144
will never result in a write-down of goodwill. Rather, goodwill is
evaluated for impairment under SFAS No. 142.
The Company adopted SFAS No. 144 effective January 1, 2002. The adoption of
SFAS No. 144 for long-lived assets held for use did not have any impact on
the Company's consolidated financial statements as the impairment assessment
under SFAS No. 144 is largely unchanged from SFAS No. 121. The provisions
of the Statement for assets held for sale or other disposal generally are
required to be applied prospectively after the adoption date to newly
initiated disposal activities.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical
Corrections", which is effective for fiscal years beginning after May 15,
2002 for provisions related to SFAS No. 4, effective for all transactions
occurring after May 15, 2002 for provisions related to SFAS No. 13 and
effective for all financial statements issued on or after May 15, 2002 for
all other provisions of this Statement. The Company's loss from early
extinguishment of debt realized in the second quarter of 2002 will be
presented within continuing operations, rather than presented as an
extraordinary item, when the Company adopts this Statement in 2003.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This Statement 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 this Statement are effective prospectively for
exit or disposal activities initiated after December 31, 2002. The Company
has not determined the impact of adoption of this Statement on future
periods.
11
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 2001 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 2001 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 September 30, 2002 compared September 30, 2001
The Company had a net loss attributable to common stock of $877,000, or
$(.07) per share, for the quarter ended September 30, 2002 compared to a net
loss attributable to common stock of $814,000, or $(.07) per share, for the
quarter ended September 30, 2001. For the quarter ended September 30, 2002,
the Company had a $94,000 profit from continuing operations before provision
for income taxes and extraordinary item compared to a $825,000 loss from
continuing operations before provision for income taxes and extraordinary
item from the comparable period in 2001. The $935,000 tax expense reflected
in this quarter is the result of a New Jersey tax law change that is
retroactive back to January 1, 2002. This retroactive change does not allow
the utilization of prior net operating losses to offset the gain from the
sale of the Companion Pet Products division.
Total revenues for the quarter ended September 30, 2002 were $1,146,000,
compared to $1,067,000 for the quarter ended September 30, 2001. The
increase in revenues is due to higher pet products sales to Vetoquinol
U.S.A., partially offset by a net decrease in Johnson & Johnson royalty
income, which is based on their sales. A significant portion of the
Company's product sales are attributed to a single customer. In addition,
licensing and royalty income is primarily generated from arrangements with
two customers.
Cost of sales, as a percent of product sales, increased slightly from 39% in
the quarter ended September 30, 2001 to 40% in the quarter ended September
30, 2002. The resulting decrease in gross profit from 61% in the quarter
ended September 30, 2001 to 60% for the quarter ended September 30, 2002 is
the result of the change in the mix of products sold.
Selling, general and administrative expenses decreased $129,000, or 19%,
from $696,000 in the quarter ended September 30, 2001. As a percent of
revenues, these expenses were 65% in the third quarter of 2001 compared to
49% for the third quarter of 2002. Overall, expenses decreased due to staff
reductions after the sale of the Companion Pet Products division and
reduction in accounting and bank charge fees.
Product development and research expenses increased $29,000, or 24%,
compared to the quarter ended September 30, 2001. The increase is primarily
due to salary increases and additional lab supplies for current projects.
During the quarter ended September 30, 2001, the Company recorded non-
recurring charges of $605,000 related to a write-down for the estimated
loss on the sale of the corporate building.
The Company recorded interest income of $9,000 for the quarter ended
September 30, 2002 compared to interest expense of $192,000 for the
comparable quarter in 2001. The change is due to the paydown of the
Company's debt using the proceeds from the sale of the Companion Pet
Products division.
The majority of the tax expense is a result of a New Jersey change in the
tax law that is retroactive back to January 1, 2002. The change, which was
enacted in July 2002, suspended the use of net operating losses for a two
year period. Therefore, the gain from the sale of the Companion Pet
Products division could not be offset against prior net
12
operating losses, resulting in the current quarter's tax expense. The
effect of this change is required to be reflected as a component of
continuing operations.
Nine months ended September 30, 2002 compared September 30, 2001
The Company had a net profit attributable to common stock of $8,063,000, or
$.70 per share, for the nine months ended September 30, 2002 compared to a
net loss attributable to common stock of $785,000 or $(.07) per share, for
the nine months ended September 30, 2001. The increase in net profit
compared to the prior year was primarily due to the gain on the sale of the
Company's Companion Pet Products division, net of the loss from early
extinguishment of debt.
Total revenues for the nine months ended September 30, 2002 were $3,273,000,
which represents a decrease of $424,000 or 11%, from revenues of $3,697,000
for the nine months ended September 30, 2001. The decrease in revenues is
primarily the result of the change in pricing structure with the Company's
largest customer, Estee Lauder, which reduced the average sales price per
unit. Also, Johnson & Johnson royalty income, which is based on their
sales, is down from the prior year. A significant portion of the Company's
product sales are attributed to a single customer. In addition, licensing
and royalty income is primarily generated from arrangements with two
customers.
Cost of sales, as a percent of product sales, increased from 29% for the
nine months ended September 30, 2001 to 42% for the nine months ended
September 30, 2002. The resulting decrease in gross profit from 71% in the
nine months ended September 30, 2001 to 58% for the nine months ended
September 30, 2002 is the result of the change in pricing structure noted
above, change in mix to lower gross profit products and unabsorbed costs.
Selling, general and administrative expenses decreased $156,000, or 8%, from
$2,051,000 for the nine months ended September 30, 2001. As a percent of
revenues, these expenses were 55% of revenues for the first nine months of
2001 compared to 58% for the first nine months of 2002. Overall, expenses
decreased due to staff reductions after the sale of the Companion Pet Care
division, reduction in accounting and bank fees, and from the forgiveness of
interest and penalties from a New Jersey sales tax assessment which was
waived due to an amnesty program.
Product development and research expenses decreased $14,000, or 3%, compared
to the nine months ended September 30, 2001. The decrease is principally
related to lower salaries due to lower headcount.
Interest expense decreased $313,000, or 52%, from $607,000 for the nine
months ended September 30, 2001 to $294,000 for the nine months ended
September 30, 2002. 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.
The majority of the tax expense is a result of a New Jersey change in the
tax law that is retroactive back to January 1, 2002. The change suspended
the use of net operating losses for a two year period. Therefore, the gain
from the sale of the Companion Pet Products division could not be offset
against prior net operating losses, resulting in the current year's tax
expense. The effect of this change is required to be reflected as a
component of continuing operations.
Liquidity and Capital Resources
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 buyer assumed liabilities of approximately $986,000, and paid
the Company cash in the amount of $16,700,000. The Company's results reflect
a $12,432,000 gain on the sale of the Companion Pet Products division for
the nine months ended September 30, 2002. The gain is net of direct costs
incurred by the Company in connection with the sale and the reduction in the
purchase price resulting from post-closing adjustments. The Companion Pet
Products division incurred a loss of $401,000 for the nine months ended
September 30, 2002. Also, upon the sale, the Company paid all of its debt
and interest owed to Fleet and ACS. As a result, the Company
13
incurred a $2,654,000 extraordinary loss from early extinguishment of debt
in connection with the prepayment fees paid to Fleet and ACS and the write-
off of the ACS debt discount.
The Company's operating activities used $1,436,000 of cash during the nine
months ended September 30, 2002 compared to $369,000 for the comparable
period in 2001. The majority of cash used was from the sale of the
Companion Pet Products division, which was utilized to pay down accounts
payable and accrued expenses.
The Company generated $16,941,000 of cash in the nine months ended September
30, 2002 from investing activities compared to $288,000 for the comparable
period in 2001. The increase in the source of cash was primarily due to the
proceeds from the sale of the Companion Pet Products division.
The Company's financing activities used $12,935,000 of cash in the nine
months ended September 30, 2002 compared to $50,000 provided by financing
activities in the comparable period of 2001. The difference is a result of
the payoff of the Fleet and ACS debt using the proceeds from the sale of the
Companion Pet Products division and the purchase of the ACS stock which is
reflected as treasury shares.
The Company's continuation as a going concern is dependent upon its ability
to generate sufficient cash from operations or other sources in order to
meet its obligations as they become due. If the Company's operating results
deteriorate or product sales do not improve, then it could lead to
curtailment of certain of its business operations or the commencement of
bankruptcy or insolvency proceedings by the Company or its creditors. There
can be no assurance, however, that management's plan will be successful.
Regulatory Proceeding and Legal Proceedings
Settlement of U.S. Regulatory Proceedings
In March 1999, the Company reached a settlement with the Departments of
Justice, Treasury and Agriculture regarding investigations and proceedings
that they had initiated earlier. The terms of the settlement agreement
provided that the Company enter a plea of guilty to a misdemeanor and pay a
fine of $15,000 and restitution in the amount of $10,000. The Company
entered a plea of guilty on March 28, 2002. The fine and restitution of
$25,000 were paid using some of the proceeds from the sale of the Companion
Pet Products division. In addition, the Company was assessed a penalty of
$225,000 and began making monthly payments to the Treasury Department which
continued through the period ending January 31, 2002. The settlement did not
affect the inquiry being conducted by the SEC, nor did it affect possible
governmental action against former employees of the Company.
In April 1998, the SEC advised the Company that it was conducting an inquiry
and requested information and documents from the Company, which the Company
voluntarily provided to the SEC. On March 13, 2002, the Company reached a
settlement with the staff of the SEC to resolve matters arising with respect
to the investigation of the Company. Under the settlement, the Company
neither admitted nor denied 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 three years ended December 31,
1997. Further, the Company agreed to the entry of an order to cease and
desist from any such violation in the future. No monetary penalty was
assessed.
The SEC's investigation and settlement focused on alleged fraudulent actions
taken by former members of the Company's management. Upon becoming aware of
the alleged fraudulent activity, the Company, through its Board of
Directors, immediately commenced an internal investigation, which led to the
termination of employment of those responsible. The Company cooperated
fully with the staff of the SEC and disclosed to the SEC the results of the
internal investigation.
In April 2000, the FDA initiated an inspection of the Company's Companion
Pet Products division and issued an inspection report on Form FDA-483 on
July 5, 2000. The July 5, 2000 FDA report included several unfavorable
observations of manufacturing and quality assurance practices and products
of the division. On May 24, 2000, in an effort to address a number of the
FDA's stated concerns, the Company permanently discontinued production and
shipment of Liquichlor, and permanently stopped production and sale of
Cerumite on June 1, 2000 and Cardoxin on
14
September 8, 2000. The Company responded to the July 5, 2000 FDA report and
prepared the required written procedures and documentation on product
preparation to comply with the FDA regulations. The FDA returned for a final
inspection in June 2001 and provided a summary of findings on August 28,
2001. The FDA report indicated that no objectionable conditions were noted
and stated that the Company was in compliance. In March 2001, the Company
signed a supply agreement to outsource the manufacturing of products for the
Companion Pet Products division, and ceased manufacturing operations at the
Companion Pet Products manufacturing facility.
Other Pending Regulatory Matters
On April 6, 2002, officials of the New Jersey Department of Environmental
Protection inspected the Company's storage site in Buena, New Jersey and
issued Notices of Violation 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 is cooperating with the authorities and does not expect to incur
any material fines or penalties.
On March 2, 2001, the Company discovered the presence of environmental
contamination resulting from an unknown heating oil leak at the Companion
Pet Products manufacturing site. The Company immediately notified the New
Jersey Department of Environmental Protection and the local authorities, and
hired a 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, of which $260,000 remains accrued as
of September 30, 2002. As a result of the increase in estimated costs, the
Company recorded an additional $240,000 of expense during the third quarter
of 2001.
Factors Which May Affect Future Results
The industry segments in which the Company competes are 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 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.
Effect of Rapidly Changing Technologies
- ---------------------------------------
The Company expects to sublicense its technologies to third parties, which
would manufacture and market products incorporating the technologies.
However, if its competitors develop new and improved technologies that are
superior to the Company's technologies, its 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 continuing listing standards. Specifically, the
Company will be required to reflect a profit from continuing operations and
a net profit for 2002 and a minimum of $4,000,000 in stockholders' equity by
December 31, 2002 in order to remain listed.
On April 25, 2002, the Company submitted a plan of compliance to AMEX. On
June 12, 2002, AMEX notified the Company that it has accepted the Company's
plan of compliance and granted the Company an extension of time to regain
compliance with the continued listing standards by December 31, 2002. The
Company will be subjected to periodic review by the AMEX staff during the
extension period. Failure to make progress consistent with the plan or to
regain compliance with the continued listing standards by the end of the
extension period could result in the Company being delisted by AMEX.
15
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.
ITEM 4. Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer evaluated
the effectiveness of the design and operation of its disclosure controls and
procedures within 90 days of the filing date of this quarterly report, and,
based on their evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that these disclosure controls and procedures are
effective. There were no significant changes in our internal controls or in
other factors that could significantly affect these controls subsequent to
the date of their evaluation.
16
IGI, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
SEC Investigation
In April 1998, the SEC advised the Company that it was conducting an inquiry
and requested information and documents from the Company, which the Company
voluntarily provided to the SEC. On March 13, 2002, the Company reached a
settlement with the staff of the SEC to resolve matters arising with respect
to the investigation of the Company. Under the settlement, the Company
neither admitted nor denied 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 three years ended December 31,
1997. Further, the Company agreed to the entry of an order to cease and
desist from any such violation in the future. No monetary penalty was
assessed.
The SEC's investigation and settlement focus on fraudulent actions taken by
former members of the Company's management. Upon becoming aware of the
fraudulent activity, the Company, through its Board of Directors,
immediately commenced an internal investigation which led to the termination
of employment of those responsible. The Company cooperated fully with the
staff of the SEC and disclosed to the Commission the results of the internal
investigation.
ITEM 6 - Exhibits and Reports
(a) Exhibits
99.1 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.
99.2 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.
(b) Report of Form 8-K
A report on Form 8-K was filed on July 11, 2002, reporting that
ACS had exercised their warrant to purchase IGI's shares
pursuant to their Subordinated Debt Agreement and their
intention to sell the shares.
A report on Form 8-K was filed on July 30, 2002, reporting IGI's
purchase from ACS of the shares of IGI stock acquired by ACS
under their warrant.
17
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: November 14, 2002 By: /s/ John F. Ambrose
-------------------------------
John F. Ambrose
President and Chief Executive
Officer
Date: November 14, 2002 By: /s/ Domenic N. Golato
-------------------------------
Domenic N. Golato
Senior Vice President and Chief
Financial Officer
18
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 quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; 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; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 14, 2002
/s/ Domenic N. Golato
------------------------------------
Domenic N. Golato
Chief Financial Officer
19
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 quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; 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; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 14, 2002
/s/ John F. Ambrose
------------------------------------
John F. Ambrose
President & Chief Executive
Officer
20