SECURITIES AND EXCHANGE COMMISSION | |||
Washington, DC | |||
| |||
| |||
(Mark One) | |||
[X] | QUARTERLY REPORT | ||
For the quarterly period ended | |||
[ ] | TRANSITION REPORT | ||
For the transition period | |||
Commission File Number001-08568 | |||
| |||
IGI Laboratories, Inc. | |||
(Exact name of registrant as specified in its charter) | |||
Delaware | 01-0355758 | ||
(State or other Jurisdiction of | (I.R.S. Employer Identification No.) | ||
incorporation or organization) | |||
105 Lincoln Avenue | |||
Buena, New Jersey | 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 | |||
| |||
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. | |||
Large accelerated filer [ ] | Accelerated filer [ ] | ||
Non-accelerated filer [ ] | Smaller reporting company [X] | ||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange | |||
| |||
The number of shares outstanding of the issuer's |
<PAGE>
PART I |
|
<PAGE>
ITEM 1. Financial Statements | |||||||||||
| |||||||||||
IGI LABORATORIES, INC. AND SUBSIDIARIES | |||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||
(in thousands, except share and per share information) | |||||||||||
(Unaudited) | |||||||||||
|
| ||||||||||
|
| ||||||||||
|
|
|
| ||||||||
| |||||||||||
|
|
|
|
|
|
|
|
| |||
|
|
|
|
| |||||||
|
|
|
|
| |||||||
| |||||||||||
|
|
|
|
| |||||||
|
|
|
|
| |||||||
|
|
|
|
| |||||||
|
|
|
|
| |||||||
|
|
|
|
| |||||||
|
|
|
|
| |||||||
|
|
|
|
| |||||||
|
|
|
|
| |||||||
| |||||||||||
|
|
|
|
| |||||||
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
| |||
| |||||||||||
|
|
|
|
|
|
|
|
| |||
| |||||||||||
| |||||||||||
|
|
|
|
| |||||||
|
Three months ended March 31, | |||||
2008 | 2007 | ||||
Revenues: | |||||
Product sales | $ | 1,300 | $ | ||
Research and development income | 65 | ||||
Licensing and royalty income | 135 | 140 | |||
Total revenues | 1,500 | 821 | |||
Costs and expenses: | |||||
Cost of sales | 681 | 516 | |||
Selling, general and administrative expenses | 663 | 585 | |||
Product development and research expenses | 113 | 111 | |||
43 | (391) | ||||
Interest expense, net | (3) | (19) | |||
Net income (loss) | $ | 40 | $ | (410) | |
Basicincome (loss) per share | $ | .00 | $ | (.03) | |
Dilutedincome (loss) per share | $ | .00 | $ | (.03) | |
Weighted AverageShares of Common Stock and Common Stock Equivalents Outstanding: | |||||
Basic | 14,831,880 | 12,632,604 | |||
Diluted | 15,731,303 | 12,632,604 | |||
The accompanying notes are an integral part of the consolidated financial statements. |
<PAGE> 2
IGI, INC. AND SUBSIDIARIES | ||||||||||
IGILABORATORIES, INC. AND SUBSIDIARIES | IGILABORATORIES, INC. AND SUBSIDIARIES | |||||||||
CONSOLIDATED BALANCE SHEETS | CONSOLIDATED BALANCE SHEETS | CONSOLIDATED BALANCE SHEETS | ||||||||
(in thousands, except share and per share information) | (in thousands, except share and per share information) | (in thousands, except share and per share information) | ||||||||
September | December | |||||||||
30, 2005 | 31, 2004 | March 31, | December 31, | |||||||
(unaudited) | ||||||||||
(unaudited) | ||||||||||
ASSETS | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 196 | $ | 380 | $ 603 | $ 914 | ||||
Restricted cash | 50 | 50 | ||||||||
Marketable securities | - | 377 | ||||||||
Accounts receivable, less allowance for doubtful accounts | ||||||||||
of $11 and $10 in 2005 and 2004, respectively | 339 | 306 | ||||||||
of $28 and $48 in 2008 and 2007, respectively | 875 | 666 | ||||||||
Licensing and royalty income receivable | 113 | 155 | 126 | 356 | ||||||
Inventories | 218 | 247 | 531 | 376 | ||||||
Prepaid expenses and other current assets | 46 | 8 | 129 | 93 | ||||||
Total current assets | 962 | 1,523 | 2,264 | 2,405 | ||||||
Property, plant and equipment, net | 3,136 | 3,168 | 2,355 | 2,410 | ||||||
Other assets | 28 | 39 | ||||||||
Restricted cash - long term | 50 | 50 | ||||||||
Other assets - long term | 18 | - | ||||||||
License fee, net | 775 | 800 | ||||||||
Total assets | $ | 4,126 | $ | 4,730 | $ 5,462 | $ 5,665 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||
Current liabilities: | ||||||||||
Note payable - related party | $ 250 | $ 500 | ||||||||
Accounts payable | $ | 255 | $ | 157 | 486 | 282 | ||||
Accrued payroll | 13 | 16 | ||||||||
Other accrued expenses | 281 | 243 | ||||||||
Income taxes payable | - | 5 | ||||||||
Deferred income | 112 | 180 | ||||||||
Accrued expenses | 345 | 419 | ||||||||
Deferred income, current | 8 | 219 | ||||||||
Total current liabilities | 661 | 601 | 1,089 | 1,420 | ||||||
Deferred income | 73 | 121 | ||||||||
Deferred income, long term | 43 | 45 | ||||||||
Other long term liabilities | 31 | 60 | ||||||||
Total liabilities | 734 | 722 | 1,163 | 1,525 | ||||||
Commitments and contingencies | ||||||||||
Stockholders' equity: | ||||||||||
Common stock $.01 par value, 50,000,000 shares | ||||||||||
authorized; 14,084,520 and 13,547,520 shares issued | ||||||||||
in 2005 and 2004, respectively | 141 | 135 | ||||||||
Accumulated other comprehensive loss | - | (32) | ||||||||
Series A Convertible Preferred stock, $.01 par value, | ||||||||||
100 shares authorized; 50 shares issued and outstandingas of | ||||||||||
Liquidation preference- $500,000 | 500 | 500 | ||||||||
Common stock, $.01 par value, 50,000,000 shares | ||||||||||
authorized; 16,799,202 and 16,795,202 shares issued | ||||||||||
168 | 168 | |||||||||
Additional paid-in capital | 24,802 | 24,467 | 27,530 | 27,411 | ||||||
Accumulated deficit | (20,156) | (19,167) | (22,504) | (22,544) | ||||||
Less treasury stock at cost, 1,965,740 shares | ||||||||||
in 2005 and 2004 | (1,395) | (1,395) | ||||||||
Less treasury stock, 1,965,740 shares at cost | (1,395) | (1,395) | ||||||||
Total stockholders' equity | 3,392 | 4,008 | 4,299 | 4,140 | ||||||
Total liabilities and stockholders' equity | $ | 4,126 | $ | 4,730 | $ 5,462 | $ 5,665 | ||||
The accompanying notes are an integral part of the consolidated financial statements. | The accompanying notes are an integral part of the consolidated financial statements. | The accompanying notes are an integral part of the consolidated financial statements. | ||||||||
* Derived from the audited December 31, 2007 financial statements | * Derived from the audited December 31, 2007 financial statements |
<PAGE> 3
IGI, INC. AND SUBSIDIARIES | |||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||
(in thousands) | |||||
(Unaudited) | |||||
Nine months ended | |||||
September 30, | |||||
2005 | 2004 | ||||
Cash flows from operating activities: | |||||
Net (loss) | $ | (989) | $ | (1,058) | |
Reconciliation of net (loss) to net cash used in operating activities: | |||||
Provision for loss on accounts receivable and inventory | 1 | - | |||
Depreciation and amortization | 225 | 206 | |||
Loss on sale of investment securities | 72 | 1 | |||
Recognition of deferred income | (126) | (119) | |||
Stock option compensation expense | 2 | 537 | |||
Changes in operating assets and liabilities: | |||||
Accounts receivable | (34) | 148 | |||
Inventories | 29 | (12) | |||
Licensing and royalty income receivable | 42 | (142) | |||
Prepaid expenses and other assets | (38) | 66 | |||
Accounts payable and accrued expenses | 18 | (38) | |||
Income taxes payable | (5) | 2 | |||
Deferred revenue | 10 | - | |||
Net cash used in operating activities | (793) | (409) | |||
Cash flows from investing activities: | |||||
Capital expenditures | (68) | (581) | |||
Purchase of marketable securities | - | (110) | |||
Proceeds from sale of marketable securities | 337 | 300 | |||
Net cash provided by (used in) investing activities | 269 | (391) | |||
Cash flows from financing activities: | |||||
Proceeds from exercise of common stock options and purchase | |||||
of common stock | 340 | 222 | |||
Net cash provided by financing activities | 340 | 222 | |||
Net (decrease) in cash and cash equivalents | (184) | (578) | |||
Cash and cash equivalents at beginning of period | 380 | 821 | |||
Cash and cash equivalents at end of period | $ | 196 | $ | 243 | |
The accompanying notes are an integral part of the consolidated financial statements. |
IGI LABORATORIES, INC. AND SUBSIDIARIES | |||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||
(in thousands) | |||||
(Unaudited) | |||||
Three months ended March 31, | |||||
2008 | 2007 | ||||
Cash flows from operating activities: | |||||
$ | 40 | $ | (410) | ||
Reconciliation of net income (loss) to net cash used in operating | |||||
activities: | |||||
Depreciation and amortization | 61 | 57 | |||
Amortization of license fee | 25 | 25 | |||
Stock based compensation expense | 115 | 81 | |||
Changes in operating assets and liabilities: | |||||
Accounts receivable | (209) | (236) | |||
Inventories | (155) | 13 | |||
Deferred income | (213) | (15) | |||
Licensing and royalty income receivable | 230 | 8 | |||
Prepaid expenses and other assets | (55) | (67) | |||
Accounts payable and accrued expenses | 103 | (185) | |||
Net cash used in operating activities | (58) | (729) | |||
Cash flows from investing activities: | |||||
Capital expenditures | (6) | (94) | |||
Proceeds from deposit on sale of assets of discontinued operations | - | 130 | |||
Net cash (used in) provided by investing activities | (6) | 36 | |||
Cash flows from financing activities: | |||||
Borrowing from note payable - related party | - | 500 | |||
Repayment of notes payable - related party | (250) | (1,145) | |||
Repayment of note payable | - | (306) | |||
Proceeds from exercise of common stock options | 3 | - | |||
Proceeds from private placement of common stock, net of expenses | - | 1,378 | |||
Net cash (used in) provided by financing activities | (247) | 427 | |||
Net decrease in cash and equivalents | (311) | (266) | |||
Cash and equivalents at beginning of period | 914 | 619 | |||
Cash and equivalents at end of period | $ | 603 | $ | 353 | |
Supplemental cash flow information: | |||||
Cash payments for interest | $ | 10 | $ | 169 | |
Cash payment for taxes | 3 | - | |||
The accompanying notes are an integral part of the consolidated financial statements. |
<PAGE> 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the U.S. generally accepted accounting principals for interim financial information and with the instructions to Form 10-Q and Article8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principals for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2007. The condensed consolidated balance sheet as of Decem ber 31, 2007 has been derived from those audited consolidated financial statements. Operating results for the three month period ended March 31, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. | |
1. |
|
On May 7, 2008, the shareholders of IGI, Inc. approved the name change of the Company from IGI, Inc. to IGI Laboratories, Inc. | |
IGI Laboratories, Inc. ("IGI", "IGI, Inc." or the "Company"), a Delaware corporation, operating in the State of New Jersey, is primarily engaged in the production and | |
| |
| |
| |
|
|
| |
| |
Gross | Gross | |||||||||||
As of | Amortized | Unrealized | Unrealized | Fair | Carrying | |||||||
Dec 31, 2004: | Cost | Gains | Losses | Value | Amount | |||||||
Mutual funds | $297 | $ - | $ (4) | $295 | $295 | |||||||
Securities | 110 | - | (28) | 82 | 82 | |||||||
$407 | $ - | $(32) | $377 | $377 | ||||||||
| |||
|
| ||
|
| ||
|
|
<PAGE> 5
IGI, INC. AND SUBSIDIARIES | ||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | ||||||
Continued | ||||||
In accordance with SFAS 115 and EITF 03-1, for individual securities classified as available-for-sale, a company shall determine whether a decline in fair value below the amortized cost basis is other than temporary. If the decline is judged to be other than temporary, the cost basis of the individual security shall be written down to fair value as a new cost basis and the amount of the write-down shall be included in earnings (or accounted for as a realized loss). In the second quarter 2005 we recorded an impairment loss of $77,000 on an investment in securities. In the third quarter 2005 we sold this security and recorded a realized gain of $10,000. | ||||||
3. | Inventories | |||||
Inventories are valued at the lower of cost, using the first-in, first-out ("FIFO") method, or market. Inventories at September 30, 2005 and December 31, 2004 consist of: | ||||||
September 30, 2005 | December 31, 2004 | |||||
(amounts in thousands) | ||||||
Finished goods | $ 11 | $ 42 | ||||
Raw materials | 207 | 205 | ||||
Total | $218 | $247 | ||||
4. | Stock-Based Compensation | |||||
In December 2004, the Financial Accounting Standards Board issued Statement No. 123 (revised)Share-Based Payment("SFAS No. 123R"), which is a revision of Statement No. 123,Accounting for Stock-Based Compensation("SFAS No. 123"). SFAS No. 123R supersedes APB No. 25,Accounting for Stock Issued to Employees ("APB No. 25"), and amends SFAS No. 95,Statement of Cash Flows. Generally, the approach in SFAS No. 123R is similar to the approach described in SFAS No. 123. However, SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. SFAS No. 123R must be adopted in the first annual financial reporting period beginning after December 15, 2005. The Company will adopt SFAS No. 123R on January 1, 20 06. | ||||||
SFAS No. 123R permits public companies to adopt its requirements using one of two methods: | ||||||
A "modified prospective" method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123R for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123R that remain unvested on the effective date. | ||||||
Or a "modified retrospective" method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures either for (a) all prior periods presented or (b) prior interim periods of the year of adoption. | ||||||
The Company plans to adopt SFAS No. 123R using the modified prospective method. | ||||||
The Company currently accounts for share-based payments to employees using the intrinsic value method permitted by APB No. 25 and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of SFAS No. 123R's fair value method will have a significant impact on the Company's results of operations, although it will have no impact on the Company's overall financial position. The impact of adoption of SFAS No. 123R cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had the Company adopted SFAS No. 123R in prior periods, the impact of that standard would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net income and earnings per share below. SFAS No. 123R also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather t han as an operating cash flow as required under current literature. |
<PAGE> 6
| |
| |
| |
| |
| |
Three months | Nine months ended | |||||||||||
ended September 30, | September 30, | |||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||
(in thousands, except per share information) | ||||||||||||
Net (loss) - as reported | $ | (615) | $ | (219) | $ | (989) | $ | (1,058) | ||||
Deduct: Total stock-based employee | ||||||||||||
compensation expense determined | ||||||||||||
under the fair-value based method | ||||||||||||
(net of tax $0) | (31) | (34) | (105) | (136) | ||||||||
Net (loss) - pro forma | $ | (646) | $ | (253) | $ | (1,094) | $ | (1,194) | ||||
(Loss) per share - as reported | ||||||||||||
Basic and diluted | $ | (.05) | $ | (.02) | $ | (.08) | $ | (.09) | ||||
(Loss) per share - pro forma | ||||||||||||
Basic and diluted | $ | (.05) | $ | (.02) | $ | (.09) | $ | (.10) | ||||
|
|
| |
| |
|
<PAGE> 7
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
|
<PAGE> 8
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
|
|
| |
|
<PAGE> 9
IGI, INC. AND SUBSIDIARIES | |||||||||
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | |||||||||
Thefollowing 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 2004 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 2004 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. | |||||||||
Recent Events | |||||||||
On August 10, 2005, the Company granted Frank Gerardi, the Company's Chairman and Chief Executive Officer a Severance Agreement (the "Agreement") should he be terminated from the Company. Upon the occurrence of a Termination Event (as defined in the Agreement), the Company will pay to Mr. Gerardi: (i) $150,000, payable in a lump sum, or in regular payroll payments until paid in full; (ii) a lump sum payment for any unused accrued vacation days for that calendar year; and (iii) continued coverage under the Company's existing health and benefit plans for a one (1) year period from the date that written notice of terminationis given. | |||||||||
Results of Operations | |||||||||
Three months ended September 30, 2005 compared to September 30, 2004 | |||||||||
Revenues (in thousands): | |||||||||
2005 | 2004 | $ Change | % Change | ||||||
Product Sales | $567 | $383 | $184 | 48% | |||||
Royalty Revenue | 172 | 199 | (27) | -14% | |||||
Total Revenues | $739 | $582 | $157 | 27% | |||||
The increase in product sales relates to an increase in sales to Vetoquinol, USA, Genesis, Chattem, and shipments made to Infusion Biotechnologies, a new customer, offset by a decrease in product sales from Estee Lauder. The decrease in royalty revenue was related to a decline in royalties from J&J in 2005 offset by an increase in Estee Lauder royalty. | |||||||||
Costs and expenses (in thousands): | |||||||||
2005 | 2004 | $ Change | % Change | ||||||
Cost of sales | $ 572 | $244 | $328 | 134% | |||||
Selling, general and administrative | 429 | 320 | 109 | 34% | |||||
Litigation settlement fees | 100 | - | 100 | 100% | |||||
Product development and research | 230 | 241 | (11) | -5% | |||||
Total costs and expenses | $1,331 | $805 | $526 | 65% | |||||
As a percentage of product sales, cost of sales was 101% for the quarter ended September 30, 2005 and 64% for the quarter ended September 30, 2004. In the third quarter of 2005, the Company had sales of a product with a negative gross margin that resulted from unforeseen changes from a third-party contractor of the product. We also had a low overhead absorption from low sales volumes for the quarter. In addition, batches have been completed for the metal finishings division, however, no sales have been generated to offset the costs related to that division and those costs are included with costs of goods sold. The costs related to the metal finishing division amounted to $55,000 for operations and $26,000 in materials costs for the quarter ended September 30, 2005. All of these factors together created a higher cost of sales for the quarter ended September 30, 2005. | |||||||||
As a percentage of revenues, selling, general and administrative expenses were 72% of revenues in the third quarter of 2005 compared to 55% for the third quarter of 2004. The increase in expenses was a result of higher legal fees of $55,000 and sales & marketing expenses of $50,000 relating to the metal finishing divisions in the third quarter 2005 that were not included in third quarter of 2004. |
<PAGE> 10
IGI, INC. AND SUBSIDIARIES | ||||||||
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | ||||||||
Litigation settlement fees were fees related to the law suit with Mr. Ted Borz, who owns the property adjacent to the property on which the oil spill occurred, in which we offered a $70,000 settlement which he accepted and a fees related to $30,000 settlement offered by the DEP to Brunozzi, which IGI will indemnify Brunozzi for that amount in full. Both of these amounts were accrued as of September 30, 2005. | ||||||||
Net loss (in thousands): | ||||||||
2005 | 2004 | $ Change | % Change | |||||
Net loss | $(615) | $(219) | $(396) | -180% | ||||
Net loss per share | (.05) | (.02) | (.03) | -150% | ||||
The increase in net loss related to higher cost of sales and higher selling, general and administration costs for the quarter ended September 30, 2005. | ||||||||
Nine months ended September 30, 2005 compared to September 30, 2004 | ||||||||
Revenues (in thousands): | ||||||||
2005 | 2004 | $ Change | % Change | |||||
Product Sales | $1,665 | $2,023 | $(358) | -18% | ||||
Royalty Revenue | 674 | 744 | (70) | -9% | ||||
Total Revenues | $2,339 | $2,767 | $(428) | -15% | ||||
The decrease in product sales is primarily due to the decrease in product sales to Estee Lauder offset by an increase in sales to Chattem, Infusion Biotechnologies, a new customer, and Albrian. The decrease in royalty revenues is due to the decrease in revenue from J&J offset by the royalty revenue from Estee Lauder in 2005 and a $300,000 royalty payment received from Tarpan Therapeutics (now Manhattan Pharmaceuticals) in 2004. | ||||||||
Costs and expenses (in thousands): | ||||||||
2005 | 2004 | $ Change | % Change | |||||
Cost of sales | $1,339 | $ 930 | $ 409 | 44% | ||||
Selling, general and administrative | 1,202 | 1,406 | (204) | -15% | ||||
Product development and research | 730 | 1,504 | (774) | -51% | ||||
Totals costs and expenses | $3,271 | $3,840 | $(569) | -15% | ||||
As a percentage of product sales, cost of sales was 80% for the nine months ended September 30, 2005 and 46% for the nine months ended September 30, 2004. The increase in cost of sales is due to sales of lower gross margin products in 2005, sales of a negative gross margin product and low overhead absorption. In addition, sample batches have been completed for the metal finishing division; however, no significant sales have been generated to offset the costs related to that division. The costs related to the metal finishing division amounted to $181,000 for the nine month period ended September 30, 2005. | ||||||||
As a percentage of revenues, selling, general and administrative expenses were 51% of revenues for the nine months ended September 30, 2005 compared to 51% for the nine months ended September 30, 2004. Overall, expenses decreased primarily due to a severance accrual of $203,000 recorded in the second quarter 2004. | ||||||||
The decrease in product development and research expenses was a result of the Company recording a $548,000 non cash expense related to the SFAS 123 value of 325,000 stock options granted to Dr. Holick and a $232,000 cash expense paid to Dr. Holick in accordance with his agreement in the second quarter of 2004. |
<PAGE> 11
IGI, INC. AND SUBSIDIARIES | ||||||||
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | ||||||||
Net loss (in thousands): | ||||||||
2005 | 2004 | $ Change | % Change | |||||
Net loss | $(989) | $(1,058) | 69 | 7% | ||||
Net loss per share | (.08) | (.09) | .01 | 11% | ||||
The decrease in net loss relates to the stock option expenses recorded in 2004 offset by the increase cost of sales for 2005. | ||||||||
Liquidity and Capital Resources | ||||||||
The Company's operating activities used $793,000 of cash during the nine months ended September 30, 2005 compared to $409,000 used in the comparable period of 2004. This use of cash is directly related to the net loss for the Company. | ||||||||
The Company investing activities provided $269,000 of cash in the nine months ended September 30, 2005 compared to $391,000 used in investing activities in the first nine months of 2004. The money used represents capital expenditures to purchase machinery and equipment related to the electroless nickel boride finishing operations in 2004 and proceeds were provided from sales of investment securities in 2005. | ||||||||
The Company's financing activities provided $340,000 of cash in the nine months ended September 30, 2005 compared to $222,000 provided by financing activities in the nine months ended September 30, 2004. The cash provided in 2005 and 2004 represents proceeds from the exercise of stock options. | ||||||||
The Company's principal sources of liquidity are cash from operations, cash and cash equivalents and marketable securities. 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. In addition, two shareholders of the Company have agreed to loan the Company up to $500,000 each, if necessary, to fund the Company's deficit through December 31, 2005. The Company has filed an application with the American Stock Exchange for the listing of additional shares of common stock. We are expecting to raise capital through a private placement however, there can be no assurance we can raise the capital needed on acceptable terms, if at all. There may also be other acquisition and other growth opportunities; however that require additional external financing. Management may, from time to time, seek to obtain additional funds from the public or private is suances of equity or debt securities. There can be no assurance that such financings will be available or available on terms acceptable to the Company. | ||||||||
The Company has an option, which is exercisable by December 13, 2005, to extend its exclusive license for the use of the technologies in the IGI Field, as defined in the license agreement, for an additional ten-year term in exchange for a $1,000,000 cash payment. Management fully intends to exercise that option and is currently negotiating a sale-leaseback of our manufacturing facility to acquire the additional funding necessary to exercise our option to extend our license agreement with Novavax. | ||||||||
There have been no material changes to the Company's contractual commitments as reflected in the 2004 10-K Annual Report other than those disclosed in this Form 10-Q. | ||||||||
Off Balance Sheet Arrangements | ||||||||
The Company does not have any off balance sheet arrangements as of the date of this report. |
<PAGE> 12
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
On | |
In order to | |
The Company fully intends to submit a compliance plan to the AMEX staff in a timely manner which will outline its intended actions to regain compliance. | |
Major Customers | |
The Company has successfully broadened its customer base to fuel its revenue growth. Major customers of the Company are defined as having revenue for the latest fiscal year equal to or greater than 10% of that years total gross product. For the three months ended March 31, 2008 and the three months ended March 31, 2007, four of our customers accounted for 86% and 71% of our revenue, respectively. Theloss of one or more of these customers could have a significant impacton our revenues and harm our business and results of operations. | |
2. | Summary of Significant Accounting Policies |
Use of Estimates | |
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include allowances for excess and obsolete inventories, allowances for doubtful accounts, provisions for income taxes and related deferred tax asset valuation allowances, stock based compensation, and accruals for environmental cleanup and remediation costs. Actual results could differ from those estimates. | |
Revenue Recognition | |
The Company considers revenue realized or realizable and earned when it has persuasive evidence of an arrangement, delivery has occurred or contractual services rendered, the sales price is fixed or determinable, and collection is reasonably assured in conformity with SAB No. 104,Revenue Recognition. | |
The Company derives its revenues from three basic types of transactions: sales of manufactured product, licensing of technology, and research and product development services performed for third parties. Due to differences in the substance of these transaction types, the transactions require, and the Company utilizes, different revenue recognition policies for each. |
<PAGE> 5
Product Sales: The Company recognizes revenue when title transfers to its customers, which is generally upon shipment of products. These shipments are made in accordance with sales commitments and related sales orders entered into with customers either verbally or in written form. The revenues associated with these transactions, net of appropriate cash discounts, product returns and sales reserves, are recorded upon shipment of the products. | |
Licensing Revenues: Revenues earned under licensing or sublicensing contracts are recognized ratably over the life of the agreements. Advance payments by customers are initially recorded as deferred income on the Consolidated Balance Sheet and then recognized ratably over the life of the agreement or as contract obligations are completed. | |
Product Development Services: The Company establishes agreed upon product development agreements with its customers to perform product development services. Product development revenues are recognized in accordance with the product development agreement upon the completion of the phases of development and when we have no future performance obligations relating to that phase of development. Revenue recognition requires the Company to assess progress against contracted obligations to assure completion of each stage. Payments under these arrangements are generally non-refundable and are reported as deferred until they are recognized as revenue. If no such arrangement exists, product development fees are recognized ratably over the entire period during which the services are performed. | |
Recent Accounting Pronouncements | |
In December 2007, the FASB issued SFAS No. 141 (revised 2007),Business Combinations, which replaces FASB Statement No. 141. FAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non controlling interest in the acquiree and the goodwill acquired. The Statement also establishes disclosure requirements, which will enable users to evaluate the nature and financial effects of the business combination. FAS 141R is effective as of the beginning of an entity's fiscal year that begins after December 15,2008. | |
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements - an amendment of Accounting Research Bulletin No. 51 ("FAS 160"), which establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent's ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. The Statement also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. FAS 160 is effective as of the beginning of an entity's fiscal year that begins after December 15, 2008. The Company is currently evaluating the potential impact, if any, of the adoption of FAS 160 oni tsconsolidated financial position, results of operations and cash flows but believes the adoption of FAS 160 will not have a material effect on its results of operations or financial position. | |
In December 2007, the Emerging Issues Task Force (EITF) issued EITF Issue No. 07-1,Accounting for Collaborative Arrangements. EITF 07-1 provides guidance concerning: determining whether an arrangement constitutes a collaborative arrangement within the scope of the Issue; how costs incurred and revenue generated on sales to third parties should be reported in the income statement; how an entity should characterize payments on the income statement; and what participants should disclose in the notes to the financial statements about a collaborative arrangement. EITF 07-1 is effective for the Company's collaborations existing after January 1, 2009. The Company is in the process of evaluating the impact, if any, of adopting EITF 07-1 onits financial statements but believes the adoption of EITF 07-1 will not have a material effect on its results of operations or financial position. | |
In March 2008, Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 161,Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. SFAS No. 161 also improves transparency about the location and amounts of derivative instruments in an entity's financial statements; how derivative instruments and related hedged items are accounted for under Statement 133; and how derivative instruments and related hedged items affect its financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company is in the process of evaluating the impact of the adoption of SFAS 161 on its financial statements but believes the adoption of SFAS 161 will not have a material effect onitsresults of operations or financial position. |
<PAGE> 136
3. | Earnings Per Share | |||||
SFAS No. 128, Earnings per Share, requires a dual presentation of basic and diluted earnings per share on the face of the Company's consolidated statement of operations and a reconciliation of the computation of basic earnings per share to diluted earnings per share. Basic earnings per share excludes the dilutive impact of common stock equivalents and is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding for the period. Dilutedearningspershare includes the effect of potential dilution from the exercise of outstanding common stock equivalents into common stock using the treasury stock method;however,such items would not be considered for diluted loss per share due to their anti-dilutive effects. Earnings per share amou nts for all periods presented have been calculated in accordance with the requirements of SFAS No. 128. A reconciliation of the Company's basic anddilutedearningspershare follows: | ||||||
Three months ended March 31, | ||||||
2008 | 2007 | |||||
Numerator: | ||||||
$ | 40,000 | $ | (410,000) | |||
Denominator: | ||||||
Weighted average common shares outstanding | 14,831,880 | 12,632,604 | ||||
Effect of dilutive stock options | 282,028 | - | ||||
Effect of dilutive warrants | 117,395 | - | ||||
Effect of dilutive convertible preferred stock | 500,000 | - | ||||
Shares used in calculating diluted earnings per share | 15,731,303 | 12,632,604 | ||||
Basicincome/(loss) per share | $ | .00 | $ | (.03) | ||
.00 | (.03) | |||||
The number of anti-dilutive shares under option that have been excluded in the computation ofdilutedearningspershare for the three months ended March 31,2008was 1,105,447 due to their anti-dilutive effect. | ||||||
4. | Inventories | |||||
Inventories are valued at the lower of cost, using the first-in, first-out ("FIFO") method, or market. Inventories at March 31, 2008 and December 31, 2007 consist of: | ||||||
March 31, | December 31, | |||||
2008 | 2007 | |||||
(amounts in thousands) | ||||||
Raw materials | $ | 396 | $ | 258 | ||
Work in progress | 20 | 8 | ||||
Finished goods | 115 | 110 | ||||
Total | $ | 531 | $ | 376 | ||
5. | Stock-Based Compensation | |||||
Stock Incentive Plans | ||||||
The Company currently has a stock-based compensation plan for its Board of Directors, the 1999 Director Stock Option Plan (the "Director Plan"). In accordance with the Director Plan, each non-employee member of the Board is granted an option once a year as compensation for services rendered to the Company for that year. The options vest over a 12-month period. Each Director receivesannuallyan optionto purchase 15,000 shares with an additionalannual grant to each committee Chairman. |
<PAGE> 7
The Company also provides each director withadditional sharesof our common stock as compensation for each board meeting they attend throughout the year in accordance with the 1998 Director Stock Plan. | ||||||||||||||
The Company also has a stock-based incentive plan in place for its eligible employees, officers, consultants, independent advisors and non-employee directors, the 1999 Stock Incentive Plan (the "Plan"). The Plan permits the grant of share options and shares for up to 3,200,000 shares ofthe Company's common stock.There are no restricted shareawards outstanding under the Plan and the outstanding options are summarized in the table below. Option awards are granted with an exercise price equal to or greater than the closing sale price per share of the Company's common stock on theAmerican Stock Exchange on the option grant date. Although the terms of any award vary, options awards generally vest based upon four years of continuous service an d have 10-year contractual life. | ||||||||||||||
The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing formula that uses assumptions noted in the following table. Expected volatilities and risk-free interest rates are based upon the expected life of the grant. The interest rates used are the U.S. Treasury yield curve in effect at the time of the grant. | ||||||||||||||
For the three months ended | ||||||||||||||
March 31, 2008 | ||||||||||||||
Expected volatility | 75.08% | |||||||||||||
Expected term (in years) | 7 years | |||||||||||||
Risk-free rate | 4.99% | |||||||||||||
Expected dividends | 0% | |||||||||||||
A summary of option activity under the Plan and the Director Plan as of March 31, 2008 and changes during the period are presented below | ||||||||||||||
Weighted | ||||||||||||||
Average | ||||||||||||||
Number of | Exercise | |||||||||||||
Options | Price | |||||||||||||
Outstanding as of 1/1/2008 | 2,274,548 | $ | 1.42 | |||||||||||
Issued | 570,000 | $ | 1.66 | |||||||||||
Exercised | 4,000 | $ | 1.02 | |||||||||||
Forfeited | - | - | ||||||||||||
Outstanding as of 3/31/2008 | 2,840,548 | $ | 1.47 | |||||||||||
Exercisable as of 3/31/2008 | 2,075,548 | $ | 1.47 | |||||||||||
Based upon application of the Black-Scholes option-pricing formula described above, the weighted-average grant-date fair value of options granted during the three months ended March 31, 2008 was $1.22. | ||||||||||||||
The following table summarizes information regarding options outstanding and exercisable at March 31, 2008: | ||||||||||||||
Outstanding: | ||||||||||||||
Weighted | Weighted | |||||||||||||
Average | Average | |||||||||||||
Stock options | Exercise | Remaining | ||||||||||||
Range of Exercise Prices | Outstanding | Price | Contractual Life | |||||||||||
$0.50 to $1.00 | 304,250 | $0.73 | 6.12 | |||||||||||
$1.01 to $2.00 | 2,124,298 | $1.41 | 6.93 | |||||||||||
$2.01 to $3.00 | 412,000 | $2.31 | 4.44 | |||||||||||
Total | 2,840,548 | $1.47 | 6.48 | |||||||||||
<PAGE> 8
Exercisable: | |||||||||
Weighted | |||||||||
Average | |||||||||
Stock options | Exercise | ||||||||
Range of Exercise Prices | Exercisable | Price | |||||||
$0.50 to $1.00 | 289,250 | $0.73 | |||||||
$1.01 to $2.00 | 1,374,298 | $1.38 | |||||||
$2.01 to $3.00 | 412,000 | $2.31 | |||||||
Total | 2,075,548 | $1.47 | |||||||
As of March 31, 2008, the intrinsic value of the options outstanding is $1,875,375 and the intrinsic value of the options exercisable is $1,388,525. As of March 31, 2008, there was $686,000 of total unrecognized compensation cost through December 2009 related to non-vested share-based compensation arrangements granted under the Plans. That cost is expected to be recognized over the remaining vesting periods of the options granted. | |||||||||
6. | Income Taxes | ||||||||
Effective January 1, 2007, the Company adopted Financial Interpretation ("FIN") No. 48, | |||||||||
As a result ofthe Company's history of continuing tax losses,the Company has not paid income taxes andhas recorded a full valuation allowance againstits net deferred tax asset. Therefore,the Company has not recorded a liability for unrecognized tax benefits prior to adoption of FIN 48 and there was no adjustment from the implementation. There continues to be no liability related to unrecognized tax benefits at March 31, 2008. The tax years 2004-2007 remain open to examination by the major taxing jurisdictions to which the Company is subject. | |||||||||
There was no accrued interest related to unrecognized tax benefits at March 31, 2008. | |||||||||
7. | Contractual Agreements | ||||||||
On December 12, 2005, the Company extended its license agreement for an additional ten years with Novavax, Inc. for $1,000,000. This extension entitles the Company to exclusive use of the Novasome® lipid vesicle encapsulation and certain other technologies ("Microencapsulation Technologies" or collectively the "Technologies") in the fields of (i) animal pharmaceuticals, biologicals and other animal health products; (ii) foods, food applications, nutrients and flavorings; (iii) cosmetics, consumer products and dermatological over-the-counter and prescription products (excluding certain topically delivered hormones); (iv) fragrances; and (v) chemicals, including herbicides, insecticides, pesticides, paints and coatings, photographic chemicals and other specialty chemicals, and the processes for making the same (collectively, the "IGI Field") thru 2015. This payment is being amortized ratably over the ten-year period. The Compa ny recorded amortization expenseof $25,000 related to this agreement for each of the three-month periods ended March 31, 2008 and 2007. |
<PAGE> 9
| Note Payable |
On January 31, 2007,the Companyentered into a revolving $1,000,000 secured line of credit agreement ("Credit Agreement") with Pinnacle Mountain Partners, LLC, ("Pinnacle"), a company owned by Dr. and Mrs. Hager, significant shareholders of the Company,and in the case of Mrs. Hager, a director of the Company,for a term of eighteen months. Loans under the Credit Agreement bear interest at prime (5.25% at March 31, 2008 and8.25% at March 31, 2007), plus 1.5% and are collateralized by assets of the Company (other than real property). All accrued and unpaid interest is payable monthly in arrears on the first of each month. The Company has borrowed $500,000 against this line of credit and repaid $250,000 of that balance on March 31, 2008. The interest expense related to this note payable was $9,000 an d $8,000 for the three months ended March 31, 2008 and 2007, respectively. | |
9. | Related Party Transactions |
The Company has signed an agreement with Pharmachem on August 22, 2007, a significant shareholder, to develop Novasome® based products for Pharmachem to market to third party customers. | |
For the threemonth period ended March 31, 2008, the Company recognized $63,000 of Research and development revenues from Pharmachem and has a $56,000 accounts receivable balance at March 31, 2008 that will be received in the normal course of business. | |
For a description of the Company's Credit Agreement with a related party, see footnote 8 above. |
<PAGE> 10
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | |||||||||||
This"Management's Discussion and Analysis of Financial Condition and Results of Operations" section andothersectionsof this Quarterly Report on Form 10Q contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, andthe Private Securities Litigation Reform Act of1995, that are based on current expectations, estimates, forecasts and projections about the industry and markets in which the Company operates and on management's beliefs and assumptions. In addition, other written or oral statements, which constitute forward-looking statements, may be made by o r on behalf of the Company. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are based on current expectations of management and are not guarantees of futureperformance,and involve certain risks, uncertainties and assumptions, which are difficult to predict.These risks and uncertaintiesinclude, without limitation, competitive factors, outsourcing trends in the pharmaceutical industry, levels of industry research and development spending, the Company's ability to continue to attract and retain qualified personnel, the fixed price nature of product development agreements or the loss of customers and other factors described inthe Company'sfilings with the Securities and Exchange Commissi on, including the "Risk Factors" section as set forth below in this Quarterly Report on Form 10-Q. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements.The Company undertakes no obligation toupdate publicly anyforward-looking statements,whether as a result of new information, future events or otherwise. | |||||||||||
On May 7, 2008, the shareholders of IGI, Inc. approved the name change of the Company from IGI, Inc. to IGI Laboratories, Inc. | |||||||||||
• | |||||||||||
• | |||||||||||
• | the Company instituted a policy of charging a fee for its Product Development Services; and | ||||||||||
• | the Company sold the marketing rights of the Miaj product line to a Cosmetic marketing company. | ||||||||||
The Company's business plan for 2008 includes the continued upgrading ofits manufacturing and expandingits production services. The Company will also continue to marketits other capabilities to customers, such as product development services and analytical services, all together or separately. In addition to this,the Company will be exploring ways to expandits intellectual property portfolio and increaseits R&D product pipeline. | |||||||||||
On May 6, 2008, the Company was notified by AMEX that it was below certain of the Exchanges' continuing listing standards. Specifically, the Company was required to reflect income from continuing operations and/or net income in one of its five most recent fiscal years and a minimum of $6,000,000 in stockholder's equity to remain listed on the exchange. The Company had net income from continuing operations in its 2002 fiscal year, but had net losses and losses from continuing operations in each of its 2003, 2004, 2005, 2006 and 2007 fiscal years. The Company's stockholders' equity at March 31, 2008 was $4.3 million. | |||||||||||
In order to maintain its AMEX listing, the Company must submit a plan by June 8, 2008 advising the Exchange of action it has taken, or will take, that would bring it into compliance with the continued listing standards of AMEX within 12 months. AMEX has 45 days to review the plan and notify the Company whether they will accept the plan or if the Company will be subject to delisting procedures. If the plan is accepted, the Company may be able to continue its listing during the plan period, during which time it will be subject to periodic review to determine whether it is making progress consistent with the plan. If we were to be delisted from AMEX, such delisting could have an adverse effect on the price of our common stock and cause your investment in our common stock to lose value. | |||||||||||
The Company fully intends to submit a compliance plan to the AMEX staff in a timely manner which will outline its intended actions to regain compliance. | |||||||||||
Results of Operations | |||||||||||
Three months ended March 31, 2008 compared to March 31, 2007 | |||||||||||
Revenues (in thousands): | |||||||||||
Components of Revenue: | 2008 | 2007 | $ Change | % Change | |||||||
Product Sales | $ 1,300 | $ 604 | $ 696 | 115 % | |||||||
Research and developement income | 65 | 77 | (12) | ||||||||
Licensing and Royalty Income | 135 | 140 | (5) | ||||||||
Total Revenues | $ 1,500 | $ 821 | $ 679 | 83 % | |||||||
<PAGE> 11
The increase in product sales relates to sales to three customers for the three months ended March 31, 2008 that did not exist for the three months ended March 31, 2007. Research and development income for the three month period ended March 31, 2008 was for services provided to Pharmachem (see Note 9) and were related to a different customer for the comparable period in 2007. The products developed for that customer in 2007 were manufactured and filled in the first quarter of 2008 so the research and development income was then converted to product sales. |
Licensing and royalty income decreased slighty as a result of a decrease in production of our royalty bearing products by Estee Lauder. |
Costs and expenses (in thousands): |
2008 | 2007 | $ Change | % Change | ||||||
Cost of sales | $ 681 | $ 516 | $ 165 | 32% | |||||
Selling, general and administrative | 663 | 585 | 78 | 13% | |||||
Product development and research | 113 | 111 | 2 | 2% | |||||
Totals costs and expenditures | $ 1,457 | $ 1,212 | $ 245 | 20% | |||||
Cost of sales increased for the period ended March 31, 2008 as a result of the increase in product sales offset by the change in the product mix for the period ended March 31, 2008. Products sold in 2008 had higher gross margin than those products sold in the comparable period in 2007; this also allowed for a higher gross margin percentage for the three month period ended March 31, 2008. Gross margin as a percent of total revenues was 55% for the three month period ended March 31, 2008 compared to 37% for the comparable period in 2007. | |||||||||
Selling, general and administrative expenses for the period ended March 31, 2008 increased as a result of higher stock based compensation expense of $46,000 from the issuance of stock options to our CEO, higher consulting fees of $28,000 from the Sarbanes Oxley compliance consultants which we did not engage until second quarter last year, and higher employer match contribution in our 401k plan of $12,000 as a result of changing our 401k plan. | |||||||||
Interest Expense, net (in thousands): | |||||||||
2008 | 2007 | $ Change | % Change | ||||||
Interest Expense | $ (10) | $ (26) | $ 16 | 62% | |||||
Interest Income | $ 7 | $ 7 | $ 0 | 0% | |||||
Interest expense decreased in 2008 as a result of a decrease in the Company's short-term notes payable principal balance and a reduction in the Company's average interest rate on its short-term notes payable in 2008. | |||||||||
Net income (loss) (in thousands, except per share numbers): | |||||||||
2008 | 2007 | $ Change | % Change | ||||||
Net income (loss) | $ 40 | $ (410) | $ 450 | 110% | |||||
Net income (loss) per share | .00 | (.03) | .03 | 100% | |||||
<PAGE> 12
The Company's investing activities used $6,000 of cash in the three months ended March 31, 2008 compared to $36,000ofcash provided by investing activities in the first three months of 2007. The funds used in 2008 were for additional equipment for the packaging and filling lines. The money provided in 2007 represents a deposit of $130,000 on the |
|
The Company's principal sources of liquidity are cash and cash equivalents of approximately $603,000 at March 31, 2008, future cash from operations, and $750,000 unused balance on our line of credit from Pinnacle Mountain Partners, LLC; this line of credit will expire on July 31, 2008. The Company is currently applying for an additional line of credit to use as working capital to continue the |
We believe that in 2008 our operating cash flow along with our existing capital resources will be sufficient to support our current business plan through at least the |
|
|
|
|
The Company does not |
Critical Accounting Policies and Estimates |
IGI's consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principals ("GAAP"), which require management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from these estimates. The following discussion highlights what we believe to be the critical accounting policies and judgments made in the preparation of these consolidated financial statements. |
Revenue Recognition |
The Company considers revenue realized or realizable and earned when it has persuasive evidence of an arrangement, delivery has occurred or contractual services rendered, the sales price is fixed or determinable, and collection is reasonably assured in conformity with SAB No. 104,Revenue Recognition. |
The Company derives its revenues from three basic types of transactions: sales of manufactured product, licensing of technology, and research and product development services performed for |
Product Sales: The Company |
Licensing Revenues: Revenues earned under licensing or sublicensing contracts are recognized ratably over the life of the agreements. Advance payments by customers are initially recorded as deferred income on the Consolidated Balance Sheet and then recognized ratably over the life of the agreement or as contract obligations are completed. |
<PAGE> 13
Product Development Services: The Company establishes agreed upon product development agreements with its | |
Please refer to | |
ITEM 3. Quantitative and Qualitative Disclosures aboutMarket Risk | |
Not applicable. | |
ITEM | |
(a) | Management's Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures |
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports filed or submitted pursuant to the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that information required to be disclosed by the Company is accumulated and communicated to management, including the Company's President and Chief Executive Officer and Vice President of Finance, to allow timely decisions regarding required disclosure. | |
Under the supervision and with the participation of | |
(b) | Changes to |
There were no changes in the Company's internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the three months ended March 31, 2008 that have materially affected, or are reasonably likely to | |
In | |
Management believes that the actions described above, when fully implemented will be effective in remediation of the |
<PAGE> 14
| Limitations of Effectiveness of Controls |
| |
| |
| |
|
<PAGE> 15
|
PART II |
OTHER INFORMATION |
ITEM 1. Legal Proceedings |
|
ITEM 1A. Risk Factors |
|
We face intense competition in the |
|
Rapidly changing technologies and developments by our competitors may make our technologies and products obsolete. |
We expect to sublicense our technologies to third parties, which would manufacture and market products incorporating these |
We may need to raise additional capital that may be required to operate and grow our business, and we may not be able to raise capital on terms acceptable to us or at all. |
Operating our business and maintaining our growth efforts will require additional cash outlays and capital expenditures. If cash on hand and cash generated from operations are not sufficient to meet our cash requirements, we will need to seek additional capital, potentially through debt or equity financings, to fund our growth. We cannot assure you that we will be able to raise needed cash on terms acceptable to us or at all. Financings may be on terms that are dilutive or potentially dilutive to our stockholders, and the prices at which new investors would be willing to purchase our securities may be lower than the current price per share of |
We rely on a limited number of customers for a large portion of our revenues. |
We depend on a limited number of customers for a large portion of our revenue. For the |
We face increased financial risk from the |
Since our product development agreements are often structured as fixed price agreements, we bear the financial risk if we initially under price our agreements or otherwise overrun our cost estimates. Such under pricing or significant cost overruns could have a material adverse effect on our business, results of operations, financial condition, and cash flows. |
<PAGE> 16
We are subject to | |
In the United States, pharmaceuticals are subject to rigorous Food and Drug Administration (FDA) regulations. Any non-compliance with the | |
We are also subject to regulation under the Occupational Safety and | |
The failure to obtain, maintain or protect patents and other intellectual property could impact our ability to compete effectively. | |
To compete effectively, we need to develop and maintain a | |
• | the pending patent applications we have filed or may file, or to which we have exclusive rights, may not result in issued patents, or may take longer than we expect to result in issued patents; |
• | changes in U.S. patent laws may adversely affect our ability to obtain or maintain our patent protection; |
• | we may be subject to interference proceedings; |
• | the claims of any patents that are issued may not provide meaningful protection; |
• | we may not be able to develop additional proprietary technologies that are patentable; |
• | the patents licensed or issued to us or our collaborators may not provide a competitive advantage; |
• | other companies may challenge patents licensed or issued to us or our collaborators; |
• | other companies may independently develop similar or alternative technologies, or duplicate our technology; |
• | other companies may design around technologies we have licensed or developed; and |
• | enforcement of patents is complex, uncertain and expensive. |
We cannot be certain that patents will be issued as a result of any future pending applications, and we cannot be certain that any of our issued patents or the proprietary rights of third parties whose patents we license, will give us adequate protection from competing products. For example, issued patents may be circumvented or challenged, declared invalid or unenforceable, or narrowed in scope. In addition, since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that we were the first to make our inventions or to file patent applications covering those inventions. In the event that another party has also filed a patent application relating to an invention claimed by us, we may be required to participate in an interference proceeding declared by the U.S. Patent and Trademark Office to determine priority of invention, which could result in substantial uncertainties and costs for us, even if the eventual outcome were favorable to us. It is also possible that others may obtain issued patents that could prevent us from commercializing our products or require us to obtain licenses requiring the payment of significant fees or royalties in order to enable us to conduct our business. As to those patents that we have licensed, our rights depend on maintaining our obligations to the licensor under the applicable license agreement, and we may be unable to do so. | |
The cost to us of any patent litigation or other proceeding relating to our patents or applications, even if resolved in our favor, could be substantial. Our ability to enforce our patent protection could be limited by our financial resources, and may be subject to lengthy delays. If we are unable to effectively enforce our proprietary rights, or if we are found to infringe the rights of others, we may be in breach of our license agreements with our partners. | |
In addition to patents and patent applications, we depend upon trade secrets and proprietary know-how to protect our proprietary technology. We require our employees, consultants, advisors, and collaborators to enter into confidentiality agreements that prohibit the disclosure of confidential information to any other parties. We require our employees and consultants to disclose and assign to us their ideas, developments, discoveries, and inventions. These agreements may not, however, provide adequate protection for our trade secrets, know-how, or other proprietary information in the event of any unauthorized use or disclosure. |
<PAGE> 17
If we are unable to hire additional qualified personnel, our ability to grow our business may be harmed. |
We will need to hire additional qualified personnel with expertise in nonclinical testing, clinical research and testing, government regulation, formulation and manufacturing and sales and marketing. We compete for qualified individuals with numerous pharmaceutical and consumer products companies, universities and other research institutions. Competition for such individuals is intense, and we cannot be certain that our search for such personnel will be successful. Attracting and retaining qualified personnel will be critical to our success. |
We have a history of losses and cannot assure you that we will become profitable, and as a result, we may have to cease operations and liquidate our business. |
Our expenses have exceeded our revenue in each of the |
If we fail to comply with the |
As a public company, we are required to comply with the periodic reporting obligations of the Exchange Act including preparing annual reports, quarterly reports and current reports. Our failure to prepare and disclose this information in a timely manner could subject us to penalties under federal securities laws, expose us to lawsuits and restrict our ability to access financing. In addition, we are required under applicable law and regulations to integrate our systems of disclosure controls and procedures and internal control over financial reporting. Our management assessed our existing disclosure controls and procedures as of March 31, 2008, and our management concluded that our disclosure controls and procedures were not effective as of March 31, 2008 due to the material weakness described in our annual report on Form 10-KSB for the period ending December 31, 2007. |
We expect to dedicate significant management, financial and other resources in 2008 in connection with complying with Section 404 of the Sarbanes-Oxley Act of 2002. We expect these efforts to include a review of our existing disclosure controls and procedures and internal control structure. As a result of |
Risks Related to Our Securities |
Our principal stockholders, directors and executive officers own a significant percentage of our stock and will be able to exercise significant influence over our affairs. |
Our current principal stockholders, directors and executive officers beneficially own approximately 50% of our common stock. As a result, these stockholders, if acting together, would be able to influence or control matters requiring approval by our stockholders, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock. |
<PAGE> 18
Our stock price is, and we expect it to remain, volatile, which could limit investors' ability to sell stock at a profit. During the last two fiscal years, our stock price has traded at a low of $.81 in the first quarter of 2006 to a high of $2.29 in the first quarter of 2008. The volatile price of our stock makes it difficult for investors to predict the value of their investment, to sell shares at a profit at any given time, or to plan purchases and sales in advance. A variety of factors may affect the market price of our common stock. These include, but are not limited to: | |
• | publicity regarding actual or potential clinical results relating to products under development by our competitors or us; |
• | delay or failure in initiating, completing or analyzing nonclinical or clinical trials or the unsatisfactory design or results of these trials; |
• | achievement or rejection of regulatory approvals by our competitors or us; |
• | announcements of technological innovations or new commercial products by our competitors or us; |
• | developments concerning proprietary rights, including patents; |
• | developments concerning our collaborations; |
• | regulatory developments in the United States and foreign countries; |
• | economic or other crises and other external factors; |
• | stock market price and volume fluctuations of other publicly traded companies and, in particular, those that are in the cosmetic, pharmaceutical and consumer products industry; |
• | actual or anticipated sales of our common stock, including sales by our directors, officers or significant stockholders; |
• | period-to-period fluctuations in our revenues and other results of operations; |
• | speculation about our business in the press or the investment community; |
• | changes in financial estimates by us or by any securities analysts who might cover our stock; and |
• | sales of our common stock. |
In the past, securities class action litigation has often been instituted against companies following periods of volatility in their stock price. This type of litigation, even if it does not result in liability for us, could result in substantial costs to us and divert management's attention and resources. | |
Shares of our common stock are relatively illiquid which may affect the trading price of our common stock. | |
For the quarterly period ended March 31, 2008, the average daily trading volume of our common stock on the American Stock Exchange was approximately 13,100 shares. As a result of our relatively small public float, our common stock may be less liquid than the stock of companies with broader public ownership. Among other things, trading of a relatively small volume of our common stock may have a greater impact on the trading price for our shares than would be the case if our public float were larger. | |
If we fail to meet the continued listing standards of the American Stock Exchange our common stock could be delisted and our stock price could suffer. | |
On May 6, 2008, the Company | |
In | |
|
<PAGE> 16
|
|
|
|
|
|
|
|
|
|
|
|
<PAGE> 17
| |
| |
| |
| |
| |
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds | |
| |
ITEM 3. Defaults Upon Senior Securities | |
None. | |
ITEM 4. Submission of Matters to a Vote of Security Holders | |
None. | |
ITEM 5. Other Information | |
| |
<PAGE> 19
ITEM 6. Exhibits | |
| |
Number |
|
3.1 | Certificate of Designation of the Company's Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company's |
3.2 | IGI, Inc. Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the |
10.1# | IGI, Inc. 2008 Management Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Report on Form 8-K filed February 12, 2008). |
31.1 | Certification of thePresident and Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 | Certification of the Vice President of Finance pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 | Certification of thePresident and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2 | Certification of the Vice President of Finance pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
# | Indicates management contract or compensatory plan. |
<PAGE> 20
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 Laboratories, Inc. | ||
Date: May 7, 2008 | By: | /s/ Rajiv Mathur |
Rajiv Mathur | ||
President and Chief Executive Officer | ||
Date: May 7, 2008 | By | /s/ Carlene Lloyd |
Carlene Lloyd | ||
Vice President, Finance |
<PAGE> 21
Exhibit | |
Number | Description |
31.1 | Certification of the |
31.2 | Certification of the Vice President of Finance Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 | Certification of the |
32.2 | Certification of the Vice President of Finance pursuant to 18 U.S.C. Section 1350, as |
<PAGE> 1822
| |
| |
| |
| |
| |
|
|
| |
| |
|
|
| |
|
<PAGE> 19