IGI (IG)

Company Overview

On May 7, 2008, the stockholders of IGI, Inc. approved the name change of the Company from IGI, Inc. to IGI Laboratories, Inc. IGI is engaged in the development, manufacturing, filling and packaging of topical, semi solid and liquid products for pharmaceutical, cosmeceutical and cosmetic companies primarily using its licensed Novasome® encapsulation technology. The Company believes that the Novasome based products developed and manufactured by it are unique in the industry and give its customers a competitive advantage in the market place.

IGI's mission is to be a premier provider of topical liquid and semi-solid products using its encapsulation technology. Over the last two fiscal years the Company has made four major changes to better pursue its mission:

·

the Company divested the metal plating business to focus on its core business of topical skin care/treatment products;

·

the Company acquired filling and packaging equipment that broaden and enhance product and service offerings;

·

the Company instituted a policy of charging a fee for its Product Development Services; and

·

the Company initiated the development of several prescription skin treatment products with possible commercialization in 2011.

The Company’s business plan includes the continued upgrading of its manufacturing capabilities and expanding its production services. T he Company will also continue to market its other capabilities to customers, such as product development services and analytical services, either as a comprehensive package or on an individual basis. In addition to this, the Company intends to explore ways to expand its intellectual property portfolio and increase its R&D product pipeline.

On May 6, 2008, the Company was notified by NYSE Amex that it was failing to satisfy certain of NYSE Amex’s continued 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 million in stockholders’ 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 last six fiscal years. The Company’s stockholders’ equity at March 31, 2009 was $3.6 million.

On June 8, 2008, the Company submitted a plan advising NYSE Amex of the actions that it would take to bring the Company into compliance with the continued listing standards. On July 15, 2008, NYSE Amex notified the Company that it accepted the Company’s plan of compliance and granted the Company an extension until May 6, 2009 to regain compliance with the continued listing standards described above. The Company will be subject to periodic review by NYSE 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 from NYSE Amex.

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On March 13, 2009, the Company completed a $6,000,000 private placement, resulting in net proceeds of approximately $5,279,000, with certain investment funds affiliated with Signet Healthcare Partners, G.P. (the “Offering”) as more fully described in Footnote 11 to the Company’s Consolidated Financial Statements. On May 4, 2009, NYSE Amex notified the Company that it had determined that the Company has made a reasonable demonstration of its ability to regain compliance with Sections 1003(a)(ii) and (iii) of the Company Guide in accordance with Section 1009 and therefore granted the Company an extension from May 6, 2009 until May 31, 2009 to regain compliance with these continued listing standards.

Overview

IGI Laboratories, Inc. is a Delaware corporation formed in 1977.  On May 7, 2008, the stockholders of IGI, Inc. approved the name change of the Company from IGI, Inc. to IGI Laboratories, Inc. As used in this report, the terms the “Registrant,” the “Company,” “IGI, Inc.” and “IGI” refer to IGI Laboratories, Inc., unless the context requires otherwise. The Company’s head-office, product development laboratories and manufacturing facility are located at 105 Lincoln Avenue, Buena, New Jersey. IGI is principally engaged in the development, manufacturing, filling and packaging of topical, semi solid and liquid products for pharmaceutical, cosmeceutical and cosmetic companies.   The primary focus of the business is on the commercialization of its licensed Novasome® encapsulation technology for skin care/treatment products. Except as otherwise specified, information in this report is provided as of December 31, 2008 (the end of the Company’s fiscal year).

The Company licenses the Novasome® encapsulation technology from Novavax, Inc. for applications in (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”).

Overview

IGI Laboratories, Inc. is a Delaware corporation formed in 1977.  On May 7, 2008, the stockholders of IGI, Inc. approved the name change of the Company from IGI, Inc. to IGI Laboratories, Inc. As used in this report, the terms the “Registrant,” the “Company,” “IGI, Inc.” and “IGI” refer to IGI Laboratories, Inc., unless the context requires otherwise. The Company’s head-office, product development laboratories and manufacturing facility are located at 105 Lincoln Avenue, Buena, New Jersey. IGI is principally engaged in the development, manufacturing, filling and packaging of topical, semi solid and liquid products for pharmaceutical, cosmeceutical and cosmetic companies.   The primary focus of the business is on the commercialization of its licensed Novasome® encapsulation technology for skin care/treatment products. Except as otherwise specified, information in this report is provided as of December 31, 2008 (the end of the Company’s fiscal year).

The Company licenses the Novasome® encapsulation technology from Novavax, Inc. for applications in (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”).

Overview

IGI Laboratories, Inc. is a Delaware corporation formed in 1977.  On May 7, 2008, the stockholders of IGI, Inc. approved the name change of the Company from IGI, Inc. to IGI Laboratories, Inc. As used in this report, the terms the “Registrant,” the “Company,” “IGI, Inc.” and “IGI” refer to IGI Laboratories, Inc., unless the context requires otherwise. The Company’s head-office, product development laboratories and manufacturing facility are located at 105 Lincoln Avenue, Buena, New Jersey. IGI is principally engaged in the development, manufacturing, filling and packaging of topical, semi solid and liquid products for pharmaceutical, cosmeceutical and cosmetic companies.   The primary focus of the business is on the commercialization of its licensed Novasome® encapsulation technology for skin care/treatment products. Except as otherwise specified, information in this report is provided as of December 31,
2008 (the end of the Company’s fiscal year).

The Company licenses the Novasome® encapsulation technology from Novavax, Inc. for applications in (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”).

Overview

IGI Laboratories, Inc. is a Delaware corporation formed in 1977.  On May 7, 2008, the stockholders of IGI, Inc. approved the name change of the Company from IGI, Inc. to IGI Laboratories, Inc. As used in this report, the terms the “Registrant,” the “Company,” “IGI, Inc.” and “IGI” refer to IGI Laboratories, Inc., unless the context requires otherwise. The Company’s head-office, product development laboratories and manufacturing facility are located at 105 Lincoln Avenue, Buena, New Jersey. IGI is principally engaged in the development, manufacturing, filling and packaging of topical, semi solid and liquid products for pharmaceutical, cosmeceutical and cosmetic companies.   The primary focus of the business is on the commercialization of its licensed Novasome® encapsulation technology for skin care/treatment products. Except as otherwise specified, information in this report is provided as of December 31,
2008 (the end of the Company’s fiscal year).

The Company licenses the Novasome® encapsulation technology from Novavax, Inc. for applications in (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”).

Company Overview

Strategic Overview

IGI is engaged in the development, manufacturing, filling and packaging of topical, semi solid and liquid products for pharmaceutical, cosmeceutical and cosmetic companies primarily using its licensed Novasome® encapsulation technology. The Company believes that the Novasome based products developed and manufactured by it are unique in the industry and gives its customers a competitive advantage in the market place.

IGI’s mission is to be a premier provider of topical liquid and semi-solid products using an encapsulation technology. Over the last two fiscal years the Company has made four major changes to better pursue its mission:

•

the Company divested the metal plating business to focus on its core business of topical skin care/treatment products,

•

the Company acquired filling and packaging equipment that broaden and enhance product and service offerings,

•

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.

Metal Plating Business-  The Company ceased operations of the metal plating division in November 2005. In the first quarter of 2007, the Company received a purchase order and deposit in the amount of $130,000 toward the purchase of the plating equipment from Universal Chemical Technologies, Inc. (“UCT”) to re-purchase the equipment back from the Company. The Company estimated the fair value of the metal plating equipment less cost to sell at $350,000. The sales price of the equipment was $378,000, which consisted of $260,000 in cash net of $118,000 owed to UCT by the Company. The Company recorded a gain of $5,000 on the sale of this equipment in 2007. The purchaser, UCT, paid all relocation and removal expenses relating to this equipment. This transaction was completed in the second quarter of 2007 and all equipment was removed from our facility as of June 30, 2007.

Filling and Packaging Equipment-  In December 2006, the Company purchased three fully automatic filling and packaging lines to provide turnkey solutions to our customers. The lines were installed and fully operational in the second quarter of 2007. This added capability allowed the Company to fill and package more than 40% of the bulk product we manufacture. This also resulted in an increase of approximately 20% in revenues from contract filling and packaging of generic products in 2007.

Licensing Agreement / Fees for Product Development Services-  In August 2007, the Company renegotiated its exclusive licensing, development and manufacturing agreement with Dermworx, Inc., which was originally signed in October 2006. The original agreement was for a series of dermatological specialty products utilizing Novasome encapsulation technology. The new agreement was narrowed down to include only one Keratolytic cream product. The first installment of $250,000 received by the Company for the original agreement was recorded as deferred income for the year ended December 31, 2006. This payment was recognized as Product Development revenue against the new agreement in the third quarter of 2007. Subsequently, the Company signed an additional Product Development Agreement with Dermworx for a Novasome® based sprayable moisturizer product.  The Company manufactured commercial quantities of the product developed under the amended agreement in December 2007 and has produced commercial quantities of the product from the additional agreement in the first quarter 2008.

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Miaj Product Line-  The Company launched its first in house product line under the name Miaj™ in June 2006.  The marketing right of the product line was subsequently licensed in December 2007 to an established cosmetic marketing company.   Since the licensor failed to meet certain conditions of the agreement and failed to cure the deficiencies on notice, the Company cancelled the agreement in December 2008. Since some of the products in the line were technologically obsolete, the Company decided to write off the entire inventory and recorded impairment charges of $105,000 at December 31, 2008. Additionally, the Company recorded a bad debt reserve of $63,000 related to the outstanding invoice for the purchase of the products by the marketing company.  

Company Overview

Strategic Overview

IGI is engaged in the development, manufacturing, filling and packaging of topical, semi solid and liquid products for pharmaceutical, cosmeceutical and cosmetic companies primarily using its licensed Novasome® encapsulation technology. The Company believes that the Novasome based products developed and manufactured by it are unique in the industry and gives its customers a competitive advantage in the market place.

IGI’s mission is to be a premier provider of topical liquid and semi-solid products using an encapsulation technology. Over the last two fiscal years the Company has made four major changes to better pursue its mission:

•

the Company divested the metal plating business to focus on its core business of topical skin care/treatment products,

•

the Company acquired filling and packaging equipment that broaden and enhance product and service offerings,

•

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.

Metal Plating Business-  The Company ceased operations of the metal plating division in November 2005. In the first quarter of 2007, the Company received a purchase order and deposit in the amount of $130,000 toward the purchase of the plating equipment from Universal Chemical Technologies, Inc. (“UCT”) to re-purchase the equipment back from the Company. The Company estimated the fair value of the metal plating equipment less cost to sell at $350,000. The sales price of the equipment was $378,000, which consisted of $260,000 in cash net of $118,000 owed to UCT by the Company. The Company recorded a gain of $5,000 on the sale of this equipment in 2007. The purchaser, UCT, paid all relocation and removal expenses relating to this equipment. This transaction was completed in the second quarter of 2007 and all equipment was removed from our facility as of June 30, 2007.

Filling and Packaging Equipment-  In December 2006, the Company purchased three fully automatic filling and packaging lines to provide turnkey solutions to our customers. The lines were installed and fully operational in the second quarter of 2007. This added capability allowed the Company to fill and package more than 40% of the bulk product we manufacture. This also resulted in an increase of approximately 20% in revenues from contract filling and packaging of generic products in 2007.

Licensing Agreement / Fees for Product Development Services-  In August 2007, the Company renegotiated its exclusive licensing, development and manufacturing agreement with Dermworx, Inc., which was originally signed in October 2006. The original agreement was for a series of dermatological specialty products utilizing Novasome encapsulation technology. The new agreement was narrowed down to include only one Keratolytic cream product. The first installment of $250,000 received by the Company for the original agreement was recorded as deferred income for the year ended December 31, 2006. This payment was recognized as Product Development revenue against the new agreement in the third quarter of 2007. Subsequently, the Company signed an additional Product Development Agreement with Dermworx for a Novasome® based sprayable moisturizer product.  The Company manufactured commercial quantities of the product developed under the amended agreement in December 2007 and has produced commercial quantities of the product from the additional agreement in the first quarter 2008.

10

Miaj Product Line-  The Company launched its first in house product line under the name Miaj™ in June 2006.  The marketing right of the product line was subsequently licensed in December 2007 to an established cosmetic marketing company.   Since the licensor failed to meet certain conditions of the agreement and failed to cure the deficiencies on notice, the Company cancelled the agreement in December 2008. Since some of the products in the line were technologically obsolete, the Company decided to write off the entire inventory and recorded impairment charges of $105,000 at December 31, 2008. Additionally, the Company recorded a bad debt reserve of $63,000 related to the outstanding invoice for the purchase of the products by the marketing company.  

Company Overview

Strategic Overview

IGI is engaged in the development, manufacturing, filling and packaging of topical, semi solid and liquid products for pharmaceutical, cosmeceutical and cosmetic companies primarily using its licensed Novasome® encapsulation technology. The Company believes that the Novasome based products developed and manufactured by it are unique in the industry and gives its customers a competitive advantage in the market place.

IGI’s mission is to be a premier provider of topical liquid and semi-solid products using an encapsulation technology. Over the last two fiscal years the Company has made four major changes to better pursue its mission:

•

the Company divested the metal plating business to focus on its core business of topical skin care/treatment products,

•

the Company acquired filling and packaging equipment that broaden and enhance product and service offerings,

•

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.

Metal Plating Business-  The Company ceased operations of the metal plating division in November 2005. In the first quarter of 2007, the Company received a purchase order and deposit in the amount of $130,000 toward the purchase of the plating equipment from Universal Chemical Technologies, Inc. (“UCT”) to re-purchase the equipment back from the Company. The Company estimated the fair value of the metal plating equipment less cost to sell at $350,000. The sales price of the equipment was $378,000, which consisted of $260,000 in cash net of $118,000 owed to UCT by the Company. The Company recorded a gain of $5,000 on the sale of this equipment in 2007. The purchaser, UCT, paid all relocation and removal expenses relating to this equipment. This transaction was completed in the second quarter of 2007 and all equipment was removed from our facility as of June 30, 2007.

Filling and Packaging Equipment-  In December 2006, the Company purchased three fully automatic filling and packaging lines to provide turnkey solutions to our customers. The lines were installed and fully operational in the second quarter of 2007. This added capability allowed the Company to fill and package more than 40% of the bulk product we manufacture. This also resulted in an increase of approximately 20% in revenues from contract filling and packaging of generic products in 2007.

Licensing Agreement / Fees for Product Development Services-  In August 2007, the Company renegotiated its exclusive licensing, development and manufacturing agreement with Dermworx, Inc., which was originally signed in October 2006. The original agreement was for a series of dermatological specialty products utilizing Novasome encapsulation technology. The new agreement was narrowed down to include only one Keratolytic cream product. The first installment of $250,000 received by the Company for the original agreement was recorded as deferred income for the year ended December 31, 2006. This payment was recognized as Product Development revenue against the new agreement in the third quarter of 2007. Subsequently, the Company signed an additional Product Development Agreement with Dermworx for a Novasome® based sprayable moisturizer product.  The Company manufactured commercial quantities of the product developed under the amended agree
ment in December 2007 and has produced commercial quantities of the product from the additional agreement in the first quarter 2008.

10

Miaj Product Line-  The Company launched its first in house product line under the name Miaj™ in June 2006.  The marketing right of the product line was subsequently licensed in December 2007 to an established cosmetic marketing company.   Since the licensor failed to meet certain conditions of the agreement and failed to cure the deficiencies on notice, the Company cancelled the agreement in December 2008. Since some of the products in the line were technologically obsolete, the Company decided to write off the entire inventory and recorded impairment charges of $105,000 at December 31, 2008. Additionally, the Company recorded a bad debt reserve of $63,000 related to the outstanding invoice for the purchase of the products by the marketing company.  

Company Overview

Strategic Overview

IGI is engaged in the development, manufacturing, filling and packaging of topical, semi solid and liquid products for pharmaceutical, cosmeceutical and cosmetic companies primarily using its licensed Novasome® encapsulation technology. The Company believes that the Novasome based products developed and manufactured by it are unique in the industry and gives its customers a competitive advantage in the market place.

IGI’s mission is to be a premier provider of topical liquid and semi-solid products using an encapsulation technology. Over the last two fiscal years the Company has made four major changes to better pursue its mission:

•

the Company divested the metal plating business to focus on its core business of topical skin care/treatment products,

•

the Company acquired filling and packaging equipment that broaden and enhance product and service offerings,

•

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.

Metal Plating Business-  The Company ceased operations of the metal plating division in November 2005. In the first quarter of 2007, the Company received a purchase order and deposit in the amount of $130,000 toward the purchase of the plating equipment from Universal Chemical Technologies, Inc. (“UCT”) to re-purchase the equipment back from the Company. The Company estimated the fair value of the metal plating equipment less cost to sell at $350,000. The sales price of the equipment was $378,000, which consisted of $260,000 in cash net of $118,000 owed to UCT by the Company. The Company recorded a gain of $5,000 on the sale of this equipment in 2007. The purchaser, UCT, paid all relocation and removal expenses relating to this equipment. This transaction was completed in the second quarter of 2007 and all equipment was removed from our facility as of June 30, 2007.

Filling and Packaging Equipment-  In December 2006, the Company purchased three fully automatic filling and packaging lines to provide turnkey solutions to our customers. The lines were installed and fully operational in the second quarter of 2007. This added capability allowed the Company to fill and package more than 40% of the bulk product we manufacture. This also resulted in an increase of approximately 20% in revenues from contract filling and packaging of generic products in 2007.

Licensing Agreement / Fees for Product Development Services-  In August 2007, the Company renegotiated its exclusive licensing, development and manufacturing agreement with Dermworx, Inc., which was originally signed in October 2006. The original agreement was for a series of dermatological specialty products utilizing Novasome encapsulation technology. The new agreement was narrowed down to include only one Keratolytic cream product. The first installment of $250,000 received by the Company for the original agreement was recorded as deferred income for the year ended December 31, 2006. This payment was recognized as Product Development revenue against the new agreement in the third quarter of 2007. Subsequently, the Company signed an additional Product Development Agreement with Dermworx for a Novasome® based sprayable moisturizer product.  The Company manufactured commercial quantities of the product developed under the amended agree
ment in December 2007 and has produced commercial quantities of the product from the additional agreement in the first quarter 2008.

10

Miaj Product Line-  The Company launched its first in house product line under the name Miaj™ in June 2006.  The marketing right of the product line was subsequently licensed in December 2007 to an established cosmetic marketing company.   Since the licensor failed to meet certain conditions of the agreement and failed to cure the deficiencies on notice, the Company cancelled the agreement in December 2008. Since some of the products in the line were technologically obsolete, the Company decided to write off the entire inventory and recorded impairment charges of $105,000 at December 31, 2008. Additionally, the Company recorded a bad debt reserve of $63,000 related to the outstanding invoice for the purchase of the products by the marketing company.