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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
___________________
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to__________________
Commission File Number 001-08568
___________________
IGI, Inc.
(Exact name of registrant as specified in its charter)
Delaware 01-0355758
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
105 Lincoln Avenue
Buena, 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 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The number of shares outstanding of the issuer's class of common
stock, as of the latest practicable date:
Common Shares Outstanding at October 26, 2004 is 11,581,780
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements
IGI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share information)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
--------------------------- ---------------------------
(as restated) (as restated)
2004 2003 2004 2003
---- ---- ---- ----
Revenues:
Sales, net $ 383 $ 748 $ 2,023 $ 2,271
Licensing and royalty income 199 151 744 480
---------- ---------- ---------- ----------
Total revenues 582 899 2,767 2,751
Cost and expenses:
Cost of sales 244 326 930 1,011
Selling, general and administrative expenses 320 589 1,406 1,941
Product development and research expenses 241 225 1,504 528
---------- ---------- ---------- ----------
Operating (loss) (223) (241) (1,073) (729)
Interest income (expense), net 6 - 21 8
Loss on sale of investment securities (1) - (1) -
Other income, net 1 - 1 -
(Loss) from continuing operations before
provision for income taxes (217) (241) (1,052) (721)
Provision for income taxes 2 1 6 3
---------- ---------- ---------- ----------
Loss from continuing operations (219) (242) (1,058) (724)
---------- ---------- ---------- ----------
Discontinued operations:
Gain (loss) on sale of discontinued business - (15) - 154
---------- ---------- ---------- ----------
Net (loss) attributable to common stock $ (219) $ (257) $ (1,058) $ (570)
========== ========== ========== ==========
Basic and Diluted Earnings (Loss) per Common Share
Continuing operations $ (.02) $ (.02) $ (.09) $ (.06)
Discontinued operations - - - .01
---------- ---------- ---------- ----------
Net (loss) per common share $ (.02) $ (.02) $ (.09) $ (.05)
========== ========== ========== ==========
Weighted Average of Common Stock and
Common Stock Equivalents Outstanding
Basic and diluted 11,581,780 11,355,965 11,536,337 11,379,905
The accompanying notes are an integral part of the consolidated financial
statements.
2
IGI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share information)
September 30, 2004 December 31, 2003
------------------ -----------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 243 $ 821
Restricted cash 50 50
Marketable securities 574 800
Accounts receivable, less allowance for doubtful accounts
of $10 and $16 in 2004 and 2003, respectively 208 350
Licensing and royalty income receivable 159 17
Inventories 198 192
Prepaid expenses and other current assets 67 133
-------- --------
Total current assets 1,499 2,363
Property, plant and equipment, net 2,993 2,607
Other assets 43 54
-------- --------
Total assets $ 4,535 $ 5,024
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 89 105
Accrued payroll 41 75
Other accrued expenses 313 301
Income taxes payable 9 7
Deferred income 147 165
-------- --------
Total current liabilities 599 653
Deferred income 104 205
-------- --------
Total liabilities 703 858
-------- --------
Commitments and contingencies (Notes 14 and 15)
Stockholders' equity:
Common stock $.01 par value, 50,000,000 shares authorized;
13,547,520 and 13,351,237 shares issued in 2004 and 2003,
respectively 136 134
Accumulated other comprehensive income (35) -
Additional paid-in capital 24,459 23,702
Accumulated deficit (19,333) (18,275)
Less treasury stock at cost, 1,965,740 shares
in 2004 and 2003 (1,395) (1,395)
-------- --------
Total stockholders' equity 3,832 4,166
-------- --------
Total liabilities and stockholders' equity $ 4,535 $ 5,024
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
3
IGI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine months ended September 30,
-------------------------------
2004 2003
---- ----
(as restated)
Cash flows from operating activities:
Net (loss) $(1,058) $ (570)
Reconciliation of net (loss) to net cash used
in operating activities:
Gain on sale of discontinued operations - (154)
Depreciation and amortization 206 196
Loss on sale of investment securities 1 -
Provision for accounts and notes receivable and inventories - 17
Recognition of deferred income (119) (101)
Directors' stock issuance - 26
Non employee stock options 537 -
Changes in operating assets and liabilities:
Accounts receivable 148 27
Inventories (12) (23)
Receivables due under licensing and royalty agreements (142) 67
Prepaid expenses and other assets 66 51
Accounts payable and accrued expenses (38) (163)
Income taxes payable 2 (5)
Deferred revenue - 42
------- -------
Net cash used in operating activities (409) (590)
------- -------
Cash flows from investing activities:
Capital expenditures (581) (86)
Purchase of marketable securities (110) (801)
Proceeds from sale of marketable securities 300 -
Increase in other assets - 1
Proceeds from sale of discontinued operations - 154
------- -------
Net cash (used in) investing activities (391) (732)
------- -------
Cash flows from financing activities:
Borrowings from EDA loan - 46
Repayment of EDA loan - (15)
Proceeds from exercise of common stock options and
purchase of common stock 222 4
Net increase in marketable securities - -
Treasury shares purchased - (80)
------- -------
Net cash provided by (used in) financing activities 222 (45)
------- -------
Net increase (decrease) in cash and cash equivalents (578) (1,367)
Cash and cash equivalents at beginning of period 821 1,999
------- -------
Cash and cash equivalents at end of period $ 243 $ 632
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
4
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying consolidated financial statements have been prepared
by IGI, Inc. without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC"), and reflect all
adjustments which, in the opinion of management, are necessary for a
fair presentation of the results for the interim periods presented.
All such adjustments are of a normal recurring nature.
Certain information in footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
rules and regulations of the SEC, although the Company believes the
disclosures are adequate to make the information presented not
misleading. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2003 (the "2003 10-K Annual Report").
Estee Lauder, a significant customer, accounted for $1,089,000 or 54%
of sales for the nine months ended September 30, 2004 and $1,522,000
or 67% of sales for the nine months ended September 30, 2003. The
Company has renegotiated its contract with Estee Lauder. Estee Lauder
will be manufacturing all Novasome(R) and non Novasome(R) products in
house and will pay the Company a one time payment of $100,000 plus a
royalty per kilo on all Novasome(R) products manufactured by Estee
Lauder, including all new products developed. The Company's contract
manufacturing of Estee Lauder non-Novasome(R) products, which
accounted for $400,000 of the above sales in 2004, terminated on June
30, 2004, without any future royalties or other payments to be
received by the Company on any non-Novasome(R) products manufactured
by Estee Lauder. In addition, during the six month period from January
through June 2004, the Company agreed to provide Estee Lauder's
contract manufacturing services at a reduced price of $2.00 per kilo,
as compared to the prior rate of $3.03 per kilo. As of September 30,
2004, a formal agreement with Estee Lauder has not been signed by the
Company, but one is anticipated to be signed within the near future.
Prior to filing its Form 10-K for the fiscal year ended December 31,
2003, IGI, Inc, was informed by J&J that there was an error in the
calculation of the 2003 royalty due to the company by J&J. The
correction of the error resulted in a reduction of revenues, with a
corresponding impact on net loss, of $42,000 in the second qtr of 2003
and $51,000 in the third quarter of 2003. The restated numbers have
been reflected herein.
2. Marketable Securities
Marketable securities at September 30, 2004 consist of an investment
in a short term bond mutual fund and an investment in securities. The
Company currently classifies all marketable securities as available-
for-sale, in accordance with Statement of Financial Accounting
Standards (SFAS) 115. Securities classified as available-for-sale are
required to be reported at fair value with unrealized gains and
losses, net of taxes, excluded from earnings and shown separately as a
component of accumulated other comprehensive income within
stockholders' equity. Realized gains and losses on the sale of
securities available-for-sale are determined using the specific-
identification method.
The activity of the available-for-sale marketable securities as of
September 30, 2004 is as follows (amounts in thousands):
Gross Gross
Amortized Unrealized Unrealized Fair Carrying
Cost Gaines Losses Value Amount
--------- ---------- ---------- ----- --------
Mutual Funds $499 $ - $ (3) $496 $496
Securities 110 - (32) 78 78
$609 $ - $(35) $574 $574
5
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited), Continued
Sales of available-for-sale securities for the nine months ended
September 30, 2004 were as follows:
Proceeds from sales $300
Gross realized gains -
Gross realized losses (1)
The increase in net unrealized holding losses on available-for-sale
securities in the amount of $35 was charged to stockholders' equity
for the nine months ended September 30, 2004.
3. Inventories
Inventories are valued at the lower of cost, using the first-in,
first-out ("FIFO") method, or market. Inventories at September 30,
2004 and December 31, 2003 consist of:
September 30, 2004 December 31, 2003
------------------ -----------------
(amounts in thousands)
Finished goods $ 19 $ 15
Raw materials 179 177
Total $198 $192
4. Stock-Based Compensation
Compensation costs attributable to employee stock option and similar
plans are recognized based on the difference, if any, between the
quoted market price of the stock on the date of grant over the amount
the employee is required to pay to acquire the stock (the intrinsic
value method). No stock-based employee compensation cost is reflected
in net income for options that have been granted, as all options
granted under the plans had an exercise price equal to the market
value of the underlying common stock on the date of grant. Since the
Company uses the intrinsic value method, it makes pro forma
disclosures of net income (loss) and net income (loss) per share as if
the fair-value based method of accounting had been applied.
If compensation cost for all grants under the Company's stock option
plans had been determined based on the fair value at the grant date
consistent with the provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
the Company's net income (loss) and net income (loss) per share would
have changed to the pro forma amounts indicated below:
Nine months ended
September 30,
2004 2003
---- ----
(in thousands, except per
share information)
Net income (loss) - as reported $(1,058) $(570)
Deduct: Total stock-based employee
compensation expense determined
under the fair-value based method
(net of tax $0) 136 20
------- -----
Net income (loss) - pro forma $(1,194) $(590)
======= =====
Income (loss) per share - as reported
Basic and diluted $ (.09) $(.05)
======= =====
Income (loss) per share - pro forma
Basic and diluted $ (.11) $(.05)
======= =====
The Company recorded a $537,000 expense related to non employee stock
based compensation for the nine months ended September 30, 2004.
6
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited), Continued
5. Legal and U.S. Regulatory Proceedings
Gallo Matter
As previously reported by the Company in its historical filings with
the SEC, including without limitation its Form 10-K for the year
ending December 31, 1999, for most of 1997 and 1998 the Company was
subject to intensive government regulatory scrutiny by the U.S.
Departments of Justice, Treasury and Agriculture. In June 1997, the
Company was advised by the Animal and Plant Health Inspection Service
("APHIS") of the United States Department of Agriculture ("USDA") that
the Company had shipped quantities of some of its poultry vaccine
products without complying with certain regulatory and record keeping
requirements. The USDA subsequently issued an order that the Company
stop shipment of certain of its products. Shortly thereafter, in July
1997, the Company was advised that the USDA's Office of Inspector
General had commenced an investigation into possible violations of the
Virus Serum Toxin Act of 1914 and alleged false statements made to
APHIS. In April 1998, the SEC advised the Company that it was
conducting an informal inquiry and requested information and documents
from the Company, which the Company voluntarily provided to the SEC.
Based upon these events, the Board of Directors caused an immediate
and thorough investigation of the facts and circumstances of the
alleged violations to be undertaken by independent counsel. The
Company continued to refine and strengthen its regulatory programs
with the adoption of a series of compliance and enforcement policies,
the addition of new managers of Production and Quality Control and a
new Senior Vice President and General Counsel. At the instruction of
the Board of Directors, the Company's General Counsel established and
oversaw a comprehensive employee training program, designated in
writing a Regulatory Compliance Officer, and established a fraud
detection program, as well as an employee "hotline." The Company
continued to cooperate with the USDA and SEC in all aspects of their
investigation and regulatory activities. On March 13, 2002, the
Company reached a settlement with the staff of the SEC to resolve
matters arising with respect to the investigation of the Company.
Under the settlement, the Company neither admitted nor denied that the
Company violated the financial reporting and record-keeping
requirements of Section 13 of the Securities and Exchange Act of 1934,
as amended, for the three years ended December 31, 1997. Further, the
Company agreed to the entry of an order to cease and desist from any
such violation in the future. No monetary penalty was assessed.
As a result of its internal investigation, in November 1997, the
Company terminated the employment of John P. Gallo as President and
Chief Operating Officer for willful misconduct. On April 21, 1998, the
Company instituted a lawsuit against Mr. Gallo in the New Jersey
Superior Court. The lawsuit alleged willful misconduct and malfeasance
in office, as well as embezzlement and related claims (referred to as
"the IGI Action"). On April 28, 1998, Mr. Gallo instituted a separate
action against the Company and two of its Directors, Edward Hager,
M.D. and Constantine Hampers, M.D., alleging that he had been
wrongfully terminated from employment and further alleging wrongdoings
by the two Directors (referred to as the "Gallo Action"). The Court
subsequently ordered the consolidation of the IGI Action and the Gallo
Action (collectively referred to as the "Consolidated Action").
In response to these allegations, the Company instituted an
investigation of the two Directors by an independent committee
("Independent Committee") of the Board assisted by the Company's
General Counsel. The investigation included a series of interviews of
the Directors, both of whom cooperated with the Company, and a review
of certain records and documents. The Company also requested an
interview with Mr. Gallo who, through his counsel, declined to
cooperate. In September 1998, the Independent Committee reported to
the Board that it had found no credible evidence to support Mr.
Gallo's claims and allegations and recommended no further action. The
Board adopted the recommendation.
The Company denied all allegations plead in the Gallo Action and
asserted all claims in the Gallo Action to be without merit. The
Company did not reserve any amount relating to such claims. The
Company tendered the claim to its insurance carriers, but was denied
insurance coverage for both defense and indemnity of the Gallo Action.
In July 1998, the Company sought to depose Mr. Gallo in connection
with the Consolidated Action. Through his counsel, Mr. Gallo asserted
his Fifth Amendment privilege against self-incrimination and advised
that he would not participate in the discovery process until such time
as a federal grand jury investigation, in which he was a target, was
concluded. In January 1999, at the suggestion of the Court, the
Company and Mr. Gallo agreed to a voluntary dismissal without
prejudice of the Consolidated Action, with the understanding that the
statute of limitations was tolled
7
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited), Continued
for all parties and all claims, and that the Company and Mr. Gallo were
free to reinstate their suits against each other at a later date, with
each party reserving all of their rights and remedies against the other.
As of the date hereof, neither the Company nor Mr. Gallo have filed
suit against each other in the Superior Court of New Jersey or any
other court of competent jurisdiction to reinstitute the claims, in
whole or part, previously at issue in the Consolidated Action, and
pursuant to the previous order of dismissal entered in the
Consolidated Action, the statute of limitation on all claims and
defenses continues to be tolled as to both parties. However, the
Company did receive a letter dated November 21, 2003 from Mr. Gallo's
attorneys seeking to reach a settlement of the claims asserted against
IGI in the Gallo Action without further resort to the courts. The
letter provides a general description of Mr. Gallo's claims and a
calculation of damages allegedly sustained by Mr. Gallo relative
thereto. The letter states that Mr. Gallo's damages are calculated to
be in the range of $3,400,000 to $5,100,000. The Company denies
liability for the claims and damages alleged in the letter from Mr.
Gallo's counsel dated November 21, 2003, and as such, the Company did
not make any formal response thereto. Mr. Gallo has contacted the
Company's Chief Executive Officer and Chairman, Frank Gerardi, in a
continued effort to initiate settlement discussions. As of September
30, 2004, the Company continues to deny any merit and/or liability for
the claims alleged by Mr. Gallo and has not engaged in any formal
settlement discussions with either Mr. Gallo or his attorneys.
On December 8, 2003, Mr. Gallo filed suit against Novavax, Inc. in the
Superior Court of New Jersey, Law Division, Atlantic County, docket
no. ATL-L-3388-03, asserting claims under seven counts for damages
allegedly sustained as a result of the cancellation of certain Novavax
stock options held by Mr. Gallo due to his termination from IGI in
November 1997 for willful misconduct (referred to as the "Novavax
Action").
On March 5, 2004, Novavax filed an Answer denying the allegations
asserted by Mr. Gallo in his First Amended Complaint. In addition,
while denying any liability under the First Amended Complaint, Novavax
also filed a Third Party Complaint in the Novavax Action against the
Company for contribution and indemnification, alleging that if
liability for Mr. Gallo's claims is found, the Company has primary
liability for any and all such damages sustained.
IGI has been notified by its insurance carriers that coverage is not
afforded under their respective policies of insurance for defense
and/or indemnification of the claims alleged by the Third Party
Complaint. After IGI was notified of the foregoing, but prior to IGI's
filing of any responsive pleading, the Third Party Complaint against
IGI was voluntarily dismissed without prejudice by Novavax on June 30,
2004. Novavax may at any time pursuant to the rules of court re-file
its Third Party Complaint against IGI.
In July 2004, Novavax filed a motion for summary judgment on all
claims asserted under Gallo's First Amended Complaint (referred to as
"the SJ Motion"). Gallo filed opposition to the SJ Motion contesting
all relief sought thereunder. In August 2004, the court held a hearing
on the SJ Motion and denied without prejudice the relief sought by the
motion for dismissal of Gallo's First Amended Complaint. Upon
information and belief, the parties are currently proceeding with
discovery in the Novavax Action. The Company as a non-party witness in
the Novavax Action was recently served by counsel for Gallo with a
subpoena for the production of documents as responsive thereto.
While as of the date hereof, Novavax has not sought to re-file its
Third Party Complaint against IGI for which coverage was previously
denied by its insurance carriers, but Novavax is not precluded from
and may seek to do so in the future.
6. License Agreements
On December 24, 2003, the Company entered into a License Agreement
with Dr. Holick and A&D Bioscience, Inc., a Massachusetts corporation
wholly owned by Dr. Holick (collectively referred to as "Holick"),
whereby Holick granted an exclusive license to the Company to all his
rights to the parathyroid hormone related peptide technologies and the
glycoside technologies (referred to as "PTH Technologies" and
"Glycoside Technologies", respectively) that he developed for various
clinical usages including treatment of psoriasis, hair loss and other
skin disorders. In consideration for entering into the License
Agreement, Holick received up-front a $50,000 non-refundable payment
from the Company. He also received a grant of 300,000 stock options
under the Company's authorized stock option plans.
8
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited), Continued
On April 19, 2004, IGI signed a sublicense agreement with a third
party entity, Tarpan Therapeutics, Inc., for the PTH (1-34) technology
under which the third party will be obligated at its sole cost and
expense to develop and bring the PTH (1-34) technology to market as
timely and efficiently as possible, which includes its sole
responsibility for the cost of preclinical and clinical development,
research and development, manufacturing, laboratory and clinical
testing and trials and marketing of products. In addition, the
sublicense agreement calls for various payments to IGI throughout the
term. IGI was paid a lump sum sublicense fee of $300,000, from which
amount IGI paid the sum of $232,000, representing the $236,000 payment
due to Dr. Holick in accordance with the terms of his License
Agreement with the Company, net of $4,000 of additional legal fees.
Certain subsequent royalty payments received by the Company under the
sublicense agreement will be shared with Holick after the Company has
recovered any payments previously made to Holick under the License
Agreement and an amount equal to the value of the options received by
Holick under the License Agreement. The Company is responsible for any
and all costs, fees and expenses for the prosecution and oversight of
any intellectual property rights related to the licensed technologies.
Subject to Holick's early termination right as provided below, the
term of the License Agreement is the longer of twenty (20) years or
the life of each of the patents thereunder. However, if following 90
days from the effective date of the License Agreement, the Company has
not entered into a sublicense agreement for the Glycoside
Technologies; Holick has the right to terminate the License Agreement
as to the Glycoside Technologies only. Dr. Holick has exercised his
right to terminate the License Agreement as to the Glycoside
Technologies. The Company is engaged in discussions with the same
third party entity for a similar sublicense for the PTH (7-34)
technology.
The $50,000 payment was expensed in the fourth quarter of 2003 and the
$236,000 payment was expensed in the second quarter of 2004 because
the PTH and Glycoside Technologies are in a preliminary development
phase and do not have any readily determinable alternative future use.
The other consideration called for under the License Agreement, such
as amounts advanced for the prosecution and oversight of any
intellectual property rights related to the licensed technologies
which amounted to $27,500 and the fair value of the 300,000 stock
options granted to Holick, which amounted to $520,000, was also
expensed by the Company in the second quarter of 2004 (included in
product development and research expenses on the consolidated
statement of operations), when the sublicense agreement with Tarpan
was executed and Holick could no longer terminate the license
agreement as it relates to the PTH Technologies and the options became
fully vested. The fair value of the stock options was calculated under
SFAS 123 using Black Scholes model.
In February 2004, the Company signed a license agreement with
Universal Chemical Technologies, Inc. ("UCT") to utilize their
patented technology for an electroless nickel boride metal finishing
process. This will be a new venture for the Company and will require
an initial capital expenditures of approximately $500,000, of which
$456,000 has been paid to UCT to date to purchase property and
equipment and commits the Company to purchase a minimum of $25,000 of
raw materials from UCT in the first year of the license, $75,000
during the second year and $150,000 during the third and subsequent
years. The Company has also been required to make several building
improvements to accommodate the metal finishing equipment. Building
improvements have amounted to $122,000 to date which was paid to
various suppliers. The Company is anticipating an additional $175,000
to be spent to complete the building improvements required, bringing
the initial capital expenditures to approximately $800,000 to complete
the metal finishing process line. The Company has hired a new employee
to oversee the facility operations at an annual salary of $60,000 per
year. The Company has an exclusive license within a 150 mile radius of
its facility for commercial and military applications. Frank Gerardi,
the Company's Chairman and Chief Executive Officer, as well as a major
IGI shareholder, has personally invested $350,000 in UCT, which
represents less than a 1% ownership interest by Mr. Gerardi in UCT.
The Company is anticipating revenues from this venture to begin in the
first quarter of 2005.
On July 27, 2004, the Company signed an exclusive license agreement
with the University of Massachusetts Medical School (University) for
the patented invention entitled "The Treatment of Skin with Adenosine
or Adenosine Analogs". The Company intends to encapsulate adenosine or
adenosine analogs in its Novasome for use in the skin care field. As
consideration of the rights granted in this agreement, the Company has
made nonrefundable payments of $25,000 upon the execution of this
agreement and $25,000 in September 2004. Both of these payments, which
amounts to $50,000, were expensed during the third quarter of 2004 and
are included in the product development and research expenses. The
agreement also calls for minimum royalty payments of $25,000 per year
commencing on July 27, 2007. If the Company enters into a Sublicense
agreement with a third party entity, which it will attempt to do, the
Company shall pay the University 50% of all sublicense income.
9
IGI, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Prior to filing its Form 10-K for the fiscal year ended December 31, 2003,
IGI, Inc, was informed by J&J that there was an error in the calculation of
the 2003 royalty due to the company by J&J. The correction of the error
resulted in a reduction of revenues, with a corresponding impact on net
loss, of $42,000 in the second quarter of 2003 and $51,000 in the third
quarter of 2003. The restated numbers have been reflected herein.
The following discussion and analysis may contain forward-looking
statements. Such statements are subject to certain risks and uncertainties,
including those discussed below or in the Company's 2003 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
2003 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
The Company continues discussions with Estee Lauder on revising the way they
will do business with them in the future. As of this time, a formal
agreement has not been signed by the two entities, but it is anticipated
that one will be signed within the next two weeks. Estee Lauder will be
manufacturing all Novasome(R) products and pay the Company a royalty per
kilo on all Novasome(R) products manufactured by Estee Lauder in-house plus
a one time payment of $100,000. In consideration of the foregoing, Estee
Lauder has agreed to release the Company from its contractual exclusivity
restrictions, which will now enable the Company to sell its products in
department and specialty stores.
On October 27, 2004 the Company announced the signing of a letter of intent
for Senetek to acquire IGI in a stock-for-stock transaction in which Senetek
shareholders would receive 60% of the shares of a newly formed holding
company and IGI shareholders would receive 40%. The holding company would be
organized in the United States and would seek listing on either the Nasdaq
SmallCap Market or the American Stock Exchange. The transaction is subject
to the satisfactory completion by each company of a due diligence review of
the other company's business, technology, financial position and prospects,
negotiation and execution of definitive agreements and their approval by the
companies' respective Boards of Directors and shareholders, and satisfaction
of all closing conditions specified in the definitive agreements. In
addition, if the combined market capitalizations of the two companies, based
on the average daily sale prices of their shares during a 20-trading day
period following circulation of their respective proxy statements for the
transaction, is less than $40 million (equivalent to a minimum of $16
million pro forma value for the 40% of the combined company's shares
issuable to IGI shareholders), either party may terminate the transaction.
IGI has agreed not to enter into any discussions with third parties for a
possible business combination or other transaction not in the ordinary
course of business for a period of 60 days while the due diligence
investigations continue, although it may provide publicly available
information pursuant to confidentiality agreements signed with third parties
prior to the date of the letter of intent.
10
IGI, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Results of Operations
Three months ended September 30, 2004 compared to September 30, 2003
The Company had net loss of $219,000, or ($.02) per share, for the quarter
ended September 30, 2004 compared to net loss of $257,000, or ($.02) per
share, for the quarter ended September 30, 2003.
Total revenues for the quarter ended September 30, 2004 were $582,000,
compared to $899,000 for the quarter ended September 30, 2003, or a $317,000
decrease. The decrease is primarily due to the loss of product sales to
Estee Lauder during the quarter ended September 30, 2004.
As a percentage of product sales, cost of sales was 64% for the quarter
ended September 30, 2004 and 44% for the quarter ended September 30, 2003.
The increase in cost of sales was also a result of the loss of product sales
to Estee Lauder for the quarter ended September 30, 2004, Estee Lauder
product were sold at a higher gross margin percentage than other products
resulting in the higher cost of sales for this quarter.
Selling, general and administrative expenses decreased $269,000, or 46%,
from $589,000 in the quarter ended September 30, 2003. As a percentage of
revenues, these expenses were 55% of revenues in the third quarter of 2004
compared to 66% for the second quarter of 2004. Overall, expenses decreased
primarily due to lower executive salaries, travel and entertainment costs.
Product development and research expenses increased $16,000, or 7%, compared
to the quarter ended September 30, 2003. The increase in expenses is mainly
a result of the $50,000 payment to the University of Massachusetts in the
quarter ended September 30, 2004 and new projects that are being worked on
for existing and potential new customers.
Interest income increased from $0 in the quarter ended September 30, 2003 to
$6,000 in the quarter ended September 30, 2004 from investments made in the
current year.
Nine months ended September 30, 2004 compared to September 30, 2003
The Company had a net loss attributable to common stock of $1,058,000, or
($.09) per share, for the nine months ended September 30, 2004 compared to
net loss attributable to common stock of $570,000, or ($.05) per share, for
the nine months ended September 30, 2003.
Total revenues for the nine months ended September 30, 2004 were $2,767,000,
which represents a increase of $16,000, or 1%, from revenues of $2,751,000
for the nine months ended September 30, 2003. The increase in revenues was
due to a higher royalty revenues in the nine months ended September 30, 2004
from Estee Lauder and Tarpan Therapeutics offset by a loss of product sales
from Estee Lauder and lower royalties from Johnson and Johnson. On June 30,
2004, the Company's revenue from Estee Lauder switched from product revenue
to royalty revenue.
Cost of sales, as a percent of product sales, increased from 45% for the
nine months ended September 30, 2003 to 46% for the nine months ended
September 30, 2004. The increase in cost of sales was also a result of the
loss of product sales to Estee Lauder for the quarter ended September 30,
2004, Estee Lauder product were sold at a higher gross margin percentage
than other products resulting in the higher cost of sales for this quarter.
Selling, general and administrative expenses decreased $535,000, or 28%,
from $1,941,000 for the nine months ended September 30, 2003. As a percent
of revenues, these expenses were 71% of revenues for the first nine months
of 2003 compared to 51% for the first nine months of 2004. The decrease is
primarily due to a decline in salary and travel expenses from the
elimination of three positions within the company during 2004.
11
IGI, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Product development and research expenses increased $976,000, or 185%,
compared to the nine months ended September 30, 2003. The increase in
expenses is a mainly a result of a non cash expense of $548,000 being
recorded in the second quarter of 2004 related to the SFAS 123 value of
300,000 stock options granted to Dr. Holick under his license agreement and
25,000 stock options granted to Dr. Holick for his service on the Scientific
Advisory Board, plus a cash payment made to Dr. Holick in accordance with his
license agreement in the amount of $232,000.
Also, there was a $50,000 payment made to University of Massachusetts in
accordance with their agreement. In addition, new projects are being worked
on for existing and potential new customers and there are additional
personnel.
Interest income increased $13,000 compared to the nine months ended
September 30, 2003. The increase is due to higher interest rates on cash
investments and better return on funds invested in mutual funds.
Liquidity and Capital Resources
The Company's operating activities used $409,000 of cash during the nine
months ended September 30, 2004 compared to $590,000 used in the comparable
period of 2003. Payments for professional fees and payments made to Dr.
Holick in accordance with his license agreement, offset by lower salaries
were the primary uses of cash in 2004.
The Company used $391,000 of cash in the nine months ended September 30,
2004 for investing activities compared to $732,000 used in investing
activities in the first nine months of 2003. Payments to Universal Chemical
Technologies, Inc. ("UCT") and other various vendors amounting to $581,000
was used to purchase machinery and equipment related to the electroless
nickel boride finishing operations that will be set up in the Company's
Buena facility, which was offset by sales of marketable securities amounting
to $300,000, while 2003's investing activities were for the purchase of
marketable securities.
The Company's financing activities provided $222,000 of cash in the nine
months ended September 30, 2004 compared to $45,000 utilized by financing
activities in the nine months ended September 30, 2003. The cash provided in
2004 represents proceeds from the exercise of stock options. The cash
utilized in 2003 is primarily the result of the purchase of Company stock as
part of a stock buy-back program, offset by funding from the EDA loan.
The Company's principal sources of liquidity are cash from operations, cash
and cash equivalents and marketable securities. The Company has undergone
many changes within the passed six months, the release of the exclusivity on
the Estee Lauder contract which coincided with the loss of the Company
manufacturing products for Estee Lauder, along with our expansion of the
facility to house the metal plating line for UCT. These changes have made it
necessary for the Company to utilize its cash. However, these changes were
necessary to enable the Company for growth and expansion. Management was
aware of the impact that these changes would have on the cash balance and
management believes that existing cash and cash equivalents, marketable
securities and cash flows from operations will be sufficient to meet the
Company's foreseeable cash needs for at least the next year If these funds
are not sufficient, 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 June 30, 2005 and other members of the board have agreed to exercise
stock options to raise capital, if needed. There may be 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 issuances of equity or debt securities.
There can be no assurance that such financings will be available or
available on terms acceptable to the Company.
There have been no material changes to the Company's contractual commitments
as reflected in the 2003 10-K Annual Report other than those disclosed in
this Form 10-Q.
Factors Which May Affect Future Results
The industry segments in which the Company competes are subject to intense
competitive pressures. The following sets forth some of the risks which the
Company faces.
12
IGI, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Intense Competition in Consumer Products Business
- -------------------------------------------------
The Company's Consumer Products business competes with large, well-financed
cosmetics and consumer products companies with development and marketing
groups that are experienced in the industry and possess far greater
resources than those available to the Company. There is no assurance that
the Company's consumer products can compete successfully against its
competitors or that it can develop and market new products that will be
favorably received in the marketplace. In addition, certain of the Company's
customers that use the Company's Novasome(R) lipid vesicles in their
products may decide to reduce their purchases from the Company or shift
their business to other suppliers.
Effect of Rapidly Changing Technologies
- ---------------------------------------
The Company expects to sublicense its technologies to third parties, which
would manufacture and market products incorporating the technologies.
However, if its competitors develop new and improved technologies that are
superior to the Company's technologies, its technologies could be less
acceptable in the marketplace and therefore the Company's planned technology
sublicensing could be materially adversely affected.
Revision of Current Contract with Estee Lauder
- ----------------------------------------------
Previously, the Company manufactured Novasome(R) products and contract
manufacturing products for Estee Lauder using the raw materials supplied by
Estee Lauder. The Company is currently renegotiating its agreement with
Estee Lauder. The Company anticipates that the revised agreement will end
all contract manufacturing. The Company also anticipates that Estee Lauder
will manufacture Novasome(R) products in house and will pay the Company a
one time payment of $100,000 plus a royalty on the volume produced. In
addition, Estee Lauder will remove the exclusivity clause which will allow
the Company to sell its products in department and specialty stores.
Although it is the Company's belief that this will increase business and
revenue in the future, there is no guarantee that it will occur.
Licensing Agreement with Universal Chemical Technologies, Inc.
- --------------------------------------------------------------
In February 2004, the Company signed a license agreement with UCT to utilize
their patented technology for an electroless nickel boride metal finishing
process. This will be a new venture for the Company and will require
significant capital expenditures in the Company's existing manufacturing
facility to set up the operations. The Company is also obligated to purchase
a minimum level of raw materials from UCT during the license term. The
Company has an exclusive license within a 150 mile radius of its facility
for commercial and military applications. Frank Gerardi, the Company's
Chairman and Chief Executive Officer, as well as a major IGI shareholder,
has personally invested $350,000 in UCT, which represents less than a 1%
ownership interest by Mr. Gerardi in UCT. The Company believes there is the
possibility of major revenue and profit growth using this application, but
there is no guarantee that it will materialize.
American Stock Exchange (AMEX) Continuing Listing Standards
- -----------------------------------------------------------
On March 28, 2002, the Company was notified by AMEX that it was below
certain of the Exchange's continuing listing standards. Specifically, the
Company was required to reflect income from continuing operations and net
income for 2002 and a minimum of $4,000,000 in stockholders' equity by
December 31, 2002 in order to remain listed.
On April 25, 2002, the Company submitted a plan of compliance to AMEX. On
June 12, 2002, AMEX notified the Company that it had accepted the Company's
plan of compliance and had granted the Company an extension of time to
regain compliance with the continued listing standards by December 31, 2002.
The Company was subject to periodic review by the AMEX staff during the
extension period. Based on the Company's reported results for 2002, the
Company was not in compliance with the AMEX listing standards for income
from continuing operations. On April 14, 2003, the Company received formal
notification from AMEX that the Company was deemed to be in compliance with
all AMEX requirements for continued listing on AMEX. This determination is
subject to the Company's favorable
13
IGI, INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
progress in satisfying the AMEX guidelines for continued listing and to AMEX's
routine periodic reviews of the Company's SEC filings. Based on the Company's
2003 year-end results, the Company was not in compliance with the AMEX
requirement for reporting income from continuing operations and net income for
the year ended December 31, 2003.
As of the date of the filing of the Form 10-Q for the quarter ended
September 30, 2004, the Company has not been contacted by AMEX concerning
the Company's non-compliance with the AMEX requirements. While as of this
date, the Company has not received any notification of non-compliance from
AMEX, the Company has no knowledge of nor can it predict whether AMEX shall at
any time hereafter issue formal notification to the Company of its non-
compliance with the requirements for continued listing on AMEX, which could
result in the Company's delisting from AMEX or otherwise adversely affect
the Company.
Critical Accounting Policies
There have been no material changes to the Company's critical accounting
policies as reflected in the 2003
10-K Annual Report.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk represents the risk of loss that may impact the financial
position, results of operations, or cash flow of the Company due to adverse
changes in market prices and interest rates. The Company is exposed to
market risk because of changes in interest rates and changes in the fair
market value of its marketable securities portfolio.
The Company does not use derivatives for any hedging or speculative
strategies. Accordingly, at September 30, 2004, the Company is not a party
to any derivative transactions. The Company classifies its investments in
its marketable securities portfolio as available-for-sale and records them
at fair value. The securities unrealized holding gains and losses are
excluded from income and are recorded directly to stockholders' equity in
accumulated other comprehensive income. Changes in interest rates are not
expected to have an adverse effect on the Company's financial condition or
results of operations.
ITEM 4. Controls and Procedures
Under the supervision and with the participation of certain members of the
Company's management, including the Chief Executive Officer and Vice
President of Finance, the Company completed an evaluation of the
effectiveness of the design and operation of its disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) to the Securities
Exchange Act of 1934, as amended (the "Exchange Act")). Based on this
evaluation, the Company's Chief Executive Officer and Vice President of
Finance believe that the disclosure controls and procedures were effective
as of the end of the period covered by this report with respect to timely
communicating to them and other members of management responsible for
preparing periodic reports all material information required to be disclosed
in this report as it relates to the Company and its consolidated
subsidiaries.
The Company's management does not expect that its disclosure controls and
procedures or its internal control over financial reporting will prevent all
errors and all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, as opposed to absolute, assurance
that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and
instances of fraud, if any, within the Company have been detected.
These inherent limitations include the realities that judgments in decision-
making can be faulty, and breakdowns can occur because of simple errors or
mistakes. Additionally, controls can be circumvented by the individual acts
of some person or by collusion of two or more people. The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions; over time, controls may become inadequate because
14
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
of changes in conditions, or the degree of compliance with the policies or
procedures may deteriorate. Because of the inherent limitations in a cost-
effective control system, misstatements due to error or fraud may occur and
not be detected. Accordingly, the Company's disclosure controls and procedures
are designed to provide reasonable, not absolute, assurance that the objectives
of its disclosure control system are met and, as set forth above, the Company's
management has concluded, based on their evaluation as of the end of the
period, that the Company's disclosure controls and procedures were
sufficiently effective to provide reasonable assurance that the objectives
of the disclosure control system were met.
There was no change in the Company's internal control over financial
reporting during the Company's last fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
15
IGI, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
Gallo Matter
As previously reported by the Company in its historical filings with the
Securities and Exchange Commission ("SEC"), including without limitation its
Form 10-K for the year ending December 31, 1999, for most of 1997 and 1998
the Company was subject to intensive government regulatory scrutiny by the
U.S. Departments of Justice, Treasury and Agriculture. In June 1997, the
Company was advised by the Animal and Plant Health Inspection Service
("APHIS") of the United States Department of Agriculture ("USDA") that the
Company had shipped quantities of some of its poultry vaccine products
without complying with certain regulatory and record keeping requirements.
The USDA subsequently issued an order that the Company stop shipment of
certain of its products. Shortly thereafter, in July 1997, the Company was
advised that the USDA's Office of Inspector General had commenced an
investigation into possible violations of the Virus Serum Toxin Act of 1914
and alleged false statements made to APHIS. In April 1998, the SEC advised
the Company that it was conducting an informal inquiry and requested
information and documents from the Company, which the Company voluntarily
provided to the SEC.
Based upon these events, the Board of Directors caused an immediate and
thorough investigation of the facts and circumstances of the alleged
violations to be undertaken by independent counsel. The Company continued to
refine and strengthen its regulatory programs with the adoption of a series
of compliance and enforcement policies, the addition of new managers of
Production and Quality Control and a new Senior Vice President and General
Counsel. At the instruction of the Board of Directors, the Company's General
Counsel established and oversaw a comprehensive employee training program,
designated in writing a Regulatory Compliance Officer, and established a
fraud detection program, as well as an employee "hotline." The Company
continued to cooperate with the USDA and SEC in all aspects of their
investigation and regulatory activities. On March 13, 2002, the Company
reached a settlement with the staff of the SEC to resolve matters arising
with respect to the investigation of the Company. Under the settlement, the
Company neither admitted nor denied that the Company violated the financial
reporting and record-keeping requirements of Section 13 of the Securities
and Exchange Act of 1934, as amended, for the three years ended December 31,
1997. Further, the Company agreed to the entry of an order to cease and
desist from any such violation in the future. No monetary penalty was
assessed.
As a result of its internal investigation, in November 1997, the Company
terminated the employment of John P. Gallo as President and Chief Operating
Officer for willful misconduct. On April 21, 1998, the Company instituted a
lawsuit against Mr. Gallo in the New Jersey Superior Court. The lawsuit
alleged willful misconduct and malfeasance in office, as well as
embezzlement and related claims (referred to as "the IGI Action"). On April
28, 1998, Mr. Gallo instituted a separate action against the Company and two
of its Directors, Edward Hager, M.D. and Constantine Hampers, M.D., alleging
that he had been wrongfully terminated from employment and further alleging
wrongdoings by the two Directors (referred to as the "Gallo Action"). The
Court subsequently ordered the consolidation of the IGI Action and the Gallo
Action (collectively referred to as the "Consolidated Action").
In response to these allegations, the Company instituted an investigation of
the two Directors by an independent committee ("Independent Committee") of
the Board assisted by the Company's General Counsel. The investigation
included a series of interviews of the Directors, both of whom cooperated
with the Company, and a review of certain records and documents. The Company
also requested an interview with Mr. Gallo who, through his counsel,
declined to cooperate. In September 1998, the Independent Committee reported
to the Board that it had found no credible evidence to support Mr. Gallo's
claims and allegations and recommended no further action. The Board adopted
the recommendation.
The Company denied all allegations plead in the Gallo Action and asserted
all claims in the Gallo Action to be without merit. The Company did not
reserve any amount relating to such claims. The Company tendered the claim
to its insurance carriers, but was denied insurance coverage for both
defense and indemnity of the Gallo Action.
16
IGI, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION, Continued
In July 1998, the Company sought to depose Mr. Gallo in connection with the
Consolidated Action. Through his counsel, Mr. Gallo asserted his Fifth
Amendment privilege against self-incrimination and advised that he would not
participate in the discovery process until such time as a federal grand jury
investigation, in which he was a target, was concluded. In January 1999, at
the suggestion of the Court, the Company and Mr. Gallo agreed to a voluntary
dismissal without prejudice of the Consolidated Action, with the
understanding that the statute of limitations was tolled for all parties and
all claims, and that the Company and Mr. Gallo were free to reinstate their
suits against each other at a later date, with each party reserving all of
their rights and remedies against the other.
As of the date hereof, neither the Company nor Mr. Gallo have filed suit
against each other in the Superior Court of New Jersey or any other court of
competent jurisdiction to reinstitute the claims, in whole or part,
previously at issue in the Consolidated Action, and pursuant to the previous
order of dismissal entered in the Consolidated Action, the statute of
limitation on all claims and defenses continues to be tolled as to both
parties. However, the Company did receive a letter dated November 21, 2003
from Mr. Gallo's attorneys seeking to reach a settlement of the claims
asserted against IGI in the Gallo Action without further resort to the
courts. The letter provides a general description of Mr. Gallo's claims and
a calculation of damages allegedly sustained by Mr. Gallo relative thereto.
The letter states that Mr. Gallo's damages are calculated to be in the range
of $3,400,000 to $5,100,000. The Company denies liability for the claims and
damages alleged in the letter from Mr. Gallo's counsel dated November 21,
2003, and as such, the Company did not make any formal response thereto. Mr.
Gallo has contacted the Company's Chief Executive Officer and Chairman,
Frank Gerardi, in a continued effort to initiate settlement discussions. As
of the present date, the Company continues to deny any merit and/or
liability for the claims alleged by Mr. Gallo and has not engaged in any
formal settlement discussions with either Mr. Gallo or his attorneys.
On December 8, 2003, Mr. Gallo filed suit against Novavax, Inc. in the
Superior Court of New Jersey, Law Division, Atlantic County, docket no. ATL-
L-3388-03, asserting claims under seven counts for damages allegedly
sustained as a result of the cancellation of certain Novavax stock options
held by Mr. Gallo due to his termination from IGI in November 1997 for
willful misconduct (referred to as the "Novavax Action").
On March 5, 2004, Novavax filed an Answer denying the allegations asserted
by Mr. Gallo in his First Amended Complaint. In addition, while denying any
liability under the First Amended Complaint, Novavax also filed a Third
Party Complaint in the Novavax Action against the Company for contribution
and indemnification, alleging that if liability for Mr. Gallo's claims is
found, the Company has primary liability for any and all such damages
sustained.
IGI has been notified by its insurance carriers that coverage is not
afforded under their respective policies of insurance for defense and/or
indemnification of the claims alleged by the Third Party Complaint. After
IGI was notified of the foregoing, but prior to IGI's filing of any
responsive pleading, the Third Party Complaint against IGI was voluntarily
dismissed without prejudice by Novavax on June 30, 2004. Novavax may at any
time pursuant to the rules of court re-file its Third Party Complaint
against IGI.
In July 2004, Novavax filed a motion for summary judgment on all claims
asserted under Gallo's First Amended Complaint (referred to as "the SJ
Motion"). Gallo filed opposition to the SJ Motion contesting all relief
sought thereunder. In August 2004, the court held a hearing on the SJ Motion
and denied without prejudice the relief sought by the motion for dismissal
of Gallo's First Amended Complaint. Upon information and belief, the parties
are currently proceeding with discovery in the Novavax Action. The Company
as a non-party witness in the Novavax Action was recently served by counsel
for Gallo with a subpoena for the production of documents as responsive
thereto.
While as of the date hereof, Novavax has not sought to re-file its Third
Party Complaint against IGI for which coverage was previously denied by its
insurance carriers, but Novavax is not precluded from and may seek to do so
in the future.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
ITEM 3. Defaults Upon Senior Securities
None.
17
IGI, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION, Continued
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
None.
18
IGI, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION, Continued
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of the Chairman 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 the Chairman and Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as enacted under Section
906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of the Vice President of Finance pursuant to 18
U.S.C. Section 1350, as enacted under Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K. The following reports on Form 8-K have been filed
during the quarter for which this report is filed:
Form 8-K filed October 28, 2004, on which Item 8.01 was completed to
announce IGI signing of a letter of intent for Senetek PLC to acquire
IGI in a stock-for-stock transaction.
19
IGI, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IGI, Inc.
(Registrant)
Date: November 11, 2004 By: /s/ Frank Gerardi
-----------------
Frank Gerardi
Chairman and Chief Executive Officer
Date: November 11, 2004 By: /s/ Carlene Lloyd
-----------------
Carlene Lloyd
Vice President, Finance
20