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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Delaware

01-0355758

(State or other Jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification No.)

105 Lincoln Avenue

Buena, New Jersey

08310

(Address of Principal Executive Offices)

(Zip Code)

September 30,
2012

December 31,
2011*

ASSETS

Current assets:

     Cash and cash equivalents

$

1,775 

$

2,914 

     Accounts receivable, less allowance for doubtful accounts of $16 as of

1,186 

1,208 

         September 30, 2012 and December 31, 2011

     Inventories

1,283 

1,195 

     Other receivables

10 

239 

     Prepaid expenses

149 

130 

          Total current assets

4,403 

5,686 

Property, plant and equipment, net

2,756 

2,800 

Restricted cash, long term

54 

54 

License fee, net

325 

400 

Debt issuance costs, net

111 

639 

Other

180 

57 

          Total assets

$

7,829 

$

9,636 

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

     Accounts payable

$

699 

$

629 

     Accrued expenses

636 

611 

     Deferred income, current

32 

38 

     Capital lease obligation, current

27 

38 

          Total current liabilities

1,394 

1,316 

Note payable

1,000 

- 

Note payable, related party

- 

500 

Deferred income, long term

21 

25 

Capital lease obligation, long term

39 

30 

          Total liabilities

2,454 

1,871 

Commitments and contingencies

Stockholders’ equity:

     Series A Convertible Preferred stock, liquidation preference - $500,000 at

       September 30, 2012 and December 31, 2011

500 

500 

     Series C Convertible Preferred stock, liquidation preference - $1,744,705 at

       September 30, 2012 and $1,686,527 at December 31, 2011

1,517 

1,517 

     Common stock

423 

415 

     Additional paid-in capital

46,593 

46,246 

     Accumulated deficit

(42,263)

(39,518)

     Less treasury stock, 1,965,740 common shares at cost

(1,395)

(1,395)

          Total stockholders’ equity

5,375 

7,765 

             Total liabilities and stockholders' equity

$

7,829 

$

9,636 

Nine months ended
September 30,

2012

2011

Cash flows from operating activities:

     Net loss

$

(2,745)

$

(2,468)

     Reconciliation of net loss to net cash used in operating activities:

         Depreciation

264 

235 

         Amortization of license fee

75 

75 

         Stock-based compensation expense

320 

269 

         Provision for write down of inventory

74 

135 

         Amortization of debt issuance costs

642 

121 

         Loss on abandonment of property

13 

- 

     Changes in operating assets and liabilities:

          Accounts receivable

22 

(559)

          Inventories

(162)

(466)

          Prepaid expenses and other assets

210 

115 

          Accounts payable and accrued expenses

96 

(105)

          Deferred income

(10)

152 

Net cash used in operating activities

(1,201)

(2,496)

Cash flows from investing activities:

     Capital expenditures

(323)

(192)

Net cash used in investing activities

(323)

(192)

Cash flows from financing activities:

     Proceeds from note payable

1,000 

- 

     Payment of debt issuance costs

(114)

- 

     Payment on note payable, related party

(500)

- 

     Proceeds from note payable, related party

- 

500 

     Principal payments on capital lease obligation

(36)

(23)

     Proceeds from exercise of common stock options

26 

74 

     Proceeds from exercise of warrants

9 

- 

Net cash provided by financing activities

385 

551 

Net decrease in cash and cash equivalents

(1,139)

(2,137)

Cash and cash equivalents at beginning of period

2,914 

5,116 

Cash and cash equivalents at end of period

$

1,775 

$

2,979 

Supplemental cash flow information:

    Cash payments for interest

$

81 

$

87 

    Cash payment for taxes

$

9 

$

5 

Non cash investing and financing transactions:

    Equipment purchases financed through capital leases

$

30 

$

- 

    Issuance of restricted stock

$

- 

$

2 

    Forfeiture of restricted stock

$

1 

$

1 

1.

Organization

IGI Laboratories, Inc. is a Delaware corporation formed in 1977. As used in this report, the terms the “Registrant,” the “Company,” “IGI” and “IGI Laboratories” refer to IGI Laboratories, Inc., unless the context requires otherwise. The Company’s office, laboratories and manufacturing facilities are located at 105 Lincoln Avenue, Buena, New Jersey. IGI develops, manufactures, fills and packages topical semi-solid and liquid products for cosmetic, cosmeceutical and pharmaceutical customers. The Company’s products are used for cosmetic, cosmeceutical and prescription applications for the treatment of symptoms of dermatitis, acne, psoriasis and eczema. The Company is building upon this foundation by filing its own Abbreviated New Drug Applications (“ANDAs”) and continuing to expand into the prescription pharmaceutical arena. The Company’s strategy is based upon three initiatives:  increasing the current contract services business, developing a portfolio of generic formulations in topical dosage forms and creating unique opportunities around its licensed Novasome® technology. All of its product development and manufacturing is performed at its 25,000 sq. ft. facility in Buena, NJ.

2.

Liquidity

The Company’s principal sources of liquidity are cash and cash equivalents of approximately $1,775,000 at September 30, 2012, the $2,000,000 available on the $3,000,000 credit facility detailed below and cash from operations. The Company sustained a net loss of $2,745,000 for the nine months ended September 30, 2012, and had working capital of $3,009,000 at September 30, 2012.

The Company’s business operations have been primarily funded over the past three years through private placements of our capital stock. On August 31, 2012, we entered into a credit facility for $3,000,000 as detailed below. As of September  30, 2012, the outstanding balance on the credit facility was $1,000,000. The Company may require additional funding and this funding will depend, in part, on the timing and structure of potential business arrangements. If necessary, the Company may continue to seek to raise additional capital through the sale of its equity. It may be accomplished via a strategic alliance with a third party. There may also be additional acquisition and growth opportunities that may require external financing. There can be no assurance that such financing will be available on terms acceptable to the Company, or at all. We also have the ability to defer certain product development and other programs, if necessary. We believe that our existing capital resources will be sufficient to support our current business plan beyond November 2013.

3.

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 allowance, stock based compensation, and accruals for environmental cleanup and remediation costs. Actual results could differ from those estimates.

Loss Per Share

Basic net loss per share of common stock is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share of common stock is computed using the weighted average number of shares of common stock and potential dilutive common stock equivalents outstanding during the period. Due to the net loss for the three months ended September 30, 2012 and 2011 and the nine months ended September 30, 2012 and 2011, the effect of the Company’s potential dilutive common stock equivalents was anti-dilutive for each period; as a result, the basic and diluted weighted average number of common shares outstanding and net loss per common share are the same. Potentially dilutive common stock equivalents include options and warrants to purchase the Company’s common stock and the conversion of preferred stock, which were excluded from the net loss per share calculations due to their anti-dilutive effect amounted to 5,913,604 for 2012 and 5,375,325 for 2011.

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 ASC 605, 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.

Product Sales: The Company recognizes revenue when title transfers to its customers, which is generally upon shipment of products. The revenues associated with these transactions, net of appropriate cash discounts, product returns and sales reserves, are recorded upon shipment of the products.

Licensing and Royalty Income: Revenues earned under licensing or sublicensing contracts are recognized as earned in accordance with the terms of the agreements. The Company recognizes royalty revenue based on royalty reports received from the licensee.

Research and Development Income:  The Company enters into 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 each phase of development and when we have no future performance obligations relating to such 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.

In making such assessments, judgments are required to evaluate contingencies such as potential variances in schedule and the costs, the impact of change orders, liability claims, contract disputes and achievement of contractual performance standards. Changes in total estimated contract cost and losses, if any, are recognized in the period they are determined. Billings on research and development contracts are typically based upon terms agreed upon by the Company and customer and are stated in the contracts themselves and do not always align with the revenues recognized by the Company.

Major Customers

Major customers of the Company are defined as having revenue greater than 10% of total gross revenue. For the three months ended September 30, 2012, four of our customers accounted for 80% of our revenue. For the three months ended September 30, 2011, four of our customers accounted for 86% of our revenue. For the nine months ended September 30, 2012 and 2011, three of our customers accounted for 65% and two of our customers accounted for 54% of our revenue, respectively. Two of these customers are the same for all periods. Accounts receivable related to the Company’s major customers comprised 63% of all accounts receivable as of September 30, 2012. The loss of one or more of these customers could have a significant impact on our revenues and harm our business and results of operations .

Recent Accounting Pronouncements

There were no new accounting pronouncements for the nine months ended September 30, 2012 that have a material impact on the Company’s consolidated financial statements.

4.

Inventories

Inventories are valued at the lower of cost, using the first-in, first-out (“FIFO”) method, or market. Inventories at September 30, 2012 and December 31, 2011 consist of:

5.

Stock-Based Compensation

Under the 1998 Directors Stock Plan, as amended, 600,000 shares of the Company’s common stock are authorized under the plan and reserved for issuance to non-employee directors, in lieu of payment of directors’ fees in cash. In November 2009, the Company’s Board of Directors approved the elimination of payment of directors’ fees in stock under this plan beginning in the fourth quarter of 2009.

The 1999 Director Stock Option Plan, as amended (the “Director Plan”), provides for the grant of stock options to non-employee directors of the Company at an exercise price equal to the fair market value per share on the date of the grant. An aggregate of 1,975,000 shares have been approved and authorized for issuance pursuant to this plan. A total of 2,049,798 options have been granted to non-employee directors through September 30, 2012 and 697,782 of those have been forfeited through September 30, 2012 and returned to the option pool. The options granted under the Director Plan vest in full one year after their respective grant dates and have a maximum term of ten years.

The 1999 Stock Incentive Plan, as amended (the “1999 Plan”), replaced all previously authorized employee stock option plans, and no additional options may be granted under those plans. Under the 1999 Plan, options or stock awards may be granted to all of the Company's employees, officers, directors, consultants and advisors to purchase a maximum of 3,200,000 shares of common stock. However, pursuant to the terms of the 1999 Plan, no awards may be granted after March 16, 2009. A total of 2,892,500 options, having a maximum term of ten years, has been granted at 100% of the fair market value of the Company's common stock at the time of grant. Options outstanding under the 1999 Plan are generally exercisable in cumulative increments over four years commencing one year from the date of grant.

On June 26, 2009, the Board of Directors adopted, and the Company’s stockholders subsequently approved by partial written consent, the IGI Laboratories, Inc. 2009 Equity Incentive Plan (the “2009 Plan”). The 2009 Plan allows the Company to continue to grant options and restricted stock, as under the 1999 Plan, but also authorizes the Board of Directors to grant a broad range of other equity-based awards, including stock appreciation rights, restricted stock units and performance awards. The 2009 Plan has been created, pursuant to and consistent with the Company’s current compensation philosophy, to assist the Company in attracting, retaining and rewarding designated employees, directors, consultants and other service providers of the Company and its subsidiaries and affiliates, in a manner that will be cost efficient to the Company from both an economic and financial accounting perspective. On April 12, 2010, the Board of Directors adopted, and the Company’s stockholders subsequently approved, an amendment and restatement of the 2009 Equity Incentive Plan to increase the number of shares of common stock available for grant under such plan by adding 2,000,000 shares of common stock. The 2009 Plan, as amended on May 19, 2010, authorizes up to 4,000,000 shares of the Company’s common stock for issuance pursuant to the terms of the 2009 Plan. The maximum number of shares that may be subject to awards made to any individual in any single calendar year under the 2009 Plan is 1,000,000 shares. As of September 30, 2012, options to purchase 1,834,500 shares of common stock were outstanding under the 2009 Plan and 1,039,000 shares of restricted stock had been granted under the 2009 Plan.

Stock Options

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.

A summary of option activity under the 1999 Plan, the Director Plan and the 2009 Plan as of September 30, 2012 and changes during the period are presented below:

Based upon application of the Black-Scholes option-pricing formula described above, the weighted-average grant-date fair value of options granted during the nine months ended September 30, 2012 was $0.12.

The following table summarizes information regarding options outstanding and exercisable at September 30, 2012:

Outstanding:

Weighted Average

Range of  Exercise Prices

Stock Options Outstanding

Weighted Average Exercise Price

Remaining Contractual Life

$0.55

$1.00

218,000

$0.76

6.08

$1.01

$1.50

2,137,500

$1.09

8.63

$1.51

$1.74

175,000

$1.68

8.26

Total

2,530,500

$1.10

8.39

As of September 30, 2012, the intrinsic value of the options outstanding is $452,730 and the intrinsic value of the options exercisable is $130,110. The total intrinsic value of the options exercised during the nine months ended September 30, 2012 was $23,600. As of September 30, 2012, there was approximately $445,500 of total unrecognized compensation cost that will be recognized through July 2015 related to non-vested share-based compensation arrangements granted under the Plans.

Restricted Stock

The Company periodically grants restricted stock awards to certain officers and other employees that typically vest one to three years from their grant date. The Company recognized approximately $104,200 and $56,500 of compensation expense during each of the three months ended September 30, 2012 and 2011, respectively, and approximately $217,100 and $169,400 of compensation expense during the nine months ended September 30, 2012 and 2011, respectively, related to restricted stock awards. Stock compensation expense is recognized over the vesting period of the restricted stock. At September 30, 2012, the Company had approximately $26,100 of total unrecognized compensation cost related to non-vested restricted stock, all of which will be recognized from October 2012 through January 2014.

6.

Income Taxes

As a result of the Company’s history of continuing tax losses, the Company does not have a current tax provision and has recorded a full valuation allowance against its net deferred tax asset. The Company has not recorded a liability for unrecognized tax benefits at September 30, 2012 and no significant changes are expected in the next twelve months. The tax years 2008-2011 remain open to examination by the major taxing jurisdictions to which th e Company is subject.

There was no accrued interest related to unrecognized tax benefits at September 30, 2012.

The Company’s ability to use net operating loss carry forwards may be subject to substantial limitation in future periods under certain provisions of Section 382 of the Internal Revenue Code, which limit the utilization of net operating losses upon a more than 50% change in ownership of the Company’s stock that is held by 5% or greater stockholders. The Company is currently examining the application of Section 382 with respect to an ownership change that took place during 2009 and 2010, as well as the possibility of such limitation having any material effect on the application of net operating loss carry forwards in the immediate future. The Company believes that it is likely that a change in ownership took place and that the net operating loss carryforwards will be limited.

The statue of limitations for years in which a net operating loss is generated remains open generally, for three years after the loss is utilized to reduce a current tax liability.

7.

License Fee

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 (each a “Microencapsulation Technology”, and 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”) through 2015. This payment is being amortized ratably over the ten-year period. The Company recorded amortization expense of $25,000 related to this agreement for each of the three month periods ended September 30, 2012 and 2011 and amortization expense of $75,000 related to this agreement for each of the nine months ended September 30, 2012 and 2011.

8.

Note Payable

On August 31, 2012, IGI Laboratories, Inc. and its subsidiaries, Igen, Inc. and IGI Labs, Inc. (called collectively for purposes of this Note 8, the “ Company ”), entered into a Loan and Security Agreement (the “ Loan and Security Agreement ”) with Square 1 Bank (the “ Lender ”) pursuant to which the Lender agreed to extend credit facilities to the Company (the “ Financing ”). The Company drew down $1,000,000 in principal amount on August 31, 2012. In connection with this financing the company incurred and recorded debt issuance costs in the amount of $114,000, which will be amortized over the remaining life of the loan, 42 months.

To secure payment of the amounts financed under the Loan and Security Agreement, the Company has granted to the Lender a continuing security interest in and against, generally, all of its tangible and intangible assets, except intellectual property.

Under the Loan and Security Agreement, the Company can request revolving loan advances under (a) the Formula Revolving Line and (b) the Non-Formula Revolving Line, and term loan advances under the term loans (each as further described in the Loan and Security Agreement disclosed in a Current Report on Form 8-K as Exhibit 10.1 filed with the Securities and Exchange Commission on September 6, 2012). The aggregate total borrowings under the facilities cannot exceed the total borrowing limit of $3,000,000 at any one time outstanding. Formula Revolving Line advances shall bear interest, on the outstanding balance thereof, at a variable rate equal to the greater of (A) 1.9% above the prime rate then in effect, and (B) 5.65%. Non-Formula Revolving Line advances shall bear interest, on the outstanding balance thereof, at a variable rate equal to the greater of (A) 2.15% above the prime rate then in effect, and (B) 5.9%. Term loan advances shall bear interest, on the outstanding balance thereof, at a variable rate equal to the greater of (A) 2.4% above the prime rate then in effect, and (B) 6.15%.

The term of the Formula Revolving Line and the Non-Formula Revolving Line is one year from the date of the Loan and Security Agreement and can be extended by mutual agreement of the parties. The term of the term loans is 42 months from the date of the Loan and Security Agreement, but term loan advances are available to the Company only until February 28, 2014.

The Company must at all times maintain a liquidity ratio of a minimum of 1.25, defined as unrestricted cash at the lender plus approved accounts receivable borrowing base divided by all debt outstanding to the lender. The minimum liquidity ratio can be reduced to 1.0 if the Company maintains certain three month minimum revenue thresholds, agreed upon by the lender. At September 30, 2012, the Company was in compliance with all of its covenants with the lender.

In connection with the Financing, the Company paid in full its existing credit facility with Amzak Capital Management, LLC (see Note 9 below) and executed a Release and Termination Note and Credit Agreement with Amzak Capital Management, LLC to release the Company from any future obligations under the agreement.

The complete statement of the parties’ rights and obligations under the Loan and Security Agreement is qualified in its entirety by reference to the terms and conditions of such document which is filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 6, 2012.

9.

Note Payable – Related Party

On December 21, 2010, the Company entered into a Credit Agreement with Amzak Capital Management, LLC (the “Lender”) pursuant to which the Lender agreed to extend a $3,000,000 credit facility to the Company (the “Credit Agreement ”). The Company drew down $500,000 in principal amount in March 2011.

On August 31, 2012, the Company paid in full its existing credit facility with the Lender and executed a Release and Termination Note and Credit Agreement  to release the Company from any future obligations under the Credit Agreement executed on December 21, 2010. In addition, the Company received the Discharge of mortgage notification indicating the mortgage related to this credit agreement has been satisfied and discharged. In connection with the release and termination agreement, the Company recorded amortization expense in the amount of $545,000 to write-off the remaining unamortized amount the existing debt issuance costs, which included amounts recorded for the issuance of the warrants described below.

To secure payment of the amounts financed under the Credit Agreement, the Company has granted to the Lender a security interest in and against, generally, all of its tangible and intangible assets, except intellectual property, pursuant to that certain Pledge and Security Agreement with the Lender dated December 21, 2010. In addition, the Company has pledged to the Lender its equity interests in IGEN, Inc., one of the Company’s wholly-owned subsidiaries.

Under the Credit Agreement the Company has agreed to certain covenants customarily found in such agreements including, but not limited to, a covenant prohibiting the Company from entering into a merger or acquisition of the Company without the prior consent of the Lender if any advances remain outstanding and a covenant requiring the Company to maintain a certain loan to collateral ratio. Upon the breach of a covenant, without cure, the Lender will have certain remedies customarily found in such agreements including, but not limited to, the ability to cause all of the loans outstanding to be immediately due and payable and to terminate the Credit Agreement.

Upon funding of each Advance (as defined therein), the Company shall make payments of accrued interest on the unpaid Accreted Principal Amount (as defined therein) of each promissory note. The interest rate applicable to each promissory note shall be 14% per annum and interest payments are due on each March 31, June 30, September 30 and December 31 during the term of the Credit Agreement. The Company may prepay any Advance in connection with the consummation of a Liquidity Event (as defined therein) or at any time subsequent to December 21, 2012. On June 29, 2012, the Credit Agreement was amended to extend the termination of the right to receive advances from June 30, 2012 to August 31, 2012.

In addition, as consideration for entering into the Credit Agreement, on December 21, 2010, the Company issued to the Lender a ten-year warrant to purchase certain shares of the Company’s common stock, at an exercise price of $0.01 per share (the “Warrant”). The Warrant is immediately exercisable for 881,331 shares of Common Stock (the “Initial Warrant Shares”) with the remaining shares of Common Stock representing 1% of the Fully Diluted Shares (as defined therein) as of the Conditional Warrant Exercise Date (as defined therein) (the “Conditional Warrant Shares”) becoming exercisable July 1, 2012 if the Company has achieved certain milestones related to the Company’s product development or financial growth. The Warrant is accounted for as an equity instrument. The fair value of the Initial Warrant of $723,541 will be recorded as debt issuance costs and amortized on a straight-line basis over the stated term of the Credit Agreement which is five years. The Company anticipates amortization expense to be approximately $160,000 for the years 2012 to 2016. Amortization expense of $558,000 and $40,000 was recognized for each of the three months ended September 30, 2012 and 2011, respectively,  and $639,000 and $81,000 for the nine months ended September 30, 2012 and 2011, respectively. The unamortized portion of the initial warrant of $545,000 was included in interest expense for the three months ended September 30, 2012. On December 21, 2010, the fair value of the Conditional Warrant was not considered to be material. The Company completed its obligations under certain milestones related to the Company’s product development, and as such the Conditional Warrant will not be exerciseable, and no additional expense was recognized. The Initial Warrant for 881,331 shares was exercised on September 28, 2012.

The complete statement of the parties’ rights and obligations under the Credit Agreement, the Pledge and Security Agreement, the Warrant and the Registration Rights Agreements is qualified in its entirety by reference to the terms and conditions of such documents which are filed as exhibits to the Company’s Current Report on Form 8-K filed on December 22, 2010.

The Lender is a shareholder of the Company and participated in the private placement previously disclosed in a Current Report on Form 8-K filed with the Securities and Exchange Commission on December 8, 2010.

10.

Stock Warrants

Stock Warrants activity for the nine months ended September 30, 2012 and 2011 consisted of:

In connection with the private placement of the Company’s Common Stock on December 8, 2010, the Company granted Common Stock Warrants to purchase 338,182 and 16,364, respectively, to each of its two placement agents for $1.21 per share which expire on December 8, 2015.

In connection with the Credit Agreement with the Lender as more fully described in Note 9, the Company issued a ten-year warrant to purchase 881,331 shares of the Company’s Common Stock for $.01 per share. This warrant was exercised on September 28, 2012.

In connection with the private placement offering to certain investment funds affiliated with Signet Healthcare Partners, G.P. (the “Offering”) on March 13, 2009, the Company granted its placement agent for the Offering a Common Stock Warrant to purchase 350,000 shares of common stock for $0.41 per share, which expired on March 13, 2012. On December 2, 2009, the Common Stock Warrant was amended to include a partial transfer for 87,500 shares of common stock. On December 2, 2009, the warrant to purchase 87,500 was exercised using the “Cashless Exercise” provision and 51,681 shares of common stock were issued. On February 25, 2011, the warrant to purchase the remaining 262,500 shares of common stock was exercised using the “Cashless Exercise” provision and 200,646 shares of common stock were issued.

11.

Changes in Management and the Board of Directors

On July 30, 2012, the Company announced that Jason Grenfell-Gardner has been appointed the Company’s new President and Chief Executive Officer, effective July 30, 2012. Charles E. Moore left his employment with the Company and resigned as a member of the Company’s board of directors (the “Board”), effective July 30, 2012. The Board appointed Mr. Grenfell-Gardner to fill the vacant Board seat created by Mr. Moore’s resignation, effective July 30, 2012.

The Company entered into an employment agreement with Mr. Grenfell-Gardner, effective as of July 30, 2012. Under the terms of such employment agreement, Mr. Grenfell-Gardner will receive an annual salary of $315,000. Mr. Grenfell-Gardner has received an option to purchase 975,000 shares of the Company’s common stock (the “Primary Option”) and a supplemental option to purchase 25,000 shares of the Company’s common stock (the “Supplemental Option”), the vesting terms of which are explained below. In addition, Mr. Grenfell-Gardner will receive an award of 325,000 shares of restricted stock and an option to purchase 25,000 shares of the Company’s common stock, as soon as practicable. In addition, Mr. Grenfell-Gardner will be entitled to participate in certain of the Company’s benefit programs on the same terms and conditions generally provided by the Company to its executive employees. Mr. Grenfell-Gardner will also be eligible to receive an annual performance bonus for each calendar year during the term of his employment, which may be payable in either, cash, stock options and/or restricted stock. Mr. Grenfell-Gardner’s target bonus will be equal to 70% of his base salary for the applicable fiscal year. All performance targets pursuant to such plan shall be determined by the Board’s Compensation Committee. Mr. Grenfell-Gardner is also subject to certain restrictive covenants as set forth in his employment agreement, including confidentiality, non-solicitation and non-competition covenants. Mr. Grenfell-Gardner’s employment agreement further provides for payments upon certain types of employment termination events as further set forth in his employment agreement.

The above referenced stock option grants had an exercise price equal to the closing price of the Company’s common stock on July 30, 2012, and the Primary Option will become fully vested over a period of three years as follows: (i) one-third shall vest on the first anniversary of the date of the grant; (ii) one-third shall vest on the second anniversary of the date of the grant and (iii) one-third shall vest on the third anniversary of the date of the grant. The Supplemental Option shall become fully vested immediately upon their grant. In addition, any options or restricted stock that remain unvested immediately prior to a change in control will become vested, provided that the executive remains in continuous service with the Company through the consummation of the change in control.

On August 15, 2012, the Company filed on Form 8-K that effective July 30, 2012 (the "Separation Date"), Mr. Moore, the President and Chief Executive Officer of IGI Laboratories, Inc., a Delaware corporation (the "Company"), resigned from employment with the Company and resigned as a member of the Company’s board of directors.

In connection with Mr. Moore's departure from the Company, the Company entered into a Separation of Employment Agreement and General Release (the "Separation Agreement") dated August 14, 2012 with Mr. Moore, consistent with the terms of Mr. Moore’s employment agreement. The Separation Agreement provides that the Company shall pay Mr. Moore $138,680 as a separation payment, with such amount to be paid ratably over a 6 month period on each regular payroll payment date during such period.

Also, in the Separation Agreement, Mr. Moore agreed to provide the Company with a general release, and Mr. Moore agreed to certain restrictive covenants, and reconfirmed his agreement to the confidentiality, non-competition and non-solicitation covenants set forth in his employment agreement with the Company, after the Separation Date. Consistent with his employment agreement, Mr. Moore vested in all outstanding options through his vesting date. The Company recorded stock based compensation in the amount of $100,950.

Three Months Ended
September 30,

Increase/(Decrease)

2012

2011

$

%

Interest Income

$             -

$          (2)

$        (2)

(100)%

Interest Expense

$        584

$          73 

$      511 

700%

Other (Income) Expense

$            2

$          (1)

$        (3)

(300)%

Three Months Ended
September 30,

Increase/(Decrease)

2012

2011

$

%

Net loss  

$   (1,422)

$     (487)

$    935

192%

Net loss per share

$     (0.04)

$    (0.01)

$   0.03

300%

Nine Months Ended
September 30,

Increase/(Decrease)

Components of Revenue:

2012

2011

$

%

Product sales

$       4,835

$      5,030

$     (195)

(4)%

Research and development income

1,368

539

829 

154%

Licensing, royalty and other income

52

142

(90)

(63)%

      Total Revenues

$       6,255

$      5,711

$       544 

10%

Nine Months Ended
September 30,

Increase/(Decrease)

2012

2011

$

%

Cost of sales

$     4,271

$     4,113

$        158 

4%

Selling, general and administrative

2,254

2,300

(46)

(2)%

Product development and research

1,735

1,573

162 

10%

      Totals costs and expenditures

$     8,260

$     7,986

$       274 

3%

Nine Months Ended
September 30,

Increase/(Decrease)

2012

2011

$

%

Interest Income

$           -

$       (13)

$     (13)

(100)%

Interest Expense

$      728

$      208 

$     520 

250%

Other (Income) Expense

$        12

$         (2)

$     (14)

700%

Nine Months Ended
September 30,

Increase/(Decrease)

2012

2011

$

%

Net loss  

$    (2,745)

$    (2,468)

$      277

11%

Net loss per share

$      (0.07)

$      (0.06)

$     0.01

17%

Exhibit

Number

Description

10.1

Employment Agreement between IGI Laboratories, Inc. and Jason Grenfell-Gardner, effective July 30, 2012 (incorporated by reference to Exhibit 10.1 to the Company’s Report on Form 8-K filed July 30, 2012).

10.2

Separation of Employment Agreement and General Release dated August 14, 2012 between IGI Laboratories, Inc. and Charles Moore (incorporated by reference to Exhibit 10.1 to the Company’s Report on Form 8-K filed August 15, 2012).

10.3

Loan and Security Credit Agreement dated as of August 31, 2012 by and among IGI Laboratories, Inc., Igen, Inc. and IGI Labs, Inc. as Borrower and Square 1 Bank as Bank (incorporated by reference to Exhibit 10.1 to the Company’s Report on Form 8-K filed September 6, 2012).

31.1*

Certification of the President 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 Chief Financial 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.

32.1*

Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101*

Interactive Data File

*    Filed herewith.

IGI Laboratories, Inc.

Date: November 14, 2012

By:

/s/     Jason Grenfell-Gardner

Jason Grenfell-Gardner

President and Chief Executive Officer

Date: November 14, 2012

By:

/s/     Jenniffer Collins

Jenniffer Collins

Chief Financial Officer

Exhibit

Number

Description

31.1

Certification of the President 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 Chief Financial 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.

32.1

Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101

Interactive Data File