SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C. 20549

                                  FORM 10-Q
                 QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                   OF THE SECURITIES EXCHANGE ACT OF 1934


          For Quarter Ended                      Commission File No.
          -----------------                      -------------------
            June 30, 2004                             001-08568


                                  IGI, Inc.
           ------------------------------------------------------
           (Exact name of registrant as specified in its charter)


              Delaware                               01-0355758
   -------------------------------               -------------------
   (State or other jurisdiction of                (I.R.S. Employer
   incorporation or organization)                Identification No.)


     105 Lincoln Avenue, Buena, NJ                      08310
----------------------------------------             ----------
(Address of principal executive offices)             (Zip Code)


                                856-697-1441
             --------------------------------------------------
             Registrant's telephone number, including area code


Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

                             Yes   X    No
                                 -----     -----


Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the 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 August 12, 2004 is 11,581,780.


<PAGE>


ITEM 1.  Financial Statements

                        PART I  FINANCIAL INFORMATION

                         IGI, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS
           (in thousands, except share and per share information)
                                 (Unaudited)

<TABLE>
<CAPTION>

                                                       Three months ended June 30,     Six months ended June 30,
                                                       ---------------------------     -------------------------
                                                           2004           2003            2004           2003
                                                           ----           ----            ----           ----
                                                                       (restated)                     (restated)


                                                     <c>            <c>             <c>            <c>
Revenues:
  Product sales, net                                    $      785     $      718      $    1,640     $    1,523
  Licensing and royalty income                                 413            126             545            329
                                                        ----------     ----------      ----------     ----------
      Total revenues                                         1,198            844      $    2,185     $    1,852

Cost and expenses:
  Cost of sales                                                336            355             685            685
  Selling, general and administrative expenses                 657            852           1,086          1,352
  Product development and research expenses                  1,051            157           1,263            303
                                                        ----------     ----------      ----------     ----------
Operating loss                                                (846)          (520)           (849)          (488)
Interest income (expense)                                        6              2              15              8

Loss from continuing operations before
 provision for income taxes                                   (840)          (518)           (834)          (480)
Provision for income taxes                                       2              -               4              2
                                                        ----------     ----------      ----------     ----------

Loss from continuing operations                               (842)          (518)           (838)          (482)
                                                        ----------     ----------      ----------     ----------

Discontinued operations:
  Gain on disposal of discontinued business                      -            169               -            169
                                                        ----------     ----------      ----------     ----------
Net income (loss)                                             (842)          (349)           (838)          (313)

Net income (loss) attributable to common stock          $     (842)    $     (349)     $     (838)    $     (313)
                                                        ==========     ==========      ==========     ==========


Basic and Diluted Earnings (Loss) Per Common Share
  Continuing operations                                 $     (.07)    $     (.05)     $     (.07)    $     (.04)
  Discontinued operations                                        -            .02               -            .01
                                                        ----------     ----------      ----------     ----------
  Net income (loss) per share                           $     (.07)    $     (.03)     $     (.07)    $     (.03)
                                                        ==========     ==========      ==========     ==========

Weighted Average of Common Stock and
 Common Stock Equivalents Outstanding
  Basic and diluted                                     11,579,582     11,400,449      11,513,417     11,392,063
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.


<PAGE>  2


                         IGI, INC. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS
           (in thousands, except share and per share information)

<TABLE>
<CAPTION>

                                                                 June 30, 2004
                                                                  (unaudited)      December 31, 2003
                                                                 -------------     -----------------


                                                                <c>                 <c>
ASSETS
Current assets:
  Cash and cash equivalents                                        $    600            $    821
  Restricted cash                                                        50                  50
  Marketable securities                                                 896                 800
  Accounts receivable, less allowance for doubtful accounts
   of $10 and $16 in 2004 and 2003, respectively                        366                 350
  Licensing and royalty income receivable                                 -                  17
  Inventories                                                           191                 192
  Prepaid expenses and other current assets                             130                 133
                                                                   --------            --------
      Total current assets                                            2,233               2,363
Property, plant and equipment, net                                    2,663               2,607
Other assets                                                             47                  54
                                                                   --------            --------
      Total assets                                                 $  4,943            $  5,024
                                                                   ========            ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                       82                 105
  Accrued payroll                                                        98                  75
  Other accrued expenses                                                358                 301
  Income taxes payable                                                    7                   7
  Deferred income                                                       153                 165
                                                                   --------            --------
      Total current liabilities                                         698                 653
Deferred income                                                         138                 205
                                                                   --------            --------
      Total liabilities                                                 836                 858
                                                                   --------            --------

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                                  8                   -
  Additional paid-in capital                                         24,471              23,702
  Accumulated deficit                                               (19,113)            (18,275)
Less treasury stock, 1,965,740 shares at cost
 in 2004 and 2003                                                    (1,395)             (1,395)
                                                                   --------            --------
      Total stockholders' equity                                      4,107               4,166
                                                                   --------            --------
      Total liabilities and stockholders' equity                   $  4,943            $  5,024
                                                                   ========            ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.


<PAGE>  3


                         IGI, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (in thousands)
                                 (Unaudited)

<TABLE>
<CAPTION>

                                                              Six months ended June 30,
                                                              -------------------------
                                                                 2004         2003
                                                                 ----         ----
                                                                           (restated)


                                                             <c>         <c>
Cash flows from operating activities:
  Net income (loss)                                             $(838)      $ (313)
  Reconciliation of net income (loss) to net cash used
   in operating activities:
    Gain on disposal of discontinued operations                     -         (169)
    Depreciation and amortization                                 140          128
    Provision for accounts receivable and inventories               -            7
    Recognition of deferred income                                (79)         (67)
    Stock-based compensation expense:
    Directors' stock issuance                                       -           26
    Non-employee stock options                                    548            -
  Changes in operating assets and liabilities:
    Accounts receivable                                           (10)          51
    Inventories                                                    (5)          14
    Receivables under royalty agreements                           17           62
    Prepaid expenses and other assets                               3           (7)
    Accounts payable and accrued expenses                          57          (70)
    Income taxes payable                                            -           (6)
    Discontinued operations - working capital changes and
     non-cash charges                                               -           (6)
                                                                -----       ------

      Net cash used in operating activities                      (167)        (350)
                                                                -----       ------

  Cash flows from investing activities:
    Capital expenditures                                         (189)         (45)
    Purchase of available for sale securities                     (88)           -
    Decrease (increase) in other assets                             -            1
                                                                -----       ------
      Net cash provided by (used in) investing activities        (277)         (44)
                                                                -----       ------

  Cash flows from financing activities:
    Borrowings from EDA loan                                        -           11
    Repayments of EDA loan                                          -           (9)
    Proceeds from exercise of common stock options and
     purchase of common stock                                     223            4
    Purchase of treasury shares                                     -          (39)
                                                                -----       ------
      Net cash provided by (used in) financing activities         223          (33)
                                                                -----       ------

  Net increase (decrease) in cash and equivalents                (221)        (427)
  Cash and equivalents at beginning of period                     821        1,999
                                                                -----       ------
  Cash and equivalents at end of period                         $ 600       $1,572
                                                                =====       ======
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.


<PAGE>  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 $498,000 or 63% of
revenues for the second quarter of 2004 and $397,000 or 55% of revenues for
the second quarter of 2003. The Company is renegotiating 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
$221,000 of the above revenues in 2004, is scheduled to terminate 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 has 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 June 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 June 30, 2004 consist of an investment in a short
term bond mutual fund and 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 amortized cost, gross unrealized gains and losses and fair value of the
available-for-sale marketable securities as of June 30, 2004 are as follows
(amounts in thousands):

<TABLE>
<CAPTION>

                                                Gross          Gross
                                Amortized     Unrealized     Unrealized     Fair
                                  Cost          Gains          Losses       Value
                                ---------     ----------     ----------     -----


                               <c>            <c>            <c>         <c>
2004
Mutual Funds                      $800           $ -            $ 9         $791
Securities                          87            18              -          105
                                  ----           ---            ---         ----
Total Marketable Securities       $887           $18            $ 9         $896
</TABLE>

There were no sales of available-for-sale marketable securities during the
six months ended June 30, 2004 or 2003.


<PAGE>  5


                         IGI, INC. AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           (Unaudited), Continued

3.  Inventories

Inventories are valued at the lower of cost, using the first-in, first-out
("FIFO") method, or market.   Inventories at June 30, 2004 and December 31,
2003 consist of:

<TABLE>
<CAPTION>

                   June 30, 2004     December 31, 2003
                   -------------     -----------------
                         (amounts in thousands)


                    <c>                 <c>
Finished goods         $ 48                $ 15
Raw materials           143                 177
                       ----                ----
Total                  $191                $192
                       ====                ====
</TABLE>

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:

<TABLE>
<CAPTION>

                                          Six months ended June 30,
                                               2004       2003
                                               ----       ----
                                          (in thousands, except per
                                             share information)


                                           <c>        <c>
Net income (loss) - as reported               $(838)     $(313)
Deduct: Total stock-based employee
 compensation expense determined
 under the fair-value based method              (91)       (15)
                                              -----      -----
Net income (loss) - pro forma                 $(929)     $(328)
                                              =====      =====
Income (loss) per share - as reported
  Basic and diluted                           $(.08)     $(.03)
                                              =====      =====
Income (loss) per share - pro forma
  Basic and diluted                           $(.08)     $(.03)
                                              =====      =====
</TABLE>

The Company recorded a $548,000 expense related to non employee stock based
compensation for the six   months ended June 30, 2004.

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.


<PAGE>  6


                         IGI, INC. AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           (Unaudited), Continued

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 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 June 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.


<PAGE>  7


                         IGI, INC. AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           (Unaudited), Continued

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.

On July 8, 2004, Novavox filed a motion for summary judgment on all claims
asserted under Gallo's First Amended Complaint (referred to as "the SJ
Motion"). As of the filing date hereof, the SJ Motion is pending subject to
filing of Gallo's opposition and any reply thereto by Novavax. The court
has not yet scheduled a hearing date for the SJ Motion. In the event the
court denies the SJ Motion, the Company believes that there is a
substantial likelihood that Novavax will re-file its Third Party Complaint
against IGI for which coverage was previously denied by its insurance
carriers.

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.

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. As of August 12,
2004, Dr. Holick has not 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.


<PAGE>  8


                         IGI, INC. AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           (Unaudited), Continued

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 $180,000 has been paid to UCT to date as a
down payment 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 will also be required to hire at least one
new employee to oversee the facility operations at an estimated cost 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.

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 will be required to make
nonrefundable payments of $25,000 upon the execution of this agreement and
$25,000 on October 1, 2004.  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.


<PAGE>  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 qtr 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

On April 19, 2004, IGI signed a sublicense agreement with a third party
entity, Tarpan Therapeutics, 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. This
amount was expensed in the second quarter of 2004, because the technologies
are in a preliminary development stage and do not have any readily
determinable alternative future use. Further, over the course of the
sublicense, milestone payments will be made to IGI as certain stages of
development are reached, and royalty payments will be paid to IGI on sales
of all sublicensed products that go to market. Certain subsequent royalty
payments received by the Company under the sublicense agreement will be
shared with Dr. Holick after the Company has recovered any payments
previously made to Dr. Holick under the License Agreement and an amount
equal to the value of the options received by Dr. Holick under the License
Agreement. The Company is also negotiating with the same third party for the
potential sublicensing of the PTH (7-34) technology under a similar term
structure.  Upon the signing of this agreement, stock options granted to Dr.
Holick became fully vested and an expense of $520,000 was recorded in
product development and research during the second quarter of 2004.  This
amount represented the value of the options using the Black Sholes model on
April 19, 2004.

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 near future. 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.

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 $180,000 has been paid to UCT to date as a
down payment 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 will also be required to hire at least one
new employee to oversee the facility operations at a estimated cost 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.

On June 30, 2004, IGI ended the employment agreement with Domenic N. Golato,
Chief Financial Officer.  Mr. Golato received a severance agreement and the
corresponding expense of $203,000 is reflected in selling, general and
administrative expenses on the consolidated statements of operations.


<PAGE>  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 June 30, 2004 compared to June 30, 2003

The Company had net loss of $842,000, or ($.07) per share, for the quarter
ended June 30, 2004 compared to net loss of $349,000, or ($.03) per share,
for the quarter ended June 30, 2003.

Total revenues for the quarter ended June 30, 2004 were $1,198,000, compared
to $844,000 for the quarter ended June 30, 2003, or a $354,000 increase. The
increase is primarily due to $300,000 of royalty income from Tarpan
Therapeutics, Inc. and by higher product sales to new customers.

As a percentage of product sales, cost of sales was 43% for the quarter
ended June 30, 2004 and 49% for the quarter ended June 30, 2003.

Selling, general and administrative expenses decreased $195,000, or 23%,
from $852,000 in the quarter ended June 30, 2003. As a percentage of
revenues, these expenses were 101% of revenues in the second quarter of 2003
compared to 55% 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 $894,000, or 569%,
compared to the quarter ended June 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.  In addition, new projects are being
worked on for existing and potential new customers and there are additional
personnel.

Interest income increased from $2,000 in the quarter ended June 30, 2003 to
$6,000 in the quarter ended June 30, 2004.

Six months ended June 30, 2003 compared to June 30, 2002

The Company had a net loss attributable to common stock of $838,000, or
($.07) per share, for the six months ended June 30, 2004 compared to net
loss attributable to common stock of $313,000, or ($.03) per share, for the
six months ended June 30, 2003.

Total revenues for the six months ended June 30, 2004 were $2,185,000, which
represents an increase of $333,000, or 18%, from revenues of $1,852,000 for
the six months ended June 30, 2003. The increase in revenues was primarily
due to increase in product sales to Estee Lauder, new customers and royalty
income from Tarpan Therapeutics, Inc.

Cost of sales, as a percent of product sales, decreased from 45% for the six
months ended June 30, 2003 to 42% for the six months ended June 30, 2004.
The decrease resulted from a change in mix of higher profit products.

Selling, general and administrative expenses decreased $266,000, or 20%,
from $1,352,000 for the six months ended June 30, 2003.  As a percent of
revenues, these expenses were 73% of revenues for the first six months of
2003 compared to 50% for the first six months of 2004.  The decrease is
primarily due to a decline in salary and travel expenses from the
disposition of three positions within the company during 2004.

Product development and research expenses increased $960,000, or 317%,
compared to the six months ended June 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.  In addition, new projects are being
worked on for existing and potential new customers and there are additional
personnel.


<PAGE>  11


                         IGI, INC. AND SUBSIDIARIES

ITEM 2.  Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)

Interest income increased $7,000 compared to the six months ended June 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 $167,000 of cash during the six
months ended June 30, 2004 compared to $350,000 used in the comparable
period of 2003. Payments for professional fees and payments made to Dr.
Holick in accordance with license agreement, offset by lower salaries were
the primary uses of cash in 2004.

The Company used $276,000 of cash in the six months ended June 30, 2004 for
investing activities compared to $44,000 used in investing activities in the
first six months of 2003. The $180,000 represents a down payment to
Universal Chemical Technologies, Inc. ("UCT") to purchase machinery and
equipment related to the electroless nickel boride finishing operations that
will be set up in the Company's Buena facility, while 2003's investing
activities were for the purchase of computers and machinery and equipment.

The Company's financing activities provided $223,000 of cash in the six
months ended June 30, 2004 compared to $33,000 utilized by financing
activities in the first quarter of 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. 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. In addition, two shareholders of the
Company have agreed to loan the Company up to $500,000 each, if necessary,
to fund the Company's deficit through June 30, 2005. 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 10Q.

Factors Which May Affect Future Results

The industry segments in which the Company competes are subject to intense
competitive pressures.  The following sets forth some of the risks which the
Company faces.

Intense Competition in Consumer Products Business
-------------------------------------------------

The Company's Consumer Products business competes with large, well-financed
cosmetics and consumer products companies with development and marketing
groups that are experienced in the industry and possess far greater
resources than those available to the Company.  There is no assurance that
the Company's consumer products can compete successfully against its
competitors or that it can develop and market new products that will be
favorably received in the marketplace.  In addition, certain of the
Company's customers that use the Company's Novasome(R) lipid vesicles in
their products may decide to reduce their purchases from the Company or
shift their business to other suppliers.

Effect of Rapidly Changing Technologies
---------------------------------------

The Company expects to sublicense its technologies to third parties, which
would manufacture and market products incorporating the technologies.
However, if its competitors develop new and improved technologies that are
superior to the Company's technologies, its technologies could be less
acceptable in the marketplace and therefore the Company's planned technology
sublicensing could be materially adversely affected.


<PAGE>  12


                         IGI, INC. AND SUBSIDIARIES

ITEM 2.  Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)

Revision of Current Contract with Estee Lauder
----------------------------------------------

Currently, the Company manufactures 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 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 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 June 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.


<PAGE>  13


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 derivative instruments in its marketable securities
portfolio. 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 Chief
Financial Officer, 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 Chief Financial Officer 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 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.


<PAGE>  14


                         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.


<PAGE>  15


                         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.

On July 8, 2004, Novavox filed a motion for summary judgment on all claims
asserted under Gallo's First Amended Complaint (referred to as "the SJ
Motion"). As of the filing date hereof, the SJ Motion is pending subject to
filing of Gallo's opposition and any reply thereto by Novavax. The court
has not yet scheduled a hearing date for the SJ Motion. In the event the
court denies the SJ Motion, the Company believes that there is a
substantial likelihood that Novavax will re-file its Third Party Complaint
against IGI for which coverage was previously denied by its insurance
carriers.

ITEM 2.  Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities

      None.

ITEM 3.  Defaults Upon Senior Securities

      None.

ITEM 4.  Submission of Matters to a Vote of Security Holders

      None.

ITEM 5.  Other Information

      None.


<PAGE>  16


                         IGI, INC. AND SUBSIDIARIES
                    PART II  OTHER INFORMATION, Continued

ITEM 6.  Exhibits and Reports on Form 8-K

      (a)   Exhibits

            10.110  Severance agreement between IGI, Inc and Domenic N
                    Golato, Chief Financial Officer dated June 30, 2004

            10.111  Sublicense Agreement between IGI, Inc. and University of
                    Massachusetts dated July 27, 2004.

            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 Controller 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 Controller 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 May 21, 2004, on which Item 4 was completed to
            announce the resignation of the Company's principal
            independent accountants, KPMG LLP.

            Form 8-K filed June 22, 2004, on which Item 4 was completed to
            announce the engagement of Amper, Politziner & Mattia, PC, as
            the Company's new principal independent accountants.


<PAGE>  17


                         IGI, INC. AND SUBSIDIARIES

                                 SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                       IGI, Inc.
                                       (Registrant)



Date:  August 12, 2004            By:  /s/ Frank Gerardi
                                       -----------------
                                       Frank Gerardi
                                       Chairman and Chief Executive Officer

Date:  August 12, 2004            By:  /s/ Carlene Lloyd
                                       -----------------
                                       Carlene Lloyd
                                       Controller


<PAGE>  18