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, 1999                                            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.)

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

                                 (609)-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 |_|

The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:

                  Common Shares Outstanding at August 10, 1999

                                    9,585,645
<PAGE>

                         PART 1 - FINANCIAL INFORMATION

Item 1 - Financial Statements

                           IGI, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
(thousands, except share and per share information)        Three months ended June 30,    Six months ended June 30,
                                                           ---------------------------    --------------------------
                                                               1999           1998           1999           1998
                                                               ----           ----           ----           ----
<S>                                                         <C>            <C>            <C>            <C>
Revenues:
     Sales, net                                             $     8,504    $     7,604    $    16,832    $    15,738
     Licensing and royalty income                                   358            121            773            203
                                                            -----------    -----------    -----------    -----------
         Total revenues                                           8,862          7,725         17,605         15,941

Cost and expenses:
     Cost of sales                                                4,335          4,411          8,780          8,450
     Selling, general and administrative expenses                 3,553          4,170          7,168          7,728
     Product development and research expenses                      320            378            636            703
                                                            -----------    -----------    -----------    -----------
Operating profit (loss)                                             654         (1,234)         1,021           (940)
Interest expense, net                                               843            929          1,665          1,540
                                                            -----------    -----------    -----------    -----------

Loss before provision for income taxes                             (189)        (2,163)          (644)        (2,480)
Benefit for income taxes                                             57            779            193            893
                                                            -----------    -----------    -----------    -----------

Net loss                                                    $      (132)   $    (1,384)   $      (451)   $    (1,587)
                                                            ===========    ===========    ===========    ===========

Basic and diluted net loss per common share                 $      (.02)   $      (.15)   $      (.05)   $      (.17)

Basic and diluted weighted average number of
     common shares outstanding                                9,550,191      9,466,667      9,534,883      9,466,667
</TABLE>

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


                                                                               2
<PAGE>

                           IGI, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                               June 30, 1999     December 31, 1998
                                                                               -------------     -----------------
ASSETS                                                                             (amounts in thousands)
<S>                                                                               <C>                <C>
Current assets:
     Cash and equivalents                                                         $    859           $  1,068
     Accounts receivable, less allowance for doubtful accounts
          of $713 and $516, in 1999 and 1998, respectively                           6,321              6,462
     Licensing and royalty receivable                                                  533                440
     Inventories, net                                                                7,631              7,406
     Current deferred taxes, net                                                     1,275              1,275
     Prepaid and other current assets                                                  614                433
                                                                                  --------           --------
          Total current assets                                                      17,233             17,084
Investments                                                                            535                535
Property, plant and equipment, net                                                   9,519              9,479
Deferred income taxes                                                                4,382              4,188
Other assets                                                                           832                770
                                                                                  --------           --------
          Total Assets                                                            $ 32,501           $ 32,056
                                                                                  ========           ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Credit line                                                                  $ 12,000           $ 12,000
     Revolving credit facility                                                       6,657              6,657
     Current portion of notes payable                                                  739                661
     Accounts payable                                                                3,042              3,235
     Accrued payroll                                                                   669                196
     Due to stockholder                                                                610                380
     Accrued interest                                                                  813                432
     Other accrued expenses                                                          1,565              1,614
     Income taxes payable                                                               16                 16
                                                                                  --------           --------
          Total current liabilities                                                 26,111             25,191
Notes payable                                                                          208                408
Deferred income                                                                        514                534
                                                                                  --------           --------
          Total Liabilities                                                         26,833             26,133
                                                                                  --------           --------

Commitments and contingencies

Stockholders' equity:
     Preferred stock $.01 par value, 1,000,000  and 0 shares
          authorized in 1999 and 1998, respectively                                     --                 --
     Common stock $.01 par value, 50,000,000 and 30,000,000 shares
          authorized in 1999 and 1998, respectively; 9,691,155 and 9,648,931
          shares issued in 1999 and 1998, respectively                                  97                 97

     Additional paid-in capital                                                     19,635             19,961
     Accumulated deficit                                                           (12,423)           (11,972)
                                                                                  --------           --------
                                                                                     7,309              8,086
Less treasury stock, 105,510 and 136,014 shares at cost in
          1999 and 1998, respectively                                               (1,641)            (2,163)
                                                                                  --------           --------
      Total stockholders' equity                                                     5,668              5,923
                                                                                  --------           --------
         Total Liabilities and Stockholders' Equity                               $ 32,501           $ 32,056
                                                                                  ========           ========
</TABLE>

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


                                                                               3
<PAGE>

                           IGI, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                   Six months ended June 30,
                                                                                   -------------------------
                                                                                    1999              1998
                                                                                    ----              ----
                                                                                     (amounts in thousands)
<S>                                                                                <C>               <C>
Cash flows from operating activities:
     Net loss                                                                      $  (451)          $(1,587)
     Reconciliation of net loss to net cash used by operating activities:
          Depreciation and amortization                                                474               440
          Write-off of other assets                                                     70                --
          Provision for loss on accounts receivable and inventories                    231               667
          Recognition of deferred revenue                                              (70)               --
          Deferred income taxes                                                       (194)             (893)
          Stock compensation expense:
               Non-employee stock options                                               44                19
               Warrants issued to lenders                                              168               318
     Changes in operating assets and liabilities:
          Accounts receivable                                                         (125)             (475)
          Inventories                                                                 (259)              707
          Receivable under royalty agreements                                          (43)               --
          Prepaid and other assets                                                      41               462
          Accounts payable and accrued expenses                                        826               993
          Deferred revenue                                                              --               (23)
          Short term notes payable, operating                                         (275)               --
                                                                                   -------           -------

               Net cash provided by operating activities:                              437               628
                                                                                   -------           -------

Cash flows from investing activities:
     Capital expenditures                                                             (461)             (262)
     Proceeds from sale of assets                                                       --                24
     Decrease in other assets                                                         (185)             (182)
                                                                                   -------           -------
               Net cash (used by) investing activities                                (646)             (420)
                                                                                   -------           -------

Cash flows from financing activities:
     Net borrowing under line of credit agreements                                      --              (200)
     Repayments of debt                                                                 --               (36)
                                                                                   -------           -------
               Net cash (used by) financing activities                                  --              (236)
                                                                                   -------           -------

Net decrease in cash and equivalents                                                  (209)              (28)
Cash and equivalents at beginning of year                                            1,068             1,196
                                                                                   -------           -------
Cash and equivalents at June 30, 1999 and 1998                                     $   859           $ 1,168
                                                                                   =======           =======
</TABLE>

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


                                                                               4
<PAGE>

                           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 statement of
      the results for the interim periods presented. All such adjustments are of
      a normal recurring nature. Certain previously reported amounts have been
      reclassified to conform with the current period presentation.

      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 such rules and
      regulations of the SEC, although the Company believes the disclosures are
      adequate to make the information presented not misleading. These financial
      statements should be read in conjunction with the financial statements and
      the notes thereto included in the Company's Annual Report on Form 10-K for
      the year ended December 31, 1998 and filed with the SEC on April 12, 1999
      (the "1998 10-K Annual Report").

2.    Financing Needs

      At June 30, 1999, the Company had cash and cash equivalent balances of
      $859,000, and no available borrowing capacity under its Credit Line or its
      Revolving Facility. The Company is currently generating losses that are
      expected to extend through much of 1999. The Company has significant debt
      that it must repay on August 31, 1999, November 30, 1999 and March 31,
      2000. The Company is pursuing additional debt and equity financing
      alternatives in order to repay these debt obligations. For a more complete
      description of the Company's financing needs, see "Management's Discussion
      and Analysis of Financial Condition and Results of Operations-Liquidity
      and Capital Resources" contained in this quarterly report.

3.    Net Loss Per Common 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 stock
      outstanding during the period. Potential dilutive common stock includes
      shares issuable upon the exercise of common stock options and warrants.
      The effect of the Company's potential dilutive common stock was
      anti-dilutive for the three and six months ended June 30, 1999 and 1998;
      as a result, basic and dilutive weighted average number of common shares
      outstanding and net loss per common share is the same.

4.    Inventories

      Inventories are valued at the lower of cost, using the first-in, first-out
      ("FIFO") method, or market. During the fourth quarter of 1998, the Company
      changed its method of determining the cost of inventories from the
      last-in, first-out ("LIFO") method to the FIFO method. The change was made
      because the Company believes its financial position is the primary concern
      of its constituents (shareholders, bank lenders, trade creditors, etc.)
      and the accounting change will reflect inventory at a value which better
      represents current costs. As required by generally accepted accounting
      principles, the Company retroactively restated prior years' financial
      statements for this change in the fourth quarter of 1998. The aggregate
      effect of this restatement was a decrease in stockholders' equity of
      $294,000 as of December 31, 1997. The restatement had no effect on 1998
      results and decreased the net loss in 1997 by $245,000.


                                                                               5
<PAGE>

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

      Inventories at June 30, 1999 and December 31, 1998 consist of:

      (amounts in thousands)      June 30, 1999          December 31, 1998
                                  -------------          -----------------
      Finished goods                 $2,911                    $2,785
      Work-in-process                 2,319                     2,210
      Raw materials                   2,401                     2,411
                                     ------                    ------
      Total                          $7,631                    $7,406
                                     ======                    ======

5.    Debt

      Effective January 31, 1999, the Company and its bank lenders entered into
      a Second Extension Agreement which provided for a waiver of the covenant
      defaults under the Forbearance Agreement, amendment of certain covenants
      and, extension of the bank credit agreement to March 31, 2000. In
      connection with the Second Extension Agreement, on March 11, 1999, the
      Company issued warrants to the bank lenders to purchase 270,000 shares of
      the Company's Common Stock at an exercise price of $2.00 per share. These
      warrants are exercisable at any time 60 days after issuance. The Company
      also issued warrants to purchase an additional 270,000 shares of the
      Company's Common Stock exercisable at $2.00 per share, if the bank debt is
      still outstanding at September 30, 1999. The warrants expire on the fifth
      anniversary of issuance. The Company has a call option on unexercised
      warrants at a repurchase price of $1,800,000. The Company will recognize a
      non-cash expense for each issuance of warrants of approximately $195,000,
      or a total of about $390,000 to be amortized over the life of the
      extension agreement. For a more complete description of the Company's debt
      and the issuance of warrants in connection with the Second Extension
      Agreement, see "Management's Discussion and Analysis of Financial
      Condition and Results of Operations - Liquidity and Capital Resources"
      contained in this quarterly report.

6.    Legal Proceedings

      There were no material developments in the legal matters previously
      reported in the 1998 10-K Annual Report.

      On April 14, 1999, a lawsuit was filed in the U.S. District Court for the
      Southern District of New York by Cohanzick Partners, LP, against IGI,
      Inc., and certain of its present and former directors, officers and
      employees. The suit, which has not been served on any Company defendants,
      seeks approximately $420,000 in actual damages together with fees, costs
      and interest, alleges violations of the securities laws, fraud, and
      negligent misrepresentation concerning certain disclosures made and other
      actions taken by the Company in 1996 and 1997.

      The Company believes that the plaintiff's allegations are factually
      incorrect and legally inadequate and will defend the lawsuit vigorously.
      While the lawsuit is at a very preliminary stage and no discovery has
      taken place, the Company believes that an unfavorable outcome in the suit
      would not have a material adverse impact upon the Company's financial
      condition, although it could negatively affect the results of operations
      for the period in which the matter is resolved.

7.    Business Segments

      The Company adopted Statement of Financial Accounting Standards No. 131,
      "Disclosures About Segments of an Enterprise and Related Information," in
      1998 which affects the way the Company reports information about its
      operating segments. The Company elected to change reportable segments from
      two segments (Animal Health Products and Consumer Products) into three
      segments (Poultry Vaccines, Companion Pet Products and Consumer Products).
      The principal reasons for the change are that products from each of the
      Company's segments serve different markets, use different channels of
      distribution, and have two different forms of government oversight. The
      Company elected to change the reporting of its business segments as of
      January 1, 1998.


                                                                               6
<PAGE>

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

      Summary data related to the Company's reportable segments for the three
      and six month periods ended June 30, 1999 and 1998 appear below:

<TABLE>
<CAPTION>
                                           Poultry           Companion        Consumer
                                           Vaccines         Pet Products      Products       Corporate *      Consolidated
                                           --------         ------------      --------       -----------      ------------
                                                                          (in thousands)
      <S>                                   <C>              <C>                <C>            <C>              <C>
      Three months ended June 30:
      1999
      ----
      Revenues                              $ 3,261          $3,608             $1,993         $    --          $  8,862
      Operating profit (loss)                  (287)          1,161              1,155          (1,375)              654

      1998
      ----
      Revenues                              $ 3,673          $2,916             $1,136         $    --          $  7,725
      Operating profit (loss)                  (234)            622                196          (1,818)           (1,234)

      Six months ended June 30:
      1999
      ----
      Revenues                              $ 7,127          $6,927             $3,551         $    --          $ 17,605
      Operating profit (loss)                  (414)          2,170              2,005          (2,740)            1,021

      1998
      ----
      Revenues                              $ 7,780          $6,111             $2,050         $    --          $ 15,941
      Operating profit (loss)                   402           1,452                580          (3,374)             (940)
</TABLE>

      *     Notes:

            (A)   Unallocated corporate expenses are principally general and
                  administrative expenses.
            (B)   Transactions between reportable segments are not material.

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

      This information should be read in conjunction with the unaudited
      consolidated financial statements and the notes thereto included in Item 1
      of this Quarterly Report and the audited consolidated financial statements
      and notes thereto and Management's Discussion and Analysis of Financial
      Condition and Results of Operations for the fiscal year ended December 31,
      1998, contained in the Company's 1998 10-K Annual Report.

      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 1998
      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 1998 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 data 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.


                                                                               7
<PAGE>

                           IGI, INC. AND SUBSIDIARIES

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

Results Of Operations

Settlement of U.S. Regulatory Proceedings

      The Company has substantially resolved the legal and regulatory issues
      that arose in 1997 and 1998. From mid-1997 through most of 1998, the
      Company was subjected to intense governmental and regulatory scrutiny and
      was also confronted with a number of material operational issues, as
      previously reported in Item 3. "Legal Proceedings" in the 1998 10-K Annual
      Report. These matters had a material adverse effect on the Company's
      financial condition and results of operations in 1998 and 1997, and
      resulted in the departure of most of the Company's senior management.

      On March 24, 1999, the Company reached settlement with the Departments of
      Justice, Treasury and Agriculture regarding their pending investigations.
      Part of the settlement is subject to court approval, which the Company
      believes will be obtained in due course. The terms of the settlement
      agreement provide that the Company will enter a plea of guilty to a
      misdemeanor and will pay a fine of $15,000 and restitution in the amount
      of $10,000. In addition, beginning January 2000, the Company will make
      monthly payments to the Treasury Department through the period ending
      October 31, 2001 in the total amount of $225,000. The expense of settling
      with these agencies was reflected in the 1998 results of operations. The
      settlement does not affect the informal inquiry being conducted by the
      Securities and Exchange Commission ("SEC"), nor does it affect possible
      governmental action against former employees of the Company. Management
      does not expect that the SEC informal inquiry will have a material adverse
      effect on the financial position, cash flow or operations of the Company.

Three months ended June 30, 1999 compared to June 30, 1998

      The Company had a net loss of $132,000, or $0.02 per share, for the three
      months ended June 30, 1999 as compared to net loss of $1,384,000, or $0.15
      per share, for the second quarter ended June 30, 1998. The principal
      reasons for the reduction in the loss from last year were higher sales and
      gross margin coupled with lower operating costs and lower interest
      expense.

      Total revenues for the quarter ended June 30, 1999 were $8,862,000, which
      represents an increase of $1,137,000, or 15%, from revenues of $7,725,000
      for the quarter ended June 30, 1998. Consumer Products revenues increased
      $857,000, or 75%, for the second quarter of 1999 due primarily to royalty
      income under the licensing and supply agreements and sales to Estee
      Lauder. Companion Pet Products increased $692,000 or 24% over the
      comparable quarter in 1998, primarily due to new product launches
      amounting to nearly $250,000 and increased international sales of about
      $200,000 in the second quarter 1999 over the comparable period in 1998.
      These increases were partially offset by decreased poultry vaccine sales
      of $412,000 or 12% from the second quarter of 1998 related to the
      refinement of manufacturing process to increase production efficiency and
      capacity.

      Cost of sales decreased by $76,000, or 2%, from the quarter ended June 30,
      1998 due principally to improved efficiencies in the vaccine business
      manufacturing processes and lower vaccine sales in the second quarter 1999
      as compared to the comparable period in 1998. As a percentage of revenues,
      cost of sales decreased from 57% in the quarter ended June 30, 1998 to 49%
      in the quarter ended June 30, 1999. This decrease primarily resulted from
      the lowering of costs due to the Company's refinement of product
      manufacturing processes and formulas to increase production efficiency and
      capacity in the Company's Vineland Laboratories vaccine division.


                                                                               8
<PAGE>

                           IGI, INC. AND SUBSIDIARIES

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

      Selling, general and administrative expenses decreased by $617,000, or
      15%, from $4,170,000 in the quarter ended June 30, 1998 to $3,553,000 in
      the quarter ended June 30, 1999. As a percentage of revenues, these
      expenses were 40% of revenues for the quarter ended June 30, 1999 compared
      to 54% in the quarter ended June 30, 1998. Selling and marketing expenses
      decreased by $161,000 compared to the same period last year principally
      related to lower vaccine selling expenses due to the lower vaccine sales.
      General and administrative expenses decreased by $456,000 compared to the
      second quarter 1998 principally due to a decrease from the second quarter
      1998 in expenditures for professional fees of $806,000 primarily related
      to the legal, audit and consulting expenses that were incurred in the
      second quarter 1998 in connection with the Company's internal and
      governmental investigations.

      Product development and research expenses decreased by $58,000, or 15%,
      compared to the quarter ended June 30, 1998. The decrease is principally
      related to the timing of expenditures.

      Net interest expense decreased $86,000, or 9%, from $929,000 in the
      quarter ended June 30, 1998 to $843,000 in the quarter ended June 30,
      1999, due principally to lower bank fees in the second quarter of 1999.

Six months ended June 30, 1999 compared to June 30, 1998

      The Company had a net loss of $451,000 or $0.05 per share, for the six
      months ended June 30, 1999 as compared to a net loss of $1,587,000 or
      $0.17 per share, for the six months ended June 30, 1998. The principal
      factors contributing to the decreased loss in 1999 were higher sales
      coupled with lower operating costs offset somewhat by higher interest
      expense in the first quarter of 1999.

      Total revenues for the six months ended June 30, 1999 were $17,605,000,
      which represents an increase of $1,664,000, or 10%, from revenues of
      $15,941,000 for the six months ended June 30, 1998. Consumer Products
      revenues increased $1,501,000, or 73%, for the second quarter of 1999 due
      primarily to an increase of $570,000 in license and royalty income in 1999
      over 1998 and an increase in revenues from Estee Lauder. Companion Pet
      Products increased $816,000 or 13% over the comparable period in 1998,
      primarily due to increased international sales of $380,000 for the six
      months ended in June 1999 over the comparable period in 1998 and the
      launch of new products which generated $470,000 in additional revenue.
      These increases were partially offset by decreased poultry vaccine sales
      of $653,000 or 8% from the six months ended in June 1998. Revenues of
      approximately $1,200,000 from poultry vaccine sales for the six months
      ended June 1998 were attributable principally to orders received in prior
      periods that were not released for shipment until the first quarter of
      1998 when the United States Department of Agriculture ("USDA") imposed
      stop shipment order was lifted.

      Cost of sales increased by $330,000, or 4%, for the six months June 30,
      1999 due primarily to increased sales volume. However, as a percentage of
      revenues, cost of sales decreased from 53% for the six months ended June
      30, 1998 to 50% for the same period ended June 30, 1999. This decrease
      primarily resulted from decreased costs relating to the Company's
      refinement of product manufacturing processes and formulas to increase
      production efficiency and capacity in the Company's Vineland Laboratories
      vaccine division.

      Selling, general and administrative expenses decreased by $560,000, or 7%,
      from $7,728,000 for the six months ended June 30, 1998 to $7,168,000 for
      the same period in 1999. As a percentage of revenues, these expenses were
      41% of revenues for the six months ended June 30, 1999 compared to 48% for
      the same period ended in 1998. General and administrative expenses
      declined by $659,000 compared to the first half of 1998 principally due to
      a decrease in expenditures for professional fees of $1,218,000 primarily
      related to the legal, audit and consulting expenses that were incurred in
      the first half of 1998 in connection with the Company's internal and
      governmental investigations. Selling and marketing expenses increased by
      $99,000 compared to the same period last year.


                                                                               9
<PAGE>

                           IGI, INC. AND SUBSIDIARIES

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


      Product development and research expenses decreased by $67,000, or 10%,
      compared to the six months ended June 30, 1998 principally related to the
      timing of expenditures.

      Net interest expense increased $125,000, or 8%, from $1,540,000 for the
      six months ended June 30, 1998 to $1,665,000 for the six months ended June
      30, 1999, due to higher interest rates and additional bank fees in the
      first half of 1999.

Liquidity and Capital Resources

      On April 29, 1998, the Company entered into an Extension Agreement with
      its bank lenders which provided for a waiver of all past and existing
      covenant defaults, extension of the bank credit agreement through March
      31, 1999, a maximum credit line facility of $12,000,000 ("Credit Line"),
      extended terms for repayment of the outstanding $6,857,000 balance of
      revolving credit notes ("Revolving Facility") and issuance to the lenders
      of warrants to purchase an aggregate of 540,000 shares of the Company's
      Common Stock at an exercise price of $3.50 per share. The Company has a
      call option on unexercised warrants at a repurchase price of $1,800,000.
      The Company recognized a non-cash expense related to the issuance of these
      warrants of approximately $645,000 in 1998.

      On August 19, 1998, the Company and its bank lenders entered into a
      Forbearance Agreement whereby the banks agreed to forbear from exercising
      their rights and remedies arising from certain covenant defaults through
      January 31, 1999. During most of fiscal 1998 and the first half of 1999,
      the Company incurred interest expense at a rate of up to prime plus 5.5%
      on its outstanding borrowings under the Credit Line and under the
      Revolving Facility.

      Effective January 31, 1999, the Company and its bank lenders entered into
      a Second Extension Agreement which provides for a waiver of the covenant
      defaults under the Forbearance Agreement, amendment of certain covenants,
      extension of the bank credit agreement to March 31, 2000, and the
      following:

      o     The maximum availability under the Credit Line is subject to the
            determination of the amount of eligible accounts receivable and
            inventories. There was no remaining availability as of December 31,
            1998 or June 30, 1999.

      o     Mandatory principal payments of $4,000,000 and $2,000,000 of the
            outstanding balance of $18,657,000 at December 31, 1998, under the
            Revolving Facility and Credit Line are due on August 31, 1999 and
            November 30, 1999, respectively, with the balance due and payable on
            March 31, 2000.

      o     All of the Company's indebtedness to the banks is subject to a
            security interest in all of the assets of the Company and its
            significant subsidiaries. Although the Company can sell operating
            assets, proceeds from such sale must be remitted directly to the
            lenders.

      o     Interest on outstanding borrowings of $18,657,000 under both the
            Credit Line and the Revolving Facility will be at a rate of prime
            plus 5.5% of which prime plus 2.5% is paid monthly and 3.0% is
            accrued and payable on March 31, 2000.

      o     The interest rate on outstanding borrowings will be reduced by 0.5%
            after each of the mandatory principal payments. In addition, the
            interest rate will be reduced by an additional 1.5% for each
            $1,000,000 of voluntary principal payments, but not lower than prime
            plus 1.0%. A pro rata portion of the accrued interest will be waived
            for all principal payments occurring prior to December 31, 1999.


                                                                              10
<PAGE>

                           IGI, INC. AND SUBSIDIARIES

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

      o     On March 11, 1999, the Company issued warrants to the bank lenders
            to purchase 270,000 shares of the Company's Common Stock at an
            exercise price of $2.00 per share. These warrants are exercisable at
            any time 60 days after issuance. The Company also issued warrants to
            purchase an additional 270,000 shares of the Company's Common Stock
            exercisable at $2.00 per share if the bank debt is still outstanding
            at September 30, 1999. The warrants expire on the fifth anniversary
            of issuance. The Company has a call option on unexercised warrants
            at a repurchase price of $1,800,000. The Company will recognize a
            non-cash expense for each issuance of warrants for approximately
            $195,000, or a total of about $390,000 during 1999.

      o     The Company agreed to pay the bank lenders an extension fee of
            $350,000, which is being amortized over the life of the agreement.
            At the time of the extension, $50,000 was paid, with the balance
            payable in four installments through February 24, 2000. If the
            Company is able to refinance its bank debt, any extension fees due
            subsequent to the closing date of the refinancing will be waived.

      o     The Company is required to maintain certain minimum financial
            covenants and comply with other non-financial covenants, including
            remittance of cash flows from debt or equity financing, income tax
            refunds and fixed asset dispositions to the banks, and the
            completion of Year 2000 compliance by September 30, 1999. The
            agreement also prohibits the payment of cash dividends without prior
            written consent of the lenders.

      As of June 30, 1999, the Company was in compliance with all financial
      covenants and all other terms and requirements of the Second Extension
      Agreement.

      At June 30, 1999, the Company had cash and cash equivalent balances of
      $859,000, and no available borrowing capacity under the Credit Line or the
      Revolving Facility. The Company is currently generating losses that are
      expected to extend through much of 1999. Further, the Company has
      significant debt it must repay on August 31, 1999, November 30, 1999 and
      March 31, 2000.

      The Company is pursuing additional debt and equity financing alternatives
      to meet its debt repayment obligations. The Company has obtained from
      providers of additional capital certain debt and equity financing
      commitments and proposals and is currently negotiating such financing
      arrangements. The Company believes it can obtain such financing on
      acceptable terms and in a timely manner; however, there can be no
      assurances that the Company will be successful in finalizing these
      arrangements. If the Company is not successful in obtaining the required
      additional financing, it believes it has the ability and it plans to meet
      its 1999 debt repayment obligations by altering its business plans
      including, if necessary, a sale of selected Company operating and
      non-operating assets. Any sale of operating assets would involve a
      curtailment of certain of the Company's business operations and a
      modification of its business strategy. However, if the Company is unable
      to raise sufficient funds to repay or refinance the debt repayments on
      their scheduled due dates, the Company could be in default under its loan
      agreement and any such default could lead to the commencement of
      insolvency proceedings by its creditors.

      Accordingly, the Board of Directors of the Company has authorized
      management of the Company to seek additional equity capital through the
      sale of stock of the Company, either through a private sale to
      institutional or individual investors or through a rights offering to its
      stockholders. The Board has authorized an increase in the number of shares
      of Common Stock available and has authorized a class of preferred stock.

      The Company's operating activities provided $437,000 of cash during the
      first six months of 1999, which included net loss and non-cash charges to
      operations for depreciation, amortization, loss reserves, write-offs and
      stock and warrant compensation expense, partially offset by an increase in
      deferred tax assets. Also


                                                                              11
<PAGE>

                           IGI, INC. AND SUBSIDIARIES

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

      gross accounts receivable, inventory and prepaid and other current assets
      increased, while accounts payable and accrued expenses decreased, all of
      which had the effect of increasing operating cash flow.

      The Company used $646,000 during the six month period ended June 30, 1999
      for investing activities, which were primarily capital expenditures for
      the Company's manufacturing operations. Funding for the Company's
      operating and investing activities was provided by the Company's cash on
      hand at the beginning of the period.

Factors Which May Affect Future Results

      Highly Leveraged; Inability to Obtain Additional Funding

      The Company is currently very highly leveraged and has negative working
      capital, and therefore will need to obtain additional debt or equity
      capital to meet its business plan, short-term repayment obligations, and
      to maintain its competitive position. No assurance can be given that such
      funds will be obtained when required or, if obtainable, on terms that are
      favorable to the Company. See "Liquidity and Capital Resources" above.

      In April 1998, the banks agreed to a waiver of the covenant defaults and
      to extend the credit agreement on revised terms and conditions through
      March 31, 1999. Also, the Company was in default under certain covenants
      contained in its 1998 Extension Agreement at July 31, 1998. On August 19,
      1998, the Company and its bank lenders entered into a Forbearance
      Agreement whereby the banks agreed to forbear from exercising their rights
      and remedies arising from these covenant defaults through January 31,
      1999.

      Effective January 31, 1999, the Company and its bank lenders entered into
      a Second Extension Agreement pursuant to which the banks waived the
      existing covenant defaults under the Forbearance Agreement and extended
      the credit agreement on amended terms and conditions through March 31,
      2000, including the addition of a covenant obligating the Company to repay
      its loans to the banks by $4.0 million by August 31, 1999 and an
      additional $2.0 million by November 30, 1999.

      At June 30, 1999, the Company had cash and cash equivalent balances of
      $859,000, and no available borrowing capacity under the Credit Line or the
      Revolving Facility. The Company is currently generating losses that are
      expected to extend through much of 1999. Therefore, the Company will need
      additional funds to repay its debt due on August 31, 1999, November 30,
      1999 and March 31, 2000.

      The Company is pursuing additional debt and equity financing alternatives
      in order to meet its debt repayment obligations. The Company has obtained
      from various providers of additional capital certain debt and equity
      financing commitments and proposals and is currently negotiating such
      financing arrangements. The Company believes it can obtain such financing
      on acceptable terms in a timely manner; however, there can be no
      assurances that the Company will be successful in finalizing these
      arrangements. If the Company is not successful in obtaining the required
      additional funds, it believes it has the ability and it plans to meet its
      1999 debt repayment obligations by altering its business plans including,
      if necessary, a sale of selected Company operating and non-operating
      assets. Any sale of operating assets would involve a curtailment of
      certain of the Company's business operations and a modification of its
      business strategy. However, if the Company is unable to raise sufficient
      funds to repay or refinance the debt repayments on their scheduled due
      dates, the Company could be in default under its loan agreement and any
      such default could lead to the commencement of insolvency proceedings by
      its creditors.

      Accordingly, the Board of Directors of the Company has authorized
      management of the Company to seek additional equity capital through the
      sale of stock of the Company, either through a private sale to
      institutional or individual investors or through a rights offering to its
      stockholders.


                                                                              12
<PAGE>

                           IGI, INC. AND SUBSIDIARIES

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

      Intense Competition in Consumer Products Business

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

      Competition in Poultry Vaccine Business

      The Company is encountering increased price competition from international
      producers of poultry vaccines.

      Foreign Regulatory and Economic Considerations

      The Company's business may be adversely affected by foreign import
      restrictions and additional regulatory requirements. Also, unstable or
      adverse economic conditions and fiscal and monetary policies in certain
      Latin American and Far Eastern countries, increasingly important markets
      for the Company's animal health products, could adversely affect the
      Company's future business in these countries.

      Rapidly Changing Marketplace for Pet Products

      The emergence of pet superstores, the consolidation of distribution
      channels into fewer, more powerful companies and the diminishing
      traditional role of veterinarians in the distribution of pet products
      could adversely affect the Company's ability to expand its animal health
      business or to operate at acceptable gross margin levels.

      Effect of Rapidly Changing Technologies

      The Company expects to license 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 licensing could be materially adversely affected.

      Regulatory Considerations

      The Company's poultry vaccines and pet products are regulated by the USDA
      and the FDA respectively which subject the Company to review, oversight
      and periodic inspections. Any new products are subject to expensive and
      sometimes protracted USDA and FDA regulatory approval. Also, certain of
      the Company's products may not be approved for sales overseas on a timely
      basis, thereby limiting the Company's ability to expand its foreign sales.

      Year 2000

      The "Year 2000 Issue" is the result of computer programs being written
      using two digits rather than four to define the applicable year. As a
      result, computer programs that have time-sensitive software may recognize
      a date using "00" as the year 1900 rather than the year 2000. This could
      result in a system failure or miscalculations, causing disruptions of
      operations, a temporary inability to process transactions, prepare
      invoices or engage in similar normal business activities.


                                                                              13
<PAGE>

                           IGI, INC. AND SUBSIDIARIES

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

      As of December 31, 1998, the Company had assessed its needs to assure full
      compliance with Year 2000 requirements and has developed a comprehensive
      compliance plan. The Company has Year 2000 compliance needs involving
      three areas: (i) financial and management computer systems, (ii)
      microprocessors and other electronic device components of equipment used
      by the Company ("embedded chips"), and (iii) computer systems used by
      third parties, in particular financial institutions, suppliers and
      customers of the Company.

      The Company decided that its financial and management computer system
      should be remediated. The Company's present financial and management
      computer systems are not all Year 2000 compliant. The Company has
      undertaken to update and remediate its existing computer system to make it
      Year 2000 compliant at a cost of about $65,000, and has entered into a
      contract with the system's vendor for such remediation. The Company
      expects its financial and management computer system to be Year 2000
      compliant by September 1999. To date, the Company has incurred
      approximately $35,000 in hardware and software upgrades and replacements.
      If the upgraded system fails, the Year 2000 issue could have a materially
      adverse effect on the operations and financial condition of the Company.

      The Company has completed an inventory and assessment of its exposure to
      non-compliant embedded chips in its facilities or non-compliant equipment
      used in those facilities and the capability of vendors of such equipment
      to successfully remediate Year 2000 problems in equipment with
      non-compliant embedded chips. The cost to remediate and/or replace the
      Company's non-compliant embedded chips to achieve Year 2000 compliance was
      estimated to be approximately $20,000. To date, the Company has incurred
      approximately $10,000 in costs relating to non-compliant embedded chips
      and equipment and expects to be compliant by September 30, 1999. The
      Company has contacted vendors and customers to determine their exposure to
      Year 2000 issues, their anticipated risks and responses to those risks.
      The Company's vendors supply products and materials which are readily
      available and the Company has identified alternative sources in the event
      a vendor is not Year 2000 compliant. The Company believes that the cost
      related to non-compliance by vendors and customers is not expected to be
      material.

      While the Company believes that necessary modifications will be made on a
      timely basis, there can be no assurance that there will not be a delay in
      or increased costs associated with the implementation of such
      modifications. If the Company is unsuccessful in completing remediation of
      non-compliant systems or correcting embedded chips, the Company could
      incur additional costs to develop alternative methods of managing its
      business and replacing non-compliant equipment and may experience delays
      in payments from customers or to its vendors.

      Income Taxes

      The Company had net deferred tax assets in the amount of approximately
      $5.5 million as of December 31, 1998 and $5.7 million as of June 30, 1999.
      The largest deferred tax asset relates to $3.2 million of net operating
      loss carryforwards. After considering a $726,000 valuation allowance at
      June 30, 1999, management believes the Company's remaining net deferred
      tax assets are more likely than not to be realized through the reversal of
      existing taxable temporary differences, the sale of certain state net
      operating losses, and the generation of sufficient future taxable
      operating income to ensure utilization of remaining deductible temporary
      differences, net operating losses and tax credits. The minimum level of
      future taxable income necessary to realize the Company's net deferred tax
      assets at June 30, 1999, was approximately $16.7 million. There can be no
      assurance, however, that the Company will be able to achieve the minimum
      levels of taxable income necessary to realize its net deferred tax assets.
      Federal net operating loss carryforwards expire through 2018. Significant
      components expire in 2007 (26%), 2010 (13%) and 2018 (56%). Also federal
      research credits expire in varying amounts through the year 2018.


                                                                              14
<PAGE>

                           IGI, INC. AND SUBSIDIARIES

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

      Not applicable.

                            PART II OTHER INFORMATION

Item 1 - Legal Proceedings

      There were no material developments in the legal matters previously
      reported in the Company's Annual Report on Form 10-K for the year ended
      December 31, 1998.

      On April 14, 1999, a lawsuit was filed in the U.S. District Court for the
      Southern District of New York by Cohanzick Partners, LP, against IGI,
      Inc., and certain of its present and former directors, officers and
      employees. The suit, which has not been served on any of the named
      defendants, seeks approximately $420,000 in actual damages together with
      fees, costs and interest, alleges violations of the securities laws,
      fraud, and negligent misrepresentation concerning certain disclosures made
      and other actions taken by the Company in 1996 and 1997.

      The Company believes that the plaintiff's allegations are factually
      incorrect and legally inadequate and will defend the lawsuit vigorously.
      While the lawsuit is at a very preliminary stage and no discovery has
      taken place, the Company believes that an unfavorable outcome in the suit
      would not have a material adverse impact upon the Company's financial
      condition, although it could negatively affect the results of operations
      for the period in which the matter is resolved.

Item 2 - Changes in Securities and Use of Proceeds

      None.

Item 3 - Defaults Upon Senior Securities

      None.

Item 4 - Submission of Matters to a Vote of Security Holders

      At the Company's Annual Meeting of Stockholders held on May 12, 1999, the
      following proposals were adopted by the vote specified below:

      Proposal

      1.   Election of Directors              For          Withheld Authority
           ---------------------              ---          ------------------

           Terrence D. Daniels             7,993,763             586,415
           Edward B. Hager, MD             7,986,313             593,865
           Jane E. Hager                   7,986,313             593,865
           Constantine L. Hampers, MD      7,993,763             586,415
           Stephen J. Morris               7,993,763             586,415
           Terrence O'Donnell              7,993,763             586,415
           Paul D. Paganucci               7,993,763             586,415


                                                                              15
<PAGE>

                           IGI, INC. AND SUBSIDIARIES

                      PART II OTHER INFORMATION (Continued)

      2.  To approve an amendment increasing the number of authorized Common
          Stock from 30,000,000 to 50,000,000 and to create a new class of
          Preferred Stock consisting of 1,000,000 shares.

          Number of Shares:
          -----------------

          For               5,081,626
          Against           1,080,595
          Abstain              18,499
          Broker Non-Vote   2,399,458

      3.  To approve the newly created 1999 Employee Stock Option Plan
          authorizing the issuance of 300,000 shares of Common Stock of the
          Company.

          Number of Shares:
          -----------------

          For               5,533,763
          Against             619,013
          Abstain              27,944
          Broker Non-Vote   2,399,458

      4.  To approve the 1999 Stock Incentive Plan authorizing the issuance of
          1,200,000 shares of Common Stock of the Company.

          Number of Shares:
          -----------------

          For               4,888,713
          Against           1,258,963
          Abstain              33,044
          Broker Non-Vote   2,399,458

      5.  Ratification of PricewaterhouseCoopers LLP as independent auditors for
          the 1999 fiscal year.

          Number of Shares:
          -----------------

          For               7,950,849
          Against             621,791
          Abstain               7,538
          Broker Non-Vote         -0-

Item 5 - Other Information

      None.

Item 6 - Exhibits and Reports

      (a) Exhibits:

          Exhibit 27.1     Financial Data Schedule for six months ended June 30,
                           1999

          Exhibit 27.2     Financial Data Schedule for six months ended June 30,
                           1998


                                                                              16
<PAGE>

                           IGI, INC. AND SUBSIDIARIES

                      PART II OTHER INFORMATION (Continued)

      (b) Reports on Form 8K

          On May 5, 1999 the Company filed a Current Report on Form 8-K, dated
          May 3, 1999, to report under Item 5 (Other Events) that on April 14,
          1999, a lawsuit was filed in the U.S. District Court for the Southern
          District of New York by Cohanzick Partners, LP, against the Company
          and certain of its present and former directors, officers and
          employees. The suit, which has not been served on any of the named
          defendants, seeks approximately $420,000 in damages and alleges
          violations of the securities laws, fraud and negligent
          misrepresentation concerning certain disclosures made and other
          actions taken by the Company in 1996 and 1997. No financial statements
          were required to be filed with such report.


                                                                              17
<PAGE>

                            IGI, INC. AND SUBSIDARIES

                                   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, 1999               By: /s/ Charles R. Carroll, Jr.
                                          --------------------------------------
                                          Charles R. Carroll, Jr.
                                          Treasurer and Chief Accounting Officer


                                                                              18