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.
 March 31, 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 March 19, 1999

                                    9,526,854


<PAGE>


                          PART I 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 March 31,
                                                                          1999                      1998
                                                                       -----------              -----------
<S>                                                                    <C>                      <C>
Revenues:
     Sales, net                                                        $     8,328              $     8,134
     Licensing and royalty income                                              415                       82
                                                                       -----------              -----------
          Total revenues                                                     8,743                    8,216
                                                                       -----------              -----------

Cost and expenses:
     Cost of sales                                                           4,445                    4,039
     Selling, general and administrative expenses                            3,615                    3,558
     Product development and research expenses                                 316                      325
                                                                       -----------              -----------
Operating profit                                                               367                      294
Interest expense, net                                                         (822)                    (611)
                                                                       -----------              -----------

Loss before benefit for income taxes                                          (455)                    (317)
Benefit for income taxes                                                       136                      114
                                                                       -----------              -----------

Net loss                                                               $      (319)             $      (203)
                                                                       ===========              ===========

Net loss per common and common equivalent share:
     Basic                                                             $     (0.03)             $     (0.02)
     Diluted                                                           $     (0.03)             $     (0.02)

Average number of common and common equivalent shares:
     Basic                                                               9,519,266                9,466,667
     Diluted                                                             9,519,266                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>
                                                                             March 31, 1999    December 31, 1998
                                                                             --------------    -----------------
<S>                                                                             <C>                 <C>
ASSETS                                                                            (amounts in thousands)
Current assets:
     Cash and equivalents                                                       $    744            $  1,068
     Accounts receivable, less allowance for doubtful
          accounts of $604 and $516, in 1999 and 1998, respectively                6,401               6,462
     Licensing and royalty receivable                                                454                 440
     Inventories                                                                   7,614               7,406
     Current deferred taxes, net                                                   1,275               1,275
     Prepaid and other current assets                                                716                 433
                                                                                --------            --------
          Total current assets                                                    17,204              17,084
Investments                                                                          739                 535
Property, plant and equipment, net                                                 9,560               9,479
Deferred income taxes                                                              4,324               4,188
Other assets                                                                         764                 770
                                                                                --------            --------
          Total assets                                                          $ 32,591            $ 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                                                661                 661
     Accounts payable                                                              3,274               3,235
     Accrued payroll                                                                 447                 196
     Due to stockholder                                                              495                 380
     Accrued interest                                                                604                 432
     Other accrued expenses                                                        1,647               1,614
     Income taxes payable                                                             16                  16
                                                                                --------            --------
          Total current liabilities                                               25,801              25,191
Notes payable                                                                        408                 408
Deferred income                                                                      703                 534
                                                                                --------            --------
          Total liabilities                                                       26,912              26,133

Commitments and contingencies

Stockholders' equity:
     Common stock $.01 par value, 30,000,000 shares
          authorized; 9,662,868 and 9,648,931 shares issued in
          1999 and 1998, respectively                                                 97                  97
     Additional paid-in capital                                                   20,036              19,961
     Accumulated deficit                                                         (12,291)            (11,972)
                                                                                --------            --------
                                                                                   7,842               8,086
Less treasury stock; 136,014 shares at cost
     in 1999 and 1998                                                             (2,163)             (2,163)
                                                                                --------            --------
     Total stockholders' equity                                                    5,679               5,923
                                                                                --------            --------
          Total liabilities and stockholders' equity                            $ 32,591            $ 32,056
                                                                                ========            ========
</TABLE>

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


                                                                               3
<PAGE>


                           IGI, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                   Three months ended March 31,
                                                                    1999                 1998
                                                                   -------              -------
                                                                      (amounts in thousands)
<S>                                                                <C>                  <C>
Cash flows from operating activities:
     Net loss                                                      $  (319)             $  (203)
     Reconciliation of net loss to net cash provided
          (used) by operating activities:
          Depreciation and amortization                                237                  277
          Provision for losses on accounts receivable and
               inventories                                             172                  245
          Write-off of other assets                                     32                   --
          Gain on sale of assets                                        --                   (7)
          Recognition of deferred income                               (35)                 (23)
          Deferred income taxes                                       (136)                (115)
          Stock option compensation and warrant expense                 75                   19
     Changes in operating assets and liabilities:
          Accounts receivable                                          (96)                (718)
          Receivables due under license and royalty agreements         (14)                  --
          Inventories                                                 (292)                  94
          Prepaid and other assets                                     (61)                 192
          Accounts payable and accrued expenses                        610                  610
          Short-term notes payable, operating                         (153)                  --
                                                                   -------              -------
Net cash provided from operating activities                             20                  371
                                                                   -------              -------

Cash flows from investing activities:
     Capital expenditures                                             (289)                (216)
     Decrease in investments                                            --                   24
     Increase in other assets                                          (55)                (159)
                                                                   -------              -------
Net cash used by investing activities:                                (344)                (351)
                                                                   -------              -------

Cash flows from financing activities:
     Net borrowings under line of credit agreements                     --                   --
     Payments of long-term debt                                         --                  (36)
                                                                   -------              -------
Net cash used by financing activities                                   --                  (36)
                                                                   -------              -------

Net decrease in cash and equivalents                                  (324)                 (16)
Cash and equivalents at beginning of year                            1,068                1,196
                                                                   -------              -------
Cash and equivalents at March 31, 1999 and 1998                    $   744              $ 1,180
                                                                   =======              =======
</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
has 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 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
filed with the SEC on April 12, 1999 (the "1998 10-K Annual Report").

2.   Financing Needs

     At March 31,  1999,  the Company had cash and cash  equivalent  balances of
$744,000,  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 Income Per Common Share

     Basic net income per share of common  stock is  computed  based only on the
weighted average number of shares of common stock outstanding during the period.
Diluted  net income per share of common  stock is  computed  using the  weighted
average  number of shares of common  stock  and  common  stock  equivalents,  if
dilutive, outstanding during the period. Common stock equivalents include shares
issuable upon the exercise of dilutive common stock options.

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
                                   (Unaudited)


Inventories at March 31, 1999 and December 31, 1998 consisted of:

      (amounts in thousands)          March 31, 1999     December 31, 1998
                                      --------------     -----------------

Finished goods                            $2,864             $2,785
Work-in-process                            2,364              2,210
Raw materials                              2,386              2,411
                                          ------             ------

Total                                     $7,614             $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,  over the term of the  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.

     The Company has learned  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 IGI, Inc., and certain of its present and former directors, officers
and employees.  The suit, which 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.


                                                                               6
<PAGE>


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

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.

     Summary data  related to the  Company's  reportable  segments for the three
month periods ended March 31, 1999 and 1998 appear below:

<TABLE>
<CAPTION>
                                    Poultry        Companion Pet       Consumer
                                    Vaccines          Products         Products        Corporate*       Consolidated
                                    --------          --------         --------        ----------       ------------
                                                                   (in thousands)
<S>                                 <C>               <C>              <C>              <C>               <C>
1999
----
Revenues                            $ 3,866           $ 3,319          $ 1,558          $    --           $ 8,743
Operating profit (loss)                (127)            1,009              850           (1,365)              367

1998
----
Revenues                            $ 4,107           $ 3,195          $   914          $    --           $ 8,216
Operating profit (loss)                 636               830              384           (1,556)              294
</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
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.


                                                                               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.  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 is 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 March 31, 1999 compared to March 31, 1998

     The Company had a net loss of $319,000, or $0.03 per share, for the quarter
ended March 31, 1999 as compared to net loss of $203,000, or $.02 per share, for
the quarter  ended March 31, 1998.  The  principal  factor  contributing  to the
increased loss in the 1999 quarter was increased interest expense.

     Total revenues for the quarter ended March 31, 1999 were $8,743,000,  which
represents an increase of $527,000,  or 6%, from revenues of $8,216,000  for the
quarter ended March 31, 1998. Consumer Products revenues increased $644,000,  or
70%, for the first  quarter of 1999 due  primarily to an increase of $333,000 in
license  and  royalty  income in 1999 over 1998 and an  increase  of $271,000 in
sales to Estee Lauder.  Companion Pet Products increased $124,000 or 4% over the
comparable quarter in 1998,  primarily due to increased  international  sales of
$172,000 in the first  quarter 1999 over the  comparable  period in 1998.  These
increases were partially  offset by decreased  poultry vaccine sales of $241,000
or 6% from the first quarter of 1998.  Revenues of approximately  $1,200,000 for
poultry  vaccine sales in the first quarter of 1998 were  attributable 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 $406,000,  or 10%, from the quarter ended March
31, 1998 due to increased  sales volume.  However,  as a percentage of revenues,
cost of sales  increased  from 49% in the quarter ended March 31, 1998 to 51% in
the quarter ended March 31, 1999.  This increase  primarily  resulted from costs
relating to the Company's reassessment of product manufacturing processes and


                                                                               8
<PAGE>


                           IGI, INC. AND SUBSIDIARIES

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

formulas to increase future production  efficiency and capacity in the Company's
poultry vaccines division.

     Selling,  general and administrative  expenses increased by $57,000, or 2%,
from $3,558,000 in the quarter ended March 31, 1998 to $3,615,000 in the quarter
ended March 31, 1999. However, as a percentage of revenues,  these expenses were
41% of  revenues  for the quarter  ended  March 31, 1999  compared to 43% in the
quarter  ended March 31,  1998.  Selling and  marketing  expenses  increased  by
$261,000  compared to the same period last year. This was offset by a decline in
general and  administrative  expenses by $204,000  versus the first quarter 1998
principally  due to a decrease from the first quarter 1998 in  expenditures  for
professional  fees  of  $412,000  primarily  related  to the  legal,  audit  and
consulting  expenses  that were incurred in the first quarter 1998 in connection
with the Company's internal and government investigations.

     Product  development  and research  expenses  decreased  by $9,000,  or 3%,
compared to the quarter ended March 31, 1998.

     Net interest  expense  increased  $211,000,  or 35%,  from  $611,000 in the
quarter ended March 31, 1998 to $822,000 in the quarter ended March 31, 1999 due
to higher interest rates and additional bank fees in the first quarter 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.

     As of July 31, 1998,  the Company was in default  under  certain  covenants
contained in the Extension  Agreement.  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.  During fiscal 1998 and the first quarter 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.


                                                                               9
<PAGE>


                           IGI, INC. AND SUBSIDIARIES

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


     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
     March 31, 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.

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, over the term of the
     agreement.

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.


                                                                              10
<PAGE>


                           IGI, INC. AND SUBSIDIARIES

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

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 March 31,
     1999,  the Company was in compliance  with all financial  covenants and all
     other terms and requirements of the Second Extension Agreement.

     At March 31,  1999,  the Company had cash and cash  equivalent  balances of
$744,000,  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 believes it can obtain such
financing on  acceptable  terms.  However,  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  repayment  due on March 31,  2000,  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  subsequent to that
date.

     Accordingly,   the  Board  of  Directors  of  the  Company  has  authorized
management of the Company to seek additional  equity capital through the sale of
Common Stock of the Company,  either through a private sale to  institutional or
individual  investors or through a rights offering to its stockholders.  Subject
to shareholder  approval,  the Board has authorized an increase in the number of
shares of Common Stock  available  and the  authorization  of a Preferred  Stock
class.  While the  Company  has  contacted a number of  potential  providers  of
additional  capital  who  have  expressed  interest  in  negotiating   financing
arrangements  with the Company,  to date no agreements or commitments  have been
obtained.

     The  Company's  operating  activities  provided  $20,000 of cash during the
first  quarter  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; and the addition to operations of a non-cash
recognition  of  deferred  income.  This was  equaled by  increases  in accounts
receivable,  inventories,  deferred tax assets and  prepaids  and other  assets,
offset by an accounts  payable and accrued expenses  increase,  all of which had
the net effect of increasing operating cash flow.

     The Company used $344,000 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 from the Company's
cash on hand at the beginning of the period.


                                                                              11
<PAGE>


                           IGI, INC. AND SUBSIDIARIES

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


Factors Which May Affect Future Results

     Adverse Effects of USDA Actions and U.S. Attorney Investigations

Regulatory  matters and the costs  incurred in connection  with  government  and
other  investigations,  as previously described in Item 3 "Legal Proceedings" in
the 1998 10-K Annual  Report,  had a material  adverse  effect on the  Company's
business  and  results  of  operations  in 1998 and are  likely to  continue  to
adversely affect the Company's business during the first half of 1999.

     While the  Company  has made  progress  in  returning  to  normal  business
operations  by hiring  new  management  and taking  corrective  action to assure
compliance   with  all  regulatory   requirements,   it  still  faces  important
challenges.  First,  it must  assure  its  customers  that its  future  business
operations will comply with all applicable  government rules and regulations and
that its financial condition is adequate to meet its business commitments and to
maintain a viable and stable business  environment.  Second, it must comply with
all of the  covenants  in its bank credit  agreement  to assure  continued  bank
financing of its operations and replace its current bank  agreement.  Third,  it
must raise  additional  debt or equity  funds to meet its  business  plan and to
maintain its  competitive  position.  No assurance can be given that the Company
will be able to  accomplish  all or any of the foregoing  requirements,  and the
failure  to do so,  could  have  a  material  adverse  effect  on the  Company's
business, financial condition and results of operations.

     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.

     The  Company  was in default  under  certain  covenants  in its bank credit
agreements  during  1998.  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 reduce its loans to the banks
by $4.0  million by August 31, 1999 and an  additional  $2.0 million by November
30, 1999.


                                                                              12
<PAGE>


                           IGI, INC. AND SUBSIDIARIES

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


     At March 31,  1999,  the Company had cash and cash  equivalent  balances of
$744,000,  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  believes it can
obtain  such  financing  on  acceptable  terms.  However,  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  repayment due March 31, 2000,  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 subsequent to that date.

     Accordingly,   the  Board  of  Directors  of  the  Company  has  authorized
management of the Company to seek additional  equity capital through the sale of
common stock of the Company,  either through a private sale to  institutional or
individual investors or through a rights offering to its stockholders. While the
Company has contacted a number of potential  providers of additional capital, no
agreements or commitments have been obtained to date.

     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  increasing  competition  from  international
producers of poultry vaccines,  particularly increased price competition coupled
with a downward trend in vaccine prices.

     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.


                                                                              13
<PAGE>


                           IGI, INC. AND SUBSIDIARIES

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

     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,  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.

     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


                                                                              14
<PAGE>


                           IGI, INC. AND SUBSIDIARIES

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


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
embedded chips in its  facilities or equipment used in those  facilities and the
capability  of vendors of such  equipment to  successfully  remediate  Year 2000
problems in equipment with embedded chips. The Company believes that the cost to
remediate  and/or replace its embedded chips to achieve Year 2000  compliance is
approximately  $15,000  and  expects all  remediation  of  embedded  chips to be
completed by June 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 that 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 $5.6  million as of March 31,  1999.  The
largest  deferred  tax asset  relates to the nearly $3 million of net  operating
loss carryforwards. After considering a $726,000 valuation allowance at December
31, 1998,  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 March 31, 1999,  was  approximately  $16.5
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.

ITEM 3.   Quantitative and Qualitative Disclosures About Market Risk

     Not applicable.


                                                                              15
<PAGE>


                           IGI, INC. AND SUBSIDIARIES

                            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.

     The Company has learned  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 IGI, Inc., and certain of its present and former directors, officers
and employees.  The suit, which 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

     On March 11, 1999, the Company issued warrants for 540,000 shares of Common
Stock to the  Company's  bank lenders,  Fleet Bank-NH and Mellon Bank,  N.A., in
connection  with the Second  Extension  Agreement.  The warrants  were issued in
consideration of the Second Extension  Agreement.  Each warrant may be exercised
for shares of Common  Stock at an  exercise  price of $2.00 per  share.  See the
description of the warrants in "Liquidity and Capital  Resources" above which is
incorporated herein by reference.

Item 3 - Defaults Upon Senior Securities

     None.

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

     None.

Item 5 - Other Information

      None.

Item 6 - Exhibits and Reports on Form 8-K

     (a) Exhibits:


                                                                              16
<PAGE>


                           IGI, INC. AND SUBSIDIARIES

                      PART II OTHER INFORMATION (Continued)



Exhibit 11 - Computation of Net Income Per Common Share

Exhibit 27.1 - Financial Data Schedule for the quarter ended March 31, 1999

Exhibit 27.2 - Financial Data Schedule for the quarter ended March 31, 1998

     (b) Reports on Form 8-K

         None.


                                                                              17
<PAGE>


                           IGI, INC. AND SUBSIDIAREIS
                                   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: May 12, 1999                                   By: /s/  John F. Wall
                                                         ----------------------
                                                         John F. Wall
                                                         Senior Vice President
                                                         Chief Financial Officer


                                                                              18