<PAGE>   1

                       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, 2000                                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)


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


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

                                  Yes X   No
                                     ---     ---


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 11, 2000

                                   10,247,442

                                                                               1
<PAGE>   2
                          ITEM 1. FINANCIAL STATEMENTS

                          PART I FINANCIAL INFORMATION

                           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,
                                                             --------------------------           -------------------------
                                                                   2000              1999               2000              1999
                                                                   ----              ----               ----              ----
<S>                                                        <C>                <C>               <C>                <C>
Revenues:
     Sales, net                                            $      7,694       $     8,504       $     15,354       $     16,832
     Licensing and royalty income                                   717               358              1,511                773
                                                           ------------       -----------       ------------       ------------
         Total revenues                                           8,411             8,862             16,865             17,605

Cost and expenses:
     Cost of sales                                                4,970             4,335              9,287              8,780
     Selling, general and administrative expenses                 3,210             3,553              6,510              7,168
     Product development and research expenses                      433               320                865                636
                                                           ------------       -----------       ------------       ------------
Operating profit (loss)                                            (202)              654                203              1,021
Interest expense (income), net                                     (564)              843              1,335              1,665
                                                           ------------       -----------       ------------       ------------

Income (loss) before provision for income taxes                     362              (189)            (1,132)              (644)
Benefit for income taxes                                            148                57                596                193
                                                           ------------       -----------       ------------       ------------

Net income (loss)                                          $        510       $      (132)      $       (536)      $       (451)
                                                           ============       ===========       ============       ============

Basic and diluted income (loss) per common share           $        .05       $      (.02)      $       (.05)      $       (.05)

Basic and diluted weighted average number of                 10,181,873         9,550,191         10,154,386          9,534,883
     common shares outstanding
</TABLE>

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

                                                                               2
<PAGE>   3
                           IGI, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                    JUNE 30, 2000
                                                                                     (UNAUDITED)               DECEMBER 31, 1999
                                                                                     -----------               -----------------
                                                                                              (amounts in thousands)
<S>                                                                                <C>                         <C>
ASSETS
Current assets:
     Cash and equivalents                                                          $       443                    $      416
     Accounts receivable, less allowance for doubtful accounts                           6,701                         6,061
          of $431 and $354 in 2000 and 1999, respectively
     Licensing and royalty receivable                                                      720                           432
     Inventories, net                                                                    9,905                         8,762
     Current deferred taxes, net                                                         1,096                         1,096
     Prepaid and other current assets                                                      766                           348
                                                                                   -----------                     ---------
          Total current assets                                                          19,631                        17,115
Property, plant and equipment, net                                                       9,858                         9,781
Deferred income taxes, net                                                               5,349                         4,754
Deferred financing costs                                                                 1,566                         1,678
Investments                                                                                263                           144
Other assets                                                                               477                           390
                                                                                   -----------                     ---------
          Total Assets                                                             $    37,144                     $  33,862
                                                                                   ===========                     =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Revolving credit facility                                                           7,364                         5,708
     Current portion of long-term debt                                                  11,686                        11,225
     Current portion of notes payable                                                      829                           408
     Accounts payable                                                                    5,468                         4,268
     Accrued payroll                                                                       296                           253
     Due to stockholder                                                                      -                           115
     Accrued interest                                                                      536                           164
     Other accrued expenses                                                              2,001                         2,150
     Income taxes payable                                                                   10                            15
                                                                                   -----------                     ---------
          Total current liabilities                                                     28,190                        24,306
Long-term debt, net of discount and current portion                                      6,901                        10,758
Deferred income                                                                            298                           327
Detachable stock warrants                                                                    -                         3,696
                                                                                   -----------                     ---------
          Total Liabilities                                                             28,488                        28,329
                                                                                   -----------                     ---------

Commitments and contingencies                                                                -                             -

Stockholders' equity:
     Preferred stock $.01 par value, 1,000,000 authorized,                                   -                             -
          none outstanding
     Common stock $.01 par value, 50,000,000 shares authorized;                            103                           102
     10,314,140 and 10,133,183 shares issued in 2000 and 1999,
     respectively
     Additional paid-in capital                                                         24,286                        20,628
     Accumulated deficit                                                               (14,092)                      (13,556)
Less treasury stock, 105,510 shares at cost in
          2000 and 1999, respectively                                                   (1,641)                       (1,641)
                                                                                   -----------                     ---------
      Total stockholders' equity                                                         8,656                         5,533
                                                                                   -----------                     ---------
          Total Liabilities and Stockholders' Equity                               $    37,144                     $  33,862
                                                                                   ===========                     =========
</TABLE>

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

                                                                               3
<PAGE>   4
                           IGI, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                      SIX MONTHS ENDED JUNE 30,
                                                                                      -------------------------
                                                                                       2000             1999
                                                                                       ----             ----
                                                                                      (AMOUNTS IN THOUSANDS)
<S>                                                                                <C>              <C>
Cash flows from operating activities:
     Net loss                                                                      $   (536)        $   (451)
     Reconciliation of net loss to net cash (used by) provided by operating
     activities:
          Depreciation and amortization                                                 550              474
          Amortization of deferred financing costs and debt discount                    112               --
          Write-off of other assets                                                      --               70
          Provision for loss on accounts receivable and inventories                     792              231
          Recognition of deferred revenue                                              (148)             (70)
          Benefit for deferred income taxes                                            (595)            (194)
          Accrued interest expense relating to put feature of warrants                 (154)              --
          Stock compensation expense:
              Non employee stock options                                                 36               44
              Directors' stock issuance                                                  50              168
     Changes in operating assets and liabilities:
          Accounts receivable                                                          (650)            (125)
          Inventories                                                                (1,925)            (259)
          Receivables under royalty agreements                                         (288)             (43)
          Prepaid and other assets                                                      332               41
          Accounts payable and accrued expenses                                       1,466              826
          Income taxes payable                                                           (5)              --
          Short-term notes payable, operating                                          (329)            (275)
                                                                                   --------         --------

               Net cash (used by) provided by operating activities:                  (1,292)             437
                                                                                   --------         --------

Cash flows from investing activities:
     Capital expenditures                                                              (548)            (461)
    (Increase) in other assets                                                         (166)            (185)
                                                                                   --------         --------
               Net cash used by investing activities                                   (714)            (646)
                                                                                   --------         --------

Cash flows from financing activities:
     Borrowings under capital expenditures facility                                     257               --
     Borrowings under revolving credit agreement                                     17,800               --
     Repayments of revolving credit agreement                                       (16,144)              --
     Proceeds from exercise of common stock options and
           purchase of common stock                                                     120               --
                                                                                   --------         --------
               Net cash provided by financing activities                              2,033              --
                                                                                   --------         --------

Net decrease in cash and equivalents                                                     27             (209)
Cash and equivalents at beginning of period                                             416            1,068
                                                                                   --------         --------
Cash and equivalents at end of period                                              $    443         $    859
                                                                                   ========         ========
</TABLE>

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

                                                                               4
<PAGE>   5
                           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 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, 1999 (the "1999 10-K Annual Report").

2. DEBT AND STOCK WARRANTS

   On October 29, 1999, the Company entered into a $22 million senior bank
   credit agreement ("Senior Debt Agreement") with Fleet Capital Corporation
   ("Fleet") and a $7 million subordinated debt agreement ("Subordinated Debt
   Agreement") with American Capital Strategies, Ltd., ("ACS").

   On April 12, 2000, ACS amended its Subordinated Debt Agreement with the
   Company whereby the "put" provision associated with the original warrants
   granted to purchase 1,907,543 shares of the Company's common stock was
   replaced by a "make-whole" feature. The "make-whole" feature requires the
   Company to compensate ACS, in either Common Stock or cash, at the option of
   the Company, in the event that ACS ultimately realizes proceeds from the sale
   of its Common Stock obtained upon exercise of its warrants that are less than
   the fair value of the Common Stock upon exercise of such warrants. Fair value
   of the Common Stock upon exercise is defined as the 30-day average value
   prior to notice of intent to sell. ACS must exercise reasonable effort to
   sell or place its shares in the marketplace over a 180-day period, beginning
   with the date of notice by ACS, before it can invoke the make-whole
   provision.

   The Company recorded a non-taxable $1,073,000 provision reflected as interest
   expense for the mark-to-market adjustment for the fair value of the "put"
   warrant for the three month period ended March 31, 2000. A non-taxable
   reduction of interest expense of $1,431,000 was recognized in the second
   quarter ended June 30, 2000, reflecting a decrease in the fair value of the
   warrants from April 1 to April 12, 2000. As a result of the April 12, 2000
   amendment, the remaining liability at April 12, 2000 of $3,338,000 was
   reclassified to paid in capital. The April 12, 2000 amendment required the
   Company to file a shelf Registration Statement with respect to resales of
   shares acquired by ACS by October 9, 2000. If the registration is not filed
   by this date, the Company will be required to reverse the $1,431,000 interest
   expense reduction.

   In connection with the amendment to the Subordinated Debt Agreement, ACS also
   agreed to defer the payment by the Company of the cash portion of interest on
   subordinated debt for the period April 1, 2000 to July 31, 2000. Payment of
   the cash portion of interest on subordinated debt will be due at the end of
   each subsequent three month period thereafter. Furthermore, the existing
   additional interest component at the rate of 2% was increased to 2.25%, which
   is payable at the Company's election in cash or in Company Common Stock. The
   increase of .25% in the additional interest component will be in effect
   through March 2001, at which time the additional interest component rate will
   be adjusted back down to 2%.

   On June 26, 2000, the Company entered into an Asset Purchase Agreement dated
   as of June 19, 2000 (the "Vineland Agreement"), with Vineland International,
   a general partnership which has changed its name to Lohmann Animal Health
   International (the "Buyer"). The Vineland Agreement provides for the sale
   (the "Vineland Sale") by the Company to the Buyer of the assets associated
   with the business of manufacturing, marketing, licensing and selling poultry
   vaccines and related equipment conducted by the Vineland Laboratories
   division of the Company. In exchange for receipt of such assets, the Buyer
   will assume certain Company liabilities, in the aggregate, equal to
   approximately $2,300,000 and will pay the Company cash in the amount of
   $12,500,000, of which $500,000 will be placed in an escrow fund to secure
   potential obligations of

                                                                               5
<PAGE>   6
                           IGI, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)


   the Company relating to final purchase price adjustments and indemnification.
   The Company's Board of Directors has approved the filing of a proxy
   statement. The SEC is conducting a review of the proxy statement. The sale is
   contingent on a majority approval of the holders of the outstanding shares of
   the Company's stock. The Company projects a $300 after tax gain on the
   Vineland sale offset by a $525 after tax extraordinary loss on the early
   extinguishment of debt.

   On June 26, 2000, the Company entered into Amendment No. 2 to Note and Equity
   Purchase Agreement with ACS. Pursuant to the Second Subordinated Amendment,
   the Company received $500,000 and issued to ACS $500,000 of Series C Senior
   Subordinated Notes due September 30, 2000 (the "Series C Notes"); and ACS
   waived compliance with certain financial covenants applicable to Borrower
   contained in the Subordinated Debt Agreement and modified certain interest
   payment dates with respect to the Notes. In addition, the Second Subordinated
   Amendment permits the Company to issue additional Series C Notes on July 31,
   2000 to pay the interest then due and payable on the Notes and the Series C
   Notes. The Company will issue, in the beginning of August 2000, to ACS an
   additional Series C Note in the aggregate principal amount of approximately
   $300,000 for the interest due.

   Also, on June 26, 2000, the Company entered into a Second Amendment to Loan
   and Security Agreement dated as of June 23, 2000 (the "Second Senior
   Amendment") with Fleet, the Senior Lender. Pursuant to the Second Senior
   Amendment, the Company obtained an "overadvance" of $500,000 under the
   Revolving Loan (the "Overadvance"), repayable in full on the earlier to occur
   of September 22, 2000 or the date of the consummation of the Vineland Sale.
   Under the Second Senior Amendment, the Senior Lender agreed to forbear from
   exercising its right to accelerate the maturity of the Senior Loans upon the
   default by the Borrower under certain financial covenants (the "Forbearance
   Covenants") until the first to occur of: (a) September 22, 2000, (b) the
   date on which any default, other than a default under the Forbearance
   Covenants, occurs under the Senior Debt Agreement, as amended; or (c) the
   date of the termination of the Vineland Agreement.

   This Agreement may be terminated at any time prior to the closing by mutual
   consent of the Buyer and the Seller, or by either the Buyer or the Seller:

         1.       if the transaction contemplated is not consummated on or
                  before the date that is three (3) months after the date of
                  this Agreement (September 19, 2000), unless the failure to
                  consummate the transaction is the result of a material breach
                  of this Agreement by the party seeking to terminate this
                  Agreement; provided, however, that the passage of such period
                  shall be tolled for any part thereof (but not exceeding ninety
                  (90) days in the aggregate) during which any party shall be
                  subject to a non-final order, decree, ruling or action
                  restraining, enjoining or otherwise prohibiting the
                  consummation of the transaction;
         2.       If any Governmental entity issues an order, decree or ruling
                  or takes any other action permanently enjoining, restraining
                  or otherwise prohibiting the transaction and such order,
                  decree, ruling or other action shall have become final and
                  non-appealable;
         3.       If the stockholders of the Seller do not approve this
                  Agreement and transaction.

   Under the Second Senior Amendment, the Senior Lender agreed to release its
   security interests in and liens on all property to be transferred by the
   Company to Buyer pursuant to the Vineland Sale (the "Vineland Collateral")
   upon consummation of the Vineland Sale. The release of the Vineland
   Collateral is conditioned upon the application of the proceeds of the
   Vineland Sale, net of certain closing and other costs approved by the Senior
   Lender, to repay the Loans, the Overadvance and the Series C Notes as
   follows: (i) first to repay the Overadvance in full; (ii) second, to repay
   that amount of the outstanding Revolving Loan equal to 85% of certain of the
   accounts receivable transferred to the Buyer pursuant to the Vineland Sale;
   (iii) third, to repay that amount of the Revolving Loan equal to 100% of the
   Revolving Loan made with respect to inventory transferred pursuant to the
   Vineland Sale; (iv) fourth, to repay in full the total amount of Capital
   Expenditure Loans then outstanding; (v) fifth, to repay in full the total
   amount of the Term B Loan then outstanding; (vi) sixth, to repay the Term A
   Loan in an amount sufficient to reduce the outstanding principal balance of
   the Term

                                                                               6
<PAGE>   7
                           IGI, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

   A Loan to $2,705,000; (vii) seventh, to pay the Series C Notes in an amount
   not to exceed $826,798.93; and (viii) eighth, to repay any portion of the
   then outstanding Revolving Loan.

   The debt agreements contain various affirmative and negative covenants, such
   as minimum tangible net worth and minimum fixed charge coverage ratios. The
   covenants under the debt agreements were further amended on April 12, 2000.
   The financial covenants are dependent upon continued improved operating
   results. The Company remains highly leveraged; as a result, access to
   additional funding sources is limited. The Company's available borrowings
   under the revolving line of credit facility are dependent on the level of
   qualifying accounts receivable and inventory. Unfavorable product sales
   performance since April 1, 2000 has limited the available borrowing capacity
   of the Company under the revolving line of credit facility. If the Company's
   product sales do not improve or the Company is not successful in meeting its
   financial obligations, it could result in a default under its loan agreements
   and any such default, if not resolved, could lead to curtailment of certain
   of its business operations, sale of certain assets or the commencement of
   insolvency proceedings by its creditors. The Company believes it will be able
   to continue to be in compliance with its debt covenants through at least
   January 1, 2001 unless the sale of the Vineland Division is not approved by
   the shareholders. The Company believes the Vineland Sale will be approved by
   its shareholders. If the sale is not approved, the Company believes it will
   be able to consummate another asset sale, business restructuring and/or other
   activities such that it would remain in compliance with the covenants through
   at least January 1, 2001.

3. PER SHARE DATA

   Per share data is computed based upon the weighted average number of shares
   of common stock, adjusted for the potential conversion of dilutive common
   stock equivalents. The fully dilutive earnings per share data is not shown
   since the dilutive and basic are equal on June 30, 2000.

4. INVENTORIES

   Inventories are valued at the lower of cost, using the first-in, first-out
   ("FIFO") method, or market.

   Inventories at June 30, 2000 and December 31, 1999 consist of:

<TABLE>
<CAPTION>
                           JUNE 30, 2000       DECEMBER 31, 1999
                           -------------       -----------------
                                 (AMOUNTS IN THOUSANDS)
<S>                        <C>                 <C>
    Finished goods           $  4,010              $  2,445
    Work-in-process             3,676                 3,853
    Raw materials               2,219                 2,464
                             --------              --------
    Total                    $  9,905              $  8,762
                             ========              ========
</TABLE>


5. REGULATORY PROCEEDINGS AND LEGAL PROCEEDINGS

   The Company is subject to review, oversight and periodic inspections by
   governmental regulatory agencies such as the U.S. Securities and Exchange
   Commission (the "SEC"), the U.S. Department of Agriculture ("USDA"), the
   federal Food and Drug Administration ("FDA") and the New Jersey Department of
   Environmental Protection ("NJDEP") and the local department of health.

   FDA INSPECTION OBSERVATIONS

   On July 5, 2000, the FDA completed its inspection of the Company's Companion
   Pet Products division and issued an inspection report on Form FDA 483. The
   July 5, 2000 FDA report includes several unfavorable observations of
   manufacturing and quality assurance practices and products of the division.
   The Company is currently compiling its responses to the July 5, 2000 FDA
   report. In an effort to address a number of the FDA's stated concerns, on May
   24, 2000, the Company discontinued production and shipment of Liquichlor and
   on June 1, 2000 temporarily stopped production of Cerumite, both products of
   the Pet Products Division. The

                                                                               7
<PAGE>   8
                           IGI, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

   aggregate annual sales volume for these products for the fiscal year ended
   December 31, 1999 was $1,059,000.

   Upon receipt of the Company's formal response to the July 5, 2000
   observations, the FDA will evaluate the Company's response and will determine
   the ultimate outcome of the FDA inspection. An unfavorable outcome could
   result in fines, penalties and the potential halt of the sale of certain
   regulated products, any or all of which could have a material, adverse effect
   on the Company. The Company has incurred $634,000 year to date in related
   expenses to improve production, to meet documentation, procedural and
   regulatory compliance.

SEC INVESTIGATION

   On July 26, 2000, the Company reached an agreement in principle with the
   staff of the SEC to resolve matters arising with respect to the informal
   investigation of the Company commenced by the SEC in April 1998. Under the
   agreement, which will not be final until approved by the SEC, the Company
   neither admits nor denies that the Company violated the financial reporting
   and record-keeping requirements of Section 13 of the Securities Exchange Act
   of 1934, as amended, for the fiscal years 1995, 1996 and 1997. Further, in
   the agreement, the Company agrees to the entry of an order to cease and
   desist from any such violation in the future. There is no monetary penalty.

   The investigation and settlement focus on fraudulent actions taken by former
   members of the company's management. Upon becoming aware of the fraudulent
   activity, IGI, through its Board of Directors, immediately commenced an
   internal investigation which led to the termination of employment of those
   responsible. IGI then cooperated fully with the staff of the SEC and
   disclosed to the Commission the results of the internal investigation.

NJDEP ACTION

   On April 6, 2000, officials of the New Jersey Department of Environmental
   Protection inspected a company storage site in Buena, New Jersey and issued a
   Notice of Violation relating to the storage of waste materials in a number of
   trailers at the site. The Company has established a disposal and cleanup
   schedule and has commenced operations to remove materials from the site.
   Small amounts of hazardous waste were discovered and the Company was issued a
   notice of violation relating to the storage of these materials. The Company
   is cooperating with the authorities and expects the assessment of fines or
   penalties. The Company has expensed the full cost of $160,000 related to the
   disposal and cleanup.

COHANZICK PARTNERS, LP ACTION

   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 sought approximately $420,000 in actual damages together with
   fees, costs and interests, alleged 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 has settled this
   action without the expenditure of Company funds.

                                                                               8
<PAGE>   9
                           IGI, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

6.       BUSINESS SEGMENTS

   Summary data related to the Company's reportable segments for the six-month
   periods ended June 30, 2000 and 1999 appear below:

<TABLE>
<CAPTION>
                                    POULTRY     COMPANION PET      CONSUMER
                                    VACCINES       PRODUCTS        PRODUCTS      CORPORATE *    CONSOLIDATED
                                    --------       --------        --------      -----------    ------------
                                                                (IN THOUSANDS)
<S>                                <C>          <C>               <C>            <C>             <C>
THREE MONTHS ENDED JUNE 30:
2000
Revenues                           $ 3,203         $ 3,374         $ 1,834        $    --         $ 8,411
Operating profit (loss)                (98)            (79)          1,167         (1,192)           (202)

1999
Revenues                             3,261           3,608           1,993             --           8,862
Operating profit (loss)               (287)          1,161           1,155         (1,375)            654

SIX MONTHS ENDED JUNE 30:
2000
Revenues                             6,392           6,703           3,770             --          16,865
Operating profit (loss)               (479)            573           2,419         (2,310)            203

1999
Revenues                             7,127           6,927           3,551             --          17,605
Operating profit (loss)               (414)          2,170           2,005         (2,740)          1,021
</TABLE>

*Notes:

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

                                                                               9
<PAGE>   10
                           IGI, INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

      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 1999
      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 1999 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.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO JUNE 30, 1999

      The Company had net income of $510,000 or $.05 per share, for the three
      months ended June 30, 2000 as compared to a net loss of $132,000, or $.02
      per share, for the second quarter ended June 30, 1999. The increase in net
      income was primarily the result of the reduction of interest expense of
      $1,431,000 reflecting the decrease from April 1, 2000 to April 12, 2000 in
      the fair value of a "put" provision related to warrants granted to ACS. On
      April 12, 2000 the ACS Subordinated notes were amended, whereby the "put"
      provision was replaced by a "make-whole" feature.

      Total revenues for the quarter ended June 30, 2000 were $8,411,000, which
      represents a decrease of $451,000 or 5%, compared to revenues $8,862,000,
      for the quarter ended June 30, 1999. The decrease is due to lower
      Companion Pet and Consumer Product revenues. Companion Pet Product revenue
      decreased $234,000 or 7% primarily due to lost revenues from a product
      recall and a decrease in shipments by distributors who are reducing
      inventory to increase their inventory turnover. Consumer Product revenue
      decreased $159,000 or 8% mainly from reduced sales to Estee Lauder of
      $508,000 offset by higher licensing and royalty income of $358,000
      primarily from Johnson & Johnson due to new product introductions by it.
      Poultry Vaccine revenue decreased $58,000 or 2% as a result of lost
      customers of the Company's Vineland Division.

      Cost of sales increased by $635,000, or 15%, from the quarter ending June
      30, 1999. As a percentage of revenues, cost of sales increased from 49% in
      the quarter ended June 30, 1999 to 59% in the quarter ended June 30, 2000.
      The resulting decrease in gross profit from 51% in 1999 to 41% in 2000 is
      the result of unusual charges of $536,000 for consulting and other related
      costs for Petcare Products documentation, procedural and regulatory
      compliance issues, $154,000 for hazardous waste removal and $335,000 for
      Pet Product recall and inventory related reserve. In addition, on May 17,
      2000, an oil tank spill occurred at the Poultry Vaccine Vineland facility,
      in which $167,000 in expenses were incurred to clean up the oil spill.
      Excluding the unusual charges above of $1,192,000, this would have
      resulted in a 55% gross profit for the quarter.

      Selling, general and administrative expenses decreased by $343,000, or
      10%, from $3,553,000 in the quarter ended June 30, 1999 to $3,210,000 in
      the quarter ended June 30, 2000. As a percentage of revenues, these
      expenses were 40% of revenues for the quarter ended June 30, 1999 compared
      to 38% in the quarter ended June 30, 2000. Selling and marketing expenses
      decreased by $38,000 compared to the same period last year principally
      related to lower vaccine selling expenses. General and administrative
      expenses decreased by $305,000, or 22% compared to the second quarter
      1999, primarily as a result of decreased professional fees, management
      compensation and additional cost saving measures implemented.

      Product development and research expenses increased by $113,000 or 35%,
      compared to the quarter ended June 30, 1999. The increase is mainly for
      additional research staff to work on new and existing projects.

      Net interest expense changed by $1,407,000, from $843,000 net interest
      expense for the three months ended June 30, 1999 to net interest income of
      $564,000 for the three months ended June 30, 2000. The decrease is a
      result of the amendment of the ACS Subordinated notes, whereby the "put"
      provision associated with the original warrants granted to purchase
      1,907,543 shares of the Company's stock was replaced by a "make-


                                                                              10
<PAGE>   11
                           IGI, INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)

      whole" feature. The interest expense reduction of non-taxable $1,431,000
      reflects the decrease in the fair value of the warrants from April 1, 2000
      to April 12, 2000.

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO JUNE 30, 1999

      The Company had a net loss of $536,000, or $.05 per share, for the six
      months ended June 30, 2000 as compared to a net loss of $451,000, or $.05
      per share, for the six months ended June 30, 1999. The increase in the net
      loss compared to the prior year was primarily due to decreased revenues
      and increased cost of sales offset by decreased operating expenses and
      decreased interest expense.

      Total revenues for the six months ended June 30, 2000 were $16,865,000,
      which represents a decrease of $740,000, or 4%, from revenues of
      $17,605,000 for the six months ended June 30, 1999. The decrease in
      revenues was primarily attributable to decreased Poultry Vaccine and
      Companion Pet sales partially offset by increased Consumer revenues.
      Poultry Vaccine revenue decreased by $735,000 or 10% as a result of
      limited production capacity and lost customers at the Company's Vineland
      business. Management has sought to modernize its Vineland poultry vaccine
      equipment and facilities and to increase production capacity. Limited
      production capacity and old equipment, combined with increased
      requirements for higher super potency and larger volume vaccines has
      continued to limit Vineland's ability to produce sufficient quantities of
      vaccines. Companion Pet Products revenues decreased $224,000 or 3% under
      the comparable six months in 1999 due to lost revenues from a product
      recall and a decrease in shipments by distributors who are reducing
      inventory to increase their inventory turnover. Consumer Products revenues
      increased $219,000, or 6%, for the six months of 2000 as a result of
      licensing and royalty income. Licensing and royalty income increased by
      $738,000 or 95% over the comparable period last year as a result of
      increased license revenue from Johnson & Johnson due to it's new product
      introductions.

      Cost of sales increased by $507,000, or 6%, from the six months ended June
      30, 1999. As a percentage of revenues, cost of sales increased from 50% in
      the six months ended June 30, 1999 to 55% in the six months ended June 30,
      2000. The resulting decrease in gross profit from 50% in 1999 to 45% in
      2000 is the result of unusual charges of $634,000 for consulting and other
      related costs for Petcare Products documentation, procedural and
      regulatory compliance issues, $160,000 for hazardous waste removal and
      $335,000 for Pet Product recall and inventory related reserve. In
      addition, on May 17, 2000, an oil tank spill occurred at the Poultry
      Vaccine Vineland facility. $167,000 in expenses was incurred to clean up
      the oil spill. Excluding the unusual charges above of $1,296, 000, this
      would have resulted in a 53% gross profit for the six months ended June
      30, 2000.

      Selling, general and administrative expenses decreased by $658,000, or 9%,
      from $7,168,000 in the six months ended June 30, 1999 to $6,510,000 in the
      six months ended June 30, 2000. As a percentage of revenues, these
      expenses were 41% of revenues for the six months ended June 30, 1999
      compared to 39% in the six months ended June 30, 2000. Selling and
      marketing expenses decreased by $65,000 compared to the same period last
      year principally related to lower vaccine selling expenses. General and
      administrative expenses decreased by $593,000, or 22% compared to the six
      months ended 1999, primarily as a result of decreased professional fees,
      management compensation and director fees and additional cost saving
      measures implemented.

      Product development and research expenses increased by $229,000, or 36%,
      compared to the six months ended June 30, 1999. The increase is
      principally for additional research staff to work on new and existing
      projects.

      Net interest expense decreased $330,000, or 20%, from $1,665,00 for the
      six months ended June 30, 1999 to $1,335,000 in the six months ended June
      30, 2000. The decrease is a result of the amendment of the ACS
      Subordinated notes, whereby the "put" provision associated with the
      original warrants granted to purchase


                                                                              11
<PAGE>   12
                           IGI, INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)

      1,907,543 shares of the Company's stock were replaced by a "make-whole"
      feature. The non-taxable interest expense reduction of $1,431,000 reflects
      the decrease in the fair value of the warrants from April 1, 2000 to April
      12, 2000.

LIQUIDITY AND CAPITAL RESOURCES

      On April 12, 2000, ACS amended its Subordinated Debt Agreement with the
      Company whereby the "put" provision associated with the original warrants
      granted to purchase 1,907,543 shares of the Company's common stock was
      replaced by a "make-whole" feature. The "make-whole" feature requires the
      Company to compensate ACS, in either Common Stock or cash, at the option
      of the Company, in the event that ACS ultimately realizes proceeds from
      the sale of its Common Stock obtained upon exercise of its warrants that
      are less than the fair value of the Common Stock upon exercise of such
      warrants. Fair value of the Common Stock upon exercise is defined as the
      30-day average value prior to notice of intent to sell. ACS must exercise
      reasonable effort to sell or place its shares in the marketplace over a
      180-day period before it can invoke the make-whole provision.

      The Company recorded a non-taxable $1,073,000 provision reflected as
      interest expense for the mark-to-market adjustment for the fair value of
      the "put" warrant for the three month period ended March 31, 2000. As a
      result of the amendment, the liability recognized related to the warrants
      was reclassified as a component of equity without a future mark-to-market
      adjustment effective April 12, 2000. A non-taxable reduction of interest
      expense of approximately $1,431,000 was recognized in the second quarter
      reflecting a decrease in the fair value of the warrants from April 1,
      2000.

      In connection with the amendment to the Subordinated Debt Agreement, ACS
      also agreed to defer the payment by the Company of the cash portion of
      interest on subordinated debt for the period April 1, 2000 to July 31,
      2000 until July 31, 2000. Payment of the cash portion of interest on
      subordinated debt will be payable at the end of each subsequent three
      month period thereafter. Furthermore, the existing additional interest
      component at the rate of 2% was increased to 2.25%, which is payable at
      the Company's election in cash or in Company Common Stock. The increase of
      .25% in the additional interest component is in effect through March 2001,
      at which time the additional interest component rate is adjusted back down
      to 2%.

      The debt agreements contain various affirmative and negative covenants,
      such as minimum tangible net worth and minimum fixed charge coverage
      ratios. The covenants under the debt agreements were further amended on
      April 12, 2000. The financial covenants are dependent upon continued
      improved operating results. The Company remains highly leveraged and as a
      result, access to additional funding sources is limited. The Company's
      available borrowings under the revolving line of credit facility are
      dependent on the level of qualifying accounts receivable and inventory.
      Unfavorable product sales performance since April 1, 2000 has limited the
      available borrowing capacity of the Company under the revolving line of
      credit facility. If the Company's operating results deteriorate or product
      sales do not improve or the Company is not successful in meeting its
      financial obligations, it could result in a default under its loan
      agreements and any such default, not resolved, could lead to curtailment
      of certain of its business operations, sale of certain assets or the
      commencement of insolvency proceedings by its creditors.

      On June 26, 2000, the Company entered into an Asset Purchase Agreement
      dated as of June 19, 2000 (the "Vineland Agreement"), with Vineland
      International, a general partnership which has changed its name to Lohmann
      Animal Health International (the "Buyer"). The Vineland Agreement provides
      for the sale (the "Vineland Sale") by the Company to the Buyer of the
      assets associated with the business of manufacturing, marketing, licensing
      and selling poultry vaccines and related equipment conducted by the
      Vineland Laboratories division of the Company. In exchange for receipt of
      such assets, the Buyer will assume certain Company liabilities, in the
      aggregate, equal to approximately $2,300,000 and will pay the Company cash
      in the amount of $12,500,000, of which $500,000 will be placed in an
      escrow fund to secure potential obligations of the Company relating to
      final purchase price adjustments and indemnification.


                                                                              12
<PAGE>   13
                           IGI, INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)

      On June 26, 2000, the Company entered into Amendment No. 2 to Note and
      Equity Purchase Agreement with ACS. Pursuant to the Second Subordinated
      Amendment, the Company received $500,000 and issued to ACS $500,000
      aggregate principal amount of Series C Senior Subordinated Notes due
      September 30, 2000 (the "Series C Notes"); and ACS waived compliance with
      certain financial covenants applicable to Borrower contained in the
      Subordinated Debt Agreement and modified certain interest payment dates
      with respect to the Notes. In addition, the Second Subordinated Amendment
      permits the Company to issue additional Series C Notes on July 31, 2000 to
      pay the interest then due and payable on the Notes and the Series C Notes.
      The Company will issue in the beginning of August 2000, to ACS an
      additional Series C Note in the aggregate principal amount of
      approximately $300,000.

      Also, on June 26, 2000, the Company entered into a Second Amendment to
      Loan and Security Agreement dated as of June 23, 2000 (the "Second Senior
      Amendment") with Fleet Capital Corporation ("Fleet"), the Senior Lender.
      Pursuant to the Second Senior Amendment, the Company obtained an
      "overadvance" of $500,000 under the Revolving Loan (the "Overadvance"),
      repayable in full on the earlier to occur of September 22, 2000 or the
      date of the consummation of the Vineland Sale. Under the Second Senior
      Amendment, the Senior Lender agreed to forbear from exercising its right
      to accelerate the maturity of the Senior Loans upon the default by the
      Borrower under certain financial covenants (the "Forbearance Covenants")
      until the first to occur of: (a) September 22, 2000, (b) the date on which
      any default, other than a default under the Forbearance Covenants, occurs
      under the Senior Debt Agreement, as amended; or (c) the date of the
      termination of the Vineland Agreement.

      Under the Second Senior Amendment, the Senior Lender agreed to release its
      security interests in and liens on all property to be transferred by the
      Company to Buyer pursuant to the Vineland Sale (the "Vineland Collateral")
      upon consummation of the Vineland Sale. The release of the Vineland
      Collateral is conditioned upon the application of the proceeds of the
      Vineland Sale, net of certain closing and other costs approved by the
      Senior Lender, to repay the Loans, the Overadvance and the Series C Notes
      as follows: (i) first to repay the Overadvance in full; (ii) second, to
      repay that amount of the outstanding Revolving Loan equal to 85% of
      certain of the accounts receivable transferred to the Buyer pursuant to
      the Vineland Sale; (iii) third, to repay that amount of the Revolving Loan
      equal to 100% of the Revolving Loan made with respect to inventory
      transferred pursuant to the Vineland Sale; (iv) fourth, to repay in full
      the total amount of Capital Expenditure Loans then outstanding; (v) fifth,
      to repay in full the total amount of the Term B Loan then outstanding;
      (vi) sixth, to repay the Term A Loan in an amount sufficient to reduce the
      outstanding principal balance of the Term A Loan to $2,705,000; (vii)
      seventh, to pay the Series C Notes in an amount not to exceed $826,798.93;
      and (viii) eighth, to repay any portion of the then outstanding Revolving
      Loan.

      The Company's operating activities used $1.3 million of cash during the
      six-month period ended June 30, 2000. The Company utilized approximately
      $714,000 cash in investing activities, primarily for capital expenditures
      for the Company's manufacturing operations. Cash utilized in the Company's
      operating and investing activities were provided by the Company's
      financing activities, which primarily related to increased borrowings
      under the line of credit facility and capital expenditures facility.

REGULATORY PROCEEDING AND LEGAL PROCEEDINGS

     The Company is subject to review, oversight and periodic inspections by
     governmental regulatory agencies such as the U.S. Securities and Exchange
     Commission (the "SEC"), the U.S. Department of Agriculture ("USDA"), the
     Federal Food and Drug Administration ("FDA") and the New Jersey Department
     of Environmental Protection ("NJDEP") and the local department of health.


                                                                              13
<PAGE>   14
                           IGI, INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)

      FDA INSPECTION OBSERVATIONS

      On July 5, 2000, the FDA completed its inspection of the Company's
      Companion Pet Products division and issued an inspection report on Form
      FDA 483. The July 5, 2000 FDA report includes several unfavorable
      observations of manufacturing and quality assurance practices and products
      of the division. The Company is currently compiling its responses to the
      July 5, 2000 FDA report. In an effort to address a number of the FDA's
      stated concerns, on May 24, 2000, the Company discontinued production and
      shipment of Liquichlor and on June 1, 2000 temporarily stopped production
      of Cerumite, both products of the Pet Products Division. The aggregate
      annual sales volume for these products for the fiscal year ended December
      31, 1999 was $1,059,000.

      Upon receipt of the Company's formal response to the July 5, 2000
      observations, the FDA will evaluate the Company's response and will
      determine the ultimate outcome of the FDA inspection. An unfavorable
      outcome could result in fines, penalties and the potential halt of the
      sale of certain regulated products, any or all of which could have a
      material, adverse effect on the Company. The Company has incurred $634,000
      year to date in related expenses to improve production, to meet
      documentation, procedural and regulatory compliance.

      SEC INVESTIGATION

      On July 26, 2000, the Company reached an agreement in principle with the
      staff of the SEC to resolve matters arising with respect to the informal
      investigation of the Company commenced by the SEC in April 1998. Under the
      agreement, which will not be final until approved by the SEC, the Company
      neither admits nor denies that the Company violated the financial
      reporting and record-keeping requirements of Section 13 of the Securities
      Exchange Act of 1934, as amended, for the fiscal years 1995, 1996 and
      1997. Further, in the agreement, the Company agrees to the entry of an
      order to cease and desist from any such violation in the future. There is
      no monetary penalty.

      The investigation and settlement focus on fraudulent actions taken by
      former members of the company's management. Upon becoming aware of the
      fraudulent activity, IGI, through its Board of Directors, immediately
      commenced an internal investigation which led to the termination of
      employment of those responsible. IGI then cooperated fully with the staff
      of the SEC and disclosed to the Commission the results of the internal
      investigation.

      NJDEP ACTION

      On April 6, 2000, officials of the New Jersey Department of Environmental
      Protection inspected a company storage site in Buena, New Jersey and
      issued a Notice of Violation relating to the storage of waste materials in
      a number of trailers at the site. The Company has established a disposal
      and cleanup schedule and has commenced operations to remove materials from
      the site. Small amounts of hazardous waste were discovered and the Company
      was issued a notice of violation relating to the storage of these
      materials. The Company is cooperating with the authorities and expects the
      assessment of fines or penalties. The Company has expensed $160,000 year
      to date related to the disposal and clean up.

     COHANZICK PARTNERS, LP ACTION

     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 sought approximately $420,000 in actual damages together
     with fees, costs and interests, alleged 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 has
     settled this action without the expenditure of Company funds.


                                                                              14
<PAGE>   15
                           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

HIGHLY LEVERAGED AND DEBT COVENANT COMPLIANCE

      The Company remains very highly leveraged and subject to restrictive
      covenants and restraints which are contained in its Senior Debt Agreement,
      as amended, and its Subordinated Debt Agreement, as amended.

      The debt agreements contain various affirmative and negative covenants,
      such as minimum tangible net worth and minimum fixed charge coverage
      ratios. Furthermore, the Company's available borrowings under the
      Revolving Loan are dependent upon the level of the Company's qualifying
      accounts receivable and inventory. Also, the Company's ability to repay
      the Overadvance and the Series C Notes is dependent upon the consummation
      of the Vineland Sale on or before September 21, 2000.

      The Company believes that it can achieve the required financial
      performance and timely consummate the Vineland Sale; however, there can be
      no assurance that the Company will be successful in doing so. If the
      Company is not successful in meeting its financial covenants and timely
      closing the Vineland Sale, a default could occur under the debt agreements
      and any such default, if not resolved, could lead to curtailment of
      certain the Company's business operations, sale of certain assets or
      commencement of insolvency proceedings by the Company's creditors.

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 other
      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 these technologies.
      However, if its competitors develop new and improved technologies


                                                                              15
<PAGE>   16
                           IGI, INC. AND SUBSIDIARIES

      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, which ultimately
      may not be granted. 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.

INCOME TAXES

      The Company had net deferred tax assets in the amount of approximately
      $5.9 million as of December 31, 1999 and $6.1 million as of June 30, 2000.
      The largest deferred tax asset relates to $3.7 million of net operating
      loss carryforwards. After considering a $955,000 valuation allowance at
      June 30, 2000, 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, 2000, was approximately $21 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 2019. Significant
      components expire in 2007, 2018 and 2019. Also federal research credits
      expire in varying amounts through the year 2019.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      On April 12, 2000, ACS amended its Subordinated Debt Agreement with the
      Company whereby the "put" provision associated with the original warrants
      granted to purchase 1,907,543 shares of the Company's common stock was
      replaced by a "make-whole" feature. The "make-whole" feature requires the
      Company to compensate ACS, in either Common Stock or cash, at the option
      of the Company, in the event that ACS ultimately realizes proceeds from
      the sale of its Common Stock obtained upon exercise of its warrants that
      are less than the fair value of the Common Stock upon exercise of such
      warrants. Fair value of the Common Stock upon exercise is defined as the
      30-day average value prior to notice of intent to sell. ACS must exercise
      reasonable effort to sell or place its shares in the marketplace over a
      180-day period before it can invoke the make-whole provision.

      As a result of the amendment, the liability recognized related to the
      warrants was reclassified as a component of equity without a future
      mark-to-market adjustment effective April 12, 2000. A reduction of
      interest expense of $1,431,000 was recognized in the second quarter
      reflecting a decrease in the fair value of the warrants from April 1 to
      April 12, 2000.


                                                                              16
<PAGE>   17
                            PART II OTHER INFORMATION

Item 1 - Legal Proceedings

      On July 26, 2000, the Company reached an agreement in principle with the
      staff of the SEC to resolve matters arising with respect to the informal
      investigation of the Company commenced by the SEC in April 1998. Under the
      agreement, which will not be final until approved by the SEC, the Company
      neither admits nor denies that the Company violated the financial
      reporting and record-keeping requirements of Section 13 of the Securities
      Exchange Act of 1934, as amended, for the fiscal years 1995, 1996 and
      1997. Further, in the agreement, the Company agrees to the entry of an
      order to cease and desist from any such violation in the future. There is
      no monetary penalty.

      The investigation and settlement focus on fraudulent actions taken by
      former members of the company's management. Upon becoming aware of the
      fraudulent activity, IGI, through its Board of Directors, immediately
      commenced an internal investigation which led to the termination of
      employment of those responsible. IGI then cooperated fully with the staff
      of the SEC and disclosed to the Commission the results of the internal
      investigation.

     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 interests, alleged 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 has
     settled this action without the expenditure of Company funds.


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

      None.

Item 5 - Other Information

      None.

Item 6 - Exhibits and Reports

      (a) Exhibits:

          Exhibit 27.1 Financial Data Schedule for six months ended June 30,
          2000

      (b) Reports on Form 8-K. The following reports on Form 8-K have been filed
          during the quarter for which this report is filed:

          Form 8-K filed June 19, 2000 on which Item 5 was completed to announce
          the resignation of the Company's Chief Financial Officer, Manfred
          Hanuschek.


                                                                              17
<PAGE>   18
                           IGI, INC. AND SUBSIDIARIES

                                   SIGNATURES


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



                                           IGI, Inc.
                                           (Registrant)





Date: August 11, 2000                   By: /s/Paul Woitach
                                           ------------------------------------
                                           Paul Woitach
                                           President and Chief Executive Officer





Date: August 11, 2000                   By: /s/Domenic N. Golato
                                           ------------------------------------
                                           Domenic N. Golato
                                           Senior Vice President and Chief
                                           Financial Officer


                                                                              18