<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.
---------------------------                              -----------------------
   SEPTEMBER 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 November 14, 2000

                                   10,256,564
<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 SEPTEMBER 30,       NINE MONTHS ENDED SEPTEMBER 30,
                                                       --------------------------------       -------------------------------
                                                           2000                 1999              2000              1999
                                                       ------------         -----------       ------------       -----------
<S>                                                    <C>                  <C>               <C>                <C>
Revenues:
  Sales, net                                           $      3,773         $     4,735       $     12,735       $    14,440
  Licensing and royalty income                                  546                 634              2,057             1,407
                                                       ------------         -----------       ------------       -----------
    Total revenues                                            4,319               5,369             14,792            15,847
                                                       ------------         -----------       ------------       -----------

Cost and expenses:
  Cost of sales                                               2,665               2,231              7,968             6,382
  Selling, general and administrative expenses                2,786               2,342              6,817             6,970
  Product development and research expenses                     219                 179                676               443
                                                       ------------         -----------       ------------       -----------
Operating profit (loss)                                      (1,351)                617               (669)            2,052
Interest expense, net                                           885                 835              2,220             2,500
                                                       ------------         -----------       ------------       -----------

Loss from continuing operations before income taxes          (2,236)               (218)            (2,889)             (448)
Provision (benefit) for income taxes (note 9)                 6,448                 (37)             5,852               (65)
                                                       ------------         -----------       ------------       -----------

LOSS FROM CONTINUING OPERATIONS                              (8,684)               (181)            (8,741)             (383)
                                                       ------------         -----------       ------------       -----------

DISCONTINUED OPERATIONS (note 2)
  Loss from Operations of Discontinued Business              (1,499)               (153)            (1,978)             (402)
  Gain on Disposal of Discontinued Business                     395                --                  395              --
                                                       ------------         -----------       ------------       -----------
Loss before extraordinary item                               (9,788)               (334)           (10,324)             (785)
Extraordinary loss from early extinguishment of debt            984                --                  984              --
  (note 8)                                             ------------         -----------       ------------       -----------
Net Loss                                               $    (10,772)        $      (334)      $    (11,308)      $      (785)
                                                       ============         ===========       ============       ===========
BASIC AND DILUTED LOSS PER COMMON SHARE

Continuing Operations Before Extraordinary Item        $      (0.84)        $     (0.02)      $      (0.86)      $     (0.04)
Discontinued Operations                                       (0.11)              (0.01)             (0.15)            (0.04)
                                                       ------------         -----------       ------------       -----------
                                                              (0.95)              (0.03)             (1.01)            (0.08)
Extraordinary Loss                                            (0.10)               --                (0.10)             --
                                                       ------------         -----------       ------------       -----------
Net income                                             $      (1.05)        $     (0.03)      $      (1.11)      $     (0.08)
                                                       ============         ===========       ============       ===========


Basic and diluted weighted average number of             10,243,355           9,593,644         10,220,842         9,554,470
  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>
                                                                 SEPTEMBER 30, 2000  DECEMBER 31, 1999
                                                                     (UNAUDITED)
                                                                     -----------
ASSETS                                                                  (AMOUNTS IN THOUSANDS)
Current assets:
<S>                                                              <C>                 <C>
  Cash and equivalents                                                $    168           $    416
  Accounts receivable, less allowance for doubtful accounts              2,014              2,314
    of $259 and $354 in 2000 and 1999, respectively
  Licensing and royalty receivable                                         735                432
  Inventories, net                                                       3,024              3,856
  Current deferred taxes, net                                               --              1,096
  Prepaid and other current assets                                         967                282
  Net assets of discontinued operations                                     --             10,093
                                                                      --------           --------
    Total current assets                                                 6,908             18,489
Property, plant and equipment, net                                       5,455              6,062
Deferred income taxes, net                                                  --              4,754
Deferred financing costs                                                   503              1,678
Investments                                                                169                144
Other assets                                                               406                390
                                                                      --------           --------
    Total Assets                                                      $ 13,441           $ 31,517
                                                                      ========           ========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Revolving credit facility                                           $  1,773           $  5,708
  Current portion of long-term debt, net of discount                     7,468             11,225
  Current portion of notes payable                                         291                408

  Accounts payable                                                       2,653              2,288
  Accrued payroll                                                          398                253
  Due to stockholder                                                        --                115
  Accrued interest                                                         449                164
  Other accrued expenses                                                 2,117              1,785
  Income taxes payable                                                      10                 15
                                                                      --------           --------
    Total current liabilities                                           15,159             21,961
Deferred income                                                            245                327
Detachable stock warrants                                                   --              3,696
                                                                      --------           --------
    Total Liabilities                                                   15,404             25,984
                                                                      --------           --------

Commitments and contingencies                                               --                 --

Stockholders' equity (deficit):
  Preferred stock $.01 par value, 1,000,000 authorized,                     --                 --
    none outstanding
  Common stock $.01 par value, 50,000,000 shares authorized;               103                102
  10,323,262 and 10,133,183 shares issued and outstanding
  in 2000 and 1999, respectively
  Additional paid-in capital                                            23,692             20,628
  Accumulated deficit                                                  (24,864)           (13,556)
Less treasury stock, 66,698 and 105,510 shares at cost in
    2000 and 1999, respectively                                           (894)            (1,641)
                                                                      --------           --------
  Total stockholders' equity (deficit)                                  (1,963)             5,533
                                                                      --------           --------
    Total Liabilities and Stockholders' Equity (Deficit)              $ 13,441           $ 31,517
                                                                      ========           ========
</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>
                                                                                       NINE MONTHS ENDED SEPTEMBER 30,
                                                                                       -------------------------------
                                                                                         2000                   1999
                                                                                       --------                -------
                                                                                           (AMOUNTS IN THOUSANDS)
<S>                                                                                    <C>                     <C>
Cash flows from operating activities:
  Net loss                                                                             $(11,308)               $  (785)
  Reconciliation of net loss to net cash (used by) provided by operating
  activities:
    Gain on sale of discontinued operations                                                (395)                    --
    Depreciation and amortization                                                           778                    706
    Amortization of deferred financing costs and debt discount                              256                     --
    Extraordinary expense on early extinguishment of debt                                   984                     --
    Gain on sale of assets                                                                   --                    (30)
    Write-off of other assets                                                                --                    105
    Provision for loss on accounts receivable and inventories                                26                    328
    Recognition of deferred revenue                                                        (167)                  (138)
    Charge (benefit) for deferred income taxes                                            5,850                   (337)
    Interest expense relating to put feature of warrants                                    (53)                    --
    Warrants issued to lenders under prior extension agreements                              --                    223
    Stock compensation expense:
      Non employee stock options                                                             40                     55
      Directors' stock issuance                                                              75                    145
  Changes in operating assets and liabilities:
    Accounts receivable                                                                     148                    253
    Inventories                                                                             234                   (688)
    Receivables under royalty agreements                                                   (303)                   (56)
    Prepaid and other assets                                                                596                    192
    Accounts payable and accrued expenses                                                   564                  1,226
    Deferred revenue                                                                         --                     58
    Short term notes payable, operating                                                    (867)                  (364)
    Income taxes payable/refundable                                                          (5)                    --
                                                                                       --------                -------
      Net cash (used in) provided by operating activities                                (3,547)                   893
                                                                                       --------                -------
Cash flows from investing activities:
  Capital expenditures                                                                     (565)                  (616)
  Proceeds from sales of assets                                                              --                     40
  (Increase) decrease in other assets                                                      (259)                  (334)
  Proceeds from sale of discontinued operations                                          12,000                     --
                                                                                       --------                -------
      Net cash provided by (used in) investing activities                                11,176                   (910)
                                                                                       --------                -------
Cash flows from financing activities:
  Borrowings under capital expenditures facility                                            257                     --
  Borrowings under revolving credit agreement                                            27,557                     --
  Repayments of revolving credit agreement                                              (31,492)                    --

  Payments of deferred financing costs                                                   (4,319)                    --
  Proceeds from exercise of common stock options and
  Purchase of common stock                                                                  120                     --
                                                                                       --------                -------
      Net cash increase (used in) financing activities                                   (7,877)                    --
                                                                                       --------                -------
Net decrease in cash and equivalents                                                       (248)                   (17)
Cash and equivalents at beginning of period                                                 416                  1,068
                                                                                       --------                -------
Cash and equivalents at end of period                                                  $    168                $ 1,051
                                                                                       ========                =======
</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, as amended by Form 10-K/A, for
         the year ended December 31, 1999 (the "1999 10-K Annual Report").
         Certain prior period information has been reclassified to reflect the
         effect of discontinued operations.

2.       DISCONTINUED OPERATIONS

         On September 15, 2000, the shareholders of the Company approved, and
         the Company consummated, the sale of the assets and transfers of the
         liabilities of the Vineland Laboratories division. The buyer assumed
         liabilities of approximately $2,300,000, and paid the Company cash in
         the amount of $12,500,000, of which $500,000 was placed in an escrow
         fund to secure potential obligations of the Company relating to final
         purchase price adjustments and indemnification. The Company's results
         reflects a $395,000 gain on the Vineland Sale under Gain on Disposal of
         Discontinued Business. Also, the Vineland Laboratories division
         incurred a loss of $1,499,000 and $1,978,000 for the three and nine
         months ended September 30, 2000, respectively, as reflected as a loss
         from operations of discontinued business.

3.       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,


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


         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. On September 30, 2000, ACS granted an extension to November
         30, 2000 for the registration to be effective by the SEC. If the
         registration is not effective by this date, the Company can be required
         by ACS to reclassify the $3,338,000 from paid in capital to a liability
         and resume mark-to-market accounting.

         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 the Second Subordinated
         Amendment 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; 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 issued in August 2000, an additional
         Series C Note to ACS in the aggregate principal amount of approximately
         $306,000 for the interest due. The Series C Notes were paid with
         interest totaling approximately $818,000 on September 15, 2000, the
         date of the closing of the Vineland Sale.

         Also, on June 26, 2000, the Company entered into a Second Senior
         Amendment dated as of June 23, 2000 with Fleet. Pursuant to the Second
         Senior Amendment, the Company obtained an "Overadvance" of $500,000
         under the senior revolving line of credit, 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, Fleet 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). The Company did not borrow any
         funds from the overadvance.

         On September 15, 2000 the shareholders of the Company approved and the
         Company consummated the sale of the assets of the Vineland Laboratories
         division. In exchange for receipt of such assets, the Buyer assumed
         certain Company liabilities, in the aggregate, equal to approximately
         $2,300,000 and paid the Company cash in the amount of $12,500,000, of
         which $500,000 was placed in an escrow fund to secure potential
         obligations of the Company relating to final purchase price adjustments
         and indemnification. The Company applied a portion of the proceeds of
         the Vineland Sale to the Fleet required payments on the Revolving Loan,
         Capital Expenditure Loan and Term Loans totaling approximately
         $10,875,000. The Company's operating results reflect a $395,000 gain on
         the Vineland Sale, and a $984,000 extraordinary loss on the early
         extinguishment of debt.

         Due to the terms of the Second Senior Amendment and the Second
         Subordinated Amendment discussed above, the Company has classified all
         debt owed to ACS and Fleet as short-term debt. The Company's
         independent accountants determined that substantial doubt exists about
         the Company's ability to continue as a going concern. Even after the
         Vineland Sale and repayment of the Series C Notes, the Company remains
         highly leveraged; furthermore, availability for borrowings under the
         revolving line of credit facility is dependent on the level of its
         qualifying accounts receivable and inventory.


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


         ACS and Fleet have waived compliance with certain financial covenants
         through September 30, 2000. As of October 1, 2000, the Company is not
         in compliance with the bank covenants. Based on the results through the
         third quarter of 2000, which reflects a lower sales price for the
         Vineland Division, operating losses and the additional deferred tax
         valuation allowance, none of which were anticipated at the time the
         covenants were established, ACS and Fleet have agreed to renegotiate
         the covenants going forward prior to 2001.

4.       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. Given the Company's net loss, basic
         and dilutive earnings per share data are equal for the periods ended
         September 30, 2000 and 1999.

5.       INVENTORIES

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

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

<TABLE>
<CAPTION>
                                       SEPTEMBER 30, 2000    DECEMBER 31, 1999
                                       -------------------    -----------------
         <S>                           <C>                    <C>
         (AMOUNTS IN THOUSANDS)
         Finished goods                       $1,832               $2,445
         Work-in-process                          --                3,853
         Raw materials                         1,192                2,464
                                              ------               ------
         Total                                $3,024               $8,762
                                              ======               ======
</TABLE>

6.       REGULATORY PROCEEDINGS AND LEGAL PROCEEDINGS

         The Company is subject to review, oversight and periodic inspections by
         governmental regulatory agencies such as 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

         In April 2000, the FDA initiated an inspection of the Company's
         Companion Pet Products division and issued an inspection report on Form
         FDA 483 on July 5, 2000. The July 5, 2000 FDA report includes several
         unfavorable observations of manufacturing and quality assurance
         practices and products of the division. In an effort to address a
         number of the FDA's stated concerns, on May 24, 2000, the Company
         permanently 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 in total, $534,000 for Liquichlor and $525,000 for Cerumite.
         The Company has responded to the July 5, 2000 FDA report and is
         currently preparing the required written procedures and documentation
         on product preparation to comply with the FDA regulations. After this
         is completed, the Company will contact the FDA for a return visit. The
         Company is unable to estimate, at this time, when it will request the
         FDA's return visit.

         The Company formally responded 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


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

         outcome could result in fines, penalties and the potential permanent or
         temporary 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 $884,000 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. No monetary penalty is expected.

         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 expected cost of $160,000
         related to the disposal and cleanup.

         On or around, May 17, 2000, the Company became aware of a spill at its
         Vineland Laboratories facility of about 965 gallons of #2 fuel oil. By
         May 26, 2000 the Company had completed remediation of the soil and
         nearby creek that were affected by the heating oil spill. To assure
         that the nearby groundwater was not contaminated by the spill, the
         Company's environmental consultants advised the Company to drill a test
         well. The well has been drilled and the analytical results found no
         contamination of groundwater. The Company has expensed the costs of the
         initial remediation and accrued the costs of drilling the test well.

         Accruals for environmental remediation are recorded when it is probable
         a liability has been incurred and costs are reasonably estimable. The
         estimated liabilities are recorded at undiscounted amounts. It is the
         Company's practice to reflect environmental insurance recoveries in the
         results of operations for the quarter in which the litigation is
         resolved through settlement or other appropriate legal process.

         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., Edward B. Hager, the Company's Chairman, the following
         directors of the Company: Terrence D. Daniels, Jane E. Hager,
         Constantine L. Hampers


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


         and Terrence O'Donnell and the following former directors and officers
         of the Company: Kevin J. Bratton, Stephen G. Hoch, Surendra Kumar,
         Donald J. MacPhee, Lawrence N. Zitto, Paul D. Paganucci, David G.
         Pinosky and John O. Marsh (collectively, the "IGI Defendants") and John
         P. Gallo, the Company's former President. The suit which sought
         approximately $420,000 in actual damages together with fees, costs and
         interest, 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 IGI Defendants
         settled the matter pursuant to a Stipulation and Order of Dismissal
         signed by the Court on July 19, 2000. In exchange for the plaintiff's
         agreement to dismiss its claims against the IGI Defendants, the Company
         issued to the plaintiff 35,000 shares of unregistered Common Stock of
         the Company, $.01 par value per share, and the Company's insurer agreed
         to pay $97,500 to the plaintiff. The Company issued the 35,000 shares
         of Common Stock in June, 2000 and recorded the issuance at the fair
         market value of the Common Stock on the date of issuance ($1.375 per
         share) or $48,125 in the aggregate. As of December 31, 1999, the
         Company established a reserve with respect the Cohanzick suit of
         $88,750. The Company offset the $48,125 upon issuance of stock to the
         reserve during this quarter.

7.       BUSINESS SEGMENTS

         Summary data related to the reportable segments for the Company's
         continuing operations for the nine-month periods ended September 30,
         2000 and 1999 appear below:

<TABLE>
<CAPTION>
                                            COMPANION        CONSUMER
                                           PET PRODUCTS      PRODUCTS         CORPORATE *     CONSOLIDATED
                                           ------------      --------         -----------     ------------
                                                                  (IN THOUSANDS)
         <S>                                 <C>               <C>              <C>             <C>
         THREE MONTHS ENDED SEPTEMBER 30:
         2000
         ----
         Revenues                            $ 3,033           $ 1,286          $    --          $ 4,319
         Operating profit (loss)                (163)              719           (1,907)          (1,351)

         1999
         ----
         Revenues                              3,861             1,508               --            5,369
         Operating profit (loss)               1,119               840           (1,342)             617

         NINE MONTHS ENDED SEPTEMBER 30:
         2000
         ----
         Revenues                              9,736             5,056               --           14,792
         Operating profit (loss)                 410             3,138           (4,217)            (669)

         1999
         ----
         Revenues                             10,788             5,059               --           15,847
         Operating profit (loss)               3,289             2,845           (4,082)           2,052
</TABLE>

*Notes:

         (A)      Unallocated corporate expenses are principally general and
                  administrative expenses.

         (B)      Transactions between reportable segments are not material.

8.       EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF DEBT

         A portion of the cash proceeds for the sale of the Vineland
         Laboratories division was used to pay down bank debt of $10,875,000. An
         extraordinary loss of $984,000 was recognized in connection with this
         pay-down, representing unamortized deferred charges related to the bank
         financing.


                                                                               9
<PAGE>   10
                           IGI, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


9.       INCOME TAXES

         The increase in tax expense is the result of an additional valuation
         allowance of $6,448,000 recorded during the quarter ended September 30,
         2000. On a quarterly basis, the Company evaluates the recoverability of
         its deferred tax assets based on its history of operating earnings, its
         expectations for the future, and the expiration dates of the net
         operating loss carryforwards. At September 30, 2000, there were a
         number of events that were not originally forecasted or expected by the
         Company, which negatively impacted the earnings and cash flow of the
         Company and will continue to impact the Company in the future. The
         Company initially expected to receive $17.5 million on the sale of the
         Vineland division; the final negotiated price was for $15.0 million. In
         addition, the Company projected the Vineland division to generate an
         operating profit in 2000 but instead it incurred a substantial
         operating loss, including a third quarter operating loss for the
         Vineland division through September 15, 2000, the date of the sale of
         Vineland of $1,499,000. Also, the Petcare division, due to the FDA
         inspection and related inspection report received on July 5, 2000, has
         suspended production and sales of two significant Petcare products and
         incurred substantial consulting fees related to the products that the
         FDA requested to be recalled. In the third quarter, the Company decided
         to permanently discontinue the manufacture and sale of Liquichlor,
         which had sales of $534,000 in 1999. In addition, the Company cannot
         predict when or if it will resume production of Cerumite. The Company's
         Consumer division has also generated less profit than was originally
         projected in 2000. All of the above events have had a negative impact
         on profitability and cash flow and resulted in the Company being in
         violation of its bank covenants. As a result, the Company has concluded
         that based on its evaluation of the events that have arisen through the
         third quarter of 2000, and its forecast of future operating results, it
         is not likely that it will be able to fully realize their deferred tax
         assets in the foreseeable future. Also, upon future positive operating
         results the deferred tax assets can be reinstituted.

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 CONTINUING OPERATIONS

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

         The Company had a net loss of $8,684,000 or $.84 per share, for the
         three months ended September 30, 2000 as compared to a net loss of
         $181,000, or $.02 per share, for the quarter ended September 30, 1999.
         The increase in net loss is a result of charges for additional
         Companion Pet consulting fees, write off of Companion Pet Products
         obsolete inventory and product recalls, executive severance, investment
         banker's fee, additional legal costs, and establishment of additional
         valuation allowances for deferred tax assets.

         Total revenues for the quarter ended September 30, 2000 were
         $4,319,000, which represents a decrease of $1,050,000 or 20%, compared
         to revenues of $5,369,000, for the quarter ended September 30, 1999.
         The decrease is due to lower Companion Pet and Consumer Product
         revenues. Companion Pet Product revenue decreased $828,000 or 21%
         primarily due to lost


                                                                              10
<PAGE>   11
                           IGI, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS


         revenues from product recalls and removal of these products from the
         product line. Consumer Product revenue decreased $222,000 or 15% mainly
         from reduced sales to Estee Lauder and lower royalty income from
         Johnson & Johnson, offset by higher Genesis related licensing income.

         Cost of sales increased by $434,000, or 19%, from the quarter ended
         September 30, 1999. As a percentage of revenues, cost of sales
         increased from 42% in the quarter ended September 30, 1999 to 62% in
         the quarter ended September 30, 2000. The resulting decrease in gross
         profit from 58% in 1999 to 38% in 2000 is the result of unusual charges
         of an additional $250,000 for consulting and other related costs for
         Pet Care Products documentation, procedural and regulatory compliance
         issues, a $146,000 charge for recall of certain Pet Care products and a
         charge of $315,000 for Pet Products' inventory obsolescence. Without
         these the unusual charges of $711,000, the gross profit for the quarter
         would have been 47%.

         Selling, general and administrative expenses increased by $444,000 or
         19%, from $2,342,000 in the quarter ended September 30, 1999 to
         $2,786,000 in the quarter ended September 30, 2000. As a percentage of
         revenues, these expense were 44% of revenues for the quarter ended
         September 30, 1999 compared to 65% in the quarter ended September 30,
         2000. The increase is the result of $280,000 for the former President's
         severance package, $206,000 fee for investment banking services and
         $134,000 for additional legal costs related to recent SEC filings.

         Product development and research expenses increased by $40,000 or 22%
         compared to the quarter ended September 30, 1999. The increase is
         mainly for additional research staff to work on new and existing
         projects.

         Net interest expense changed by $50,000 from $835,000 net interest
         expense for the three months ended September 30, 1999 to $885,000 for
         the three months ended September 30, 2000. The increase is the result
         of higher borrowing required to fund operations until the sale of the
         Vineland Division on September 15, 2000.

         The increase in tax expense is the result of an additional valuation
         allowance of $6,448,000 recorded during the quarter ended September 30,
         2000. On a quarterly basis, the Company evaluates the recoverability of
         its deferred tax assets based on its history of operating earnings, its
         expectations for the future, and the expiration dates of the net
         operating loss carryforwards. At September 30, 2000, there were a
         number of events that were not originally forecasted or expected by the
         Company, which negatively impacted the earnings and cash flow of the
         Company and will continue to impact the Company in the future. The
         Company initially expected to receive $17.5 million on the sale of the
         Vineland division; the final negotiated price was for $15.0 million. In
         addition, the Company projected the Vineland division to generate an
         operating profit in 2000 but instead it incurred a substantial
         operating loss, including a third quarter operating loss for the
         Vineland division through September 15, 2000, the date of the sale of
         Vineland of $1,499,000. Also, the Petcare division, due to the FDA
         inspection and related inspection report received on July 5, 2000, has
         suspended production and sales of two significant Petcare products and
         incurred substantial consulting fees related to the products that the
         FDA requested to be recalled. In the third quarter, the Company decided
         to permanently discontinue the manufacture and sale of Liquichlor,
         which had sales of $534,000 in 1999. In addition, the Company cannot
         predict when or if it will resume production of Cerumite. The Company's
         Consumer division has also generated less profit than was originally
         projected in 2000. All of the above events have had a negative impact
         on profitability and cash flow and resulted in the Company being in
         violation of its bank covenants. As a result, the Company has concluded
         that based on its evaluation of the events that have arisen through the
         third quarter of 2000, and its forecast of future operating results, it
         is not likely that it will be able to fully realize their deferred tax
         assets in the foreseeable future. Also, upon future positive operating
         results the deferred tax assets can be reinstituted.


                                                                              11
<PAGE>   12
                           IGI, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS


         DISCONTINUED OPERATIONS

         On September 15, 2000, the shareholders of the Company approved and the
         Company consummated the sales of the assets and transfers of the
         liabilities of the Vineland Laboratories division. The buyer assumed
         liabilities of approximately $2,300,000, and paid the Company cash in
         the amount of $12,500,000, of which $500,000 was placed in an escrow
         fund to secure potential obligations of the Company relating to final
         purchase price adjustments and indemnification. The Company's results
         reflects a $395,000 gain on the Vineland Sale under Gain on Disposal of
         Discontinued Business. Also, the Vineland Laboratories division
         incurred a loss of $1,499,000 and $1,978,000 for the three and nine
         months ended September 30, 2000, respectively, as reflected as a loss
         from operations of discontinued business.

         RESULTS OF CONTINUING OPERATIONS

         NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO SEPTEMBER 30, 1999

         The Company had a net loss of $8,741,000, or $.86 per share, for the
         nine months ended September 30, 2000 as compared to a net loss of
         $383,000, or $.04 per share, for the nine months ended September 30,
         1999. The increase in the net loss compared to the prior year, was
         primarily due to decreased revenue for Companion Pet Products,
         increased cost of sales for Companion Pet Products, and establishment
         of an additional valuation allowance for deferred taxes.

         Total revenues for the nine months ended September 30, 2000 were
         $14,792,000, which represents a decrease of $1,055,000, or 7%, from
         revenues of $15,847,000 for the nine months ended September 30, 1999.
         The decrease in revenues was primarily attributable to decreased
         Companion Pet sales from product recalls and removal of these products
         from the product line. Consumer Products revenues decreased because of
         lower Estee Lauder shipments but this was offset by higher licensing
         and royalty income.

         Cost of sales increased by $1,586,000, or 25%, from the nine months
         ended September 30, 1999. As a percentage of revenues, cost of sales
         increased from 40% in the nine months ended September 30, 1999 to 54%
         in the nine months ended September 30, 2000. The resulting decrease in
         gross profit from 60% in 1999 to 46% in 2000, is the result of unusual
         charges of $884,000 for consulting and other related costs for Petcare
         Products documentation, procedural and regulatory compliance issues,
         $160,000 for hazardous waste removal and $796,000 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 $2,007,000, this would have resulted in a
         60% gross profit for the nine months ended September 30, 2000.

         Selling, general and administrative expenses decreased by $153,000, or
         2%, from $6,970,000 in the nine months ended September 30, 1999 to
         $6,817,000 in the nine months ended September 30, 2000. As a percentage
         of revenues, these expenses were 44% of revenues for the nine months
         ended September 30, 1999 compared to 46% in the nine months ended
         September 30, 2000. Overall expenses decreased due to cost saving
         measures implemented offset by the former President's severance
         package, fees for investment banking services and increased legal costs
         related to recent SEC filings.


                                                                              12
<PAGE>   13
                           IGI, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS


         Product development and research expenses increased by $233,000, or
         53%, compared to the nine months ended September 30, 1999. The increase
         is principally for additional research staff to work on new and
         existing projects.

         Net interest expense decreased $280,000, or 20%, from $2,500,000 for
         the nine months ended September 30, 1999 to $2,220,000 in the nine
         months ended September 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 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.

         The increase in tax expense is the result of an additional valuation
         allowance of $6,448,000 recorded during the quarter ended September 30,
         2000. On a quarterly basis, the Company evaluates the recoverability of
         its deferred tax assets based on its history of operating earnings, its
         expectations for the future, and the expiration dates of the net
         operating loss carryforwards. At September 30, 2000, there were a
         number of events that were not originally forecasted or expected by the
         Company, which negatively impacted the earnings and cash flow of the
         Company and will continue to impact the Company in the future. The
         Company initially expected to receive $17.5 million on the sale of the
         Vineland division; the final negotiated price was for $15.0 million. In
         addition, the Company projected the Vineland division to generate an
         operating profit in 2000 but instead it incurred a substantial
         operating loss, including a third quarter operating loss for the
         Vineland division through September 15, 2000, the date of the sale of
         Vineland of $1,499,000. Also, the Petcare division, due to the FDA
         inspection and related inspection report received on July 5, 2000, has
         suspended production and sales of two significant Petcare products and
         incurred substantial consulting fees related to the products that the
         FDA requested to be recalled. In the third quarter, the Company decided
         to permanently discontinue the manufacture and sale of Liquichlor,
         which had sales of $534,000 in 1999. In addition, the Company cannot
         predict when or if it will resume production of Cerumite. The Company's
         Consumer division has also generated less profit than was originally
         projected in 2000. All of the above events have had a negative impact
         on profitability and cash flow and resulted in the Company being in
         violation of its bank covenants. As a result, the Company has concluded
         that based on its evaluation of the events that have arisen through the
         third quarter of 2000, and its forecast of future operating results, it
         is not likely that it will be able to fully realize their deferred tax
         assets in the foreseeable future. Also, upon future positive operating
         results the deferred tax assets can be reinstituted.

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.

         During the nine months ended September 30, 2000, the Company recognized
         a benefit of $358,000 reflected as a reduction of interest expense for
         the mark-to-market adjustment for the fair value of the "put" warrant
         for the nine month period ended September 30, 2000. As a result of the
         amendment, the net liability recognized related to these warrants was
         reclassified as a component of equity without a future mark-to-market
         adjustment effective April 12, 2000.


                                                                              13
<PAGE>   14
                           IGI, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS


         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.

         In April, 2000, the FDA initiated an inspection of the Company's
         Companion Pet Products division and issued an inspection report on Form
         FDA 483 on July 5, 2000. The July 5, 2000 FDA report included several
         unfavorable observations of manufacturing and quality assurance
         practices and products of the division. In an effort to address a
         number of the FDA's stated concerns, on May 24, 2000, the Company
         permanently 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, $534,000 for Liquichlor and $525,000 for Cerumite. The
         Company has responded to the July 5, 2000 FDA report, and is currently
         preparing the required written procedures and documentation on product
         preparation to comply with the FDA regulations. After this is
         completed, the Company will contact the FDA for a return visit. The
         Company is unable to estimate, at this time, when it will request the
         FDA" return visit. The Company has incurred $884,000 year to date in
         related expenses to improve production, to meet documentation,
         procedural and regulatory compliance.After accounting for this
         cessation of production and combining these results with continued
         operating losses in the poultry vaccine business, the Company
         determined that it was not in compliance with the financial covenants
         in the debt agreements, as amended.

         On June 26, 2000, the Company entered into the Second Subordinated
         Amendment 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; 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 issued in August 2000, an additional
         Series C Note to ACS in the aggregate principal amount of approximately
         $306,000 for the interest due. The Series C Notes were paid with
         interest totaling approximately $818,000 on September 15, 2000, the
         date of the closing of the Vineland Sale.

         Also, on June 26, 2000, the Company entered into a Second Senior
         Amendment dated as of June 23, 2000 with Fleet. Pursuant to the Second
         Senior Amendment, the Company obtained an "Overadvance" of $500,000
         under the senior revolving line of credit, 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, Fleet 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). The Company did not borrow any
         funds from the overadvance.

         On September 15, 2000 the shareholders of the Company approved and the
         Company consummated the sale of the assets of the Vineland Laboratories
         division. In exchange for receipt of such assets, the Buyer assumed
         certain Company liabilities, in the aggregate, equal to approximately
         $2,300,000 and paid the Company cash in the amount of $12,500,000, of
         which $500,000 was


                                                                              14
<PAGE>   15
                           IGI, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS


         placed in an escrow fund to secure potential obligations of the Company
         relating to final purchase price adjustments and indemnification. The
         Company applied a portion of the proceeds of the Vineland Sale to the
         Fleet required payments on the Revolving Loan, Capital Expenditure Loan
         and Term Loans totaling approximately $10,875,000. The Company's
         operating results reflect a $395,000 gain on the Vineland Sale, and a
         $984,000 extraordinary loss on the early extinguishment of debt.

         Due to the terms of the Second Senior Amendment and the Second
         Subordinated Amendment discussed above, the Company has classified all
         debt owed to ACS and Fleet as short-term debt. The Company's
         independent accountants determined that substantial doubt exists about
         the Company's ability to continue as a going concern. Even after the
         Vineland Sale and repayment of the Overadvance and the Series C Notes,
         the Company remains highly leveraged; furthermore, availability for
         borrowings under the revolving line of credit facility is dependent on
         the level of its qualifying accounts receivable and inventory.

         ACS and Fleet have waived compliance with certain financial covenants
         through September 30, 2000. As of October 1, 2000, the Company is not
         in compliance with the bank covenants. Based on the results through the
         third quarter of 2000, which reflects a lower sales price for the
         Vineland Division, operating losses and the additional deferred tax
         valuation allowance, none of which were anticipated at the time the
         covenants were established, ACS and Fleet have agreed to renegotiate
         the covenants going forward prior to 2001.

         The Company remains highly leveraged and as a result, access to
         additional funding sources is limited. The Company's available
         borrowing 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 renegotiating
         its financial covenants or 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.

         The Company's operating activities used $3.5 million of cash during the
         nine-month period ended September 30, 2000. The Company generated
         approximately $11.2 million of cash in investing activities, primarily
         from the sale of the Vineland Division. 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.

REGULATORY PROCEEDING AND LEGAL PROCEEDINGS

     The Company is subject to review, oversight and periodic inspections by
     governmental regulatory agencies such as the SEC, the USDA, the FDA and the
     NJDEP and the local department of health.

FDA INSPECTION OBSERVATIONS

      In April 2000, the FDA initiated an inspection of the Company's Companion
      Pet Products division and issued an inspection report on Form FDA 483 on
      July 5, 2000. The July 5, 2000 FDA report includes several unfavorable
      observations of manufacturing and quality assurance practices and products
      of the division. In an effort to address a number of the FDA's stated
      concerns, on May 24, 2000, the Company permanently 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


                                                                              15
<PAGE>   16
                           IGI, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS


         $1,059,000 in total, $534,000 for Liquichlor and $525,000 for Cerumite.
         The Company has responded to the July 5, 2000 FDA report and is
         currently preparing the required written procedures and documentation
         on product preparation to comply with the FDA regulations. After this
         is completed, the Company will contact the FDA for a return visit. The
         Company is unable to estimate, at this time, when it will request the
         FDA's return visit.

         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
         $884,000 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. No monetary penalty is expected.

         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.

         On or around, May 17, 2000, the Company became aware of a spill at its
         Vineland Laboratories facility of about 965 gallons of #2 fuel oil.By
         May 26, 2000 the Company had completed remediation of the soil and
         nearby creek that were affected by the heating oil spill. To assure
         that the nearby groundwater was not contaminated by the spill, the
         Company's environmental consultants advised the Company to drill a test
         well. The well has been drilled and the analytical results found no
         contamination of groundwater. The Company has expensed the costs of the
         initial remediation and accrued the costs of drilling the test well.

         Accruals for environmental remediation are recorded when it is probable
         a liability has been incurred and costs are reasonably estimable. The
         estimated liabilities are recorded at undiscounted amounts. It is the
         Company's practice to reflect environmental insurance recoveries in the
         results of operations


                                                                              16
<PAGE>   17
                           IGI, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS


         for the quarter in which the litigation is resolved through settlement
         or other appropriate legal process.

         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., Edward B. Hager, the Company's Chairman, the following
         directors of the Company: Terrence D. Daniels, Jane E. Hager,
         Constantine L. Hampers and Terrence O'Donnell and the following former
         directors and officers of the Company: Kevin J. Bratton, Stephen G.
         Hoch, Surendra Kumar, Donald J. MacPhee, Lawrence N. Zitto, Paul D.
         Paganucci, David G. Pinosky and John O. Marsh (collectively, the "IGI
         Defendants") and John P. Gallo, the Company's former President. 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 IGI
         Defendants settled the matter pursuant to a Stipulation and Order of
         Dismissal signed by the Court on July 19, 2000. In exchange for the
         plaintiff's agreement to dismiss its claims against the IGI Defendants,
         the Company issued to the plaintiff 35,000 shares of unregistered
         Common Stock of the Company, $.01 par value per share, and the
         Company's insurer agreed to pay $97,500 to the plaintiff. The Company
         issued the 35,000 shares of Common Stock in June, 2000 and recorded the
         issuance at the fair market value of the Common Stock on the date of
         issuance ($1.375 per share) or $48,125 in the aggregate. As of December
         31, 1999, the Company established a reserve with respect the Cohanzick
         suit of $88,750. The Company offset the $48,125 upon issuance of stock
         to the reserve during this quarter .

FACTORS WHICH MAY AFFECT FUTURE RESULTS

HIGHLY LEVERAGED AND DEBT COVENANT COMPLIANCE

         In connection with the June, 2000 amendments to the Company's debt
         agreements, the Company reclassified its long-term debt, outstanding as
         of December 31, 1999 as short-term debt and the Company's independent
         accountants have determined that substantial doubt exists about the
         Company's ability to continue as a going concern.

         Even after the Vineland Sale, the Company is 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 requirements to achieve minimum tangible net worth and minimum
         fixed charge coverage ratios. Furthermore, the Company's available
         borrowings under the revolving line of credit are dependent upon the
         level of the Company's qualifying accounts receivable and inventory.

         ACS and Fleet have waived compliance with certain financial covenants
         through September 30, 2000. As of October 1, 2000, the Company is not
         in compliance with the bank covenants. Based on the results through the
         third quarter of 2000, which reflects a lower sales price for the
         Vineland Division, operating losses and the additional deferred tax
         valuation allowance, none of which were anticipated at the time the
         covenants were established, ACS and Fleet have agreed to renegotiate
         the covenants going forward prior to 2001.

         If the Company is not successful in meeting its financial covenants, 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.


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                           IGI, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS


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.

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 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.


                                                                              18
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                           IGI, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS


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.


                                                                              19
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                           IGI, INC. AND SUBSIDIARIES
                               FINANCIAL SCHEDULES


PART II OTHER INFORMATION

Item 1 - Legal Proceedings

         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. No monetary penalty is expected.

         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.

         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., Edward B. Hager, the Company's Chairman, the following
         directors of the Company: Terrence D. Daniels, Jane E. Hager,
         Constantine L. Hampers and Terrence O'Donnell and the following former
         directors and officers of the Company: Kevin J. Bratton, Stephen G.
         Hoch, Surendra Kumar, Donald J. MacPhee, Lawrence N. Zitto, Paul D.
         Paganucci, David G. Pinosky and John O. Marsh (collectively, the "IGI
         Defendants") and John P. Gallo, the Company's former President. 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 IGI Defendants settled the matter pursuant to a Stipulation
         and Order of Dismissal signed by the Court on July 19, 2000. In
         exchange for the plaintiff's agreement to dismiss its claims against
         the IGI Defendants, the Company issued to the plaintiff 35,000 shares
         of unregistered Common Stock of the Company, $.01 par value per share,
         and the Company's insurer agreed to pay $97,500 to the plaintiff.

         Item 3 - Defaults on Senior Securities

         The Company has failed to comply with the financial covenants contained
         in its loan agreements with Fleet and ACS regards to the fixed charge
         coverage, the maximum leverage ratio and the maximum debt-to-equity
         ratio. The Company's lenders had agreed to forbear through September
         30, 2000 from taking action with regards to non-compliance 2000. The
         Company has also failed to comply with the same covenants for the
         quarter ended September 30, 2000. The lenders have also agreed to waive
         non-compliance. The Company and its lenders have agreed to renegotiate
         these covenants. However, the Company cannot predict whether it will be
         able to negotiate new covenants with which it can comply.


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                           IGI, INC. AND SUBSIDIARIES
                               FINANCIAL SCHEDULES


         Item 5 - Other Information

         The Company has entered into a Separation Agreement with Paul Woitach,
         formerly President and Chief Executive Officer of the Company,
         regarding his separation from the Company. The Agreement provides for
         the continued payment of his salary through August 31, 2001 and for the
         continuation of certain other benefits. The Company also agreed to
         extend the period in which he may exercise Company stock options to
         December 31, 2001.


                                                                              21
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                           IGI, INC. AND SUBSIDIARIES
                               FINANCIAL SCHEDULES


                                   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: November 14, 2000        By:   /s/John Ambrose
                                  ----------------------------------------------
                               John Ambrose
                               President and Chief Operating Officer




Date: November 14, 2000        By:   /s/ Domenic N. Golato
                                  ----------------------------------------------
                               Domenic N. Golato
                               Senior Vice President and Chief Financial Officer


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                           IGI, INC. AND SUBSIDIARIES
                               FINANCIAL SCHEDULES

The following exhibits are filed herewith:

         10.1     Amendment and Waiver to Loan and Security Agreement dated as
                  of October 31, 2000 between Fleet Capital Corporation and the
                  Company and its affiliates.

         10.2     Letter Waiver dated November 9, 2000 between American Capital
                  Strategies, Ltd. and the Company and its affiliates.

         10.3     Separation Agreement and General Release dated September 1,
                  2000 between the Company and Paul Woitach.