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, 1999                          001-08568

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

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

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

                                  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 9, 1999

                                    9,609,930

<PAGE>

                          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,
                                                                --------------------------------     -------------------------------
                                                                      1999              1998              1999              1998
                                                                  -----------       -----------       -----------       -----------
<S>                                                               <C>               <C>               <C>               <C>
Revenues:
     Sales, net                                                   $     8,150       $     8,125       $    24,982       $    23,863
     Licensing and royalty income                                         634                54             1,407               257
                                                                  -----------       -----------       -----------       -----------
         Total revenues                                                 8,784             8,179            26,389            24,120

Cost and expenses:
     Cost of sales                                                      4,615             4,636            13,395            13,086
     Selling, general and administrative expenses                       3,427             3,495            10,595            11,223
     Product development and research expenses                            381               346             1,017             1,050
                                                                  -----------       -----------       -----------       -----------
Operating profit (loss)                                                   361              (298)            1,382            (1,239)

Interest expense, net                                                     835               745             2,500             2,284
                                                                  -----------       -----------       -----------       -----------

Loss before provision for income taxes                                   (474)           (1,043)           (1,118)           (3,523)
Benefit for income taxes                                                  140               375               333             1,268
                                                                  -----------       -----------       -----------       -----------

Net loss                                                          $      (334)      $      (668)      $      (785)      $    (2,255)
                                                                  ===========       ===========       ===========       ===========

Basic and diluted net loss per common share                       $      (.03)      $      (.07)      $      (.08)      $      (.24)

Basic and diluted weighted average number of
     common shares outstanding                                      9,593,644         9,466,667         9,554,470         9,466,667
</TABLE>

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


                                                                               2
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                     September 30, 1999       December 31, 1998
                                                                                     ------------------       -----------------
                                                                                               (amounts in thousands)
<S>                                                                                      <C>                      <C>
ASSETS
Current assets:
     Cash and equivalents                                                                $    1,051               $    1,068
     Accounts receivable, less allowance for doubtful accounts
          of $555 and $516, in 1999 and 1998, respectively                                    6,178                    6,462
     Licensing and royalty receivable                                                           496                      440
     Inventories, net                                                                         7,797                    7,406
     Current deferred taxes, net                                                              1,275                    1,275
     Prepaid and other current assets                                                           394                      433
                                                                                         ----------               ----------
          Total current assets                                                               17,191                   17,084
Investments                                                                                     535                      535
Property, plant and equipment, net                                                            9,572                    9,479
Deferred income taxes,net                                                                     4,525                    4,188
Other assets                                                                                    918                      770
                                                                                         ----------               ----------
          Total Assets                                                                   $   32,741               $   32,056
                                                                                         ==========               ==========

LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
     Credit line                                                                             12,000               $   12,000
     Revolving credit facility                                                                6,657                    6,657
     Current portion of notes payable                                                           650                      661
     Accounts payable                                                                         3,172                    3,235
     Accrued payroll                                                                            567                      196
     Due to stockholder                                                                         725                      380
     Accrued interest                                                                           926                      432
     Other accrued expenses                                                                   1,642                    1,614
     Income taxes payable                                                                        16                       16
                                                                                         ----------               ----------
          Total current liabilities                                                          26,355                   25,191
Notes payable                                                                                   208                      408
Deferred income                                                                                 566                      534
                                                                                         ----------               ----------
          Total Liabilities                                                                  27,129                   26,133
                                                                                         ----------               ----------

Commitments and contingencies

Stockholders' equity:
     Preferred stock $.01 par value, 1,000,000 authorized,                                       --                       --
          none outstanding
     Common stock $.01 par value, 50,000,000 and 30,000,000 shares authorized in
     1999 and 1998, respectively; 9,691,155 and
     9,648,931 shares issued in 1999 and 1998, respectively                                      97                       97

     Additional paid-in capital                                                              19,913                   19,961
     Accumulated deficit                                                                    (12,757)                 (11,972)
                                                                                         ----------               ----------
                                                                                              7,253                    8,086
Less treasury stock, 105,510 and 136,014 shares at cost in
          1999 and 1998, respectively                                                        (1,641)                  (2,163)
                                                                                         ----------               ----------
      Total stockholders' equity                                                              5,612                    5,923
                                                                                         ----------               ----------
          Total Liabilities and Stockholders' Equity                                     $   32,741               $   32,056
                                                                                         ==========               ==========
</TABLE>

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


                                                                               3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                            Nine months ended September 30,
                                                                                            -------------------------------
                                                                                            1999                      1998
                                                                                            ----                      ----
                                                                                                (amounts in thousands)
<S>                                                                                      <C>                      <C>
Cash flows from operating activities:
     Net loss                                                                            $     (785)              $   (2,255)
     Reconciliation of net loss to net cash used by operating activities:
          Depreciation and amortization                                                         706                      926
          Gain on Sale of Assets                                                                (30)
          Write-off of other assets                                                             105                       --
          Provision for loss on accounts receivable and inventories                             328                    1,240
          Recognition of deferred revenue                                                      (138)                      --
          Deferred income taxes                                                                (337)                  (1,521)
          Stock compensation expense for warrants and options                                   423                      337
     Changes in operating assets and liabilities:
          Accounts receivable                                                                   253                      423
          Inventories                                                                          (688)                   1,872
          Receivable under royalty agreements                                                   (56)                      --
          Prepaid and other assets                                                              192                      215
          Accounts payable and accrued expenses                                               1,226                      113
          Deferred revenue                                                                       58                       --
          Short term notes payable, operating                                                  (364)                      --
                                                                                         ----------               ----------

               Net cash provided by operating activities:                                       893                    1,350
                                                                                         ----------               ----------

Cash flows from investing activities:
     Capital expenditures                                                                      (616)                    (318)
     Proceeds from sale of assets                                                                40                       --
     (Increase) in other assets                                                                (334)                    (361)
                                                                                         ----------               ----------
               Net cash (used by) investing activities                                         (910)                    (679)
                                                                                         ----------               ----------

Cash flows from financing activities:
     Repayments of debt                                                                          --                     (436)
                                                                                         ----------               ----------
               Net cash (used by) financing activities                                           --                     (436)
                                                                                         ----------               ----------

Net decrease in cash and equivalents                                                            (17)                     235
Cash and equivalents at beginning of year                                                     1,068                    1,196
                                                                                         ----------               ----------
Cash and equivalents at September 30, 1999 and 1998                                      $    1,051               $    1,431
                                                                                         ==========               ==========
</TABLE>

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


                                                                               4
<PAGE>

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

1.    Basis of Presentation

      The accompanying consolidated financial statements have been prepared by
      IGI, Inc. without audit, pursuant to the rules and regulations of the
      Securities and Exchange Commission ("SEC"), and reflect all adjustments
      which, in the opinion of management, are necessary for a fair statement of
      the results for the interim periods presented. All such adjustments are of
      a normal recurring nature. Certain previously reported amounts have been
      reclassified to conform with the current period presentation.

      Certain information in footnote disclosures normally included in financial
      statements prepared in accordance with generally accepted accounting
      principles have been condensed or omitted pursuant to the rules and
      regulations of the SEC, although the Company believes the disclosures are
      adequate to make the information presented not misleading. These financial
      statements should be read in conjunction with the financial statements and
      the notes thereto included in the Company's Annual Report on Form 10-K for
      the year ended December 31, 1998 (the "1998 10-K Annual Report").

2.    Refinancing

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

      These agreements have enabled the Company to retire the approximately
      $18.6 million of outstanding debt with its former bank lenders, Fleet
      Bank, NH, and Mellon Bank, N.A. In connection with the repayment of their
      loans, the Company's former bank lenders agreed to return to the Company
      for cancellation, warrants held by them for the purchase of 810,000 shares
      of the Company's common stock at exercise prices ranging from $2.00 to
      $3.50. Also, approximately $600,000 of accrued interest was waived by the
      former bank group.

      The Senior Debt Agreement provides for a revolving line of credit facility
      of up to $12 million based upon qualifying accounts receivable and
      inventory, a $7 million term loan and a $3 million capital expenditures
      credit facility. The borrowings under the revolving line of credit bear
      interest at the prime rate plus 1.0% or the London Interbank offered rate
      plus 3.25%. The borrowings under the term loan and capital expenditure
      credit facility bear interest at the prime rate plus 1.5% or the London
      Interbank offered rate plus 3.75%. The Senior Debt Agreement has a
      maturity date of October 2004, but does provide for renewal subject to
      satisfaction of certain conditions.

      Borrowings under the Subordinated Debt Agreement bear interest at the rate
      of 12.5% plus an additional interest component at the rate of 2% which is
      payable at the Company's election in cash or Company common stock. The
      Subordinated Debt Agreement matures in October 2006. In connection with
      the Subordinated Debt Agreement the Company issued to the lender warrants
      to purchase 1,907,543 shares of IGI Common Stock at an exercise price of
      $.01 per share. These warrants contain a right to require the Company to
      repurchase the warrants and the common stock acquired upon exercise of
      such warrants at their then fair market value under certain circumstances,
      including the earliest to occur of the following: before October 29, 2004,
      the date of payment in full of the Senior Debt and Subordinate Debt and
      all senior indebtedness of the Company or the sale of the Company or 30%
      or more of its assets. American Capital Strategies, Ltd. has also agreed
      under certain circumstances, to limit or relinquish its right to require
      repurchase of these warrants and the Common Stock acquired upon exercise
      of such warrants. The warrants issued to American Capital Strategies, Ltd.
      will be valued utilizing the Black-Scholes valuation model and amortized
      over the life of the underlying agreement as a component of interest
      expense. The Company estimates the fair value of each warrant to
      approximate the fair market value of a share of the Company Common Stock
      at the date of grant. The underlying warrants are considered to be a
      derivative instrument and will be marked-to-market.


                                                                               5
<PAGE>

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

      These agreements also contain financial and other covenants and
      restrictions, which if breached by the Company would allow the lenders to
      demand prompt repayment of all outstanding indebtedness. In addition,
      American Capital Strategies, Ltd. has the right to designate for election
      to the Company's Board of Directors that number of directors that bears
      the same ratio to the total number of directors as the number of shares of
      Company common stock owned by it plus the number of shares issuable upon
      exercise of its warrants bear to the total number of outstanding shares of
      Company common stock on a fully-diluted basis, provided that so long as it
      owns any common stock, or warrants or any of its loans are outstanding, it
      shall have the right to designate at least one director.

      Approximately $24.5 million was immediately available to the Company under
      the Senior Debt and Subordinated Debt Agreements. The new agreements have
      enabled the Company to retire the approximately $18.6 million outstanding
      with the previous bank lenders, cover associated closing costs and provide
      a borrowing facility for working capital and capital expenditures. To
      secure all of its obligations under these agreements, the Company has
      granted the lenders a security interest in all of the assets and
      properties of the Company and its subsidiaries.

      Despite its new financing arrangements, the Company remains highly
      leveraged, and it must improve its operating results in the future to
      maintain compliance with the covenants contained in its loan agreements;
      furthermore, availability for borrowing under the revolving line of credit
      facility is dependent on the level of its qualifying accounts receivable
      and inventory. The Company will require an increase in its available
      working capital for any significant expansion of its business in the
      future, including capital for any significant expansion of its business in
      the future, including improvement and modernization of its production
      facilities. Accordingly, the Company will continue to seek additional
      equity funds for these purposes; however, no assurance can be given that
      it will be successful in obtaining additional equity on terms favorable to
      the Company or on any terms.

3.    Net Loss Per Common Share

      Basic net loss per share of common stock is computed based on the weighted
      average number of shares of common stock outstanding during the period.
      Diluted net loss per share of common stock is computed using the weighted
      average number of shares of common stock and potential dilutive stock
      outstanding during the period. Potential dilutive common stock includes
      shares issuable upon the exercise of common stock options and warrants.
      The effect of the Company's potential dilutive common stock was
      anti-dilutive for the three and nine months ended September 30, 1999 and
      1998; as a result, basic and dilutive weighted average number of common
      shares outstanding and net loss per common share is the same.

4.    Inventories

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


                                                                               6
<PAGE>

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

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

      (amounts in thousands)        September 30, 1999        December 31, 1998
                                    ------------------        -----------------
      Finished goods                      $2,617                   $2,785
      Work-in-process                      2,997                    2,210
      Raw materials                        2,183                    2,411
                                          ------                   ------
      Total                               $7,797                   $7,406
                                          ======                   ======

5.    Legal Proceedings

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

      On April 14, 1999, a lawsuit was filed in the U.S. District Court for the
      Southern District of New York by Cohanzick Partners, LP, against IGI,
      Inc., and certain of its present and former directors, officers and
      employees. The suit, seeks approximately $420,000 in actual damages
      together with fees, costs and interest, alleges violations of the
      securities laws, fraud, and negligent misrepresentation concerning certain
      disclosures made and other actions taken by the Company in 1996 and 1997.
      The Company will be required to respond to the suit by the end of 1999.

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

6.    Business Segments

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


                                                                               7
<PAGE>

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

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

<TABLE>
<CAPTION>
                                               Poultry   Companion Pet   Consumer
                                               Vaccines    Products      Products  Corporate*   Consolidated
                                               --------    --------      --------  ----------   ------------
                                                                      (in thousands)
<S>                                            <C>         <C>          <C>        <C>           <C>
      Three months ended September 30:
      1999
      Revenues                                 $  3,415    $  3,861     $  1,508   $     --      $  8,784
      Operating profit (loss)                      (256)      1,119          840     (1,342)          361
      1998
      Revenues                                 $  3,705    $  3,155     $  1,319   $     --      $  8,179
      Operating profit (loss)                      (335)        641          724     (1,328)         (298)
      Nine months ended September 30:
      1999
      Revenues                                 $ 10,542    $ 10,788     $  5,059   $     --      $ 26,389
      Operating profit (loss)                      (670)      3,289        2,845     (4,082)        1,382
      1998
      Revenues                                 $ 11,485    $  9,266     $  3,369   $     --      $ 24,120
      Operating profit (loss)                        67       2,092        1,303     (4,701)       (1,239)
</TABLE>

      *     Notes:

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


                                                                               8
<PAGE>

                           IGI, INC. AND SUBSIDIARIES

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

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

      The following discussion and analysis may contain forward-looking
      statements. Such statements are subject to certain risks and
      uncertainties, including those discussed below or in the Company's 1998
      10-K Annual Report, that could cause actual results to differ materially
      from the Company's expectations. See "Factors Which May Affect Future
      Results" below and in the 1998 10-K Annual Report. Readers are cautioned
      not to place undue reliance on any forward-looking statements, as they
      reflect management's analysis as of the data hereof. The Company
      undertakes no obligation to release the results of any revision to these
      forward-looking statements which may be made to reflect events or
      circumstances after the date hereof or to reflect the occurrence of
      anticipated events.

Results Of Operations

Settlement of U.S. Regulatory Proceedings

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

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

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

      The Company had a net loss of $334,000, or $.03 per share, for the three
      months ended September 30, 1999 as compared to a net loss of $668,000, or
      $.07 per share, for the third quarter ended September 30, 1998. The
      principal reasons for the reduction in the loss from last year were higher
      revenues and gross profit.

      Total revenues for the quarter ended September 30, 1999 were $8,784,000,
      which represents an increase of $605,000, or 7%, from revenues of
      $8,179,000 for the quarter ended September 30, 1998. Companion Pet
      Products increased $706,000 or 22% over the comparable quarter in 1998,
      primarily due to increased product domestic sales which includes new
      product launches. Consumer Products revenues increased $189,000, or 14%,
      for the third quarter of 1999 due primarily to royalty income under
      licensing and supply agreements. These increases were partially offset by
      decreased Poultry Vaccine sales of $290,000 or 8% related to limited
      production capacity at the Company's Vineland facility. Management has
      sought to modernize its Vineland poultry vaccine equipment and facilities
      and to increase production capacity to match orders from its sales


                                                                               9
<PAGE>

                           IGI, INC. AND SUBSIDIARIES

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

      force. Limited production capacity, old equipment, combined with increased
      requirements for higher potency and larger volume vaccines has limited
      Vineland's ability to produce as much vaccine as it can sell. Management
      expects that the capital expenditure facility availability under its new
      financing arrangements (refer to "Liquidity and Capital Resources") will
      aid the Company in financing the commencement of its modernization and
      production capacity program.

      Cost of sales decreased by $21,000, or .5%, from the quarter ended
      September 30, 1998. As a percentage of revenues, cost of sales decreased
      from 57% in the quarter ended September 30, 1998 to 53% in the quarter
      ended September 30, 1999. The resulting increase in gross profit in 1999
      compared to 1998 was attributable to higher revenues generated from
      Companion Pet Products and Consumer Products which offset the lower
      margins associated with Poultry Vaccine revenue.

      Selling, general and administrative expenses decreased by $68,000, or 2%,
      from $3,495,000 in the quarter ended September 30, 1998 to $3,427,000 in
      the quarter ended September 30, 1999. As a percentage of revenues, these
      expenses were 43% of revenues for the quarter ended September 30, 1998
      compared to 39% in the quarter ended September 30, 1999. Selling and
      marketing expenses decreased by $145,000 compared to the same period last
      year principally related to lower vaccine selling expenses due to the
      lower vaccine sales. General and administrative expenses increased by
      $77,000, or 6% compared to the third quarter 1998.

      Product development and research expenses increased by $35,000, or 10%,
      compared to the quarter ended September 30, 1998. The increase was
      principally related to the timing of expenditures.

      Net interest expense increased $90,000, or 12%, from $745,000 in the
      quarter ended September 30, 1998 to $835,000 in the quarter ended
      September 30, 1999, due principally to the amortization of the warrant
      cost in 1999 of $84,000, which did not occur in the third quarter of 1998.

Nine months ended September 30, 1999 compared to September 30, 1998

      The Company had a net loss of $785,000 or $.08 per share, for the nine
      months ended September 30, 1999 as compared to a net loss of $2,255,000 or
      $.24 per share, for the nine months ended September 30, 1998. The
      principal factors contributing to the decreased loss in 1999 were higher
      revenues and gross profit coupled with lower operating costs offset
      somewhat by higher interest expense in the nine months of 1999.

      Total revenues for the nine months ended September 30, 1999 were
      $26,389,000, an increase of $2,269,000, or 9%, over revenues of
      $24,120,000 for the nine months ended September 30, 1998. Consumer
      Products revenues increased $1,690,000, or 50%, for the nine months of
      1999 due primarily to an increase of $1,150,000 in license and royalty
      income in 1999 over 1998 and an increase in revenues from Estee Lauder.
      Companion Pet Products revenues increased $1,522,000 or 16% over the
      comparable period in 1998, due to increased international sales of
      $480,000 and increased domestic sales of $1,042,000 for the nine months
      ended in September 1999 over the comparable period in 1998. This revenue
      increase includes the launch of new products which generated approximately
      $400,000 in additional revenue. These increases were partially offset by
      decreased poultry vaccine sales of $943,000 or 8% from the nine months
      ended in September 1998. Revenues of approximately $1,200,000 from poultry
      vaccine sales included in the nine months ended September 1998 were
      attributable to orders received in prior periods that were not released
      for shipment until the first quarter of 1998 when the United States
      Department of Agriculture ("USDA") imposed stop shipment order was lifted.
      Management has sought to modernize its Vineland poultry vaccine equipment
      and facilities and to increase production capacity to match orders from
      its sales force. Limited production capacity, old equipment, combined with
      increased requirements for higher potency and larger volume vaccines has
      limited Vineland's ability to produce as much vaccine as it can sell.
      Management expects that the capital expenditure facility availability
      under its new financing arrangements (refer to "Liquidity and Capital
      Resources") will aid the Company in financing the commencement of its
      modernization and production capacity program.


                                                                              10
<PAGE>

                           IGI, INC. AND SUBSIDIARIES

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

      Cost of sales increased by $309,000, or 2%, for the nine months September
      30, 1999 due primarily to increased sales volume. However, as a percentage
      of revenues, cost of sales decreased from 54% for the nine months ended
      September 30, 1998 to 51% for the same period ended September 30, 1999.
      This decrease in cost of sales as a percentage of revenues was
      attributable to increased sales and improved production efficiency
      primarily from Companion Pet Products and Consumer Products revenues.

      Selling, general and administrative expenses decreased by $628,000, or 6%,
      from $11,223,000 for the nine months ended September 30, 1998 to
      $10,595,000 for the same period in 1999. As a percentage of revenues,
      these selling, general and administrative expenses were 40% of revenues
      for the nine months ended September 30, 1999 compared to 47% for the same
      period in 1998. General and administrative expenses declined by $583,000
      compared to the nine months of 1998 principally due to a decrease in
      expenditures for professional fees primarily related to the legal, audit
      and consulting expenses that were incurred in the nine months of 1998 in
      connection with the Company's internal and governmental investigations.
      Selling and marketing expenses decreased by $45,000 compared to the same
      period last year.

      Product development and research expenses decreased by $33,000, or 3%,
      compared to the nine months ended September 30, 1998 principally related
      to the timing of expenditures.

      Net interest expense increased $216,000, or 9%, from $2,284,000 for the
      nine months ended September 30, 1998 to $2,500,000 for the nine months
      ended September 30, 1999, due to higher interest rates and additional bank
      fees in the third quarter of 1999.

Liquidity and Capital Resources

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

      These agreements have enabled the Company to retire the approximately
      $18.6 million of outstanding debt with its former bank lenders, Fleet
      Bank, NH, and Mellon Bank, N.A. In connection with the repayment of their
      loans, the Company's former bank lenders agreed to return to the Company
      for cancellation, warrants held by them for the purchase of 810,000 shares
      of the Company's common stock at exercise prices ranging from $2.00 to
      $3.50. Also, approximately $600,000 of accrued interest was waived by the
      former bank group which amount will be reflected in the consolidated
      statement of operations in the fourth quarter of 1999.

      The Senior Debt Agreement provides for a revolving line of credit facility
      of up to $12 million based upon qualifying accounts receivable and
      inventory, a $7 million term loan and a $3 million capital expenditures
      credit facility. The borrowings under the revolving line of credit bear
      interest at the prime rate plus 1.0% or the London Interbank offered rate
      plus 3.25%. The borrowings under the term loan and capital expenditure
      credit facility bear interest at the prime rate plus 1.5% or the London
      Interbank offered rate plus 3.75%. The Senior Debt Agreement has a
      maturity date of October 2004, but does provide for renewal subject to
      satisfaction of certain conditions.

      Borrowings under the Subordinated Debt Agreement bear interest at the rate
      of 12.5% plus an additional interest component at the rate of 2% which is
      payable at the Company's election in cash or Company common stock. The
      Subordinated Debt Agreement matures in October 2006. In connection with
      the Subordinated Debt Agreement the Company issued to the lender warrants
      to purchase 1,907,543 shares of IGI Common Stock at an exercise price of
      $.01 per share. These warrants contain a right to require the Company to
      repurchase the warrants and the common stock acquired upon exercise of
      such warrants at their then fair market value under


                                       11
<PAGE>

                           IGI, INC. AND SUBSIDIARIES

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

      certain circumstances, including the earliest to occur of the following:
      before October 29, 2004, the date of payment in full of the Senior Debt
      and Subordinate Debt and all senior indebtedness of the Company or the
      sale of the Company or 30% or more of its assets. American Capital
      Strategies, Ltd. has also agreed under certain circumstances, to limit or
      relinquish its right to require repurchase of these warrants and the
      Common Stock acquired upon exercise of such warrants. The warrants issued
      to American Capital Strategies, Ltd. will be valued utilizing the
      Black-Scholes valuation model and amortized over the life of the
      underlying agreement as a component of interest expense. The Company
      estimates the fair value of each warrant to approximate the fair market
      value of a share of the Company Common Stock at the date of grant. The
      underlying warrants are considered to be a derivative instrument and will
      be marked-to-market.

      These agreements also contain financial and other covenants and
      restrictions, which if breached by the Company would allow the lenders to
      demand prompt repayment of all outstanding indebtedness. In addition,
      American Capital Strategies, Ltd. has the right to designate for election
      to the Company's Board of Directors that number of directors that bears
      the same ratio to the total number of directors as the number of shares of
      Company common stock owned by it plus the number of shares issuable upon
      exercise of its warrants bear to the total number of outstanding shares of
      Company common stock on a fully-diluted basis, provided that so long as it
      owns any common stock, or warrants or any of its loans are outstanding, it
      shall have the right to designate at least one director.

      Approximately $24.5 million was immediately available to the Company under
      the Senior Debt and Subordinated Debt Agreements. The new agreements have
      enabled the Company to retire the approximately $18.6 million outstanding
      with the previous bank lenders, cover associated closing costs and provide
      a borrowing facility for working capital and capital expenditures. To
      secure all of its obligations under these agreements, the Company has
      granted the lenders a security interest in all of the assets and
      properties of the Company and its subsidiaries.

      Despite its new financing arrangements, the Company remains highly
      leveraged, and it must improve its operating results in the future to
      maintain compliance with the covenants contained in its loan agreements;
      furthermore, availability for borrowing under the revolving line of credit
      facility is dependent on the level of its qualifying accounts receivable
      and inventory. The Company will require an increase in its available
      working capital for any significant expansion of its business in the
      future, including capital for any significant expansion of its business in
      the future, including improvement and modernization of its production
      facilities. Accordingly, the Company will continue to seek additional
      equity funds for these purposes; however, no assurance can be given that
      it will be successful in obtaining additional equity on terms favorable to
      the Company or on any terms.

      The Company's operating activities provided $893,000 of cash during the
      nine-month period ended September 30, 1999. The Company utilized
      approximately $910,000 in investing activities, which were primarily
      capital expenditures for the Company's manufacturing operations. Funding
      for the Company's investing activities was provided by cash from operation
      and the cash on hand at the beginning of the period.

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 and
      subordinate debt agreements. 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 line of credit facility are dependent on
      the level of qualifying accounts receivable and inventory. The Company
      must improve its


                                                                              12
<PAGE>

                           IGI, INC. AND SUBSIDIARIES

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

      financial performance in order to remain in compliance with these
      covenants in the future. The Company believes that it can achieve the
      requisite financial performance in doing so; 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 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.

Intense Competition in Consumer Products Business

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

Competition in Poultry Vaccine Business

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

Foreign Regulatory and Economic Considerations

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

Rapidly Changing Marketplace for Pet Products

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

Effect of Rapidly Changing Technologies

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


                                                                              13
<PAGE>

                           IGI, INC. AND SUBSIDIARIES

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

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.

Year 2000

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

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

      The Company believes that its: (i) financial and management computer
      systems and (ii) microprocessors and other electronic device components of
      equipment used by the Company are Year 2000 compliant. The Company has
      updated its existing computer system to make it Year 2000 compliant at a
      cost of approximately $65,000, and additionally has incurred approximately
      $35,000 in hardware and software upgrades and replacements. If the
      upgraded system fails, the Year 2000 issue could have a materially adverse
      effect on the operations and financial condition of the Company.

      The Company has contacted vendors and customers to determine their
      exposure to Year 2000 issues, their anticipated risks and responses to
      those risks. The Company's vendors supply products and materials which are
      readily available and the Company has identified alternative sources in
      the event a vendor is not Year 2000 compliant. The Company believes that
      the cost related to non-compliance by vendors and customers is not
      expected to be material.

Income Taxes

      The Company had net deferred tax assets in the amount of approximately
      $5.5 million as of December 31, 1998 and $5.8 million as of September 30,
      1999. The largest deferred tax asset relates to $3.1 million of net
      operating loss carryforwards. After considering a $726,000 valuation
      allowance at September 30, 1999, management believes the Company's
      remaining net deferred tax assets are more likely than not to be realized
      through the reversal of existing taxable temporary differences, the sale
      of certain state net operating losses, and the generation of sufficient
      future taxable operating income to ensure utilization of remaining
      deductible temporary differences, net operating losses and tax credits.
      The minimum level of future taxable income necessary to realize the
      Company's net deferred tax assets at September 30, 1999, was approximately
      $17 million. There can be no assurance, however, that the Company will be
      able to achieve the minimum levels of taxable income necessary to realize
      its net deferred tax assets. Federal net operating loss carryforwards
      expire through 2018. Significant components expire in 2007 (26%), 2010
      (13%) and 2018 (56%). Also federal research credits expire in varying
      amounts through the year 2018.


                                                                              14
<PAGE>

                           IGI, INC. AND SUBSIDIARIES

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

      Not applicable.

                            PART II OTHER INFORMATION

Item 1 - Legal Proceedings

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

      On April 14, 1999, a lawsuit was filed in the U.S. District Court for the
      Southern District of New York by Cohanzick Partners, LP, against IGI,
      Inc., and certain of its present and former directors, officers and
      employees. The suit, which has now been served on the defendants, seeks
      approximately $420,000 in actual damages together with fees, costs and
      interest, alleges violations of the securities laws, fraud, and negligent
      misrepresentation concerning certain disclosures made and other actions
      taken by the Company in 1996 and 1997. The Company will be required to
      respond to the suit by the end of 1999.

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

Item 2 - Changes in Securities and Use of Proceeds

      None.

Item 3 - Defaults Upon Senior Securities

      None.

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

      None.

Item 5 - Other Information

      None.

Item 6 - Exhibits and Reports

      (a) Exhibits:

            Exhibit 27.1 Financial Data Schedule for nine months ended
                         September 30, 1999

            Exhibit 27.2 Financial Data Schedule for nine months ended
                         September 30, 1998

      (b) Reports on Form 8K

            None.


                                                                              15
<PAGE>

                           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: November 10, 1999                     By: /s/ Manfred Hanuschek
                                                --------------------------------
                                                Manfred Hanuschek
                                                Senior Vice President and
                                                Chief Financial Officer


                                                                              16