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, 2001                                           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 6, 2001

                                 11,220,188

<PAGE>  1


                        PART I  FINANCIAL INFORMATION

                        ITEM 1.  Financial Statements

                         IGI, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS
           (in thousands, except share and per share information)
                                 (Unaudited)

<TABLE>
<CAPTION>
                                                       Three months ended                Nine months ended
                                                          September 30,                    September  30,
                                                  ---------------------------       ----------------------------
                                                      2001             2000             2001             2000
                                                      ----             ----             ----             ----


                                               <c>              <c>              <c>              <c>
Revenues:
  Sales, net                                      $     3,639      $     3,773      $    11,444      $    12,735
  Licensing and royalty income                            367              515              926            2,016
                                                  --------------------------------------------------------------
      Total revenues                                    4,006            4,288           12,370           14,751

Cost and expenses:
  Cost of sales                                         2,087            2,872            6,256            8,414
  Selling, general and administrative expenses          1,363            2,579            3,936            6,371
  Product development and research expenses               123              219              433              676
  Non-recurring charges                                   845                -            1,424                -
                                                  --------------------------------------------------------------
Operating profit (loss)                                  (412)          (1,382)             321             (710)
Interest expense                                          502              885            1,578            2,220
                                                  --------------------------------------------------------------

Loss from continuing operations before
 income taxes                                            (914)          (2,267)          (1,257)          (2,930)
Provision for income taxes                                (15)          (6,448)             (30)          (5,852)
                                                  --------------------------------------------------------------

Loss from continuing operations                          (929)          (8,715)          (1,287)          (8,782)
                                                  --------------------------------------------------------------

Discontinued operations:
  Loss from operations of discontinued business,
    Net of tax                                              -           (1,499)               -           (1,978)
  Gain on sale of discontinued business                     -              395              283              395

Cumulative effect of accounting change                      -                -                -             (168)
                                                  --------------------------------------------------------------
Loss before extraordinary item                           (929)          (9,819)          (1,004)         (10,533)

Extraordinary loss from early extinguishment
 of debt                                                    -              984                -              984
                                                  --------------------------------------------------------------
Net loss                                                 (929)         (10,803)          (1,004)         (11,517)

Mark to market for detachable stock warrants              115                -              219                -
                                                  --------------------------------------------------------------
Net loss attributable to common stock             $      (814)     $   (10,803)     $      (785)     $   (11,517)
                                                  ==============================================================

Basic and Diluted Loss Per Common Share
  Continuing operations                           $      (.07)     $      (.85)     $      (.10)     $      (.86)
  Discontinued operations                                   -             (.11)             .03             (.15)
  Cumulative effect of accounting change                    -                -                -             (.02)
  Extraordinary loss                                        -             (.09)               -             (.10)
                                                  --------------------------------------------------------------
  Net loss attributable to common stock           $      (.07)     $     (1.05)     $      (.07)     $     (1.13)
                                                  ==============================================================

Weighted average common stock and common stock
 equivalents outstanding
Basic and diluted                                  11,198,550       10,243,355       10,873,211       10,220,842
</TABLE>

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

<PAGE>  2


                         IGI, INC. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS
               (in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                  September 30, 2001     December 31, 2000
                                                                  ------------------     -----------------
                                                                      (unaudited)


                                                                    <c>                   <c>
ASSETS
Current assets:
  Cash and cash equivalents                                            $     38              $     69
  Restricted cash                                                             -                   102
  Accounts receivable, less allowance for doubtful accounts
   of $262 and $280 in 2001 and 2000, respectively                        1,880                 2,482
  Licensing and royalty income receivable                                   311                   413
  Inventories                                                             3,545                 2,585
  Prepaid expenses and other current assets                                 273                   140
                                                                       ------------------------------
      Total current assets                                                6,047                 5,791
Investments                                                                   -                     3
Property, plant and equipment, net                                        4,061                 5,343
Deferred financing costs                                                    701                   829
Other assets                                                                385                   421
                                                                       ------------------------------
      Total assets                                                     $ 11,194              $ 12,387
                                                                       ==============================

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
  Revolving credit facility                                            $  2,543              $  2,401
  Current portion of long-term debt                                         467                 7,384
  Accounts payable                                                        1,891                 2,359
  Accrued payroll                                                           221                   106
  Accrued interest                                                          105                   254
  Other accrued expenses                                                    860                 1,728
  Income taxes payable                                                       32                    15
                                                                       ------------------------------
      Total current liabilities                                           6,119                14,247
Long-term debt, net of discount and current portion                       6,953                     -
Deferred income                                                             644                   223
                                                                       ------------------------------
      Total liabilities                                                  13,716                14,470
                                                                       ------------------------------
Detachable stock warrants                                                   973                 1,192
                                                                       ------------------------------
Stockholders' deficit:
  Preferred stock $.01 par value, 1,000,000 authorized;
   none outstanding                                                           -                     -
  Common stock $.01 par value, 50,000,000 shares authorized;
   11,220,188 and 10,343,073 shares issued in 2001 and 2000,
   respectively                                                             112                   104
  Additional paid-in capital                                             22,390                22,508
  Accumulated deficit                                                   (25,997)              (24,993)
Less treasury stock, 0 and 66,698 shares at cost in
 2001 and 2000, respectively                                                  -                  (894)
                                                                       ------------------------------
      Total stockholders' deficit                                        (3,495)               (3,275)
                                                                       ------------------------------
      Total liabilities and stockholders' deficit                      $ 11,194              $ 12,387
                                                                       ==============================
</TABLE>

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

<PAGE>  3


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

<TABLE>
<CAPTION>
                                                                          Nine months ended September 30,
                                                                          -------------------------------
                                                                                2001           2000
                                                                                ----           ----


                                                                          <c>            <c>
Cash flows from operating activities:
  Net loss                                                                   $ (1,004)      $(11,517)
  Reconciliation of net loss to net cash used by operating activities:
    Gain on sale of discontinued operations                                      (283)          (395)
    Depreciation and amortization                                                 345            778
    Amortization of deferred financing costs and debt discount                    433            256
    Non-recurring charge for impairment of long lived asset                       605
    Non-recurring charges resulting from plant shutdown                           417              -
    Extraordinary expense on early extinguishment of debt                           -            984
    Provision for loss on accounts receivable and inventories                     203             26
    Recognition of deferred revenue                                              (101)          (167)
    Charge for deferred income taxes                                                -          5,850
    Interest expense relating to put feature of warrants                            -            (53)
    Interest expense related to subordinated debt agreements                      123              -
    Stock compensation expense:
      Non employee stock options                                                    -             40
      Directors' stock issuance                                                    68             75
  Changes in operating assets and liabilities:
    Restricted cash                                                               102              -
    Accounts receivable                                                           649            148
    Inventories                                                                (1,312)           234
    Receivables under royalty agreements                                          102            (94)
    Prepaid and other assets                                                      (97)           596
    Accounts payable and accrued expenses                                      (1,127)           564
    Income taxes payable                                                           17             (5)
    Short-term notes payable, operating                                             -           (867)
    Deferred revenue                                                              525              -
                                                                             -----------------------

        Net cash used by operating activities:                                   (335)        (3,547)
                                                                             -----------------------

Cash flows from investing activities:
  Capital expenditures                                                            (78)          (565)
  Increase in other assets                                                        (55)          (259)
  Proceeds from sale of discontinued operations                                   237         12,000
  Proceeds from sale of property, plant and equipment                             150              -
                                                                             -----------------------
        Net cash provided by investing activities                                 254         11,176
                                                                             -----------------------

Cash flows from financing activities:
  Borrowings under capital expenditures facility                                    -            257
  Borrowings under revolving credit agreement                                  14,921         27,557
  Repayments of revolving credit agreement                                    (14,779)       (31,492)
  Repayment of debt                                                              (416)        (4,319)
  Proceeds from exercise of common stock options and purchase
   of common stock                                                                 74            120
  Proceeds from exercise of common stock under stock
   subscription agreement                                                         250              -
                                                                             -----------------------
        Net cash provided (used) by financing activities                           50         (7,877)
                                                                             -----------------------

Net decrease in cash and equivalents                                              (31)          (248)
Cash and equivalents at beginning of period                                        69            416
                                                                             -----------------------
Cash and equivalents at end of period                                        $     38       $    168
                                                                             =======================

Supplemental cash flow information
  Cash payments for interest                                                 $  1,112       $  1,971
  Cash payments for taxes                                                           5              -
Noncash investing and financing activities:
  Mark to market adjustment on warrants                                      $    219       $      -
  Issuance of common stock in satisfaction of accrued expenses                    240            239
</TABLE>

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

<PAGE>  4


                         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 presentation
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
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000
(the "2000 10-K Annual Report").

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern.  As discussed in
Note 3 to the consolidated financial statements, the Company has suffered
recurring losses from operations and has a stockholders' deficit as of
September 30, 2001. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

2.    Discontinued Operations

On September 15, 2000, the shareholders of the Company approved, and the
Company consummated, the sale of the assets and transfer of the liabilities
of the Vineland division, which produced and marketed poultry vaccines and
related products.  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. In
March 2001, the Company negotiated a resolution and received approximately
$237,000 of the escrowed funds.  In addition, the Company reduced an accrual
by $46,000 for costs related to the sale.  The Company's results reflect a
$283,000 gain on the sale of the Vineland division for the nine months ended
September 30, 2001.  The Vineland division incurred an operating loss of
$1,978,000 for the nine months ended September 30, 2000.

3.    Debt and Stock Warrants

On October 29, 1999, the Company entered into a $22,000,000 senior bank
credit agreement ("Senior Debt Agreement") with Fleet Capital Corporation
("Fleet") and a $7,000,000 subordinated debt agreement ("Subordinated Debt
Agreement") with American Capital Strategies, LTD. ("ACS").  These
agreements enabled the Company to retire approximately $18,600,000 of
outstanding debt with its former bank lenders.

Upon the sale of the Vineland division in 2000, the amount of debt pursuant
to the Senior Debt Agreement was reduced.  The Senior Debt Agreement now
provides for (i) a revolving line of credit facility of up to $5,000,000,
based upon qualifying accounts receivable and inventory and (ii) a
$2,700,000 term loan. The borrowings under the revolving line of credit bear
interest, at the Company's choice, of the prime rate plus 1.0% or the London
Interbank Offered Rate plus 3.25%. The interest rate in effect at September
30, 2001 was 6.83%.  The borrowings under the term loan credit facility bear
interest, at the Company's choice, of the prime rate plus 1.5% or the London
Interbank Offered Rate plus 3.75%. The interest rate in effect at September
30, 2001 was 7.33%.  Provisions under the revolving line of credit require
the Company to maintain a lockbox with the

<PAGE>  5


lender, allowing Fleet to sweep cash receipts from customers and pay down
the revolving line of credit.  Drawdowns on the revolving line of credit are
made when needed to fund operations.  Upon renegotiation of the covenants
for the term loan, Fleet agreed to change the repayment terms to monthly
payments starting February 2001.  Minimum principal payments owed to Fleet
for the years ended December 31, 2001, 2002, 2003 and 2004 are $367,000,
$492,000, $592,000, and $1,155,000, respectively.

Borrowings under the Subordinated Debt Agreement bear interest at the rate
of 12.5% ("cash portion of interest on subordinated debt") plus an
additional interest component at the rate of 2.25% which is payable at the
Company's election in cash or the Company's common stock.  As of September
30, 2001, the loan balance under the subordinated notes was $7,295,000,
offset by an unamortized debt discount of $2,064,000.  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.  The debt
discount was recorded at issuance, representing the difference between the
$7,000,000 proceeds received by the Company and the total obligation, which
included principal of $7,000,000 and an initial warrant liability of
$2,842,000.

To secure all of its obligations under these agreements, the Company granted
the lenders a security interest in all of the assets and properties of the
Company and its subsidiaries.  In addition, ACS 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 or observer on the Board of Directors.  ACS designated their member
to the Board of Directors at the May 16, 2001 annual meeting of
shareholders.

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 the 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 market value prior to notice of intent to sell.  ACS must exercise
reasonable efforts to sell or place its shares in the marketplace over a
180-day period before it can invoke the make-whole provision.

The debt agreements contain various affirmative and negative covenants, such
as interest coverage and minimum fixed charge coverage ratios.  Fleet and
ACS waived compliance with certain financial covenants through December 31,
2000.  During the first quarter of 2001, the Company renegotiated the
covenants with ACS and Fleet for 2001 and forward.  As of September 30,
2001, the Company is in compliance with the new covenants.

The Company has suffered recurring losses from operations and has a
stockholders' deficit at September 30, 2001.  In addition, the Company
remains highly leveraged and access to additional funding sources is
limited. The Company's available borrowings under the revolving line of
credit facility are dependent on the level of qualifying accounts receivable
and inventory.  If the Company's operating results deteriorate further or
product sales do not improve or the Company is not successful in meeting its
financial obligations, a default could result under the Company's debt
agreements and any such default, if not resolved, could result in the
lenders calling the outstanding loan amounts and exercising other rights
available to them.  The default may lead to curtailment of certain of its
business operations, sale of certain assets or the commencement of
bankruptcy or insolvency proceedings by the Company or its creditors.  As of
September 30, 2001, the Company had available borrowings under the revolving
line of credit facility of $874,000.

<PAGE>  6


4.    Common Stock Issued

In March 2001, the Company agreed to sell 500,000 shares of common stock to
an outside investor in exchange for $250,000.  The cash was received in
March 2001, and the shares were issued in April 2001.

5.    Inventories

Inventories are valued at the lower of cost, using the first-in, first-out
("FIFO") method, or market.  Inventories at September 30, 2001 and December
31, 2000 consist of:

<TABLE>
<CAPTION>
                       September 30, 2001      December 31, 2000
                       ------------------      -----------------
                                 (amounts in thousands)


                         <c>                     <c>
Finished goods              $2,310                  $1,458
Raw materials                1,235                   1,127
                            ------                  ------
Total                       $3,545                  $2,585
                            ======                  ======
</TABLE>

6.    Regulatory Proceedings and Legal Proceedings

In April 1998, the SEC advised the Company that it was conducting an
informal inquiry and requested information and documents from the Company,
which the Company voluntarily provided to the SEC.  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.  Under the proposed 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 three years
ended December 31,1997.  Further, in the proposed 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 SEC's investigation and proposed settlement focus on alleged fraudulent
actions taken by former members of the Company's management.  Upon becoming
aware of the alleged fraudulent activity, IGI, through its Board of
Directors, immediately commenced an internal investigation, which led to the
termination of employment of those responsible.  IGI cooperated fully with
the staff of the SEC and disclosed to the SEC the results of the internal
investigation.

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. On May 24, 2000, in an effort to address a number of the
FDA's stated concerns, the Company permanently discontinued production and
shipment of Liquichlor, and permanently stopped production and sale of
Cerumite on June 1, 2000 and Cardoxin on September 8, 2000. The Company has
responded to the July 5, 2000 FDA report and has recently prepared the
required written procedures and documentation on product preparation to
comply with the FDA regulations. The FDA is evaluating the Company's
response to determine the ultimate outcome of the FDA inspection. The FDA
returned for a final inspection in June 2001 and provided a summary of
findings on August 28, 2001. The FDA report indicated that no objectional
conditions were noted and stated that the Company is in compliance.  In
March 2001, the Company signed a supply agreement to outsource the
manufacturing of products for the Companion Pet Products division, and
ceased operations at the Companion Pet Products manufacturing facility.

On April 6, 2000, officials of the New Jersey Department of Environmental
Protection inspected the Company's 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 completed the removal of materials from the site.
Small

<PAGE>  7


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 does not expect to incur
any material fines or penalties. The Company expensed $160,000 during the
six months ended June 30, 2000 which represented the total cost related to
the disposal and cleanup process.

On or around, May 17, 2000, the Company became aware of a spill at its
Vineland manufacturing facility of about 965 gallons of heating 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 was drilled and the analytical results found no actionable
contamination of groundwater.  The Company has expensed all costs related to
the remediation and the drilling of the test well.

On March 2, 2001, the Company became aware of a heating oil leak at its
Companion Pet Products manufacturing facility.  The Company immediately
notified the New Jersey Department of Environmental Protection and the local
authorities, and hired a contractor to assess the exposure and required
cleanup.  Based on the initial information from the contractor, the Company
originally estimated the cost for the cleanup and remediation to be
$310,000.  In September 2001, the contractor updated the estimated total
cost for the cleanup and remediation to be $550,000, of which $290,000
remains accrued as of September 30, 2001.  As a result of the increase in
estimated costs, the Company recorded an additional $240,000 for cleanup and
remediation during the third quarter of 2001.

<PAGE>  8


7.    Business Segments

Summary data related to the Company's reportable segments for the three and
nine-month periods ended September 30, 2001 and 2000 appear below:

<TABLE>
<CAPTION>
                                                      (amounts in thousands)
                                    Companion        Consumer
                                   Pet Products      Products      Corporate*      Consolidated
                                   ------------      --------      ----------      ------------


                                   <c>             <c>           <c>              <c>
Three months ended September 30:
2001
Revenues                              $2,940          $1,066        $     -          $4,006
Operating profit (loss)                  224             631         (1,267)           (412)

2000
Revenues                               3,033           1,255              -           4,288
Operating profit (loss)                 (163)            688         (1,907)         (1,382)

Nine months ended September 30:
2001
Revenues                               8,673           3,697              -          12,370
Operating profit (loss)                  516           2,355         (2,550)            321

2000
Revenues                               9,736           5,015              -          14,751
Operating profit (loss)                  410           3,097         (4,217)           (710)

<FN>
*Notes:

(A)   Unallocated corporate expenses are principally general and
      administrative expenses.
(B)   Transactions between reportable segments are not material.
(C)   The amounts reported above for the three and nine month periods ending
      September 30, 2000 have been adjusted for the change in accounting as
      discussed in Footnote 9.
</FN>
</TABLE>

8.    Non-recurring Charges

During the first quarter of 2001, the Company had reached a decision to
outsource the manufacturing for the Companion Pet Products division.  Due to
the environmental situation noted in Footnote 6, the Company decided to
accelerate the outsourcing process (originally anticipated to be completed
by June 2001), and ceased operations at the Companion Pet Products
manufacturing facility.  On March 6, 2001, the Company signed a supply
agreement with a company to manufacture the products for the Companion Pet
Products division.  On March 8, 2001, the Company terminated the employment
of the manufacturing personnel at this facility.

<PAGE>  9


During the nine months ended September 30, 2001, the Company recorded non-
recurring charges related to the plant shutdown of the Companion Pet
Products manufacturing facility of $991,000 offset by a grant from the State
of New Jersey for $81,000 for a net charge of $910,000 ($91,000 has been
reflected as a component of cost of sales, with the remainder reflected as a
single line item in the accompanying consolidated statement of operations).
The Company applied to the New Jersey Economic and Development Authority
(NJEDA) and the New Jersey Department of Environmental Protection (NJDEP)
for a grant and loan to fund a portion of the remediation costs of the oil
leak.  On June 26, 2001, the Company was awarded a $81,000 grant and a
$246,000 loan.  The $81,000 grant was received as of September 30, 2001.
The loan, which requires monthly principal payments, has a term of ten years
at a rate of interest of the Federal discount rate at the date of the
closing with a floor of 5%.  The Company anticipates funding of the loan to
occur during the fourth quarter of 2001.

During September 2001, the Company committed to a plan of sale for its
corporate office building.   An impairment charge of $605,000 was recorded
in the third quarter of 2001 to reflect the difference between the selling
price, less related selling costs, and the net book value of the building.
The composition and activity of the non-recurring charges are follows
(amounts in thousands):

<TABLE>
<CAPTION>
                                                        Reduction of         Cash           Net accrual at
Description                                  Amount        assets        Expenditures     September 30, 2001
-----------                                  ------     ------------     ------------     ------------------


                                          <c>          <c>               <c>                 <c>
Impairment of property and equipment         $  314       $  (314)          $   -               $  -
Environmental clean up costs,
 net of State grant                             469             -            (179)               290
Sale of building                                605          (605)              -                  -
Write off of inventory                           91           (91)              -                  -
Plant shutdown costs                             21           (11)            (10)                 -
Severance                                        15             -             (15)                 -
                                             -------------------------------------------------------
                                             $1,515       $(1,021)          $(204)              $290
                                             =======================================================
</TABLE>

9.    Recent Pronouncements

In 1998, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Transactions."   This statement requires companies
to record derivatives on the balance sheet as assets and liabilities
measured at fair value.  The accounting treatment of gains and losses
resulting from changes in the value of derivatives depends on the use of the
derivative and whether it qualifies for hedge accounting.  The Company
adopted SFAS No. 133, as amended by SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities" on January 1, 2001.
There was no impact on the Company's financial position, results of
operations or liquidity upon the adoption of SFAS No. 133.

In December 2000, the Company assessed the impact of Staff Accounting
Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements," in
relationship with one of its royalty contracts and recorded a cumulative
adjustment of $168,000 as of January 1, 2000.  The cumulative adjustment
related to the recognition of up-front license fees and installment payments
over the estimated economic life of the agreement. The application of SAB
101 for the nine months ended September 30, 2000 resulted in a $41,000
reduction in licensing and royalty income from that previously reported.

In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets."  SFAS No. 141 requires
that the purchase method of accounting be used for all business combinations
initiated or completed after June 30, 2001.  SFAS No. 141 also specifies
criteria that must be met for intangible assets acquired in a purchase
method

<PAGE>  10


business combination to be recognized and reported seperately from goodwill,
noting that any purchase allocable to an assembled workforce may not be
accounted for seperately.  SFAS No. 142, which will be effective January 1,
2002, requires that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead be tested for impairment at least
annually in accordance with the provisions of SFAS No. 142.  SFAS No. 142
also requires that the intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment on accordance with SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of."

As of the January 1, 2002, the adoption date of SFAS No.142, we expect to
have unamortized goodwill of approximately $190,000, which will be subject
to the transition provisions of SFAS Nos. 141 and 142.  Amortization expense
related to goodwill, was $6,300 for the nine months ended September 30, 2001
and 2000.  Because of the extensive effort needed to comply with adopting
SFAS Nos. 141 and 142, it is not practicable to reasonably estimate the
impact of adopting these Statements on our financial statements at the date
of this report.  However, the Company has concluded that SFAS No. 141 and
142 will not have a significant impact on its financial postion, results of
operation or liquidity.

<PAGE>  11


                         IGI, INC. AND SUBSIDIARIES

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

The following discussion and analysis may contain forward-looking
statements.  Such statements are subject to certain risks and uncertainties,
including those discussed below or in the Company's 2000 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 2000 10-K Annual Report.  Readers are cautioned not to place undue
reliance on any forward-looking statements, as they reflect management's
analysis as of the date hereof.  The Company undertakes no obligation to
release the results of any revision to these forward-looking statements
which may be made to reflect events or circumstances after the date hereof
or to reflect the occurrence of anticipated events.

Results Of Operations

Three months ended September 30, 2001 compared to September 30, 2000

The Company had a net loss attributable to common stock of $814,000, or
$(.07) per share, for the quarter ended September 30, 2001 compared to a net
loss attributable to common stock of $10,803,000, or $(1.05) per share, for
the quarter ended September 30, 2000.  Excluding the mark-to-market
adjustment for detachable stock warrants, the Company had a net loss of
$929,000 for the quarter ended September 30, 2001 compared to a net loss of
$10,803,000 for the quarter ended September 30, 2000.  The decrease in the
net loss compared to prior year was primarily due to the establishment of
additional valuation allowances for deferred tax assets of $6,448,000 in
2000, and lower operating expenses of $2,097,000 and lower interest expense
of $383,000 in the current quarter.  This was offset by an asset write-down
of $605,000 related to the decision to sell the corporate office building,
additional non-recurring charges related to the cost for the clean up and
remediation of the oil spill at the Companion Pet Products facility of
$240,000 and lower revenues of $282,000.

Total revenues for the quarter ended September 30, 2001 were $4,006,000,
which represents a decrease of $282,000, or 7%, from revenues of $4,288,000
for the quarter ended September 30, 2000. The decrease in revenues was due
to lower product sales for the Companion Pet Products division and lower
product sales and licensing revenues in the Consumer Products division.

Companion Pet Products revenues for the quarter ended September 30, 2001
amounted to $2,940,000, a decrease of $93,000, or 3%, compared to the
quarter ended September 30, 2000.  This decrease was primarily attributable
to lower sales to distributors due to the recent economic slowdown and
reduction of distributor's inventory levels.

Total Consumer Product revenues for the quarter ended September 30, 2001
decreased 15% to $1,066,000, compared to the quarter ended September 30,
2000 of $1,255,000. Licensing and royalty income of $367,000 for the quarter
ended September 30, 2001 decreased by $148,000 compared to the third quarter
in 2000 mainly from a reduction in Genesis and Fujisawa licensing revenues.
Product sales decreased by $41,000 primarily due to lower sales to Estee
Lauder.

Cost of sales, as a percentage of product sales, decreased from 76% for the
quarter ended September 30, 2000 to 57% for the quarter ended September 30,
2001.  The resulting increase in gross profit from 24% for the quarter ended
September 30, 2000 to 43% for the quarter ended September 30, 2001 is
primarily the result of the write-off of two recalled pet products,
consulting and other related costs for Companion Pet Products manufacturing
documentation, and procedural and regulatory compliance issues in 2000 and
savings from outsourcing in 2001.

<PAGE>  12


Cost of sales for Companion Pet Products as a percent of product sales
decreased from 85% for the third quarter of 2000 to 62% for the third
quarter of 2001.  This decrease was the result of the write-off of the
previously noted, recalled products, consulting and other related costs for
Companion Pet Products documentation, procedural and regulatory compliance
issues in 2000 and savings from outsourcing in 2001.

Selling, general and administrative expenses decreased $1,216,000, or 47%,
from $2,579,000 for the quarter ended September 30, 2000. As a percentage of
revenues, these expenses were 60% of revenues for the third quarter of 2000
compared to 34% for the third quarter of 2001. Overall expenses decreased
due to lower professional fees, reduced staffing and additional cost saving
measures that were implemented.

Product development and research expenses decreased $96,000, or 44%,
compared to the quarter ended September 30, 2000. The decrease is
principally related to the departure from the Company of the head of
Research and Development.  The Company is currently in the process of trying
to fill this vacancy.

During the quarter ended September 30, 2001, the Company recorded non-
recurring charges totaling $845,000.  The charges are comprised of
additional cleanup costs for the environmental clean up related to the oil
spill of $240,000 and the write-down for the estimated loss on the sale of
the corporate building of $605,000.

Interest expense decreased $383,000, or 43%, from $885,000 for the quarter
ended September 30, 2000 to $502,000 for the quarter ended September 30,
2001.  The decrease is a result of a reduction of outstanding debt and lower
interest rates.

Results Of Operations

Nine months ended September 30, 2001 compared to September 30, 2000

The Company had a net loss attributable to common stock of $785,000, or
$(.07) per share, for the nine months ended September 30, 2001 compared to a
net loss attributable to common stock of $11,517,000, or $(1.13) per share,
for the nine months ended September 30, 2000.  Excluding the mark-to-market
adjustment for the detachable stock warrants, the Company had a net loss of
$1,004,000 for the nine months ended September 30, 2001 compared to a net
loss of $11,517,000 for the nine months ended September 30, 2000.  The
decrease in the net loss compared to prior year was primarily due to lower
operating expenses of $4,836,000 in 2001, a loss from discontinued
operations of $1,978,000 and establishment of an additional valuation
allowance for deferred taxes in 2000.  This was offset by a reduction in
revenues and $1,424,000 of non-recurring charges in 2001.

On March 2, 2001, the Company became aware of a heating oil leak at its
Companion Pet Products manufacturing facility. The Company immediately
notified the New Jersey Department of Environmental Protection and the local
authorities, and hired a contractor to assess the exposure and start the
clean up. The Company had previously decided to outsource the manufacturing
for this division during the first quarter of 2001. Due to the environmental
situation noted above, the Company accelerated the outsourcing process and
executed a supply agreement on March 6, 2001 and ceased operations at the
manufacturing facility. During the nine months ended September 30, 2001, the
Company recorded non-recurring charges related to the plant shutdown of the
Companion Pet Products manufacturing facility of $991,000 offset by a grant
from the State of New Jersey for $81,000 for a net charge of $910,000
($91,000 has been reflected as a component of cost of sales, with the
remainder reflected as a single line item in the accompanying consolidated
statement of operations).

<PAGE>  13


Total revenues for the nine months ended September 30, 2001 were
$12,370,000, which represents a decrease of $2,381,000, or 16%, from
revenues of $14,751,000 for the nine months ended September 30, 2000. The
decrease in revenues was due to lower product sales for the Companion Pet
Products division and lower consumer product sales and licensing revenues in
the Consumer Products division.  Companion Pet Products revenues for the
nine months ended September 30, 2001 amounted to $8,673,000, a decrease of
$1,063,000, or 11%, compared to the nine months ended September 30, 2000.
This decrease was primarily attributable to product recalls which occurred
during last year's second quarter ended June 30, 2000, and the removal of
the affected products from the product line and lower sales to distributors
due to the recent economic slowdown.

Total Consumer Product revenues for the nine months ended September 30, 2001
decreased 26% to $3,697,000, compared to $5,015,000 for the nine months
ended September 30, 2000. Licensing and royalty income of $926,000 for the
nine months ended September 30, 2001 decreased by $1,090,000 compared to the
first nine months in 2000 mainly due to a reduction in one time research and
development contracts and Johnson & Johnson royalty income.  Product sales
decreased by $228,000 primarily due to lower Estee Lauder sales.

Cost of sales, as a percentage of product sales, decreased from 66% for the
nine months ended September 30, 2000 to 55% for the nine months ended
September 30, 2001.  The resulting increase in gross profit from 34% for the
nine months ended September 30, 2000 to 45% for the nine months ended
September 30, 2001 is primarily the result of the write-off of two recalled
pet products, consulting and other related costs for Companion Pet Products
manufacturing documentation, and procedural and regulatory compliance issues
that occurred in 2000 and savings from outsourcing in 2001.

Cost of sales for Companion Pet Products as a percent of product sales
decreased from 76% for the nine months of 2000 to 63% for the nine months
2001.  This decrease was primarily the result of the write-off of Liquichlor
product, consulting and other related costs for Companion Pet Products
documentation, and procedural and regulatory compliance issues in 2000 and
savings from outsourcing in 2001.

Cost of sales for Consumer Products as a percent of product sales decreased
from 35% for the first nine months of 2000 to 29% for the first nine months
of 2001. This decrease was primarily the result of lower labor and overhead
costs.

Selling, general and administrative expenses decreased $2,435,000, or 38%,
from $6,371,000 for the nine months ended September 30, 2000. As a
percentage of revenues, these expenses were 43% of revenues for the first
nine months of 2000 compared to 32% for the first nine months of 2001.
Overall expenses decreased due to decreased professional fees, reduced
staffing and additional cost saving measures that were implemented.

Product development and research expenses decreased $243,000, or 36%,
compared to the nine months ended September 30, 2000. The decrease is
principally related to the departure from the Company of the head of
Research and Development.  The Company is currently in the process of trying
to fill this vacancy.

Interest expense decreased $642,000, or 29%, from $2,220,000 for the nine
months ended September 30, 2000 to $1,578,000 for the nine months ended
September 30, 2001.  The decrease was a result of a net adjustment amounting
to $358,000 in the first nine months of 2000 related to the mark-to-market
adjustment on warrants granted to ACS to purchase 1,907,543 shares of the
Company's stock.  The remaining decrease in interest was due to the
reduction of outstanding debt and lower interest rates.

<PAGE>  14


Liquidity and Capital Resources

The Senior Debt Agreement provides for (i) a revolving line of credit
facility of up to $5,000,000, based upon qualifying accounts receivable and
inventory, and (ii) a $2,700,000 term loan.  The borrowings under the
revolving line of credit bear interest, at the Company's choice, at the
prime rate plus 1.0% or the London Interbank Offered Rate plus 3.25%. The
interest rate in effect at September 30, 2001 was 6.83%.  The borrowings
under the term loan credit facility bear interest, at the Company's choice,
at the prime rate plus 1.5% or the London Interbank Offered Rate plus 3.75%.
The interest rate in effect at September 30, 2001 was 7.33%.  Provisions
under the revolving line of credit require the Company to maintain a lockbox
with the lender, allowing Fleet to sweep cash receipts from customers and
pay down the revolving line of credit.  Drawdowns on the revolving line of
credit are made when needed to fund operations. Upon renegotiation of the
covenants for the term loan, Fleet agreed to change the repayment terms,
from quarterly to monthly payments starting February 2001.  Minimum
principal payments owed to Fleet for the years ended December 2001, 2002,
2003 and 2004 are $367,000, $492,000, $592,000 and $1,155,000, respectively.

Borrowings under the Subordinated Debt Agreement bear interest at the rate
of 12.5% ("cash portion of interest on subordinated debt") plus an
additional interest component at the rate of 2.25% which is payable at the
Company's election in cash or Company common stock.  The additional interest
component increased in the first quarter of 2001 upon renegotiation of the
covenants.  As of September 30, 2001, borrowings under the subordinated
notes were $7,295,000, offset by an unamortized debt discount of $2,064,000.
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.  The debt discount was recorded at issuance, representing
the difference between the $7,000,000 proceeds received by the Company and
the total obligation, which included principal of $7,000,000 and an initial
warrant liability of $2,842,000.

To secure all of its obligations under these agreements, the Company granted
the lenders a security interest in all of the assets and properties of the
Company and its subsidiaries.  In addition, ACS 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 or observer on the Board of Directors.  ACS has made such a
designation, and the Company implemented it by action of the Board of
Directors after the May 16, 2001 annual meeting of shareholders.

The debt agreements contain various affirmative and negative covenants, such
as interest coverage and minimum fixed charge coverage ratios.  Fleet and
ACS waived compliance with certain financial covenants through December 31,
2000.  During the first quarter of 2001, the Company renegotiated the
covenants with ACS and Fleet for 2001 and forward.  As of September 30,
2001, the Company is in compliance with the new covenants.

The Company applied to the New Jersey Economic and Development Authority and
the New Jersey Department of Environmental Protection for a grant and loan
to fund a portion of the remediation costs of the oil leak.  On June 26,
2001, the Company was awarded a $81,000 grant and a $246,000 loan.  The
loan, which requires monthly principal payments, is for a term of ten years
at a rate of interest of the Federal discount rate at the date of the
closing with a floor of 5%.  The Company received the proceeds from the
grant during the third quarter of 2001.  The loan proceeds are anticipated
to be received during the fourth quarter of 2001.

The Company remains highly leveraged and access to additional funding
sources is limited. The Company's available borrowings under the revolving
line of credit facility are dependent on the level of qualifying accounts
receivable and inventory.  If the Company's operating results deteriorate or
product sales do not improve or the Company is not successful in meeting its
financial obligations, a

<PAGE>  15


default could result under the Company's debt agreements and any such
default, if not resolved, could result in the lenders calling the
outstanding loan amounts and exercising other rights available to them.  The
default may lead to curtailment of certain of its business operations, sale
of certain assets or the commencement of bankruptcy or insolvency
proceedings by the Company or its creditors.  As of September 30, 2001, the
Company had available borrowings under the revolving line of credit facility
of $874,000.

Regulatory Proceeding and Legal Proceedings

In April 1998, the SEC advised the Company that it was conducting an
informal inquiry and requested information and documents from the Company,
which the Company voluntarily provided to the SEC.  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.  Under
the proposed 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 three years ended
December 31,1997.  Further, in the proposed 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 SEC's investigation and proposed settlement focus on alleged fraudulent
actions taken by former members of the Company's management.  Upon becoming
aware of the alleged fraudulent activity, IGI, through its Board of
Directors, immediately commenced an internal investigation, which led to the
termination of employment of those responsible.  IGI cooperated fully with
the staff of the SEC and disclosed to the SEC the results of the internal
investigation.

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. On May 24, 2000, in an effort to address a number of the
FDA's stated concerns, the Company permanently discontinued production and
shipment of Liquichlor, and permanently stopped production and sale of
Cerumite on June 1, 2000 and Cardoxin on September 8, 2000. The Company
responded to the July 5, 2000 FDA report and submitted the required written
procedures and documentation on product preparation to comply with the FDA
regulations. The FDA is evaluating the Company's response to determine the
ultimate outcome of the FDA inspection.  The FDA returned for a final
inspection in June 2001 and provided a summary of findings on August 28,
2001.  The FDA report indicated that no objectible conditions were noted and
stated that the Company is in compliance.  In March 2001, the Company signed
a supply agreement with an entity to outsource the manufacturing of products
for the Companion Pet Products division, and ceased operations at the
Companion Pet Products manufacturing facility.

On April 6, 2000, officials of the New Jersey Department of Environmental
Protection inspected the Company's 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 does not expect to incur
any material fines or penalties. The Company expensed $160,000 during the
second quarter of 2000, which represented the total cost related to the
disposal and cleanup process.

On or around, May 17, 2000, the Company became aware of a spill at its
Vineland manufacturing facility of about 965 gallons of heating 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 was drilled and the analytical results

<PAGE>  16


found no actionable contamination of groundwater.  The Company has expensed
all costs related to the initial remediation and the drilling of the test
well.

On March 2, 2001, the Company became aware of a heating oil leak at its
Companion Pet Products manufacturing facility. The Company immediately
notified the New Jersey Department of Environmental Protection and the local
authorities, and hired a contractor to assess the exposure and start the
clean up. The Company decided to outsource the manufacturing for this
division during the first quarter of 2001. Due to the environmental
situation noted above, the Company accelerated the outsourcing process and
executed a supply agreement on March 6, 2001 and ceased operations at the
manufacturing facility. On March 8, 2001, the Company terminated the
employment of the manufacturing personnel at this facility.

Factors Which May Affect Future Results

Highly Leveraged and Debt Covenant Compliance

The Company remains 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 interest coverage and minimum fixed charge coverage
ratios.  The Company's available borrowings under the revolving line of
credit facility are dependent on the level of qualifying accounts receivable
and inventory.  As a result, fluctuations in monthly performance can create
constraints in available borrowings.  The financial covenants are dependent
upon continued improved operating results.  The Company is optimistic that
it can achieve the requisite financial performance; however, there can be no
assurance that the Company will be successful.  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.

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

<PAGE>  17


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. The departure of the head of Research and
Development places the Company at risk for future product developments.

Regulatory Considerations

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

Income Taxes

The Company has provided a full valuation allowance on its deferred tax
assets consisting primarily of net operating losses, because of uncertainty
regarding their realizability.  The minimum level of future taxable income
necessary to realize the Company's gross deferred tax assets at September
30, 2001, is approximately $28.6 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 gross deferred tax assets.  Federal
net operating loss carryforwards expire through 2020.  Significant
components expire in 2007 (16%), 2018 (23%), 2019 (11%) and 2020 (42%).
Also, federal research credits expire in varying amounts through the year
2020.

<PAGE>  18


                         IGI, INC. AND SUBSIDIARIES

ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk

The Company's Senior Debt Agreement with Fleet includes a revolving line of
credit facility and a term loan.  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%.  Borrowings under the term loan bear interest at
the prime rate plus 1.5% or the London Interbank Offered Rate plus 3.75%.
Both the prime rate and the London Interbank Offered Rate are subject to
fluctuations which cannot be predicted.  Based upon the aggregate amount
outstanding under these two facilities as of September 30, 2001, a 100 basis
point change in the prime rate or the London Interbank Offered Rate would
result in a change in annual interest charges to the Company of
approximately $47,000 on an annual basis.

Under the Company's Subordinated Debt Agreement with ACS, as amended, ACS
has been granted warrants to purchase 1,907,543 shares of the Company's
common stock.  The terms associated with the warrants include a "make-whole"
feature that requires the Company to compensate ACS, either in common stock
or cash, at the option of the Company, in the event that ACS ultimately
realizes proceeds from the sale of the common stock obtained upon exercise
of the warrants that are less than the fair value of the common stock upon
the notice of 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 use reasonable efforts to sell or place its shares
in the market place over a 180-day period before it can invoke the make-
whole provision.  Once ACS has provided notice of its intent to sell,
subsequent changes in the market value of the Company's common stock will
affect the Company's obligation to compensate ACS under the make-whole
provision in cash or shares of common stock.  Because ACS has neither
exercised the warrants nor issued notice of its intent to sell, the
Company's exposure under this provision cannot be predicted at this time.

<PAGE>  19


                         IGI, INC. AND SUBSIDIARIES
                         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
proposed 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 proposed 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 SEC's 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 cooperated fully with the staff of the
SEC and disclosed to the Commission the results of the internal
investigation.

<PAGE>  20


                         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 6, 2001                By:  /s/ John Ambrose
                                            -------------------------------
                                            John Ambrose
                                            President and Chief Executive
                                            Officer


Date:  November 6, 2001                By:  /s/ Domenic Golato
                                            -------------------------------
                                            Domenic Golato
                                            Senior Vice President and Chief
                                            Financial Officer

<PAGE>  21