SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 10549
FORM 10-QSB
(Mark One)
[ x ] Quarterly report under Section 13 or 15(D) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2000
[ ] Transition report under Section 13 or 15(D) of the Exchange
Act
For the transition period from to
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Commission file number 0-15888
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IGENE Biotechnology, Inc.
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(Exact name of Small Business Issuer as Specified in its Charter)
Maryland 52-1230461
-------------------------------- ---------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
9110 Red Branch Road, Columbia, Maryland 21045-2024
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(Address of Principal Executive Offices)
(410)997-2599
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(Issuer's Telephone Number, Including Area Code)
None
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the Issuer: (1) filed all reports required to be filed
by Section 13 or 15(D) of the Exchange Act during the past 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
--- ---
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
52,208,881 shares as of April 7, 2000.
Transitional Small Business Disclosure Format (check one):
Yes No x
--- ---
FORM 10-QSB
IGENE Biotechnology, Inc.
INDEX
PART I - FINANCIAL INFORMATION
Page
Balance Sheets 5-6
Statements of Operations 7
Statements of Stockholder's Deficit 8-9
Statements of Cash Flows 10-11
Notes to Financial Statements 12-13
Management's Discussion and Analysis of Financial
Conditions and Results of Operations 14-17
PART II - OTHER INFORMATION 18-19
SIGNATURES 20
IGENE BIOTECHNOLOGY, INC.
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
IGENE Biotechnology, Inc.
Balance Sheets
March 31, March 31, December 31,
2000 1999 1999
----------- ----------- ------------
(Unaudited) (Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 117,585 $ 68,989 $ 216,297
Accounts receivable --- 6,887 24,267
Inventory 631,795 870,260 707,595
Loans receivable 206,780 250,783 206,780
Prepaid expenses
and other current assets 158,136 222,400 153,160
----------- ----------- -----------
1,114,296 1,419,319 1,308,099
OTHER ASSETS
Property and equipment, net 353,216 358,386 366,484
Other assets 131,903 179,970 142,489
----------- ----------- -----------
TOTAL ASSETS $1,599,415 $1,957,675 $1,817,072
=========== =========== ===========
The accompanying notes are an integral part of the financial
statements.
IGENE Biotechnology, Inc.
Balance Sheets
(continued)
March 31, March 31, December 31,
2000 1999 1999
----------- ----------- ------------
(Unaudited) (Unaudited)
LIABILITIES, REDEEMABLE PREFERED STOCK
AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 259,122 $ 231,507 $ 268,081
LONG-TERM DEBT
Notes payable 6,077,300 6,092,500 6,082,500
Variable rate subordinated debenture 1,500,000 1,500,000 1,500,000
Accrued Interest 973,200 486,600 851,550
----------- ----------- ------------
TOTAL LIABILITIES 8,809,622 8,310,607 8,702,131
----------- ----------- ------------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK
Carrying amount of redeemable preferred
stock, 8% cumulative, convertible,
voting, series A, $.01 par value per
share. Redemption value $15.36, $14.72,
and $15.20, respectively. Authorized
1,312,500 shares, issued 26,467, 29,592,
and 26,467 shares, respectively 406,533 435,594 402,298
----------- ----------- ------------
STOCKHOLDERS' DEFICIT
Common stock, $.01 par value per share.
Authorized, 250,000,000 shares;
issued and outstanding 51,868,881,
26,887,540, and 47,598,758 shares,
respectively. 518,689 268,875 475,988
Additional paid-in capital 20,317,168 18,982,720 20,238,904
Deficit (28,452,597) (26,040,121) (28,002,249)
----------- ----------- ------------
TOTAL STOCKHOLDERS' DEFICIT (7,616,740) (6,788,526) (7,287,357)
----------- ----------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $1,599,415 $1,957,675 $ 1,817,072
=========== =========== ============
The accompanying notes are an integral part of the financial
statements.
IGENE Biotechnology, Inc.
Statements of Operations
(Unaudited)
Three months ended
--------------------------------
March 31, March 31,
2000 1999
------------- -------------
Sales $ 78,536 $ ---
Cost of sales 87,433 20,436
------------- -------------
Gross profit (loss) (8,897) (20,436)
Technology licensing income --- 1,167
------------- -------------
Net revenue (8,897) (19,269)
------------- -------------
Selling, General & Administrative expenses:
Marketing and selling 79,141 6,450
Research, development and pilot plant 92,609 100,298
General and administrative 84,869 90,811
Litigation expenses 11,046 175,737
------------- -------------
Total operating expenses 267,665 373,296
------------- -------------
Operating loss (276,562) (392,565)
------------- -------------
Other income (expense)
Interest expense, net of
interest income of $3,544,
and $6,672, respectively (173,786) (170,647)
------------- -------------
Net loss $ (450,348) $ (563,212)
============= =============
Net loss per common share $ (0.01) $ (0.03)
============= =============
The accompanying notes are an integral part of the financial
statements.
IGENE Biotechnology, Inc.
Statements of Stockholders' Deficit
(Unaudited)
Redeemable Preferred Stock
(shares/amount)
--------------------------
Balance at December 31, 1998 29,592 $ 430,860
Cumulative undeclared dividends
on redeemable preferred stock --- 4,734
Issuance of common stock in lieu of
cash in payment of legal
retainers and fees --- ---
Issuance of common stock
pursuant to direct purchase
by certain directors and
other accredited investors --- ---
Net loss for three months
ended March 31, 1999 --- ---
----------- -----------
Balance at March 31, 1999 29,592 $ 435,594
=========== ===========
Balance at December 31, 1999 26,467 $ 402,298
Cumulative undeclared dividends
on redeemable preferred stock --- 4,235
Exercise of employee stock options --- ---
Exercise of warrants --- ---
Net loss for three months ended
March 31, 2000 --- ---
----------- -----------
Balance at March 31, 2000 26,467 $ 406,533
=========== ===========
The accompanying notes are an integral part of the financial
statements.
IGENE Biotechnology, Inc.
Statements of Stockholders' Deficit
(Unaudited - Continued)
Additional Total
Common Stock Paid-in Stockholders'
(shares/amount) Capital Deficit Deficit
--------------------- ------------- ------------- -------------
Balance at December 31, 1998 21,854,173 $218,542 $ 18,738,038 $(25,476,909) $ (6,520,329)
Cumulative undeclared dividends
on redeemable preferred stock --- --- (4,734) --- (4,734)
Issuance of common stock in lieu of
cash in payment of legal
retainers and fees 866,667 8,666 41,083 --- 49,749
Issuance of common stock
pursuant to direct purchase
by certain directors and
other accredited investors 4,166,700 41,667 208,333 --- 250,000
Net loss for three months ended
March 31, 1999 --- --- --- (563,212) (563,212)
---------- -------- ------------- ------------- -------------
Balance at March 31, 1999 26,887,540 $268,875 $ 18,982,720 $(26,040,121) $ (6,788,526)
========== ======== ============= ============= =============
Balance at December 31, 1999 47,598,758 $475,988 $ 20,238,904 $(28,002,249) $ (7,287,357)
Cumulative undeclared dividends
on redeemable preferred stock --- --- (4,235) --- (4,235)
Exercise of employee stock options 1,200,000 12,000 108,000 --- 120,000
Exercise of warrants 3,070,123 30,701 (25,501) --- 5,200
Net loss for three months ended
March 31, 2000 --- --- --- (450,348) (450,348)
---------- -------- ------------- ------------- -------------
Balance at March 31, 2000 51,868,881 $518,689 $ 20,317,168 $(28,452,597) $ (7,616,740)
========== ======== ============= ============= =============
The accompanying notes are an integral part of the financial
statements.
IGENE Biotechnology, Inc.
Statements of Cash Flows
(Unaudited)
Three months ended
March 31, March 31,
2000 1999
----------- -----------
Cash flows from operating activities:
Net loss $ (450,348) $ (563,212)
Adjustments to reconcile net loss to net cash provided
By operating activities:
Depreciation 14,247 14,247
Amortization 10,586 10,586
Interest on debenture paid in shares of common stock 45,000 45,000
Decrease (increase) in:
Accounts receivable 24,267 (6,887)
Inventory 75,800 ---
Prepaid expenses and other current assets (4,977) (97,574)
Increase (decrease) in:
Accounts payable and accrued expenses 67,692 54,609
----------- -----------
Net cash used in operating activities (217,733) (543,231)
----------- -----------
Cash flows from investing activities:
Proceeds from disposal of equipment --- 460
Capital expenditures (979) (3,036)
----------- -----------
Net cash used in investing activities (979) (2,576)
----------- -----------
Cash flows from financing activities:
Proceeds from direct purchase of common stock --- 250,000
Proceeds from exercise of employee stock options 120,000 ---
----------- -----------
Net cash provided by financing activities 120,000 250,000
----------- -----------
Net decrease in cash and cash equivalents (98,712) (295,807)
Cash and cash equivalents
at beginning of period 216,297 364,796
----------- -----------
Cash and cash equivalents
at end of period $ 117,585 $ 68,989
=========== ===========
The accompanying notes are an integral part of the financial
statements.
IGENE Biotechnology, Inc.
Statements of Cash Flows
(Unaudited - Continued)
Noncash investing and financing activities:
During the three months ended March 31, 2000 and 1999, the
Company recorded dividends in arrears on 8% redeemable preferred
stock at $.16 per share aggregating $4,235 and $4,734,
respectively, which has been removed from paid-in capital and
included in the carrying value of the redeemable preferred stock.
During the three months ended March 31, 1999, the Company
satisfied accounts payables of $20,000 and made advances for
legal retainers of $29,749 by issuing 866,667 shares of common
stock to counsel in its on-going litigation.
During the three months ended March 31, 2000, holders of
3,994,500 warrants issued in the March 1998 Rights Offering
exercised those warrants using $5,200 of 8% notes payable and
utilizing 924,377 warrants in cashless exercises. 3,070,123 new
shares of common stock were issued pursuant to these exercises of
warrants and $5,200 of 8% notes were cancelled.
The accompanying notes are an integral part of the financial
statements.
IGENE Biotechnology, Inc.
Notes to Financial Statements
(1) Unaudited financial statements
The financial statements presented herein as of March 31,
2000 and 1999 and for the three month periods then ended are
unaudited, and in the opinion of management, include all
adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of financial position and
results of operation and cash flows. Such financial
statements do not include all of the information and
footnote disclosures normally included in audited financial
statements prepared in accordance with generally accepted
accounting principles.
(2) Inventories
Inventory, stated at lower of cost, on a first-in first-out
basis, or market value, represents AstaXin(R) manufactured
and held for sale, as follows:
Raw materials $ 7,050
Work-in-process ---
Finished goods 624,745
-------------
Total inventory $ 631,795
=============
(3) Stockholders' Equity (Deficit)
At March 31, 2000 and 1999, 52,934 shares of authorized but
unissued common stock were reserved for issue upon
conversion of the Company's outstanding preferred stock.
As of March 31, 2000 and 1999, 20,210,166 and 21,410,166
shares of authorized but unissued common stock were reserved
for exercise pursuant to the Company's Employee Stock Option
Plans.
As of March 31, 2000 and 1999, 240,000 and 320,000 shares,
respectively, of authorized but unissued common stock were
reserved for issuance for payment of interest on the
variable rate subordinated debenture and 375,000 shares of
authorized but unissued common stock were reserved for
issuance upon conversion of the variable rate subordinated
debenture.
As of March 31, 2000 and 1999, 13,174,478 shares of
authorized but unissued common stock were reserved for the
conversion of outstanding convertible promissory notes in
the aggregate amount of $1,082,500 held by directors of the
Company.
As of March 31, 2000 and 1999, 121,759,345 and 109,467,678
shares, respectively, of authorized but unissued common
stock were reserved for the exercise of outstanding
warrants.
As of March 31, 2000, 10,000,000 shares of authorized but
unissued common stock were reserved for issuance upon
receipt of $1,000,000 in funding for operations pursuant to
the commitment of February 8, 2000 by certain directors of
the Company. An additional 10,000,000 shares of authorized
but unissued common stock were reserved for warrants which
will be issued concurrently with this funding.
(4) Net loss per common share
Net loss per common share for the three-month periods ended
March 31, 2000 and 1999 is based on 48,748,245 and
25,322,345, respectively, of weighted average common shares
outstanding. For purposes of computing net loss per common
share, the amount of net loss has been increased by
dividends declared and cumulative undeclared dividends in
arrears on preferred stock.
IGENE Biotechnology, Inc.
Notes to Financial Statements
(continued)
(5) Contingency - Litigation
On July 21, 1997 Archer Daniels Midland, Inc. (ADM) filed
suit against the Company in the U.S. District Court in
Baltimore, Maryland alleging patent infringement and
requesting injunctive relief and an unspecified amount of
damages predicated on the alleged infringement, which
pertains to the Company's astaxanthin manufacturing process.
On August 4, 1997, the Company filed a $300,450,000 contract
and trade secrets counterclaim against ADM, alleging theft
of trade secrets. The Company is also claiming breach of
contract, in regards to a licensing agreement entered into
by the Company and ADM in 1995. The Company contends that it
complied with all material terms of this agreement. On
September 10, 1997 the District Court denied ADM's request
for a preliminary injunction on the basis that ADM could not
demonstrate a likelihood of success on the merits of its
patent infringement allegations. To date, the court has
imposed a stay on all discovery, while a court-appointed
expert analyzes the yeast products of both parties.
Pursuant to an order issued by the judge on July 16, 1999,
both the Company and ADM communicated to the court their
willingness to pursue a mediated settlement of this dispute.
During the period from October 1, 1999 through October 28,
1999, the parties were unable to resolve the dispute through
mediation. Thus, the litigation has been returned to the
court for a judicial disposition. It is management's
contention that it is not probable that this dispute will
result in an unfavorable outcome. Accordingly, no liability
has been reflected in the accompanying balance sheet. The
Company had expenses of $11,046 and $175,737, respectively,
in the three months ended March 31, 2000 and 1999 relating
to this litigation, which is on going.
(6) Subsequent Events
On April 28, 2000, the Company received $200,000 in a direct
purchase by certain directors of 2,000,000 new shares of
common stock at $.10 per share. These directors also
received warrants to purchase an additional 2,000,000 shares
at $.10 per share. This transaction is the first in a
planned series of direct purchases of common stock pursuant
to a commitment, on February 8, 2000, by certain directors,
to provide total funding of up to $1,000,000. These funds
will be used to continue the operations of the Company and
fund legal expenses associated with ongoing litigation.
In April 2000, the Company completed the formation of its
Chilean subsidiary, Igene Comercial Chile, Ltda. This
subsidiary was formed to facilitate the continuation and
increase of sales of AstaXin(R) in Chile. The Company also
hired, during April 2000, a second technical representative
in Chile.
IGENE Biotechnology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
CAUTIONARY STATEMENTS FOR PURPOSES OF "SAFE HARBOR PROVISIONS" OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:
EXCEPT FOR HISTORICAL FACTS, ALL MATTERS DISCUSSED IN THIS
REPORT, WHICH ARE FORWARD LOOKING, INVOLVE A HIGH DEGREE OF RISKS
AND UNCERTAINTIES. POTENTIAL RISKS AND UNCERTAINTIES INCLUDE,
BUT ARE NOT LIMITED TO, COMPETITIVE PRESSURES FROM OTHER
COMPANIES AND WITHIN THE BIOTECH INDUSTRY, ECONOMIC CONDITIONS IN
THE COMPANY'S PRIMARY MARKETS AND OTHER UNCERTAINTIES DETAILED
FROM TIME-TO-TIME IN THE COMPANY'S SECURITIES AND EXCHANGE
COMMISSION FILINGS.
CERTAIN STATEMENTS IN THIS REPORT SET FORTH MANAGEMENT'S
INTENTIONS, PLANS, BELIEFS, EXPECTATIONS OR PREDICTIONS OF THE
FUTURE BASED ON CURRENT FACTS AND ANALYSES. ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE INDICATED IN SUCH STATEMENTS, DUE TO
A VARIETY OF FACTORS INCLUDING REDUCED PRODUCT DEMAND, INCREASED
COMPETITION, GOVERNMENT ACTION, WEATHER CONDITIONS, AND OTHER
FACTORS.
Results of Operations
=====================
Sales and other revenue
Sales of AstaXin(R) were $78,536 during the quarter ended
March 31, 2000 and based on orders received to date, sales for
the quarter ended June 30, 2000 are expected to exceed $150,000.
During April of 2000, the Company completed the formation of its
Chilean subsidiary, Igene Comercial Chile, Ltda., and hired a
second technical representative in its office in Puerto Montt,
Chile. During the fourth quarter of 1999, the Company began
large-scale commercial trials of AstaXin(R) with several of the
major salmon farmers in Chile. These trials, which take between
nine and twelve months each to complete, resulted in sales
beginning during the fourth quarter of 1999. During the quarter
ended March 31, 2000, two customers completed their trials with
excellent results, and have indicated their desire to expand
their usage of AstaXin(R) to 5 to 10 times their current usage,
beginning in the second quarter of 2000. However, there can be
no assurance that these communications will result in sales, or
that they will be material. Throughout the second through fourth
quarters of 2000, other companies, whose trials are now in
progress, are expected to complete their commercial trials.
These trials are expected to have similarly good results, based
on preliminary data obtained thus far, and should result in
additional and increased sales to these companies during and
following the trials. However, there can be no assurance that
such sales will occur or that they will be material. The Company
had no sales of AstaXin(R) during the three months ended March
31, 1999. This represents an increase of $78,536 for the first
quarter of 2000 over the same quarter in the prior year. During
the first quarter of 2000 and 1999, the Company engaged in
substantial marketing efforts on its own behalf. During 1999,
the Company discontinued marketing through a former distributor,
since that distributor had been unsuccessful in its marketing
efforts.
The Company earned no licensing revenue from ClandoSan(R)
during the quarter ended March 31, 2000, compared with gross
revenue from licensing of ClandoSan(R) of $1,167 in the first
quarter of 1999. The Company continues to focus its efforts on
AstaXin(R) during the quarter ended March 31, 2000.
The foregoing resulted in total sales and other revenues for
the quarter ended March 31, 2000 of $78,536, increased from
$1,167 in the first quarter of 1999. This is an increase in
total revenue of $77,369 for the first quarter of 2000 over the
first quarter of 1999.
Cost of sales and gross profit (loss)
Based on orders received during the first quarter of 2000 and
additional orders expected from present customers, the Company
plans to resume commercial production of AstaXin(R) in May 2000,
since the successful commercial trials of the product (see Sales
and other revenue, above) have resulted and are expected to
continue to result in
IGENE Biotechnology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Cost of sales and gross profit (loss) (continued)
increased sales of AstaXin(R). However, there can be no assurance
that such sales will occur or that they will be material. The
Company expects to incur future production costs for AstaXin(R)
of at least $200,000 per month beginning during May of 2000,
which are expected to be funded by product sales. However, there
can be no assurance that such sales will occur, or that they will
be material. Once the Company is producing and selling AstaXin(R)
at a gross profit, management plans to expand production
capacity, using available facilities, to meet an expected
increase in demand for AstaXin(R).
During a successful implementation test of certain
improvements in its production process, which had been developed
in the Company's pilot plant, commercial production of AstaXin(R)
was suspended during the first quarter of 1999. A temporary
resumption of production during the second quarter of 1999
confirmed that these improvements resulted in increased
efficiency and yields in the manufacturing process. During the
remainder of 1999, and continuing until the present, AstaXin(R)
production continued to be suspended, until sales volume
warranted additional commercial production. Production on a
small, experimental scale continued in the Company's pilot plant
in order to continue to improve production technology. While
production has been suspended, the Company has provided product
for the market from its existing inventory. The preceding
resulted in cost of sales for the quarter ended March 31, 2000
and 1999 of $87,433 and $20,436, respectively, an increase of
$66,997 or 327%.
Gross losses on sales of AstaXin(R) for the quarter ended
March 31, 2000 and 1999 were $8,897 and $20,436, respectively, a
decrease of $11,539 or 56%. Sales represented product produced
in 1998 and during the second quarter of 1999. Production
efficiency improved continually during 1998 and 1999, and the
Company expects to achieve gross profits on sales of AstaXin(R)
which will be produced in 2000, provided that sufficient sales
are achieved. However, there can be no assurance that such gross
profits will be realized or that they will be material.
There were no production costs for ClandoSan(R) during the
first quarter of 2000 and 1999, since the Company has
discontinued direct production and sales of this product and
earns revenue only through royalties on sales by its licensed
manufacturer, incurring no costs of sales.
Marketing and selling expenses
Based on successful results of commercial trials in Chile,
customers have, and are expected to continue to, purchase
additional quantities of AstaXin(R) both during and following
these trials. During the first quarter of 2000, the Company
also engaged a full-time consultant to market AstaXin(R)in Europe
and to explore the market for the use of AstaXin(R) as a
human nutritional supplement. During the large scale commercial
trials of AstaXin(R) as described above (see also Sales and
other revenue), the Company delivered large quantities of
AstaXin(R) either free to the customer or at reduced prices
during the initial stages of the trial periods. The Company's
executive employees have traveled extensively to Chile to promote
AstaXin(R) beginning in 1999 and continuing during the quarter
ended March 31, 2000. The Company also hired a technical
representative in Chile during the fourth quarter of 1999, and
during April of 2000 has completed formation of a foreign
subsidiary in Chile, and hired an additional technical
representative. The full-time consultant engaged to market
AstaXin(R) in Europe and to explore the market for human
nutritional supplements has considerable experience in both the
salmon farming industry and in the human nutritional supplement
market. The forgoing resulted in marketing and selling expenses
for the first quarter of 2000 and 1999 of $79,141 and $6,450,
respectively, an increase of $72,691.
Marketing expenses for AstaXin(R) are expected to continue to
increase, since to achieve continuing and increasing sales, and
to enter other markets for AstaXin(R), the Company will need to
make additional marketing efforts both on its own behalf and with
the help of distributors or marketers. These additional expenses
are expected to be funded by revenues from product sales, however
there can be no assurance that these sales will occur, or that
they will be material.
IGENE Biotechnology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Research, development and pilot plant expenses
Research, development and pilot plant expenses are expected
to continue at approximately $35,000 per month in the near term
in support of increasing the efficiency of the manufacturing
process through experimentation in the Company's pilot plant,
development of higher yielding strains of yeast and other
improvements in the Company's AstaXin(R) technology. For the
first quarter of 2000 and 1999, these expenses were $92,609
and $100,298, respectively, a decrease of $7,689 or 8%. However,
there can be no assurance that such improvements in efficiency
and yield will continue to occur, or that they will be material.
These expenses are expected to be funded through additional
funding from stockholders, and by profitable operations, if
profitable operations occur.
General and administrative expenses
General and administrative expenses for the first quarter of
2000 and 1999 were $84,869 and $90,811, respectively, a decrease
of $5,942 or 7%. General and administrative expenses are
expected to continue in the near future at approximately $35,000
per month. These expenses are expected to be funded by
additional funding from stockholders, and by profitable
operations, if profitable operations occur.
Litigation expenses
Management expects to ultimately recover litigation
expenses, which are associated with the suit filed against the
Company by ADM and the Company's counterclaim, through damage
awards and through preservation of the commercial product rights
associated with AstaXin(R). However, there can be no assurance
that the Company will receive damage awards or that its rights
will be preserved. Litigation expenses for the first quarter of
2000 and 1999 were $11,046 and $175,737, respectively, a decrease
of $164,691 or 94%. Expenses associated with this on going
litigation decreased for the quarter ended March 31, 2000, as
compared to the first quarter in the prior year, since a stay on
all discovery has remained in effect while a court appointed
expert analyzes the yeast product of both parties to the suit.
Costs of litigation will continue in the near future at levels
based on management's continuing assessments of the potential
costs and benefits of various litigation strategies and
alternatives. These expenses are expected to be funded by
additional funding from stockholders. A range of reasonably
possible losses from the litigation cannot be estimated at this
time.
Interest expense (net of interest income)
Interest expense (net of interest income) for the first
quarter of 2000 and 1999 was $173,786 and $170,647, respectively,
an increase of $3,139 or 2%. This interest expense (net of
interest income) was almost entirely composed of interest on the
Company's long term financing from its directors and other
stockholders, and interest on the Company's subordinated
debenture in both periods.
Net loss and net loss per common share
As a result of the foregoing, the Company reported net
losses of $450,348 and $563,212, respectively, for the first
quarters of 2000 and 1999; a decreased loss of $112,865 or 20%.
This is a loss of $.01 and $.03 per share, respectively, for the
first quarters of 2000 and 1999. The weighted average number of
shares of common stock outstanding of 48,748,245 and 25,322,345,
respectively, for the first quarters of 2000 and 1999 have
increased by 23,425,900 shares. This resulted from the issuance
of 80,000 shares in lieu of interest payment on a subordinated
debenture, the conversion of 3,125 shares of preferred stock into
6,250 shares of common stock, the issue of 20,625,001 shares of
stock to directors and other investors in direct purchases, the
issuance of 1,200,000 shares of common stock pursuant to the
exercise of employee stock options, and the issuance of 3,070,123
shares of common stock pursuant to the exercise of warrants.
Financial Position
- ------------------
During the quarters ended March 31, 2000 and 1999, the following
actions also materially affected the Company's financial
position:
- The Company sold inventory with a value, at lower of cost or
market, of $75,800 during the quarter ended March 31, 2000.
IGENE Biotechnology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Financial Position (continued)
- ------------------------------
- The Company applied legal retainers included in prepaid
expenses of approximately $161,660 against legal expenses
incurred pursuant to on going litigation during the quarter
ended March 31, 1999.
- The Company received $250,000 in proceeds during the quarter
ended March 31, 1999 in issuances of 4,166,700 shares of new
common stock through direct purchases by directors and other
accredited investors.
- The Company received $120,000 in proceeds during the quarter
ended March 31, 2000 pursuant to the exercise of employee stock
options, issuing 1,200,000 shares of new common stock.
In December 1988, as part of an overall effort to contain
costs and conserve working capital, the Company suspended payment
of the quarterly dividend on its preferred stock. Resumption of
the dividend will require significant improvements in cash flow.
Unpaid dividends cumulate for future payment or addition to the
liquidation preference or redemption value of the preferred
stock. As of March 31, 2000, total dividends in arrears on the
Company's preferred stock total $194,797 ($7.36 per share) and
are included in the carrying value of the redeemable preferred
stock.
Liquidity and Capital Resources
- -------------------------------
Historically, the Company has been funded primarily by
equity contributions and loans from stockholders. As of March 31,
2000 the Company had working capital of $855,174, and cash and
cash equivalents of $117,585.
Cash used by operating activities during the quarters ended
March 31, 2000 and 1999 amounted to $217,733 and $543,231,
respectively.
Cash used by investing activities decreased by $1,597, from
$2,576 for the quarter ended March 31, 1999 to $979 for the
quarter ended March 31, 2000. This was primarily as a result of
decreased capital expenditures.
Cash provided by financing activities decreased by $130,000
from $250,000 for the quarter ended March 31, 1999 to $120,000
for the quarter ended March 31, 2000. Financing activities
consisted of $120,000 in proceeds from exercises of employee
stock options during the quarter ended March 31, 2000 and of
$250,000 from the direct purchase of stock by directors and other
accredited investors during the quarter ended March 31, 1999.
Over the next twelve months, the Company believes it will
need at least $2,000,000 in additional working capital. The
Company hopes to achieve this from profits from sales of
AstaXin(R) and additional stockholder funding through direct
purchases of stock. On February 8, 2000, certain directors of
the Company committed to provide up to $1,000,000 in additional
funding to the Company through direct purchases of stock.
However, there can be no assurance that profits, if any, from
sales, or additional funding will be available to the Company to
fund its continued operations. The Company intends to spend
approximately $420,000 on technology research over the next
twelve months to improve manufacturing processes and research
new strains for production of pigments.
The Company does not believe that inflation has had a
significant impact on its operations during the quarters ended
March 31, 2000 and 1999.
IGENE Biotechnology, Inc.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On July 21, 1997 Archer Daniels Midland, Inc. (ADM)
filed suit against the Company in the U.S. District
Court in Baltimore, Maryland alleging patent
infringement and requesting injunctive relief and an
unspecified amount of damages predicated on the alleged
infringement, which pertains to the Company's
astaxanthin manufacturing process. On August 4, 1997,
the Company filed a $300,450,000 contract and trade
secrets counterclaim against ADM, alleging theft of
trade secrets. The Company is also claiming breach of
contract, in regards to a licensing agreement entered
into by the Company and ADM in 1995. The Company
contends that it complied with all material terms of
this agreement. On September 10, 1997 the District
Court denied ADM's request for a preliminary injunction
on the basis that ADM could not demonstrate a
likelihood of success on the merits of its patent
infringement allegations. To date, the court has
imposed a stay on all discovery, while a court-
appointed expert analyzes the yeast products of both
parties. Pursuant to an order issued by the judge on
July 16, 1999, both the Company and ADM communicated to
the court their willingness to pursue a mediated
settlement of this dispute. During the period from
October 1, 1999 through October 28, 1999, the parties
were unable to resolve the dispute through mediation.
Thus, the litigation has been returned to the court for
a judicial disposition. While no assurance can be
provided, it is management's contention that it is not
probable that this dispute will result in an
unfavorable outcome. Accordingly, no liability has
been reflected in the accompanying balance sheet. The
Company had expenses of $11,046 and $175,737,
respectively, in the three months ended March 31, 2000
and 1999 relating to this litigation, which is on
going.
Item 2. Changes in Securities and Use of Proceeds.
Limitation on Payment of Dividends
----------------------------------
Dividends on Common Stock are currently prohibited
because of the preferential rights of holders of
Preferred Stock. The Company has paid no cash
dividends on its Common Stock in the past and does not
intend to declare or pay any dividends on its Common
stock in the foreseeable future.
Sales of Unregistered Securities
--------------------------------
During March of 2000, holders of 3,994,500 warrants
issued in the March 1998 Rights Offering exercised
those warrants using $5,200 of 8% notes payable and
utilizing 924,377 warrants in cashless exercises.
3,070,123 new shares of common stock were issued
pursuant to these exercises of warrants and $5,200 of
8% notes were cancelled.
The above securities were exempt from registration
requirements pursuant to Section 4(2).
Item 3. Defaults Upon Senior Securities.
In December 1988, as part of an overall effort to
contain costs and conserve working capital, the Company
suspended payment of the quarterly dividend on its
preferred stock. Resumption of the dividend will
require significant improvements in cash flow. Unpaid
dividends cumulate for future payment or addition to
the liquidation preference or redemption value of the
preferred stock. As of March 31, 2000, total dividends
in arrears on the Company's preferred stock total
$194,797 ($7.36 per share) and are included in the
carrying value of the redeemable preferred stock.
IGENE Biotechnology, Inc.
PART II
OTHER INFORMATION
(continued)
Item 4. Submission of Matters to a Vote of Security
Holders.
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
IGENE Biotechnology, Inc.
---------------------------
(Registrant)
Date May 3, 2000 By /s/Stephen F. Hiu
----------- ---------------------------
Stephen F. Hiu
President and Treasurer
(On behalf of the Registrant
and as Principal
Financial Officer)