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 September 30, 2001
[ ] Transition report under Section 13 or 15(D) of the
Exchange Act
For the transition period from ____ to ____
Commission file number 0-15888
IGENE Biotechnology, Inc.
_________________________________________________________________
(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
___________________________________________________
(Address of Principal Executive Offices)
(410) 997-2599
________________________________________________
(Issuer's Telephone Number, Including Area Code)
None
____________________________________________________
(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:
62,805,580 shares as of November 1, 2001.
Transitional Small Business Disclosure Format (check one):
Yes No x
_____ _____
FORM 10-QSB
IGENE Biotechnology, Inc.
INDEX
PART I - FINANCIAL INFORMATION
Page
Consolidated Balance Sheets ......................... 5-6
Consolidated Statements of Operations ............... 7
Consolidated Statements of Stockholders' Deficit..... 8-9
Consolidated Statements of Cash Flows ............... 10
Notes to Consolidated Financial Statements........... 11-14
Management's Discussion and Analysis of Financial
Condition and Results of Operations ................ 15-19
PART II - OTHER INFORMATION .......................... 20-21
SIGNATURES ............................................... 22
IGENE BIOTECHNOLOGY, INC.
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
PART I
FINANCIAL INFORMATION
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Balance Sheets
September 30, December 31,
2001 2000
_____________ _____________
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 185,549 $ 143,572
Accounts receivable, net 1,411,728 316,663
Inventory 603,108 762,432
Prepaid expenses and other current assets 268,676 186,002
Deferred costs, current portion 74,160 74,160
_____________ _____________
2,543,221 1,482,829
OTHER ASSETS
Property and equipment, net 165,808 104,150
Deferred costs, net of current portion 333,396 420,781
Other assets 6,015 5,861
_____________ _____________
TOTAL ASSETS $ 3,048,440 $ 2,013,621
============= =============
The accompanying notes are an integral part of the financial statements.
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Balance Sheets
(continued)
September 30, December 31,
2001 2000
_____________ _____________
(Unaudited)
LIABILITIES, REDEEMABLE PREFERED STOCK
AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,242,299 $ 304,432
Notes payable --- 600,000
_____________ _____________
TOTAL CURRENT LIABILITIES 1,242,299 904,432
_____________ _____________
LONG-TERM DEBT
Notes payable 6,057,959 6,077,300
Convertible debentures 2,114,212 ---
Variable rate subordinated debenture 1,500,000 1,500,000
Lease payable 3,435 ---
Accrued interest 1,768,644 1,337,063
_____________ _____________
TOTAL LIABILITIES 12,686,549 9,818,795
_____________ _____________
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 $16.32
and $15.84, respectively. Authorized
1,312,500 shares, issued 26,405 shares 430,930 418,255
_____________ _____________
STOCKHOLDERS' DEFICIT
Common stock, $.01 par value per share.
Authorized, 750,000,000 and
250,000,000 shares, respectively;
issued and outstanding 62,765,581
and 62,249,005 shares, respectively. 627,656 622,490
Additional paid-in capital 21,516,179 21,411,645
Deficit (32,212,874) (30,257,564)
_____________ _____________
TOTAL STOCKHOLDERS' DEFICIT (10,069,039) (8,223,429)
_____________ _____________
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 3,048,440 $ 2,013,621
============= =============
The accompanying notes are an integral part of the financial statements.
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Statements of Operations
(Unaudited)
Three months ended Nine months ended
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
_____________ _____________ _____________ _____________
Sales $ 1,473,068 $ 129,575 $ 3,014,611 $ 388,742
Cost of sales 1,332,906 198,702 2,659,467 471,359
_____________ _____________ _____________ _____________
Gross profit (loss) 140,162 (69,127) 355,144 (82,617)
_____________ _____________ _____________ _____________
Selling, general & administrative expenses:
Marketing and selling 435,031 197,586 900,115 456,184
Research, development and pilot plant 164,265 89,629 389,877 267,205
General and administrative 169,856 127,194 425,433 337,296
Litigation expenses --- 1,352 --- 13,248
_____________ _____________ _____________ _____________
Total operating expenses 769,152 415,761 1,715,425 1,073,933
_____________ _____________ _____________ _____________
Operating loss (628,990) (484,888) (1,360,281) (1,156,550)
_____________ _____________ _____________ _____________
Other income (expense)
Interest expense, net of
interest income of $1,700, $91,
$8,408 and $3,737, respectively (173,182) (169,298) (601,029) (512,301)
Other income --- 2,000 6,000 4,150
_____________ _____________ _____________ _____________
Net loss $ (802,172) $ (652,186) $ (1,955,310) $ (1,664,701)
============= ============= ============= =============
Basic and diluted
net loss per common share $ (0.01) $ (0.01) $ (0.03) $ (0.03)
============= ============= ============= =============
The accompanying notes are an integral part of the financial statements.
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Statements of Stockholders' Deficit
(Unaudited)
Redeemable Preferred Stock
(shares/amount)
______________________________
Balance at December 31, 1999 26,467 $ 402,298
Cumulative undeclared dividends
on redeemable preferred stock --- 12,705
Exercise of employee stock options --- ---
Exercise of warrants --- ---
Net loss for the nine months ended
September 30, 2000 --- ---
___________ ___________
Balance at September 30, 2000 26,467 $ 415,003
=========== ===========
Balance at December 31, 2000 26,405 $ 418,255
Cumulative undeclared dividends
on redeemable preferred stock --- 12,675
Exercise of employee stock options --- ---
Exercise of warrants --- ---
Net loss for the nine months ended
September 30, 2001 --- ---
___________ ___________
Balance at September 30, 2001 26,405 $ 430,930
=========== ===========
The accompanying notes are an integral part of the financial statements.
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Statements of Stockholders' Deficit
(Unaudited - Continued)
Additional Total
Common Stock Paid-in Stockholders'
(shares/amount) Capital Deficit Deficit
____________________ _____________ _____________ _____________
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 --- --- (12,705) --- (12,705)
Exercise of employee stock options 1,500,000 15,000 135,000 --- 150,000
Exercise of warrants 3,070,123 30,701 (25,501) --- 5,200
Issuance of common stock
in lieu of cash in payment of
interest on subordinated debenture 40,000 400 89,600 --- 90,000
Issuance of common stock
pursuant to direct purchases
by certain directors 10,000,000 100,000 900,000 --- 1,000,000
Net loss for the nine months ended
September 30, 2000 --- --- --- (1,664,701) (1,664,701)
__________ ________ _____________ _____________ _____________
Balance at September 30, 2000 62,208,881 $622,089 $ 21,325,298 $(29,666,950) $ (7,719,563)
========== ======== ============= ============= =============
Balance at December 31, 2000 62,249,005 $622,490 $ 21,411,645 $(30,257,564) $ (8,223,429)
Cumulative undeclared dividends
on redeemable preferred stock --- --- (12,675) --- (12,675)
Exercise of employee stock options 305,666 3,057 12,227 --- 15,284
Exercise of warrants 170,910 1,709 15,382 --- 17,091
Issuance of common stock
in lieu of cash in payment of
interest on subordinated debenture 40,000 400 89,600 --- 90,000
Net loss for the nine months ended
September 30, 2001 --- --- --- (1,955,310) (1,955,310)
__________ ________ _____________ _____________ _____________
Balance at September 30, 2001 62,765,581 $627,656 $ 21,516,179 $(32,212,874) $(10,069,039)
========== ======== ============= ============= =============
The accompanying notes are an integral part of the financial statements.
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended
September 30, September 30,
2001 2000
_____________ _____________
Cash flows from operating activities:
Net loss $ (1,955,310) $ (1,664,701)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation 17,715 14,436
Amortization 87,385 60,357
Interest on debenture paid in
shares of common stock 90,000 90,000
Decrease (increase) in:
Accounts receivable (1,095,065) (113,801)
Inventory 159,324 (107,582)
Prepaid expenses and other current assets (82,858) (58,989)
Increase in:
Accounts payable and accrued interest 1,369,448 724,870
_____________ _____________
Net cash used in operating activities (1,409,361) (1,055,410)
_____________ _____________
Cash flows from investing activities:
Capital expenditures (58,872) (5,358)
_____________ _____________
Net cash used in investing activities (58,872) (5,358)
_____________ _____________
Cash flows from financing activities:
Proceeds from borrowing 1,500,000 ---
Repayment of long-term debt (2,290) ---
Proceeds from exercise of
employee stock options 12,500 ---
Proceeds from issuance of common stock --- 1,150,000
_____________ _____________
Net cash provided by financing activities 1,510,210 1,150,000
_____________ _____________
Net increase (decrease) in cash
and cash equivalents 41,977 89,232
Cash and cash equivalents
at beginning of period 143,572 216,297
_____________ _____________
Cash and cash equivalents
at end of period $ 185,549 $ 305,529
============= =============
Supplementary disclosure and cash flow information:
Cash paid for:
Interest $ 440 $ -0-
Income taxes -0- -0-
The accompanying notes are an integral part of the
consolidated financial statements.
IGENE Biotechnology, Inc. and Subsidiary
Notes to Financial Statements
(1) Unaudited consolidated financial statements
The consolidated financial statements presented herein 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 financial
statements prepared in accordance with accounting principles
generally accepted in the United States. This quarterly
report on Form 10-QSB should be read in conjunction with
Igene's Annual Report on Form 10-KSB for the year ended
December 31, 2000.
(2) Noncash investing and financing activities
During the nine months ended September 30, 2001 and 2000,
the Company recorded dividends in arrears on 8% redeemable
preferred stock at $.48 per share aggregating $12,675 and
$12,705, respectively, which has been removed from paid-in
capital and included in the carrying value of the redeemable
preferred stock.
During the nine months ended September 30, 2001, the Company
capitalized leased equipment by recording a lease obligation
payable of $20,500 under a capital lease.
During the nine months ended September 30, 2001, the Company
satisfied its obligations under demand notes payable of
1,000,000 and related accrued interest of $14,211 by issuing
new 8% convertible debentures in the aggregate principal
amount of $1,014,211.
During the nine months ended September 30, 2001 and 2000 the
Company issued 40,000 shares of common stock in each period
in payment of interest on the variable rate subordinated
debenture. If paid in cash, the interest would have been
payable at 12% in the amount of $90,000 in each period.
Shares may be issued in lieu of cash under the terms of the
debenture agreement at the higher of $2.25 per share or
market price per share. The stock was issued and related
interest was paid at $2.25 per share, or $90,000, in each
period.
During the nine months ended September 30, 2001 employees
exercised 55,666 stock options using $2,250 of 8% notes
payable plus accrued interest of $533.30 in a cashless
exercise. 55,666 new shares of common stock were issued
pursuant to these exercises of options and $2,250 of 8%
notes were cancelled.
During the nine months ended September 30, 2001 170,910
warrants were exercised using $17,091 of 8% notes payable in
a cashless exercise. 170,910 new shares of common stock
were issued pursuant to these exercises of options and
$17,091 of 8% notes were cancelled.
During the nine months ended September 30, 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.
During the nine months ended September 30, 2000, Igene
agreed to forgive $206,780 in loans receivable and assign
equipment to our contract manufacturer having a net book
value of $226,011 as part of a reduction in manufacturing
fees under a new contract with the Company's contract
manufacturer of AstaXin(R) provided the contract term is
completed. The book value of the loan receivable and
equipment, totaling $432,791, has been recorded as a
deferred cost, which is being amortized as manufacturing
occurs over the six-year term of this contract, which will
expire May 2006.
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(continued)
(3) Foreign Currency Translation and Transactions
Since the day-to-day operations of Igene's foreign
subsidiary in Chile are dependent on the economic
environment of the parent's currency, the financial position
and results of operations of Igene's foreign subsidiary are
determined using Igene's reporting currency (US dollars) as
the functional currency. All exchange gains and losses from
remeasurement of monetary assets and liabilities that are
not denominated in US dollars are recognized currently in
income. The aggregate transaction loss included in
determining net income for the nine months ended September
30, 2001 is $180,379 and is included in the Marketing and
selling expenses in the Consolidated Statement of
Operations. These losses occurred primarily as a result of
the effect of substantial de-valuation of the Chilean Peso
during the months of April through September 2001 on Igene's
accounts receivables, which are mostly denominated in
Chilean Pesos as of September 30, 2001 and for the nine
months then ended. The effect of exchange rate changes
occurring subsequent to September 30, 2001 is immaterial.
(4) 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:
September 30, December 31,
2001 2000
_____________ ____________
Raw materials $ --- $ ---
Work-in-process 26,520 4,080
Finished goods 576,588 758,352
_____________ ____________
Total inventory $ 603,108 $ 762,432
============= ============
(5) Stockholders' Equity (Deficit)
At September 30, 2001 and 2000, 52,810 shares of authorized
but unissued common stock were reserved for issue upon
conversion of the Company's outstanding preferred stock.
As of September 30, 2001 and 2000, 74,604,500 and 19,910,166
shares of authorized but unissued common stock were reserved
for exercise pursuant to the Company's Employee Stock Option
Plans.
As of September 30, 2001 and 2000, 120,000 and 200,000
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 September 30, 2001 and 2000, 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 September 30, 2001, 26,427,650 shares of authorized
but unissued common stock were reserved for the conversion
of outstanding convertible debentures in the aggregate
amount of $2,114,212 held by directors of the Company. The
convertible debentures were issued pursuant to commitments
dated March 1 and March 27, 2001 for a total of $2,514,212.
The market price on those dates was $.08 per share. In
return for these commitments, these directors also received,
on March 1 and March 27, 2001, warrants to purchase
31,427,650 shares of common stock at $.08 per share,
expiring in 10 years.
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(continued)
(5) Stockholders' Equity (Deficit) - continued
As of September 30, 2001 and 2000, 168,516,085 and
131,759,345 shares, respectively, of authorized but unissued
common stock were reserved for the exercise of outstanding
warrants, inclusive of the 31,427,650 mentioned above for
the September 30, 2001 time period.
As of September 30, 2001, 20,000,000 shares of authorized
but unissued common stock were reserved for issuance to the
Company's contract manufacturer pursuant to the terms of the
current manufacturing contract.
As of September 30, 2001 5,000,000 shares of authorized but
unissued common stock were reserved for issuance upon
receipt of $400,000 in funding for operations pursuant to
the commitment of March 27, 2001 of $1,500,000 by certain
directors of the Company.
During the nine months ended September 30, 2000, the Company
issued to certain directors 10,000,000 new shares of common
stock at $.10 per share, or $1,000,000. The Company did not
use the services of any agent or underwriter in distributing
these shares. The sale of shares was exempt from
registration pursuant to Section 4(2) of the Securities Act
of 1933, as amended, and Rule 506 of Regulation D
promulgated under the Securities Act of 1933, as amended.
The Company relied on information provided by the purchasers
of the shares, indicating that they were directors of the
Company, in claiming exemption from the registration
obligations of the Securities Act of 1933, as amended. This
stock was issued pursuant to a commitment dated February 8,
2000 for a total of $1,000,000. The market price on that
date was $.10 per share. In return for this commitment,
these directors also received, on February 8, 2000, warrants
to purchase 10,000,000 shares of common stock at $0.10 per
share, expiring in 10 years.
During the nine months ended September 30, 2001 and 2000,
the Company issued 305,666 and 1,500,00, respectively, of
new shares of common stock at $.05 and $.10 per share, or
$15,283 and $150,000, respectively, pursuant to the exercise
of employee stock options.
During the nine months ended September 30, 2001 170,910
warrants were exercised using $17,091 of 8% notes payable in
a cashless exercise. 170,910 new shares of common stock
were issued pursuant to these exercises of options and
$17,091 of 8% notes were cancelled.
(6) Basic and diluted net loss per common share
Basic and diluted net loss per common share for the nine
months ended September 30, 2001 and 2000 is based on
62,461,597 and 59,170,838, 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 cumulative undeclared dividends in arrears on
preferred stock. No adjustment has been made for any common
stock equivalents outstanding because their effects would be
antidilutive.
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(continued)
(7) Contingency - Litigation
Archer Daniels Midland, Inc. ("ADM") has sued Igene,
alleging patent infringement and requesting injunctive
relief as well as an unspecified amount of damages (suit
filed July 21, 1997, U.S. District Court, Baltimore, MD).
Igene has filed a $300,450,000 counterclaim concerning the
theft of trade secrets (counter claim filed August 4, 1997).
The court denied ADM's request for preliminary injunctive
relief. Mediation efforts during 1999 did not resolve this
dispute, which has been returned to the court for a judicial
disposition. Presently, a stay on all discovery remains in
effect while a court-appointed expert analyzes the yeast
products of both parties. Igene believes that it is not
probable that this dispute will result in an unfavorable
outcome to Igene. Accordingly, no liability has been
reflected in the September 30, 2001 balance sheet.
Nonetheless, should ADM prevail, Igene could be liable for
damages, and Igene could also lose the right to use a
particular strain of yeast. However, Igene expects that
this will not affect Igene's ability to make and sell its
product, AstaXin(R). The Company had expenses of $-0- and
$13,248, respectively, in the nine months ended September
30, 2001 and 2000 relating to this on-going litigation.
IGENE Biotechnology, Inc. and Subsidiary
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, FLUCTUATIONS IN CURRENCY EXCHANGE
RATES, 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, AVAILABILITY OF PRODUCT CAPACITY, GOVERNMENT ACTION,
WEATHER CONDITIONS, AND OTHER FACTORS.
Results of Operations
_____________________
Sales and other revenue
Sales of AstaXin(R) for the quarter ended September 30, 2001
and 2000, were $1,473,068 and $129,575, respectively an increase
of $1,343,493 or 1036%. Sales for the nine months ended
September 30, 2001 and 2000 were $3,014,611 and $388,742, an
increase of $2,625,869 or 675%. Sales for subsequent quarters
are expected to continue to increase throughout the remainder of
2001 and into 2002, but will be limited by presently available
production capacity. However, there can be no assurance that
these, or any increases in sales will occur, or that they will be
material. In June 2001, the Company signed an agreement with a
leading feed producer of aquaculture in Chile to sell $2 million
of AstaXin(R) over the next twelve months.
To better illustrate recent trends in sales growth for
AstaXin(R), the following table shows Sales for each of the past
six quarters:
Period Sales
__________________________________ _________________
Quarter ended September 30, 2001 1,473,068
Quarter ended June 30, 2001 1,096,525
Quarter ended March 31, 2001 445,018
Quarter ended December 31, 2000 313,791
Quarter ended September 30, 2000 129,575
Quarter ended June 30, 2000 180,631
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Cost of sales and gross profit (loss)
Gross Profit on sales of AstaXin(R) was $140,162 for the
quarter ended September 30, 2001. This is an increase of
$209,289 over the loss of $(69,127) for the same quarter in the
preceding year. Gross Profit on sales of AstaXin(R) was $355,144
for the nine months ended September 30, 2001, which is an
increase of $437,761 over the loss of $(82,617) for the nine
months ended September 30, 2000. Gross profits were 10% and 12%
of sales for the quarter and nine months ended September 30,
2001, respectively. The Company expects that the level of gross
profit as a percentage of sales will increase as production
efficiency increases, but can provide no assurances in that
regard. The Company plans to continue to increase production of
AstaXin(R), as needed, to meet expected increased sales of
AstaXin(R). Demand is increasing both due to seasonal increases
in customer usage and increases in our market share. If demand
for AstaXin(R) continues to increase, as the Company expects that
it will, sales and gross profits may be limited by the quantities
of AstaXin(R) the Company is able to produce with its presently
available capacity with its contract manufacturer. To avoid this
limitation, the Company is presently investigating other
additional sources of available production capacity. However,
there can be no assurance that the Company will be able to find
and subsequently be able to utilize other additional sources of
production capacity as quickly as they are needed, and sales and
gross profit growth may be limited unless augmented by increases
in production efficiency resulting from process research and
development. Presently available capacity with the Company's
current contract manufacturer is expected to allow for an
approximate increase of 115% over capacity being used as of
September 30, 2001.
The preceding resulted in cost of sales for the quarter
ended September 30, 2001 and 2000 of $1,332,906 and $198,702,
respectively, an increase of $1,134,204 or 571%. Cost of sales
for the nine months ended September 30, 2001 and 2000 was
$2,659,467 and $471,359, respectively, an increase of $2,188,108
or 464%.
Marketing and selling expenses
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 its worldwide marketing agent, ProBio Nutraceuticals.
In addition, the Marketing and selling expense for the nine
months ended September 30, 2001 includes $180,379 of currency
exchange loss in doing business in Chile. These additional
expenses are expected to be funded by gross profits from product
sales, however, there can be no assurance that these sales will
occur, that they will be material or that gross profits will
result. Marketing and selling expenses for the quarter ended
September 30, 2001 were $435,031, an increase of $237,445, or
120% over the marketing and selling expenses of $197,586 for the
quarter ended September 30, 2000. Marketing and selling expenses
for the nine months ended September 30, 2001 were $900,115, an
increase of $443,931, or 97% over the marketing and selling
expenses of $456,184 for the nine months ended September 30,
2000.
Research, development and pilot plant expenses
Research, development and pilot plant expenses are expected
to continue to increase at a moderate rate in the near term in
support of increasing the efficiency of the manufacturing process
through experimentation in the Company's pilot plant, developing
higher yielding strains of yeast and other improvements in the
Company's AstaXin(R) technology. For the quarters ended September
30, 2001 and 2000, these expenses were $164,265 and $89,629,
respectively, an increase of $74,636 or 83%. For the nine months
ended September 30, 2001 and 2000, these expenses were $389,877
and $267,205, respectively, an increase of $122,672 or 46%.
These expenses are expected to be funded through additional
funding from stockholders, and by profitable operations, if
profitable operations occur.
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
General and administrative expenses
General and administrative expenses for the quarters ended
September 30, 2001 and 2000 were $169,856 and $127,194,
respectively, an increase of $42,662 or 34%. General and
administrative expenses for the nine months ended September 30,
2001 and 2000 were $425,433 and $337,296, respectively, an
increase of $88,137 or 26%. This increase, and expectation of
moderate future increases in the near term, resulted from
increases in cost of insurance coverage, increased legal fees and
administrative expenses due to the expansion of the Company.
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, through damage
awards, some portion of litigation expenses previously incurred,
in connection with the suit filed against the Company by ADM and
the Company's counterclaim, and expects to preserve its
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. There have been no
litigation expenses during the nine months ended September 30,
2001. Litigation expenses for the quarter ended September 30 of
2000 and the nine months ended September 30, 2000 were $1,352
and $13,248, respectively. Expenses associated with this on-going
litigation decreased, as compared to 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 may be incurred in the 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, and accordingly, no liability has been reflected in the
September 30, 2001 financial statements.
Interest expense (net of interest income)
Interest expense (net of interest income) for the quarter
ended September 30, 2001 and 2000 was $173,182 and $169,298,
respectively, an increase of $3,884 or 2%. Interest expense (net
of interest income) for the nine months ended September 30, 2001
and 2000 was $601,029 and $512,031, respectively, an increase of
$88,728 or 17%. 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 and convertible debentures
and has increased due to increased financing from directors.
Net loss and basic and diluted net loss per common share
As a result of the foregoing, the Company reported net
losses of $802,172 and $652,186, respectively, for the quarters
ended June 30, 2001 and 2000, an increased loss of $149,986 or
23%. The Company reported net losses of $1,955,310 and
$1,664,701, respectively, for the nine months ended September 30,
2001 and 2000, an increased loss of $290,609, or 18%. This
represents a loss of $.01 per basic and diluted common share in
each of the quarters ended September 30, 2001 and 2000, and $.03
per basic and diluted common share in each of the nine months
ended September 30, 2001 and 2000. The weighted average number
of shares of common stock outstanding of 62,628,979 and
59,170,841, respectively, for the quarters ended September 30,
2001 and 2000 have increased by 3,458,138 shares. This resulted
from the issuance of 80,000 shares in lieu of interest payment on
a subordinated debenture, the issuance of 305,666 shares of
common stock pursuant to the exercise of employee stock options,
the issuance of 170,910 shares of common stock pursuant to the
exercise of warrants, and weighting of the issuance of 2,500,000
shares of stock to directors and other investors in direct
purchases on September 26, 2000 that had only a reduced effect on
the September 30, 2000 average.
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Financial Position
__________________
During the nine months ended September 30, 2001 and 2000, the
following actions also materially affected the Company's
financial position:
o During the nine months ended September 30, 2001 accounts
receivable increased by approximately $1,095,000 due to
increased sales of AstaXin(R), of the balance, 50% was due
from one customer, and has since been paid.
o During the nine months ended September 30, 2001 accounts
payable increased by approximately $1,369,000 due to
increased costs in the production of AstaXin(R).
o During the nine months ended September 30, 2001 inventory
decreased by approximately $159,000 due to increased demand
and sales of AstaXin(R).
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 September 30, 2001, total dividends in arrears on
the Company's preferred stock totaled $219,690 ($8.32 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 September
30, 2001 the Company had working capital of approximately
$1,300,922 and cash and cash equivalents of $185,549.
Cash used by operating activities during the nine months
ended September 30, 2001 and 2000 amounted to $1,409,361 and
$1,055,410, respectively, an increase of $353,951.
Cash used by investing activities increased by $53,514, from
$5,358 for the nine months ended September 30, 2000 to $58,872
for the nine month ended September 30, 2001. This was as a
result of increased capital expenditures.
Cash provided by financing activities increased by $360,210
from $1,150,000 for the nine months ended September 30, 2000 to
$1,510,210 for the nine months ended September 30, 2001.
Financing activities consisted principally of $1,500,000 in
proceeds from the issuance of 8% convertible debentures to
certain directors during the nine months ended September 30,
2001.
Over the next twelve months, the Company believes it will
need additional working capital to fund expected expansion. The
Company hopes to achieve this from profits from sales of
AstaXin(R) and additional stockholder funding through direct
purchases of stock and issuance of convertible securities.
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.
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
The Company does not believe that inflation has had a
significant impact on its operations during the nine months ended
September 30, 2001 and 2000.
The Company has significant sales operations in Chile.
During the nine months ended September 30, 2001, the Company has
losses due to change in currency exchange rates on its Chilean
operations of approximately $180,000. These losses may continue
to occur and will fluctuate depending on the economic conditions
in Chile and worldwide. The Company has been researching methods
to mitigate the effect of the currency exchange and reduce or
eliminate the losses in future periods.
IGENE Biotechnology, Inc.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Archer Daniels Midland, Inc. ("ADM") has sued Igene,
alleging patent infringement and requesting injunctive
relief as well as an unspecified amount of damages (suit
filed July 21, 1997, U.S. District Court, Baltimore, MD).
Igene has filed a $300,450,000 counterclaim concerning the
theft of trade secrets (counter claim filed August 4, 1997).
The court denied ADM's request for preliminary injunctive
relief. Mediation efforts during 1999 did not resolve this
dispute, which has been returned to the court for a judicial
disposition. Presently, a stay on all discovery remains in
effect while a court-appointed expert analyzes the yeast
products of both parties. Igene believes that it is not
probable that this dispute will result in an unfavorable
outcome to Igene. Accordingly, no liability has been
reflected in the September 30, 2001 balance sheet.
Nonetheless, should ADM prevail, Igene could be liable for
damages, and Igene could also lose the right to use a
particular strain of yeast. However, Igene expects that
this will not affect Igene's ability to make and sell its
product, AstaXin(R). The Company had expenses of $0 and
$1,352, respectively, in the three months ended September
30, 2001 and 2000 and $0 and $13,248, respectively for the
nine months ended September 30, 2001 and 2000 relating to
this on-going litigation.
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
________________________________
As previously reported, on March 27, 2001, certain
directors of the Company committed to purchase an
aggregate of $1,500,000 in 8% convertible debentures.
The Company issued $450,000 of these 8% convertible
debentures on July 31, 2001. These 8% convertible
debentures are convertible into shares of Igene's
common stock at $.08 per share. In consideration of
the commitment to purchase $1,500,000 of the 8%
convertible debentures, these directors also received
an aggregate of 18,750,000 warrants to purchase common
stock on March 27, 2001 at $.08 per share. The warrants
expire March 26, 2011.
The above sales of securities were exempt from
registration pursuant to Section 4(2) of the Securities
Act of 1933, as amended, and Rule 506 of Regulation D
promulgated under the Securities Act of 1933, as
amended. The Company relied on information provided by
the purchasers of the securities, who are directors of
the Company, in claiming exemption from the
registration obligation of the Securities Act of 1933,
as amended.
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 Series A redeemable
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 November, 2001, total dividends in arrears on the
Company's Series A redeemable preferred stock total $222,507
($8.43 per share) and are included in the carrying value of
the Series A redeemable preferred stock.
IGENE Biotechnology, Inc.
PART II
OTHER INFORMATION
(continued)
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
No Reports on Form 8-K have been filed during the
quarter ended September 30, 2001.
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: November 9, 2001 By: /s/Stephen F. Hiu
____________________________
Stephen F. Hiu
President and Treasurer
(On behalf of the Registrant
and as Principal
Financial Officer)