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, 2002
______________
[ ] 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 Identification No.)
Incorporation or organization)
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 No x
______ ______
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
77,045,816 shares as of May 9, 2002.
___________________________________
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 ................ 11-13
Management's Discussion and Analysis of Financial
Conditions and Results of Operations ...................... 14-17
PART II - OTHER INFORMATION .................................... 18
SIGNATURES ..................................................... 19
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 Subsidiaries
Consolidated Balance Sheets
March 31, December 31,
2002 2001
_____________ _____________
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 117,984 $ 394,487
Accounts receivable,
(net of allowances of $24,000; 2002 and 2001) 592,829 832,794
Inventory 1,454,087 959,856
Prepaid expenses and other current assets 449,218 290,553
Deferred costs, current portion 74,160 74,160
_____________ _____________
2,688,278 2,551,850
OTHER ASSETS
Property and equipment, net 244,563 232,923
Deferred costs, net of current portion 275,138 304,267
Equipment deposits 213,656 177,091
Deposits on manufacturing equipment 211,380 211,380
Other assets 50,981 61,495
_____________ _____________
TOTAL ASSETS $ 3,683,996 $ 3,539,006
============= =============
The accompanying notes are an integral part of the financial statements.
IGENE Biotechnology, Inc. and Subsidiaries
Consolidated Balance Sheets
(continued)
March 31, December 31,
2002 2001
_____________ _____________
(Unaudited)
LIABILITIES, REDEEMABLE PREFERED STOCK
AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 882,056 $ 1,085,893
Equipment lease payable --- 1,733
Variable rate subordinated debenture 1,500,000 1,500,000
_____________ _____________
TOTAL CURRENT LIABILITIES 2,382,056 2,587,626
LONG-TERM DEBT
Notes payable 6,057,959 6,057,959
Convertible debentures 4,264,212 3,514,212
Accrued interest 2,186,199 1,927,256
_____________ _____________
TOTAL LIABILITIES 14,890,426 14,087,053
_____________ _____________
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 $16.64
and $16.48, respectively. Authorized
1,312,500 shares, issued 26,405 shares 439,379 435,154
_____________ _____________
STOCKHOLDERS' DEFICIT
Common stock, $.01 par value per share.
Authorized, 750,000,000 shares;
issued and outstanding 77,005,618
and 75,848,600 shares,
respectively. 770,056 758,486
Additional paid-in capital 22,230,893 22,188,836
Deficit (34,646,758) (33,930,523)
_____________ _____________
TOTAL STOCKHOLDERS' DEFICIT (11,645,809) (10,983,201)
_____________ _____________
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 3,683,996 $ 3,539,006
============= =============
The accompanying notes are an integral part of the financial statements.
IGENE Biotechnology, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three months ended
_______________________________
March 31, March 31,
2002 2001
_____________ _____________
Sales - AstaXin(R) $ 508,251 $ 445,018
Sales - Nutraceuticals 555,357 ----
Cost of sales - AstaXin(R) (430,660) (412,119)
Cost of sales - Nutraceuticals (366,684) ---
_____________ _____________
Gross profit 266,264 32,899
Operating expenses:
Marketing and selling 248,278 144,179
Research, development and pilot plant 180,391 107,335
General and administrative 335,689 122,398
_____________ _____________
Total operating expenses 764,358 373,912
_____________ _____________
Operating (loss) (498,094) (341,013)
_____________ _____________
Other income (expense)
Miscellaneous income --- 3,000
Interest expense, net of interest income of
$637 and $869, respectively (218,141) (187,748)
_____________ _____________
Total other income (218,141) (184,748)
Net loss $ (716,235) $ (525,761)
============= =============
Basic and diluted
net loss per common share $ (0.01) $ (0.01)
============= =============
The accompanying notes are an integral part of the financial statements.
IGENE Biotechnology, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Deficit
(Unaudited)
Redeemable Preferred Stock
(shares/amount)
______________________________
Balance at January 1, 2001 26,405 $ 418,255
Cumulative undeclared dividends
on redeemable preferred stock --- 4,225
Exercise of employee stock options --- ---
Exercise of warrants --- ---
Net loss for the three months ended March 31, 2001 --- ---
____________ ____________
Balance at March 31, 2001 26,405 $ 422,480
============ ============
Balance at January 1, 2002 26,405 $ 435,154
Cumulative undeclared dividends
on redeemable preferred stock --- 4,225
Exercise of employee stock options --- ---
Exercise of warrants --- ---
Net loss for the three months ended March 31, 2002 --- ---
____________ ____________
Balance at March 31, 2002 26,405 $ 439,379
============ ============
The accompanying notes are an integral part of the financial statements.
IGENE Biotechnology, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Deficit
(Unaudited - Continued)
Additional Total
Common Stock Paid-in Stockholders'
(shares/amount) Capital Deficit Deficit
___________ ___________ _____________ _____________ _____________
Balance at January 1, 2001 62,249,005 $ 622,490 $ 21,411,645 $(30,257,564) $ (8,223,429)
Cumulative undeclared dividends
on redeemable preferred stock --- --- (4,225) --- (4,225)
Exercise of employee stock options 5,000 50 200 --- 250
Exercise of warrants 170,910 1,709 15,382 --- 17,091
Net loss for the three months ended
March 31, 2001 --- --- --- (525,761) (525,761)
___________ ___________ _____________ _____________ _____________
Balance at March 31, 2001 62,424,915 $ 624,249 $ 21,423,002 $(30,783,325) $ (8,736,074)
=========== =========== ============= ============= =============
Balance at January 1, 2002 75,848,600 $ 758,486 $ 22,188,836 $(33,930,523) $(10,983,201)
Cumulative undeclared dividends
on redeemable preferred stock --- --- (4,225) --- (4,225)
Shares issued for manufacturing agreement 1,157,018 11,570 46,282 --- 57,852
Net loss for the three months ended
March 31, 2002 --- --- --- (716,235) (716,235)
___________ ___________ _____________ _____________ _____________
Balance at March 31, 2002 77,005,618 $ 770,056 $ 22,230,893 $(34,646,758) $(11,645,809)
=========== =========== ============= ============= =============
The accompanying notes are an integral part of the financial statements.
IGENE Biotechnology, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Three months ended
March 31, March 31,
2002 2001
____________ ____________
Cash flows from operating activities
Net loss $ (716,235) $ (525,761)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation 12,183 5,272
Amortization 29,129 29,129
Manufacturing cost paid in shares of common stock 57,852 ---
Interest on debenture paid in shares of common stock 45,000 45,000
Decrease (increase) in:
Accounts receivable 239,965 (55,933)
Inventory (494,231) (194,572)
Prepaid expenses and other current assets (158,665) 26,307
Increase (decrease) in accounts payable and accrued expenses 10,106 344,129
____________ ____________
Net cash used in operating activities (974,896) (326,429)
____________ ____________
Cash flows from investing activities
Capital expenditures (23,823) (3,336)
Deposits and other assets (26,051) ---
____________ ____________
Net cash used in investing activities (49,874) (3,336)
____________ ____________
Cash flows from financing activities
Proceeds from borrowing 750,000 800,000
Repayment of long-term debt (1,733) (7,502)
Proceeds from exercise of employee stock options --- ---
____________ ____________
Net cash provided by financing activities 748,267 792,498
____________ ____________
Net (decrease) increase in cash and cash equivalents (276,503) 462,733
Cash and cash equivalents at beginning of period 394,487 143,572
____________ ____________
Cash and cash equivalents at end of period $ 117,984 $ 606,305
============ ============
Supplementary disclosure and cash flow information
__________________________________________________
Cash paid for interest $ 224 $ ---
Cash paid for income taxes --- ---
See Note (2) for non-cash investing and financing activities.
The accompanying notes are an integral part of the financial statements.
IGENE Biotechnology, Inc. and Subsidiaries
Notes to Financial Statements
(1) Unaudited consolidated financial statements
The consolidated financial statements of Igene
Biotechnology, Inc. and Subsidiaries ("Igene") 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 of America. 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, 2001.
(2) Noncash investing and financing activities
During the three months ended March 31, 2002 and 2001, the
Company recorded in each quarter dividends in arrears on 8%
redeemable preferred stock at $.16 per share aggregating
$4,225, 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, 2001, the Company
capitalized leased equipment by recording a lease obligation
payable of $18,500 under a capital lease.
During the three months ended March 31, 2001, the Company
cancelled demand notes payable of $1,150,000 and related
accrued interest of $14,211 by issuing new 8% debentures
which became convertible into the Company's common stock on
the effective date of a sufficient increase in the Company's
authorized shares.
(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 Chile 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. These losses and gains occurred primarily as a
result of the effect of valuation of the Chilean Peso on
Igene's accounts receivables, which are mostly denominated
in Chilean Pesos.
The financial position and results of operations of Igene
Norway, whose functional currency is the Norway Krone,
consolidated herein have been translated into US dollars in
accordance with SFAS No. 52, "Foreign Currency Translation,"
(as amended by SFAS No. 130, "Reporting Comprehensive
Income"). All assets and liabilities of this subsidiary
have been translated at the exchange rate at the balance
sheet date. Income statement amounts have been translated
using average rate of exchange over the period. Any
resultant translation adjustments are included in other
comprehensive income, a separate component of stockholders'
equity. Because this subsidiary was purchased in December
2001 and the Norway Krone has not fluctuated since then no
foreign currency translation adjustment arose in the first
quarter of March 31, 2002. Any gains and losses from
foreign currency transactions of this subsidiary are
included in operations.
IGENE Biotechnology, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
(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:
March 31, December 31,
2002 2001
_____________ _____________
Work-in-process - AstaXin(R) $ --- $ 35,764
Finished goods - AstaXin(R) 1,288,900 776,381
Nutraceuticals 165,187 147,711
_____________ _____________
Total inventory $ 1,454,087 $ 959,856
(5) Stockholders' Equity (Deficit)
As of March 31, 2002 and 2001, 52,810 shares of authorized
but unissued common stock were reserved for issue upon
conversion of the Company's outstanding preferred stock.
As of March 31, 2002 and 2001, 74,604,500 and 74,905,166
shares, respectively, of authorized but unissued common
stock were reserved for distribution and exercise pursuant
to the Company's Employee Stock Option Plans.
As of March 31, 2002 and 2001, 80,000 and 160,000 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, 2002 and 2001, 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, 2002 and 2001, 188,016,085 and 131,759,345
shares, respectively, of authorized but unissued common
stock were reserved for the exercise of outstanding
warrants.
As of March 31, 2002 and 2001, 13,799,963 and 20,000,000
shares, respectively, 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.
(6) Basic and diluted net loss per common share
Basic and diluted net loss per common share for the three-
month periods ended March 31, 2002 and 2001 is based on
75,848,600 and 62,287,586, 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 Subsidiaries
Notes to Consolidated Financial Statements
(continued)
(7) Income Taxes
The Company uses the liability method of accounting for
income taxes as required by SFAS No. 109, "Accounting for
Income Taxes. Under the liability method, deferred-tax
assets and liabilities are determined based on differences
between the financial statement carrying amounts and the tax
bases of existing assets and liabilities (i.e., temporary
differences) and are measured at the enacted rates that will
be in effect when these differences reverse. Deferred
income taxes will be recognized when it is deemed more
likely than not that the benefits of such deferred income
taxes will be realized; accordingly, all net deferred income
taxes have been eliminated by a valuation allowance.
(8) 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 March 31, 2002 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-, in the three months
ended March 31, 2002 and 2001 relating to this on-going
litigation.
(9) Subsequent Events
None.
IGENE Biotechnology, Inc. and Subsidiaries
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, CURRENCY FLUCTUATIONS, AVAILABILITY OF PRODUCTION
CAPACITY, GOVERNMENT ACTION, WEATHER CONDITIONS, AND OTHER
FACTORS.
Results of Operations
_____________________
Sales and other revenue
Sales of AstaXin(R) during the quarter ended March 31, 2002
and 2001, were $508,251 and $445,018, respectively, an increase
of $63,233 or 14%. Sales for subsequent quarters are expected to
continue to increase in 2002 at this pace as they did in 2001,
but are still seen to be limited by production capacity. However,
there can be no assurance that these, or any increases in sales
will occur, or that they will be material.
The quarter ended March 31, 2002 Igene recorded sales of
$555,357 for Nutraceuticals. This is a new business line for
Igene which it added along with the 2001 acquisition of ProBio
Nutraceuticals. Sales for subsequent quarters are expected to
continue to increase but no subsequent trend is seen. However,
there can be no assurance that these, or any increases in sales
will occur, or that they will be material.
Cost of sales and gross profit
Gross Profit on sales of AstaXin(R) was $77,591 and $32,899
for the quarters ended March 31, 2002 and 2001, respectively, an
increase of $44,692, this is 15% and 7% of sales for the
quarters, respectively. The Company expects that the level of
gross profit to be maintained in the future as a percentage of
sales, with expected increases in production efficiency
offsetting pricing competition, but the company can provide no
assurances in that regard. The Company plans to continue to
increase production of AstaXin, as needed, to meet expected
increased sales of AstaXin. Demand is increasing both due to
seasonal increases in customer usage and increases in our market
share. If demand for AstaXin continues to increase, as the
Company expects that it will, sales and gross profits may be
limited by the quantities of AstaXin the Company is able to
produce with its presently available capacity with its contract
manufacturer, as was the case during the fourth quarter of 2001.
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 80% over capacity being used as of
March 31, 2002.
The preceding resulted in cost of sales for the quarter
ended March 31, 2002 and 2001 of $430,660 and $412,119,
respectively, an increase of $18,541 or 4.5%.
The quarter ended March 31, 2002 Igene recorded gross profit
of $188,673 for Nutraceuticals as a result of $366,684 in cost of
sales. This is a gross profit of 34% as a percentage of sales.
This is a new business line for Igene which it added along with
the 2001 acquisition of ProBio Nutraceuticals.
IGENE Biotechnology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Cost of sales and gross profit (continued)
Profit for subsequent quarters are expected to continue to
increase in total, maintaining the same profit percentage, but no
subsequent trend is seen. However, there can be no assurance that
these, or any increases in sales will occur, or that they will be
material.
Marketing and selling expenses
Marketing expenses are expected to continue to increase,
since to achieve continuing and increasing sales, and to enter
other markets for both AstaXin(R) and Nutraceuticals, the Company
will need to make additional marketing efforts both products.
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 March 31, 2002 were $248,278, an increase of
$104,099, or 72% over the marketing and selling expenses of
$144,179 for the quarter ended March 31, 2001.
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, development
of higher yielding strains of yeast and other improvements in the
Company's AstaXin(R) and Nutraceuticals technology. For the first
quarter of 2002 and 2001, these expenses were $180,391 and
$107,335, respectively, an increase of $73,056 or 68%. 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.
Operating expenses
General and administrative expenses for the first quarter of
2002 and 2001 were $335,689 and $122,398, respectively, an
increase of $213,291 or 174%. This increase results from the
purchase of ProBio Nutraceuticals, the additional management
received and the overhead incurred, as well as increases in cost
of insurance coverage, increased legal fees and administrative
travel due to the expansion of the Company. General and
administrative expenses are expected to continue at the current
rate in the near future. 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 some portion of
litigation expenses previously incurred, which are associated
with the suit filed against the Company by ADM and the Company's
counterclaim, through damage awards and to preserve 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. The Company
incurred no litigation expenses for the quarters ended March 31,
2002 and 2001. Expenses associated with this on-going litigation
decreased, 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 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
March 31, 2002 financial statements.
Interest expense (net of interest income)
Interest expense (net of interest income) for the first
quarter of 2002 and 2001 was $218,141 and $187,748, respectively,
an increase of $30,393 or 16%. 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, and has increased due to increased
financing from directors.
IGENE Biotechnology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Net loss and basic and diluted net loss per common share
As a result of the foregoing, the Company reported net
losses of $716,235 and $525,761, respectively, for the first
quarters of 2002 and 2001, an increase in the loss of $190,474 or
36%. This represents a loss of $.01 per basic and diluted common
share in each of the first quarters of 2002 and 2001. The
weighted average numbers of shares of common stock outstanding of
75,848,600 and 62,287,586, for the first quarters of 2002 and
2001, respectively, have increased by 13,561,014 shares. This
resulted from the issuance of 80,000 shares in lieu of interest
payment on a subordinated debenture, the issue of 8,000,000
shares of stock related to the purchase of ProBio, the issuance
of 300,666 shares of common stock pursuant to the exercise of
employee stock options, and the issuance of 6,200,037 shares to
its manufacturer as regards the manufacturing agreement. The
weighting of the last issuance of 1,157,018 shares to its
manufacturer will have only a minimal effect on the weighted
average number of shares of common stock outstanding as they were
not issued until the end of March, 2002.
Financial Position
During the quarters ended March 31, 2002 and 2001, the
following actions also materially affected the Company's
financial position:
o Igene increased inventory from manufacture during the
quarter ended March 31, 2002 by $494,231.
o The carrying value of redeemable preferred stock was
increased and paid-in capital available to common
shareholders was decreased by $4,225 in 2001 and 2000,
reflecting cumulative unpaid dividends on redeemable
preferred stock.
o Due to increased activity in preparation for increased
production, prepaid expenses and other current assets
increased by $158,665 for the quarter ended March 31,
2002.
o Accounts receivable collections during the first quarter
of 2002 provided $239,965 in cash to the Company.
In December 1988, as part of an overall effort to contain
costs and conserve working capital, Igene 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, 2002, total dividends in arrears on
Igene's preferred stock total $228,139 ($8.64 per share) and are
included in the carrying value of the redeemable preferred stock.
Liquidity and Capital Resources
Historically, Igene has been funded primarily by equity
contributions and loans from stockholders. As of March 31, 2002,
Igene had working capital of $306,222, and cash and cash
equivalents of $117,984.
Cash used by operating activities during the quarters ended
March 31, 2002 and 2001 amounted to $947,896 and $326,429,
respectively, an increase in cash used of $621,467.
Cash used by investing activities increased by $46,538, from
$3,336 for the quarter ended March 31, 2001 to $49,874 for the
quarter ended March 31, 2002. This was as a result of increased
capital expenditures.
Cash provided by financing activities decreased by $44,231
from $792,498 for the quarter ended March 31, 2001 to $748,267
for the quarter ended March 31, 2002. Financing activities
consisted principally of notes from directors. For the quarters
ended March 31, 2002 and 2001, the contributions were $750,000
and $800,000, respectively.
IGENE Biotechnology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Liquidity and Capital Resources (continued)
Over the next twelve months, Igene believes it will need
additional working capital. Igene hopes to achieve profits from
sales of AstaXin(R) and Nutraceuticals, but additional funding
will also be required to finance increased customer receivables
and inventory levels caused by expansion of sales and
manufacturing. However, there can be no assurance that projected
profits, if any, from sales, or projected additional funding from
directors will be available to Igene to fund its continued
operations.
The Company does not believe that inflation has had a
significant impact on its operations during the quarters ended
March 31, 2002 and 2001.
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 March 31, 2002 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-, in the three months ended
March 31, 2002 and 2001 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.
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,
2002, total dividends in arrears on the Company's preferred
stock total $228,139 ($8.64 per share) and are included in
the carrying value of the redeemable preferred stock.
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
None
(b) Reports on Form 8-K
On January 4, 2002, Igene filed a Current Report on
Form 8-K disclosing the purchase of its sales agent
ProBio Nutraceuticals.
On March 6, 2002, Igene filed an amendment to Current
Report on Form 8-K filed January 4, 2002, containing
unaudited consolidated pro forma financial statements
relating to Igene's purchase of Pro Bio Nutraceuticals.
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 15, 2002 By: /s/Stephen F. Hiu
_____________________________
Stephen F. Hiu
President
Date: May 15, 2002 By: /s/Edward J. Weisberger
_____________________________
Edward J. Weisberger
Chief Financial Officer