FORM 10QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 10549
(Mark One)
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 0-15888 .
IGENE Biotechnology, Inc.
(Exact name of Registrant as specified in its charter)
Maryland 52-1230461
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
9110 Red Branch Road, Columbia, Maryland 21045-2020
(Address of principal executive officers) (Zip code)
Registrant's telephone number, including area code: (410) 997-2599
None
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by a check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES X NO
The number of shares outstanding of the Registrant's $.01 par value Common
Stock as of June 30, 1995 is 13,055,738.
Page 1 of 14
FORM 10-QSB
IGENE Biotechnology, Inc.
INDEX
Page
PART I - FINANCIAL INFORMATION
Balance Sheets ................................................. 4
Statements of Operations ....................................... 5
Statements of Stockholder's Equity (Deficit) ................... 6
Statements of Cash Flows ....................................... 8
Notes to Financial Statements .................................. 9
Management's Discussion and Analysis of Financial
Conditions and Results of Operations ..................... 11
PART II - OTHER INFORMATION .......................................... 13
SIGNATURES ........................................................... 14
Page 2 of 14
IGENE BIOTECHNOLOGY, INC.
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
PART I - FINANCIAL INFORMATION
Page 3 of 14
IGENE Biotechnology, Inc.
Balance Sheets
June 30, June 30,
December 31,
1994 1995
1994
(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ...............................................$ 60,124 $ 73,272 $
19,529
Accounts receivable (no allowance for doubtful accounts) ................ 33,271
13,831 10,790
Inventory-finished goods ................................................ --- 1,240
- ---
Due from stockholder .................................................... 76,550 ---
- ---
Prepaid expenses and deposits ........................................... 2,115 3,230
1,438
Total current assets ............................................... 172,060 91,573
31,757
Property and equipment, net ............................................... 52,800 30,856
35,199
Security deposits ......................................................... 10,600 10,600
10,600
Total assets $ 235,460 $ 133,029
$ 77,556
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS'
DEFICIT
Current liabilities:
Accounts payable and other accrued expenses ............................. 224,478
228,465 238,022
Debenture interest payable .............................................. 30,000 30,000
30,000
Promissory Notes payable ................................................ 261,300 536,300
409,550
Total current liabilities .......................................... 515,777 794,765
677,572
Long term liabilities:
Variable rate subordinated debenture .................................... 1,500,000 1,500,000
1,500,000
Total liabilities ............................................ 2,015,778 2,294,765
2,177,572
Redeemable preferred stock -- 8% cumulative, convertible, voting,
Series A, $.01 par value per share; redemption value $11.68,
$12.32 and $12.00 per share. Authorized 920,000 shares; issued
38,592, 38,342, and 38,592 shares.................................... 450,754 472,373
463,104
Stockholders' deficit:
Preferred stock -- $.01 par value per share. 8% cumulative, convertible,
voting, Series A. Authorized and issued 187,500 shares (aggregate
involuntary liquidation value of $2,190,000, 2,310,000, and
2,250,000 ............................................................ 1,875 1,875 1,875
Common stock -- $.01 par value per share. Authorized 35,000,000 shares;
issued 12,809,520, 13,001,904, and 12,975,237 shares ................. 130,019
130,557 130,285
Additional paid-in capital .............................................. 17,066,440 17,164,282
17,113,824
Deficit ................................................................. (19,429,406) (19,930,823)
(19,809,104)
Total stockholders' equity (deficit) ......................... (2,231,072) (2,634,109)
(2,563,120)
Total liabilities and stockholders' equity ..............................$ 235,460 $ 133,029
$ 77,556
See accompanying notes to financial statements
Page 4 of 14
IGENE Biotechnology, Inc.
Statements of Operations
(Unaudited)
----- Three months ended ---- ----- Six
months ended -----
June 30, June 30, June 30,
June 30,
1994 1995 1994
1995
Revenue:
Sales ................................................$ 5,318 $ (306) $ 40,427 $
9,242
Cost of sales ........................................ 3,712 (694) 26,259
7,557
Gross profit from sales of products ............. 1,606 388
14,168 1,685
Technology licensing income .......................... 150,000 200,000
250,000 200,000
Technology services income ........................... --- 9,000 ---
9,000
Net revenue ..................................... 151,606 209,388 264,168
210,685
Selling, general and administrative expenses:
Marketing and selling ........................... 1,098 1,665 2,086
2,537
Research, development and pilot plant ........... 99,347 90,135
192,077 174,290
General and administrative ...................... 87,715 63,368
152,403 119,235
Operating income ................................ (36,554) (54,220) (82,398)
(85,377)
Other income (expenses):
Investment income ............................... 67 113 73
126
Forgiveness of debt income ...................... --- --- ---
33,395
Other income (expense) .......................... --- (330) (10,054)
112
Interest expense ................................ (34,235) (30,066) (68,182)
(69,975)
Net income (loss) ....................................$ (70,722) $ 23,937 $ (160,561)
$ (121,719)
Net loss per common share ............................$ (0.006) $ (0.01) $
(0.01) $ (0.01)
Sales and cost of sales for the 3 month period ended June 30, 1995 are negative due
to a reversal of a previous sale. The
product sold was returned and placed in inventory and is being resold.
See accompanying notes to financial statements
Page 5 of 14
IGENE Biotechnology, Inc.
Statements of Stockholder's Equity (Deficit)
(Unaudited)
Redeemable
Preferred Preferred Common
Stock Stock Stock
(shares/amount) (shares/amount)
(shares/amount)
Balance at December 31, 1993..................... 38,592/$438,405 187,500/$1,875
12,975,237/$129,752
Conversion of preferred stock into common stock . --- ---
---
Issuance of 26,667 shares of common stock in
lieu of cash payment for interest on
subordinated debenture ........................ --- ---
26,667/$267
Cumulative undeclared dividends on redeemable
preferred stock ............................... $12,349 --- ---
Balance at June 30, 1994 ........................ 38,592/$450,754 187,500/$1,875
13,001,904/$130,019
Balance at December 31, 1994..................... 38,592/$463,104 187,500/$1,875
13,028,571/$130,285
Cumulative undeclared dividend on redeemable
preferred stock ............................... $12,270 --- ---
Issuance of 26,667 shares of common stock in
lieu of cash payment for interest on
subordinated debenture ........................ --- ---
26,667/$267
Conversion of preferred stock into common stock . 250/($3,000) ---
500/$5
Balance at June 30, 1995 ........................ 38,342/$472,373 187,500/$1,875
13,055,738/$130,557
See accompanying notes to financial statements
Page 6 of 14
IGENE Biotechnology, Inc.
Statements of Stockholder's Deficit
(Unaudited- Continued)
Additional
Paid-In Total
Stockholder's
Capital Deficit Deficit
Balance at December 31, 1993..................... $17,019,056 $(19,268,844)
$(2,118,161)
Issuance of 26,667 shares of common stock in
lieu of cash payment for interest on
subordinated debenture ........................ 59,733
Cumulative undeclared dividends on redeemable
preferred stock ............................... (12,349) --- (12,349)
Net loss for six months ended June 30, 1994 ..... --- (160,561)
---
Balance at June 30, 1994 ........................ $17,066,440 $(19,429,405)
$(2,130,150)
Balance at December 31, 1994..................... 17,113,824 $(19,809,104)
$(2,563,120)
Cumulative undeclared dividend on redeemable
preferred stock ............................... (12,270) --- (12,270)
Issuance of 26,667 shares of common stock in
lieu of cash payment for interest on
subordinated debenture ........................ 59,733 ---
60,000
Conversion of preferred stock into common stock . 2,995 ---
3,000
Net loss for six months ended June 30, 1995 ..... --- (121,719)
(121,719)
Balance at June 30, 1995 ........................ $ 17,164,282 $ (19,930,823) $
(2,634,109)
See accompanying notes to financial statements
Page 7 of 14
IGENE Biotechnology, Inc.
Statements of Cash Flows
(Unaudited)
---- Six months ended ----
June 30, June 30,
1994 1995
Cash flows from operating activities:
Net loss ................................................$( 160,561) $( 121,719)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ........................ 14,844 4,343
Loss on sale of equipment............................. 10,054 ---
Interest on debentures paid in shares
of common stock.................................... 60,000 60,000
Changes in assets and liabilities:
Increase (decrease) in debenture interest payable . --- ---
Increase (decrease) in accounts payable and
other accrued expenses ......................... 55,604 (9,558)
Decrease (increase) in accounts receivable ........ (25,259) (3,041)
Decrease (increase) in prepaid expenses ........... (1,282) (1,792)
Decrease (increase) in inventories ................ --- (1,240)
Net cash used in operating activities ................... (46,600) (73,007)
Cash flows from investing activities:
Capital expenditures .................................... (6,973) ---
Sale of Equipment ....................................... 25,800 ---
Net cash used in investing activities ................... 18,827 ---
Cash flows from financing activities:
Issuance of promissory notes ............................ 22,000 126,750
Issuance of common stock pursuant to exercise
of employee stock options ............................ --- ---
Net cash provided by (used in) financing activities ..... 22,000 126,750
Net increase (decrease) in cash and cash equivalents ...... (5,773) (53,743)
Cash and cash equivalents at beginning of year ............ 65,897 19,529
Cash and cash equivalents at end of period ................$ 60,124 $ 73,272
Supplementary disclosure - cash paid for interest .........$ --- $ ---
- cash paid for taxes ........... $ --- $ ---
Noncash investing and financing activities:
During the three months and six months ended June 30, 1994 and 1995, the
Company
issued 26,667 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 8%
during each period, or $60,000. Shares may be issued in lieu of cash per the
debenture
agreement at the higher of $2.25 per share or market price per share. The stock was
issued
and related interest expense for the three months and six months ended June 30,
1994 and
1995 were recorded at $2.25 per share, or $60,000 in the aggregate in each period.
During the three months and six months ended June 30, 1994 and 1995, the
Company
recorded dividends in arrears on 8% redeemable preferred stock at $.16 and $.32 per
share,
respectively aggregating $6,175 and $12,349, respectively in each period which has
been
removed from paid-in capital and included in the carrying value of the redeemable
preferred
stock.
See accompanying notes to financial statements.
Page 8 of 14
IGENE Biotechnology, Inc.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(1) Unaudited Financial Statements
The financial statements presented herein as of June 30, 1994 and 1995 and
for the six-month and the three month periods ended June 30, 1994 and 1995
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 operations. 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
Inventories are stated at the lower of average cost, or market.
Inventories as of June 30, 1995 consist entirely of finished goods.
(3) Stockholders' Equity
As of June 30, 1994 and 1995, 77,184 and 76,684, shares of authorized but
unissued common stock were reserved for issuance upon conversion of the
Company's outstanding preferred stock.
As of June 30, 1994 and 1995, 1,200,000 share of authorized but unissued
common stock were reserved for exercise pursuant to the 1986 Stock Option
Plan.
As of June 30, 1994 shares were reserved for exercise of Warrants to
purchase an aggregate of 800,000 shares of Common Stock to Kimelman &
Baird, LLC, an employee of the same and Anthony B. Low-Beer, exercisable
at $.25 per share expiring February 14, 1995. The Warrants were issued to
the aforementioned for acting as placement agent in the Company's private
placement of $1,149,000 in gross proceeds which closed February 15, 1991
and there are substantial restrictions against the transfer of these
Warrants. The Warrants were not publicly traded and there were no trades
of these Warrants before the expiration date.
As of June 30, 1994 and 1995, the Company has reserved shares for the
exercise of Warrants to purchase an aggregate of 252,400 shares of Common
Stock to Kimelman & Baird, LLC, at $.75 per share expiring June 26, 1996.
The Warrants were issued to the aforementioned for acting as placement
agent in the Company's private placement of $510,500 in gross proceeds
which closed June 26, 1992 and there are substantial restrictions against
the transfer of these Warrants.
Page 9 of 14
As of June 30, 1994 the Company has reserved shares for the exercise of
Warrants to purchase an aggregate of 680,667 shares of Common Stock to
purchasers of stock in the Company's Private Placement of June 26, 1992.
The exercise price of the Warrants is $.75 per share expering June 26,
1995 and there are substantial restrictions against the transfer of these
warrants.
As of June 30, 1994 and 1995, 800,000 shares of authorized but unissued
Common Stock were reserved for issuance upon reinvestment 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 June 30, 1994 and 1995, 994,416 and 3,995,374 shares of Common Stock
were reserved for the conversion of Promissory Notes and the issue of
Warrants subject to that conversion. The Promissory Notes are held by
Directors of the Company.
(4) Net Loss Per Common Share
Net loss per common share for the six-month periods ended June 30, 1994
and 1995 is based on 12,988,644 and 13,114,719 weighted average shares,
respectively. For purposes of computing net income (loss) per common
share, the amount of net loss has been increased and the amount of net
income reduced by cumulative undeclared dividends in arrears on preferred
stock.
Page 10 of 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Sales revenue for the six-month period ended June 30, 1995 consisted of sales of
the Company's ClandoSan nematicide product, and a licensing agreement and
contracted technology services related to the Company's AstaXin products.
The revenue decreased from the corresponding period in 1994 because of a
decrease in sales of ClandoSan in the first six months of 1995.
Selling expenses for the quarter remained steady when compared with the
corresponding period of the prior year. Research, development and pilot plant
expenses for the first six months of 1995 remained steady primarily because of
expenses involved in the pilot plant programs for the technology licensing
agreements involving AstaXin .
General and administrative costs for the six-month period ended June 30, 1995
have decreased due to continuing cost containment measures.
Financial Position
In December 1988, 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
increase the liquidation preference or redemption value of the preferred stock.
As of June 30, 1995, total dividends in arrears on the Company's preferred
stock was $975,637, of which $165,637 ($4.32 per share) was included in the
carrying value of the redeemable preferred stock and $810,000 ($4.32 per
share) was included in the liquidation preference of the preferred stock.
Liquidity and Capital Resources
Historically, the Company has been funded primarily by equity contributions,
loans from stockholders and license fees. As of June 30, 1995, the Company
had a working capital deficit of approximately $703,192, and cash and cash
equivalents of $73,272, consisting principally of proceeds from Promissory
Notes issued to certain Directors of the Company described below.
On March 4, 1994 the Company and the Food Science Group of Pfizer Inc, New
York, N.Y., signed a Technology Evaluation Agreement for AstaXin . The
Agreement provided for cash compensation to IGENE not to exceed $200,000 over a
three month period ending May 18, 1994. On April 28, 1994, the Company and the
Food Science Group of Pfizer Inc agreed to extend its Technology Evaluation
Agreement for AstaXin until August 18, 1994. The exclusive evaluation period
has now ended.
On February 10, 1994, September 26, 1994, October 24, 1994, November 28, 1994,
January 23, 1995, and March 7, 1995 the Company issued promissory notes to
certain directors of the Company for a total aggregate consideration of
$536,300.
Page 11 of 14
The notes specify that at any time prior to repayment the holder has the right
to convert the notes to common stock of the Company at $.375 per share for the
notes issued February 10, 1994 and at $.25 per share for notes issued September
26, 1994, October 24, 1994, and November 28, 1994 and at $.1875 per share for
the notes issued January 23, 1995 and at $.125 per share for the notes issued
March 7, 1995 and to receive warrants for an equivalent number of common
shares at $.375 per share for the notes issued February 10, 1994 and at $.25 per
share for notes issued September 26, 1994, October 24, 1994, and November 28,
1994 and at $.1875 per share for the notes issued January 23, 1995, and $.125
per share for the notes issued March 7, 1995. The promissory notes are due on
demand with interest charged at the prime rate. The Directors subsequently
agreed to waive all interest charges on these notes.
On May 10, 1995, the Company signed an Agreement for sale of a non-exclusive
license to Archer-Daniels-Midland Company, Decatur, Illinois for technology
relating to the manufacture of astaxanthin pigment using the Company's AstaXin
product. The agreement provides for a cash payment to IGENE of $200,000 at
signing, an advance of royalties of $500,000 within 6 months and a royalty based
on gross sales for 10 years.
To supplement this anticipated income from a technology licensing agreement, the
Company will consider issuing additional stock to officers and directors and
encouraging holders of outstanding warrants to exercise these rights. To
increase its working capital position the Company will also encourage the
holders of promissory notes to convert them into common stock.
In the long-term, the Company is continuing its development of additional
AstaXin technology which it hopes to license and market to benefit future
periods.
The Company does not believe that inflation has had a significant impact on the
Company's operations during the past two years.
Effective January 1, 1993, the Company adopted the provision of FASB Statement
no. 109 "Accounting for income taxes".
Page 12 of 14
FORM 10-QSB
IGENE Biotechnology, Inc.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
Item 7. Subsequent Events
On July 24, 1995 IGENE's Board of Directors approved a Resolution to
purchase from the Company One Million Two Hundred Thousand (1,200,000) shares of
common stock, $.01 par value, at a price of $.125 per share for an aggregate
purchase amount of One Hundred Fifty Thousand ($150,000.00) Dollars.
Page 13 of 14
FORM 10-QSB
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IGENE Biotechnology, Inc.
(Registrant)
Date: August 14, 1995
/s/ Stephen F. Hiu
Stephen F. Hiu
President, Treasurer and
Secretary
(On behalf of the Registrant and as
Principal Financial Officer)
Page 14 of 14
FORM 10-QSB
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IGENE Biotechnology, Inc.
(Registrant)
Date: August 14, 1994
Stephen F. Hiu
President, Treasurer and
Secretary
(On behalf of the Registrant and as
Principal Financial Officer)
Page 14 of 14