FORM 10-QSB
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 September 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 $.01 par value
Common Stock as of September 30, 1995 is 14,255,738 .
FORM 10-QSB
IGENE Biotechnology, Inc.
INDEX
Page
PART I - FINANCIAL INFORMATION
Balance Sheets ................................................. 4
Statements of Operations ....................................... 5
Statements of Stockholder's Equity (Deficit) ................... 6
Statements of Cash Flows ....................................... 8
Notes to Financial Statements .................................. 9
Management's Discussion and Analysis of Financial
Conditions and Results of Operations ..................... 11
PART II - OTHER INFORMATION ........................................ 15
SIGNATURES .......................................................... 16
IGENE BIOTECHNOLOGY, INC.
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
PART I - FINANCIAL INFORMATION
3
IGENE Biotechnology, Inc.
Balance Sheets
September 30, September 30, December 31,
1995 1994 1994
(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents
...............................................$ 72,940 $
36,672 $ 19,529
Accounts receivable (no allowance for doubtful accounts) ................
10,470 22,047 10,790
Inventories - finished goods ............................................
1,240 --- ---
Due from stockholder ....................................................
--- --- ---
Prepaid expenses and deposits ...........................................
2,153 1,042 1,438
Total current assets ...............................................
86,803 59,761 31,757
Property and equipment, net ...............................................
31,825 35,362 35,199
Security deposits .........................................................
10,600 10,600 10,600
$ 129,228 $ 105,723 $ 77,556
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and other accrued expenses .............................
247,887 267,694 238,022
Debenture interest payable ..............................................
60,000 60,000 30,000
Promissory Notes payable ................................................
536,300 294,715 409,550
Total current liabilities ..........................................
844,186 622,409 677,572
Long term liabilities:
Variable rate subordinated debenture ....................................
1,500,000 1,500,000 1,500,000
Total liabilities ............................................
2,344,186 2,122,408 2,177,572
Redeemable preferred stock -- 8% cumulative, convertible, voting,
Series A, $.01 par value per share; redemption value $12.48,
$11.84 and $12.00 per share. Authorized 920,000 shares; issued
38,342, 38,592, and 38,592 shares....................................
478,508 456,929 463,104
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 $2,340,000, 2,220,000, and
2,250,000)............................................................
1,875 1,875 1,875
Common stock -- $.01 par value per share. Authorized 35,000,000 shares;
issued 14,255,738, 13,001,904, and 12,975,237 shares .................
142,557 130,019 130,285
Additional paid-in capital ..............................................
17,296,148 17,060,265 17,113,824
Deficit .................................................................
(20,134,047) (19,665,774) (19,809,104)
Total stockholders' equity (deficit) .........................
(2,693,467) (2,473,615) (2,563,120)
Commitments and contingency
.............................................$ 129,228 $ 105,723
$ 77,556
See accompanying notes to financial statements
IGENE Biotechnology, Inc.
Statements of Operations
(Unaudited)
----- Three months
ended ---- ----- Nine months ended -----
September 30,
September 30, September 30, September 30,
1995
1994 1995 1994
Sales ................................................$ 9,203 $
20,004 $ 18,445 $ 60,431
Cost of sales ........................................ 5,447
4,852 13,004 31,111
Gross profit from sales of product .............. 3,756
15,152 5,441 29,320
Technology licensing income .........................$ 0 $
0 $ 200,000 $ 250,000
Technology services income ........................... 10,750
0 19,750 $ 0
Net revenue ..................................... 14,506
15,152 225,191 279,320
Selling, general and administrative expenses:
Marketing and selling ........................... 3,399
1,195 5,936 3,281
Research, development and pilot plant ........... 91,288
123,205 265,579 315,282
General and administrative ...................... 93,469
88,785 212,704 241,188
Total selling, general and
administrative expenses .............. 188,156
213,185 484,219 559,751
Operating income ................................ (173,650)
(198,033) (259,028) (280,431)
Other income (expenses):
Investment income ............................... 308
93 435 166
Forgiveness of debt income ...................... 0
0 33,395 0
Other income (expense) .......................... 184
(4,016) 296 (14,070)
Interest expense ................................ (30,066)
(34,413) (100,041) (102,595)
Net income (loss) .................................... (203,224)
(236,369) (324,943) (396,930)
Net loss per common share ............................$ (0.02) $
(0.02 ) $ (0.03) $ (0.03)
See accompanying notes to financial statement
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 ............................... $18,524
--- ---
Balance at September 30, 1994 ................... 38,592/$456,929
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 ............................... $18,404
--- ---
Issuance of 1,200,000 shares of common stock
to certain directors of the Company ........... ---
--- 1,200,000/$12,000
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 September 30, 1995 ................... 38,342/$478,508
187,500/$1,875 14,255,738/$142,557
See accompanying notes to financial statements
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
60,000
Cumulative undeclared dividends on redeemable
preferred stock ............................... (18,524)
--- (18,524)
Net loss for nine months ended September 30, 1994. ---
(396,930) (396,930)
Balance at September 30, 1994 ................... $17,060,265
$(19,665,774) $(2,473,615)
Balance at December 31, 1994..................... 17,113,824
$(19,809,104) $(2,563,120)
Cumulative undeclared dividend on redeemable
preferred stock ............................... (18,404)
--- (18,404)
Issuance of 1,200,000 shares of common stock
to certain directors of the Company ........... 138,000
--- 150,000
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 nine months ended September 30, 1995. ---
(324,943) (324,943)
Balance at September 30, 1995 .................... $ 17,296,148 $
(20,134,047) $ (2,693,467)
See accompanying notes to financial statements
IGENE Biotechnology, Inc.
Statements of Cash Flows
(Unaudited)
---- Nine
months ended ---
September
30, September 30,
1995
1994
Cash flows from operating activities:
Net loss ................................................$
(324,943) $( 396,930)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ........................ 5,743
22,266
Loss on sale of equipment............................. ---
14,070
Interest on debenture paid in shares of common stock.. 60,000
60,000
Changes in assets and liabilities:
Increase (decrease) in debenture interest payable . 30,000
30,000
Increase (decrease) in accounts payable and
other accrued expenses ......................... 9,865
98,822
Decrease (increase) in accounts receivable ........ 320
(14,036)
Decrease (increase) in prepaid expenses and
deposits .......................................
(715) (209)
Decrease (increase) in inventories ................
(1,240) ---
Net cash used in operating activities ...................
(220,970) (186,017)
Cash flows from investing activities:
Capital expenditures ....................................
(2,369) (20,973)
Sales of Equipment ...................................... ---
45,800
Net cash used in investing activities ...................
(2,369) 24,827
Cash flows from financing activities:
Proceeds from private stock subscription................. 150,000
76,550
Issuance of promissory notes ............................ 126,750
55,415
Net cash provided by (used in) financing activities ..... 276,750
131,965
Net increase (decrease) in cash and cash equivalents ...... 53,411
(29,225)
Cash and cash equivalents at beginning of year ............ 19,529
65,897
Cash and cash equivalents at end of period ................$ 72,940
$ 36,672
Supplementary disclosure - cash paid for interest .........$ ---
$ 178
- cash paid for taxes ............$ ---
---
Noncash investing and financing activities:
During the nine months ended September 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 nine months ended
September 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 nine months ended September 30, 1994
and 1995, the Company recorded dividends in arrears on 8% redeemable
preferred stock at $.16 and $.48 per share, respectively aggregating $6,135
and $18,404, 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
IGENE Biotechnology, Inc.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(1) Unaudited Financial Statements
The financial statements presented herein as of September 30, 1994 and
1995 and for the nine-month and the three month periods ended September
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 September 30, 1995 consist entirely of finished
goods.
(3) Stockholders' Equity
As of September 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 September 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 September 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 September 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.
As of September 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 expiring June 26,
1995 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 September 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 September 30, 1994 and 1995, 1,519,458 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 income (loss) per common share for the three month and nine month
periods ended September 30 is based on 13,001,904 and 12,988,644
weighted average shares, respectively, for 1994, and on 13,668,781 and
13,253,507 weighted average shares, respectively, for 1995. For
purposes of computing net income (loss) per common share, net income
(loss) has been adjusted to include cumulative undeclared dividends in
arrears on preferred stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Sales revenue for the quarter and nine months ended September 30, 1995,
consisting entirely of sales of the Company's ClandoSan product, decreased
by 54% and 69%, respectively, compared to the corresponding periods in
1994. Decreases in sales of ClandoSan are reflective of reduced marketing
efforts for this product as the Company focuses obtaining a technology
licensing agreement for the manufacture and sale of its AstaXin product.
The Company is actively seeking marketing partner for ClandoSan(R).
Cost of sales for the quarter and nine months ended September 30, 1995,
increased by 12% and decreased by 58%, respectively compared to the
corresponding periods in 1994. The decrease for the nine months ended
September 30, 1995 is reflective of decreased sales as noted above, while
the increase in cost of sales for the current quarter reflects
manufacturing of new product during the quarter whereas product was sold
from inventory during the corresponding quarter of 1994.
Technology licensing income of $200,000 for the nine months ended September
30, 1995 consists of income from an agreement for sale of a non-exclusive
license to Archer-Daniels-Midland Company of Decatur, Illinois for
technology relating to the manufacture astaxanthin pigment using the
Company's AstaXin product. The agreement provides for a cash payment to
IGENE at signing of $200,000, an advance or royalties of $500,000 within 6
months, and royalties based on gross sales for 10 years. Technology
services income of $19,750 for the nine months ended September 30, 1995
consists of fees charged for technology services provided to
Archer-Daniels-Midland Company in connection with the licensing agreement.
These technology services are not expected to be a continuing source of
income.
Technology licensing income of $150,000 and $250,000, respectively, for the
quarter and nine months ended September 30, 1994 consisted of income from a
technology evaluation agreement with the Food Science Group of Pfizer Inc
of New York, New York for AstaXin . That agreement provided for cash
compensation of $250,000 over an exclusive evaluation period which expired
in July 1994. Pfizer Inc did not express interest in a commitment to
manufacture and sell AstaXin , therefore the Company sought other potential
manufacturers for AstaXin .
Selling, general and administrative expenses have decreased 11.7% and
13.5%, respectively, for the quarter and nine month periods ended September
30, 1995 as compared to the corresponding periods in 1994. These decreases
are attributable to decreased marketing efforts for ClandoSan , as well as
continued successful cost containment measures in effect.
Interest expense has remained at comparable levels for the quarter and nine
months ended September 30, 1995 and 1994 and is composed mainly of interest
on the Company's variable rate subordinated debenture of $30,000 and
$60,000, respectively in each of the quarter and nine month periods ended
September 30. 1995 and 1994. During the quarter ended March 31, 1995, the
holders of the Company's promissory notes agreed to waive all accrued
interest payable, resulting in income of $33,395 from forgiveness of debt.
Other expense of $10,054 for the nine months ended September 30, 1994
resulted from a loss recorded on the sale of unused equipment.
As a result of the forgoing, the Company reported net income (loss) for the
quarter and nine month periods ended September 30, 1995 of $203,224 and
$(324,943), respectively, and for the quarter and nine month periods ended
September 30, 1994 of $(236,369) and $(396,930), respectively. Net income
(loss) per common share remained at $(.02) for the quarter ended September
30, 1994 and for 1995, and remained at $(.03) for the nine months ended
September 30, 1994 and 1995. The increase in weighted average shares
outstanding between the periods ended September 30, 1994 and the periods
ended September 30, 1995 is due to 53,333 shares of common stock issued in
lieu of cash, during the period from October 1, 1994 through September 30,
1995, in payment of interest on the Company's variable rate subordinated
debenture, conversion of 250 shares of preferred shares to 500 shares of
common stock, and the issuance of 1,200,000 shares of common stock
pursuant to a stock purchase by certain directors of the Company.
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 September 30, 1995, total dividends in
arrears on the Company's preferred stock was $1,011,772 of which $171,772
($4.48 per share) was included in the carrying value of the redeemable
preferred stock and $840,000 ($4.48 per share) was included in the
liquidation preference of the limited redemption preferred stock.
Liquidity and Capital Resources
Historically, the Company has been funded primarily by equity
contributions, loans from stockholders and license fees. As of September
30, 1995, the Company had a working capital deficit of $757,383, and cash
and cash equivalents of $86,803, consisting principally of proceeds from
Promissory Notes issued to certain Directors of the Company, as described
below.
Cash use by operations for the nine months ended September 30, 1994 and
1995 amounted to $186,017 and $220,970, respectively. The Company
continues to focus on research and development of its products, achieving
only minimal sales of its ClandoSan and AstaXin products. Although the
Company has been able to reduce its net loss during the nine months ended
September 30, 1995 as compared to 1994, by $71,987; cash used by operations
increased by $34,953 due to efforts in 1995 to reduce accounts payable and
the inclusion in the 1994 net loss of the noncash item of loss on the sale
of unused equipment of $10,054.
Cash provided by investing activities in the nine months ended September
30, 1994 amounted to $24,827. This resulted from proceeds from the sales
of unused equipment of $45,820, offset by $20,973 in capital expenditures.
Capital expenditure for the nine months ended September 30, 1995 in the
amount of $2,369 were for replacement of worn equipment that could not be
repaired. This is reflective of the Company's continued plan to minimize
capital expenditures since existing equipment is believed to be sufficient
to met the needs of the Company for the near future.
The following is a summary of the Company's financing activities for 1994
and the nine months ended September 30, 1995:
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. 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; at
$.25 per share for notes issued September 26, 1994, October 24, 1994, and
November 28, 1994; at $.1875 per share for the notes issued January 23,
1995; and at $.125 per share for the notes issued March 7, 1995. The
holders of the notes will also receive warrants, subject to conversion of
the notes, for additional shares of common shares equivalent in number and
price to the shares received in conversion. 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.
During 1994, the Company received $76,550 from the October 1993 issue of
76,500 shares of common stock at $1.00 per share to Burns Philp Food Inc,
as part of the settlement for an unexecuted license agreement.
The following summarizes the Company's known and expected future sources of
liquidity and capital:
On May 10, 1995, the Company signed an Agreement for sale of a
non-exclusive license to Archer-Daniels-Midland Company of 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, which has been included in revenue
for the nine months ended September 30, 1995, and an advance of royalties
of $500,000 within 6 months and a royalty based on gross sales for 10
years.
On July 24, 1995 certain directors of the Company agreed to purchase
1,200,000 shares of common stock from the Company at $.125 per share for an
aggregate purchase amount of $150,000 in order to provide needed working
capital
To increase working capital, the Company plans to encourage the holders of
convertible promissory notes to convert them to common stock, and to
encourage warrant holders to exercise their rights. The Company may also
issue additional stock to officers and directors.
The Company is continuing its development of additional AstaXin technology
which it hopes to license and market to benefit future periods' operations.
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 has adopted the provision of FASB
Statement No. 109, Accounting for income taxes.
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) Exhibit 11 -- Calculation of Earnings Per Share
(b) Reports on Form 8-K
None
Item 7. Subsequent Events
None
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: November 15, 1995
/s/ Stephen F. Hiu
Stephen F. Hiu
President, Treasurer and
Secretary
(On behalf of the Registrant and as
Principal Financial Officer)