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 March 31, 1996
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 March 31, 1996 is 18,577,805 .
FORM 10QSB
IGENE Biotechnology, Inc.
INDEX
Page
PART I - FINANCIAL INFORMATION
Balance Sheets .................................. 4
Statements of Operations ........................ 5
Statements of Stockholder's 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 .......................... 14
SIGNATURES ........................................... 15
PAGE
IGENE BIOTECHNOLOGY, INC.
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
PART I - FINANCIAL INFORMATION
IGENE Biotechnology, Inc.
Balance Sheets
March 31, March 31, December 31,
1996 1995 1995
(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $17,538 $16,989 $ 8,326
Accounts receivable 18,229 8,962 11,129
Due from stockholder .. --- --- 44,680
Prepaid expenses ...... 911 4,307 ---
Total current assets 36,678 30,258 64,135
Property and equipment, net 27,814 30,856 29,520
Security deposits ... 10,600 10,600 10,600
$ 75,092 $71,714 $ 104,255
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS'
DEFICIT
Current liabilities:
Accounts payable and other accrued
expenses .... 234,833 223,765 271,127
Debenture interest payable 60,000 60,000 30,000
Promissory Notes payable . 240,000 533,850 100,000
Total current liabilities 534,833 817,615 401,127
Long term liabilities:
Variable rate
subordinated debenture 1,500,000 1,500,000 1,500,000
Total liabilities 2,034,833 2,317,615 1,901,127
Redeemable preferred stock -- 8% cumulative, convertible, voting,
Series A, $.01 par value per share; redemption value $12.80,
$12.16 and $12.64 per share. Authorized 920,000 shares;
issued 35,842, 38,342, and
38,342 shares........ 458,778 466,279 484,643
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 $2,400,000,
2,280,000, and 2,370,000 . 1,875 1,875 1,875
Common stock -- $.01 par value per share. Authorized 35,000,000
shares; issued 18,577,805, 13,029,071, and 18,572,805
shares ................. 185,778 130,291 185,728
Additional paid-in capital 17,868,958 17,110,644 17,843,142
Deficit ............. (20,475,130)(19,954,990)(20,312,260
Total stockholders' deficit (2,418,519) (2,712,180) (2,281,515)
$ 75,092 $ 71,714 $ 104,255
See accompanying notes to financial statements
IGENE Biotechnology, Inc.
Statements of Operations
(Unaudited)
--- Three months ended ---
March 31, March 31,
1996 1995
Sales .......................... $ 22,969 $ 9,548
Cost of sales .................. 11,435 8,251
11,534 1,297
Technology services income ..... 23,159 ---
Net revenue ..................... 34,693 1,297
Selling, general and administrative expenses:
Marketing and selling ..... 1,156 872
Research, development and pilot plant79,103 84,156
General and administrative . 83,909 56,096
(164,169) (141,124)
(129,476) (139,827)
Other income (expenses):
Investment income ........ 1 13
Joint Venture income ..... --- ---
Other income (loss) ...... --- 442
Interest expense ......... (33,395) (39,909)
Forgiveness of Interest on Promissory
Notes ............... --- 33,395
Net loss ...................... (162,870) (145,886)
Deficit at beginning of period ... (20,312,260) (19,809,104)
Deficit at end of period ...... $(20,475,130) $(19,954,990)
Net loss per common share ..... $ (0.01) $ (0.01)
See accompanying notes to financial statements
IGENE Biotechnology, Inc.
Statements of Stockholder's Deficit
(Unaudited)
Redeemable
Preferred Stock Preferred Stock Common Stock
(Shares/Amount)(Shares/Amount)(Shares/Amount)
Balance at December 31,
1994.... 38,592/$463,104 187,500/$1,875 13,028,571/$130,286
Cumulative undeclared dividends on redeemable
preferred
stock... 6,175 --- ---
Conversion of
preferred stock to
common stock. (250)/$(3,000) --- 500/$5
Net Loss for Quarter ended
March 31, 1995 ..... --- --- ---
Balance at March 31,
1995....... 38,342/$466,279 187,500/$1,875 13,029,071/$130,291
Balance at December 31,
1995...... 38,342/$484,643 187,500/$1,875 18,572,805/$185,728
Cumulative undeclared dividends on redeemable
preferred stock.. 5,735 --- ---
Conversion of preferred stock
to common stock . (2,500)/$(31,600) --- 5,000/$50
Net Loss for Quarter ended
March 31, 1994 ..... --- --- ---
Balance at March 31,
1996 .......38,342/$458,778 187,500/$1,875 18,577,805/$185,778
See accompanying notes to financial statements
IGENE Biotechnology, Inc.
Statements of Stockholder's Deficit
(Unaudited- Continued)
Additional Total Stockholder's
Paid-In Capital Deficit Deficit
Balance at December 31,
1994....... 17,113,824 $(19,809,104) $(2,563,120)
Cumulative undeclared dividends on redeemable
preferred stock..(6,175) --- (6,175)
Conversion of preferred stock
to common stock. 2,995 --- 3,000
Net Loss for Quarter ended
March 31, 1995 .. --- (145,886) (145,886)
Balance at March 31, 1995 .$17,110,644 $(19,954,990) $(2,712,180)
Balance at December 31,
1995....................$17,843,142 $(20,312,260) $(2,281,515)
Cumulative undeclared dividends on redeemable
preferred stock............. (5,734) --- (5,734)
Conversion of preferred stock to
common stock ............... 31,550 --- 31,600
Net Loss for Quarter ended
March 31, 1996 ......... --- (162,870) (162,870)
Balance at March 31, 1996 $17,868,958 $(20,475,130) $(2,418,519)
See accompanying notes to financial statements
IGENE Biotechnology, Inc.
Statements of Cash Flows
(Unaudited)
--- Three months ended ---
March 31, March 31,
1996 1995
Cash flows from operating activities:
Net loss ................ $( 162,870) $( 145,886)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization . 1,706 4,343
Changes in assets and liabilities:
Increase (decrease) in accounts payable and
other accrued expenses (36,293) (14,257)
Debenture interest payable 30,000 30,000
Decrease (increase) in
accounts receivable ( 7,100) 1,828
Decrease (increase) in prepaid expenses and
deposits ........... (911) (2,869)
Net cash used in operating
activities .............. (175,468) (126,841)
Cash flows from investing activities:
Capital expenditures .......... --- ---
Net cash used in investing activities--- ---
Cash flows from financing activities:
Payment of amount due from
stockholders .................... 44,460 ---
Issuance of promissory notes ... 140,000 124,300
Net cash provided by (used in)
financing activities ..... 184,680 124,300
Net increase (decrease) in cash and
cash equivalents ......... 9,212 ( 2,541)
Cash and cash equivalents at
beginning of year ........ 8,326 19,529
Cash and cash equivalents at
end of period ............$ 17,538 $ 16,989
Supplementary disclosure
- cash paid for interest .$ --- $ 131
Noncash investing and financing activities:
During the three months ended March 31, 1996 and 1995,
the Company recorded dividends in arrears on 8% redeemable
preferred stock at $.16 per share aggregating $5,735 and $6,175
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 March 31,
1996 and 1995 and for the three-month period ended March 31,
1996 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
None.
(3) Stockholders' Equity
At March 31, 1996 and 1995, 76,684 shares of authorized but
unissued common stock were reserved for issuance upon
conversion of the Company's outstanding preferred stock.
As of March 31, 1996 and 1995, 2,000,000 and 1,200,000 share
of authorized but unissued common stock were reserved for
exercise pursuant to the 1986 Stock Option Plan.
As of March 31, 1996 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 March 31, 1996 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 March 31, 1996, 9,942,800 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 three-month periods ended
March 31, 1996 and 1995 is based on 18,576,596 and
13,028,971 weighted average shares, respectively. 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Sales revenue for the quarter ended March 31, 1996 increased from
$9,548 in the first quarter of 1995 to $22,969 in the first
quarter of 1996. This increase (141%) resulted from an increase
in domestic sales of ClandoSan to several large distributors for
the product. Cost of product sales as a percentage of product
sales decreased from 86% in the first quarter of 1995 to 50% in
the first quarter of 1996. Additional sales of ClandoSan will
depend on continued marketing arrangements with distributors for
the product and the Company's own limited direct sales. The
Company expects to continue to focus its efforts on AstaXin and
is in discussion with potential manufacturing and marketing
partners for the product. In addition, the Company is actively
seeking a contract manufacturer for AstaXin or a plant which
could be leased for production of the product. Long-term
production and sale of AstaXin will depend on the Company's
ability to find suitable manufacturing partners as it has no
commercial scale manufacturing facilities of its own.
Research, development and pilot plant expenses decreased by 6%
for the current quarter when compared to the corresponding
quarter in 1995. This decrease was due to a decrease in
equipment repairs and depreciation expense. Research and
development costs may be expected to increase gradually in
support of increased manufacturing efforts for AstaXin , but
would be offset by technology licensing and sales of the product.
Marketing expenses for the first quarter of 1996 are similar to
that of first quarter 1995 and are related primarily to the
Company's ClandoSan product. Marketing expenses related to
AstaXin could be expected to increase if production and sales
increase, and will depend on marketing arrangements with
distributors of the product. This income would be offset by
revenue from sales of product.
General and administrative expenses increased by approximately
49% for the first quarter of 1996 over the same period in 1995.
This increase resulted from increased payroll expenses incurred
following the hiring of a Chief Executive officer in January
1996, and an increase in business travel related to AstaXin .
Interest expense for the quarter ended March 31, 1996 decreased
by approximately $6,500 over the same period in the prior year
and reflects the decrease in accumulating interest due on
promissory notes issued to certain directors of the Company after
conversion of some of the notes for equity.
As a result of the foregoing, the Company reported a net loss of
$162,870, or $.01 per common share during the first quarter of
1996, compared to a net loss of $141,124, or $.01 per common
share in the same period in 1995. The weighted average number of
common shares outstanding increased to 18,576,596 in the first
quarter of 1996 from 13,028,971 in the first quarter of 1995.
This increase in shares reflects the annual issuance of common
stock as payment of interest on a variable note subordinated
debenture, a private placement of 1,200,000 shares of
common stock by certain directors of the Company, the issuance of
an additional 4,290,000 shares of common stock in cancellation of
promissory notes to certain directors of the Company, and the
conversion of 2,500 shares of redeemable preferred stock into
5,000 shares of common stock 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
March 31, 1996, total dividends in arrears on the Company's
preferred stock was $1,072,042, of which $172,042 ($4.80 per
share) was included in the carrying value of the redeemable
preferred stock and $900,000 ($4.80 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
March 31, 1996, the Company had a working capital deficit of
approximately $500,000, and cash and cash equivalents of $17,500,
consisting of proceeds from Promissory Notes issued to certain
Directors of the Company described below.
Cash used by operations in the quarters ended March 31, 1996 and
1995 amounted to $175,468 and $126,841, respectively. IGENE
continues to focus on research and development of its products,
achieving only minimal sales of its ClandoSan and AstaXin
products. IGENE was able to reduce (from 1994 levels) the amount
of cash required to fund 1995 operations through a Licensing
Agreement for AstaXin with Archer Daniels Midland Co. ("ADM"),
Decatur, Illinois, signed in May 1995. That Agreement provided
for a cash payment of $200,000 at signing and a royalty based on
sales. In addition, the Company has received $24,415 from ADM
for technology services related to the Agreement. On December 4,
1995, the Company also received a payment of $25,000 from ADM as
stipulated in the Licensing Agreement. On February 29, 1996, ADM
terminated its Licensing Agreement with the Company.
Consequently, the Company is actively seeking other potential
manufacturers for AstaXin , and is in discussion with a potential
manufacturer of its AstaXin technology. The Company believes
this technology to be highly marketable.
No cash was provided by investing activities for the quarters
ended March 31, 1996 and March 31, 1995. This is reflective of
the Company's continued plan to minimize capital expenditures,
since existing equipment is believed to be sufficient to meet the
needs of the Company for the foreseeable future.
The following is a summary of the Company's financing activities
for 1995 and the quarter ended March 31, 1996:
On January 23, 1995, and March 7, 1995 the Company issued
promissory notes to certain directors of the Company (Kimelman,
Kempner, Abeles, Cenerazzo and Knafel) for a total aggregate
consideration of $126,750. The notes specify that interest will
be paid quarterly in arrears at Prime Rate. In addition, at any
time before repayment, the value of the notes may be converted
to common shares of the Company at $.1875 per share for the notes
dated January 23, 1995, and $.125 per share for the notes dated
March 7, 1995. On December 14, 1995 the January 23,1995 and
March 7, 1995 notes were terminated, with equal amounts of common
stock and warrants being issued in their place equal to the
principal amount of each of the notes divided by $.125 which was
the per share price of the stock at the time.
On May 11, 1995 the Company and Archer Daniels Midland Company
signed a non-exclusive licensing agreement for AstaXin . The
Agreement provided for an initial payment of $200,000 and
royalties based on sales. In addition, the Company received
$24,415 in 1995 for technology services pertaining to the
Agreement. The Company also received payment of $25,000 in
December, 1995 under the terms of the Agreement. On February 29,
1996 Archer Daniels Midland Company terminated its licensing
agreement with the Company.
On August 15, 1995 certain directors of the Company (Abeles,
Cenerazzo, Kempner, Kimelman, Knafel) purchased from the Company
1,200,000 shares of common stock of the Company at a price of
$.125 per share for an aggregate purchase amount of $150,000.
At its Annual Meeting on December 14, 1995 the shareholders of
the Company approved the conversion of all promissory notes
issued to certain directors of the Company (Kimelman, Kempner,
Abeles, Cenerazzo, Knafel, and Low-Beer) from August 1993 until
February 10, 1994, into common stock, along with warrants to
purchased additional shares of common stock at a price of $.125
per share at any time during the period from April 3, 1995 to
April 3, 1998, all shares being equal to the aggregate principal
amount of the loans divided by $.125, which was the fair market
value of the common stock as quoted on April 3, 1995 by the
National Quotation Bureau. These shares were issued on December
31, 1995.
On February 9, 1996 and March 11, 1996, the Company issued
promissory notes to certain directors of the Company (Kimelman,
Kempner, Abeles, Cenerazzo, Knafel) for an aggregate
consideration of $140,000. These notes specify that at any time
prior to repayment the holder has the right to convert the note
to common stock of the Company at $.10 per share for the note
issued February 9, 1996 and at $.09 per share for the note issued
March 11, 1996, and to receive warrants for an equivalent number
of common shares at $.10 per share for the note issued February
9, 1996 and at $.09 per share for the note issued March 11, 1996.
The promissory notes are due on demand with interest charged at
the prime rate.
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.
FORM 10QSB
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 April 23, 1996, the Company issued promissory notes to
certain directors of the Company (Kimelman, Kempner, Abeles,
Cenerazzo, Knafel) for an aggregate consideration of $36,000.
These notes specify that at any time prior to repayment the
holder has the right to convert the note to common stock of the
Company at $.09 per share of common stock and to receive warrants
for an equivalent number of common shares at $.09 per share.
The promissory notes are due on demand with interest charged at
the prime rate.
On May 9, 1996, the Company issued promissory notes to
certain directors of the Company (Kimelman, Kempner, Abeles,
Cenerazzo, Knafel) for an aggregate consideration of $71,000.
These notes specify that at any time prior to repayment the
holder has the right to convert the note to common stock of the
Company at $.06 per share of common stock and to receive warrants
for an equivalent number of common shares at $.06 per share.
The promissory notes are due on demand with interest charged at
the prime rate.
FORM 10QSB
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: May 15, 1996
/s/ Stephen F. Hiu
Stephen F. Hiu
President, Treasurer and
Secretary
(On behalf of the Registrant and as
Principal Financial Officer)