SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 10549
FORM 10-QSB
[ x ] Quarterly report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1999
[ ] Transition report under Section 13 or 15(d) of the Exchange
Act
For the transition period from to
Commission file number 0-15888
IGENE Biotechnology, Inc.
(Exact name of Small Business Issuer as Specified in its Charter)
Maryland 52-1230461
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
9110 Red Branch Road, Columbia, Maryland 21045-2024
(Address of Principal Executive Offices)
(410) 997-2599
Issuer's Telephone Number, Including Area Code)
None
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the Issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes x No
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
31,094,207 as of May 1, 1999.
Transitional Small Business Disclosure Format (check one):
Yes No x
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FORM 10-QSB
IGENE Biotechnology, Inc.
INDEX
PART I - FINANCIAL INFORMATION
Page
Balance Sheets 5-6
Statement of Operations 7
Statements of Stockholder's Deficit 8-9
Statements of Cash Flows 10-11
Notes to Financial Statements 12-13
Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-16
PART II - OTHER INFORMATION 17
SIGNATURES 18
-Page 2-
IGENE BIOTECHNOLOGY, INC.
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
-Page 3-
PART I
FINANCIAL INFORMATION
-Page 4-
IGENE Biotechnology, Inc.
Balance Sheets
March 31, March 31, December 31,
1999 1998 1998
----------- ----------- ------------
(Unaudited) (Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 68,989 $ 59,896 $ 364,796
Accounts receivable 6,887 14,494 ---
Inventory 870,260 192,522 870,260
Supplies 11,145 4,710 11,145
Prepaid expenses 211,255 201,321 83,933
Due from stockholders --- 2,615,000 ---
Loan receivable 250,783 255,500 250,783
----------- ----------- ------------
TOTAL CURRENT ASSETS 1,419,319 3,343,443 1,580,917
OTHER ASSETS
Property and equipment, net 358,386 287,847 370,057
Loan receivable, net of current portion --- 184,003 ---
Debt issue costs 169,370 285,000 179,956
Security deposits 10,600 10,600 10,600
----------- ----------- ------------
TOTAL ASSETS $ 1,957,675 $ 4,110,893 $ 2,141,530
=========== =========== ============
The accompanying notes are an integral part of the financial
statements.
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IGENE Biotechnology, Inc.
Balance Sheets
(Continued)
March 31, March 31, December 31,
1999 1998 1998
----------- ----------- ------------
(Unaudited) (Unaudited)
LIABILITIES, REDEEMABLE PREFERED STOCK
AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 141,507 $ 686,495 $ 228,549
Debenture interest payable 90,000 90,000 45,000
Demand notes payable --- 475,000 ---
Promissory notes payable --- --- ---
----------- ----------- ------------
TOTAL CURRENT LIABILITIES 231,507 1,251,495 273,549
LONG-TERM DEBT
Promissory notes payable 6,092,500 6,082,500 6,092,500
Variable rate subordinated debenture 1,500,000 1,500,000 1,500,000
Accrued interest 486,600 --- 364,950
----------- ----------- ------------
TOTAL LIABILITIES 8,310,607 8,833,995 8,230,999
----------- ----------- ------------
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 $14.72, $14.08,
and $14.56, respectively. Authorized
1,312,500 shares, issued 29,592 shares 435,594 416,655 430,860
----------- ----------- ------------
STOCKHOLDERS' DEFICIT
Preferred stock, $.01 par value per share,
8% cumulative, convertible, voting,
series A. Authorized, issued and
outstanding 187,500 shares
(aggregate Involuntary liquidation
value of $2,640,000 at March 31, 1998. --- 1,875 ---
Common stock, $.01 par value per share.
Authorized, 250,000,000 shares; issued
and outstanding 26,887,540, 19,211,473,
and 21,854,173 shares, respectively. 268,875 192,115 218,542
Additional paid-in capital 18,982,720 18,434,775 18,738,038
Deficit (26,040,121) (23,768,522) (25,476,909)
----------- ----------- -----------
TOTAL STOCKHOLDERS' DEFICIT (6,788,526) (5,139,757) (6,520,329)
----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 1,957,675 $ 4,110,893 $ 2,141,530
=========== =========== ===========
The accompanying notes are an integral part of the financial
statements.
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IGENE Biotechnology, Inc.
Statements of Operations
(Unaudited)
Three months ended
-------------------------
March 31, March 31,
1999 1998
---------- ----------
Sales $ --- $ ---
Cost of sales 20,436 298,799
---------- ----------
Gross profit (loss) (20,436) (298,799)
---------- ----------
Technology licensing income 1,167 ---
---------- ----------
Net revenue (19,269) (298,799)
========== ==========
Operating expenses:
Marketing and selling 6,450 389
Research, development and pilot plant 100,298 133,202
General and administrative 90,811 135,700
Litigation expenses 175,737 160,962
---------- ----------
Total operating expenses 373,296 430,253
---------- ----------
Operating loss (392,565) (729,052)
---------- ----------
Other income (expense)
Interest expense (net of interest income
of $6,672 and $11,503) (170,647) (62,255)
---------- ----------
Net loss $(563,212) $(791,307)
========== ==========
Net loss per common share $ (0.02) $ (0.04)
========== ==========
The accompanying notes are an integral part of the financial
statements.
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IGENE Biotechnology, Inc.
Statements of Stockholders' Deficit
(Unaudited)
Redeemable Preferred Stock Preferred Stock
-------------------------- --------------------
# shares Amount # shares Amount
--------- --------- --------- ---------
Balance at December 31, 1997 29,592 $ 411,920 187,500 $ 1,875
Cumulative undeclared dividends
on redeemable preferred stock --- 4,735 --- ---
Issuance of common stock through
exercise of employee stock options --- --- --- ---
Capital contribution-
forgiveness of interest
on promissory notes --- --- --- ---
Net loss for quarter ended
March 31 1998 --- --- --- ---
--------- --------- --------- ---------
Balance at March, 1998 29,592 $ 416,655 187,500 $ 1,875
========= ========= ========= =========
Balance at December 31, 1998 29,592 $ 430,860 --- $ ---
Cumulative undeclared dividends
on redeemable preferred stock --- 4,734 --- ---
Issuance of common stock in lieu of
cash in payment of legal fees --- --- --- ---
Issuance of shares of common stock
pursuant to direct purchase of shares
by certain directors and other
accredited investors (note 3) --- --- --- ---
Net loss for quarter ended
March 31, 1999 --- --- --- ---
--------- --------- --------- ---------
Balance at March 31, 1999 29,592 $ 435,594 --- $ ---
========= ========= ========= =========
The accompanying notes are an integral part of the financial
statements.
-Page 8-
IGENE Biotechnology, Inc.
Statements of Stockholders' Deficit
(Unaudited-Continued)
Common Stock Additional Total
----------------------- Paid-in Stockholders'
# shares Amount Capital Deficit Deficit
---------- --------- ----------- ------------- -------------
Balance at December 31, 1997 19,206,473 $ 192,065 $18,233,670 $(22,977,215) $ (4,549,605)
Cumulative undeclared dividends
on redeemable preferred stock --- --- (4,735) --- (4,735)
Issuance of common stock through
exercise of employee stock options 5,000 50 200 --- 250
Capital contribution -
forgiveness of interest
on promissory notes --- --- 205,640 --- 205,640
Net loss for quarter ended
March 31, 1998 --- --- --- (791,307) (791,307)
---------- --------- ----------- ------------- -------------
Balance at March 31, 1998 19,211,473 $ 192,115 $18,434,775 $(23,768,522) $ (5,139,757)
========== ========= =========== ============= =============
Balance at December 31, 1998 21,854,173 $ 218,542 $18,738,038 $(25,476,909) $ (6,520,329)
Cumulative undeclared dividends
on redeemable preferred stock --- --- (4,734) --- (4,734)
Issuance of common stock in lieu of
cash in payment of legal fees 866,667 8,666 41,083 --- 49,749
Issuance of shares of common stock
pursuant to direct purchase of shares
by certain directors and other
accredited investors (note 3) 4,166,700 41,667 208,333 --- 250,000
Net loss for quarter ended
March 31, 1999 --- --- --- (563,212) (563,212)
---------- --------- ----------- ------------- -------------
Balance at March 31, 1999 26,887,540 $ 268,875 $18,982,720 $(26,040,121) $ (6,788,526)
========== ========= =========== ============= =============
The accompanying notes are an integral part of the financial
statements.
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IGENE Biotechnology, Inc.
Statements of Cash Flows
(Unaudited)
Three months ended
---------------------------
March 31, March 31,
1999 1998
----------- ---------
Cash flows from operating activities:
Net loss $ (563,212) $ (791,307)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation 14,247 9,503
Amortization 10,586 ---
Interest on debenture paid in shares of common stock 45,000 45,000
Decrease (increase) in:
Accounts receivable (6,887) ---
Inventory --- (192,522)
Prepaid expenses and other current assets (97,574) (201,321)
Increase (decrease) in:
Accounts payable and accrued expenses 54,609 126,998
----------- -----------
Net cash used in operating activities (543,231) (1,003,649)
----------- -----------
Cash flows from investing activities:
Proceeds from disposal of equipment 460 ---
Capital expenditures (3,036) (344)
----------- -----------
Net cash provided by investing activities (2,576) (344)
----------- -----------
Cash flows from financing activities:
Advances to stockholders --- 28,594
Proceeds from issuance of common stock 250,000 250
Issuance of demand notes --- 950,000
Repayment of demand notes --- 60,497
----------- -----------
Net cash provided by financing activities 250,000 1,039,341
----------- -----------
Net increase (decrease) in cash and cash equivalents (295,807) 35,348
Cash and cash equivalents at beginning of period 364,796 24,548
----------- -----------
$ 68,989 $ 59,896
=========== ===========
Supplementary disclosure and cash flow information:
Cash paid during the period for interest $ 84 $ 26
Cash paid during the period for income taxes --- ---
The accompanying notes are an integral part of the financial
statements.
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IGENE Biotechnology, Inc.
Statements of Cash Flows
(Unaudited - Continued)
Noncash investing and financing activities:
During the three months ended March 31, 1999 and 1998, the
Company recorded dividends in arrears on 8% redeemable preferred
stock at $.16 per share aggregating $4,735 in each year, 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, 1998, the Company issued
notes payable of $5,000,000 through a rights offering.
Stockholders purchased rights, using $1,875,000 in promissory
notes and $475,000 of demand notes. Net proceeds due from the
transfer agent and shareholders of $2,615,000, which is after
transfer agent fees of $35,000, are included as a receivable at
March 31, 1998 and were received in April 1998. Transfer agent
fees of $35,000 and legal fees of $250,000 which have been
accrued as of March 31, 1998, have been capitalized as deferred
debt issue costs.
During the three months ended March 31, 1998, the Company
cancelled certain promissory notes and the related amounts due
from stockholders of $125,000 by agreement with the stockholder.
During the three months ended March 31, 1999, the Company
satisfied accounts payable of $20,000 and advances for legal
retainers of $29,749 by issuing 866,667 shares of common stock to
counsel in its on-going litigation.
The accompanying notes are an integral part of the financial
statements.
-Page 11-
IGENE Biotechnology, Inc.
Notes to Financial Statements
(1) Unaudited financial statements
The financial statements presented herein as of March 31,
1999 and 1998 and for the three month periods then ended 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
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 of March 31, 1999 as follows:
Raw materials $ ---
Work-in-process ---
Finished goods 870,260
Total inventory $ 870,260
(3) Stockholders' Equity (Deficit)
At March 31, 1998 and 1997, 59,184 and 434,104 shares,
respectively, of authorized but unissued common stock were
reserved for issue upon conversion of the Company's
outstanding preferred stock.
As of March 31, 1998 and 1999, 21,410,166 shares of
authorized but unissued common stock were reserved for
exercise of options pursuant to the Company's 1997 and 1986
Stock Option Plans.
As of March 31, 1999 and 1998, 320,000 and 400,000 shares,
respectively, 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 1999 and 1998, 13,174,477 and 12,876,082
shares, respectively, of common stock were reserved for the
conversion of outstanding convertible promissory notes held
by directors of the Company.
As of March 31, 1999 and 1998, 113,462,177 and 87,464,878
shares, respectively, of authorized but unissued common
stock were reserved for the exercise of outstanding
warrants.
On January 25, 1998 the Company issued to certain directors
and other accredited investors 4,166,667 new shares of
common stock at $.06 per share, or $250,000, which was the
current market price of the stock. These directors and
investors have also purchased, for an additional $250,000,
on April 25, 1999, 4,166,667 additional shares at $.06 per
share. They have also committed to purchase $250,000 of
common stock on July 25, 1999 at $.06 per share. The total
of funding to be received in this transaction is $750,000,
and a total of 12,500,000 shares will be issued at $.06 per
share. In return for committing to this funding, these
investors also received warrants to purchase common stock at
$.06 per share, expiring in 10 years. The funds will be
used to continue operations of the Company and fund
projected legal expenses associated with the on-going
litigation with Archer-Daniels Midland, Inc. (ADM).
-Page 12-
IGENE Biotechnology, Inc.
Notes to Financial Statements
(Continued)
(4) Net loss per common share
Net loss per common share for the three-month periods ended
March 31, 1999 and 1998 is based on 25,322,345 and
19,210,417, weighted average shares, respectively. For
purposes of computing net loss per common share, the amount
of net loss has been increased by dividends declared and
cumulative undeclared dividends in arrears on preferred
stock.
(5) Contingencies
In May 1995, the Company signed a non-exclusive licensing
agreement with ADM for the manufacture and sale of
AstaXin(R). On February 29, 1996 ADM informed the Company
that it had decided not to utilize the Technology and
requested that the Company return approximately $250,000 in
payments under the licensing agreement. The Company
maintains that ADM is not entitled to the return of
payments and that additional monies are owed to the
Company. On July 21, 1997, ADM filed suit against the
Company in the U.S. District Court in Greenbelt, Maryland
alleging patent infringement and requesting a preliminary
injunction against the Company to cease the use of its
astaxanthin manufacturing process. On August 4, 1997,
the Company filed a $300,450,000 contract and trade secrets
lawsuit in U.S. District Court in Baltimore, Maryland
against ADM, alleging theft of trade secrets. The Company
is also claiming breach of contract, in regards to the
licensing agreement entered into by the Company and ADM
in 1995. The Company contends that it complied with all
material terms of this agreement. The Company's claim was
re-asserted as a counter-claim against ADM and the two cases
were joined in the District Court in Baltimore, Maryland on
August 24, 1997. On September 10, 1997 the District Court
denied ADM's request for a preliminary injunction on the
basis that ADM could not demonstrate a likelihood of success
on the merits of its case. During 1998 and until this report
date, a stay has been imposed on both the Company and ADM
by the court while a court-appointed expert analyzes the
yeast products of both parties. It is management's
contention that it is not probable that this dispute
will result in an unfavorable outcome. Accordingly, no
liability has been reflected in the accompanying balance
sheet. The Company had expenses of $175,737 and $160,962,
respectively, in the quarters ended March 31, 1999 and 1998
relating to this litigation, which is on-going.
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IGENE Biotechnology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
CAUTIONARY STATEMENT 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, government action, weather conditions, and other
factors.
Results of Operations
During the quarters ended march 31, 1999 and 1998, the Company
had no sales of AstaXin(R). During 1998, the Company had $203,860
of sales of AstaXin(R). The Company is presently engaged in
discussions with many potential purchasers of AstaXin(R), and
expects to achieve additional sales in the near future. However,
there can be no assurance that any such sales will occur or that
they will be material.
During the quarter ended March 31, 1999, the Company implemented
certain improvements in the production process for AstaXin(R).
During this period, no additional product was produced. Cost of
sales of $20,436 represent indirect production costs incurred.
Cost of sales decreased $278,363, or 93% due to the halt in
production during the quarter ended March 31, 1999. Production
was resumed in April for one month to test the improvements in
production, but has since been stopped again. Production will be
resumed on an as-needed basis to meet inventory needs from
potential product sales. Such future production costs are
expected to be funded by sales. However, there can be no
assurance that such sales will occur or that they will be
material.
During the quarter ended March 31, 1998, the Company began
commercial production of AstaXin(R), its astaxanthin pigment
product. The Company produces the product through the use of a
contract manufacturer in Mexico, Fermic, S.A. de C.V. (Fermic).
Direct and indirect production costs totaled $491,321, of which
$192,522 was capitalized as inventory, stated at the lower of
cost or market basis. The remaining $298,799 has been expensed
as cost of goods sold. Initial production runs were inefficient
as to production time and product waste. These inefficiencies
have since been corrected, and are expected to result in
production costs on a potentially profitable basis in the near
future. However, there can be no assurance that such profitable
operations will occur or that they will be material.
Technology licensing income for the quarter ended March 31, 1999
resulted from royalties for ClandoSan(R), the Company's
nematacide soil treatment product. No royalties on ClandoSan(R)
were earned during the quarter ended March 31, 1998.
Marketing and selling costs of $6,450 and $389 for the quarter
ended March 31, 1999 and 1998, which is an increase of $6,062 or
1,559%, represent marketing efforts for AstaXin(R). These costs
are expected to increase in the near future as the Company
implements its marketing program for AstaXin(R). These costs are
expected to be funded by sales. However, there can be no
assurance that such sales will occur, or that they will be
material.
-Page 14-
IGENE Biotechnology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Results of Operations (continued)
Research and development and pilot plant expenses were $100,298
and $133,202, respectively for the quarters ended March 31, 1999
and 1998, a decrease of $32,904 or 25%. This decrease is caused
by additional field studies and analytical testing of AstaXin(R)
during 1998. These costs are expected to continue at levels
similar to the quarter ended March 31, 1999 as the Company
continues research relating to improving production of AstaXin(R)
and research and development of other future products. These
costs are expected to be funded by sales. However, there can be
no assurance that such sales will occur, or that they will be
material.
General and administrative expenses for the quarter ended March
31, 1999 decreased $44,889 or 33%. This savings primarily
results from the Company's operating without a designated CEO
since mid-1998 (the Company's Board of Directors as a group
presently performs the functions of CEO). General and
administrative expenses are expected to continue at levels
similar to the quarter ended March 31, 1999, and are expected to
be funded by sales. However, there can be no assurance that such
sales will occur, or that they will be material.
Litigation expenses of $175,737 and $160,962 during the quarters
ended March 31, 1999 and 1998 represent the Company's expenses
associated with its defense of the suit by Archer Daniels
Midland, Inc. (ADM) and the Company's counter-suit. Management
expects to recover legal expenses through damage awards and
preservation of 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 estimates that the cost of this litigation will
continue based on management's continuing assessments of the
potential costs and benefits of its litigation strategies and
alternatives. These expenses are expected to be funded by
additional funding from directors and other investors. At the
present time, a range of reasonably possible loss from this
litigation cannot be estimated.
Net interest expense was $170,647 and $62,255, respectively for
the quarters ended March 31, 1999 and 1998, an increase of
$108,392 or 174%. This increase is the result of the Company's
additional financing from notes from stockholders in 1997 and
debt issued in its rights offering during 1998. It is expected
that note holders will convert convertible debt into common stock
and that the Company will pay off other debt, or that it will be
used to exercise outstanding warrants, when and if the company
achieves profitable operations. However, there can be no
assurance that such sales will occur, or that they will be
material.
As a result of the foregoing the Company reported net losses of
$563,212 and $791,307, respectively, for the quarters ended March
31, 1999 and 1998, which is a decreased loss of $228,095 or 27%.
This is a loss of $0.02 and $0.04 per share, respectively, in
1999 and 1998. The weighted average number of shares of common
stock outstanding of 25,322,345 and 19,210,417, respectively, for
the quarter ended March 31, 1999 and 1998 has increased by
6,111,928 shares. This resulted from the issuance of 80,000
shares in 1998 in payment of interest on a subordinated
debenture, the conversion of 187,500 shares of preferred stock
into 375,000 shares of common stock in payment of legal fees
during 1998 and 1999, and the issue of 4,166,700 shares of common
stock to directors and other accredited investors for cash at
$.06 per share, or $250,000, in the quarter ended March 31, 1999.
Financial Position
During the quarters ended March 31, 1999 and 1998 the following
materially affected the Company's financial position:
The Company began production of AstaXin(R) in January of 1998,
capitalizing inventory of $192,522 as of March 31, 1998.
Inventory increased $677,738 to $870,260 as of March 31, 1999.
-Page 15-
IGENE Biotechnology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Financial Position (continued)
The Company paid an advance of $200,000 to its attorneys during
the quarter ended March 31, 1998, which was later drawn against
costs of on-going litigation. This amount was included in
prepaid expenses as of March 31, 1998. Such advances to
litigation counsel amounted to $182,647 as of March 31, 1999.
The Company was due $2,615,000, which is included as a receivable
as of March 31, 1998, from its transfer agent and certain
stockholders representing the net proceeds of the Company's
Rights Offering of February 13, 1998, which closed on March 31,
1998. All amounts due were received in April 1998. The Company
issued long-term promissory notes aggregating $5,000,000 which
mature March 31, 2003 and warrants to purchase 50,000,000 shares
of common stock at $0.10 per share expiring March 31, 2008 in
association with the Rights Offering. $2,000,000 of short-term
promissory notes and $475,000 of demand notes were repaid through
exercise of Rights in this offering, and $285,000 of deferred
debt issuance were capitalized.
During the quarter ended March 31, 1998 the Company issued
$950,000 in demand notes to certain directors.
In December 1988, the Company suspended payment of the quarterly
dividend on its preferred stock. Resumption of the dividend will
require significant improvement 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 1999 and 1998, total dividends in arrears on the
Company's preferred stock was $198,858 and $1,319,919,
respectively, of which $198,858 ($6.72 per share) and $179,919
($6.08 per share), respectively, was included in the carrying
value of the redeemable preferred stock and $-0- and $1,140,000,
respectively, was included in the liquidation preference of
preferred stock. This reduction of dividends in arrears results
from the conversion, in September 1998, of 187,500 shares of
limited redemption preferred stock into 375,000 shares of common
stock.
Liquidity and Capital Resources
Historically the Company has been funded primarily by equity
contributions, and loans from stockholders. As of March 31, 1999
and 1998 the Company had working capital of $1,187,812 and
$2,091,948, respectively. Working capital increased by
$4,205,522 during the quarter ended March 31, 1998 due primarily
to net proceeds receivable from the Company's Rights Offering of
$2,365,000 and the restructuring of $2,000,000 in short-term debt
to long-term maturity through the Rights Offering. The Company
had cash and cash equivalents of $68,989 and $59,896,
respectively, as of March 31, 1999 and 1998.
Cash used by operations in the quarters ended March 31, 1999 and
1998 amounted to $543,231 and $1,003,649, respectively. The
decrease of $460,418 results primarily from the halt in
production during the quarter ended March 31, 1999.
Cash used by investing activities for the quarters ended March
31, 1999 and 1998 amounted to $2,576 and $334, respectively, an
increase of $2,232, representing a slight increase in capital
expenditures.
Cash provided by financing activities for the quarters ended
March 31, 1999 and 1998 amounted to $250,000 and $1,039,341,
respectively, a decrease of $789,341 resulting primarily from
loans from stockholders during the quarter ended March 31, 1998
of $950,000, and proceeds of $250,000 from issuance of common
stock to directors and other accredited investors in the quarter
ended March 31, 1999.
-Page 16-
IGENE Biotechnology, Inc.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
In May 1995, the Company signed a non-exclusive licensing
agreement with Archer Daniels Midland Company (ADM) for the
manufacture and sale of AstaXin(R). On February 29, 1996 ADM
informed the Company that it had decided not to utilize the
technology and requested that the Company return approximately
$250,000 in payments made to the Company under the licensing
agreement. The Company maintains that ADM is not entitled to the
return of payments and that additional monies are owed to the
Company. On July 21, 1997, ADM filed suit against IGENE in the
U.S. District Court in Greenbelt, Maryland alleging patent
infringement and requesting a preliminary injunction against the
Company to cease the use of its astaxanthin manufacturing
process. On August 4, 1997, the Company filed a $300,450,000
contract and trade secrets lawsuit in U.S. District Court in
Baltimore, Maryland against ADM, alleging theft of trade secrets.
The Company is also claiming breach of contract, in regards to
the licensing agreement entered into by the Company and ADM in
1995. The Company contends that it complied with all material
terms of this agreement. The Company's claim was re-asserted as
a counter-claim against ADM and the two cases were joined in the
District Court in Baltimore, Maryland on August 24, 1997. On
September 10, 1997 the District Court denied ADM's request for a
preliminary injunction on the basis that ADM could not
demonstrate a likelihood of success on the merits of its case.
During 1998, and until the date of this report, a stay was
imposed by the court while a court-appointed expert analyzes both
parties' yeast products. It is Management's contention that it
is not probable that this dispute will result in an unfavorable
outcome. Accordingly, no liability has been reflected in the
accompanying balance sheet.
Item 2. Changes in Securities and Use of Proceeds.
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
tock in the foreseeable future.
With respect to sales of securities not registered under the
Securities Act, see Note 3 to the financial statements, at page
12 of this report.
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
27. Financial Data Schedule
(b) Reports on Form 8-K
None
-Page 17-
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 14, 1999 By /s/Stephen F. Hiu
Stephen F. Hiu
President and Treasurer
(On behalf of the Registrant and as
Principal Financial Officer)
-Page 18-