SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 10549
FORM 10-QSB
(Mark One)
[ x ] Quarterly report under Section 13 or 15(D) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 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:
42,592,508 as of October 15, 1999.
_______________________________________
Traditional Small Business Disclosure Format (check one):
Yes No X
_____________ _____________
-Page 1-
FORM 10-QSB
IGENE Biotechnology, Inc.
INDEX
Page
PART I FINANCIAL INFORMATION
Balance Sheets 5-6
Statements 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
Conditions and Results of Operations 14-17
PART II OTHER INFORMATION 18-19
SIGNATURES 20
-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-
Item 1. Financial Statements.
IGENE Biotechnology, Inc.
Balance Sheets
September 30, September 30, December 31,
1999 1998 1998
_____________ _____________ ____________
(Unaudited) (Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 12,753 $ 823,135 $ 364,796
Accounts receivable 13,205 10,485 ---
Inventory 990,320 595,955 870,260
Supplies 10,669 14,145 11,145
Prepaid expenses 165,327 359,713 83,933
Loans receivable, current portion 223,902 268,544 250,783
____________ ____________ ___________
1,416,176 2,071,977 1,580,917
OTHER ASSETS
Property and equipment, net 342,157 335,585 370,057
Loan receivable, net of current portion --- 46,889 ---
Debt issue costs 148,199 203,773 179,956
Security deposits 4,875 10,600 10,600
____________ ____________ ___________
TOTAL ASSETS $ 1,911,407 $ 2,668,824 $ 2,141,530
============ ============ ===========
The accompanying notes are an integral part of the financial
statements.
-Page 5-
IGENE Biotechnology, Inc.
Balance Sheets
(continued)
September 30, September 30, December 31,
1999 1998 1998
____________ ____________ ___________
(Unaudited) (Unaudited)
LIABILITIES, REDEEMABLE PREFERED STOCK
AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 124,185 $ 259,461 $ 228,549
Debenture interest payable 90,000 90,000 45,000
___________ ___________ ___________
TOTAL CURRENT LIABILITIES 214,185 349,461 273,549
LONG-TERM DEBT
Notes payable 6,146,199 6,082,500 6,092,500
Variable rate subordinated debenture 1,500,000 1,500,000 1,500,000
Accrued Interest 729,900 243,300 364,950
TOTAL LIABILITIES 8,590,284 8,175,261 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 $15.04, $14.40,
and $14.56, respectively. Authorized
1,312,500 shares, issued 29,592, 29,592,
and 29,592 shares, respectively 445,064 426,125 430,860
___________ ___________ ___________
STOCKHOLDERS' DEFICIT
Common stock, $.01 par value per share.
Authorized, 250,000,000 shares;
issued and outstanding 39,427,508,
21,814,173, and 21,854,173 shares,
respectively. 394,275 218,142 218,542
Additional paid-in capital 19,687,851 18,653,173 18,738,038
Deficit (27,206,067) (24,803,877) (25,476,909)
___________ ___________ ___________
TOTAL STOCKHOLDERS' DEFICIT (7,123,941) (5,932,562) (6,520,329)
___________ ___________ ___________
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 1,911,407 $ 2,668,824 $ 2,141,530
=========== =========== ===========
The accompanying notes are an integral part of the financial
statements.
-Page 6-
IGENE Biotechnology, Inc.
Statements of Operations
(Unaudited)
Three months ended Nine months ended
____________________________ ____________________________
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
_____________ _____________ _____________ _____________
Sales $ --- $ --- $ --- $ 203,675
Cost of sales 6,407 59,157 126,252 664,208
_____________ _____________ _____________ _____________
Gross profit (loss) (6,407) (59,157) (126,252) (460,533)
Technology licensing income 742 --- 3,916 ---
_____________ _____________ _____________ _____________
Net revenue (5,665) (59,157) (122,336) (460,533)
_____________ _____________ _____________ _____________
Selling, General & Administrative expenses:
Marketing and selling 58,766 207 111,691 896
Research, development and pilot plant 104,595 138,321 294,995 362,006
General and administrative 74,834 96,821 248,554 413,369
Litigation expenses 75,479 38,318 433,973 222,016
_____________ _____________ _____________ _____________
Total operating expenses 313,674 273,667 1,089,213 998,287
_____________ _____________ _____________ _____________
Operating loss (319,339) (332,824) (1,211,549) (1,458,820)
_____________ _____________ _____________ _____________
Other income (expense)
Interest expense, net of
interest income of $3,570, $22,173
$14,519 and $59,907, respectively (173,903) (153,094) (51 7,609) (364,289)
Loss on disposal of equipment --- (273) --- (3,553)
_____________ _____________ _____________ _____________
Net loss $ (493,242) $ 486,191) $ (1,729,158) $ (1,826,662)
============= ============= ============= =============
Net loss per common share $ (0.01) $ (0.02) $ (0.06) $ 0.09)
============= =========== ============= =============
The accompanying notes are an integral part of the financial
statements.
-Page 7-
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 --- 14,205 --- ---
Conversion of preferred stock
to common stock --- --- (187,500) (1,875)
Issuance of common stock through
exercise of employee stock options --- --- --- ---
Issuance of common stock in lieu of
cash in payment of interest on
subordinated debenture --- --- --- ---
Issuance of common stock in lieu of
cash in payment of legal retainers
and fees debenture --- --- --- ---
Exercise of warrants --- --- --- ---
Capital contribution - forgiveness of
interest on promissory notes --- --- --- ---
Net loss for nine months
ended September 30, 1998 --- --- --- ---
_____________ ____________ _____________ _____________
Balance at September 30, 1998 29,592 $ 426,125 --- $ ---
============= ============ ============= =============
Balance at December 31, 1998 29,592 $ 430,860 --- $ ---
Cumulative undeclared dividends
on redeemable preferred stock --- 14,204 --- ---
Issuance of common stock in lieu of
cash in payment of interest on
subordinated debenture --- --- --- ---
Issuance of common stock in lieu of
cash in payment of legal retainers
and 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 nine months ended
September 30, 1999 --- --- --- ---
_____________ ____________ _____________ _____________
Balance at September 30, 1999 29,592 $ 445,064 --- $ ---
============== ============ ============= =============
The accompanying notes are an integral part of the financial
statements.
- Page 8-
IGENE Biotechnology, Inc.
Statements of Stockholders' Deficit
(Unaudited - Continued)
Additional Total
Common Stock 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 --- --- (14,205) --- (14,205)
Conversion of preferred stock
to common stock 375,000 3,750 (1,875) --- ---
Issuance of common stock in lieu of
cash in payment of interest on
subordinated debenture 40,000 400 89,600 --- 90,000
Issuance of common stock in lieu of
cash in payment of legal
retainers and fees 2,190,000 21,900 140,100 --- 162,000
Exercise of warrants 2,700 27 243 --- 270
Capital contribution - forgiveness of
interest on promissory notes --- --- 205,640 --- 205,640
Net loss for nine months ended
September 30, 1998 --- --- --- (1,826,662) (1,826,662)
____________ _________ ____________ _____________ _____________
Balance at September 30, 1998 21,814,173 $218,142 $18,653,173 $(24,803,877) $ (5,932,562)
============ ========= ============ ============= =============
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 --- --- (14,204) --- (14,204)
Issuance of common stock in lieu of
cash in payment of interest on
subordinated debenture 40,000 400 89,600 --- 90,000
Issuance of common stock in lieu of
cash in payment of legal fees 866,667 8,666 41,084 --- 49,750
Issuance of shares of common stock
pursuant to direct purchase of shares
by certain directors and other
accredited investors (note 3) 16,666,668 166,667 833,333 --- 1,000,000
Net loss for nine months ended
September 30, 1999 --- --- --- (1,729,158) (1,729,158)
____________ _________ ____________ _____________ _____________
Balance at September 30, 1999 39,427,508 $394,275 $19,687,851 $(27,206,067) $ (7,123,941)
============ ========= ============ ============= =============
The accompanying notes are an integral part of the financial
statements.
-Page 9-
IGENE Biotechnology, Inc.
Statements of Cash Flows
(Unaudited)
Nine months ended
September 30, September 30,
1999 1998
_____________ _____________
Cash flows from operating activities:
Net loss $ (1,729,158) $ (1,826,662)
Adjustments to reconcile net loss to net cash provided
By operating activities:
Depreciation 55,847 32,578
Amortization 31,757 7,939
Loss on disposal of equipment --- 3,553
Interest on debenture paid in shares of common stock 90,000 90,000
Decrease (increase) in:
Accounts receivable (13,205) 4,009
Inventory (120,060) (595,955)
Prepaid expenses and other current assets (31,168) (234,148)
Increase (decrease) in:
Accounts payable and accrued expenses 305,587 265,264
_____________ _____________
Net cash used in operating activities (1,410,400) (2,253,422)
_____________ _____________
Cash flows from investing activities:
Loan receivable issued (18,272) ---
Proceeds from disposal of equipment 460 11,482
Capital expenditures (28,407) (86,192)
Refund of security deposit 5,725 ---
Repayment of principal of loan receivable 45,153 184,567
_____________ _____________
Net cash provided by (used in) investing activities 4,659 109,857
_____________ _____________
Cash flows from financing activities:
Repayments from (advances to) stockholders --- 28,594
Proceeds from issuance of common stock 1,000,000 270
Issuance of promissory notes 65,699 ---
Issuance of demand notes --- 950,000
Proceeds from rights offering --- 2,438,288
Repayment of notes (12,000) (475,000)
_____________ _____________
Net cash provided by financing activities 1,053,699 2,942,152
_____________ _____________
Net increase (decrease) in cash
and cash equivalents (352,042) 798,587
Cash and cash equivalents
at beginning of period 364,795 24,548
_____________ _____________
Cash and cash equivalents
at end of period $ 12,753 $ 823,135
============= =============
The accompanying notes are an integral part of the financial
statements.
-Page 10-
IGENE Biotechnology, Inc.
Statements of Cash Flows
(Unaudited - Continued)
Noncash investing and financing activities:
During the nine months ended September 30, 1999 and 1998, the
Company recorded dividends in arrears on 8% redeemable preferred
stock at $.48 per share aggregating $14,204 and $14,205,
respectively, which has been removed from paid-in capital and
included in the carrying value of the redeemable preferred stock.
During the nine months ended September 30, 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 due to the Company, resulting
in net cash proceeds of $2,438,288, which is after fees
associated with the offering of $211,712. The related fees have
been capitalized as debt issue costs are being amortized over the
term of the debt.
During the nine months ended September 30, 1998, the Company
cancelled certain promissory notes payable to, and related
amounts due from, a stockholder aggregating $125,000, by
agreement with that stockholder.
During the nine months ended September 30, 1999 and 1998 the
Company issued 40,000 shares of common stock in each period in
payment of interest on a variable rate subordinated debenture.
If paid in cash, the interest would have been payable at 12% in
the amount of $90,000 in each period. Shares may be issued in
lieu of cash under the terms of the debenture agreement at the
higher of $2.25 per share or market price per share. The stock
was issued and related interest was paid at $2.25 per share, or
$90,000, in each period.
During the nine months ended September 30, 1999, the Company
satisfied accounts payable of $20,000 and advanced $29,750 for
legal retainers by issuing 866,667 shares of common stock to
counsel in on-going litigation.
During the nine months ended September 30, 1998 the Company
satisfied accounts payable of $27,000 and advanced $135,000 for
legal retainers by issuing 2,190,000 shares of common stock to
counsel in 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 September
30, 1999 and 1998 and for the three month and nine 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 operation and cash
flows. 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 follows:
Raw materials $ 7,050
Work-in-process ---
Finished goods 983,270
____________
Total inventory $ 990,320
============
Inventory has been reduced by $19,463 during the nine months
ended September 30, 1999 to reflect the excess of cost over
market value.
(3) Stockholders' Equity (Deficit)
At September 30, 1999 and 1998, 59,184 shares of authorized
but unissued common stock were reserved for issue upon
conversion of the Company's outstanding preferred stock.
As of September 30, 1999 approximately 22,000,000 shares of
authorized but unissued common stock were reserved for
exercise pursuant to the Company's 1997 and 1986 Stock
Option Plans.
As of September 30, 1999 and 1998, 200,000 and 280,000
shares, respectively, of authorized but unissued common
stock were reserved for issuance for payment of interest on
the variable rate subordinated debenture and 375,000 shares
of authorized but unissued common stock were reserved for
issuance upon conversion of the variable rate subordinated
debenture.
As of September 30, 1999 and 1998, 13,174,478 shares of
authorized but unissued common stock were reserved for the
conversion of outstanding convertible promissory notes in
the aggregate amount of $1,082,500 held by directors of the
Company.
As of September 30, 1999 and 1998, 117,628,846 and
100,962,178 shares, respectively, of authorized but unissued
common stock were reserved for the exercise of outstanding
warrants.
On January 25, 1999, 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 on that date. These
investors also purchased an additional 8,333,333 new shares
of common stock at $.06 per share, or $500,000 through July
31, 1999. The total funding received in this transaction
was $750,000, and a total of 12,500,000 new shares of common
stock have been issued at $.06 per share. In return for
committing to this funding, these investors also received,
as of January 25, 1999, warrants to purchase 12,500,000
shares of common stock at $.06 per share, expiring in 10
years.
- Page 12-
IGENE Biotechnology, Inc.
Notes to Financial Statements
(continued)
(3) Stockholders' Equity (Deficit) (continued)
On August 19, 1999, the Company issued to certain directors
4,166,668 new shares of common stock at $.06 per share, or
$250,000, which was the current market price of the stock on
that date. In return for committing to this funding, these
directors also received, as of August 19, 1999, warrants to
purchase 4,166,668 shares of common stock at $.06 per share,
expiring in 10 years.
The funds received in the preceding transactions have been
used to continue operations of the Company and to fund legal
expenses associated with the on-going litigation with
Archer-Daniels Midland, Inc. (See note 5).
(4) Net loss per common share
Net loss per common share for the nine-month periods ended
September 30, 1999 and 1998 is based on 30,846,897 and
20,273,882, respectively, of weighted average common shares
outstanding. For purposes of computing net loss per common
share, the amount of net loss has been increased by
dividends declared and cumulative undeclared dividends in
arrears on preferred stock.
(5) Contingency - Litigation
On July 21, 1997, ADM filed suit against the Company in the
U.S. District Court in Baltimore, 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 counterclaim
against ADM, alleging theft of trade secrets. The Company
is also claiming breach of contract, in regards to a
licensing agreement entered into by the Company and ADM in
1995. The Company contends that it complied with all
material terms of this agreement. 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 patent
infringement allegations. To date, a stay on all discovery
has been imposed by the court, while a court-appointed
expert analyzed the yeast products of both parties. Most
recently, and pursuant to an order issued by the judge on
July 16, 1999, both the Company and ADM communicated to the
court their willingness to pursue a mediated settlement of
this dispute. 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
$433,973 and $222,016, respectively, in the nine months
ended September 30, 1999 and 1998 relating to this
litigation, which is on-going.
(6) Subsequent Events
On October 7, 1999, the Company issued to certain directors
3,125,000 new shares of common stock at $.08 per share, or
$250,000, which was the current market price of the stock on
that date. In return for committing to this funding, these
directors also received, as of October 7, 1999, warrants to
purchase 3,125,000 shares of common stock, at $.08 per
share, expiring in 10 years.
During the period from October 1, 1999 through October 28,
1999, the parties to the litigation described in note (5)
were unable to resolve the dispute through mediation. Thus,
the litigation has been returned to the court for a judicial
disposition.
-Page 13-
IGENE Biotechnology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
CAUTIONARY STATEMENTS FOR PURPOSES OF "SAFE HARBOR PROVISIONS" OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:
EXCEPT FOR HISTORICAL FACTS, ALL MATTERS DISCUSSED IN THIS
REPORT, WHICH ARE FORWARD LOOKING, INVOLVE A HIGH DEGREE OF RISKS
AND UNCERTAINTIES. POTENTIAL RISKS AND UNCERTAINTIES INCLUDE,
BUT ARE NOT LIMITED TO, COMPETITIVE PRESSURES FROM OTHER
COMPANIES AND WITHIN THE BIOTECH INDUSTRY, ECONOMIC CONDITIONS IN
THE COMPANY'S PRIMARY MARKETS AND OTHER UNCERTAINTIES DETAILED
FROM TIME-TO-TIME IN THE COMPANY'S SECURITIES AND EXCHANGE
COMMISSION FILINGS.
CERTAIN STATEMENTS IN THIS REPORT SET FORTH MANAGEMENT'S
INTENTIONS, PLANS, BELIEFS, EXPECTATIONS OR PREDICTIONS OF THE
FUTURE BASED ON CURRENT FACTS AND ANALYSES. ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE INDICATED IN SUCH STATEMENTS, DUE TO
A VARIETY OF FACTORS INCLUDING REDUCED PRODUCT DEMAND, INCREASED
COMPETITION, GOVERNMENT ACTION, WEATHER CONDITIONS, AND OTHER
FACTORS.
Results of Operations
Sales
During the three months and nine months ended September 30, 1999,
the Company began large scale commercial trials of AstaXin(R)
with several potential customers in Chile. These trials are
expected to result in subsequent and continuing sales of
AstaXin(R) to these potential customers, during and following the
trials, which are expected to last between six months to one
year. However, there can be no assurance that such sales will
occur or that they will be material. During the six months ended
June 30, 1998 the Company had $203,860 in sales of AstaXin(R).
This entire amount was sold to a single distributor. Subsequent
to June 30, 1998, and during the nine months ended September 30,
1999, there were no sales of AstaXin(R), a decrease of $203,860
or 100%, since this distributor inventoried this large quantity
of product and has not yet needed additional product. The
Company is now making substantial marketing efforts on its own
behalf (See also Marketing and selling expenses on page 15 of
this document).
Cost of sales
During a successful implementation of certain improvements in the
production process, which had been developed in the pilot plant,
production was temporarily suspended during the quarter ended
March 31, 1999. A resumption of production during April and May
of 1999 confirmed that the improvements result in increased
efficiency and yields in the manufacturing process. In June
1999, and continuing until the present, production has again been
temporarily suspended until sales volume warrants additional
production. The preceding resulted in cost of sales for the
three months ended September 30, 1999 and 1998 of $6,407 and
$126,252 respectively, a decrease of $119,845 or 95%; and $59,157
and $664,208 for the nine months ended September 30, 1999 and
1998, a decrease of $605,051 or 91%. The Company expects to
resume production, and that production will achieve gross
profits, as soon as additional sales occur. However, there can
be no assurance that such gross profits will occur or that they
will be material. The Company expects to incur cost of sales of
approximately $138,000 per month when production resumes, which
is expected to be funded by product sales. When, and if, the
Company is producing and selling AstaXin(R) at a gross profit,
management plans to expand production capacity to meet an
expected increasing demand for AstaXin(R), which is expected to
result in profitable operations. However, there can be no
assurance that such profitable operations will occur, or that
they will be material. Until production is resumed, cost of
sales is expected to continue at approximately $6,400 per
quarter, which is primarily composed of inventory storage costs.
-Page 14-
IGENE Biotechnology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Results of Operations (continued)
Technology licensing income
Technology licensing income of $742 and $3,916, respectively,
for the three and nine months ended September 30, 1999 resulted
from royalties for ClandoSan(R), the Company's nematicide soil
treatment product. No royalties on ClandoSan(R) were earned
during the three and nine months ended September 30, 1998. The
Company has made only minimal efforts to market ClandoSan(R)
during 1999 and 1998, concentrating its efforts on its AstaXin(R)
product.
Marketing and selling expenses
Marketing expenses for AstaXin(R) have increased and are
expected to continue to do so, as the Company continues and
escalates its promotion of AstaXin(R). Marketing and selling
expenses for the three months ended September 30, 1999 and 1998
were $58,766 and $207, respectively, an increase of $58,559.
These expenses for the nine months ended September 30, 1999 and
1998 were $111,691 and $896, respectively, an increase of
$110,795. Marketing expenses for AstaXin(R) had been minimal
prior to 1999, since the Company's contract manufacturer had been
acting as non-exclusive distributor and marketer of AstaXin(R)
during 1998. During 1999, the Company began additional marketing
efforts on its own behalf. These increasing expenses are
expected to be funded by product sales. However, there can be no
assurance that such sales will occur, or that they will be
material.
Research, development and pilot plant expenses
Research, development and pilot plant expenses are expected to
continue at approximately $33,000 per month which will be used to
increase the efficiency of the manufacturing process through
experimentation in the pilot plant, development of higher
yielding strains of yeast and other improvements in the Company's
AstaXin(R) technology. However, there can be no assurance that
such improvements in efficiency and yield will occur, or that
they will be material. These expenses are expected to be funded
by sales. However, there can be no assurance that such sales
will occur, or that they will be material. Research, development
and pilot plant expenses for the three months ended September 30,
1999 and 1998 were $104,595 and $138,321, respectively, a
decrease of $33,726, or 24%. For the nine months ended September
30, 1999 these expenses were $294,995 and $362,006, a decrease of
$67,011 or 18%. Analytical testing and field studies, relating
to the start of manufacture of AstaXin(R) during 1998, did not
recur in the three months and nine months ended September 30,
1999. This resulted in a decrease in research, development and
pilot plant expenses for the three months and nine month ended
September 30, 1999 as compared to the three month and nine month
periods ended September 30, 1998.
General and administrative expenses
General and administrative expenses have decreased, primarily due
to 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 for the three months ended September 30, 1999 and 1998
were $74,834 and $96,821, respectively, a decrease of $21,987 or
23%. These expenses were $248,554 and $413,369, respectively,
for the nine months ended September 30, 1999 and 1998, a decrease
of $164,815 or 40%. General and administrative expenses are
expected to continue at approximately $30,000 per month in the
near term, 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
Management expects to recover these litigation expenses,
associated with the suit filed against the Company by ADM and the
Company's counterclaim, 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. Litigation
expenses for the three months ended September 30, 1999 and 1998
were $75,479 and $38,318, an increase of $37,161 or 97%.
Litigation expenses for the nine months ended September 30, 1999
and 1998 were $433,973 and $222,016, respectively, an increase of
$211,957 or 95%.
-Page 15-
IGENE Biotechnology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Results of Operations (continued)
Litigation expenses (continued)
These expenses are expected to continue, in the near term, at
levels based on management's continual re-assessment of the
potential benefits versus the costs of its litigation efforts.
They are expected to be funded by additional capital
contributions or loans from the Company's directors and other
investors. At the present time, a range of reasonably possible
losses from this litigation cannot be estimated (See also Note 5
to the financial statements on page 13 of this document).
Interest expense, net of interest income
Net interest expense for the three months ended September 30,
1999 and 1998 was $173,903 and $153,094, respectively, an
increase of $20,809, or 14%. Net interest expense for the nine
months ended September 30, 1999 and 1998 was $517,609 and
$364,289, respectively, an increase of $153,320 or 42%. These
increases result from $5,000,000 in notes issued during April
1998 pursuant to the Company's right's offering. It is expected
that the note holders will use these notes to exercise
outstanding warrants issued to the note holders, when and if the
Company achieves profitable operations. However, there can be no
assurance that such profitable operations will occur, or that
they will be material, or that the note-holders will exercise
these warrants.
Net loss
As a result of the foregoing, the Company reported net losses of
$493,242 and $486,191, or $0.01 and $0.02 per share,
respectively, for the three months ended September 30, 1999 and
1998. The Company also reported net losses of $1,729,158 and
$1,826,662, or $.06 and $.09 per share, respectively, for the
nine months ended September 30, 1999 and 1998. The weighted
average number of shares of common stock outstanding increased to
36,936,566 and 30,846,897, respectively for the three months and
nine months ended September 30, 1999 from 21,527,100 and
19,636,887, respectively, for the three and six months ended
September 30, 1998. This increase of 15,409,466 and 11,210,010
weighted average shares, respectively, for the three month and
nine month periods ended September 30, 1999 over the same periods
in 1998 is caused by: the issuance of 80,000 shares of common
stock in lieu of interest payments on the variable rate
subordinated debenture, the conversion of 187,500 shares of
preferred stock into 375,000 shares of common stock, the issuance
of 866,667 shares of stock in payment of legal fees and
retainers, and the issuance of 16,666,668 shares to directors and
other investors for cash at $.06 per share, or $1,000,000, during
the twelve month period ended September 30, 1999 (See also note 3
to the financial statements on page 12 of this document).
Financial Position
During the nine months ended September 30, 1999 and 1998, the
following materially affected the Company's financial position:
The Company began producing commercial quantities of AstaXin(R)
in January 1998, capitalizing additional inventory of $120
,060 and $595,955, respectively during the nine months ended
September 30, 1999 and 1998.
The Company paid expense advances and retainers, which have been
capitalized and are included in prepaid expenses as of September
30, 1999 and 1998; as reduced by fees billed, and which will be
drawn down against future costs associated with on-going
litigation against ADM. These amount to approximately $140,000
and $330,000, respectively as of September 30, 1999 and 1998.
During the nine months ended September 30, 1999 the Company
issued 16,666,668 new shares of common stock to directors and
other investors at $.06 per share, or $1,000,000.
-Page 16-
IGENE Biotechnology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Financial Position (continued)
The Company issued, on March 31, 1998, $5,000,000 of long-term
notes payable pursuant to its rights offering of February 13,
1998. The notes mature on March 31, 2003 with interest payable
at 8% payable either annually or at maturity, at the Company's
option. The Company also issued warrants to purchase 50,000,000
shares of common stock at $0.10 per share expiring March 31,
2008. Short-term promissory notes of $1,875,000 and demand
notes of $475,000 were repaid through exercise of rights in this
offering, and $211,712 of related debt issue costs were
capitalized.
During the nine months ended September 30, 1998, the Company
issued $950,000 in demand notes to certain directors, $475,000 of
which were repaid pursuant to the issuance of new debt in the
rights offering, and $475,000 of which were repaid in cash.
In December of 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 September 30, 1999 and 1998, total dividends in
arrears on the Company's preferred stock was $208,328 and
$189,389, respectively, of which $208,328 ($7.04 per share) and
$189,389 ($6.40 per share), respectively, was included in the
carrying value of the redeemable preferred stock
Liquidity and Capital Resources
Historically, the Company has been funded primarily by equity
contributions and loans from stockholders. As of September 30,
1999 and 1998, the Company had working capital of $1,201,991 and
$1,722,516, respectively, a decrease of $520,525. The Company
had cash and cash equivalents of $12,753 and $823,135 as of
September 30, 1999 and 1998, respectively. In order to continue
to fund operations in the near term, until profitable operations
occur, the Company plans to continue to obtain additional
capitalization from directors and other investors.
Cash used by operations in the nine months ended September 30,
1999 and 1998 amounted to $1,410,400 and $2,253,422,
respectively. This decrease in cash used in operations of
$843,022 over the nine months ended September 30, 1998 results
from reductions in research and development and general and
administrative expenses and a temporary halt in production of
AstaXin(R) during the nine months ended September 30, 1999.
Cash provided by investing activities for the nine months ended
September 30, 1999 and 1998 amounted to $4,659 and $109,857,
respectively. The decrease of $105,198 in cash provided by
investing activities over the nine months ended September 30,
1998 results primarily from a decrease in the amount of principal
repayments on a loan receivable during the nine months ended
September 30, 1999. These repayments by the Company's contract
manufacturer are suspended during the temporary halt in
production which continues during the nine months ended September
30, 1999.
Cash provided by financing activities for the nine months ended
September 30, 1999 and 1998 amounted to $1,053,699 and $2,942,152
respectively, a decrease of $1,888,453, results primarily from
net proceeds from the rights offering of $2,438,288 received
during the nine months ended September 30, 1998.
-Page 17-
IGENE Biotechnology, Inc.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On July 21, 1997, ADM filed suit against the Company in the
U.S. District Court in Baltimore, 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 counterclaim
against ADM, alleging theft of trade secrets. The Company
is also claiming breach of contract, in regards to a
licensing agreement entered into by the Company and ADM in
1995. The Company contends that it complied with all
material terms of this agreement. 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 patent
infringement allegations. To date, a stay on all discovery
has been imposed by the court, while a court-appointed
expert analyzed the yeast products of both parties. Most
recently, and pursuant to an order issued by the judge on
July 16, 1999, both the Company and ADM communicated to the
court their willingness to pursue a mediated settlement of
this dispute. During the period from October 1, 1999
through October 28, 1999, the parties were unable to resolve
the dispute through mediation. Thus, the litigation has
been returned to the court for a judicial disposition. 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 $433,973 and $222,016,
respectively, in the nine months ended September 30, 1999
and 1998 relating to this litigation, which is on-going.
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 stock in the foreseeable future.
With respect to sales of securities not registered under the
Securities Act, see Notes 3 and 6 to the financial
statements, at page 12 and 13 of this report.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security
Holders.
At the annual meeting of stockholders held on September 16,
1999, the following matters were submitted to stockholders'
vote and were approved by a majority of votes: (1) seven
directors were elected: Joseph C. Abeles, John A. Cenerazzo,
Stephen F. Hiu, , Thomas L. Kempner, Michael G. Kimelman,
Sidney R. Knafel, and Patrick F. Monahan; and (2) approval
of the appointment of Berenson & Company LLP as the
Company's independent auditors for 1999.
-Page 18-
IGENE Biotechnology, Inc.
PART II
OTHER INFORMATION
(continued)
Item 4. Submission of Matters to a Vote of Security
Holders. (continued)
Results of the voting were as follows:
Votes Votes Votes
For Against Abstained
____________ _________ _________
(1) Election of Directors
Joseph C. Abeles 26,151,379 19,350 ---
John A. Cenerazzo 26,151,379 19,350 ---
Stephen F. Hiu 26,151,354 19,375 ---
Thomas L. Kempner 26,151,379 19,350 ---
Michael G. Kimelman 26,151,354 19,375 ---
Sidney R. Knafel 26,151,379 19,350 ---
Patrick F. Monahan 26,151,379 19,350 ---
(2) Approval of Auditors 26,151,778 18,351 600
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8K
None
-Page 19-
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 November 14, 1999 By /s/Stephen F. Hiu
__________________ _________________________
Stephen F. Hiu
President and Treasurer
(On behalf of the Registrant
and as Principal
Financial Officer)
-Page 20-