SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 10549
FORM 10KSB/A
AMENDMENT TO APPLICATION OR REPORT
Filed pursuant to Section 13 or 15(d) of
THE SECURITIES AND EXCHANGE ACT OF 1934
IGENE BIOTECHNOLOGY, INC.
(Exact name of registrant as specified in charter)
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements,
exhibits or other portions of its 1994
report on Form 10KSB as set forth in the pages attached hereto:
PART II, Item 6. Managements Discussion and Analysis or Plan of Operation
PART III, Item 10. Executive Compensation
PART III, Item 11. Security Ownership of Certain Beneficial Owners and
Management
PART III, Item 12. Certain Relationships and Related Transactions
PART IV, Item 13. Exhibits, Financial Statements Schedules, and Reports on
Form 8K
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant
has duly caused this Amendment
to be signed on its behalf by the undersigned, thereunto duly authorized.
IGENE BIOTECHNOLOGY, INC.
Date: October 13, 1995 By: /s/ Stephen F. Hiu
Chief Executive Officer
Principal Financial Officer &
Principal Accounting Officer
<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10KSB/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF
1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period from
to
Commission file number 0-15888
IGENE Biotechnology, Inc.
(Exact name of small business issuer in its charter)
Maryland
52-1230461
(State of other jurisdiction of (I.R.S. Employer
Identification No.)
incorporation or organization)
9110 Red Branch Road
Columbia, Maryland
21045
(Address of principal executive offices) (Zip
Code)
Issuer's telephone number, including area code: (410) 997-2599
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock (par value $.01 per share)
(Title of each class)
Check whether the issuer (1) has 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
Check if there is no disclosure of delinquent filers in response to Item
405 of
Regulation S-B contained in this form,
and no disclosure will be contained, to the best of registrant's knowledge, in
definitive
proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this
Form 10-KSB. [ ]
The issuer's net revenues for its most recent fiscal year were $363,349.
As of March 1, 1995, there were 13,029,071 shares of the issuer's Common
Stock and
225,842 shares of the issuer's
8% Cumulative Convertible Preferred Stock, Series A outstanding. The aggregate
market value of the Common Stock and
Preferred Stock held by non-affiliates was $4,310,854, based on the last bid
quotation
prices of the Common Stock as reported
by the National Association of Securities Dealers pink sheets on such date and,
with
respect to the Preferred Stock for which
no quotations were available, based on the conversion rate applicable to the
Preferred
Stock and the last bid price of the
Common Stock as reported above. (The officers and directors of the issuer are
considered affiliates only for purposes of
this calculation.)
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
IGENE Biotechnology, Inc. ("The Company") is engaged in the business of
industrial
microbiology and
related biotechnologies. The Company was formed on October 27, 1981 to
develop,
produce and market value-
added specialty biochemical products derived from abundant, inexpensive and
renewable
agricultural residues
and wastes through the use of state-of-the-art fermentation technology,
physical and
chemical separation
technology, and related chemical and biochemical engineering technologies.
The Company has devoted its resources to the development of proprietary
processes
to convert selected
agricultural raw materials or feedstocks into commercially useful and cost
effective
specialty biochemical
products for the food, feed, flavor and agrichemical industries. In developing
these
processes and products, the
Company has relied on the expertise and skills of its in-house scientific staff
and, for
special projects, various
consultants.
The Company has no manufacturing facilities other than its pilot plant
facility in
Columbia, Maryland.
To date, the Company has either licensed its products to third-party
manufacturers or
joint venture partners.
Government Regulation
The manufacturing and marketing of most of the products the Company has
developed are and will
likely continue to be subject to regulation by various governmental agencies in
the
United States, including the
Food and Drug Administration ("FDA"), the Department of Agriculture ("USDA"),
and
the Environmental
Protection Agency ("EPA"), and comparable agencies in other countries.
Substantially
all of the food products
developed by the Company to date have been reviewed by a panel of independent
scientific experts (the "Product
Review Panel") who are qualified by scientific training and experience to
evaluate, among
other things, the safety
of ingredients intended to be used directly or indirectly in foods. The
Product Review
Panel has advised the
Company that it considers such products to be Generally Recognized As Safe
("GRAS")
under the regulations
of the FDA. The Company is not aware of any action by the FDA, the USDA or the
EPA contesting these
affirmations or of any basis for their doing so. There can be no assurance,
however, that
such independent
expert evaluations will be accepted by the FDA, the USDA or the EPA and that
the
Company will not be
required to obtain costly and time-consuming approvals from these agencies or
comparable agencies in foreign
countries. The Company, as a matter of policy, requires that its products
conform to
current Good
Manufacturing Practices (as defined under the Federal Food, Drug and Cosmetic
Act
and the rules and
regulations thereunder) and the Company believes all of its products so
conform. The
extent of any adverse
governmental regulation that might arise from future administrative or
legislative action,
including current rules
and regulations pertaining to the process of GRAS affirmations, cannot be
predicted.
Research and Development
As of December 31, 1994, the Company had expended approximately $9,600,000
on
research and
development since its inception on October 17, 1981 and has, as of December 31,
1994,
received revenues from
product sales of approximately $1,487,000 from the proprietary processes
resulting from
such research and
development, excluding one-time license fees received in 1982 and 1985. The
Company
will continue to incur
research and development costs in connection with improvements in its existing
processes
and products, but it
does not anticipate development of new processes and products in 1995.
The Company's research and development activities have resulted in the
development of processes to
produce the products hereinafter discussed.
<PAGE>
Commercial Products
1. AstaXin
AstaXin is the Company's tradename for its dried yeast product made from
a
proprietary
microorganism developed by the Company. AstaXin is a natural source of
astaxanthin,
a pigment which
imparts the characteristic red color to the flesh of salmon, trout, and prawns.
In the
ocean, salmon and trout
obtain astaxanthin from krill and other planktonic crustaceans in their diet.
A crustacean
diet would be
prohibitively expensive for farm raised salmonids; without the addition of
astaxanthin, the
flesh of such fish is
a pale, off-white color which is less appealing to consumers expecting
"salmon-colored"
fish. Efficacy of
AstaXin has been demonstrated by fish feeding trials in Europe, Asia, and
North and
South America. An
estimated 285,000 metric tons of farm raised salmon are produced annually
worldwide.
In 1991 the Company entered into a business arrangement with Lefersa
Alimentos,
S.A., ("Lefersa") in
Chile to manufacture AstaXin on a non-exclusive basis. During 1991, Lefersa
experienced manufacturing
problems attributed to microbial contamination which delayed Scale-Up and
commercial
production. During
1992, Lefersa discontinued further attempts to manufacture AstaXin . The
Company has
produced ton
quantities of the product on a limited basis for evaluation and testing
purposes at a
contract manufacturing
facility in Michigan.
During 1993, commercial quantities of AstaXin were manufactured by the
Fleischmann's Yeast
Division of Burns Philp Food Inc. under contract as part of a Technology
License
Agreement. On October 5,
1993, Burns Philp informed the Company that it would no longer manufacture
AstaXin .
During 1994 commercial quantities of AstaXin were manufactured by Pfizer
Inc for
testing purposes
as part of a Technology Evaluation Agreement. To date, IGENE has not received
any
long-term commitment
for manufacture of the product. The Company is in contact with other
potential
manufacturers and licensees
for additional production capacity for AstaXin .
2. Crustacean Shell Products
ClandoSan is the Company's registered trademark for its natural
nematicide made
from crab and
crawfish exoskeletons and processed into pellets or granules by patented and
patent
pending technology
developed by the Company. The product acts in soils as a biological control
agent by
stimulating the growth
of normal soil microorganisms which produce chitinase and other enzymes that
degrade
chitin present in the
cuticles and eggs of plant-pathogenic nematodes. It has secondary effects as a
slow
release organic fertilizer.
ClandoSan does not have a direct adverse effect on plant-pathogenic nematodes
either
in vitro or in sterilized
or irradiated soils and only acts indirectly to suppress nematode populations
in soils.
The product generally is
not water soluble and, consequently, does not contribute to ground water
contamination.
On March 17, 1988, ClandoSan was unconditionally registered by the EPA
for use
with all agricultural
and horticultural crops in accordance with the Federal Insecticide, Fungicide,
and
Rodenticide Act ("FIFRA")
section 3(c)(5). ClandoSan is now registered in 49 states and is produced at
two
contract manufacturing
facilities in the United States. During 1991, the inventories related to the
Company's
ClandoSan product line
were written down to net realizable value due to the then prevailing market
conditions.
3. Whey-Based Products
(a) MacroMin and MinraLac
MacroMin and MinraLac are the Company's registered trade names for
coproducts
it developed
for converting low economic value cheese whey into economically and
biologically useful
products for the food
industry. In spite of extensive sales efforts throughout 1989, the Company was
not able
to develop a market for
these products and they were phased out in 1990.
<PAGE>
(b) Weyco-Serv
Weyco-Serv (or NaturServ ) is the Company's trade name for a fermented
whey-based product
containing calcium propionate and calcium acetate that can be used as a food
preservative and mold inhibitor
in the baked goods industry, in condiments, and in other foods and beverages.
The
product is produced by
fermenting modified cheese whey residues using a patented microbial co-culture
and
fermentation process
developed by the Company.
A license to manufacture and sell Weyco-Serv was granted by the Company
to
Hercules Incorporated
("Hercules"), Wilmington, Delaware, in exchange for an initial license fee of
$500,000,
pursuant to a license
agreement dated as of September 16, 1985. Hercules had not produced
commercially
any quantities of Weyco-
Serv and by an agreement dated October 15, 1987, the Company and Hercules
terminated the license
agreement.
The termination arrangement provided that the Company pay Hercules $25,000
for
termination of the
license. If the Company commercializes Weyco-Serv , the Company will pay
Hercules up
to an additional
$600,000 from revenues from the sale or licensing of the product.
The Company continues to be interested in licensing the Weyco-Serv
technology.
4. Diagnostic Reagents
The Company has developed a number of enzymes that are suitable as
reagents for
clinical diagnostic
applications. Two such microorganisms and fermentation processes yield high
concentrations of stabilized
enzymes that can be used for the isolation of strain-specific cell wall
components in rapid
diagnostic tests for
streptococcal diseases. The Company has been granted a patent for industrial
production of a lytic enzyme
specific for Group A Streptococcus. To date, the Company has produced only
small
commercial quantities of
these enzymes and continues to be interested in manufacturing and marketing
these
enzymes for use in
diagnostic test kits.
5. Flavors and Fragrances
The Company has developed natural flavor and fragrance chemicals by
fermentation
of whey and other
carbohydrates. Patent applications on the proprietary microorganisms developed
by the
Company have been
submitted in Europe and in the United States.
The fermentation processes yield a range of water-soluble low molecular
weight
organic (carboxylic)
acids which can be converted with naturally occurring alcohols into esters
which are
commercially useful both
as food flavors and as fragrances in cosmetic and toiletry products.
The Company is continuing to seek opportunities to commercialize its
flavors
technology.
Patents and Trademarks
It is the Company's policy to protect its intellectual property rights by
a variety of
means, including
applying for patents and trade marks in the United States and in other
countries. The
Company also relies upon
trade secrets and improvements, unpatented proprietary know-how and continuing
technological innovation to
develop and maintain its competitive position. In this regard, the Company
places
restrictions in its agreements
with third parties with respect to the use and disclosure of any of its
proprietary
technology. The Company also
has internal nondisclosure safeguards, including confidentiality agreements
with
employees and consultants.
<PAGE>
During fiscal years 1992, 1993, and 1994, as part of the Company's
stringent cost
containment efforts,
all patents and trademarks were carefully reviewed and those with no
foreseeable
commercial value have been
abandoned to eliminate costly maintenance fees. Patents (and applications)
and/or
trademarks on technology
with recognized commercial value include those for AstaXin , ClandoSan ,
Weyco-Serv ,
and streptococcus
lytic enzyme. Extensive additional foreign applications for AstaXin have been
submitted.
Competition
Competitors in the biotechnology field in the United States and elsewhere
are
numerous and include
major chemical, pharmaceutical and food companies, as well as specialized
biotechnology
companies.
Competition can be expected to increase as small biotechnology companies
continue to
be purchased by major
multinational corporations with their huge resources. Competition is also
expected to
increase with the
introduction of more diverse products developed by biotechnology firms,
increasing
research cooperation among
academic institutions and large corporations, and continued government funding
of
research and development
activities in the biotechnology field, both in the United States and overseas.
Unlike the
majority of biotechnology
companies, which are developing products principally for the pharmaceutical
industry,
the Company has focused
its own activities on the development of proprietary products for use in food,
fermentation and agricultural
industries. In the future, however, competitors may offer products which, by
reason of
price or efficacy or more
adequate resources for technology advances, may be superior to the Company's
existing
or future products.
In addition, the aquaculture market into which the Company's product,
AstaXin , will
be sold is a
highly competitive industry worldwide and certain large companies are presently
known
to be developing and
marketing competitive products.
Employees
At December 31, 1994, the Company had 9 employees, three of whom are in
administration and
marketing, while the remainder are engaged in process development and support
of
manufacturing activities.
None of the Company's employees is represented by a labor union and the
Company
has experienced
no work stoppages. The Company believes its relations with its employees are
satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases 8,480 square feet of space in the Oakland Ridge
Industrial Park
located at 9110
Red Branch Road, Columbia, Maryland. The Company occupies the space under
leases
expiring on January
31, 1996 with an approximate rental expense of $75,000 for 1994 through
expiration.
Approximately 2,000 square feet of the space occupied by the Company is
used for
executive and
administrative offices and approximately 2,300 feet is used for research and
development
activities.
Approximately 4,000 square feet of space is used for the Company's
intermediate-stage
or scale-up pilot plant
facility.
In addition, the Company has a 180 square-foot Biosafety Level 2
Laboratory
suitable for manufacturing
bacterial enzymes for in vitro diagnostic kits.
The Company owns all equipment necessary for its current operations and
all
equipment is in
satisfactory condition.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security
holders during
the fourth quarter
of the fiscal year ended December 31, 1994.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Preferred Stock
Prices for the Preferred Stock were quoted on the over-the-counter market
on the
National Association
of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") from November
25, 1987 through January
25, 1988. Prior to November 25, 1987 there was no public market for the
Preferred
Stock and since January 25,
1988, no quotations for the Preferred Stock have been reported on NASDAQ. The
aggregate number of record
holders of Preferred Stock as of March 1, 1995 was approximately 17 (18 in
1994).
Common Stock
The Common Stock has been traded in the over-the-counter market since July
23,
1986. Prior to July
23, 1986, there was no public market for the Common Stock.
On or about June 9, 1989, the Company was advised by NASDAQ that its
capital
and surplus (exclusive
of Redeemable Preferred Stock), based on its financial statements at and for
the quarter
ended March 31, 1989,
did not meet requirements for continued inclusion in the NASDAQ System.
Accordingly, the quotation of
Common Stock in the NASDAQ System was terminated.
Commencing on or about June 12, 1989, the Company's Common Stock began
trading on the over-the-
counter market on a limited basis and is quoted in the national bureau's "Pink
Sheets".
The following table
shows, by calendar quarter, the range of representative bid prices for the
Common Stock
for 1993 and 1994.
<TABLE>
<CAPTION>
Calendar Quarter High Low
<S> <S> <S>
1993: First Quarter $1.25 $ .50
Second Quarter $1.38 $ .50
Third Quarter $ .94 $ .38
Fourth Quarter $ .56 $ .13
1994: First Quarter $1.06 $ .13
Second Quarter $ .75 $ .25
Third Quarter $ .56 $ .31
Fourth Quarter $ .38 $ .31
</TABLE>
The above information was obtained by management from the National
Quotation
Bureau. Such
quotations are inter-dealer quotations without retail mark-up, mark-downs, or
commissions, and may not
represent actual transactions. The above quotations do not reflect the "asking
price"
quotations of the stock.
The aggregate number of record holders of the Common Stock as of March 1,
1995
was 258. As of
March 1, 1995, the high and low bid prices for the Common Stock, as shown in
the "pink
sheets" were $0.19 and
$0.13, respectively.
Warrants
As of December 31, 1992, the Company had Warrants outstanding for the
purchase
of 314,092 shares
of Common Stock, exercisable at $6.00 per share. These Warrants expired on
July 30,
1993. The Warrants were
not publicly traded and there were no trades of these Warrants before the
expiration
date.
On or about February 15, 1991, the Company issued Warrants to purchase an
aggregate of 800,000
shares of Common Stock to Kimelman & Baird, LLC., an employee of the same and
Anthony B. Low-Beer,
<PAGE>
exercisable at $.25 per share until February 14, 1995. The Warrants were
issued to the
aforementioned for acting
as placement agent in the Company's private placement of $1,149,000 in gross
proceeds
which closed February
15, 1991 and there are substantial restrictions against the transfer of these
Warrants.
The Warrants were not
publicly traded and there were no trades of these Warrants before the
expiration date.
On or about June 26, 1992, the Company issued Warrants to purchase an
aggregate of 252,400 shares
of Common Stock to Kimelman & Baird, LLC, at $.75 per share until 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.
In addition, 680,667 warrants to purchase common stock at $.75 per share were
issued to
other qualified
investors as part of the private placement. The warrants expire June 26,
1995.
The aggregate number of record holders of all Warrants as of March 1, 1995
was
approximately 16.
Dividend Policy
When and if funds are legally available for such payment under statutory
restrictions,
the Company may
pay annual cumulative dividends on the Preferred Stock of $.64 per share on a
quarterly
basis. During 1988 the
Company declared and paid a cash dividend of $.16 per share. In December 1988,
the
Company suspended
payment of the quarterly dividend of $.16 per share of Preferred Stock. No
dividends
have been declared or
paid since 1988. Any resumption of dividend payments on Preferred Stock would
require significant
improvement in cash flow. Preferred Stock dividends are payable when and if
declared
by the Company's board.
Unpaid dividends accumulate for future payment or addition to the liquidation
preference and redemption price
of the Preferred Stock. As of December 31, 1994 the total amount of dividends
in
arrears with respect to the
Company's Preferred Stock was $904,368.
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.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
1994 Compared with 1993
Sales revenue increased for the year ended December 31, 1994 from
$68,516 in
1993 to $113,166 in 1994.
The increase in overall sales revenues (65%) resulted from an 82% increase in
domestic
sales of ClandoSan
and a 16% increase in sales of AstaXin . Until results of additional in
progress field
testing of ClandoSan
are completed, the Company expects to continue to focus its efforts on AstaXin
.
However, long-term
production and sales of AstaXin will depend on the Company's ability to find
suitable
manufacturing partners
since it has no commercial scale manufacturing facilities of its own. The
Company is in
discussion with a
potential manufacturing partner for AstaXin . It hopes to execute profitable
technology
licensing and royalty
agreements during 1995. Additional sales of ClandoSan will depend on
continued
marketing arrangements
with distributors for the product, the Company expects to continue its own
limited sale of
these products in the
near future.
Cost of product sales as a percentage of product sales decreased to 33% in
1994 from
47% in 1993. As
in 1993, these margins reflect sales of AstaXin that was received at a reduced
cost as
part of a contract
agreement.
Research, development and pilot plant expenses increased approximately
$63,000 for the current year.
This increase reflects an increase in repairs and maintenance costs and a
one-time fee
related to the scale-up
of the Company's AstaXin product. 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
technology services income.
<PAGE>
Marketing, general and administrative expenses decreased 5% to $319,362
for
the current year. This
decrease can be attributed in part to reduced marketing and selling expenses
for
ClandoSan as well as an
overall cost containment effort by management. Marketing expenses related to
the
Company's AstaXin
product could be expected to increase if production and sale of AstaXin
proceeds, but
this will depend on
marketing arrangements with distributors of the product. This increase would
be offset
by sales income from
licensing additional technology. General and administrative expenses could
be expected
to rise to reflect
increasing costs of maintaining and enforcing the Company's patents and patent
applications for AstaXin and
ClandoSan worldwide, but only if commercial quantities of the products are
manufactured, in which case
royalty income would more than offset these costs.
Interest expenses for the year ended December 31, 1994 increased by
approximately
$16,000 over the
prior year. This increase reflects accumulating interest due on promissory
notes issued
to certain directors of
the Company.
In 1994, equipment which was no longer needed in the manufacturing process
for
AstaXin was sold.
Loss on sale of these assets was approximately $15,000 as compared to a gain on
sales of
equipment of
approximately $9,700 in 1993.
In 1994, the Company's operational costs were offset by an aggregate
$250,000
payment as part of a
Technology Evaluation Agreement for AstaXin .
As a result of the foregoing, the Company reported a net loss of $540,260,
or $.04 per
common share in
1994, compared to a net loss of $708,567, or $.06 per common share in 1993.
The
weighted average number of
common shares outstanding increased to 13,002,050 in 1994 from 12,769,011 in
1993.
This increase in shares in
1994 reflects the annual issuance of common stock as payment of interest on a
variable
note subordinated
debenture.
1993 Compared with 1992
Sales revenue decreased for the year ended December 31, 1993 from $165,060
in 1992
to $68,516 in 1993.
The decline in overall sales revenues resulted primarily from a reduced
marketing effort
for ClandoSan as the
Company shifted its resources and focus toward its AstaXin product.
Commercial
production and sale of
AstaXin contributed approximately $7,000 to sales revenue in 1992 (4% of
revenue) as
compared to
approximately $18,000 in 1993 (26% of revenue). The Company expects to
continue to
focus its efforts on
AstaXin . However, production and additional sales of the product will
continue to
depend on the Company's
ability to find suitable manufacturing partners and to maintain manufacturing
commitments as it has no
commercial scale manufacturing facilities of its own.
Cost of product sales as a percentage of product sales decreased to 47% in
1993 from
72% in 1992.
These margins reflect sales of AstaXin which was received at a reduced cost as
part of a
contract agreement.
Research, development and pilot plant expenses decreased 20% to $329,030
for the
current year. This
decrease reflects a decrease in repair and maintenance expenses as well as the
continuing
research and
development focus on a single product line. Research and development costs
will likely
increase gradually in
support of increased manufacturing efforts for AstaXin .
Marketing, general and administrative expenses decreased by approximately
$7,600 as
compared to 1992.
This decrease can be attributed primarily to reduced marketing and selling
expenses for
ClandoSan .
Marketing expenses related to the Company's AstaXin product could be expected
to
increase as production
and sale of AstaXin proceeds and will depend on marketing arrangements with
distributors of the product.
Capital expenditures of $9,969 in 1993 were offset by sale of equipment
which was no
longer needed in
the manufacturing process for AstaXin , resulting in a net cash increase of
approximately
$28,000. In
comparison, capital expenditure for 1992 was $1,898.
<PAGE>
Investment income for 1993 decreased by approximately $5,000, reflecting the
Company's lower average
cash balance. Interest expense for 1993 was approximately the same as the
prior year.
As a result of the foregoing the Company reported a net loss of $708,567, or
$.06 per
common share in
1993, compared to a net loss of $790,023, or $.07 per common share in 1992.
The
weighted number of common
shares outstanding increased to 12,769,011 in 1993 from 12,048,190 in 1992.
This
increase in shares in 1993 was
primarily due to the issuance of additional shares of common stock pursuant to
the
Company's License
Agreement with Burns Philp Food Inc. for production of AstaXin .
Financial Position
In December 1988, as part of an overall effort to contain costs and conserve
working
capital, 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 addition to
the liquidation preference or redemption value of the Preferred Stock. As of
December
31, 1994, total dividends
in arrears on the Company's Preferred Stock was $904,368, of which $154,368
($4.00 per
share) was included
in the carrying value of the redeemable Preferred Stock and $750,000 ($4.00 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 December 31, 1994 the Company had a working capital
deficit of
approximately
$646,000, and cash and cash equivalents of $19,529 consisting principally of
proceeds
from a Technology
Evaluation Agreement for AstaXin and promissory notes to certain directors of
the
Company.
Beginning in September of 1989, and continuing through 1994, the
Company
followed a plan designed
to reduce expenses and conserve working capital. This plan included the
reduction in
staff as well as reductions
in all areas of the Company's selling, research, general and administrative
expenses and
refocusing of research
and development activities solely on the Company's AstaXin product. These
budgeted
expenditures provided
for minimizing capital expenditures for the Company's pilot plant facility in
Columbia,
Maryland or for any new
manufacturing facilities.
Cash used by operations in 1993 and 1994 amounted to $523,551 and
$287,195,
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 the amount of cash required to
fund
1994 operations
through an increase in product sales, and through a Technology Evaluation
Agreement
for AstaXin , with the
Food Science Group of Pfizer, Inc, New York, NY, signed in March of 1994. That
agreement provided for cash
compensation of $250,000 over an exclusive evaluation period extended through
July 18,
1994. During the
evaluation period, the two companies conducted additional testing of the
product, its
manufacturing process and
market. The exclusive evaluation period has ended, and it appears unlikely
that Pfizer
will agree to a multi-year
commitment for manufacture and sale of AstaXin in the foreseeable future.
Consequently, the Company is
actively seeking other potential manufacturers for AstaXin .
Cash provided by (used in) investing activities amounted to $(5,973)
and
$28,331, respectively in 1994 and
1993. Capital expenditures decreased from $20,973 in 1993 to $9,969 in 1994,
reflecting
the continuation of plans
to minimize capital expenditures. IGENE believes its existing equipment is
substantially
sufficient to meet its
needs in continuing its research and development activities in the foreseeable
future.
Also, cash of $38,300 and
$15,000, respectively, was provided in 1993 and 1994 by the sale of unused
equipment.
<PAGE>
Following is a detail of the Company's financing activities for 1993 and
1994:
On March 25, 1993 the Company and Burns Philp Food Inc., San Francisco,
California signed a Letter
of Intent to enter into an exclusive technology license agreement for
manufacture and
sale of the Company's
AstaXin brand Phaffia yeast. Upon execution of the Letter of Intent, Burns
Philp
purchased 33,334 newly
issued shares of Common Stock at $.75 per share, for an aggregate consideration
of
$25,000.50. Upon execution
of a License Option Agreement on April 16, 1993, Burns Philp Food Inc.
purchased
166,666 newly issued shares
of common stock at $.75 per share for an aggregate consideration of
$124,999.50. On
July 13, 1993 Burns Philp
Food Inc. purchased 62,500 newly issued shares of common stock at $.48 per
share for
an aggregate
consideration of $30,000 pursuant to the Technology License Agreement. On
October 6,
1993 Burns Philp Food
Inc. informed the Company that it would not execute the License Agreement. As
part of
the settlement, Burns
Philp purchased 76,550 newly issued shares of common stock at $1.00 per share
for an
aggregate consideration
of $76,550, which was received in 1994.
On August 23, 1993, and November 19, 1993, the Company issued
Promissory
Notes to certain Directors
of the Company for an aggregate consideration of $239,300. The notes, dated
August
23, 1993, and November
19, 1993 specify that at any time prior to repayment the holder has the right
to convert
the Note to common
stock of the Company at $.48 per share and to receive a warrant for an
equivalent
number of common shares
at $.48 per share. On February 10, 1994, September 26, 1994, October 24, 1994
and
November 28, 1994, the
Company issued Promissory Notes to certain Directors of the Company for a total
aggregate consideration of
$170,250. These notes specify that anytime prior to repayment the holder may
convert
the Note to Common
Stock of the Company at $.375 per share for the Note issued February 10, 1994
and at
$.25 per share for all
other Notes, and to receive warrants for an equivalent number of common shares
at
$.375 per share for the Note
issued February 10, 1994 and at $.25 per share for all other Notes.
The Company is actively seeking and is in discussion with a potential
manufacturer of its AstaXin
technology. The Company believes this technology to be highly marketable and
that it is
likely that an income-
producing technology licensing agreement will be executed during 1995 for this
product.
To supplement this anticipated income from a technology licensing
agreement,
the Company will consider
issuing additional stock to officers and directors and encouraging holders of
outstanding
warrants to exercise
these rights. To increase its working capital position the Company will also
encourage
the holders of promissory
notes to convert them into common stock. To meet short-term cash needs the
Company
plans to issue additional
promissory notes to officers and directors in January and March of 1995.
In the long-term, the Company is also continuing its development of
additional
AstaXin technology
which it plans to license and market and which it hopes will benefit future
periods.
The Company does not believe that inflation has had a significant impact on
the
Company's operations
during the past three years.
Effective January 1, 1993, the Company adopted the provisions of FASB
Statement
No. 109 "Accounting
for income taxes".
ITEM 7. FINANCIAL STATEMENTS
The financial statements appear after Part IV of this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL
PERSONS, AND KEY
EMPLOYEES
The Company's directors are elected annually by the shareholders of the
Company. The
directors, executive
officers and key employees of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position with IGENE
<S> <C> <C>
Michael G. Kimelman 56 Chairman of the Board of Directors
Thomas L. Kempner 67 Vice Chairman of the Board of Directors
Stephen F. Hiu 38 Director, President, Secretary, Acting
Treasurer,
and Director of Research and Development
Patrick F. Monahan 44 Director, and Director of Manufacturing
Joseph C. Abeles 80 Director
John A. Cenerazzo 71 Director
Sidney R. Knafel 64 Director
Anthony Low-Beer 52 Director
R. Todd Lorenz 34 Senior Research Microbiologist
</TABLE>
MICHAEL G. KIMELMAN was elected a Director of the Company in February
1991 and Chairman of
the Board of Directors in March 1991. He is the Managing Partner of Kimelman
&
Baird, LLP. He is a
founder of Blue Chip Farms, a standardbred horse-breeding farm, and has been an
officer of the same since
its inception in 1968. Mr. Kimelman is currently a Director of the Harness
Horse
Breeders of New York State
and serves on the Board of the Hambletonian Society.
THOMAS L. KEMPNER is Vice Chairman of the Board of Directors and has been a
Director of the Company
since its inception in October 1981. He is and has been Chairman and Chief
Executive
Officer of Loeb Partners
Corporation, investment bankers, New York, and its predecessors since February
1978.
He is currently a
Director of Alcide Corporation, Arlen Development Corp., Energy Research Corp.,
Intermagnetics General
Corp., Northwest Airlines, Inc., Roper Worldwide, Inc., and Silent Radio, Inc.
STEPHEN F. HIU was appointed President and Treasurer in March 1991, Secretary
in
July 1990, and elected
a Director in August 1990. He has been Director of Research and Development
since
January 1989 and, prior
thereto, was Senior Scientist since December 1985, when he joined the Company.
He
was a post-doctoral
Research Associate at the Virginia Polytechnic Institute and State University,
Blacksburg,
Virginia, from January
1984 until December 1985. Dr. Hiu holds a Ph.D. degree in microbiology from
Oregon
State University and
a B.S. degree in biological sciences from the University of California, Irvine.
PATRICK F. MONAHAN was appointed Director of Manufacturing and elected a
Director of the Company in
April 1991 and has managed the Company's fermentation pilot plant since 1982.
Prior
thereto, he was a technical
specialist in the fermentation pilot plant of W.R. Grace and Co. from 1975 to
1982. He
received an Associate
in Arts degree in biology from Allegheny Community College and a B.S. degree in
biology with a minor in
Chemistry from Frostburg State College, Frostburg, Maryland.
<PAGE>
JOSEPH C. ABELES, private investor, was elected Director of the Company on
February 28, 1991. Mr. Abeles
serves as Director of Intermagnetics General Corporation, Patten Corporation,
Peridot
Holdings, Inc. and
Ultralife Batteries, Inc.
JOHN A. CENERAZZO was Chairman of the Board from November 1989 to April
1991. He served as
President of the Company from August 1988 through September 1989 and has been a
Director since September
1987. He is presently Chairman of the Executive Committee and Director of
National
Penn Bank Shares, Inc.
of Boyertown, Pennsylvania and a Director of National Penn Bank, a Director of
U.S.
Axle Corporation, and
a Chairman and a Director of InfoCore, Incorporated.
SIDNEY R. KNAFEL, a Director of the Company since 1982, has been Managing
Partner of SRK Management
Company, a private investment concern, New York, since 1981, Chairman of
Insight
Communications, Inc. since
1985, and of Microbiological Associates, Inc. since 1985. Mr. Knafel is also
currently a
Director of Cellular
Communications, Inc., Cellular Communications International, Inc., Cellular
Communications of Puerto Rico,
Inc., General American Investors Company, Inc., International CableTel Inc.,
four
Prudential mutual funds, and
other private companies.
ANTHONY B. LOW-BEER was elected a Director of the Company in February 1991.
He is President of Low-
Beer Advisory Services, Inc., a money management company, and has been an
officer of
the same since 1990.
Mr. Low-Beer has worked on Wall Street for more than twenty years as both an
analyst
and investor. He
received his M.A. and Ph.D. in Economics from Columbia University and his B.A.
from
Brown University.
R. TODD LORENZ joined the Company in October 1992 as Senior Research
Microbiologist. A specialist in
yeast physiology and molecular genetics, he was a post-doctoral research
associate at
North Carolina State
University from January 1990 until October 1992 and has served as a consultant
on strain
improvement and
fermentation for carotenoid production. Dr. Lorenz holds a Ph.D. degree in
Microbial
Physiology from North
Carolina State University and a B.S. degree in Microbiology from Oregon State
University.
Compliance with Section 16 (a) of the Exchange Act
Forms 3 and 4 were filed by the Company in a timely manner in accordance
with
Section 16 (a) of the
Securities Act of 1934.
ITEM 10. EXECUTIVE COMPENSATION
During 1994, Michael G. Kimelman, Chairman of the Company's Board of
Directors
served as Chief
Executive Officer. Mr. Kimelman received no cash compensation for his
services.
During 1994, no executive
officer's annual cash compensation exceeded $100,000.
Other than the 1986 Stock Option Plan described below, the Company has no
profit
sharing, incentive
compensation or retirement plans.
Stock Option Plan
The 1986 Stock Option Plan (the "Plan"), which was approved by the
stockholders on
May 5, 1987 and
amended on June 12, 1989 and August 8, 1990, provides for the issuance of
options to
acquire up to 978,850
shares of Common Stock of the Company. On March 17, 1994, the Directors of the
Company approved a
resolution to increase from 978,850 to 1,200,000 the number of shares issuable
pursuant
to options granted under
the Plan and that an amendment to the 1986 Stock Option Plan reflecting the
increase in
such number of shares
was submitted to the stockholders and approved at the Company's 1994 Annual
Meeting.
The Plan is administered by a committee appointed by the Company's Board of
Directors (the
"Committee"). The Board of Directors may administer the Plan itself in the
absence of
an appointed Committee,
or by vote of a majority of the members of the Board of Directors if a
Committee is not
in existence.
<PAGE>
The purpose of the Plan is to promote the long-term success of the Company
by
providing an incentive
to directors and employees providing services to the Company and by encouraging
such
individuals to acquire
a proprietary interest in the Company. Any employee, officer or director of
the
Company who is determined
by the Committee to be a "Key Employee" is eligible to receive options under
the Plan.
The term of each option
granted under the Plan will be for such period as the Committee may determine,
but in
no event to exceed 10
years from the grant of such option. With respect to options granted, the
option price
may be greater than, less
than or equal to, the fair market value of the Company's Common Stock at the
time the
option is granted, as
determined in the discretion of the Committee. The Company may, in conjunction
with
the grant of options
under the Plan, grant bonuses to optionees to assist them in the payment of
income tax
liabilities incurred upon
the exercise of options, and may make or guarantee loans to optionees to
assist them in
the exercise of options.
No option can be granted by the Committee under the Plan on or after January
22, 1997.
The Committee may
modify, extend or renew outstanding options granted under the Plan, or accept
the
surrender of outstanding
options, to the extent not previously exercised.
Options are exercisable in annual installments, in such manner as the
Committee may
determine. Options
may be exercised by payment in full of the option price in cash, by tender of
shares of
the Company's Common
Stock having a total fair market value on the date of exercise equal to the
option price
(subject to certain
limitations) or in such other consideration as may be approved by the
Committee. The
Committee has the
power to condition the exercise of any option granted under the Plan on the
continued
employment by the
Company of the Key Employee at the time of exercise or on the attainment of
specified
performance goals by
the Key Employee or by the Company.
In the event of a reclassification, recapitalization, stock exchange, stock
split, stock
dividend or other
similar event affecting the Company's Common Stock, the number and class of
shares
under previously granted
options and the option price payable upon exercise of such options will be
appropriately
adjusted by the
Committee to reflect the change in such manner as the Committee may determine.
In
the event of a proposed
merger, consolidation, share exchange or similar transaction to which the
Company
would be a party, or in the
case of a tender offer for the Company's stock, the Committee or the Board of
Directors
may take such action
as may be appropriate to protect the holders of options and to effectuate the
purposes of
the Plan.
The Board of Directors may terminate, suspend or amend the Plan at any time,
without the approval of
the Company's stockholders. Stockholders' approval is required to amend the
Plan to (i)
increase the aggregate
number of shares subject thereto, (ii) change the provisions for establishing
the option
price, (iii) permit options
to be exercisable after the period ending on the tenth anniversary date of the
grant of
the option, (iv) extend
the term of the Plan, (v) materially modify the requirements as to eligibility
for
participation in the Plan or (vi)
materially increase the benefits accruing to participants under the Plan.
In 1989 the Company took action to replace outstanding options for the
purchase of
64,000 shares at
$5.40 per share with options to purchase 64,000 shares at $1.00 per share (but
otherwise
having the same terms
as the options replaced).
Currently, there are a total of (8) persons eligible to participate in the
Plan.
Options to acquire 1,059,750 shares of Common Stock of the Company have been
issued and 952,750
shares of Common Stock are outstanding under the Plan. Options for 107,000
shares of
common stock were
exercised in fiscal 1993. No options were exercised in fiscal 1994.
The following table sets forth information as to all incentive and
non-statutory stock
options that have
been granted to the executive officers of the Company. No options were
exercised by
any officer during 1994.
The following table provides information regarding the number of shares covered
by
both exercisable and
unexercisable stock options for executive officers as of December 31, 1994 and
the values
of "in-the-money"
options as of that date. An option is "in-the-money" if the per share fair
market value of
the underlying stock
exceeds the option exercise price per share.
<PAGE>
<TABLE>
Aggregate Fiscal Year End Option Values
<CAPTION>
Number of
Dollar Value of
Number Unexercised Options
In-the-Money
Options
of Shares Dollar At End of Fiscal Year
At End of Fiscal
Year<F1>
Acquired on Value
Name Exercise Realized Exercisable/Unexercisable
Exercisable/Unexercisable
<S> <C> <C> <C> <C>
Stephen F. Hiu ---- ---- 265,000/190,000
$8,640/$2,160
Patrick F. Monahan ---- ---- 194,500/148,000
$5,184/$1,296
<F1> The value of unexercised in-the-money options at December 31, 1994 is
based
on the difference
between $.172 per share and the per share option exercise price, multiplied
by the
number of shares of
common stock underlying such option.
</TABLE>
Compensation of Directors
During 1994, Directors were not compensated for their Board or Committee
activities.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information as of March 1, 1995 with respect
to
beneficial ownership of
shares of the Company's outstanding Common Stock and Preferred Stock by (i)
each
person known to the
Company to own more than five percent of its Common Stock or Preferred Stock,
(ii)
each Director, and (iii)
all Directors and Officers as a group.
<TABLE>
<CAPTION>
Common Stock Preferred
Stock
Number of Number of
Name and Address Shares Percent Shares
Percent
<S> <C> <C> <C> <C>
Joseph C. Abeles 1,540,178<F1> 8.6 % ---
---
c/o Abel Associates
220 E. 42nd Street
New York, NY 10017
John A. Cenerazzo 198,468<F2> 1.1 % --- ---
Stokesay Castle Lane
Reading, PA 19606
Stephen F. Hiu 325,500<F3> 1.8 % --- ---
9110 Red Branch Road
Columbia, MD 21045
Thomas L. Kempner 1,780,359<F4> 10.0 % --- ---
c/o Loeb Partners
Corporation
61 Broadway
New York, NY 10006
Michael G. Kimelman 795,738<F5> 4.4 % --- ---
c/o Kimelman & Baird, LLC
100 Park Avenue
Suite 1105
New York, NY 10017
Sidney R. Knafel 1,487,972<F6> 8.3 % --- ---
c/o SRK Management
126 East 56th Street
New York, NY 10022
Anthony B. Low-Beer 967,078<F7> 5.4 % --- ---
c/o Kimelman & Baird, LLC
100 Park Avenue
Suite 1105
New York, NY 10017
Patrick F. Monahan 246,500<F8> 1.4 % --- ---
9110 Red Branch Road
Columbia, MD 21045
All Directors and Officers 7,341,793<F9> 41.0 % ---
---
as a Group (8 persons)
Dow Chemical Company 535,002<F10> 3.0 % 187,500 100.0 %
2030 Willard H. Dow Center
Midland, MI 48674
All Shareholders 17,920,046 100.0 % 187,500 100.0 %
</TABLE>
<PAGE>
<F1> Includes the following: 680,000 shares and warrants for 80,000 shares
held by
Mr. Abeles, 345,214
shares and warrants for an additional 345,214 shares subject to the
conversion of
$105,508 of
promissory notes held by Mr. Abeles, 2,250 shares subject to the
redemption of
1,125 shares of
redeemable preferred stock held by Mr. Abeles, 75,000 shares held by a
trust for
which Mr.
Abeles is the trustee, and 12,500 shares subject to the redemption of
6,250 shares
of redeemable
preferred stock owned by Mr. Abeles' wife. Mr. Abeles disclaims
beneficial
ownership of the
shares held in a trust for which he is the trustee and the shares held
by his
wife.
<F2> Includes 100,000 shares held by Mr. Cenerazzo and 32,750 shares which
are
subject to options
currently exercisable or exercisable within 60 days. Also includes
32,859 shares
and warrants for
an additional 32,859 shares subject to the conversion of $13,949 of
promissory
notes held by Mr.
Cenerazzo.
<F3> Includes 500 shares held by Dr. Hiu and 325,000 shares which are
subject to
options currently
exercisable or exercisable within 60 days.
<F4> Includes 174,012 shares held by Mr. Kempner; 94,000 shares and warrants
for
54,000 shares held
by a trust under which Mr. Kempner is one of two trustees and the sole
beneficiary; 165,901
shares held by a trust under which Mr. Kempner is one of two trustees
and a
one-third
beneficiary; 182,526 shares held by his wife; and 257,880 shares and
warrants for
54,000 shares
held by a trust under which Mr. Kempner is one of two trustees with his
brothers
as beneficiaries.
Also includes 399,020 shares and warrants for an additional 399,020
shares subject
to the
conversion of $121,738 of promissory notes held by Mr. Kempner. Mr.
Kempner
has disclaimed
beneficial ownership of all but 174,012 shares held in his name; 94,000
shares and
warrants for
54,000 shares held by a trust under which he is the sole beneficiary,
55,300 of the
shares held by
a trust of which he is a one-third beneficiary, and 399,020 shares and
warrants for
an additional
399,020 shares subject to the conversion of promissory notes held by
Mr.
Kempner.
<F5> Includes 180,000 shares and warrants for 252,400 shares held by
Kimelman &
Baird, LLC, of
which Mr. Kimelman disclaims all but his partnership interest in
Kimelman &
Baird, LLC. Also
includes 181,669 shares and warrants for an additional 181,669 shares
subject to
the conversion
of $55,408 of promissory notes held by Mr. Kimelman.
<F6> Includes 370,929 shares and warrants for 36,029 shares held by Mr.
Knafel and
370,771 shares and
warrants for 35,971 shares held in trust for the benefit of Mr.
Knafel's sons. Also
includes
337,136 shares and warrants for an additional 337,136 shares subject to
the
conversion of $102,817
of promissory notes held by Mr. Knafel.
<F7> Includes 681,500 shares held by Mr. Low-Beer; 141,789 shares and
warrants for
an additional
141,789 shares subject to the conversion of $66,880 of promissory notes
held by
Mr. Low-Beer;
and 2,000 shares held by trusts under which Mr. Low-Beer is the trustee
and his
children are
beneficiaries.
<F8> Includes 2,000 shares held by Mr. Monahan and 244,500 shares which are
subject to options
currently exercisable or exercisable within 60 days.
<F9> Includes 602,250 shares of common stock which are subject to options
currently
exercisable or
exercisable within 60 days; unexpired warrants to purchase 512,400
shares of
common stock;
14,750 shares of common stock subject to the redemption of 7,375 shares
of
redeemable preferred
stock; and 1,437,687 shares of common stock and warrants to purchase an
additional 1,437,687
shares of common stock subject to the conversion of $466,300 of
promissory notes
held by
Directors of the Company. Preferred stock does not include 7,375
shares held or
beneficially
owned by a Director, which are subject to redemption at the rate of two
shares of
common stock
for each preferred share, and have therefore been included in shares of
common
stock
beneficially owned by Directors at their equivalent value of 14,750
shares of
common stock. The
redeemable preferred shares carry voting rights prior to their
redemption at two
votes per
share.
<PAGE>
<F10> Includes 160,002 shares of common stock which represent shares issued
in lieu
of interest on the
$1,500,000 debenture held by Dow, and 375,000 shares of common stock
subject to
the conversion
of the $1,500,000 debenture. The debenture carries no voting rights
prior to its
conversion. Dow
has waived certain redemption rights as to the 187,500 shares of
preferred stock
which it holds
and which are not redeemable at the shareholder's option. These
limited
redemption preferred
shares carry no voting rights prior to redemption.
<F11> For the purposes of this table, total outstanding shares of common
stock
includes shares which
are subject to rights of acquisition within sixty days as follows:
630,850 shares of
common stock
which are subject to options currently exercisable or exercisable
within 60 days;
933,067 shares
of common stock which are subject to warrants which are currently
exercisable;
1,437,687 shares
and warrants to purchase an additional 1,437,687 shares of common stock
which
are subject to
the conversion of $466,300 of promissory notes held by Directors;
375,000 shares
of common stock
which are subject to the conversion of the $1,500,000 debenture held by
Dow; and
76,684 shares
of common stock which are subject to the redemption of 38,342 shares of
redeemable preferred
stock outstanding, and which shares have not been included in total
outstanding
preferred stock
for the purposes of this table.
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective June 4, 1990, the Company accepted subscriptions in a private
placement to
purchase 4,500,000
newly issued shares of Common Stock from Kimelman & Baird, LLC and Messrs.
Abeles, Cenerazzo, Kempner
and Knafel, all of whom are Directors of the Company. The shares were issued
at a
price of $.10 per share,
for an aggregate consideration of $450,000.
Effective February 15, 1991, the Company accepted subscriptions in a private
placement to purchase
4,596,000 newly issued shares of Common Stock from accredited investors,
certain of
whom were Directors of
the Company. The shares were issued at a price of $.25 per share for an
aggregate
consideration of $1,149,000.
The Company engaged the investment banking firm of Kimelman & Baird, LLC
("Firm")
to act as placement
agent for the offering. Michael G. Kimelman, a general partner, and Anthony B.
Low-Beer, an employee of the
Firm, primarily directed placement efforts. The Company agreed to pay the
Firm, an
unrelated employee of
the Firm and Anthony B. Low-Beer an aggregate placement fee in the form of a
Warrant to purchase 800,000
shares of Common Stock at an exercise price of $.25 per share exercisable over
a period
of four years ending
February 14, 1995. Messrs. Kimelman and Low-Beer also serve as members of the
Board of Directors of the
Company.
The shares were issued by the Company in both the June 4, 1990 and February
15,
1991 offerings in order
to provide the Company with working capital funds for fiscal year 1991.
Effective June 26, 1992 the Company accepted subscriptions in a private
placement to purchase 680,667
newly issued shares of Common Stock from accredited investors, certain of whom
were
Directors of the
Company. The shares and warrants for an additional 680,667 shares were issued
at a
price of $.75 per share
for an aggregate consideration of $510,500. Kimelman & Baird, LLC acted as
placement
agent for the offering
and received an aggregate placement fee in the form of a Warrant to purchase
252,400
shares of Common Stock
at $.75 per share exercisable over a period of four years until June 26, 1996.
The shares
issued by the Company
in this offering were to provide the Company with working capital funds through
the first
quarter 1993.
On August 23, 1993 and on or about November 19, 1993, the Company issued
Promissory Notes to
certain directors of the Company (Kimelman, Kempner, Abeles, Cenerazzo, Knafel
and
Low-Beer) for an
aggregate consideration of $108,250 and $131,050, respectively. 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 note may be
converted to common shares of the Company at $.48 per share and the Company
will
provide a warrant to
purchase a like number of shares at $.48 per share.
On February 10, 1994, the Company issued Promissory Notes to certain
directors of
the Company
(Kimelman, Kempner, Abeles, Cenerazzo, Knafel and Low-Beer) for an aggregate
consideration of $22,000. 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 $.375 per share. In
the event of any such conversion, warrants to purchase a like number of common
shares
at a price of $.375 per
share shall be issued, which warrant may be exercised by the holder at any time
subsequent to delivery.
On September 26, 1994, October 24, 1994, and November 28, 1994, the Company
issued Promissory Notes
to certain directors of the Company (Kimelman, Kempner, Abeles, Cenerazzo, and
Knafel) for an aggregate
consideration of $50,000, $50,000, and $48,250, respectively. 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 $.25 per share and the Company will provide
warrants to purchase a like
number of common shares at a price of $.25 per share.
<PAGE>
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS
ON FORM 8-K
A.1. The following financial statements relating to 1993 and 1994 are filed
as a part of
this Report:
Independent Auditors' Report.
Balance Sheets as of December 31, 1993 and December 31, 1994.
Statements of Operations for the years ended December 31, 1993 and
December 31, 1994.
Statements of Stockholders' Deficit for the years ended December
31, 1993 and
December 31, 1994.
Statements of Cash Flows for the years ended December 31, 1993 and
December 31, 1994.
Notes to Financial Statements.
A.1.a. The following financial statement schedules relating to 1993 and
1994 are filed
as a part of this
Report:
Schedule V. Property, Plant and Equipment.
Schedule VI. Accumulated Depreciation and Amortization of
Property, Plant
and
Equipment.
Schedule X. Supplementary Income Statement Information.
A.2. Exhibits filed herewith or incorporated by reference herein are set
forth in the
following table
prepared in accordance with Item 601 of Regulation S-K.
3.1 Articles of Incorporation of the Registrant, constituting
Exhibit 3.1 to
Registration
Statement No. 33-5441 on Form S-1, and Amendment, constituting
Exhibit
3.1 to
Registration Statement No. 33-23266, are hereby incorporated
herein by
reference.
3.2 Articles Supplementary of the Registrant filed September 28,
1987 and
October 26,
1987 constituting Exhibit 3.2 to Registration Statement No.
33-18179 are
hereby
incorporated herein by reference.
3.3 By-Laws, constituting Exhibit 3.2 to the Registrant's
Registration Statement
No. 33-
5441 on Form S-1, are hereby incorporated herein by reference.
4.1 Form of Underwriter's Warrant, constituting Exhibit 4 to
Registration
Statement
No. 33-5441 on Form S-1, is hereby incorporated herein by
reference.
4.2 Form of Preferred Stock Certificate constituting Exhibit 4.2 to
Registration
Statement No. 33-18179 is hereby incorporated herein by
reference.
4.3 Form of Warrant Certificate and Warrant Agreement dated as of
May 31,
1988
between the Registrant and Manufacturers Hanover Trust Company,
constituting
Exhibit 4.3 to Registration Statement No. 33-5441 on Form S-1,
is hereby
incorporated herein by reference.
<PAGE>
4.4 Form of Variable Rate Convertible Subordinated Debenture Due
2002
(Class A),
constituting Exhibit 4.4 to Registration Statement No. 33-5441
on Form S-1,
is
hereby incorporated herein by reference.
10.1 Agreement, effective as of September 16, 1985, between IGI
Biotechnology,
Inc. and
Hercules Incorporated constituting Exhibit 10.9 to the
Registration
Statement No. 33-5441
on Form S-1 is hereby incorporated herein by reference.
10.2 1986 Stock Option Plan of IGENE Biotechnology, Inc.
constituting Exhibit
(10)(15) to the
Registrant's Report on Form 10-K for the year ended December
31, 1986 is
hereby
incorporated herein by reference.
10.3 Letter Agreement dated October 15, 1987 between Hercules
Specialty
Chemicals
Company and the Registrant constituting Exhibit 10.17 to the
Registrant
Statement No.
18179 on Form S-1 is hereby incorporated herein by reference.
10.4 Form of Conversion and Exchange Agreement used in May 1988 in
connection with the
conversion and exchange by certain holders of shares of
Preferred Stock for
Common
Stock and Warrants, constituting Exhibit 10.19 to Registration
Statement No.
33-5441 on
Form S-1, is hereby incorporated herein by reference.
10.5 Exchange Agreement made as of July 1, 1988 between the
Registrant and
Essex Industrial
Chemicals, Inc. with respect to the exchange of 187,500 shares
of Preferred
Stock for a
Debenture, constituting Exhibit 10.21 to Registration Statement
No. 33-5441
on Form S-1,
is hereby incorporated herein by reference.
10.6 Preferred Stockholders' Waiver Agreement dated May 5, 1988,
incorporated
by reference
to the identically numbered exhibit in Form S-1 Registration
Statement No.
33-23266.
10.7 Form of Agreement between the Registrant and Certain Investors
in
Preferred Stock
dated September 30, 1987, incorporated by reference to the
identically
numbered exhibit
in Amendment No. 1 to Form S-1 Registration Statement No.
33-23266.
10.8 Agreement of Lease effected February 1, 1991 between Columbia
Warehouse Limited
Partnership and IGENE Biotechnology, Inc. constituting exhibit
10.8 to the
registrant's
report on Form 10-K for the year ended December 31, 1991 is
hereby
incorporated herein
by reference.
10.9 Letter of Intent as of March 26, 1993, between Burns Philp Food
Inc. and
IGENE
Biotechnology, Inc. constituting Exhibit 10.9 to the
Registrant's Report on
Form 10-KSB
for the year ended December 31, 1992 is hereby incorporated
herein by
reference.
10.10 Technology Evaluation Agreement as of March 4, 1994 between the
Food
Science Group
of Pfizer Inc and IGENE Biotechnology, Inc. constituting
Exhibit 10.10 to
the Registrant's
Report on Form 10-KSB for the year ended December 31, 1993 is
hereby
incorporated
herein by reference.
(b) No reports on Form 8-K were filed during the Fourth Quarter of 1994.
<PAGE>
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
FOR PERIOD ENDING DECEMBER 31, 1994
Board of Directors
IGENE Biotechnology, Inc.
Columbia, MD
We have audited the financial statements of IGENE Biotechnology, Inc. as listed
in
response to A.1. of Item
13. In connection with our audits of the financial statements, we also have
audited the
financial statement
schedules as listed in response to A.1a. of Item 13. These financial
statements and
financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an
opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards.
Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the
financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence
supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the
accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial
statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material
respects, the financial
position of IGENE Biotechnology, Inc. as of December 31, 1994 and 1993, and the
results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting
principles. Also in our
opinion, the related financial statement schedules, when considered in relation
to the
basic financial statements
taken as a whole, present fairly, in all material respects, the information set
forth therein.
The accompanying financial statements and financial statement schedules have
been
prepared assuming that
IGENE Biotechnology, Inc. will continue as a going concern. As discussed in
note 14 to
the financial
statements, the Company's recurring losses and limited capitalization raise
substantial
doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to
these matters are described
in note 14. The financial statements and financial statement schedules do not
include
any adjustments relating
to the recoverability and classification of reported asset amounts or the
amounts and
classification of liabilities
that might result from the outcome of this uncertainty.
BERENSON & COMPANY LLP
New York, NY
February 15, 1995, except for note 16
for which the date is March 7, 1995
</AUDIT-REPORT>
<PAGE>
<TABLE>
IGENE Biotechnology, Inc.
Statement of Operations Data
<CAPTION>
Years Ended
December 31,
1990 1991 1992
1993 1994
<S> <C> <C> <C> <C> <C>
Sales $ 94,275 $ 173,383 $ 165,060 $
68,516 $
113,166
Total Revenues$ 105,360 $ 200,215 $ 170,654 $
69,089 $
363,349
Cost of Sales $ 98,521 $ 100,810 $ 118,652 $
32,137 $
36,945
Research, Development
and Pilot Plant Expenses $ 370,535 $ 460,372 $
409,645 $
329,030 $ 391,912
Other Expenses $ 657,884 $ 526,802 $ 432,380 $
416,489 $
474,752
Net Loss $(1,021,580) $ (887,769) $ (790,023) $
(708,567) $
(540,260)
Net Loss Per Common Share<F1> $ ( .24) $ (.08) $
(.07) $
(.06) $ (.04)
Coverage Deficiency
of Fixed Charges<F2> $ 1,178,959 $ 1,042,528 $ 934,722 $
853,266 $
684,959
</TABLE>
<TABLE>
IGENE Biotechnology, Inc.
Balance Sheet Data
<CAPTION>
As of December
31,
1990 1991 1992
1993 1994
<S> <C> <C> <C> <C> <C>
Cash and Cash Equivalents $ 9,682 $ 276,663 $
128,118 $
65,897 $ 19,529
Working Capital (Deficit) $ ( 151,025) $ 83,126 $
(26,918) $
(286,881) $ (645,815)
Total Assets $ 148,452 $ 535,939 $ 315,834 $
258,417 $
77,556
Long-term Debt $ 1,500,000 $ 1,500,000 $ 1,500,000 $
1,500,000 $
1,500,000
Total Liabilities $ 1,702,870 $ 1,741,600 $ 1,677,272 $
1,938,173 $
2,177,572
Redeemable Preferred Stock $ 534,229 $ 518,788 $
413,706 $
438,405 $ 463,104
Stockholders' Deficit $(2,088,647) $(1,724,449)
$(1,775,144) $
(2,118,161) $ (2,563,119)
Common Shares Outstanding 7,056,518 11,716,102
12,475,853
12,975,237 13,028,571
Preferred Shares Outstanding 244,092 238,967
226,092
226,092 226,092
</TABLE>
[FN]
<F1> Net Loss per common share for the year ended December 31, 1990 is based
on
4,836,844 shares. Net loss per common share for each
of the years in the four-year period ended December 31, 1994 is based on
11,052,647,
12,084,190, 12,769,011, and 13,002,050 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.
<F2> Earnings are not adequate to cover fixed charges. The "coverage
deficiency of
fixed charges" for each year is equal to the net
loss for the year plus dividends on preferred stock.
[/FN]<PAGE>
<TABLE>
IGENE Biotechnology, Inc.
Balance Sheets
<CAPTION>
December 31
1993 1994
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................................
$ 65,897 $ 19,529
Accounts receivable (no allowance for doubtful accounts)...................
8,012
10,790
Due from stockholder (note 3)..............................................
76,550 ---
Prepaid expenses ..........................................................
833 1,438
Total current assets ...........................................
151,292 31,757
Property and equipment, net (note 4)..........................................
96,525 35,199
Security deposits ............................................................
10,600 10,600
$ 258,417
$ 77,556
<CAPTION>
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS'
DEFICIT
<S> <C> <C>
Current liabilities:
Accounts payable and other accrued expenses (note 5).......................
$
168,873 $ 238,022
Debenture interest payable (note 6)........................................
30,000 30,000
Promissory Notes payable (note 7)..........................................
239,300 409,550
Total current liabilities.......................................
438,173 677,572
Long term liabilities:
Variable rate subordinated debenture (note 6)..............................
1,500,000
1,500,000
Total liabilities...............................................
1,938,173 2,177,572
Commitments and contingency (notes 11 and 12)
Carrying amount of redeemable preferred stock -- 8% cumulative, convertible,
voting, Series A, $.01 par value per share. Stated value $11.36 per share
in 1993 and $12.00 per share in 1994. Authorized 920,000 shares; issued
38,592 shares in 1993 and 38,592 shares in 1994 (notes 6, 8 and 9).........
438,405
463,104
Redemption amount $438,405 in 1993 and $463,104 in 1994.
Stockholders' deficit (notes 8 and 9):
Preferred stock -- $.01 par value per share. 8% cumulative, convertible.
voting, Series A. Authorized and issued 187,500 shares
(aggregate involuntary liquidation value of $2,130,000
in 1993 and $2,250,000 in 1994)........................................
1,875 1,875
Common stock -- $.01 par value per share. Authorized 35,000,000 shares;
issued 12,975,237 shares in 1993 and 13,028,571 shares in 1994.........
129,752
130,285
Additional paid-in capital.................................................
17,019,056
17,113,824
Deficit....................................................................
(19,268,844) (19,809,104)
Total stockholders' deficit ....................................
(2,118,161) ( 2,563,120)
$ 258,417 $ 77,556
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
IGENE Biotechnology, Inc.
Statements of Operations
<CAPTION>
Years ended
December 31,
1993 1994
<S> <C> <C>
Sales .................................................................. $
68,516 $ 113,166
Cost of sales ..........................................................
32,137 36,945
36,379 76,221
Selling, general and administrative expenses:
Marketing and selling ................................................
6,777 4,691
Research, development and pilot plant ................................
329,030 391,912
General and administrative ...........................................
295,618 314,671
(631,425) (711,274)
(595,046) (635,053)
Other income (expenses):
Investment income ....................................................
573 183
Joint Venture income (note 15) .......................................
--- 250,000
Other income (loss) ..................................................
10,058 (14,870)
Interest expense .....................................................
(124,152) (140,520)
Net loss ................................................................
(708,567) (540,260)
Deficit at beginning of year ............................................
(18,560,277) (19,268,844)
Deficit at end of year ..................................................
($19,268,844) ($19,809,104)
Net loss per common share (note 10) .....................................
($.06) ($.04)
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
IGENE Biotechnology, Inc.
Statements of Stockholders' Deficit
<CAPTION>
Redeemable
Preferred Stock Preferred Stock
Common Stock
(Shares/Amount) (Shares/Amount)
(Shares/Amount)
<S> <C> <C>
<C>
Balance at December 31, 1992....................... 38,592/$413,706
187,500/$1,875
12,475,853/$124,759
Sale of 339,050 shares of common stock pursuant
to License Agreement............................. --- ---
339,050/3,390
Issuance of 53,334 shares of common stock as
payment of interest on variable rate
subordinate debenture (note 6)................... --- ---
53,334/533
Issuance of 107,000 shares of common stock
pursuant to exercised employee stock options..... --- ---
107,000/1,070
Cumulative undeclared dividends on redeemable
preferred stock.................................. 24,699
- --- ---
Net loss for 1993 ................................. ---
--- ---
Balance at December 31, 1993....................... 38,592/$438,405
187,500/$1,875
12,975,237/$129,752
Issuance of 53,334 shares of common stock as
payment of interest on variable rate
subordinate debenture (note 6)................... --- ---
53,334/533
Cumulative undeclared dividends on redeemable
preferred stock.................................. 24,699
--- ---
Net loss for 1994 ................................. ---
--- ---
Balance at December 31, 1994 ...................... 38,592/$463,104
187,500/$1,875
13,028,571/$130,285
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
IGENE Biotechnology, Inc.
Statements of Stockholders' Deficit
(Continued)
<CAPTION>
Additional
Total
Stockholder's
Paid-In Capital Deficit
Deficit
<S> <C> <C>
<C>
Balance at December 31, 1992 ...................... $16,658,499
$(18,560,277)
$(1,775,144)
Sale of 339,050 shares of common stock pursuant
to License Agreement............................. 253,160
- ---
256,550
Issuance of 53,334 shares of common stock as
payment of interest on variable rate
subordinate debenture (note 6)................... 119,467
- ---
120,000
Issuance of 107,000 shares of common stock
pursuant to exercised employee stock options..... 12,629
- ---
13,699
Cumulative undeclared dividends on redeemable
preferred stock.................................. (24,699)
- --- (24,699)
Net loss for 1993 ................................. ---
(708,567)
(708,567)
Balance at December 31, 1993....................... $17,019,056
$(19,268,844)
$(2,118,161)
Issuance of 53,334 shares of common stock as
payment of interest on variable rate
subordinate debenture (note 6)................... 119,467
- ---
120,000
Cumulative undeclared dividends on redeemable
preferred stock.................................. (24,699)
--- (24,699)
Net loss for 1994 ................................. ---
(540,260)
(540,260)
Balance at December 31, 1994 ...................... $17,113,824
$(19,809,104)
$(2,563,120)
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
IGENE Biotechnology, Inc.
Statements of Cash Flows
<CAPTION>
Years ended
December 31,
1993 1994
<S> <C> <C>
Cash flows from operating activities
Net loss..............................................................
($708,567)($540,260)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.....................................
39,753 22,429
Loss (gain) on sale of assets ....................................
(9,729) 14,870
Interest on debenture paid in shares of
common stock..................................................
120,000 120,000
Changes in assets and liabilities:
Increase (decrease) in accrued payroll........................
(5,976) ---
Increase (decrease) in accounts payable and
other accrued expenses.....................................
27,577 99,149
Decrease (increase) in accounts receivable....................
5,695 (2,778)
Decrease (increase) in prepaid expenses and
deposits...................................................
4,509 (605)
Decrease (increase) in inventories............................
3,187 ---
Net cash used in operating activities.................................
(523,551)
(287,195)
Cash flows from investing activities:
Capital expenditures..................................................
(9,969)
(20,973)
Sale of equipment.....................................................
38,300 15,000
Net cash provided by (used in) investing activities ..................
28,331
(5,973)
Cash flows from financing activities:
Proceeds from issuance of common stock................................
193,699 76,550
Issuance of promissory notes..........................................
239,300 170,250
Net cash provided by financing activities.............................
432,999
246,800
Net decrease in cash and cash equivalents ...............................
(62,221) (46,368)
Cash and cash equivalents at beginning of year...........................
128,118
65,897
Cash and cash equivalents at end of year.................................
$ 65,897 $
19,529
Supplementary disclosure - cash paid for interest........................
$ 863 $
236
</TABLE>
[FN]
Noncash investing and financing activities:
During 1993, the Company issued common stock for $76,550 to Burns Philp Food
Inc.
in return for a receivable, which was
repaid in 1994. (See also notes 3 and 9)
During 1994 the Company sold equipment for $30,000, which was remitted by the
buyer
directly to another company in
payment of outstanding amounts due for services performed for the Company.
(See also
note 4)
During 1993 and 1994, the Company issued 53,334 shares of common stock in each
year
in payment of interest on the
variable rate subordinated debenture. If paid in cash, the interest would have
been
payable at 8% during 1993 and 1994,
or $120,000 per year. Shares may be issued in lieu of cash under the debenture
agreement at the higher of $2.25 per share
or market price per share. The stock was issued and related interest expense
for 1993
and 1994 were recorded at $2.25 per
share, or $120,000 in each year. (See also note 6)
During 1993 and 1994 the Company recorded dividends in arrears on 8%
redeemable
preferred stock at $.64 per share
aggregating $24,699 in each year which has been removed from paid-in capital
and
included in the carrying value of the
redeemable preferred stock. (See also note 8)
<PAGE>
IGENE Biotechnology, Inc.
Notes to Financial Statements
(1) History of the Company
The Company was incorporated under the laws of the State of Maryland on
October
27, 1981 as "Industrial
Genetics, Inc." The Company changed its name to "IGI Biotechnology, Inc." on
August
17, 1983 and to "IGENE
Biotechnology, Inc." on April 14, 1986.
(2) Summary of Significant Accounting Policies
Cash and cash equivalents
For purposes of the financial statements, cash equivalents have been
combined with
cash. The Company
considers cash equivalents to be short-term, highly liquid investments that
have
maturities of less than three
months. These include interest bearing money market accounts and certificates
of
deposit.
Research and development costs
For financial reporting purposes, research, development and pilot plant
scale-up
costs are charged to expense
when incurred.
Depreciation
Depreciation of property and equipment is provided under the
straight-line method
over the lives of the
respective assets.
Sales returns
The Company records sales returns in the period in which the product is
returned,
rather than estimating
future returns of current sales, since they are expected to be immaterial in
amount.
Interest on Variable Rate Subordinated Debenture
The Company records interest on its variable rate subordinated debenture
(see also
note 6) at a level rate
of 8%; rather than at the fair-market value of shares which have been issued in
lieu of
cash payments of interest.
This is an estimated average rate based on the Company's plan to continue (as
it has
since October 1, 1989) to pay
interest on the debenture by issuing shares of common stock at the higher of
$2.25 per
share or the current market
value of the Company's shares, as allowed under the terms of the debenture. If
the
market value of the Company's
stock remains below $2.25 per share (during the period from October 1989
through
December 1994 its highest price
was $1.25) the Company can continue to issue stock in lieu of cash payments at
$2.25 per
share.
(3) Due From Stockholder
During October 1993, the Company issued shares of Common Stock to Burns
Philp
Food Inc. at $1.00 per share
for an aggregate consideration of $76,550. Payment was received in 1994. (See
also
note 9)
(4) Property and Equipment
Property and equipment are stated at cost and are summarized as follows:
<TABLE>
<CAPTION>
December 31,
1993
1994
<S> <C> <C> <C>
Laboratory equipment and fixtures........... $ 71,092 $
85,092
Pilot plant equipment and fixtures........ 56,862
56,862
Machinery and equipment................... 197,315
99,313
Office furniture and fixtures............. 42,864
42,864
368,133
284,131
Less accumulated depreciation ............ 271,608
248,932
$ 96,525 $
35,199
</TABLE>
During 1994 certain machinery and equipment was sold for $30,000 whereby
payment was remitted directly to
a company who performed services for IGENE.
<PAGE>
IGENE Biotechnology, Inc.
Notes to Financial Statements
(continued)
(5) Accounts Payable and Other Accrued Expenses
Accounts payable and other accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
1993
1994
<S> <C> <C>
Accounts payable ......................... $ 152,584 $
201,448
Audit fees................................ 13,000
13,000
Accrued interest, promissory Notes ....... 3,289
23,574
$ 168,873 $
238,022
</TABLE>
(6) Variable Rate Subordinated Debenture
In July 1988, the Company and a principal holder of the Company's
redeemable
preferred stock agreed to
exchange 187,500 shares of the Company's 8% cumulative convertible preferred
stock,
Series A for a $1,500,000
variable rate convertible subordinated debenture due 2002, Class A.
The debenture bears interest at a rate of 8% per annum through September
30,
1996 and thereafter at a rate
of 12% per annum. Interest was payable in cash through October 1, 1989.
Thereafter,
the debenture agreement
provides that at the option and at the discretion of the Company, interest may
be paid in
shares of the Company's
common stock at the greater of $2.25 per share or the average market value per
share.
During 1993 and 1994, the
Company issued 106,668 of its common stock as payment of interest on the
debenture.
The debenture is convertible
into common stock of the Company at any time at the option of the holder at an
initial
rate of $4 per share of
common stock. The debenture is redeemable at the option of the Company at any
interest payment date at par value
plus accrued interest. Upon maturity of the debenture, the Company, at its
option, may
repay the remaining
principal in shares of 8% cumulative convertible preferred stock, Series B at a
rate of $8
per preferred share.
(7) Promissory Notes Payable
On August 23, and November 19, 1993, the Company issued promissory notes
to
certain directors of the Company
for an aggregate consideration of $239,300. The 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 $.48 per share
and to
receive a warrant for an
equivalent number of common shares at $.48 per share. The promissory notes are
due
on demand with interest charged
at the prime rate.
On February 10, 1994, and September 26, October 24, 1994 and November 28,
1994,
the Company issued additional
promissory notes to certain directors of the Company for an aggregate
consideration of
$170,250. The 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
$.375 per share for the note issued February 10, 1994 and at $.25 per share for
all other
notes and to receive
warrants for an equivalent number of common shares at $.375 per share for the
note
issued February 10, 1994 and at
$.25 per share for all other notes. These promissory notes are also due on
demand with
interest charged at the
prime rate.
(8) Redeemable Preferred Stock
Each share of redeemable preferred stock is entitled to vote on all
matters requiring
shareholder approval
as one class with holders of common stock, except that each share of redeemable
preferred stock is entitled to two
votes and each share of common stock is entitled to one vote.
Redeemable preferred stock is convertible at the option of the holder at
any time,
unless previously
redeemed, into shares of the Company's common stock at the rate of two shares
of
common stock for each share of
preferred stock (equivalent to a conversion price of $4.00 per common share),
subject to
adjustment under certain
conditions.
Shares of redeemable preferred stock are redeemable for cash in whole or
in part at
the option of the Company
at any time at the stated value plus accrued and unpaid dividends to the
redemption
date. Dividends are cumulative
and payable quarterly on January 1, April 1, July 1 and October 1, since
January 1, 1988.
Mandatory redemption is
required by October 2002.
As of December 31, 1994, cumulative dividends in arrears totaled $154,368
($4.00
per share) and were included
in carrying value of redeemable preferred stock.
See note 6 relating to exchange of redeemable preferred stock and note 9
relating to
conversion of redeemable
preferred stock and waiver of redemption privileges.
<PAGE>
IGENE Biotechnology, Inc.
Notes to Financial Statements
(continued)
(9) Stockholders' Equity
Common Stock
In January 1987, the Board of Directors approved the 1986 Stock Option
Plan
("Plan"). In August 1990, the
shareholders approved an increase in the number of shares issuable pursuant to
options
granted under the Plan.
Under the Plan options to acquire up to 978,850 shares of the Company's common
stock
may be issued to certain
directors, officers and employees. Options granted under the Plan are
exercisable in
installments of twenty percent
each year beginning on the first anniversary of the date when such options are
granted
and expire not later than
ten years from the date of grant. On January 22, 1987, the Board of Directors
approved
the granting, under the
Plan, of options to purchase 72,750 shares of the Company's common stock at
$5.40 per
share to 23 full-time
employees of the Company. The option price represented a discount from the
market
price at the date of grant. The
total amount of such discount was accounted for as compensation expense and
recognized over the period in which
employees were providing the related services. In May 1989 the Compensation
Committee of the Board of Directors
approved the reduction of the exercise price from $5.40 to $1.00 per share of
the
aforementioned options. In
addition, the Compensation Committee approved the granting of options to
purchase an
additional 146,350 shares at
an exercise price of $1.00 per share pursuant to the Plan. In May 1990, the
Compensation Committee of the Board
of Directors approved the granting of options to purchase an additional 560,250
shares at
an exercise price of $.10
per share pursuant to the Plan. In January 1991, options to purchase 250,000
shares of
common stock of the Company
at $.25 per share were granted to two officers and one key employee of the
Company. In
January 1992, options to
purchase 350,000 shares of common stock of the Company at $.625 per share were
granted to one officer and one key
employee of the Company. In April 1993, options to purchase 50,000 shares of
common
stock of the Company at $1.00
per share were granted to one key employee of the Company. The options granted
in
May 1989, May 1990, January 1991,
January 1992, and April 1993 were at an exercise price in excess or equal to
the current
market price and,
accordingly, no additional compensation expense was recognized. Prior to 1993,
no
options were exercised under the
Plan. In 1993 options to purchase 87,000 shares of common stock at $.10 per
share and
20,000 shares of common stock
at $.25 per share were exercised pursuant to the Plan. On March 17, 1994 the
Board of
Directors approved an
increase from 978,850 to 1,200,000 in the number of shares issuable pursuant to
options
granted under the plan which
was approved by stockholders at the Company's 1994 Annual Meeting.
In May and November 1988, holders of 314,092 shares of redeemable
preferred
stock converted those shares into
628,184 shares of the Company's common stock and received warrants to purchase
314,092 shares of common stock at
a rate of $6.00 per share which expired on July 30, 1993. During 1990, holders
of 13,500
shares of redeemable
preferred stock converted those shares to 27,000 shares of the Company's common
stock.
During 1991 holders of 5,125
shares of redeemable preferred stock converted those shares to 10,250 shares of
the
Company's common stock. During
1993 and 1994 no shares of redeemable preferred stock were converted to shares
of the
Company's common stock.
In February 1991, the Company sold 4,596,000 shares of common stock and
received
net proceeds of $1,109,000.
Also in February, 1991, the Company issued warrants to purchase 800,000 shares
of
common stock at $.25 per share
to a stockholder controlled company for acting as placement agent.
In June 1992, the Company sold 680,667 shares of common stock and
received net
proceeds of $503,693. Also
in June, 1992, the Company issued warrants to purchase 252,400 shares of common
stock
at $.75 per share to a
stockholder controlled Company for acting as placement agent. In addition,
680,667
warrants to purchase common
stock at $.75 per share were issued to other qualified investors as part of the
private
placement.
On March 25, 1993 the Company issued 33,334 shares of common stock at
$.75
upon execution of a Letter of
Intent with Burns Philp Food Inc. to enter into a Technology License Agreement.
Upon
execution of a Technology
License Option Agreement on April 16, 1993, Burns Philp purchased 166,666 newly
issued shares of common stock at
$.75 per share, and an additional 62,500 shares at $.48 per share on July 13,
1993. On
October 13 the Company
issued 76,550 shares of common stock at $1.00 per share as part of the
termination of
the Agreement with Burns
Philp.
At December 31, 1994, 86,746 shares of authorized but unissued common
stock
were reserved for exercise at
$6.64 per share pursuant to a stock purchase warrant granted to the underwriter
in
connection with the Company's
initial public offering, 978,850 shares of authorized but unissued common stock
were
reserved for exercise pursuant
to the 1986 Stock Option Plan, 452,184 shares of authorized but unissued common
stock
were reserved for issuance
upon conversion of the Company's outstanding preferred stock, 314,092 shares of
authorized but unissued common stock
were reserved for issuance upon exercise at $6.00 per share of stock purchase
warrants
issued to preferred
stockholders who converted to common stock in 1988, 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.
<PAGE>
IGENE Biotechnology, Inc.
Notes to Financial Statements
(continued)
The following table summarizes options and warrants issued, exercisable
and
outstanding:
<TABLE>
<CAPTION>
December 31,
1993 1994
<S> <C>
<C>
Issued 2,816,067
2,792,817
Outstanding 2,709,067
2,685,817
Exercisable 2,116,417
2,291,517
</TABLE>
Preferred Stock
In May 1988, the Company and a holder of its redeemable preferred stock
entered
into an agreement under which
the mandatory redemption rights referred to in note 6 were waived as to 187,500
shares
of the preferred stock.
These shares are subject to redemption at the option of the Company under
provisions
governing the preferred stock
which permit the Company to redeem such stock at any time. Under these
arrangements, the amounts attributable to
shares of the preferred stock as to which mandatory redemption rights were
waived are
recorded and combined in total
with the stockholders' equity accounts.
At December 31, 1994, cumulative dividends in
arrears
totaled $750,000 ($4.00 per share) and was included
in the aggregate involuntary liquidation value of the preferred stock.
At December 31, 1994, 187,500 shares of authorized but unissued preferred
stock
were reserved for issuance
upon maturity of the variable rate subordinated debenture.
(10) Net Loss Per Common Share
Net loss per common share for 1993 and 1994 is based on 12,769,011 and
13,002,050
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.
(11) Commitments
The Company is obligated for office and laboratory facilities and other
rentals under
separate operating
lease agreements which expire in 1996. The basic annual rentals are expected
to be
between $63-$72,000 under such
lease. Annual rent expense relating to leases approximated $76,000 in 1993,
and $78,000
in 1994.
Exclusive worldwide rights to manufacture and sell one of the products
developed by
the Company were granted
to Hercules Incorporated ("Hercules"), in exchange for an initial license fee
of $500,000
pursuant to a licensing
agreement dated as of September 16, 1985. Hercules did not produce
commercially any
quantities of the product and
by an agreement dated October 15, 1987, the Company and Hercules agreed to
terminate the license agreement.
Pursuant to termination agreements negotiated between the parties, the Company
paid
Hercules $25,000 for termination
of the license and will not refund the $500,000 initial license fee paid by
Hercules. If the
Company commercializes
the product, the Company will pay Hercules up to an additional $600,000 from
revenues
from the sale or licensing
of the product.
(12) Contingency
On September 24, 1982, the Company and McKesson Corporation formed a
joint
venture for the purpose of
developing, manufacturing and selling certain whey-based products. On June 26,
1984,
McKesson Corporation assigned
to the Company all of its rights, titles and interests in the joint venture in
consideration
of a cash payment for
the joint venture's inventory and a commitment to pay an additional amount of
approximately $500,000, payable
without interest in five equal annual installments, commencing after the first
fiscal year
in which the Company
attains pre-tax profits, as defined, or at least $1 million. Because the
payment is
dependent upon the Company's
attaining profitable operations in the future, no liability therefore has been
reflected in
the accompanying balance
sheets.
(13) Income Taxes
At December 31, 1993 and 1994, the Company has federal and state net
operating
loss carry-forwards of
approximately $18,300,000 and $18,800,000, respectively, that expire from 1997
to 2009.
The recorded deferred tax
asset, representing the expected benefit from the future realization of the net
operating
losses, net of the
valuation allowance, was $-0- for both years.
<PAGE>
IGENE Biotechnology, Inc.
Notes to Financial Statements
(continued)
The sources of the deferred tax asset and the tax effect of each is as
follows:
<TABLE>
<CAPTION>
1993 1994
<S> <C> <C>
Net operating loss carry-forward benefit
$ 7,500,000 $
7,700,000
Valuation allowance (7,500,000)
(7,700,000
Deferred tax asset $ ---
$ ---
</TABLE>
(14) Uncertainty
The Company has incurred net losses in each year of its existence,
aggregating
approximately $19,800,000 from
inception to December 31, 1994 and its liabilities and redeemable preferred
stock
exceeded its assets by
approximately $2,600,000 at that date. These factors indicate that the Company
will not
be able to continue in
existence unless it is able to raise additional capital and attain profitable
operations.
Management has instituted a program of significant cost reductions,
deferred all
except immediately necessary
capital expenditures and suspended payment of dividends on the Company's
preferred
stock. The implementation of
these measures to conserve working capital together with the successful
marketing and
licensing of the Company's
products, which management hopes to achieve, may permit the Company to attract
additional capital and enable it to
continue.
The Company is actively seeking and is in discussion with a potential
manufacturer
of its AstaXin
technology. The Company believes this technology to be highly marketable and
is
hopeful that an income-producing
technology licensing agreement could be executed during 1995 for this product.
To increase working capital, the Company plans to issue additional stock
to officers
and directors and to
encourage holders of outstanding warrants to exercise these rights. The
Company will
also encourage the holders
of convertible promissory notes to convert them into common stock. To meet
short-term
cash needs the Company issued
additional promissory notes to officers and directors in January and March of
1995. (see
also note 16)
(15) Joint Venture Income
On March 4, 1994 the Company and the Food Science Group of Pfizer Inc.,
New
York, N.Y., signed a Technology
Evaluation Agreement for AstaXin . The Agreement provided for cash
compensation to
IGENE of $250,000 over a three
month period ending May 18, 1994.
(16) Subsequent Events
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 an aggregate
consideration of $56,750, and $70,000,
respectively. 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 $.125 per share for the notes
dated
March 7, 1995.
<PAGE>
<TABLE>
Schedule V
IGENE Biotechnology, Inc.
Property, Plant and Equipment
<CAPTION>
Balance at Balance
beginning Additions at end
Classification of period at cost Retirementsof period
<S> <C> <C> <C> <C>
Year ended December 31, 1993:
Laboratory equipment and fixtures$ 71,092 $ ---- $
- ---- $ 71,092
Pilot plant equipment and fixtures 56,862 ---- ---- 56,862
Machinery and equipment 227,346 9,969 40,000
197,315
Office furniture and fixtures 42,864 ----
- ---- 42,864
$ 398,164 $ 9,969 $
40,000$ 368,133
<S> <C> <C> <C> <C>
Year ended December 31, 1994:
Laboratory equipment and fixtures$ 71,092 $ 14,000 $
- ---- $ 85,092
Pilot plant equipment and fixtures 56,862 ---- ---- 56,862
Machinery and equipment 197,315 6,973 104,975 99,313
Office furniture and fixtures 42,864 ----
- ---- 42,864
$ 368,133 $ 20,973 $
104,975$ 284,131
</TABLE>
<PAGE>
<TABLE>
Schedule VI
IGENE Biotechnology, Inc.
Accumulated Depreciation and Amortization of Property, Plant and Equipment
<CAPTION>
Balance at Depreci- Balance
beginning ation at end
Classification of period Expense Retirementsof period
<S> <C> <C> <C> <C>
Year ended December 31, 1993:
Laboratory equipment and fixtures$ 65,025 $ 4,153$ ----
$ 69,178
Pilot plant equipment and fixtures 52,385 3,032 ---- 55,417
Machinery and equipment 90,703 28,472 11,429 107,746
Office furniture and fixtures 35,171 4,096
---- 39,267
$ 243,284 $ 39,753 $ 11,429$ 271,608
<S> <C> <C> <C> <C>
Year ended December 31, 1994:
Laboratory equipment and fixtures$ 69,178 $ 2,580
$ ---- $
71,758
Pilot plant equipment and fixtures 55,417 1,021 ---- 56,438
Machinery and equipment 107,746 16,380 45,105 79,021
Office furniture and fixtures 39,267 2,448
---- 41,715
$ 271,608 $ 22,429 $ 45,105$ 248,932
</TABLE>
<PAGE>
<TABLE>
Schedule X
IGENE Biotechnology, Inc.
Supplementary Income Statement Information
<CAPTION>
1993 1994
<S> <C> <C>
Maintenance and repairs .............................................$ 29,176
$ 34,251
Taxes, other than payroll and income taxes........................... 11,559
15,438
Advertising costs.................................................... 3,837
4,691
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in
Columbia, Howard County, State of Maryland on October , 1995.
IGENE Biotechnology, Inc.
Date: October 13, 1995 By: /s/ Stephen F. Hiu
Stephen F. Hiu, President
Pursuant to the requirements of the Securities Act of 1933, this report
to be signed
below by the following
persons in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Joseph C. Abeles Director October 13, 1995
(Joseph C. Abeles)
/s/ John A. Cenerazzo Director October 13, 1995
(John A. Cenerazzo)
/s/ Stephen F. Hiu Director, President,
October 13, 1995
(Stephen F. Hiu) Secretary, and Treasurer
Chief Financial Officer,
Chief Accounting Officer
/s/ Thomas L. Kempner Vice Chairman of Board
October 13,
1995
(Thomas L. Kempner) of Directors
/s/ Michael G. Kimelman Chairman of the Board
October 13, 1995
(Michael G. Kimelman) of Directors
/s/ Sidney R. Knafel Director October 13, 1995
(Sidney R. Knafel)
/s/ Anthony B. Low-Beer Director October 13, 1995
(Anthony B. Low-Beer)
/s/ Patrick F. Monahan Director October 13, 1995
(Patrick F. Monahan)
</TABLE>
