SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 10549
FORM 10-QSB
(Mark One)
[x] Quarterly report under Section 13 or 15(D) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1999
[ ] Transition report under Section 13 or 15(D) of the Exchange Act
For the transition period from _________ to _________
Commission file number 0-15888
IGENE Biotechnology, Inc.
_________________________________________________________________
(Exact name of Small Business Issuer as Specified in its Charter)
Maryland 52-1230461
_______________________________ ___________________________
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
9110 Red Branch Road, Columbia, Maryland 21045-2024
___________________________________________________
(Address of Principal Executive Offices)
(410) 997-2599
________________________________________________
(Issuer's Telephone Number, Including Area Code)
None
____________________________________________________
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the Issuer: (1) filed all reports required to be filed
by Section 13 or 15(D) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes x No
________ ________
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
34,427,507 as of July 26, 1999.
Traditional Small Business Disclosure Format (check one):
Yes No x
________ ________
-Page 1-
FORM 10-QSB
IGENE Biotechnology, Inc.
INDEX
PART I - FINANCIAL INFORMATION
Page
Balance Sheets 5-6
Statements of Operations 7
Statements of Stockholder's Deficit 8-9
Statements of Cash Flows 10-11
Notes to Financial Statements 12-13
Management's Discussion and Analysis of Financial
Conditions and Results of Operations 14-17
PART II - OTHER INFORMATION 18
SIGNATURES 19
-Page 2-
IGENE BIOTECHNOLOGY, INC.
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
-Page 3-
PART I
FINANCIAL INFORMATION
-Page 4-
<TABLE>
IGENE Biotechnology, Inc.
Balance Sheets
<CAPTION>
June 30, June 30, December 31,
1999 1998 1998
___________ ___________ ____________
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 63,185 $1,414,683 $ 364,796
Accounts receivable 8,955 210,275 ---
Inventory 990,320 216,156 870,260
Supplies 10,669 4,710 11,145
Prepaid expenses 212,813 354,086 83,933
Loan receivable, current portion 206,780 261,940 250,783
___________ ___________ ____________
1,492,722 2,461,850 1,580,917
OTHER ASSETS
Property and equipment, net 356,404 327,948 370,057
Loan receivable, net of current portion --- 116,552 ---
Debt issue costs 158,784 211,712 179,956
Security deposits 4,875 10,600 10,600
___________ ___________ ____________
TOTAL ASSETS $2,012,785 $3,128,662 $2,141,530
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-Page 5-
<TABLE>
IGENE Biotechnology, Inc.
Balance Sheets
(continued)
<CAPTION>
June 30, June 30, December 31,
1999 1998 1998
___________ ___________ ____________
(Unaudited) (Unaudited)
<S> <C> <C> <C>
LIABILITIES, REDEEMABLE PREFERED STOCK
AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 186,971 $ 521,427 $ 228,549
Debenture interest payable 45,000 45,000 45,000
___________ ___________ ___________
TOTAL CURRENT LIABILITIES 231,971 566,427 273,549
LONG-TERM DEBT
Notes payable 6,158,199 6,082,500 6,092,500
Variable rate subordinated debenture 1,500,000 1,500,000 1,500,000
Accrued Interest 608,250 --- 364,950
___________ ___________ ___________
TOTAL LIABILITIES 8,498,420 8,148,927 8,230,999
___________ ____________ ___________
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK
Carrying amount of redeemable preferred
stock, 8% cumulative, convertible,
voting, series A, $.01 par value per
share. Redemption value $14.88, $14.24,
and $14.56, respectively. Authorized
1,312,500 shares, issued 29,592, 29,592,
and 29,592 shares, respectively 440,329 421,390 430,860
___________ ____________ ___________
STOCKHOLDERS' DEFICIT
Preferred stock, $.01 par value per share,
8% cumulative, convertible, voting,
series A. Authorized, issued and
outstanding -0-,187,500 and -0- shares.
Aggregate involuntary liquidation
value of $-0-, $2,670,000, and
$-0-, respectively. --- 1,875 ---
Common stock, $.01 par value per share.
Authorized, 250,000,000 shares;
issued and outstanding 34,427,507,
21,441,473, and 21,854,173 shares,
respectively. 344,275 214,415 218,542
Additional paid-in capital 19,442,586 18,659,740 18,738,038
Deficit (26,712,825) (24,317,685) (25,476,909)
____________ ____________ ____________
TOTAL STOCKHOLDERS' DEFICIT (6,925,964) (5,441,655) (6,520,329)
____________ ____________ ____________
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $2,012,785 $3,128,662 $2,141,530
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-Page 6-
<TABLE>
IGENE Biotechnology, Inc.
Statements of Operations
(Unaudited)
<CAPTION>
Three months ended Six months ended
_______________________ ________________________
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
___________ ___________ ____________ ____________
<S> <C> <C> <C> <C>
Sales $ --- $ 203,675 $ --- $ 203,675
Cost of sales 99,409 306,252 119,845 605,051
___________ ___________ ____________ ____________
Gross profit (loss) (99,409) (102,577) (119,845) (401,376)
Technology licensing income 2,007 --- 3,174 ---
___________ ___________ ____________ ____________
Net revenue (97,402) (102,577) (116,671) (401,376)
___________ ___________ ____________ ____________
Selling, General & Administrative expenses:
Marketing and selling 46,475 300 52,925 689
Research, development and pilot plant 90,102 90,483 190,400 223,685
General and administrative 82,909 180,847 173,720 316,548
Litigation expenses 182,757 22,737 358,494 183,698
___________ ___________ ____________ ____________
Total operating expenses 402,243 294,067 775,539 724,620
___________ ___________ ____________ ____________
Operating loss (499,645) (396,944) (892,210) (1,125,996)
___________ ___________ ____________ ____________
Other income (expense)
Interest expense, net of
interest income of $4,277, $26,231,
$10,948 and $37,734, respectively (173,059) (148,939) (343,706) (211,194)
Loss on disposal of equipment --- (3,280) --- (3,280)
___________ ___________ ____________ ____________
Net loss $ (672,704) $ (549,163) $(1,235,916) $(1,340,470)
=========== =========== ============ ============
Net loss per common share $ (0.02) $ (0.03) $ (0.04) $ (0.07)
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of the financial
statements.
-Page 7-
<TABLE>
IGENE Biotechnology, Inc.
Statements of Stockholders' Deficit
(Unaudited)
<CAPTION>
Redeemable Preferred Stock Preferred Stock
(shares/amount) (shares/amount)
__________________________ __________________________
<S> <C> <C> <C> <C>
Balance at December 31, 1997 29,592 $ 411,920 187,500 $ 1,875
Cumulative undeclared dividends
on redeemable preferred stock --- 9,470 --- ---
Issuance of common stock through
exercise of employee stock options --- --- --- ---
Issuance of common stock in lieu of
cash in payment of interest on
subordinated debenture --- --- --- ---
Issuance of common stock in lieu of
cash in payment of legal fees --- --- --- ---
Capital contribution - forgiveness of
interest on promissory notes --- --- --- ---
Net loss for six months
ended June 30, 1998 --- --- --- ---
____________ ____________ ___________ ___________
Balance at June 30, 1998 29,592 $ 421,390 187,500 $ 1,875
============ ============ =========== ===========
Balance at December 31, 1998 29,592 $ 430,860 --- $ ---
Cumulative undeclared dividends
on redeemable preferred stock --- 9,469 --- ---
Issuance of common stock in lieu of
cash in payment of interest on
subordinated debenture --- --- --- ---
Issuance of common stock in lieu of
cash in payment of legal fees --- --- --- ---
Issuance of shares of common stock
pursuant to direct purchase of shares
by certain directors and other
accredited investors (note 3) --- --- --- ---
Net loss for six months ended
June 30, 1999 --- --- --- ---
____________ ____________ ___________ ___________
Balance at June 30, 1999 29,592 $ 440,329 --- $ ---
============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-Page 8-
<TABLE>
IGENE Biotechnology, Inc.
Statements of Stockholders' Deficit
(Unaudited - Continued)
<CAPTION>
Additional Total
Common Stock Paid-in Stockholders'
(shares/amount) Capital Deficit Deficit
____________________ ____________ _____________ _____________
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 19,206,473 $192,065 $18,233,670 $(22,977,215) $(4,549,605)
Cumulative undeclared dividends
on redeemable preferred stock --- --- (9,470) --- (9,470)
Issuance of common stock through
exercise of employee stock options 5,000 50 200 --- 250
Issuance of common stock in lieu of
cash in payment of interest on
subordinated debenture 40,000 400 89,600 --- 90,000
Issuance of common stock in lieu of
cash in payment of legal fees 2,190,000 21,900 140,100 --- 162,000
Capital contribution - forgiveness of
interest on promissory notes --- --- 205,640 --- 205,640
Net loss for six months ended
June 30, 1998 --- --- --- (1,340,470) (1,340,470)
__________ ________ ____________ _____________ ____________
Balance at June 30, 1998 21,441,473 $214,415 $18,659,740 $(24,317,685) $(5,441,655)
========== ======== ============ ============= ============
Balance at December 31, 1998 21,854,173 $218,542 $18,738,038 $(25,476,909) $(6,520,329)
Cumulative undeclared dividends
on redeemable preferred stock --- --- (9,469) --- (9,469)
Issuance of common stock in lieu of
cash in payment of interest on
subordinated debenture 40,000 400 89,600 --- 90,000
Issuance of common stock in lieu of
cash in payment of legal fees 866,667 8,666 41,084 --- 49,750
Issuance of shares of common stock
pursuant to direct purchase of shares
by certain directors and other
accredited investors (note 3) 11,666,760 116,668 583,332 --- 700,000
Net loss for six months ended
June 30, 1999 --- --- --- (1,235,916) (1,235,916)
__________ ________ ____________ _____________ ____________
Balance at June 30, 1999 34,427,600 $344,276 $19,442,585 $(26,712,825) $(6,925,964)
========== ======== ============ ============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-Page 9-
<TABLE>
IGENE Biotechnology, Inc.
Statements of Cash Flows
(Unaudited)
<CAPTION>
Six months ended
June 30, June 30,
1999 1998
_____________ _____________
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,235,916) $ (1,340,470)
Adjustments to reconcile net loss to net cash provided
By operating activities:
Depreciation 41,600 20,325
Amortization 21,172 ---
Loss on disposal of equipment --- 3,280
Interest on debenture paid in shares of common stock 90,000 90,000
Decrease (increase) in:
Accounts receivable (8,955) (195,781)
Inventory (120,060) (216,156)
Prepaid expenses and other current assets (108,404) (219,086)
Increase (decrease) in:
Accounts payable and accrued expenses $ 231,472 $ 238,930
_____________ _____________
Net cash used in operating activities $ (1,089,091) $ (1,618,958)
_____________ _____________
Cash flows from investing activities:
Proceeds from disposal of equipment 460 4,505
Capital expenditures (28,407) (59,052)
Refund of security deposit 5,725 ---
Repayment of principal of loan receivable 44,003 121,508
_____________ _____________
Net cash provided by (used in) investing activities 21,781 66,961
_____________ _____________
Cash flows from financing activities:
Repayments from (advances to) stockholders --- 28,594
Proceeds from issuance of common stock 700,000 250
Issuance of promissory notes 65,699 ---
Issuance of demand notes --- 950,000
Proceeds from rights offering --- 2,438,288
Repayment of demand notes --- (475,000)
_____________ _____________
Net cash provided by financing activities 765,699 2,942,132
_____________ _____________
Net increase (decrease) in cash
and cash equivalents (301,611) 1,390,135
Cash and cash equivalents
at beginning of period 364,796 24,548
_____________ _____________
$ 63,185 $ 1,414,683
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-Page 10-
IGENE Biotechnology, Inc.
Statements of Cash Flows
(Unaudited - Continued)
Noncash investing and financing activities:
During the six month ended June 30, 1999 and 1998, the Company
recorded dividends in arrears on 8% redeemable preferred stock at
$.32 per share aggregating $ 9,469 and $9,470, respectively,
which has been removed from paid-in capital and included in the
carrying value of the redeemable preferred stock.
During the six months ended June 30, 1998, the Company issued
notes payable of $5,000,000 through a rights offering.
Stockholders purchased rights, using $1,875,000 in promissory
notes and $475,000 of demand notes due to the Company, resulting
in net cash proceeds of $2,438,288 which is after fees associated
with the offering of $211,712. Theses related fees have been
capitalized as debt issue costs and will be amortized over the
term of the debt.
During the six months ended June 30, 1998, the Company cancelled
certain promissory notes and related amounts due from a
stockholder aggregating $125,000 by agreement with the
stockholder.
During the six months ended June 30, 1999 and 1998 the Company
issued 40,000 shares of common stock in each period in payment of
interest on the variable rate subordinated debenture. If paid in
cash, the interest would have been payable at 12% in the amount
of $90,000 in each period. Shares may be issued in lieu of cash
under the terms of the debenture agreement at the higher of $2.25
per share or market price per share. The stock was issued and
related interest was paid at $2.25 per share, or $90,000, in each
period.
During the six months ended June 30, 1998 the Company issued
stock in lieu of cash payments for legal services rendered and
legal retainers aggregating $162,000, based on the market price
per share of common stock on the dates of the related agreements.
The Company recorded the issue, on May 20, 1998, of 190,000
shares of common stock at $0.142 per share, or $27,000, per an
agreement effective August 27, 1997, by reducing trade accounts
payable to the Company's patent counsel by $27,000. The Company
also recorded the issue, on April 29, 1998 and June 26,1998 of a
total of 2,000,000 shares of common stock at $.0675 per share, or
$135,000, per agreements effective February 20, 1998, by
recording $135,000 in prepaid expenses, representing legal
retainers on deposit with litigation counsel.
During the six months ended June 30, 1999, the Company satisfied
accounts payable of $20,000 and advanced $29,750 for legal
retainers by issuing 866,667 shares of common stock to counsel in
on-going litigation.
The accompanying notes are an integral part of the financial
statements.
-Page 11-
IGENE Biotechnology, Inc.
Notes to Financial Statements
(1) Unaudited financial statements
The financial statements presented herein as of June 30,
1999 and 1998 and for the three month and six month periods
then ended are unaudited, and in the opinion of management,
include all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of financial
position and results of operation and cash flows. Such
financial statements do not include all of the information
and footnote disclosures normally included in audited
financial statements prepared in accordance with generally
accepted accounting principles.
(2) Inventories
Inventory, stated at lower of cost, on a first-in first-out
basis, or market value, represents AstaXin(R) manufactured
and held for sale, as follows:
Raw materials $ 7,050
Work-in-process ---
Finished goods 983,270
---------
Total inventory $ 990,320
=========
Inventory has been reduced by $19,463 during the six months
ended June 30, 1999 to reflect the excess of cost over
market value.
(3) Stockholders' Equity (Deficit)
At June 30, 1999 and 1998, 59,184 shares of authorized but
unissued common stock were reserved for issue upon
conversion of the Company's outstanding preferred stock.
As of June 30, 1999 approximately 22,000,000 shares of
authorized but unissued common stock were reserved for
exercise pursuant to the Company's 1997 and 1986 Stock
Option Plans.
As of June 30, 1999 and 1998, 200,000 and 280,000 shares,
respectively, of authorized but unissued common stock were
reserved for issuance for payment of interest on the
variable rate subordinated debenture and 375,000 shares of
authorized but unissued common stock were reserved for
issuance upon conversion of the variable rate subordinated
debenture.
As of June 30, 1999 and 1998, 13,174,478 shares of
authorized but unissued common stock were reserved for the
conversion of outstanding convertible promissory notes in
the aggregate amount of $1,082,000 held by directors of the
Company.
As of June 30, 1999 and 1998, 113,462,178 and 100,964,878
shares, respectively, of authorized but unissued common
stock were reserved for the exercise of outstanding
warrants.
On January 25, 1999 the Company issued to certain directors
and other accredited investors 4,166,667 new shares of
common stock at $.06 per share, or $250,000, which was the
current market price of the stock on that date. These
investors also committed to purchase an additional 8,333,333
new shares of common stock at $.06 per share, or $500,000 by
July 31, 1999. The total funding to be received in this
transaction is $750,000, and a total of 12,500,000 shares
will be issued at $.06 per share. In return for committing
to this funding, these investors also received, as of
January 25, 1999, warrants to purchase 12,500,000 shares of
common stock at $.06 per share, expiring in 10 years.
-Page 12-
IGENE Biotechnology, Inc.
Notes to Financial Statements
(continued)
(3) Stockholders' Equity (Deficit) (continued)
The funds received have been used to continue operations of
the Company and to fund legal expenses associated with the
on-going litigation with Archer-Daniels Midland, Inc. (See
note 5). As of June 30, 1999, $700,000 of the committed
funding has been received from investors and 11,666,667
shares have been issued at $.06 per share.
(4) Net Loss Per Common Share
Net loss per common share for the six-month periods ended
June 30, 1999 and 1998 is based on 27,751,637 and
19,636,887, respectively, of weighted average common shares
outstanding. For purposes of computing net loss per common
share, the amount of net loss has been increased by
dividends declared and cumulative undeclared dividends in
arrears on preferred stock.
(5) Contingencies and Subsequent Event
On July 21, 1997, ADM filed suit against the Company in the
U.S. District Court in Baltimore, Maryland alleging patent
infringement and requesting a preliminary injunction against
the Company to cease the use of the Company's astaxanthin
manufacturing process. On August 24, 1997, the Company filed
a $300,450,000 contract and trade secrets counterclaim
against ADM, alleging theft of trade secrets. The Company
is also claiming breach of contract, in regards to a
licensing agreement entered into by the Company and ADM in
1995. The Company contends that it complied with all
material terms of this agreement. On September 10, 1997 the
District Court denied ADM's request for a preliminary
injunction on the basis that ADM could not demonstrate a
likelihood of success on the merits of its patent
infringement allegations. To date, a stay on all discovery
has been imposed by the court, while a court-appointed
expert analyzed the yeast products of both parties. Most
recently, and pursuant to an order issued by the judge on
July 16, 1999, both the Company and ADM have communicated to
the court their willingness to pursue a mediated settlement
of this dispute. It is management's contention that it is
not probable that this dispute will result in an unfavorable
outcome. Accordingly, no liability has been reflected in
the accompanying balance sheet. The Company had expenses of
$358,494 and $183,698, respectively, in the six months ended
June 30, 1999 and 1998 relating to this litigation, which is
on-going.
-Page 13-
IGENE Biotechnology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR PROVISIONS" OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:
EXCEPT FOR HISTORICAL FACTS, ALL MATTERS DISCUSSED IN THIS
REPORT, WHICH ARE FORWARD LOOKING, INVOLVE A HIGH DEGREE OF RISKS
AND UNCERTAINTIES. POTENTIAL RISKS AND UNCERTAINTIES INCLUDE,
BUT ARE NOT LIMITED TO, COMPETITIVE PRESSURES FROM OTHER
COMPANIES AND WITHIN THE BIOTECH INDUSTRY, ECONOMIC CONDITIONS IN
THE COMPANY'S PRIMARY MARKETS AND OTHER UNCERTAINTIES DETAILED
FROM TIME-TO-TIME IN THE COMPANY'S SECURITIES AND EXCHANGE
COMMISSION FILINGS.
Certain statements in this report set forth management's
intentions, plans, beliefs, expectations or predictions of the
future based on current facts and analyses. Actual results may
differ materially from those indicated in such statements, due to
a variety of factors including reduced product demand, increased
competition, government action, weather conditions, and other
factors.
Results of Operations
Sales
During the six months ended June 30, 1999, the Company began
large scale commercial trials of AstaXin(R) with several
potential customers in Chile. These trials are expected to result
in subsequent and continuing sales of AstaXin(R) to these
potential customers, during and following the trials, which are
expected to last between six months to one year. However, there
can be no assurance that such sales will occur or that they
will be material. Additional large scale trails have also been
started subsequent to June 30, 1999. During the six months ended
June 30, 1998 the Company had $203,860 in sales of AstaXin(R).
This entire amount was sold to a single distributor. Subsequent
to June 30, 1998, and during the six months ended June 30, 1999,
there were no sales of AstaXin(R), a decrease of $203,860,
since this distributor inventoried this large quantity of product
and has not yet needed additional product. The Company is now
making substantial marketing efforts on its own behalf (See also
Marketing and selling expenses on page 15 of this document).
Cost of sales
During a successful implementation of certain improvements in the
production process, which had been developed in the pilot plant,
production was temporarily suspended during the quarter ended
March 31, 1999. A resumption of production during April and May
of 1999 confirmed that the improvements result in increased
efficiency and yields in the manufacturing process. In June
1999, and continuing until the present, production has again been
temporarily suspended until sales volume warrants additional
production. The preceding resulted in cost of sales for the six
months ended June 30,1999 and 1998 of $119,845 and $605,051,
respectively, a decrease of $485,206 or 80%. The Company
expects to resume production, and that production will achieve
gross profits, as soon as additional sales occur. However, there
can be no assurance that such gross profits will occur or that
they will be material. The Company expects to incur cost of sales
of approximately $138,000 per month when production resumes,
which is expected to be funded by product sales. When, and
if, the Company is producing and selling AstaXin(R) at a gross
profit, management plans to expand production capacity to meet
an expected increasing demand for AstaXin(R), which is expected
to result in profitable operations. However, there can be no
assurance that such profitable operations will occur, or that
they will be material.
-Page 14-
IGENE Biotechnology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Results of Operations (continued)
Technology licensing income
Technology licensing income of $2,007 for the six months ended
June 30, 1999 resulted from royalties for ClandoSan(R), the
Company's nematicide soil treatment product. No royalties
on ClandoSan(R) were earned during the six months ended June 30,
1998, an increase of $2,007.
Marketing and selling expenses
Marketing expenses for AstaXin(R) have increased and are
expected to continue to do so, as the Company continues and
escalates its promotion of AstaXin(R). Marketing and selling
expenses for the six months ended June 30, 1999 and 1998 were
$52,925 and $689, respectively, an increase of $52,236. Marketing
expenses for AstaXin(R) had been minimal prior to 1999, since
the Company's contract manufacturer had been acting as non-
exclusive distributor and marketer of AstaXin(R) during 1998.
These increasing expenses are expected to be funded by product
sales. However, there can be no assurance that such sales will
occur, or that they will be material.
Research, development and pilot plant expenses
Research, development and pilot plant expenses are expected to
continue at approximately $30,000 per month which will be used to
increase the efficiency of the manufacturing process through
experimentation in the pilot plant, development of higher
yielding strains of yeast and other improvements in the Company's
AstaXin(R) technology. However, there can be no assurance that
such improvements in efficiency and yield will occur, or that
they will be material. These expenses are expected to be funded
by sales. However, there can be no assurance that such sales
will occur, or that they will be material. Research, development
and pilot plant expenses for the six months ended June 30, 1999
and 1998 were $190,400 and $223,685, respectively, a decrease
of $33,285, or 15%. Analytical testing and field studies,
relating to the start of manufacture of AstaXin(R) during 1998,
did not recur in the six months ended June 30, 1999. This
resulted in a decrease in research, development and pilot
plant expenses for the six months ended June 30, 1999 as
compared to the six month period ended June 30, 1998.
General and administrative expenses
General and administrative expenses have decreased, primarily
due to the Company's operating without a designated CEO
since mid-1998 (the Company's Board of Directors as a group
presently performs the functions of CEO). General and
administrative expenses for the six months ended June 30,
1999 and 1998 were $173,720 and $316,548, respectively, a
decrease of $142,828, or 45%. General and administrative expenses
are expected to continue at approximately $30,000 per month in
the near term, and are expected to be funded by sales. However,
there can be no assurance that such sales will occur, or that
they will be material.
Litigation expenses
Management expects to recover these litigation expenses,
associated with the suit filed against the Company by ADM and
the Company's counterclaim, through damage awards and
preservation of the commercial product rights associated with
AstaXin(R). However, there can be no assurance that the Company
will receive damage awards or that its rights will be preserved.
Litigation expenses for the six months ended June 30, 1999 and
1998 were $358,494 and $183,698, an increase of $174,796, or
95%. These expenses are expected to continue, in the near term,
at levels based on management's continual re-assessments
of the potential benefits of its litigation efforts. They are
expected to be funded by additional capital contributions or
loans from the Company's directors and other investors. At the
present time, a range of reasonably possible losses from this
litigation cannot be estimated (See also Note 5 to the financial
statements on page 13 of this document).
-Page 15-
IGENE Biotechnology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Results of Operations (continued)
Interest expense, net of interest income
Interest expense, net of interest income, for the six months
ended June 30, 1999 and 1998 was $343,706 and $211,194,
respectively, an increase of $132,512, or 63%. This increase
results from $5,000,000 in notes issued during 1998 in the
Company's right's offering. It is expected that the note holders
will use these notes to exercise outstanding warrants issued to
the note holders, when and if the Company achieves profitable
operations. However, there can be no assurance that such
profitable operations will occur, or that they will be material,
or that the note-holders will exercise these warrants.
Net loss
As a result of the foregoing, the Company reported net losses
of $1,235,916 and $1,340,470, or $0.04 and $0.07 per share,
respectively, for the six months ended June 30, 1999 and 1998.
The weighted average number of shares of common stock outstanding
increased to 30,132,254 for the six months ended June 30, 1999
from 19,636,887 for the six months ended June 30, 1998. This
increase of 10,495,367 weighted average shares is caused by the
issuance of 80,000 shares of common stock in lieu of interest
payments on the variable rate subordinated debenture, the
conversion of 187,500 shares of preferred stock into 375,000
shares of common stock, the issuance of 866,667 shares of stock
in payment of legal fees and retainers, and the issuance of
11,666,667 shares to directors and other investors for cash at
$.06 per share, or $700,000, during the twelve month period ended
June 30, 1999 (See also note 3 to the financial statements on
page 12 of this document).
Financial Position
During the six months ended June 30, 1999 and 1998 the following
materially affected the Company's financial position:
The Company began producing AstaXin(R) in January 1998,
capitalizing inventory of $990,320 and $216,156, respectively as
of June 30, 1999 and 1998.
The Company had sales of $203,675 during May and June of 1998,
which are included in accounts receivable as of June 30, 1998.
The Company paid expense advances and retainers of $330,000 and
$335,000, respectively to its attorneys during the six months
ended June 30, 1999 and 1998, which have been capitalized
and are included in prepaid expenses as of June 30, 1999 and
1998; as reduced by fees billed, and which will be drawn down
against future costs associated with on-going litigation against
ADM.
During the six months ended June 30, 1999 the Company issued
11,666,667 new shares of common stock to directors and other
investors at $.06 per share, or $700,000.
The Company issued, on March 31, 1998, $5,000,000 of long-term
notes payable pursuant to its rights offering of February 13,
1998. The notes mature on March 31, 2003 with interest payable
at 8% payable either annually or at maturity, at the Company's
option. The Company also issued warrants to purchase 50,000,000
shares of common stock at $0.10 per share expiring March 31,
2008. Short-term promissory notes of $1,875,000 and demand notes
of $475,000 were repaid through exercise of rights in this
offering, and $211,712 of related debt issue costs were
capitalized.
-Page 16-
IGENE Biotechnology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Financial Position (continued)
During the six months ended June 30, 1998, the Company issued
$950,000 in demand notes to certain directors, $475,000 of
which were repaid pursuant to the issuance of new debt in the
rights offering, and $475,000 of which were repaid in cash.
During the six months ended June 30, 1999 and 1998, the Company
purchased $28,407 and $59,052, respectively, in research and
development and manufacturing equipment.
During the six months ended June 30, 1999 and 1998 the Company
received principal repayments of $44,003 and $121,508,
respectively on its loan receivable from its contract
manufacturer, which financed the manufacturer's purchase of
$500,000 of manufacturing equipment from the Company, at cost.
In December of 1988, the Company suspended payment of the
quarterly dividend on its preferred stock. Resumption of the
dividend will require significant improvement in cash flow.
Unpaid dividends cumulate for future payment or increase the
liquidation preference or redemption value of the preferred
stock. As of June 30, 1999 and 1998, total dividends in arrears
on the Company's preferred stock was $203,593 and $1,354,
respectively, of which $203,592 ($6.88 per share) and $184,654
($6.24 per share), respectively, was included in the carrying
value of the redeemable preferred stock and $-0- and $1,170,
respectively, was included in the liquidation preference of the
limited redemption preferred stock. A reduction in dividends
in arrears resulted from the conversion, in September 1998, of
187,500 shares of limited redemption preferred stock into
375,000 shares of common stock.
Liquidity and Capital Resources
Historically, the Company has been funded primarily by equity
contributions and loans from stockholders. As of June 30,
1999 and 1998, the Company had working capital of $1,260,751 and
$1,895,423, respectively. Working capital decreased by $634,672
during the twelve month period ended June 30, 1999. The Company
had cash and cash equivalents of $63,185 and $1,414,683 as of
June 30, 1999 and 1998, respectively. In order to continue to
fund operations in the near term, until profitable operations
occur, the Company plans to obtain additional capitalization
from directors and other investors.
Cash used by operations in the six months ended June 30, 1999
and 1998 amounted to $1,089,091 and $1,618,958, respectively.
This decrease in cash used in operations of $529,867 resulted
from reductions in research and development and general
and administrative expenses and a temporary halt in production
of AstaXin(R) during the six months ended June 30, 1999.
Cash provided by investing activities for the six months ended
June 30, 1999 and 1998 amounted to $21,781 and $66,961,
respectively. The decrease of $45,180 in cash provided by
investing activities resulted primarily from a decrease in the
amount of principal repayments on loan receivable during the
six months ended June 30, 1999. These repayments by the Company's
contract manufacturer were suspended during the temporary halt
in production which occurred during the six months ended June 30,
1999.
Cash provided by financing activities for the six months ended
June 30, 1999 and 1998 amounted to $765,699 and $2,942,132
respectively, a decrease of $2,176,433, resulting primarily from
net proceeds from the rights offering of $2,438,288 during the
six months ended June 30, 1998.
-Page 17-
IGENE Biotechnology, Inc.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On July 21, 1997, ADM filed suit against the Company in the U.S.
District Court in Baltimore, Maryland alleging patent
infringement and requesting a preliminary injunction against the
Company to cease the use of the Company's astaxanthin
manufacturing process. On August 24, 1997, the Company filed a
$300,450,000 contract and trade secrets counterclaim against ADM,
alleging theft of trade secrets. The Company is also claiming
breach of contract, in regards to a licensing agreement entered
into by the Company and ADM in 1995. The Company contends that
it complied with all material terms of this agreement.
On September 10, 1997 the District Court denied ADM's request
for a preliminary injunction on the basis that ADM could not
demonstrate a likelihood of success on the merits of its
patent infringement allegations. To date, a stay on all discovery
has been imposed by the court, while a court-appointed expert
analyzed the yeast products of both parties. Most recently,
and pursuant to an order issued by the judge on July 16, 1999,
both the Company and ADM have communicated to the court their
willingness to pursue a mediated settlement of this dispute. It
is management's contention that it is not probable that this
dispute will result in an unfavorable outcome. Accordingly, no
liability has been reflected in the accompanying balance sheet.
The Company had expenses of $358,494 and $183,698, respectively,
in the six months ended June 30, 1999 and 1998 relating to this
litigation, which is on-going.
Item 2. Changes in Securities and Use of Proceeds.
Dividends on Common Stock are currently prohibited because of the
preferential rights of holders of Preferred Stock.The Company has
paid no cash dividends on its Common Stock in the past and does
not intend to declare or pay any dividends on its Common stock in
the foreseeable future.
With respect to sales of securities not registered under the
Securities Act, see Note 3 to the financial statements, at page
12 of this report.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information
Pursuant to an order issued by the judge on July 16, 1999, both
the Company and ADM have communicated to the court their
willingness to pursue a mediated settlement of the dispute
underlying ADM's suit against the Company and the Company's
counterclaim.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8K - None
-Page 18-
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
IGENE Biotechnology, Inc.
(Registrant)
Date July 30, 1999 /s/Stephen F. Hiu
___________________________________
Stephen F. Hiu
President and Treasurer
(On behalf of the Registrant and as
Principal Financial Officer)
-Page 19-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 63,185
<SECURITIES> 0
<RECEIVABLES> 8,955
<ALLOWANCES> 0
<INVENTORY> 990,320
<CURRENT-ASSETS> 1,492,722
<PP&E> 574,674
<DEPRECIATION> 218,271
<TOTAL-ASSETS> 2,012,785
<CURRENT-LIABILITIES> 231,981
<BONDS> 8,498,420
<COMMON> 344,275
440,329
0
<OTHER-SE> (7,270,239)
<TOTAL-LIABILITY-AND-EQUITY> 2,012,785
<SALES> 0
<TOTAL-REVENUES> 3,174
<CGS> 119,845
<TOTAL-COSTS> 775,539
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 343,706
<INCOME-PRETAX> (892,210)
<INCOME-TAX> 0
<INCOME-CONTINUING> (892,210)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (892,210)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
