U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 2004
[ ] 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:
97,047,020 shares as of August 10, 2004.
_______________________________________
Transitional Small Business Disclosure Format (check one):
Yes No x
___ ___
FORM 10-QSB
IGENE Biotechnology, Inc.
INDEX
PART I - FINANCIAL INFORMATION
Page
Consolidated Balance Sheets ......................... 5-6
Consolidated Statements of Operations ............... 7
Consolidated Statements of Stockholders' Deficit..... 8-9
Consolidated Statements of Cash Flows ............... 10
Notes to Consolidated Financial Statements .......... 11-16
Management's Discussion and Analysis of Financial
Conditions and Results of Operations ................ 17-22
PART II - OTHER INFORMATION ......................... 23-24
SIGNATURES ............................................... 25
EXHIBIT INDEX ............................................ 26
IGENE BIOTECHNOLOGY, INC.
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
PART I
FINANCIAL INFORMATION
IGENE Biotechnology, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, December 31,
2004 2003
____________ ____________
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 36,586 $ 63,075
Accounts receivable 102,333 156,458
Due From Joint Venture 697,243 495,183
Prepaid expenses and other current assets 30,499 43,675
____________ ____________
866,661 758,391
OTHER ASSETS
Property and equipment, net 139,307 148,931
Loans receivable from manufacturing agent 118,965 122,964
Investment in unconsolidated joint venture 9,629,506 11,391,506
Other assets 5,195 4,886
____________ ____________
TOTAL ASSETS $10,759,634 $12,426,678
============ ============
The accompanying notes are an integral part of the financial
statements.
-5-
IGENE Biotechnology, Inc. and Subsidiaries
Consolidated Balance Sheets
(continued)
June 30, December 31,
2004 2003
_____________ _____________
(Unaudited)
LIABILITIES, REDEEMABLE PREFERED STOCK
AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 212,035 $ 185,862
Equipment lease payable --- 1,498
_____________ _____________
TOTAL CURRENT LIABILITIES 212,035 187,360
LONG-TERM LIABILITIES
Notes payable 5,842,267 5,842,767
Convertible debentures 4,624,212 4,814,212
Accrued interest 3,800,899 3,398,272
REDEEMABLE PREFERRED STOCK
Carrying amount of redeemable preferred
stock, 8% cumulative, convertible,
voting, series A, $.01 par value per
share. Stated value was $ 18.08
and $17.44, respectively. Authorized
1,312,500 shares, issued 18,509 and 25,605 respectively 334,643 454,745
_____________ _____________
Carrying amount of redeemable preferred stock,
8% cumulative, convertible, voting, series B,
$.01 par value per share. Stated value $8.80 per share.
Authorized, issued and outstanding zero and 187,500 shares,
respectively, Redemption amount $1,500,000 --- 1,650,000
_____________ _____________
TOTAL LIABILITIES 14,814,056 16,347,356
_____________ _____________
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Common stock --- $.01 par value per share.
Authorized 750,000,000 shares;
issued and outstanding 98,003,270
and 92,747,469 shares, respectively. 980,033 927,475
Additional paid-in capital 36,721,538 34,471,490
Deficit (41,755,993) (39,319,643)
_____________ _____________
TOTAL STOCKHOLDERS' DEFICIT (4,054,422) (3,920,678)
_____________ _____________
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 10,759,634 $ 12,426,678
============= =============
The accompanying notes are an integral part of the financial
statements.
-6-
IGENE Biotechnology, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three months ended Six months ended
__________________________ __________________________
June 30, June 30, June 30, June 30,
2004 2003 2004 2003
____________ ____________ ____________ ____________
REVENUE
_______
Sales - AstaXin(R) $ --- $ 152,705 $ --- $ 463,486
Cost of sales - AstaXin(R) --- 143,962 --- 444,946
____________ ____________ ____________ ____________
GROSS PROFIT --- 8,743 --- 18,540
____________ ____________ ____________ ____________
OPERATING EXPENSES
__________________
Marketing and selling 161,245 118,569 209,267 219,855
Research, development and pilot plant 195,522 223,004 403,932 378,401
General and administrative 210,950 242,388 360,828 384,327
Litigation expense 27,500 --- 40,580 ---
Operating expenses reimbursed by Joint Venture (380,131) (564,381) (743,175) (564,381)
____________ ____________ ____________ ____________
TOTAL OPERATING EXPENSES 215,086 19,580 271,432 418,202
____________ ____________ ____________ ____________
OPERATING LOSS (215,086) (10,837) (271,432) (399,662)
EQUITY IN LOSS OF UNCONSOLIDATED SUBSIDIARY (1,088,000) (347,000) (1,762,000) (347,000)
INTEREST EXPENSE (213,182) (177,901) (402,918) (383,132)
____________ ____________ ____________ ____________
NET LOSS FROM CONTINUING OPERATIONS (1,516,268) (535,738) (2,436,350) (1,129,794)
DISCONTINUED OPERATIONS
_______________________
Gain on disposal of discontinued operations --- --- --- 237,437
____________ ____________ ____________ ____________
NET LOSS $(1,516,268) $ (535,738) $(2,436,350) $ (892,357)
============ ============ ============ ============
BASIC AND DILUTED NET LOSS PER COMMON SHARE
FROM CONTINUING OPERATIONS $ (0.02) (0.01) $ (0.03) (0.01)
____________ ____________ ____________ ____________
BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE
FROM DISCONTINUED OPERATIONS $ (0.00) (0.00) $ (0.00) (0.00)
____________ ____________ ____________ ____________
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.02) (0.00) $ (0.03) (0.01)
============ ============ ============ ============
The accompanying notes are an integral part of the financial
statements.
-7-
IGENE Biotechnology, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Deficit
(Unaudited)
Redeemable Preferred Stock
(shares/amount)
__________________________
Balance at January 1, 2003 213,655 $1,947,774
Cumulative undeclared dividends
on redeemable preferred stock --- 8,194
Conversion of preferred stock to common 550 (9,416)
Exercise of warrants --- ---
Net loss for the six months ended June 30, 2003 --- ---
=========== ===========
Balance at June 30, 2003 213,105 $1,946,552
=========== ===========
Balance at January 1, 2004 213,105 $2,104,745
Cumulative undeclared dividends
on redeemable preferred stock --- 7,058
Conversion of preferred stock to common (194,596) (1,777,160)
Exercise of warrants --- ---
Net loss for the six months ended June 30, 2004 --- ---
=========== ===========
Balance at June 30, 2004 18,509 $ 334,643
=========== ===========
The accompanying notes are an integral part of the financial
statements.
-8-
IGENE Biotechnology, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Deficit
(Unaudited - Continued)
Additional Total
Common Stock Paid-in Stockholders'
(shares/amount) Capital Deficit Deficit
_________________________ _____________ _____________ _____________
Balance at January 1, 2003 92,943,746 $ 929,437 $ 22,387,604 $(37,120,502) $(13,803,461)
Cumulative undeclared dividends
on redeemable preferred stock --- --- (8,450) --- (8,450)
Shares received and retired in ProBio Sale (7,000,000) (70,000) (140,000) --- (210,000)
Investment in unconsolidated joint venture --- --- 11,983,131 --- 11,983,131
Shares issued for manufacturing agreement 1,130,023 11,301 33,435 --- 44,736
Net loss for the six months ended June 30, 2003 --- --- --- (892,357) (892,357)
============ ============ ============= ============= =============
Balance at June 30, 2003 87,073,769 $ 870,738 $ 34,255,721 $(38,012,859) $ (2,886,400)
============ ============ ============= ============= =============
Balance at January 1, 2004 92,747,469 $ 927,475 $ 34,471,490 $(39,319,643) $ (3,920,678)
Cumulative undeclared dividends
on redeemable preferred stock --- --- (7,058) --- (7,058)
Conversion of redeemable preferred stock 389,192 3,892 1,773,268 --- 1,777,160
Shares issued for manufacturing agreement 1,361,609 13,616 171,263 --- 184,879
Shares reissued for ProBio agreement 1,000,000 10,000 100,000 --- 110,000
Conversion of ProBio debentures 1,900,000 19,000 171,000 --- 190,000
Shares issued for payment of legal services 250,000 2,500 25,000 --- 27,500
Conversion of Notes Payable 5,000 50 325 --- 375
Exercise of employee stock options 350,000 3,500 16,250 --- 19,750
Net loss for the six months ended June 30, 2004 --- --- --- (2,436,350) (2,436,350)
============ ============ ============= ============= =============
Balance at June 30, 2004 98,003,270 $ 980,033 $ 36,721,538 $(41,755,993) $ (4,054,422)
============ ============ ============= ============= =============
The accompanying notes are an integral part of the financial
statements.
-9-
IGENE Biotechnology, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Six months ended
June 30, June 30,
2004 2003
____________ ____________
Cash flows from operating activities
Net loss $(2,436,350) $ (892,357)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation 9,624 11,784
Amortization --- 54,729
Issuance of Shares to Fermtech per ProBio agreement 110,000 ---
Manufacturing cost paid in shares of common stock 184,879 44,736
Issuance of common stock for legal services 27,500 ---
Equity in loss of unconsolidated sub 1,762,000 347,000
Decrease (increase) in:
Accounts receivable 58,125 (48,590)
Inventory --- 374,709
Due from Joint Venture (202,060) ---
Prepaid expenses and other current assets 12,866 43,729
Increase (decrease) in:
Accounts payable and accrued expenses 428,800 29,974
============ ============
Net cash used in operating activities (44,616) (34,286)
============ ============
Cash flows from investing activities
Capital (expenditures) and sales --- 3,209
============ ============
Net cash provided by investing activities --- 3,209
============ ============
Cash flows from financing activities
Proceeds (repayment) from borrowing (125) (100,000)
Payment of equipment lease (1,498) ---
Proceeds from exercise of employee stock options 19,750 ---
============ ============
Net cash (used) provided by financing activities 18,127 (100,000)
============ ============
Net decrease in cash and cash equivalents (26,489) (131,077)
Cash and cash equivalents at beginning of period 63,075 497,711
============ ============
Cash and cash equivalents at end of period $ 36,586 $ 366,634
============ ============
Supplementary disclosure and cash flow information
__________________________________________________
Cash paid for interest $ 24,347 $ 30,994
Cash paid for income taxes --- ---
See Note (2) for non-cash investing and financing activities.
The accompanying notes are an integral part of the financial
statements.
-10-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Financial Statements
(1) Unaudited consolidated financial statements
The June 30, 2004, consolidated financial statements
presented herein 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, results of operation and cash flows.
Such financial statements do not include all of the
information and footnote disclosures normally included in
financial statements prepared in accordance with accounting
principles generally accepted in the United States of
America. This quarterly report on Form 10-QSB should be
read in conjunction with Igene's Annual Report on Form 10-
KSB for the year ended December 31, 2003.
(2) Nature of Operations
Igene Biotechnology, Inc. (the "Company") was incorporated
under the laws of the State of Maryland on October 27, 1981
as "Industrial Genetics, Inc." Igene changed its name to
"IGI Biotechnology, Inc." on August 17, 1983 and to "Igene
Biotechnology, Inc." on April 14, 1986. Igene is located in
Columbia, Maryland and is engaged in the business of
industrial microbiology and related biotechnologies. As a
result of the stock purchase, ProBio became our wholly-owned
subsidiary. Igene has operational subsidiaries in Norway
and Chile. IGENE Biotechnology, Inc. (the "Company") is
engaged in the business of developing, marketing, and
manufacturing specialty ingredients for human and animal
nutrition. Igene was formed to develop, produce and market
value-added specialty biochemical products. Igene is a
supplier of natural astaxanthin, an essential nutrient in
different feed applications and as a source of pigment for
coloring farmed salmon species. Igene also supplies
nutraceutical ingredients, as well as consumer ready health
food supplements, including astaxanthin. Igene is focused
on fermentation technology, pharmacology, nutrition and
health in its marketing of products and applications
worldwide.
Igene has devoted its resources to the development of
proprietary processes to convert selected agricultural raw
materials or feedstocks into commercially useful and cost
effective products for the food, feed, flavor and
agrochemical industries. In developing these processes and
products, Igene has relied on the expertise and skills of
its in-house scientific staff and, for special projects,
various consultants.
In an effort to develop a dependable source of production,
March 19, 2003, Tate & Lyle PLC and Igene Biotechnology,
Inc. announced a 50:50 joint venture to produce AstaXin(R)
for the aquaculture industry. Production will utilize Tate
& Lyle's fermentation capability together with the unique
technology developed by Igene. Part of Tate & Lyle's
existing Selby, England, citric acid facility will be
modified to include the production of 1,500 tons per annum
of this product. Tate & Lyle's investment of $25 million
includes certain of its facility assets currently used in
citric acid production. Commercial production is expected to
commence in the calendar year 2004.
(3) Noncash investing and financing activities
During the six months ended June 30, 2004, the 194,596
shares of redeemable preferred stock, with a recorded
aggregate value of $1,777,160, were converted into 389,192
shares of common stock. This portion included the 8%
Cumulative Convertible Preferred Stock, Series B and has
relieved the company of this amount from long-term debt.
During the six months ended June 30, 2004, $190,000 of the
$1,000,000 of Convertible Debentures issued as part of the
2001 ProBio purchase, were converted to common stock. These
shares were converted at $.10 per share, for a total of
1,900,000 shares. These shares were issued and the notes
cancelled. This relieved the Company of $190,000 of long-
term debt.
-11-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Financial Statements
(continued)
During the six months ended June 30, 2004, 250,000 shares
were issued to the Company's attorney as a bonus in
connection with the settlement of the ADM matter. These
shares were issued at an estimated value of $.11 per share,
aggregating to $27,500. These costs were expensed in the
second quarter as part of the ADM legal expense.
During the six months ended June 30, 2004, $500 of Notes
Payable were converted using 5,000 warrants at $.075 per
share. The notes and warrants were cancelled and 5,000
shares of common stock were issued.
During the six months ended June 30, 2004, 350,000 shares of
common stock were issued as part of employee stock option
exercises. The Company received $19,750 based on an average
exercise price of $.056 per share.
During the six months ended June 30, 2004 and 2003, Fermic,
Igene's manufacturing agent, earned 1,361,609 and 1,130,023
shares, respectively, of common stock as part of the
manufacturing agreement. Fermic earns 2,250 shares of common
stock for each kilogram pure Astaxanthin produced and
delivered as part of the agreement. The average price is
based on the market value of the shares at the time the
product is produced. Fermic can earn up to 20,000,000
shares in total under the contract. The 1,361,609 shares
were earned at an average price of $.135 per share for 2004,
and 1,130,023 shares were earned at an average price of $.05
per share for 2003. Through June 30, 2004, 12,450,832
shares have been earned. Any shares earned by Fermic will
be issued on a quarterly basis. Igene relied on Section 4(2)
of the Securities Act of 1933, as amended, to issue the
shares to Fermic without registration under that act. Igene
relied on the representations and warranties of Fermic made
in the manufacturing agreement in claiming the
aforementioned exemption.
During the six months ended June 30, 2004 and 2003, the
Company recorded in each quarter dividends in arrears on 8%
redeemable preferred stock cumulating at $.16 per share
aggregating to $7,058 and $8,449, respectively, which has
been removed from paid-in capital and included in the
carrying value of the redeemable preferred stock.
On March 11, 2003, the Company entered into a Joint Venture
Agreement with Tate & Lyle Fermentation Products Ltd.
("Tate"). Pursuant to the Joint Venture Agreement, the
Company and Tate agreed to form a joint venture (the "Joint
Venture") to manufacture, market and sell Astaxanthin and
derivative products throughout the world for all uses other
than as a Nutraceutical or otherwise for direct human
consumption. Tate contributed $24,600,000 in cash to the
Joint Venture, while the Company has agreed to transfer to
the Joint Venture its technology relating to the production
of Astaxanthin and assets related thereto. These assets will
continue to be used by the Joint Venture in the same manner
as historically used by the Company. The Company and Tate
each have a 50% ownership interest in the Joint Venture and
equal representation on the Board of Directors of the
Company. The value of the Company's technology investment
was deemed equivalent to the cash contribution made by Tate
& Lyle. Unamortized production costs in the amount of
$316,869 were contributed to the Joint Venture reducing the
adjustment to additional paid in capital.
In February, 2003, Igene sold its subsidiary ProBio to
Fermtech AS in exchange for aggregate consideration valued
at approximately $343,000, consisting of 7,000,000 shares of
Igene common stock (including 2,000,000 shares that were
placed into escrow and may be reissued to Fermtech as
described below), valued for the purposes of the acquisition
at $.03 per share, plus forgiveness of approximately
$168,000 of debt that Igene owed to ProBio at the time of
purchase in 2001. The escrowed 2,000,000 shares were to
be earned by Fermtech based upon Mr. Benjamin's continued
-12-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Financial Statements
(continued)
employment with the Company. As Mr. Benjaminsen remained
employed by Igene through 2003, 1,000,000 of the escrowed
shares of common stock were delivered to Fermtech. These
shares were expensed in the second quarter of 2004, as a
marketing expense of $110,000. If Mr. Benjaminsen remains
employed by Igene through 2004, the remaining 1,000,000
escrowed shares will be released from escrow and delivered
to Fermtech.
During the six months ended June 30, 2003, the Company
elected to extend repayment on demand notes of $6,043,659
and related accrued interest of $2,865,810 until March 31,
2006.
(4) Foreign Currency Translation and Transactions
Since the day-to-day operations of Igene's foreign
subsidiary in Chile are dependent on the economic
environment of the parent's currency, the financial position
and results of operations of Igene Chile are determined
using Igene's reporting currency (US dollars) as the
functional currency. All exchange gains and losses from
remeasurement of monetary assets and liabilities that are
not denominated in US dollars are recognized currently in
income. These losses and gains occurred primarily as a
result of the effect of valuation of the Chilean Peso on
Igene's accounts receivables, which are mostly denominated
in Pesos.
(5) Joint Venture
On March 18, 2003, the Company entered into a Joint Venture
Agreement with Tate & Lyle Fermentation Products Ltd.
("Tate"). Pursuant to a Joint Venture Agreement, the
Company and Tate agreed to form the Joint Venture to
manufacture, market and sell Astaxanthin and derivative
products throughout the world for all uses other than as a
Nutraceutical or otherwise for direct human consumption.
Tate contributed $24,600,000 in cash to the Joint Venture,
while the Company has agreed to contribute to the Joint
Venture its technology relating to the production of
Astaxanthin and assets related thereto. These assets will
continue to be used by the Joint Venture in the same manner
as historically used by the Company. The Company and Tate
each have a 50% ownership interest in the Joint Venture and
equal representation on the Board of Directors of the Joint
Venture Company. Unamortized production costs in the amount
of $316,869 were contributed to the Joint Venture reducing
the adjustment to additional paid in capital.
The Joint Venture is accounted for under the equity method.
Astaxanthin revenue is recorded on the books of the Joint
Venture. Certain costs incurred by Igene are reimbursed by
the Joint Venture. These reimbursements are reported as a
contra amount in the Operating Expense section of the
Igene's Consolidated Statements of Operations.
(6) Stockholders' Equity (Deficit)
As of June 30, 2004 and 2003, 37,018 and 52,310 shares,
respectively, of authorized but unissued common stock were
reserved for issue upon conversion of the Company's
outstanding preferred stock.
As of June 30, 2004 and 2003, 74,354,500 and 74,604,500
shares, respectively, of authorized but unissued common
stock were reserved for issue and exercise pursuant to the
Company's Employee Stock Option Plans.
As of June 30, 2004 and 2003, 10,000,000 and 6,666,666
shares, respectively, of authorized but unissued common
stock were reserved for distribution and exercise pursuant
to a stock option agreement with past officers of the
Company.
-13-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Financial Statements
(continued)
As of June 30, 2004 and 2003, 17,565,970 shares of
authorized but unissued common stock were reserved for the
conversion of outstanding convertible promissory notes in
the aggregate amount of $1,082,500 held by directors of the
Company.
As of June 30, 2004 and 2003, 66,427,651 shares of
authorized but unissued common stock were reserved for the
conversion of outstanding convertible promissory notes held
by directors of the Company.
As of June 30, 2004 and 2003, 8,100,000 and 10,000,000
shares, respectively, of authorized but unissued common
stock were reserved for the conversion of outstanding
convertible promissory notes issued as part of the purchase
of ProBio.
As of June 30, 2004 and 2003, 205,261,073 and 198,016,073
shares, respectively, of authorized but unissued common
stock were reserved for the exercise of outstanding
warrants.
As of June 30, 2004 and 2003, 7,549,168 and 10,566,708
shares, respectively, of authorized but unissued common
stock were reserved for issuance to the Company's contract
manufacturer pursuant to the terms of the current
manufacturing contract.
(7) Basic and diluted net loss per common share
Basic and diluted net loss per common share for the six-
month periods ended June 30, 2004 and 2003, is based on
94,871,391 and 86,524,457 shares, 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 cumulative undeclared dividends in
arrears on preferred stock in the amount of $7,058 and
$8,449 for the six months ended June 30, 2004 and 2003,
respectively. No adjustment has been made for any common
stock equivalents outstanding because their effects would be
antidilutive.
(8) Income Taxes
The Company uses the liability method of accounting for
income taxes as required by SFAS No. 109, "Accounting for
Income Taxes". Under the liability method, deferred-tax
assets and liabilities are determined based on differences
between the financial statement carrying amounts and the tax
bases of existing assets and liabilities (i.e., temporary
differences) and are measured at the enacted rates that will
be in effect when these differences reverse. Deferred
income taxes will be recognized when it is deemed more
likely than not that the benefits of such deferred income
taxes will be realized; accordingly, all net deferred income
taxes have been eliminated by a valuation allowance.
(9) Uncertainty
Igene has incurred net losses in each year of its existence,
aggregating approximately $41,700,000 from inception to June
30, 2004 and its liabilities and redeemable preferred stock
exceeded its assets by approximately $4,054,000 at that
date. These factors indicate that Igene will not be able to
continue in existence unless it is able to raise additional
capital and attain profitable operations.
The continuing successful marketing of Igene's product,
AstaXin(R), has permitted Igene the opportunity to
attract additional capital through it's venture with Tate
and Lyle. Igene began manufacturing and selling AstaXin(R)
during 1998 and has continued to do so to date, attempting
to increase sales and manufacturing levels. Igene believes
this technology to be highly marketable. Igene hopes to
continue increasing sales of AstaXin(R), eventually
achieving gross profits and, subsequently, profitable
operations, although the achievement of these cannot be
assured.
-14-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Financial Statements
(continued)
(10) Stock Based Compensation
The Company accounts for its stock based compensation plans
under the recognition and measurement principles of APB
opinion No. 25, "Accounting for Stock Issued to Employees",
and related interpretations. No stock option based employee
compensation cost is reflected in net income, as all options
granted under the plan had an exercise price equal to the
market value of the underlying common stock on the date of
grant. The following table illustrates the effect on net
income and earnings per share if the Company had applied the
fair value recognition provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" and disclosure
provisions of SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure", to stock-based
employee compensation for the three and six months ended
June 30:
Three months ended Six months ended
_________________________ _________________________
June 30, June 30, June 30, June 30,
2004 2003 2004 2003
____________ ____________ ____________ ____________
Net loss:
As reported $(1,516,268) $ (535,738) $(2,436,350) $ (829,357)
Less pro forma stock-based employee
compensation expense determined under
fair value based method net of related
tax effects (156,892) (159,578) (330,447) (264,162)
____________ ____________ ____________ ____________
Net loss $(1,673,160) $ (695,316) $(2,766,797) $(1,156,519)
============ ============ ============ ============
Net loss per Share:
Basic - as reported $ (0.01) $ (0.01) $ (0.03) $ (0.01)
Basic - pro forma $ (0.01) $ (0.01) $ (0.03) $ (0.01)
Diluted - as reported $ (0.01) $ (0.01) $ (0.03) $ (0.01)
Diluted - pro forma $ (0.01) $ (0.01) $ (0.03) $ (0.01)
(11) Recent Accounting Pronouncements
In April 2003, the Financial Accounting Standards Board
("FASB") issued Statements of Financial Accounting Standards
("SFAS") No. 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities". SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities
under SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities". This statement is effective for
contracts entered into or modified after June 30, 2003 and
for hedging relationships designated after June 30, 2003.
There was no material impact on the Company's financial
condition or results of operations upon adoption of this
statement.
In May 2003, the Financial Accounting Standards Board
("FASB") issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both
Liabilities and Equity". SFAS No. 150 establishes standards
for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and
equity. It requires that an issuer classify certain
financial instruments as a liability, although the
financial instrument may previously have been classified as
equity. This statement is effective for financial
instruments entered into or modified after May 31, 2003
and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. The effect
of adopting this pronouncement required the reclassification
of $2.04 million of redeemable preferred stock as a
liability as of December 31, 2003.
-15-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Financial Statements
(continued)
In January 2003, the FASB issued Interpretation No. 46
"Consolidation of Variable Interest Entities" ("FIN 46")
which explains identification of variable interest entities
and the assessment of whether to consolidate the entities.
FIN 46 requires existing unconsolidated variable interest
entities to be consolidated by their primary beneficiaries
if the entities do not effectively disperse risk among the
involved parties. The provisions of FIN 46 are effective
for all financial statements issued after January 1, 2003.
The Company had no significant variable interest in any
entities which would require disclosure or consolidation.
The Company's investment in the Joint Venture does not meet
the criteria of a variable interest entity under Fin 46.
(12) Summary of Significant Activity of Joint Venture
The following statement displays the significant activity
for the Joint Venture for the three and six month ended
June 30, 2004. As shown, 50% of the activity is recorded as
part of Igene's Financial Statements as income from
investment in Joint Venture:
Three Months Six Months
Ended Ended
June 30, 2004 June 30, 2004
_____________ _____________
Net Sales $ 862,000 $ 2,006,000
Less: manufacturing cost (2,125,000) (3,998,000)
_____________ _____________
Gross Profit (1,263,000) (1,982,000)
Less: selling, general and admin (910,000) (1,532,000)
_____________ _____________
Operating Loss (2,173,000) (3,514,000)
Interest Expense (3,000) (10,000)
_____________ _____________
Loss before tax $ (2,176,000) $ (3,524,000)
============= =============
50% equity interest Igene $ (1,088,000) $ (1,762,000)
============= =============
-16-
IGENE Biotechnology, Inc. and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
CAUTIONARY STATEMENTS FOR PURPOSES OF "SAFE HARBOR PROVISIONS" OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:
EXCEPT FOR HISTORICAL FACTS, ALL MATTERS DISCUSSED IN THIS
REPORT, WHICH ARE FORWARD LOOKING, INVOLVE A HIGH DEGREE OF RISK
AND UNCERTAINTY. CERTAIN STATEMENTS IN THIS REPORT SET FORTH
MANAGEMENT'S INTENTIONS, PLANS, BELIEFS, EXPECTATIONS OR
PREDICTIONS OF THE FUTURE BASED ON CURRENT FACTS AND ANALYSES.
WHEN WE USE THE WORDS "BELIEVE," "EXPECT," "ANTICIPATE,"
"ESTIMATE," "INTEND" OR SIMILAR EXPRESSIONS, WE INTEND TO
IDENTIFY FORWARD-LOOKING STATEMENTS. YOU SHOULD NOT PLACE UNDUE
RELIANCE ON THESE FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE INDICATED IN SUCH STATEMENT, DUE TO
A VARIETY OF FACTORS, 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, EXCHANGE
RATE FLUCTUATIONS, REDUCED PRODUCT DEMAND, INCREASED COMPETITION,
INABILITY TO PRODUCE REQUIRED CAPACITY, UNAVAILABILITY OF
FINANCING, GOVERNMENT ACTION, WEATHER CONDITIONS AND OTHER
UNCERTAINTIES.
Overview of Financial Position
______________________________
During the six-month periods ended June 30, 2004 and 2003, in
addition to the Joint Venture discussed in more detail below, the
following actions materially affected the Company's financial
position.
During the six months ended June 30, 2004, 194,596 shares
of redeemable preferred stock, with a recorded aggregate
value of $1,777,160, were converted into 389,192 shares of
common stock. This portion included the 8% Cumulative
Convertible Preferred Stock, Series B preferred securities
and has relieved the company of this amount from long-term
debt.
During the six months ended June 30, 2004, $190,000 dollars
of the $1,000,000 of Convertible Debentures issued as part
of the 2001 ProBio purchase, were converted to common
stock. These shares were converted at $.10 per share, for a
total of 1,900,000 shares. These shares were issued and the
notes cancelled, which relieved the Company of $190,000,
of long-term debt.
Increases in accounts payables and accrued expenses of
$428,800 and decreases in accounts receivable of $58,125
were sources of cash. These were reduced by increases due
from Joint Venture of $202,060.
The carrying value of redeemable preferred stock was
increased and paid-in capital available to common
shareholders was decreased by $7,058 in 2004 and $8,194 in
2003, reflecting cumulative unpaid dividends on redeemable
preferred stock.
Proceeds of employee stock options provided $19,750 in cash
flows.
During the quarter ended June 30, 2004, the Joint Venture
commissioned the Selby Production facility. Through the second
quarter this plant has been in the start-up phase. This has
resulted in the reported losses for the quarter as equipment is
brought on-line and initially utilized for production activity.
-17-
IGENE Biotechnology, Inc. and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
In December 1988, as part of an overall effort to contain
costs and conserve working capital, Igene 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 June 30, 2004, total dividends in arrears on
Igene's preferred stock total $186,571 ($10.08 per share) and are
included in the carrying value of the redeemable preferred stock.
Critical Accounting Policies
____________________________
The preparation of our financial statements in conformity
with accounting principles generally accepted in the U.S.
requires management to make judgments, assumptions and estimates
that affect the amounts reported in our financial statements and
accompanying notes. Actual results could differ materially from
those estimates. The following are critical accounting policies
important to our financial condition and results presented in the
financial statements and require management to make judgments and
estimates that are inherently uncertain:
The Joint Venture's inventories are stated at the lower of
cost or market. Cost is determined using a weighted-average
approach, which approximates the first-in first-out method. If
the cost of the inventories exceeds their expected market value,
provisions are recorded for the difference between the cost and
the market value. Inventories consist of currently marketed
products.
The Joint Venture recognizes revenue from product sales when
there is persuasive evidence that an arrangement exists, delivery
has occurred, the price is fixed and determinable, and
collectibility is reasonably assured. Allowances are established
for estimated uncollectible amounts, product returns and
discounts.
The Joint Venture will enter into a lease of real property
with an affiliate of Tate & Lyle in Selby, England upon which a
new manufacturing facility will be constructed and operated by
the Joint Venture. The Joint Venture is accounted for under the
equity method of accounting as the Company has a 50% ownership
interest.
Results of Operations
_____________________
Sales and other revenue
As part of the Joint Venture agreement, all further sales
are recognized through the venture company. Therefore, Igene
recorded no sales of AstaXin(R) during the six months ended June
30, 2004. Sales of AstaXin(R) during the quarter ended 2003 were
$152,705 and sales for the six-month periods ended June 30, 2003
were $463,486. Sales activity for the Joint Venture are report
below. Sales have been limited in the past quarters due to
insufficient production quantity. As of June 30, 2003, Igene had
sold the remaining inventory in the Company's possession to the
Joint Venture per the Joint Venture Agreement. Management
anticipates that the Joint Venture with Tate & Lyle will provide
a more dependable product flow. However, there can be no
assurance of the dependability of production, or that any
increases in sales will occur, or that they will be material.
-18-
IGENE Biotechnology, Inc. and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Cost of sales and gross profit
As with sales revenue, future cost of sales and gross
profits will be recognized through the venture company. Igene
reported no gross profit on sales of AstaXin(R) for the six
months ended June 30, 2004. Gross profit on sales of AstaXin(R)
was $8,743 for the quarter ended June 30, 2003 and was $18,540
for the six month period ended June 30, 2003. Gross profit was 4%
of sales for the six months ended June 30, 2003. The Company
attributes the fall in gross profit to a combination of pricing
pressure in the market and inefficiencies in production.
Management expects the level of gross profit to improve in the
future as a percentage of sales. Demand is expected to increase
as the Company increases customer usage and market share.
Management expects the level of gross profit to improve with
expected increases in production efficiency received from the
Joint Venture with Tate & Lyle offsetting pricing competition,
but can provide no assurances as to future increased production
or gross profit.
Cost of sales for the quarter ended June 30, 2003, was
$143,962. Cost of sales for quarter ended June 30, 2004 was $0.
Marketing and selling expenses
For the quarters ended June 30, 2004 and 2003, Igene
recorded marketing and selling expense in the amount of $161,245
and $118,569, respectively, an increase of $42,676 or 36%. For
the six months ended June 30, 2004 and 2003, Igene recorded
marketing and selling expense in the amount of $209,267 and
$219,855, respectively, a decrease of $10,588 or 5%. As a result
of the disposition of it's ProBio subsidiary in February 2003,
Igene had expected reduced marketing and selling costs incurred
as part of the prior combination with ProBio, such as increased
sales force. In addition, the reduction of salable product
currently available to Igene from its current manufacturer was
expected to cause a corresponding reduction in marketing and
selling expense. The current period marketing and selling
expense increased as a result of recognizing the expense
associated with the shares issued to Fermtech. As Mr.
Benjaminsen remained employed by Igene through 2003, 1,000,000 of
the escrowed shares of common stock were delivered to Fermtech.
A marketing and selling expense of $110,000 was recognized in the
second quarter as a result of the issuance of the shares of
common stock. If Mr. Benjaminsen remains employed by Igene
through 2004, the remaining 1,000,000 escrowed shares will be
released from escrow and delivered to Fermtech. As a result of
the Joint Venture with Tate and Lyle, Igene is expecting an
increase in salable product with a corresponding increase in
marketing and sales costs at the point the new facility increases
its level of production. Additionally, as a result of the Joint
Venture, these expenses are reimbursed to Igene. However, no
assurances can be made in regards to increased production from
the new facility nor with regard to the corresponding increase in
marketing and selling costs.
Research, development and pilot plant expenses
For the quarter ended June 30, 2004 and 2003, Igene recorded
research and development costs in the amount of $195,522 and
$223,004, respectively, a decrease of $27,482 or 12%. For the
six months ended June 30, 2004 and 2003, Igene recorded research
and development costs in the amount of $403,932 and $378,401,
respectively, an increase of $25,531 or 7%. These costs are
expected to remain relatively constant in support of increasing
the efficiency of the manufacturing process through
experimentation in the Company's pilot plant, developing higher
yielding strains of yeast and other improvements in the Company's
AstaXin(R) technology. Igene is hoping this will lead to an
increase in salable product at a reduced cost to Igene and the
Joint Venture. However no assurances can be made in that regard.
These costs are currently funded through reimbursement from the
Joint Venture.
-19-
IGENE Biotechnology, Inc. and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Operating expenses
General and administrative expenses for the quarter ended
June 30, 2004 and 2003 were $210,950 and $242,388 respectively, a
decrease of $31,438 or 13%. General and administrative expenses
for the six months ended June 30, 2004 and 2003 were $360,828 and
$384,327 respectively, a decrease of $23,499 or 6%. These costs
are expected to remain constant, as Igene works to keep overhead
costs at a reduced level and spend funds on research and
development efforts. A portion of this cost is funded by
reimbursement through the Joint Venture and the remainder will
need to be funded through profitable operations or through
contributions from directors; though neither of these can be
assured.
Litigation expenses
Previously reported litigation (original lawsuit filed July
21, 1997, U.S. District Court, Baltimore, MD) between Archer
Daniels Midland, Inc. ("ADM") and Igene, involving allegations of
patent infringement and counterclaims concerning the theft of
trade secrets, was resolved on September 29, 2003. Resolution of
the dispute between ADM and Igene did not result in an
unfavorable outcome to Igene. Igene will continue to make and
sell its product, AstaXin(R). The Company incurred $27,500 of
litigation expenses for the three months ended June 30, 2004, and
$40,580 for the six months ended June 30, 2004. During the six
months ended June 30, 2004, 250,000 shares were issued to the
Company attorney, as a bonus in connection with the settlement of
the ADM matter. These shares were issued at an estimated value
of $.11 per share, aggregating $27,500. These costs were
expensed in the second quarter as part of the litigation expense.
With the settlement of this matter, the related costs are
expected to cease.
Interest expense
Interest expense for the quarters ended June 30, 2004 and
2003 was $213,182 and $177,901, respectively, an increase of
$35,281 or 20%. For the six months ended June 30, 2004 and 2003,
interest expense was $402,918 and $383,132, respectively, an
increase of $19,786 or 5% The interest expense was almost
entirely composed of interest on the Company's long term
financing from its directors and other stockholders, and interest
on the Company's subordinated debenture in both periods. It is
expected this number may decrease due to the conversions by
holders of long term debt to equity.
Equity in earnings of unconsolidated subsidiary
The following statement displays the significant activity
for the Joint Venture for the three and six month ended June 30,
2004. As shown, 50% of the activity is recorded as part of
Igene's Financial Statements as income from investment in Joint
Venture:
Three Months Six Months
Ended Ended
June 30, 2004 June 30, 2004
_____________ _____________
Net Sales $ 862,000 $ 2,006,000
Less: manufacturing cost (2,125,000) (3,998,000)
_____________ _____________
Gross Profit (1,263,000) (1,982,000)
Less: selling, general and admin (910,000) (1,532,000)
_____________ _____________
Operating Loss (2,173,000) (3,514,000)
Interest Expense (3,000) (10,000)
_____________ _____________
Loss before tax $ (2,176,000) $ (3,524,000)
============= =============
50% equity interest Igene $ (1,088,000) $ (1,762,000)
============= =============
-20-
IGENE Biotechnology, Inc. and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
As a result of the Joint Venture, the production, sales and
marketing of Astaxanthin now take place in the unconsolidated
Joint Venture subsidiary. For the quarter ended June 30, 2004,
Igene's portion of the Joint Venture loss was $1,088,000. The
loss was a result of a 50% interest in the following: Gross
profit (loss) for the quarter was $(1,263,000) on sales of
$862,000, less manufacturing cost of $2,125,000. Selling and
general and administrative expenses for the period were $910,000
and interest income (expense) was $(3,000). The resulting loss
before tax was $2,176,000. For the quarter ended June 30, 2004,
Igene's 50% portion of the Joint Venture loss was $1,088,000.
During the quarter ended June 30, 2004, the Joint Venture
commissioned the Selby Production facility. Through the second
quarter this plant has been in the start-up phase. This has
resulted in the reported losses for the quarter as equipment is
brought on-line and initially utilized for production activity.
Disposition of ProBio Subsidiary
As reported on Form 8-K filed on February 20, 2003, the
Company, in an effort to focus on and grow its core business,
disposed of all 10,000 of the issued and outstanding shares of
capital stock of its former subsidiary, ProBio Nutraceuticals,
AS, a Norwegian corporation. Fermtech AS, a joint stock company
incorporated in the Kingdom of Norway and owned equally by our
then chief executive officer, Stein Ulve and our then chief
marketing officer, Per Benjaminsen, purchased the shares of
ProBio. Effective December 31, 2002, Mr. Ulve resigned as CEO
and director of Igene and Mr. Benjaminsen ceased acting as our
chief marketing officer, though Mr. Benjaminsen has maintained a
position with Igene.
The amount of consideration paid for ProBio was determined
through arms-length negotiations between Igene management, on
behalf of Igene, and Mr. Ulve, on behalf of Fermtech. The
principles followed in determining the amount paid for the ProBio
shares involved consideration of ProBio's cash flow, cash
position, revenue and revenue prospects.
The equipment and other physical property disposed of
belonging to ProBio included inventory, personal computers, a web
site and trademark, other office equipment and furniture, and
accounts receivables and accounts payables related to
nutraceuticals. For the nine months ended September 30, 2002,
the net operating loss of the division being sold as ProBio was
$340,632, on sales of $1,555,014, and is reflected on the
September 30, 2002 income statement of Igene as a loss from
discontinued operations.
Gain on disposition
Igene sold ProBio to Fermtech AS in exchange for aggregate
consideration valued at approximately $343,000, consisting of
7,000,000 shares of Igene common stock that was owned by ProBio
(including 2,000,000 shares that were placed into escrow and may
be reissued to Fermtech as described below), valued for the
purposes of the acquisition at $.03 per share, plus forgiveness
of approximately $168,000 of debt that Igene owed to ProBio at
the time of purchase in 2001. As Mr. Benjaminsen remained
employed by Igene through 2003, 1,000,000 of the escrowed shares
of common stock were delivered to Fermtech. These shares were
expensed in the second quarter of 2004, as a marketing expense of
$110,000. If Mr. Benjaminsen remains employed by Igene through
2004, the remaining 1,000,000 escrowed shares will be released
from escrow and delivered to Fermtech. Gain on disposal during
the first quarter of 2003 was $237,427. This gain was a one-time
occurrence as a result of the disposition of the assets and
liabilities associated with ProBio.
-21-
IGENE Biotechnology, Inc. and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Net loss and basic and diluted net loss per common share
As a result of the foregoing, the Company reported net
losses of $1,516,268 and $535,738, respectively, for the quarters
ended June 30, 2004 and 2003, an increase in the loss of $980,530
or 183%. This represents a loss of $.02 and $.01 per basic and
diluted common share in the quarters ended June 30, 2004 and
2003, respectively. The weighted average number of shares of
common stock outstanding of 94,871,391 and 86,524,457, for the
quarters ended June 30, 2004 and 2003, respectively, increased by
8,012,212 shares. This resulted from the weighted average
adjustments of the following transactions: the issuance of
1,905,000 shares issued in conversion of debentures, 389,192
shares of common stock in conversion of preferred stock,
3,017,543 shares issued to the manufacturer as part of the
agreement, 1,000,000 shares issued to Fermtech as part of the
ProBio disposition agreement, and 450,000 shares issued as part
of employee stock option exercises, and 250,000 shares issued as
a bonus to the Company attorney in the ADM matter.
Liquidity and Capital Resources
Historically, Igene has been funded primarily by equity
contributions and loans from stockholders. As of June 30, 2004,
Igene had working capital of $654,626, and cash and cash
equivalents of $36,586. Currently Igene is also funded by
research and development reimbursements from the Joint Venture.
Cash used by operating activities during the six-month
period ended June 30, 2004 and 2003 amounted to $44,616 and
$34,286, respectively, an increase in cash used of $10,330.
Cash of $3,209 was provided by investing activities on asset
sales for the six months ended June 30, 2003, and no cash was
provided for the six-month period ended June 30, 2004.
Cash was used by financing activities in repayment of loans
in the amount of $100,000 for the six-month period ended June 30,
2003, as opposed to the $18,127 provided by financing activities
for the six-month period ended June 30, 2002. Financing
activities consisted primarily of employee stock option plan
purchases.
Over the next twelve months, Igene believes it will need
additional working capital. Igene hopes to achieve profits from
sales of AstaXin(R) through the Joint Venture. This funding is
expected to be received from the new venture with Tate & Lyle.
However, there can be no assurance that projected profits, if
any, from sales, or additional funding from the Joint Venture
will be sufficient for Igene to fund its continued operations.
The Company does not believe that inflation has had a
significant impact on its operations during the six-month periods
ended June 30, 2004 and 2003.
Item 3. Controls and Procedures
As of the end of the most recently completed fiscal quarter, the
Company's management, with the participation of the principal
executive officer and principal financial officer, has evaluated
the effectiveness of the Company's disclosure controls and
procedures, and has concluded that the Company's disclosure
controls and procedures are effective to ensure that information
required to be disclosed by the Company in the reports that it
files or submits under the Securities Exchange Act of 1934, as
amended, is accumulated and communicated to the Company's
management, including its principal executive officer and
principal financial officer, as appropriate to allow timely
decisions regarding required disclosure and are effective to
ensure that such information is recorded, processed, summarized
and reported within the time periods specified in the SEC's rules
and forms.
There were no changes in Igene's internal control over financial
reporting that occurred during the last fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
-22-
IGENE Biotechnology, Inc.
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Small Business Issuer
Purchases of Equity Securities.
During the six months ended June 30, 2004, 250,000 shares
were issued to the Company's attorney as a bonus in connection
with the settlement of the ADM matter. These shares were issued
at an estimated value of $.11 per share, aggregating to $27,500.
These costs were expensed in the second quarter as part of the
ADM legal expense.
In February, 2003, Igene sold its subsidiary ProBio to
Fermtech AS in exchange for aggregate consideration valued at
approximately $343,000, consisting of 7,000,000 shares of Igene
common stock (including 2,000,000 shares that were placed into
escrow and may be reissued to Fermtech as described below),
valued for the purposes of the acquisition at $.03 per share,
plus forgiveness of approximately $168,000 of debt that Igene
owed to ProBio at the time of purchase in 2001. The escrowed
2,000,000 shares were to be earned by Fermtech based upon Mr.
Benjamin's continued employment with the Company. As Mr.
Benjaminsen remained employed by Igene through 2003, 1,000,000 of
the escrowed shares of common stock were delivered to Fermtech.
These shares were expensed in the second quarter of 2004, as a
marketing expense of $110,000. If Mr. Benjaminsen remains
employed by Igene through 2004, the remaining 1,000,000 escrowed
shares will be released from escrow and delivered to Fermtech.
Limitation on Payment of Dividends
__________________________________
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 3. Defaults Upon Senior Securities.
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 June 30, 2004, total dividends in arrears on the
Company's preferred stock total $186,571 ($10.08 per share) and
are included in the carrying value of the redeemable preferred
stock.
Item 4. Submission of Matters to a Vote of Security Holders.
At the annual meeting of stockholders held on June 8, 2004,
the following matter was submitted for a stockholders' vote and
was approved by the requisite number of votes: the election of
five directors of the Company. The directors nominees were
Stephen F. Hiu, Thomas L. Kempner, Michael G. Kimelman, Sidney R.
Knafel, and Patrick F. Monahan.
Results of the voting were as follows:
Votes Broker
Votes Against or Votes Non-
For Withheld Abstained Votes
__________ __________ __________ __________
(1) Election of Directors
Stephen F. Hiu 73,185,546 98,950 --- ---
Thomas L. Kempner 73,185,546 98,950 --- ---
Michael G. Kimelman 73,185,546 98,950 --- ---
Sidney R. Knafel 73,185,546 98,950 --- ---
Patrick F. Monahan 73,185,546 98,950 --- ---
-23-
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3.1 - Articles of Incorporation of the Registrant as
amended to date, constituting Exhibit 3.1 to
Registration Statement No. 333-41581 on Form SB-2
are incorporated herein by reference.
Exhibit 3.2 - Bylaws of the Registrant, constituting Exhibit
3.2 to the Registrant's Registration Statement No.
33-5441 on Form S-1, are hereby incorporated herein
by reference.
Exhibit 31(a) - Certification of Principal Executive Officer
pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)
Exhibit 31(b) - Certification of Principal Financial Officer
pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)
Exhibit 32(a) - Certification of Chief Executive Officer
pursuant to 18 U.S.C. SECTION 1350.
Exhibit 32(b) - Certification of Chief Financial Officer
pursuant to 18 U.S.C. SECTION 1350.
-24-
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 August 13, 2004 By /s/ STEPHEN F. HIU
_______________ __________________________
STEPHEN F. HIU
President
Date August 13, 2004 By /s/ EDWARD J. WEISBERGER
_______________ ___________________________
EDWARD J. WEISBERGER
Chief Financial Officer
-25-
EXHIBIT INDEX
Exhibit 3.1 - Articles of Incorporation of the Registrant as
amended to date, constituting Exhibit 3.1 to
Registration Statement No. 333-41581 on Form SB-2
are incorporated herein by reference.
Exhibit 3.2 - Bylaws of the Registrant, constituting Exhibit
3.2 to the Registrant's Registration Statement No.
33-5441 on Form S-1, are hereby incorporated herein
by reference.
Exhibit 31(a) - Certification of Principal Executive Officer
pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)
Exhibit 31(b) - Certification of Principal Financial Officer
pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)
Exhibit 32(a) - Certification of Chief Executive Officer
pursuant to 18 U.S.C. SECTION 1350.
Exhibit 32(b) - Certification of Chief Financial Officer
pursuant to 18 U.S.C. SECTION 1350.
-26-