SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 10549
FORM 10-QSB/A
(Amendment No.1)
(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, 2003
[ ] 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 [ ] No [x]
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
101,732,453 shares as of July 27, 2005.
______________________________________
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [x]
Explanatory Note:
As disclosed in the Notification of Late Filing filed by Igene
Biotechnology, Inc. (the "Registrant") with the Commission on April
1, 2005 (the "Notification"), Berenson LLP ("Berenson"), the
Registrant's independent registered public accounting firm, has
questioned the Registrant's historical method of recording the value
of its 50% interest in its joint venture with Tate & Lyle PLC (the
"Joint Venture"), as reflected in the Registrant's previously issued
consolidated financial statements contained in the Registrant's
Annual Report on Form 10-KSB for the year ended December 31, 2003 and
consolidated interim financial statements contained in the
Registrant's Quarterly Reports on Form 10-QSB for the quarterly
periods ended March 31, 2004, June 30, 2003 and 2004, and September
30, 2003 and 2004 (collectively, the "Financial Statements").
As disclosed in the Notification, the Registrant contacted the Office
of Chief Accountant of the Commission requesting further guidance on
this accounting matter. The Registrant engaged in discussions with
the Staff of the Commission relating to the accounting treatment of
the Registrant's interest in the Joint Venture. The Commission
advised the registrant that the historical accounting treatment was
not appropriate. In a letter dated May 12, 2005, and received by the
Company on the same date, Berenson notified the Registrant that the
Financial Statements should no longer be relied upon because of
errors in those Financial Statements. The Registrant is now in the
process of correcting and restating the Financial Statements (the
"Restatement"). The Registrant plans to file such restated Financial
Statements as soon as is practicable after the necessary corrections
have been made.
The historical Financial Statements filed with the Commission treated
the Registrant's investment in the Joint Venture under the equity
method of accounting as a one-line caption on its consolidated
balance sheet and consolidated statement of operations with the
excess of fair value of such investment in the Joint Venture over the
historical cost basis of consideration paid for such investment
reflected as an adjustment to additional paid-in capital.
The Restatement of the Financial Statements pertains primarily to the
manner in which the Registrant recorded the investment in the Joint
Venture in the Financial Statements. The Registrant has been advised
that while the Registrant's investment in the Joint Venture has been
correctly accounted for under the equity method of accounting as a
one-line caption on its consolidated balance sheets and consolidated
statements of operations, the Registrant's investment in the Joint
Venture should have been recorded at an amount equal to the value of
the Registrant's consideration contributed at the creation of the
Joint Venture (not as the excess of fair value of the Registrant's
investment in the Joint Venture over the historical cost basis). As
a result, the investment in the Joint Venture should have been
initially recorded with a value of $316,869; rather than $12,300,000
initially recorded in the Financial Statements.
In addition, the restatement includes a $90,000 accrual of dividends
on preferred shares, Series B, which was not originally accrued until
year end as part of a $150,000 dividend accrual. It will now be
reflected as $90,000 in the second quarter and $30,000 in each of the
subsequent quarters, recognizing the quarterly amounts through the
year rather than reflecting the entire accrual at year end.
For the convenience of the reader, this Form 10-QSB/A sets forth the
Form 10-QSB originally filed with the SEC on August 14, 2003 (the
"Form 10-QSB") in its entirety. However, this Form 10-QSB/A only
amends and restates Items [1 and 2 of Part I] of the Form 10-QSB, in
each case, solely as a result of, and to reflect the Restatement and
no other information in the Form 10-QSB is amended hereby. The
foregoing items have not been updated to reflect other events
occurring after the original filing date of the Form 10-QSB or to
modify or update those disclosures affected by subsequent events. In
addition, pursuant to the rules of the SEC, Item 6 of Part II of the
Form 10-QSB has been amended to contain currently-dated
certifications from the Company's Chief Executive Officer and Chief
Financial Officer, as required by Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002. The certifications of the Company's
Chief Executive Officer and Chief Financial Officer are attached to
this Form 10-QSB/A as Exhibits 31(a), 31(b), 32(a) and 32(b).
Except for the foregoing amended information, this Form 10-QSB/A
continues to speak as of the original filing date of the Form 10-QSB,
and the Company has not updated the disclosure contained herein to
reflect events that occurred at a later date. Other events occurring
after the filing of the Form 10-QSB or other disclosures necessary to
reflect subsequent events are addressed, or will be addressed, in
subsequent filings with the SEC.
FORM 10-QSB/A
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 ............. 11-15
Management's Discussion and Analysis of Financial
Condition and Results of Operations .................... 16-21
PART II - OTHER INFORMATION ............................... 22-23
SIGNATURES .................................................. 24
EXHIBIT INDEX ............................................... 25
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,
2003 2002
____________ ____________
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 366,634 $ 497,711
Accounts receivable (net of allowances of $24,000 in 2002) 154,998 528,065
Inventory --- 374,709
Prepaid expenses and other current assets 178,683 192,993
Assets to be disposed of --- 628,326
Deferred costs, current portion --- 74,160
____________ ____________
700,315 2,295,964
OTHER ASSETS
Property and equipment, net 177,562 196,258
Deferred costs, net of current portion --- 187,753
Investment in and advances to Joint Venture 391,526 ---
Equipment deposits 90,000 199,685
Loans receivable from manufacturing agent 267,851 324,405
Other assets 4,886 5,188
____________ ____________
TOTAL ASSETS $ 1,632,140 $ 3,209,253
============ ============
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,
2003 2002
____________ ____________
(Unaudited)
LIABILITIES, REDEEMABLE PREFERED STOCK
AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 496,995 $ 595,646
Notes payable - directors 150,000 250,000
Liabilities to be disposed of --- 655,763
Equipment lease payable 3,249 3,590
____________ ____________
TOTAL CURRENT LIABILITIES 650,244 1,504,999
LONG-TERM LIABILITIES
Notes payable 6,043,659 6,043,659
Convertible debentures 4,814,212 4,814,212
Equipment lease payable, net of current portion --- 1,205
Accrued interest 3,037,332 2,700,865
____________ ____________
TOTAL LIABILITIES 14,545,447 15,064,940
____________ ____________
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK
Carrying amount of redeemable preferred
stock, 8% cumulative, convertible,
voting, series A, $.01 par value per
share. Stated value was $ 17.44
and $17.12, respectively. Authorized
1,312,500 shares, issued 25,605 shares
and 26,155 respectively 446,552 447,774
____________ ____________
Carrying amount of redeemable preferred stock,
8% cumulative, convertible, voting, series B,
$.01 par value per share. Stated value was $ 8.48
and $8.00, respectively.
Authorized, issued and outstanding 187,500 shares.
Redemption amount $1,590,000 1,590,000 1,500,000
____________ ____________
STOCKHOLDERS' DEFICIT
Common stock --- $.01 par value per share.
Authorized 750,000,000 shares;
issued and outstanding 87,074,869
and 92,943,746 shares, respectively. 870,749 929,437
Additional paid-in capital 22,192,251 22,387,604
Deficit (38,012,859) (37,120,502)
____________ ____________
TOTAL STOCKHOLDERS' DEFICIT (14,949,859) (13,803,461)
____________ ____________
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 1,632,140 $ 3,209,253
============ ============
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,
2003 2002 2003 2002
____________ ____________ ____________ ____________
REVENUE
Sales - AstaXin(R) $ 152,705 $ 660,664 $ 463,486 $ 1,168,915
Cost of sales - AstaXin(R) 13,962 603,981 444,946 1,034,641
____________ ____________ ____________ ____________
GROSS PROFIT 8,743 56,683 18,540 134,274
____________ ____________ ____________ ____________
OPERATING EXPENSES
Marketing and selling 118,569 126,620 219,855 271,417
Research, development and pilot plant 223,004 141,626 378,401 322,017
General and administrative 242,388 155,170 384,327 387,995
Operating expenses reimbursed by Joint Venture (564,381) --- (564,381) ---
____________ ____________ ____________ ____________
TOTAL OPERATING EXPENSES 19,580 423,416 418,202 981,429
____________ ____________ ____________ ____________
OPERATING LOSS (10,837) (366,733) (399,662) (847,155)
____________ ____________ ____________ ____________
EQUITY IN EARNINGS (LOSS) OF
UNCONSOLIDATED JOINT VENTURE (347,000) --- (347,000) ---
INTEREST EXPENSE (177,901) (305,350) (383,132) (523,491)
____________ ____________ ____________ ____________
NET LOSS FROM CONTINUING OPERATIONS (535,738) (672,083) (1,129,794) (1,370,646)
____________ ____________ ____________ ____________
DISCONTINUED OPERATIONS
_______________________
Net loss from discontinued operations --- (115,331) --- (133,003)
Gain on disposal of discontinued operations --- --- 237,437 ---
____________ ____________ ____________ ____________
NET INCOME (LOSS) FROM
DISCONTINUED OPERATIONS --- (115,331) 237,437 (133,003)
____________ ____________ ____________ ____________
NET LOSS $ (535,738) $ (787,414) $ (892,357) $(1,503,649)
____________ ____________ ____________ ____________
BASIC AND DILUTED NET LOSS PER COMMON SHARE
FROM CONTINUING OPERATIONS $ (0.01) $ (0.01) $ (0.01) $ (0.02)
____________ ____________ ____________ ____________
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 $ (0.01) $ (0.01) $ (0.01) $ (0.02)
============ ============ ============ ============
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, 2002 26,405 $ 435,154
Cumulative undeclared dividends
on redeemable preferred stock --- 8,450
Exercise of employee stock options --- ---
Exercise of warrants --- ---
Net loss for the six months ended June 30, 2002 --- ---
============= =============
Balance at June 30, 2002 26,405 $ 443,604
============= =============
Balance at January 1, 2003 213,655 $ 1,947,774
Cumulative undeclared dividends
on redeemable preferred stock --- 98,194
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 $ 2,036,552
============= =============
The accompanying notes are an integral part of the financial statements.
-8-
IGENE Biotechnology, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Deficit
(Unaudited - Continued)
Accumulated
Additional Other Total
Common Stock Paid-in Comprehensive Stockholders'
(shares/amount) Capital Deficit Income(Loss) Deficit
________________________ ____________ _____________ _____________ _____________
Balance at January 1, 2002 75,848,600 $ 758,486 $22,188,836 $(33,930,523) --- $(10,983,201)
Cumulative undeclared dividends
on redeemable preferred stock --- --- (8,450) --- --- (8,450)
Issuance of common stock in
lieu of cash in payment of
interest on subordinate debenture 40,000 400 89,600 --- --- 90,000
Shares issued for manufacturing agreement 2,468,768 24,688 72,521 --- --- 97,209
Comprehensive loss:
Net loss for the six months ended
June 30, 2002 --- --- --- (1,503,649) (1,503,649) (1,503,649)
Other comprehensive income-
Foreign currency translation --- --- --- --- 106,422 106,422
_____________
Total comprehensive loss --- --- --- --- --- (1,397,227)
____________ __________ ____________ _____________ _____________ _____________
Balance at June 30, 2002 78,357,368 $ 783,574 $22,342,507 $(35,434,172) $ 106,422 $(12,201,669)
============ ========== ============ ============= ============= =============
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 --- --- (98,194) --- --- (98,194)
Conversion of preferred stock to common 1,100 11 9,405 --- --- 9,416
Shares received and retired in
ProBio Sale (7,000,000) (70,000) (140,000) --- --- (210,000)
Shares issued for manufacturing agreement 1,130,023 11,301 33,436 --- --- 44,737
Net loss for the six months ended
June 30, 2003 --- --- --- (892,357) --- (892,357)
____________ __________ ____________ _____________ _____________ _____________
Balance at June 30, 2003 87,074,869 $ 870,749 $22,192,251 $(38,012,859) $ --- $(14,949,859)
============ ========== ============ ============= ============= =============
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,
2003 2002
_______________ _______________
Cash flows from operating activities
Net loss $ (892,357) $ (1,503,649)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation 11,784 26,455
Amortization 54,729 58,257
Foreign currency translation adjustment --- 106,422
Manufacturing cost paid in shares of common stock 44,736 97,209
Interest on debenture paid in shares of common stock --- 90,000
Equity in earnings of unconsolidated sub 347,000 ---
Decrease (increase) in:
Accounts receivable 373,067 221,359
Inventory 374,709 (791,899)
Prepaid expenses and other current assets 43,729 (183,491)
Increase (decrease) in:
Accounts payable and accrued expenses 29,974 1,003,797
_______________ _______________
Net cash (used) provided by operating activities 387,371 (875,540)
_______________ _______________
Cash flows from investing activities
Capital (expenditures) & sales 3,209 (425,334)
Advances to joint venture (421,657) ---
Deposits and other assets --- (93,722)
_______________ _______________
Net cash used by investing activities (418,448) (519,106)
_______________ _______________
Cash flows from financing activities
Proceeds (repayment) from borrowing (100,000) 1,000,000
Proceeds of long-term debt --- 301,600
_______________ _______________
Net cash (used) provided by financing activities (100,000) 1,301,600
_______________ _______________
Net decrease in cash and cash equivalents (131,077) (93,046)
Cash and cash equivalents at beginning of period 497,711 394,487
_______________ _______________
Cash and cash equivalents at end of period $ 366,634 $ 301,441
=============== ===============
Supplementary disclosure and cash flow information
Cash paid for interest $ 30,994 $ 508
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, 2003, 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, 2002.
(2) Noncash investing and financing activities
During the six months ended June 30, 2003 and 2002 Igene recorded
dividends in arrears on 8% redeemable preferred stock at $.32 per
share aggregating $8,194 and $8,450 respectively, on Series A
preferred stock and during the six months ended June 30, 2003 Igene
recorded dividends in arrears of $.48 per share aggregating $90,000
on Series B preferred stock, which has been reclassified from paid-
in capital and included in the carrying value of the redeemable
preferred stock.
During the six months ended June 30, 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 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 investment in the Joint Venture has been recorded
at an amount equal to the book value of the Registrant's
consideration contributed at the creation of the Joint Venture. As
the cost of the Company's technology and intellectual property has
been previously expensed and has a carrying amount of zero, the
investment in the Joint Venture has been initially recorded with a
book value of $316,869, which represents the unamortized production
costs contributed to the Joint Venture. During the second quarter
the Company made $421,657 in advances to the Joint Venture.
During the six months ended June 30, 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. Provided Mr. Benjaminsen
remains employed by Igene through 2003, 1,000,000 of the escrowed
shares of common stock will be delivered to Fermtech. 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 extended
repayment on demand notes of $6,043,659 and related accrued interest
of $2,865,810 until March 31, 2006.
During the six months ended June 30, 2002 the company issued 40,000
shares of common stock 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.
-11-
IGENE Biotechnology, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
(3) 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.
(4) Joint Venture
On March 18, 2003, 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 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 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 and has been recorded as the initial cost of the investment.
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.
Igene's share of the losses in the Joint Venture will be recognized
only to the extent of Igene's consideration paid for and its
consideration exchanged for its ownership portion of the Joint
Venture as well as any advances made to the Joint Venture. Losses
in excess of Igene's consideration and advances will not be
recognized in Igene's Financial Statements but will be carried
forward and will offset future income of the Joint Venture, if any.
Igene does not expect to recognize income from the Joint Venture
until all accumulated unrecognized losses have been eliminated.
(5) Inventories
As part of the Joint Venture Agreement, inventory will be maintained
by the Joint Venture. As a result Igene sold the remainder of it's
inventory and plans to no longer maintain inventory. December 31,
2002 figures for inventory are stated at lower of cost, on a first-
in first-out basis, or market value; work in process, and finished
goods represents product manufactured and held for sale are as
follows:
June 30, December 31,
2003 2002
_____________ _____________
Work-in-process - AstaXin(R) $ --- $ 11,308
Finished goods - AstaXin(R) --- 363,401
_____________ _____________
Total inventory $ --- $ 374,709
============= =============
(6) Stockholders' Equity (Deficit)
As of June 30, 2003 and 2002, 51,210 and 52,810 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, 2003 and 2002, 74,604,500 shares, of authorized but
unissued common stock were reserved for distribution and exercise
pursuant to the Company's Employee Stock Option Plans.
-12-
Notes to Consolidated Financial Statements
IGENE Biotechnology, Inc. and Subsidiaries
(continued)
As of June 30, 2003, 6,666,666 shares, of authorized but unissued
common stock were reserved for distribution and exercise pursuant to
a stock option agreement with past officers of the Company, which
options shall be valid and executable until January 22, 2004.
As of June 30, 2002, 40,000 shares of authorized but unissued common
stock were reserved for issuance for payment of interest on the
variable rate subordinated debenture.
As of June 30, 2003 and 2002, 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, 2003 and 2002, 66,427,651 and 31,427,651 shares,
respectively, 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, 2003 and 2002 10,000,000 shares 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, 2003 and 2002, 198,016,073 and 188,016,085 shares,
respectively, of authorized but unissued common stock were reserved
for the exercise of outstanding warrants.
As of June 30, 2003 and 2002, 10,566,708 and 12,488,213 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, 2003 and 2002 is based on 87,435,688 and
76,207,730, 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 $98,194 and
$8,450 for the six months ended June 30, 2003 and 2002,
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) Contingency - Litigation
Archer Daniels Midland, Inc. ("ADM") has sued Igene, alleging patent
infringement and requesting injunctive relief as well as an
unspecified amount of damages (suit filed July 21, 1997, U.S.
District Court, Baltimore, MD). Igene has filed a $300,450,000
counterclaim concerning the theft of trade secrets (counter claim
filed August 4, 1997). The court denied ADM's request for
preliminary injunctive relief. Mediation efforts during 1999 did
not resolve this dispute, which has been returned to the court for a
judicial disposition. On July 3, 2003 the presiding judge set a
court date of July 5, 2004 to return to trail. Igene believes that
it is not probable that this dispute will result in an unfavorable
outcome to Igene. Accordingly, no liability has been reflected in
the June 30, 2003 balance sheet. Nonetheless, should ADM prevail,
Igene could be liable for damages, and Igene could also lose the
right to use a particular strain of
-13-
Notes to Consolidated Financial Statements
IGENE Biotechnology, Inc. and Subsidiaries
(continued)
yeast. However, Igene expects that this will not affect Igene's
ability to make and sell its product, AstaXin(R). Igene has had no
expenses for the six months ended June 30, 2003 and 2002 relating to
this on-going litigation. With the resumption of matters it is
expected Igene will again need to bear legal cost related to this
matter.
(10) Uncertainty
Igene has incurred net losses in each year of its existence,
aggregating approximately $38,000,000 from inception to June 30,
2003 and its liabilities and redeemable preferred stock exceeded its
assets by approximately $15 million 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.
During 2002 Igene continued to fund its operations through the
issuance of warrants and convertible debentures through direct
purchases and loans by directors and other accredited investors.
This provided additional capital of $1,550,000.
(11) Stock Based Compensation
The company accounts for those 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,
2003 2002 2003 2002
____________ ____________ ____________ ____________
Net loss:
As reported $ (535,738) $ (787,414) $ (892,357) $(1,503,649)
Less pro forma stock-based employee
compensation expense determined under fair
value based method net of related tax effects (159,578) (171,250) (264,162) (342,500)
____________ ____________ ____________ ____________
Net loss $ (695,316) $ (958,664) $(1,156,519) $(1,846,149)
============ ============ ============ ============
Net loss per Share:
Basic - as reported $ (0.01) $ (0.01) $ (0.01) $ (0.02)
Basic - pro forma $ (0.01) $ (0.01) $ (0.01) $ (0.02)
Diluted - as reported $ (0.01) $ (0.01) $ (0.01) $ (0.02)
Diluted - pro forma $ (0.01) $ (0.01) $ (0.01) $ (0.02)
(12) Recent Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board ("FASB")
issued Interpretation ("FIN") No. 46 "Consolidation of Variable
Interest Entities" which clarifies the application of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements". The
provision of FIN No. 46 are effective July 1, 2003 for variable
interest entities created before January 31, 2003. The company
believes that the implementation of the standard will not have a
material effect on its financial statements.
-14-
Notes to Consolidated Financial Statements
IGENE Biotechnology, Inc. and Subsidiaries
(continued)
(13) Summary of Significant Activity of Joint Venture
The following statement displays the significant activity for the
Joint Venture for the period from the initial investment in the
Joint Venture through June 30, 2003. Igene's 50% equity interest in
the activity is recorded in Igene's Financial Statements as equity
in loss of unconsolidated Joint Venture:
June 30,
2003
____________
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,855,000
Accounts receivable 102,000
Inventory 908,000
____________
2,865,000
OTHER ASSETS
Fixed Assets Receivable 21,614,000
Intellectual property 24,614,000
____________
TOTAL ASSETS $ 49,093,000
============
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 558,000
____________
TOTAL LIABILITIES 558,000
Equity 48,535,000
____________
TOTAL LIABILITIES AND EQUITY $ 49,093,000
============
Period from the
initial investment to
June 30, 2003
______________________
(unaudited)
Net Sales $ 102,000
Less: manufacturing cost (91,000)
____________
Gross Profit 11,000
Less: selling, general and administrative (716,000)
____________
Operating Loss (705,000)
Interest Income 11,000
____________
Net Loss $ (694,000)
============
Igene's 50% equity interest in the net loss $ (347,000)
============
Igene's share in the net loss in the Joint Venture will be
recognized only to the extent of Igene's consideration exchanged for
it's ownership portion of the Joint Venture as well as any advances
made to the Joint Venture. Losses in excess of Igene's
consideration and advances will not be recognized in Igene's
Financial Statements but will be carried forward and will offset
future income of the Joint Venture, if any.
-15-
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 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, CURRENCY FLUCTUATIONS,
AVAILABILITY OF PRODUCTION CAPACITY, GOVERNMENT ACTION, WEATHER
CONDITIONS, AND OTHER FACTORS.
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:
Our 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.
We are currently involved in certain legal proceedings as discussed
in Item 3, "Legal Proceedings," in Part I. As of June 30, 2003, Igene
believes that it is not probable that this dispute will result in an
unfavorable outcome to Igene. Accordingly, no liability has been
reflected in the June 30, 2003 balance sheet.
We recognize 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 as referred to in the following Recent
Developments paragraph, will enter into a land lease with Tate in Selby,
England upon which a new manufacturing facility will be constructed and
operated by the Joint Venture.
-16-
IGENE Biotechnology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Recent Developments
___________________
On March 18, 2003, Igene Biotechnology, Inc. (the "Company") entered
into a Joint Venture Agreement (the "JV Agreement") with Tate & Lyle
Fermentation Products Ltd. ("Tate"). Pursuant to the JV 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 has agreed to contribute
$24,614,000 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 used by the Company.
Each of Igene and Tate will have a 50% ownership interest in the Joint
Venture and will have equal representation on the Board of Directors of
the Company.
Results of Operations
_____________________
Sales and other revenue
Sales of AstaXin(R) during the quarter ended June 30, 2003 and 2002,
were $152,705 and $660,664, respectively, a decrease of $507,959 or 77%.
Sales for the six-month periods ended June 30, 2003 and 2002, were
$463,486 and $1,168,915, respectively, a decrease of $705,429 or 60%.
Sales have been limited in the past quarters due to insufficient
production quantity. In addition, as of the middle of June, Igene had
sold the remaining inventory in the Company's possession prior to the
consummation of the JV Agreement. At this point all further sales will
be recognized through the venture company and are expected to increase as
production increases. 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.
Cost of sales and gross profit
Gross profit on sales of AstaXin(R) was $8,743 for the quarter ended
June 30, 2003. This is a decrease of $47,940 from the $56,683 for the
same quarter in the preceding year. Gross profit on sales of AstaXin(R)
was $18,540 for the six month period ended June 30, 2003 which is a
decrease of $115,734 from the $134,274 for the six months ended June 30,
2002. Gross profit fell from 11% of sales for the six months ended June
30, 2002, to 4% 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,
with expected increases in production efficiency received from the joint
venture with Tate & Lyle offsetting pricing competition, but can provide
no assurances in that regard. Demand is expected to increase both due to
seasonal increases in customer usage and increases in our market share.
Management expects that sales and gross profits may be limited by the
quantities of AstaXin(R) the Company is able to produce with its
presently available capacity with its contract manufacturer, while the
joint venture prepares to produce product. Sales and gross profit growth,
if any, may be limited unless augmented by increases in production
efficiency resulting from process research and development.
The preceding resulted in cost of sales for the quarter ended June
30, 2003 and 2002 of $143,962 and $603,981, respectively, a decrease of
$460,019 or 76%. The reduction in cost was a result of reduced quantity
produced, not a result of increased production efficiencies.
Marketing and selling expenses
For the quarter ended June 30, 2003 Igene recorded $118,569 in
Marketing Expense. As a result of the Joint Venture with Tate and Lyle,
the Joint Venture will be responsible of the costs related to marketing.
As a result of this any costs associated with the marketing of AstaXin(R)
will be reimbursed by the Joint Venture. As the Venture was consummated
as of March 3, 2003, Igene was reimbursed in the second quarter for the
expenses incurred as part of March 2003 as well as the second quarter
expenses.
-17-
IGENE Biotechnology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Research, development and pilot plant expenses
For the quarter ended June 30, 2003 Igene recorded $223,004 in
Research, development and pilot plant expense. As a result of the Joint
Venture with Tate and Lyle, the Joint Venture will be responsible for the
costs related to research. As a result of this, any costs associated
with the development of AstaXin(R) will be reimbursed by the Joint
Venture. As the venture was consummated as of March 3, 2003, Igene was
reimbursed in the second quarter for the expenses incurred in March of
2003 as well as the second quarter expenses.
Operating expenses
General and administrative expenses for the quarters ended June 30,
2003 and 2002 were $242,388. As a result of the Joint Venture with Tate
and Lyle, the Joint Venture will be responsible for the costs related to
research. As a result of this, any costs associated with the development
of AstaXin(R) will be reimbursed by the Joint Venture. As the venture was
consummated as of March 3, 2003, Igene was reimbursed in the second
quarter for the expenses incurred in March of 2003 as well as the second
quarter expenses.
Litigation expenses
Management expects to ultimately recover some portion of litigation
expenses previously incurred, which are associated with the suit filed
against the Company by Archer Daniels Midland, Inc. (ADM) and the
Company's counterclaim, through damage awards and to preserve the
commercial product rights associated with AstaXin(R). However, there can
be no assurance that the Company will receive damage awards or that its
rights will be preserved. The Company incurred no litigation expenses
for six months ended June 30, 2003 and 2002. On July 3, 2003 the
presiding judge set a court date of July 5, 2004, to return to trial.
Costs of litigation will continue in the future at levels based on
Management's continuing assessments of the potential costs and benefits
of various litigation strategies and alternatives. These expenses are
expected to be funded by additional funding from stockholders, if any.
A range of reasonably possible losses from the litigation cannot be
estimated at this time, and accordingly, no liability has been reflected
in the June 30, 2003 financial statements. With the resumption of
matters it is expected Igene will again need to bear legal cost related
to this matter.
Interest expense
Interest expense for the quarters ended June 30, 2003 and 2002 was
$177,901 and $305,350, respectively, a decrease of $127,449 or 41%.
This 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.
Equity in earnings of unconsolidated subsidiary
As a result of the joint venture the former production sales and
marketing of Astaxanthin will take place as part of the unconsolidated
subsidiary. For the initial quarter ended June 30, 2003, Igene's portion
of the Joint Venture loss was $347,000. The loss was a result of a 50%
interest in the following: Gross profit for the quarter was $11,000 on
sales of $102,000 less manufacturing cost of $91,000. Selling and
general and administrative expenses for the period were $716,000 and
interest income was $11,000. The resulting loss before tax was $694,000.
-18-
IGENE Biotechnology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Disposition of ProBio Subsidiary from discontinued operations
As reported on Form 8-K filed on February 20, 2003, the Company, in
an effort to focus on and grow its core business, has 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. Mr. Ulve has resigned as CEO and director of Igene and Mr.
Benjaminsen has retired as our chief marketing officer, effective as of
December 31, 2002.
The amount of consideration paid for ProBio was determined through
arms-length negotiations between Igene Biotechnology, Inc. management, on
behalf of Igene, and Mr. Ulve, on behalf of Fermtech. In determining the
amount paid for the ProBio shares, consideration was given of ProBio's
cash flow, cash position, revenue and revenue prospects.
The equipment and other physical property disposed of belonging to
ProBio includes inventory, personal computers, a web site and trademark,
other office equipment and furniture, and accounts receivables and
accounts payables related to nutraceuticals. For the six months ended
June 30, 2002, the net operating loss of the division being sold as
ProBio are $133,003 on sales of $1,131,206 and are reflected on the June
30, 2002 income statement as 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 (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. Provided Mr. Benjaminsen remains employed by Igene
through 2003, 1,000,000 of the escrowed shares of common stock will be
delivered to Fermtech. 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 for 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 Nutraceuticals.
Net loss and basic and diluted net loss per common share
As a result of the foregoing, the Company reported net losses of
$535,738 and $787,414, respectively, for the quarters ended June 30, 2003
and 2002, a decrease in the loss of $251,676 or 32%. This represents a
loss of $.01 per basic and diluted common share in each of the quarters
ended June 30, 2003 and 2002. The weighted average number of shares of
common stock outstanding of 86,692,223 and 77,045,178, for the quarters
ended June 30, 2003 and 2002, respectively, has increased by 9,647,045
shares. This resulted from the issuance of 194,400 shares of common stock
in exercise of warrant, 12,000,000 shares issued to Mr. Gerson as
manufacturing agent, 1,921,501 shares issued to the manufacturer as part
of the agreement, 1,600,000 shares issued to Mr. Hiu and Mr. Monahan in
lieu of compensation, reduced by the retirement of 7,000,000 shares
retired as part of the disposition of ProBio.
-19-
IGENE Biotechnology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Financial Position
During the six-month periods ended June 30, 2003 and 2002, in
addition to the Joint Venture previously discussed, the following actions
also materially affected the Company's financial position.
o Igene sold or transferred all of its inventory during the quarter
ended June 30, 2002, the result was an increase in cash to
operating activities of $374,000.
o The carrying value of redeemable preferred stock was increased and
paid-in capital available to common shareholders was decreased by
$98,149 and $8,450 in 2003 and 2002, respectively, reflecting
cumulative unpaid dividends on redeemable preferred stock.
o During the quarter ended June 30, 2003, $100,000 cash was used for
the repayment of previous financing activity.
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, 2003, total dividends in
arrears on Igene's Series A preferred stock were $246,903 ($9.44 per
share) and are included in the carrying value of the Series A preferred
stock. During the six months ended June 30, 2003 Igene recorded
dividends in arrears of $.48 per share aggregating $90,000 on Series B
preferred stock. This amount has been reclassified from paid-in capital
and included in the carrying value of the Series B redeemable preferred
stock, representing the first accrual made for the series B redeemable
preferred stock.
Liquidity and Capital Resources
Historically, Igene has been funded primarily by equity
contributions and loans from stockholders. As of June 30, 2003, Igene had
working capital of $50,071, and cash and cash equivalents of $366,634.
During the six-month period ended June 30, 2003 cash provided by
operation amounted to $387,371 as opposed to the six-month period ended
June 30, 2002 as cash used by operations amounted to $875,540.
Cash of used by financing activities decreased during the six months
ended June 30, 2003 to $418,448 from $519,106 for the six-month period
ended June 30, 2002.
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 $1,301,600 provided by financing activities for the six-
month period ended June 30, 2002. Financing activities consisted
principally of notes from directors.
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, 2003
and 2002.
-20-
IGENE Biotechnology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
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.
-21-
IGENE Biotechnology, Inc.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Archer Daniels Midland, Inc. ("ADM") has sued Igene, alleging patent
infringement and requesting injunctive relief as well as an unspecified
amount of damages (suit filed July 21, 1997, U.S. District Court,
Baltimore, MD). Igene has filed a $300,450,000 counterclaim concerning
the theft of trade secrets (counter claim filed August 4, 1997). The
court denied ADM's request for preliminary injunctive relief. Mediation
efforts during 1999 did not resolve this dispute, which has been returned
to the court for a judicial disposition. On July 3, 2003 the presiding
judge set a court date of July 5, 2004, to return to trial. Igene
believes that it is not probable that this dispute will result in an
unfavorable outcome to Igene. Accordingly, no liability has been
reflected in the June 30, 2003 balance sheet. Nonetheless, should ADM
prevail, Igene could be liable for damages, and Igene could also lose the
right to use a particular strain of yeast. However, Igene expects that
this will not affect Igene's ability to make and sell its product,
AstaXin(R). The Company had expenses of $-0-, in the six-month period
ended June 30, 2003 and 2002 relating to this on-going litigation.
Item 2. Changes in Securities and Use of Proceeds.
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, 2003, total dividends in
arrears on the Company's Series A preferred stock were $246,903($9.44 per
share) and are included in the carrying value of the Series A preferred
stock. During the six months ended June 30, 2003 Igene recorded
dividends in arrears of $.48 per share aggregating $90,000 on Series B
preferred stock. This amount has been removed from paid-in capital and
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 13, 2003, the
following matters were submitted to stockholders' vote and were approved
by the requisite number of votes: (1) the election of six directors of
the Company: Stephen F. Hiu, Thomas L. Kempner, Michael G. Kimelman,
Sidney R. Knafel, and Patrick F. Monahan; and (2) the ratification of the
appointment of Stegman & Company as the Company's independent auditors
for the fiscal year ending December 31, 2003.
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 59,875,824 178,650 --- ---
Thomas L. Kempner 59,875,824 178,650 --- ---
Michael G. Kimelman 59,875,824 178,650 --- ---
Sidney R. Knafel 59,875,824 178,650 --- ---
Patrick F. Monahan 59,875,824 178,650 --- ---
(2) Ratification of Auditors 59,952,074 91,400 11,000 ---
-22-
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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.
(b) Reports on Form 8-K
On May 6, 2003 Igene filed a Current Report on Form 8-K disclosing
the terms for the Joint Venture Agreement entered into as of March
18, 2003 between Tate & Lyle Fermentation Products Ltd., a
subsidiary of Tate & Lyle PLC and Igene Biotechnology, Inc.
-23-
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 27, 2005 By /s/ STEPHEN F. HIU
_____________ ________________________
STEPHEN F. HIU
President
Date July 27, 2005 By /s/ EDWARD J. WEISBERGER
_____________ ________________________
EDWARD J. WEISBERGER
Chief Financial Officer
-24-
EXHIBIT INDEX
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.
-25-
Exhibit 31(a)
CERTIFICATIONS
______________
I, Stephen F. Hiu, certify that:
1. I have reviewed this quarterly report on Form 10Q-SB/A of IGENE
Biotechnology, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the small business issuer as of, and for, the periods
presented in this report;
4. The small business issuer's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small
business issuer and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the small business issuer, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report
is being prepared;
(b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the small business
issuer's internal control over financial reporting that
occurred during the small business issuer's most recent fiscal
quarter (the small business issuer's fourth fiscal quarter in
the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the small business
issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the small business issuer's auditors
and the audit committee of the small business issuer's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
small business issuer's ability to record, process, summarize
and report financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in
the small business issuer's internal control over financial
reporting.
Date: July 27, 2005
/s/ STEPHEN F. HIU
___________________
STEPHEN F. HIU
President
Exhibit 31(b)
CERTIFICATIONS
______________
I, Edward J. Weisberger, certify that:
1. I have reviewed this quarterly report on Form 10Q-SB/A of IGENE
Biotechnology, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the small business issuer as of, and for, the periods
presented in this report;
4. The small business issuer's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small
business issuer and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the small business issuer, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report
is being prepared;
(b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the small business
issuer's internal control over financial reporting that
occurred during the small business issuer's most recent fiscal
quarter (the small business issuer's fourth fiscal quarter in
the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the small business
issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the small business issuer's auditors
and the audit committee of the small business issuer's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
small business issuer's ability to record, process, summarize
and report financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in
the small business issuer's internal control over financial
reporting.
Date: July 27, 2005
/s/ EDWARD J. WEISBERGER
__________________________
EDWARD J. WEISBERGER
Chief Financial Officer
Exhibit 32(a)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the IGENE Biotechnology, Inc. (the "Company")
Quarterly Report on Form 10-QSB/A for the period ended June 31, 2003, as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Stephen F. Hiu, President of the Company, certify pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1). The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2). The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
Date: July 27, 2005 By: /s/ STEPHEN F. HIU
__________________
STEPHEN F. HIU
President
Exhibit 32(b)
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the IGENE Biotechnology, Inc. (the "Company")
Quarterly Report on Form 10-QSB/A for the period ended June 30, 2003, as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Edward J. Weisberger, Chief Financial Officer of the
Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my
knowledge:
(1). The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2). The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
Date: July 27, 2005 By: /s/EDWARD J. WEISBERGER
_______________________
EDWARD J. WEISBERGER
Chief Financial Officer