U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 September 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 No x
___ ___
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
99,024,568 shares as of November 9, 2004.
_________________________________________
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 has filed restatements for the
quarterly periods ended June 30, 2003 and September 30, 2003 and the
annual report for the year ended December 31, 2003. The registrant
plans to file the remainder of the 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 the
$12,300,000 initially recorded in the Financial Statements.
The Company can not recognize losses of the Joint Venture beyond its
investment (including advances) in the Joint Venture. As of the
third quarter of 2004 the Company had an initial investment of and
amounts due from the Joint Venture of $1,034,748. Igene's share of
the loss through September 30, 2004 equaled $3,568,500, exceeding the
total investment by $2,533,752. This excess loss, and all future
losses incurred as a result of the Joint Venture, that are in excess
of the Company's investment and advances, will be suspended until the
point that the profits of the Joint Venture, if any, exceed the
incurred losses.
As in the originally issued financial statements, the Company's
preferred stock has been classified as liabilities in the restated
financial statement in accordance with the Statement of Financial
Accounting Standards No. 150 "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity"
("FASB 150"). However the amounts previously stated as dividends
after the effective date of FASB 150, which was at the beginning of
the third quarter of 2003, have been recharacterized as interest
expense in the restated financial statements. The
recharacterization increases interest expense by $2,961 and $40,019
for the three months and nine months ended September 30, 2004,
respectively.
For the convenience of the reader, this Form 10-QSB/A sets forth the
Form 10-QSB originally filed with the SEC on November 11, 2004 (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 .......... 11-19
Management's Discussion and Analysis of Financial
Conditions and Results of Operations ................ 20-27
PART II - OTHER INFORMATION ........................ 28-29
SIGNATURES ............................................... 30
EXHIBIT INDEX ............................................ 31
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
September 30, December 31,
2004 2003
_____________ _____________
(Unaudited)
(Restated)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 12,087 $ 63,075
Accounts receivable 199,095 156,458
Prepaid expenses and other current assets 19,287 43,675
_____________ _____________
230,469 263,208
OTHER ASSETS
Property and equipment, net 134,495 148,931
Loans receivable from manufacturing agent 118,965 122,964
Other assets 5,125 4,886
_____________ _____________
TOTAL ASSETS $ 489,054 $ 539,989
============= =============
The accompanying notes are an integral part of the financial statements.
-5-
IGENE Biotechnology, Inc. and Subsidiaries
Consolidated Balance Sheets
(continued)
September 30, December 31,
2004 2003
_____________ _____________
(Unaudited)
(Restated)
LIABILITIES, REDEEMABLE PREFERED STOCK
AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 207,705 $ 185,862
Equipment lease payable --- 1,498
_____________ _____________
TOTAL CURRENT LIABILITIES 207,705 187,360
LONG-TERM LIABILITIES
Notes payable 5,842,267 5,842,767
Convertible debentures 4,624,212 4,814,212
Accrued interest 3,968,070 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 $ 18.24
and $17.44, respectively. Authorized
1,312,500 shares, issued 18,509 and 25,605 respectively 337,604 454,745
_____________ _____________
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 --- 1,650,000
_____________ _____________
TOTAL LIABILITIES 14,979,858 16,347,356
_____________ _____________
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Common stock --- $.01 par value per share.
Authorized 750,000,000 shares;
issued and outstanding 99,024,568
and 92,747,469 shares, respectively. 990,246 927,475
Additional paid-in capital 24,939,078 22,556,553
Deficit (40,420,128) (39,291,395)
_____________ _____________
TOTAL STOCKHOLDERS' DEFICIT (14,490,804) (15,807,367)
_____________ _____________
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 489,054 $ 539,989
============= =============
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 Nine months ended
____________________________ ____________________________
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
_____________ _____________ _____________ _____________
(Restated) (Restated)
REVENUE
_______
Sales - AstaXin(R) $ --- $ --- $ --- $ 463,486
Cost of sales - AstaXin(R) --- --- --- 444,946
_____________ _____________ _____________ _____________
GROSS PROFIT --- --- --- 18,540
_____________ _____________ _____________ _____________
OPERATING EXPENSES
__________________
Marketing and selling 45,536 57,265 254,803 277,120
Research, development and pilot plant 227,103 198,195 631,035 576,596
General and administrative 154,077 172,804 514,905 557,131
Litigation expense --- 75,610 40,580 75,610
Operating expenses reimbursed by Joint Venture (420,519) (327,310) (1,163,694) (891,691)
_____________ _____________ _____________ _____________
TOTAL OPERATING EXPENSES 6,197 176,564 277,629 594,766
_____________ _____________ _____________ _____________
OPERATING LOSS (6,197) (176,564) (277,629) (576,226)
EQUITY IN LOSS OF UNCONSOLIDATED SUBSIDIARY (14,636) (222,000) (216,696) (569,000)
INTEREST EXPENSE (194,432) (267,635) (634,408) (650,767)
_____________ _____________ _____________ _____________
NET LOSS FROM CONTINUING OPERATIONS (215,265) (666,199) (1,128,733) (1,795,993)
DISCONTINUED OPERATIONS
_______________________
Gain on disposal of discontinued operations --- --- --- 237,437
_____________ _____________ _____________ _____________
NET LOSS $ (215,265) $ (666,199) $ (1,128,733) $ (1,558,556)
============= ============= ============= =============
BASIC AND DILUTED NET LOSS
PER COMMON SHARE
FROM CONTINUING OPERATIONS $ (0.00) (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 $ (0.00) (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, 2003 213,655 $ 1,947,774
Cumulative undeclared dividends
on redeemable preferred stock --- 98,194
Cumulative undeclared dividends
on redeemable preferred stock
classified as interest --- 34,096
Conversion of preferred stock to common 550 (9,416)
Exercise of warrants --- ---
Net loss for the nine months ended September 30, 2003 --- ---
_____________ _____________
Balance at September 30, 2003 213,105 $ 2,070,648
============= =============
Balance at January 1, 2004 213,105 $ 2,104,745
Cumulative undeclared dividends
on redeemable preferred stock --- 40,019
Conversion of preferred stock to common (194,596) (1,807,160)
Exercise of warrants --- ---
Net loss for the nine months ended September 30, 2004 --- ---
_____________ _____________
Balance at September 30, 2004 (Restated) 18,509 $ 337,604
============= =============
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, 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)
Cumulative undeclared dividends
on redeemable preferred stock
classified as interest --- --- --- --- --- ---
Shares received and retired in
ProBio Sale (7,000,000) (70,000) (140,000) --- --- (210,000)
Conversion of preferred stock to common 1,100 11 9,405 --- --- 9,416
Shares issued for manufacturing agreement 2,066,541 20,666 70,896 --- --- 91,562
Net loss for the nine months ended
September 30, 2003 --- --- --- (1,558,556) --- (1,558,556)
____________ ____________ _____________ _____________ _____________ _____________
Balance at September 30, 2003 88,011,387 $ 880,114 $ 22,229,711 $(38,679,058) $ --- $(15,569,233)
============ ============ ============= ============= ============= =============
Balance at January 1, 2004 92,747,469 $ 927,475 $ 22,556,553 $(39,291,395) --- $(15,807,367)
Cumulative undeclared dividends
on redeemable preferred stock
classified as interest --- --- --- --- --- ---
Conversion of preferred stock to common 389,192 3,892 1,803,268 --- --- 1,807,160
Shares issued for manufacturing agreement 2,382,907 23,829 266,682 --- --- 290,511
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
Exercise of employee stock options 350,000 3,500 16,250 --- --- 19,750
Conversion of notes payable 5,000 50 325 --- --- 375
Net loss for the nine months ended
September 30, 2004 --- --- --- (1,128,733) --- (1,128,733)
____________ ____________ _____________ _____________ _____________ _____________
Balance at September 30, 2004 (Restated) 99,024,568 $ 990,246 $ 24,939,078 $(40,420,128) $ --- $(14,490,804)
============ ============ ============= ============= ============= =============
The accompanying notes are an integral part of the financial statements.
-9-
IGENE Biotechnology, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended
____________________________
September 30, September 30,
2004 2003
_____________ _____________
(Restated)
Cash flows from operating activities
Net loss $ (1,128,733) $ (1,558,556)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation 14,436 16,596
Amortization --- 54,729
Issuance of Shares to Fermtech per ProBio agreement 110,000 ---
Manufacturing cost paid in shares of common stock 290,511 91,562
Issuance of common stock for legal services 27,500 ---
Equity in loss of unconsolidated subsidiary 216,696 569,000
Decrease (increase) in:
Accounts receivable (42,637) 403,724
Inventory --- 374,709
Prepaid expenses and other current assets 28,148 264,478
Increase (decrease) in:
Accounts payable and accrued expenses 591,641 (199,703)
_____________ _____________
Net cash provided by operating activities 107,562 16,539
_____________ _____________
Cash flows from investing activities
Advances to joint venture (216,696) (278,691)
Capital (expenditures) and sales --- 7,194
_____________ _____________
Net cash used in investing activities (216,696) (271,497)
_____________ _____________
Cash flows from financing activities
Proceeds (repayment) from borrowing (125) (250,000)
Increase in preferred stock for cumulative dividend
classified as interest 40,019 34,096
Payment of equipment lease (1,498) ---
Proceeds from exercise of employee stock options 19,750 ---
_____________ _____________
Net cash (used) provided by financing activities 58,146 (215,904)
_____________ _____________
Net decrease in cash and cash equivalents (50,988) (470,862)
Cash and cash equivalents at beginning of period 63,075 497,711
_____________ _____________
Cash and cash equivalents at end of period $ 12,087 $ 26,849
============= =============
Supplementary disclosure and cash flow information
__________________________________________________
Cash paid for interest $ 24,347 $ 72,964
Cash paid for income taxes --- ---
See Note (3) 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 September 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/A should be
read in conjunction with Igene's Annual Report on Form 10-
KSB/A 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. Igene
had operational subsidiaries in Norway and Chile through the
first quarter of 2003. 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 the contribution of certain of its facility assets
currently used in citric acid production. Commercial
production is commencing in the calendar year 2004.
(3) Noncash investing and financing activities
During the nine months ended September 30, 2004, 194,596
shares of redeemable preferred stock, with a recorded
aggregate value of $1,777,159, 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 nine months ended September 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 nine months ended September 30, 2004, 250,000
shares were issued to the Company's attorney 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 nine months ended September 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 nine months ended September 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 nine months ended September 30, 2004 and 2003,
Fermic, Igene's manufacturing agent, earned 2,382,907 and
2,066,738 shares, respectively, of common stock as part of
the manufacturing agreement. Fermic earns 2,250 shares of
common stock for each kilogram of pure Astaxanthin produced
and delivered as part of the manufacturing 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
2,382,907 shares were earned at an average price of $.122
per share for 2004, and 2,066,738 shares were earned at an
average price of $.044 per share for 2003. Through
September 30, 2004, 13,472,129 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 nine months ended September 30, 2004 and 2003,
the Company recorded in dividends in arrears on 8%
redeemable preferred stock cumulating at $.48 per share
aggregating $40,019 and $34,096, respectively on preferred
stock. The interest is included in the carrying value of
the redeemable preferred stock. In accordance with FASB 150,
the dividends accrued in the third quarter 2003 and
thereafter have been reclassified to interest expense. This
reclassification increases interest expense $40,019 for the
nine months ended September 30, 2004.
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 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 transferred 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. In
addition to the Company's initial investment in the Joint
Venture, the Company has made $697,243 in advances to the
Joint Venture and a $6,000 capital investment.
-12-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Financial Statements
(continued)
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. Benjaminsen'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. The expenses incurred by the
Company related to the delivery of the remaining escrowed
shares will be determined by the market value of the stock
at the time of delivery.
During the nine months ended September 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
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 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 initial
investment in the Joint Venture has been recorded with a
book value of $316,869, which represents the unamortized
production costs contributed to the Joint Venture. Added to
this was a purchase of common stock in the new venture of
$6,000.
As a result of the Joint Venture, the production, sales and
marketing of Astaxanthin now takes place in the
unconsolidated Joint Venture subsidiary. From inception on
March 18, 2003 through September 30, 2004, Igene's portion
of the Joint Venture's net loss was $3,568,500. The loss
was a result of a 50% interest in the following: Gross
profit from inception was a negative $2,731,000 on sales of
$4,802,000, less manufacturing cost of $7,533,000. Selling
and general and administrative expenses were $4,337,000 and
interest expense was $69,000. The resulting loss before tax
was $7,137,000. Igene's 50% portion of the Joint Venture
loss was $3,568,500.
-13-
Notes to Consolidated Financial Statements
IGENE Biotechnology, Inc. and Subsidiaries
(continued)
Because the Company accounts for its investment in the Joint
Venture under the equity method of accounting, it would
ordinarily recognize as part of loss from equity the loss of
it's 50% ownership portion of the loss of the Joint Venture.
However, losses in the Joint Venture will be recognized only
to the extent of the Investment in and Advances to the Joint
Venture. Losses in excess of this amount will be suspended
from recognition in the financial statement and carried
forward to offset Igene's share of the Joint Venture's
future income, if any. Igene does not expect to recognize
income from the Joint Venture until all accumulated
unrecognized losses have been eliminated.
At September 30, 2004, prior to the recognition of its
portion of the Joint Venture loss, Igene's investment in the
Joint Venture consisted of its $322,869 and its net advances
to the Joint Venture amounted to $711,879, for a total of
$1,034,748. For the year ended December 31, 2003, Igene
recognized $818,052 of the $914,494 loss which existed as
part of the Joint venture in that year. In the first six
months of 2004, Igene recognized losses to the extent of the
increase in the advance $202,060, the June 30, 2004 balance
of $1,020,112, less the December 31, 2003 balance of
$818,052. For the three months ended September 30 2004,
Igene will recognize losses to the extent of the increase in
the advance for that period $14,636 (the September 30, 2004
balance of $1,034,748 less the June 30, 2004 balance of
$1,020,112). The remainder of the loss, which is $877,364
for the quarter, will be suspended. The cumulative
suspended loss at September 30, 2004 is $2,533,752 and it
will be carried forward to offset Igene's share of earnings
from the Joint Venture, if any. The balance in the Advances
to and Investment in Joint Venture account on the Company's
financial statements is zero at September 30, 2004.
(6) Stockholders' Equity (Deficit)
As of September, 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 September 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 September 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.
As of September 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 September 30, 2004 and 2003, 66,427,651 shares of
authorized but unissued common stock were reserved for the
conversion of outstanding convertible promissory notes in
the aggregate amount of $3,414,212 held by directors of the
Company.
As of September 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 in the aggregate amount of
$810,00 and $1,000,000, respectively, issued as part of the
purchase of ProBio.
As of September 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 September 30, 2004 and 2003, 6,527,871 and 9,629,997
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.
-14-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Financial Statements
(continued)
(7) Basic and diluted net loss per common share
Basic and diluted net loss per common share for the nine-
month periods ended September 30, 2004 and 2003, are based
on 95,594,321 and 87,314,094 shares, respectively, of
weighted average common shares outstanding. The same
figures for the three month periods then ended are based
upon 98,003,270 and 87,074,869 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 $40,019 and $98,194 for the nine
months ended September 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 $40,400,000 from inception to
September 30, 2004 and its liabilities and redeemable
preferred stock exceeded its assets by approximately
$14,490,000 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 through it's joint
venture with Tate, 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 goals cannot be assured.
-15-
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
September 30:
Three months ended Nine months ended
___________________________ ___________________________
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
_____________ _____________ _____________ _____________
Net loss:
As reported $ (215,265) $ (666,199) $ (1,128,733) $ (1,558,556)
Less pro forma stock-based employee
compensation expense determined under
fair value based method net of related
tax effects (1,317,790) (159,578) (1,648,237) (423,756)
_____________ _____________ _____________ _____________
Net loss $ (1,533,055) $ (825,777) $ (2,776,970) $ (1,982,312)
============= ============= ============= =============
Net loss per Share:
Basic - as reported $ (0.01) $ (0.01) $ (0.01) $ (0.02)
Basic - pro forma $ (0.02) $ (0.01) $ (0.03) $ (0.02)
Diluted - as reported $ (0.01) $ (0.01) $ (0.01) $ (0.02)
Diluted - pro forma $ (0.02) $ (0.01) $ (0.03) $ (0.02)
(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.
-16-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Financial Statements
(continued)
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.
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
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 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 initial
investment in the Joint Venture has been recorded with a
book value of $316,869, which represents the unamortized
production costs contributed to the Joint Venture. Added to
this was a purchase of common stock in the new venture of
$6,000.
As a result of the Joint Venture, the production, sales and
marketing of Astaxanthin now takes place in the
unconsolidated Joint Venture subsidiary. From inception on
March 18, 2003 through September 30, 2004, Igene's portion
of the Joint Venture's net loss was $3,568,500. The loss
was a result of a 50% interest in the following: Gross
profit from inception was a negative $2,731,000 on sales of
$4,802,000, less manufacturing cost of $7,533,000. Selling
and general and administrative expenses were $4,337,000 and
interest expense was $69,000. The resulting loss before tax
was $7,137,000. Igene's 50% portion of the Joint Venture
loss was $3,568,500.
Because the Company accounts for its investment in the Joint
Venture under the equity method of accounting, it would
ordinarily recognize as part of loss from equity the loss of
it's 50% ownership portion of the loss of the Joint Venture.
However, losses in the Joint Venture will be recognized only
to the extent of the Investment in and Advances to the Joint
Venture. Losses in excess of this amount will be suspended
from recognition in the financial statement and carried
forward to offset Igene's share of the Joint Venture's
future income, if any. The cumulative suspended loss from
the Joint Venture is $2,533,752 at September 30, 2004.
-17-
Notes to Consolidated Financial Statements
IGENE Biotechnology, Inc. and Subsidiaries
(continued)
At September 30, 2004, prior to the recognition of its
portion of the Joint Venture loss, Igene's investment in the
Joint Venture consisted of its $322,869 and its net advances
to the Joint Venture amounted to $711,879, for a total of
$1,034,748. For the year ended December 31, 2003, Igene
recognized $818,052 of the $914,494 loss which existed as
part of the Joint venture in that year. In the first six
months of 2004, Igene recognized losses to the extent of the
increase in the advance $202,060, the June 30, 2004 balance
of $1,020,112, less the December 31, 2003 balance of
$818,052. For the three months ended September 30 2004,
Igene will recognize losses to the extent of the increase in
the advance for that period $14,636 (the September 30, 2004
balance of $1,034,748 less the June 30, 2004 balance of
$1,020,112). The remainder of the loss, which is $877,364
for the quarter, will be suspended. The cumulative
suspended loss at September 30, 2004 is $2,533,752 and it
will be carried forward to offset Igene's share of earnings
from the Joint Venture, if any. The balance in the Advances
to and Investment in Joint Venture account on the Company's
financial statements is zero at September 30, 2004.
The following statement displays the significant activity
for the joint venture for the initial investment at March
18, 2003 in the Joint Venture through September 30, 2004.
As shown 50% of the activity is recorded as part of Igene's
Financial Statements as income from investment in Joint
Venture:
September 30,
2004
_____________
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 2,502,000
Accounts Receivable 1,500,000
Inventory 886,000
_____________
4,888,000
OTHER ASSETS
Fixed Assets Receivable 21,191,000
Intellectual property 24,614,000
_____________
TOTAL ASSETS $ 50,693,000
=============
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 3,769,000
Working capital loan 4,467,000
_____________
TOTAL LIABILITIES 8,236,000
Equity 42,457,000
_____________
TOTAL LIABILITIES AND EQUITY $ 50,693,000
=============
-18-
Notes to Consolidated Financial Statements
IGENE Biotechnology, Inc. and Subsidiaries
(continued)
Period from March 18, 2003
(initial investment) to
September 30, 2004
___________________________
(unaudited)
Net Sales $ 4,802,000
Less: manufacturing cost (7,533,000)
Gross Profit (Loss) (2,731,000)
Less: selling, general and administrative (4,337,000)
Operating Loss (7,068,000)
Interest Expense (69,000)
Net Loss $ (7,137,000)
Igene's 50% equity interest in the net loss $ (3,568,500)
Igene's Investment in and Advances to the Joint Venture (1,034,748)
Igene's suspended loss at September 30, 2004 $ (2,533,752)
The following statement displays the significant activity
for the Joint Venture for the three and nine months ended
September 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 Nine Months
Ended Ended
September 30, 2004 September 30, 2004
__________________ __________________
Net Sales $ 1,662,000 $ 3,668,000
Less: manufacturing cost (2,394,000) (6,382,000)
__________________ __________________
Gross Profit (Loss) (732,000) (2,714,000)
Less: selling, general and admin (977,000) (2,509,000)
__________________ __________________
Operating Loss (1,709,000) (5,233,000)
Interest Expense (75,000) (85,000)
__________________ __________________
Loss before tax $ (1,784,000) $ (5,308,000)
================== ==================
50% equity interest Igene $ (892,000) $ (2,654,000)
Igene's additional Investment in
and Advances to the Joint Venture (14,636) (216,696)
__________________ __________________
Igene's suspended loss for the period $ (877,364) $ (2,437,304)
================== ==================
-19-
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 IDENTIFIED IN THE COMPANY'S FILING WITH THE U.S.
SECURITIES AND EXCHANGE COMMISSION.
Overview of Financial Position
During the nine-month periods ended September 30, 2004 and
2003, in addition to the Joint Venture discussed in more detail
below, the following actions affected the Company's financial
position.
o During the nine months ended September 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.
o During the nine months ended September 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.
o Increases in accounts payables and accrued expenses of
$591,641 were a source of cash. This was reduced by
increases in advances to the Joint Venture of $216,696 and
increases in accounts receivable of $42,637.
o The carrying value of redeemable preferred stock was
increased and paid-in capital available to common
shareholders was decreased by $40,019 in 2004 and $12,290
in 2003, reflecting cumulative unpaid dividends on
redeemable preferred stock.
o Proceeds of employee stock options provided $19,750 in cash
flows.
During 2004, the Joint Venture has been in the process of
commissioning the production facility. Through the period this
plant has been in the start-up phase. This has resulted in the
reported losses for the quarter and year-to-date as equipment is
brought on-line and initially utilized for production activity.
-20-
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 September 30, 2004, total dividends in arrears on
Igene's preferred stock total $189,532 ($10.24 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 United
States 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 investment in the Joint Venture is accounted for under
the equity method whereby the Company's 50% ownership percentage
in the Joint Venture's equity is reflected as an asset and the
changes in the Joint Venture's equity as a result of its
operations is reflected in the company's consolidated statement
of operations subject to certain limitations. Igene's share of
losses in the Joint Venture will be recognized only to the extent
of Igene's consideration paid for it's initial investment in the
Joint Venture and any net advances Igene has made to the Joint
Venture. Losses in excess of this amount will be suspended from
recognition in the financial statement and carried forward to
offset Igene's share of the Joint Venture future income, if any.
Income in the future, if any, will only be recognized once all
previously deferred losses have been exhausted. The Company
evaluates its investment in the Joint Venture for impairment, as
it does for all other assets. The accounting policies followed
by the Joint Venture are in conformity with accounting principals
generally accepted in the United States of America.
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 entered into a lease of real property with
an affiliate of Tate & Lyle in Selby, England upon which the
manufacturing facility is being constructed and operated by the
Joint Venture.
Results of Operations
_____________________
Sales and other revenue
As part of the Joint Venture Agreement, all further sales
are recognized through the Joint Venture. Therefore, Igene
recorded no sales of AstaXin(R) during the nine months ended
September 30, 2004. Sales of AstaXin(R) during the nine-month
period ended September 30, 2003 were $463,486. Sales activity
for the Joint Venture are reported 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.
-21-
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 Joint Venture. Igene
reported no gross profit on sales of AstaXin(R) for the nine
months ended September 30, 2004. Gross profit on sales of
AstaXin(R) was $18,540 for the nine month period ended September
30, 2003. Gross profit was 4% of sales for the nine months ended
September 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 through the Joint Venture, 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 nine month period ended September 30,
2003, was $444,946. No cost of sales were recorded for the nine
month period ended September 30, 2004.
Marketing and selling expenses
For the quarters ended September 30, 2004 and 2003, Igene
recorded marketing and selling expense in the amount of $45,536
and $57,265, respectively, a decrease of $11,729 or 20%. For the
nine months ended September 30, 2004 and 2003, Igene recorded
marketing and selling expense in the amount of $254,803 and
$277,120, respectively, a decrease of $22,317 or 8%. 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 the removal
of the ProBio marketing and 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 marketing and
selling expense increased during the second quarter 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 once 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 September 30, 2004 and 2003, Igene
recorded research and development costs in the amount of $227,103
and $198,195, respectively, an increase of $28,908 or 15%. For
the nine months ended September 30, 2004 and 2003, Igene recorded
research and development costs in the amount of $631,035 and
$576,596, respectively, an increase of $54,439 or 9%. 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 making 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.
-22-
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
September 30, 2004 and 2003 were $154,077 and $172,804
respectively, a decrease of $18,727 or 11%. General and
administrative expenses for the nine months ended September 30,
2004 and 2003 were $514,905 and $557,131 respectively, a decrease
of $42,226 or 7.6%. 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
these costs are 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 $40,580 for
the nine months ended September 30, 2004. During the nine months
ended September 30, 2004, 250,000 shares were issued to the
Company's attorney 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 September 30, 2004
and 2003 was $194,432 and $267,635, respectively, a decrease of
$73,203 or 27%. For the nine months ended September 30, 2004 and
2003, interest expense was $634,408 and $650,767, respectively, a
decrease of $16,359 or 3% 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. This
number may decrease as the intrest expense recorded as related to
the preferred shares decreases as the number of preferred shares
outstanding has been reduced.
Equity in earnings of unconsolidated subsidiary
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 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 recorded with a book value of $316,869, which represents the
unamortized production costs contributed to the Joint Venture.
Added to this was a purchase of common stock in the new venture
of $6,000.
As a result of the Joint Venture, the production, sales and
marketing of Astaxanthin now takes place in the unconsolidated
Joint Venture subsidiary. From inception on March 18, 2003
through September 30, 2004, Igene's portion of the Joint
Venture's net loss was $3,568,500. The loss was a result of a
50% interest in the following:
-23-
IGENE Biotechnology, Inc. and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Gross profit from inception was a negative $2,731,000 on sales of
$4,802,000, less manufacturing cost of $7,533,000. Selling and
general and administrative expenses were $4,337,000 and interest
expense was $69,000. The resulting loss before tax was
$7,137,000. Igene's 50% portion of the Joint Venture loss was
$3,568,500.
Because the Company accounts for its investment in the Joint
Venture under the equity method of accounting, it would
ordinarily recognize as part of loss from equity the loss of it's
50% ownership portion of the loss of the Joint Venture. However,
losses in the Joint Venture will be recognized only to the extent
of the Investment in and Advances to the Joint Venture. Losses
in excess of this amount will be suspended from recognition in
the financial statement and carried forward to offset Igene's
share of the Joint Venture's future income, if any. The
cumulative suspended loss from the Joint Venture is $2,533,752 at
September 30, 2004.
At September 30, 2004, prior to the recognition of its
portion of the Joint Venture loss, Igene's investment in the
Joint Venture consisted of its $322,869 and its net advances to
the Joint Venture amounted to $711,879, for a total of
$1,034,748. For the year ended December 31, 2003, Igene
recognized $818,052 of the $914,494 loss which existed as part of
the Joint venture in that year. In the first six months of 2004,
Igene recognized losses to the extent of the increase in the
advance $202,060, the June 30, 2004 balance of $1,020,112, less
the December 31, 2003 balance of $818,052. For the three months
ended September 30 2004, Igene will recognize losses to the
extent of the increase in the advance for that period $14,636
(the September 30, 2004 balance of $1,034,748 less the June 30,
2004 balance of $1,020,112). The remainder of the loss, which is
$877,364 for the quarter, will be suspended. The cumulative
suspended loss at September 30, 2004 is $2,533,752 and it will be
carried forward to offset Igene's share of earnings from the
Joint Venture, if any. The balance in the Advances to and
Investment in Joint Venture account on the Company's financial
statements is zero at September 30, 2004.
The following statement displays the significant activity
for the joint venture from the initial investment at March 18,
2003 in the Joint Venture through September 30, 2004. As shown
50% of the activity is recorded as part of Igene's Financial
Statements as income from investment in Joint Venture:
September 30,
2004
______________
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 2,502,000
Accounts Receivable 1,500,000
Inventory 886,000
______________
4,888,000
OTHER ASSETS
Fixed Assets Receivable 21,191,000
Intellectual property 24,614,000
______________
TOTAL ASSETS $ 50,693,000
==============
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 3,769,000
Working capital loan 4,467,000
______________
TOTAL LIABILITIES 8,236,000
Equity 42,457,000
______________
TOTAL LIABILITIES AND EQUITY $ 50,693,000
==============
-24-
IGENE Biotechnology, Inc. and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Period from March 18, 2003
(initial investment) to
September 30, 2004
__________________________
(unaudited)
Net Sales $ 4,802,000
Less: manufacturing cost (7,533,000)
_______________
Gross Profit (Loss) (2,731,000)
Less: selling, general and administrative (4,337,000)
_______________
Operating Loss (7,068,000)
Interest Expense (69,000)
_______________
Net Loss $ (7,137,000)
===============
Igene's 50% equity interest in the net loss $ (3,568,500)
Igene's Investment in and Advances to the Joint Venture (1,034,748)
_______________
Igene's suspended loss at September 30, 2004 $ (2,533,752)
===============
The following statement displays the significant activity
for the Joint Venture for the three and nine months ended
September 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 Nine Months
Ended Ended
September 30, 2004 September 30, 2004
__________________ __________________
Net Sales $ 1,662,000 $ 3,668,000
Less: manufacturing cost (2,394,000) (6,382,000)
__________________ __________________
Gross Profit (Loss) (732,000) (2,714,000)
Less: selling, general and admin (977,000) (2,509,000)
__________________ __________________
Operating Loss (1,709,000) (5,233,000)
Interest Expense (75,000) (85,000)
__________________ __________________
Loss before tax $ (1,784,000) $ (5,308,000)
================== ==================
50% equity interest Igene $ (892,000) $ (2,654,000)
Igene's additional Investment in
and Advances to the Joint Venture (14,636) (216,696)
__________________ __________________
Igene's suspended loss for the period $ (877,364) $ (2,437,304)
================== ==================
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 September 30,
2004, Igene's portion of the Joint Venture loss was $892,000.
The loss was a result of a 50% interest in the following: Gross
profit (loss) for the quarter was $(732,000) on sales of
$1,662,000, less manufacturing cost of $2,394,000. Selling and
general and administrative expenses for the period were $977,000
and interest income (expense) was $(75,000). The resulting loss
before tax was $1,784,000. For the quarter ended September 30,
2004, Igene's 50% portion of the Joint Venture loss was $892,000.
-25-
IGENE Biotechnology, Inc. and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
During 2004, the Joint Venture is in the process of
commissioning the Selby Production facility. Through the period
this plant has been in the start-up phase. This has resulted in
the reported losses for the quarter and year to date 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.
Net loss and basic and diluted net loss per common share
As a result of the foregoing, the Company reported net
losses of $215,265 and $666,199, respectively, for the quarters
ended September 30, 2004 and 2003, a decrease in the loss of
$450,934 or 68%. This represents a loss of $.01 per basic and
diluted common share in the quarters ended September 30, 2004 and
2003. The weighted average number of shares of common stock
outstanding of 98,003,270 and 87,074,869, for the quarters ended
September 30, 2004 and 2003, respectively, increased by 9,991,883
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, 3,750,000 shares issued
in the exercise of warrants, 3,102,323 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.
-26-
IGENE Biotechnology, Inc. and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Liquidity and Capital Resources
Historically, Igene has been funded primarily by equity
contributions and loans from stockholders. As of September 30,
2004, Igene had working capital of $22,764, and cash and cash
equivalents of $12,087. Currently Igene is also funded by
research and development reimbursements from the Joint Venture.
Cash provided by operating activities during the nine-month
period ended September 30, 2004 and 2003 amounted to $107,562 and
$16,539, respectively, an increase in cash provided of $91,023.
Cash used by financing activities during the nine-month
period ended September 30, 2004 and 2003 amounted to $216,696 and
$271,497, respectively, a decrease in cash used of $54,801.
Cash was used by financing activities, mainly in repayment
of loans in the amount of $215,904 for the nine-month period
ended September 30, 2003, as opposed to the $58,146 provided by
financing activities for the nine-month period ended September
30, 2004. Financing activities in this period consisted primarily
of employee stock option plan purchases and dividends accrued on
preferred shares.
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. Funding is also
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, if
any, 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 nine-month
periods ended September 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.
-27-
IGENE Biotechnology, Inc.
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Small Business Issuer
Purchases of Equity Securities.
During the nine months ended September 30, 2004, 250,000
shares were issued to the Company's attorney 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. The
cost was 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 September 30, 2004, total dividends in arrears on
the Company's preferred stock total $189,532 ($10.24 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:
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 --- ---
-28-
Item 6. Exhibits
(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.
-29-
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 September 29, 2005 By /s/STEPHEN F. HIU
__________________ __________________________
STEPHEN F. HIU
President
Date September 29, 2005 By /s/EDWARD J. WEISBERGER
__________________ __________________________
EDWARD J. WEISBERGER
Chief Financial Officer
-30-
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.
-31-
Exhibit 31(a)
CERTIFICATIONS
______________
I, Stephen F. Hiu, certify that:
1. I have reviewed this quarterly report on Form 10 QSB/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)) 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) 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
(c) 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: September 29, 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 10-QSB/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)) 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) 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
(c) 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: September 29, 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
September 30, 2004, 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: September 29, 2005 By: /s/STEPHEN F. HIU
_____________________________
STEPHEN F. HIU
President
A signed original of this written statement required by Section
906 has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission
or its staff upon request.
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
September 30, 2004, 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: September 29, 2005 By:/s/EDWARD J. WEISBERGER
______________________________
EDWARD J. WEISBERGER
Chief Financial Officer
A signed original of this written statement required by Section
906 has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission
or its staff upon request.