U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] Quarterly report under Section 13 or 15(D) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2005
[ ] Transition report under Section 13 or 15(D) of the
Exchange Act
For the transition period from __________ to __________
Commission file number 0-15888
______________________________
IGENE Biotechnology, Inc.
________________________________________________________
(Exact name of Small Business Issuer as Specified in its
Charter)
Maryland 52-1230461
_______________________________ ___________________
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
9110 Red Branch Road, Columbia, Maryland 21045-2024
___________________________________________________
(Address of Principal Executive Offices)
(410) 997-2599
________________________________________________
(Issuer's Telephone Number, Including Area Code)
None
___________________________________________________
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the Issuer: (1) filed all reports required to be
filed by Section 13 or 15(D) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [x] No [ ]
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [x]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange
Act after the distribution of securities under a plan confirmed
by a court.
Yes [ ] No [ ]
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
106,003,661 shares of common stock, par value $.01, as of
_________________________________________________________
February 1, 2006.
_________________
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [x]
FORM 10-QSB
IGENE Biotechnology, Inc.
INDEX
PART I - FINANCIAL INFORMATION
Page
Consolidated Balance Sheets ......................... 5-6
Consolidated Statements of Operations ............... 7
Consolidated Statements of Stockholders' Deficiency.. 8
Consolidated Statements of Cash Flows ............... 9
Notes to Consolidated Financial Statements .......... 10-17
Management's Discussion and Analysis of Financial
Conditions and Results of Operations ................ 18-22
Controls and Procedures ............................. 23
PART II - OTHER INFORMATION ........................ 24
SIGNATURES ............................................... 25
EXHIBIT INDEX ............................................ 26
IGENE BIOTECHNOLOGY, INC.
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
PART I
FINANCIAL INFORMATION
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Balance Sheets
September 30, December 31,
2005 2004
_____________ _____________
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 30,819 $ 204,248
Accounts receivable 15,227 79,638
Prepaid expenses and other current assets 9,361 10,764
_____________ _____________
TOTAL CURRENT ASSETS 55,407 294,650
Property and equipment, net 110,468 124,904
Loans receivable from manufacturing agent 70,982 70,982
Investment in and advances to unconsolidated joint venture --- ---
Other assets 5,125 5,125
_____________ _____________
TOTAL ASSETS $ 241,982 $ 495,661
============= =============
The accompanying notes are an integral part of the financial
statements.
-5-
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Balance Sheets
(continued)
September 30, December 31,
2005 2004
_____________ _____________
(Unaudited)
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 94,184 $ 78,472
Convertible debenture 705,000 705,000
Accrued interest 29,375 11,750
_____________ _____________
TOTAL CURRENT LIABILITIES 828,559 795,222
LONG-TERM LIABILITIES
Notes payable 5,842,267 5,842,267
Convertible debentures 3,814,212 3,814,212
Accrued interest 4,700,261 4,148,681
REDEEMABLE PREFERRED STOCK
Carrying amount of redeemable preferred
stock, 8% cumulative, convertible,
voting, series A, $.01 par value per
share. Stated value was $ 18.88
and $18.40, respectively. Authorized
1,312,500 shares, issued 18,509 349,450 340,566
_____________ _____________
TOTAL LIABILITIES 15,534,749 14,940,948
_____________ _____________
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Common stock --- $.01 par value per share.
Authorized 750,000,000 shares;
issued and outstanding 105,003,661
and 101,732,453 shares, respectively. 1,050,037 1,017,325
Additional paid-in capital 25,360,926 25,138,748
Accumulated Deficit (41,703,730) (40,601,360)
_____________ _____________
TOTAL STOCKHOLDERS' DEFICIENCY (15,292,767) (14,445,287)
_____________ _____________
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $ 241,982 $ 495,661
============= =============
The accompanying notes are an integral part of the financial
statements.
-6-
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Statements of Operations
(Unaudited)
Three months ended Nine months ended
____________________________ ____________________________
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
_____________ _____________ _____________ _____________
EQUITY IN REPAID ADVANCES (LOSS) OF JOINT VENTURE $ 52,886 $ (14,636) $ (413,184) $ (216,696)
OPERATING EXPENSES
__________________
Marketing and selling 44,934 45,536 164,098 254,803
Research, development and pilot plant 196,072 227,103 579,161 631,035
General and administrative 186,104 154,077 621,604 514,905
Litigation expense --- --- --- 40,580
Operating expenses reimbursed by Joint Venture (418,657) (420,519) (1,357,394) (1,163,694)
_____________ ____________ ____________ ____________
TOTAL OPERATING EXPENSES 8,453 6,197 7,469 277,629
_____________ ____________ ____________ ____________
OPERATING PROFIT (LOSS) 44,433 (20,833) (420,653) (494,325)
GAIN (LOSS) ON DISPOSAL 3,006 --- (46,994) ---
INTEREST EXPENSE (228,934) (194,432) (634,723) (634,408)
_____________ ____________ ____________ ____________
NET LOSS $ (181,495) $ (215,265) $(1,102,370) $(1,128,733)
============= ============ ============ ============
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.00) (0.00) $ (0.01) (0.01)
============= ============ ============ ============
The accompanying notes are an integral part of the financial
statements.
-7-
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Statements of Stockholders' Deficiency
(Unaudited)
Additional Total
Common Stock Paid-in Accumulated Stockholders'
(shares/amount) Capital Deficit Deficiency
________________________ _____________ _____________ _____________
Balance at January 1, 2004 92,747,469 $ 927,475 $ 22,556,553 $(39,291,395) $(15,807,367)
Conversion of redeemable preferred stock 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
Conversion of Notes Payable 5,000 50 325 --- 375
Exercise of employee stock options 350,000 3,500 16,250 --- 19,750
Net loss for the nine months ended September 30, 2004 --- --- --- (1,128,733) (1,128,733)
============ =========== ============= ============= =============
Balance at September 30, 2004 99,024,568 $ 990,246 $ 24,939,078 $(40,420,128) $(14,490,804)
============ =========== ============= ============= =============
Balance at January 1, 2005 101,732,453 $1,017,325 $ 25,138,748 $(40,601,360) $(14,445,287)
Shares issued for manufacturing agreement 3,271,208 32,712 222,178 --- 254,890
Net loss for the nine months ended September 30, 2005 --- --- --- (1,102,370) (1,102,370)
============ =========== ============= ============= =============
Balance at September 30, 2005 105,003,661 $1,050,037 $ 25,360,926 $(41,703,730) $(15,292,767)
============ =========== ============= ============= =============
The accompanying notes are an integral part of the financial
statements.
-8-
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended
________________________________
September 30, September 30,
2005 2004
______________ ______________
Cash flows from operating activities
Net loss $ (1,102,370) $ (1,128,733)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation 14,436 14,436
Issuance of Shares to Fermtech per ProBio agreement --- 110,000
Manufacturing cost paid in shares of common stock 254,890 290,511
Issuance of common stock for legal services --- 27,500
Equity in loss of joint venture 413,184 216,696
Increase in preferred stock for cumulative dividend
classified as interest 8,884 40,019
Loss on receivable form disposal of equipment 46,994 ---
Decrease (increase) in:
Accounts receivable 17,418 (42,637)
Prepaid expenses and other current assets 1,403 28,148
Increase (decrease) in:
Accounts payable and accrued expenses 584,916 591,641
______________ ______________
Net cash provided by operating activities 239,755 107,562
______________ ______________
Cash flows from investing activities
Advances to joint venture (413,184) (216,696)
______________ ______________
Net cash used in investing activities (413,184) (216,696)
______________ ______________
Cash flows from financing activities
Repayment of borrowing --- (125)
Payment of equipment lease --- (1,498)
Proceeds from exercise of employee stock options --- 19,750
______________ ______________
Net cash provided by financing activities --- 58,146
______________ ______________
Net decrease in cash and cash equivalents (173,429) (50,988)
Cash and cash equivalents at beginning of period 204,248 63,075
______________ ______________
Cash and cash equivalents at end of period $ 30,819 $ 12,087
============== ==============
Supplementary disclosure and cash flow information
__________________________________________________
Cash paid for interest $ 21,150 $ 24,347
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.
-9-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(1) Unaudited consolidated financial statements
The September 30, 2005, 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, 2004.
(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,
on March 19, 2003, Tate & Lyle PLC ("Tate & Lyle") and Igene
Biotechnology, Inc. announced a 50:50 Joint Venture to
produce AstaXin(R) for the aquaculture industry. Production
utilizes Tate & Lyle's fermentation capability together with
the unique technology developed by Igene. Part of Tate &
Lyle's existing Selby, England, citric acid facility has
been 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 has commenced.
(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 $1,807,160, were converted into 389,192
shares of common stock. This portion included the 8%
Cumulative Convertible Preferred Stock, Series B and has
relieved the Company of this amount from long-term debt.
During the 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.
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.
-10-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(continued)
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, 2005 and 2004,
Fermic, Igene's manufacturing agent, earned 3,271,208 and
2,382,907 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
3,271,208 shares were earned at an average price of $.076
per share for 2005, and 2,382,907 shares were earned at an
average price of $.122 per share for 2004. Through
September 30, 2005, 18,001,222 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, 2005 and 2004,
the Company recorded dividends in arrears on 8% redeemable
preferred stock cumulating at $.48 per share aggregating
$8,884 and $40,019, 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 $8,884 and $40,019 for the nine
months ended September 30, 2005 and September 30, 2004,
respectively.
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. Mr. Benjaminsen remained
employed by Igene through February 2005, and 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.
(4) Amendment to Long - Term Liabilities
As of February 15th 2006, the Company's Notes payable and
Convertible debentures (other than the ProBio Debentures in
the amount of $705,000) were in the process of being changed
from a maturity date of March 31, 2006 to March 31, 2009.
Accordingly, such notes payable and convertible debentures
have been classified as long-term on the accompanying
Consolidated Balance Sheet.
-11-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(continued)
(5) Joint Venture
On March 18 2003, the Company entered into a Joint Venture
Agreement with Tate & Lyle Fermentation Products Ltd.
("Tate") Pursuant to a Joint Venture Agreement, the Company
and Tate agreed to form 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 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 Company'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. From inception on March 18,
2003 through September 30, 2005, Igene's portion of the
Joint Venture's net loss was $9,695,820. The loss was a
result of a 50% interest in the following: Gross profit
from inception was a negative $9,541,088 on sales of
$15,332,400, less manufacturing cost of $24,873,488.
Selling and general and administrative expenses were
$8,559,077 and interest expense was $1,291,475. The
resulting loss before tax was $19,391,640. Igene's 50%
portion of the Joint Venture loss was $9,695,820.
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 are recognized only to
the extent of the Investment in and Advances to the Joint
Venture. Losses in excess of this amount are suspended from
recognition in the financial statements 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, 2005, 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 $1,098,622, for a total of
$1,421,491. For the year ended December 31, 2004, Igene
recognized $1,008,307 of the $4,887,494 loss which existed
as part of the Joint Venture in that year. In the first six
months of 2005, Igene recognized losses to the extent of the
increase in the advance $466,070, the June 30, 2005 balance
of $1,474,377, less the December 31, 2004 balance of
$1,008,307. For the three months ended September 30 2005,
Igene will reduce the amount recognized as the amount of the
advance for that period was reduced by $52,886 (the
difference between the reduced September 30, 2005 balance of
$1,421,491 and the June 30, 2005 balance of $1,474,377).
The resulting increase in the suspended loss for the quarter
is $1,656,386 (the sum of the loss for the 3rd Quarter,
$1,603,500 plus the amount additionally suspended based upon
the reduction of the Advances to the Joint Venture of
$52,886). The cumulative suspended loss at September 30,
2005 is $8,274,329 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, 2005.
The following condensed statement displays the activity of
the Joint Venture for the period of initial investment at
March 18, 2003 in the Joint Venture through September 30,
2005. As shown 50% of the activity is recorded as part of
Igene's Financial Statements as loss from investment in
Joint Venture:
-12-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(continued)
September 30,
2005
______________
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 9,138,000
Accounts Receivable 2,082,000
Inventory 2,174,000
______________
13,394,000
OTHER ASSETS
Fixed Assets Receivable 22,889,000
Intellectual property 24,614,000
______________
TOTAL ASSETS $ 60,897,000
==============
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 15,341,000
Working capital loan 12,934,000
______________
TOTAL LIABILITIES 28,275,000
Equity 32,622,000
______________
TOTAL LIABILITIES AND EQUITY $ 60,897,000
==============
Period from March 18, 2003
(initial investment) to
September 30, 2005
__________________________
(unaudited)
Net Sales $ 15,332,400
Less: manufacturing cost (24,873,488)
______________
Gross Profit (Loss) (9,541,088)
Less: selling, general and administrative (8,559,077)
______________
Operating Loss (18,100,165)
Interest Expense (1,291,475)
______________
Net Loss $ (19,391,640)
==============
Igene's 50% equity interest in the net loss $ (9,695,820)
Igene's Investment in and Advances to the Joint Venture (1,421,491)
______________
Igene's suspended loss at September 30, 2005 $ (8,274,329)
==============
The following statement displays the significant activity
for the Joint Venture for the three and nine months ended
September 30, 2005. As shown, 50% of the activity is
recorded as part of Igene's Financial Statements as loss
from investment in Joint Venture:
-13-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(continued)
Three Months Nine Months
Ended Ended
September 30, 2005 September 30, 2005
__________________ __________________
Net Sales $ 2,815,000 $ 8,548,400
Less: manufacturing cost (4,668,000) (13,733,488)
__________________ __________________
Gross Profit (Loss) (1,853,000) (5,185,088)
Less: selling, general and admin (1,267,000) (3,291,077)
__________________ __________________
Operating Loss (3,120,000) (8,476,165)
Interest Expense (87,000) (1,140,475)
__________________ __________________
Loss before tax $ (3,207,000) $ (9,616,640)
================== ==================
50% equity interest Igene $ (1,603,500) $ (4,808,320)
Igene's (additional)/reduced Investment in
and Advances to the Joint Venture 52,886 (413,184)
__________________ __________________
Igene's suspended loss for the period $ (1,656,386) $ (4,395,136)
================== ==================
(6) Guarantee of Joint Venture Debt
On June 15th 2005, the Company executed a limited guarantee
for one of the debt obligations of the Joint Venture. Under
the terms of the limited guarantee, the Company will
guarantee up to 4,200,000 british pounds sterling
(approximately $7,350,000 at February 10, 2006).
The Company subsequently entered into an agreement with Tate
& Lyle (the other 50% partner in the Joint Venture) where
Tate & Lyle has agreed to arrange funds for the Joint
Venture, without recourse to Igene Biotechnology, Inc.,
until the Joint Venture produces a regular monthly cash
flow, as defined, for four consecutive months.
As of February 10, 2006, the Joint Venture has not met the
cash flow requirements, therefore Igene is not obligated for
any funding to the Joint Venture or responsible for the
guarantee mentioned above.
(7) Stockholders' Deficiency
As of September, 2005 37,018 shares of authorized but
unissued common stock were reserved for issue upon
conversion of the Company's outstanding preferred stock.
As of September 30, 2005, 73,954,500 shares 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, 2005 10,000,000 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.
As of September 30, 2005 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, 2005 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.
-14-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(continued)
As of September 30, 2005 7,050,000 shares of authorized but
unissued common stock were reserved for the conversion of
outstanding convertible promissory notes in the aggregate
amount of $705,000 and $810,000, respectively, issued as
part of the purchase of ProBio.
As of September 30, 2005 205,261,073 shares of authorized
but unissued common stock were reserved for the exercise of
outstanding warrants.
As of September 30, 2005 1,998,778 shares 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.
(8) Basic and diluted net loss per common share
Basic and diluted net loss per common share for the nine-
month periods ended September 30, 2005 and 2004, are based
on 102,838,685 and 95,594,321 shares, respectively, of
weighted average common shares outstanding. The same
figures for the three month periods then ended are based
upon 105,107,398 and 98,003,270 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 $8,884 and $40,019 for the nine
months ended September 30, 2005 and 2004, respectively. No
adjustment has been made for any common stock equivalents
outstanding because their effects would be antidilutive.
(9) 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.
(10) Uncertainty
Igene has incurred net losses in each year of its existence,
aggregating approximately $41,700,000 from inception to
September 30, 2005 and its liabilities exceed its assets by
approximately $15,290,000 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 & 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 Consolidated Financial Statements
(continued)
(11) 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,
2005 2004 2005 2004
_____________ _____________ _____________ _____________
Net loss:
As reported $ (181,495) $ (215,265) $ (1,102,370) $ (1,128,733)
Less pro forma stock-based employee
compensation expense determined under
fair value based method net of related
tax effects --- (1,317,790) --- (1,648,237)
_____________ _____________ _____________ _____________
Net loss $ (181,495) $ (1,533,055) $ (1,102,370) $ (2,776,970)
============= ============= ============= =============
Net loss per Share:
Basic - as reported $ (0.00) $ (0.00) $ (0.01) $ (0.01)
Basic - pro forma $ (0.00) $ (0.02) $ (0.03) $ (0.03)
Diluted - as reported $ (0.00) $ (0.00) $ (0.01) $ (0.01)
Diluted - pro forma $ (0.00) $ (0.02) $ (0.03) $ (0.03)
(12) Recent Accounting Pronouncements
In November 2004, the FASB issued SFAS No. 151, "Inventory
Costs, an amendment of ARB No.43, Chapter 4." SFAS amends
Accounting Research Bulletin ("ARB") No.43, Chapter 4, to
clarify that abnormal amounts of idle facility expense,
freight, handling costs and wasted materials (spoilage)
should be recognized as current-period charges. In
addition, SFAS No.151 requires that allocation of fixed
production overhead to inventory be based on the normal
capacity of the production facilities. SFAS No.151 is
effective for inventory costs incurred during the fiscal
years beginning after June 15, 2005. The Company is
currently assessing the impact SFAS No.151 will have on the
results of operations, financial position or cash flows.
In May 2005, the FASB issued SFAS No. 154, "Accounting
Changes and Error Corrections" ("SFAS 154") which replaces
APB Opinion No. 20 Accounting Changes and SFAS No. 3,
"Reporting Accounting Changes in Interim Financial
Statements-An Amendment of APB Opinion No. 28." SFAS 154
requires retrospective application to prior periods'
financial statement of a voluntary change in accounting
principal unless it is not practical. SFAS 154 is effective
for accounting changes and corrections of errors made in
fiscal years beginning after December 15, 2005, and is
required to be adopted by the Company in the first quarter
of fiscal 2007. Although the Company will continually
evaluate its accounting policies, management does not
currently believe adoption will have a material impact on
the Company's results of operations, cash flows or financial
position.
-16-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(continued)
In May 2003, the 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 a liability 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.
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.
On December 16, 2004, the FASB issued FASB Statement No.
123(revised 2004), Share-Based Payment, which is a
revision of FASB Statement No. 123, Accounting for Stock-
Based Compensation. Statement 123(R) supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees. Generally,
the approach in Statement 123(R) is similar to the approach
described in Statement 123. However, Statement 123(R)
requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the
income statement based on their fair values. Pro forma
disclosure is no longer an alternative. In April 2005, the
SEC amended the compliance dates for Statement 123(R) from
fiscal periods beginning after June 15, 2005 to fiscal years
beginning after June 15, 2005. The Company expects to adopt
Statement 123 (R) in the fiscal year commencing January 1,
2006.
-17-
IGENE Biotechnology, Inc. and Subsidiary
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, 2005 and
2004, in addition to the Joint Venture discussed in more detail
below, the following actions affected the Company's financial
position.
- Increases in accounts payables and accrued expenses of
$584,916 and decreases in accounts receivable of $17,418
were sources of cash. This was reduced by increases in
advances to the Joint Venture of $413,184.
- The carrying value of redeemable preferred stock was
increased by $8,884 in 2005 and $40,019 in 2004, reflecting
cumulative unpaid dividends on redeemable preferred stock.
- During the nine months ended September 30, 2004, 194,596
shares of redeemable preferred stock, with a recorded
aggregate value of $1,807,160, were converted into 389,192
shares of common stock. This portion included the 8%
Cumulative Convertible Preferred Stock, Series B preferred
securities and has relieved the Company of this amount from
long-term debt.
- During the 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, which relieved the Company of $190,000
of long-term debt.
- Proceeds of employee stock options provided $19,750 in cash
flows in 2004.
During 2005, the Joint Venture began commercial production.
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.
-18-
IGENE Biotechnology, Inc. and Subsidiary
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, 2005, total dividends in arrears on
Igene's preferred stock total $201,378 ($10.88 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 are 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 are suspended from
recognition in the financial statements 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, 2005 or 2004. Sales have been limited in the
past quarters due to insufficient production quantity.
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.
-19-
IGENE Biotechnology, Inc. and Subsidiary
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 are recognized through the Joint Venture. Igene reported
no gross profit on sales of AstaXin(R) for the nine months ended
September 30, 2005 or 2004. 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. 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 of
future increased production or gross profit. No cost of sales
were recorded for the nine month period ended September 30, 2005
or 2004.
Marketing and selling expenses
For the quarters ended September 30, 2005 and 2004, Igene
recorded marketing and selling expense in the amount of $44,934
and $45,536, respectively, a decrease of $602 or 1%. For the
nine months ended September 30, 2005 and 2004, Igene recorded
marketing and selling expense in the amount of $164,098 and
$254,803, respectively, a decrease of $90,705 or 36%. The
marketing and selling expense increased during the second quarter
of 2004 as a result of recognizing the expense associated with
the shares issued to Fermtech. As Mr. Benjaminsen remained
employed by Igene through 2004, 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. As
Mr. Benjaminsen remained employed by Igene through 2005, the
remaining 1,000,000 escrowed shares will be released from escrow
and delivered to Fermtech. As a result of this a similar expense
to 2004 will be recorded in the fourth quarter of 2005. As a
result of the Joint Venture with Tate & 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, 2005 and 2004, Igene
recorded research and development costs in the amount of $196,072
and $227,103, respectively, a decrease of $31,031 or 14%. For
the nine months ended September 30, 2005 and 2004, Igene recorded
research and development costs in the amount of $579,161 and
$631,035, respectively, a decrease of $51,874 or 8%. 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.
Operating expenses
General and administrative expenses for the quarter ended
September 30, 2005 and 2004 were $186,104 and $154,077
respectively, an increase of $32,027 or 21%. General and
administrative expenses for the nine months ended September 30,
2005 and 2004 were $621,604 and $514,905 respectively, an
increase of $106,699 or 21%. Increases in general and
administrative expenses are due mainly to increased audit costs.
These costs are expected to remain constant. Igene is working 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.
-20-
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
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, 2005
and 2004 was $228,934 and $194,432, respectively, an increase of
$34,502 or 18%. For the nine months ended September 30, 2005 and
2004, interest expense was $634,723 and $634,408, respectively,
an increase of $315 or less than 1% 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 interest expense recorded as related
to the preferred shares decreases as the number of preferred
shares outstanding has been reduced.
Loss on disposal
During the 2005, Igene sold equipment it had determined would
not be of use in the new Selby facility and recorded a loss on
disposal of $46,994. This is a one time occurrence.
Net loss and basic and diluted net loss per common share
As a result of the foregoing, the Company reported net losses
of $181,495 and $215,265, respectively, for the quarters ended
September 30, 2005 and 2004, a decrease in the loss of $33,770 or
16%. This represents a loss of $.00 per basic and diluted common
share in the quarters ended September 30, 2005 and 2004. The
weighted average number of shares of common stock outstanding of
105,107,398 and 98,003,270, for the quarters ended September 30,
2005 and 2004, respectively, an increase of 7,104,128 shares.
This resulted from the weighted average adjustments of the
following transactions: the issuance of 1,050,000 shares issued
in conversion of debentures, 4,529,093 shares issued to the
manufacturer as part of the agreement, and 400,000 shares issued
as part of employee stock option exercises.
-21-
IGENE Biotechnology, Inc. and Subsidiary
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,
2005, Igene had negative working capital of $773,152, and cash
and cash equivalents of $30,819. 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, 2005 and 2004 amounted to $230,870 and
$107,562, respectively, an increase in cash provided of $123,308.
Cash used by financing activities during the nine-month
period ended September 30, 2005 and 2004 amounted to $413,184 and
$216,696, respectively, an increase in cash used of $196,488.
Cash provided by financing activities was mainly for
preferred stock for cumulative dividends classified as interest.
Cash provided for the nine-month period ended September 30, 2005
and 2004 was $8,884 and $58,146, respectively, a decrease in cash
provided of $49,262.
On June 15th 2005, the Company executed a limited guarantee
for one of the debt obligations of the Joint Venture,
guaranteeing up to 4,200,000 British pounds sterling and
subsequently entered into an agreement with Tate & Lyle to
arrange funds for the Joint Venture, without recourse to Igene
Biotechnology, Inc., until the Joint Venture produces a regular
monthly cash flow, the Joint Venture has not met the cash flow
requirements.
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, 2005 and 2004.
-22-
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
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.
-23-
IGENE Biotechnology, Inc.
PART II
OTHER INFORMATION
Item 2. Unregistered Sales of Equity 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 September 30, 2005, total dividends in arrears on
the Company's preferred stock total $201,378 ($10.88 per share)
and are included in the carrying value of the redeemable
preferred stock.
On November 30, 2001, Igene entered into Convertible
Promissory Notes (the "Convertible Notes") with each of the
following note holders for the respective amounts (a) NorInnova
AS (formerly Forskningsparken I Tromso AS) for $106,500; (b) Knut
Gjernes for $7,500; (c) Magne Russ Simenson for $378,000; and (d)
Nord Invest AS for $313,000 (collectively, the "Convertible Note
Holders"). Each of the Convertible Notes has a maturity date of
November 1, 2004. On November 18, 2005, each of the Convertible
Note Holders provided Igene with written notice of default under
each of the Convertible Notes. Igene and the Convertible Note
Holders are currently in discussions to extend the maturity date
of each of the Convertible Notes in return for reducing the
conversion price and increasing the interest rate on each
Convertible Note, however it is not certain such amendment will
be consummated, and so long as an event of default under the
Convertible Note continues to exist, the Convertible Note Holders
have the ability to accelerate the payment of the principal and
interest due and owing on each of the Convertible Notes.
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.
-24-
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IGENE Biotechnology, Inc.
______________________________
(Registrant)
Date February 15, 2006 By /s/ STEPHEN F. HIU
______________________________
STEPHEN F. HIU
President
Date February 15, 2006 By /s/ EDWARD J. WEISBERGER
______________________________
EDWARD J. WEISBERGER
Chief Financial Officer
-25-
EXHIBIT INDEX
Exhibit 3.1 - Articles of Incorporation of the Registrant as
amended to date, constituting Exhibit 3.1 to
Registration Statement No. 333-41581 on Form SB-2
are incorporated herein by reference.
Exhibit 3.2 - Bylaws of the Registrant, constituting Exhibit
3.2 to the Registrant's Registration Statement No.
33-5441 on Form S-1, are hereby incorporated herein
by reference.
Exhibit 31(a) - Certification of Principal Executive Officer
pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)
Exhibit 31(b) - Certification of Principal Financial Officer
pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)
Exhibit 32(a) - Certification of Chief Executive Officer
pursuant to 18 U.S.C. SECTION 1350.
Exhibit 32(b) - Certification of Chief Financial Officer
pursuant to 18 U.S.C. SECTION 1350.
-26-