U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2008
______________
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
THE EXCHANGE ACT
For the transition period from __________ to __________
Commission file number 0-15888
_______
IGENE Biotechnology, Inc.
______________________________________________________
(Exact name of registrant 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
____________________________________________________
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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 large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of "large
accelerated filer," "accelerated filer" and "smaller reporting
company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [x]
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
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
-1-
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
110,337,072 shares of common stock, par value $.01, as of May 10,
_________________________________________________________________
2008.
_____
-2-
FORM 10-Q
IGENE Biotechnology, Inc.
INDEX
PART I - FINANCIAL INFORMATION
Page
Consolidated Balance Sheets (Unaudited) ............... 5
Consolidated Statements of Operations (Unaudited)...... 6
Consolidated Statement of Stockholders'
Deficiency (Unaudited)............................ 7
Consolidated Statements of Cash Flows (Unaudited)...... 8
Notes to Consolidated Financial Statements (Unaudited). 9-13
Management's Discussion and Analysis of Financial
Conditions and Results of Operations ............. 14-18
Controls and Procedures ............................... 18
PART II - OTHER INFORMATION ........................... 19-20
SIGNATURES .............................................. 21
EXHIBIT INDEX ........................................... 22
-3-
IGENE BIOTECHNOLOGY, INC. QUARTERLY REPORT
UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
-4-
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Balance Sheets
March 31, December 31,
2008 2007
_____________ _____________
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,038,316 $ 1,026,350
Accounts receivable 1,472,697 2,718,884
Inventory 5,961,095 8,059,777
Prepaid expenses and other current assets 7,147 38,351
_____________ _____________
TOTAL CURRENT ASSETS 10,479,255 11,843,362
Property and equipment, net 867,844 713,493
5 year non-compete (net of amortization of $7,699
and $0, respectively) 146,278 153,977
Customer contracts (net of amortization of $58,414
and $0, respectively) 175,244 233,658
Intellectual property 149,670 149,670
Other assets 5,125 5,125
_____________ _____________
TOTAL ASSETS $ 11,823,416 $ 13,099,285
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 6,726,279 $ 7,902,625
_____________ _____________
TOTAL CURRENT LIABILITIES 6,726,279 7,902,625
LONG-TERM DEBT
Notes payable (net of unamortized discount of
$941,928 and $1,198,818, respectively) 4,900,339 4,643,449
Convertible debentures (net of unamortized discount of
$1,236,743 and $1,331,548, respectively) 3,339,469 3,244,664
Contingent liability on joint venture separation 5,000,000 5,000,000
Accrued interest 6,639,453 6,442,076
REDEEMABLE PREFERRED STOCK
Carrying amount of redeemable preferred stock,
8% cumulative, convertible, voting, series A,
$.01 par value per share. Stated value
was $20.48 and $20.32, respectively. Authorized
1,312,500 shares; issued and outstanding 11,134 shares. 228,024 226,243
_____________ _____________
TOTAL LIABILITIES 26,833,564 27,459,057
_____________ _____________
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Common stock --- $.01 par value per share. Authorized
750,000,000 shares; issued and outstanding 110,337,072
shares. 1,103,371 1,103,371
Additional paid-in capital 33,276,687 33,276,687
Accumulated deficit (49,610,062) (48,739,830)
Other comprehensive income 219,856 ---
_____________ _____________
TOTAL STOCKHOLDERS' DEFICIENCY (15,010,148) (14,359,772)
_____________ _____________
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 11,823,416 $ 13,099,285
============= =============
The accompanying notes are an integral part of the financial
statements.
-5-
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Statements of Operations
(Unaudited)
Three months ended
_____________________________
March 31, March 31,
2008 2007
_____________ _____________
(Restated)
REVENUE
_______
Sales $ 2,871,502 $ ---
Cost of sales 2,367,410 ---
_____________ _____________
GROSS PROFIT 504,092 ---
RECOUPMENT OF LOSS OF JOINT VENTURE --- 58,956
OPERATING EXPENSES
__________________
Marketing and selling 298,298 1,892
Research, development and pilot plant 350,104 252,114
General and administrative 177,110 202,913
Less operating expenses reimbursed by Joint Venture --- (445,044)
_____________ _____________
TOTAL OPERATING EXPENSES 825,512 11,875
_____________ _____________
OPERATING PROFIT (LOSS) (321,420) 47,081
_____________ _____________
OTHER INCOME 2,040 6,382
INTEREST EXPENSE (including amortization of debt
discount of $351,695 and $351,694, respectively) (550,852) (530,872)
_____________ _____________
NET LOSS $ (870,232) $ (477,409)
_____________ _____________
Other comprehensive income
Foreign exchange translation 219,856 ---
TOTAL COMPREHENSIVE LOSS $ (650,376) $ (477,409)
============= =============
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.01) $ (0.00)
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING 110,337,072 109,337,072
============= =============
The accompanying notes are an integral part of the financial
statements.
-6-
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Statement of Stockholders' Deficiency
(Unaudited)
Additional Other Total
Common Stock Paid-in Accumulated Comprehensive Stockholders'
(shares/amount) Capital Deficit Income Deficiency
____________________________ ______________ ______________ ______________ ______________
Balance at January 1, 2008 110,337,072 $ 1,103,371 $ 33,276,687 $ (48,739,830) $ --- $ (14,359,772)
Gain due to currency translation --- --- --- --- 219,856 219,856
Net loss for the three months ended
March 31, 2008 --- --- --- (870,232) --- (870,232)
______________ _____________ ______________ ______________ ______________ ______________
Balance at March 31, 2008 110,337,072 $ 1,103,371 $ 33,276,687 $ (49,610,062) $ 219,856 $ (15,010,148)
============== ============= ============== ============== ============== ==============
The accompanying notes are an integral part of the financial
statements.
-7-
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
Three months ended
____________________________
March 31, March 31,
2008 2007
_____________ _____________
(restated)
Cash flows from operating activities
Net loss $ (870,232) $ (477,409)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Amortization of debt discount 351,695 351,694
Depreciation 2,720 4,673
Increase in preferred stock for cumulative dividend
classified as interest 1,781 1,781
Amortization of customer contracts and non-compete 66,113 ---
Recoupment of payment of joint venture --- (58,956)
Decrease (increase) in:
Accounts receivable 1,246,188 ---
Inventory 2,098,682 ---
Prepaid expenses and other current assets 31,203 4,260
Increase (decrease) in
Accounts payable and accrued expenses (978,969) 40,413
_____________ _____________
Net cash provided by (used in) operating activities 1,949,181 (133,544)
_____________ _____________
Cash flows from investing activities
Purchase of equipment (157,071) ---
Recoupment of payment (advances) to Joint Venture --- 58,956
_____________ _____________
Net cash provided by (used in) investing activities (157,071) 58,956
_____________ _____________
Cash flows from financing activities
Proceeds from issuance of convertible debentures --- 762,000
Repayment of convertible debentures --- (705,000)
_____________ _____________
Net cash provided by financing activities --- 57,000
_____________ _____________
Gain due to currency translation 219,856 ---
Net decrease in cash and cash equivalents 2,011,966 (17,588)
Cash and cash equivalents at beginning of period 1,026,350 21,786
Cash and cash equivalents at end of period $ 3,038,316 $ 4,198
============= =============
Supplementary disclosure and cash flow information
__________________________________________________
Cash paid for interest $ --- $ 57,637
Cash paid for income taxes --- ---
See Note (2) for non-cash investing and financing activities.
The accompanying notes are an integral part of the financial
statements.
-8-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(1) Unaudited Consolidated Financial Statements
The March 31, 2008 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 operations 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-Q should be read
in conjunction with Annual Report on Form 10-KSB for IGENE
Biotechnology, Inc. ("Igene") the year ended December 31,
2007. The December 31, 2007 consolidated balance sheet is
derived from the audited balance sheet included therein.
(2) Nature of Operations
IGENE Biotechnology, Inc. ("Igene" or the "Company") was
incorporated in the State of Maryland on October 27, 1981 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 a source of pigment for coloring farmed
salmon species. Igene is also venturing to supply
astaxanthin as a nutraceutical ingredient. Igene is focused
on research and development in the areas of fermentation
technology, nutrition and health and the marketing of
products and applications worldwide. Igene is the developer
of AstaXin(R), a natural astaxanthin product made from
yeast, which is used as a source of pigment for coloring
farmed salmonids.
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 2000, Igene formed a wholly-owned subsidiary, Igene Chile
Comercial, Ltda., in Chile. The subsidiary has a sales and
customer service office in Puerto Varas, Chile, and a
product warehouse in Puerto Montt, Chile.
In an effort to develop a dependable source of production,
on March 19, 2003, Tate & Lyle PLC ("Tate") and Igene
announced a 50:50 joint venture to produce AstaXin(R) for
the aquaculture industry, which we refer to as the "Joint
Venture." Production utilized Tate's fermentation
capability together with the unique technology developed by
Igene. Part of Tate's existing citric acid facility located
in Selby, England, was modified to include the production of
this product. Tate's investment of approximately
$24,600,000 included certain of its facility assets that
were used in citric acid production. Igene's contribution
to the Joint Venture, including its intellectual property
and its subsidiary in Chile, was valued by the parties as
approximately equal to Tate's contribution. For accounting
purposes Igene's accounting contribution was valued at zero.
On October 31, 2007, Igene and Tate entered into a
Separation Agreement pursuant to which the Joint Venture
Agreement was terminated. As part of the Separation
Agreement, Igene sold to Tate its 50% interest in the Joint
Venture and the Joint Venture sold to Igene its intellectual
property, inventory and certain assets and lab equipment
utilized by the Joint Venture as well as Igene's subsidiary
in Chile. The purchase price paid by Tate to Igene for its
50% interest in the Joint Venture was 50% of the Joint
Venture's net working capital. The purchase price paid by
Igene for the inventory was an amount equal to 50% of the
Joint Venture's net working capital, the assumption of
various liabilities and the current market price of the
inventory, less specified amounts. In addition, Igene
agreed to pay to Tate an amount equal to 5% of Igene's gross
revenues from the sale of astaxanthin up to a maximum of
$5,000,000. Tate agreed for a period of five years not to
engage in the astaxanthin business.
As a result of the Joint Venture termination, Igene is not
currently producing astaxanthin products, and is researching
several alternatives for a potential new source of
production. At the current pace, Igene expects to have
inventories of existing product necessary to meet demand
through the third quarter of 2008. Igene expects to be out
of the market for an uncertain period of time following the
third quarter of 2008 until a new source of production can
be identified, commence operations and yield salable
product.
-9-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(continued)
(3) Noncash Investing and Financing Activities
During the three months ended March 31, 2008 and 2007, the
Company recorded in each quarter dividends in arrears on 8%
redeemable preferred stock cumulating at $.16 per share
aggregating to $1,781.
(4) Amendment to Long - Term Liabilities
Igene entered into Convertible Promissory Notes (the
"Convertible Notes") with each of the following note holders
for the following respective amounts (a) NorInnova AS
(formerly Forskningsparken I Tromso AS) for $106,500; (b)
Knut Gjernes for $7,500; (c) Magne Russ Simenson for
$278,000; and (d) Nord Invest AS for $313,000. Each of the
Convertible Notes had 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.
On November 29, 2006, the Convertible Note holders filed a
complaint against the Company in the Circuit Court of Howard
County, Maryland seeking payment of all outstanding amounts
due under the Convertible Notes, the "Notes Litigation." On
February 23, 2007, the Company paid $762,638, representing
the full amount due including interest, to the Convertible
Note holders as settlement of all claims related to the
Notes Litigation. The complaint was dismissed with
prejudice on March 6, 2007.
In an attempt to settle the matter, the Note holders were
offered the ability to extend the notes they held for a
period of ten years at an interest rate of 5%. The
conversion would be changed from the original debenture rate
of $.10 (ten cents) per share to the current market rate of
$.02 (two cents) per share. They rejected the offer.
The funds to settle the Notes Litigation were provided by
certain of Igene's directors using the terms offered above
to the debenture holders. On February 15, 2007, Igene
issued and sold $762,000 in aggregate principal amount of 5%
convertible debentures, 50% each to certain directors of
Igene. These debentures are convertible into shares of
Igene's common stock at $.02 per share based on the offer
made to the original debenture holders as the market price
of Igene's shares at the time the debentures were agreed to.
These debentures, if not converted earlier, become due on
February 15, 2017.
(5) Previous 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, including
certain facility assets that were used in citric acid
production, while the Company transferred to the Joint
Venture its technology relating to the production of
astaxanthin and assets related thereto. The assets
transferred by the Company were used by the Joint Venture in
the same manner as historically used by the Company. The
Company and Tate each had a 50% ownership interest in the
Joint Venture and equal representation on the Board of
Directors of the Joint Venture. The value of the Company's
initial investment in the Joint Venture was recorded at an
amount equal to Igene's historical book value. As the cost
of the Company's technology and intellectual property had
been previously expensed and had a carrying amount of zero,
the investment in the Joint Venture was originally recorded
with a book value of $316,869, which represented the
unamortized production costs contributed to the Joint
Venture. The Company also contributed $6,000 to the capital
of the Joint Venture.
Production utilized Tate's fermentation capability together
with the unique technology developed by Igene. Part of
Tate's existing Selby, England, citric acid facility was
modified to produce up to 1,500 tons per annum of this
astaxanthin. Sales and cost of sales activity were recorded
as part of the earnings of the unconsolidated venture.
-10-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(continued)
On October 31, 2007, Igene and Tate entered into a
Separation Agreement pursuant to which the Joint Venture
Agreement was terminated. As part of the Separation
Agreement, Igene sold to Tate its 50% interest in the Joint
Venture and the Joint Venture sold to Igene its intellectual
property, inventory and certain assets and lab equipment
utilized by the Joint Venture as well as the Chilean sales
subsidiary. The purchase price paid by Tate to Igene for
its 50% interest was 50% of the Joint Venture's net working
capital. The purchase price paid by Igene for the inventory
was an amount equal to 50% of the Joint Venture's net
working capital, the assumption of various liabilities and
the current market price of the inventory, less specified
amounts. In addition, Igene agreed to pay to Tate an amount
equal to 5% of Igene's gross revenues from the sale of
astaxanthin up to a maximum of $5,000,000. Tate agreed for
a period of five years not to engage in the astaxanthin
business.
Upon the termination of the Joint Venture it was determined
that the transaction should be recorded as an asset
purchase. This determination was based upon the assets
received not constituting a business in accordance with EITF
98-3. Based on that determination an independent valuation
expert was hired to determine the fair value of the assets
received and the liabilities assumed. As the fair value
received exceeded the liabilities assumed the fair value of
the assets received were reduced to equal the liabilities
assumed. Consistent with FASB statement 141 in this
exchange transaction between two parties the value received
is considered to be equal to what was assumed. All
contingent liabilities were recorded at their maximum amount
along with the value of the other consideration given. The
reduction in value to arrive at the other consideration
given was allocated pro rata to the long term assets.
As a result of the Joint Venture termination, Igene is now
researching several alternatives for a potential new source
of production. At the current pace, Igene expects to have
inventories of existing product necessary to meet demand
through the third quarter of 2008. Igene expects to be out
of the market for an uncertain period of time following the
third quarter of 2008 until a new source of production can
be identified, commence operations and yield salable
product.
Prior to the separation, sales and marketing of astaxanthin
took place in the unconsolidated Joint Venture. From
inception on March 18, 2003 through March 31, 2007, the
Joint Venture's results of operations included the
following: Gross profit from inception was a negative
$19,763,827 on sales of $31,353,167, less manufacturing cost
of $51,116,994. Selling and general and administrative
expenses were $14,302,539, and interest expense was
$4,244,994. The resulting loss for such period was
$38,311,360. Igene's 50% portion of the Joint Venture loss
was $19,155,680 for such period.
Because the Company accounted for its investment in the
Joint Venture under the equity method of accounting, it
would ordinarily recognize a loss representing its 50%
equity interest in the loss of the Joint Venture or the
amount that is guaranteed by the Company, if any. However,
losses in the Joint Venture were recognized only to the
extent of the investment in and advances to the Joint
Venture. Losses in excess of this amount were suspended
from recognition in the financial statements.
At March 31, 2007, prior to the recognition of its portion
of the Joint Venture loss, Igene's investment in the Joint
Venture consisted of $322,869 and its net advances to the
Joint Venture amounted to $1,110,156, for a total of
$1,433,025. Through the year ended December 31, 2006, Igene
recognized $1,491,981 of its share of a $15,922,400 loss.
The remainder of $14,430,419 was suspended and will be
carried forward to offset Igene's share of earnings from the
Joint Venture, if any. During the quarter ended March 31,
2007 the balance of funds due to Igene from the Joint
Venture was reduced through repayments to Igene. This net
repayment totaled $58,956, and is treated as a recoupment of
prior loss. In addition the JV incurred an additional loss
of $6,466,560, Igene's 50% share of this was $3,233,280, the
combination increased the suspended loss by $3,292,236,
during the quarter ended March 31, 2007. This brought the
March 31, 2007 suspended loss to $17,722,655. The balance
in the advances to and investment in Joint Venture account
on the Company's financial statements is zero at March 31,
2007.
The following schedules display certain account balances of
the Joint Venture as of March 31, 2007 and the period since
initial investment at March 18, 2003 (inception):
-11-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(continued)
(Unaudited)
March 31,
2007
_____________
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,042,000
Accounts Receivable 4,229,000
Inventories 10,491,000
_____________
15,762,000
OTHER ASSETS
Property, plant and equipment, net 20,053,000
Intangibles 24,614,000
TOTAL ASSETS $ 60,429,000
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 35,211,000
Working capital loan 11,812,000
_____________
TOTAL CURRENT LIABILITIES 47,023,000
Equity 13,406,000
_____________
TOTAL LIABILITIES AND EQUITY $ 60,429,000
=============
Period from March 18, 2003
(initial investment) to
March 31, 2007
__________________________
(unaudited)
Net Sales $ 31,353,167
Less: manufacturing cost (51,116,994)
_____________
Gross Profit (Loss) (19,763,827)
Less: selling, general and administrative (14,302,539)
_____________
Operating Loss (34,066,366)
Interest Expense (4,244,994)
_____________
Net Loss $(38,311,360)
=============
Igene's 50% equity interest in the net loss $(19,155,680)
Igene's Investment in and Advances to the Joint Venture (1,433,025)
_____________
Igene's suspended loss $(17,722,655)
=============
Quarter ended Quarter ended
March 31, 2007 March 31, 2006
________________ ________________
(unaudited) (unaudited)
Net Sales $ 3,580,288 $ 3,190,139
Less: manufacturing cost (8,178,136) (3,348,894)
________________ ________________
Gross Profit (Loss) (4,597,848) (158,755)
Less: selling, general and administrative (1,212,252) (1,104,719)
Operating Loss (5,810,100) (1,263,474)
Interest Expense (656,460) (700,900)
Net Loss before taxes (6,466,560) (1,964,374)
Tax Expense --- (1,205,900)
Net Loss before taxes $ (6,466,560) $ (3,170,274)
Igene's 50% equity interest in the net loss $ (3,233,280) $ (1,585,137)
Igene's additional Recoupment from
(Investment in and Advances to) the Joint Venture 58,956 (189,902)
Igene's incremental suspended loss $ (3,292,236) $ (1,395,235)
-12-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(continued)
(6) Stockholders' Deficiency
As of March 31, 2008, 22,268 shares of authorized but
unissued common stock were reserved for issue upon
conversion of the Company's outstanding preferred stock.
As of March 31, 2008, 72,232,334 shares of authorized but
unissued common stock were reserved for distribution and
exercise pursuant to the Company's Employee Stock Option
Plans.
As of March 31, 2008, 23,421,273 shares of authorized but
unissued common stock were reserved for the conversion of
outstanding convertible promissory notes held by directors
of the Company in the aggregate amount of $1,082,500.
As of March 31, 2008, 66,427,651 shares of authorized but
unissued common stock were reserved for the conversion of
outstanding convertible promissory notes held by directors
of the Company.
As of March 31, 2008 $38,100,000 shares of authorized but
unissued common stock were reserved for the conversion of
outstanding convertible promissory notes issued as part of
the settlement of the ProBio notes.
As of March 31, 2008, 205,261,073 shares of authorized but
unissued common stock were reserved for the exercise of
outstanding warrants.
(7) Basic and Diluted Net Loss per Common Share
Basic and diluted net loss per common share for the three-
month periods ended March 31, 2008 and 2007 are based on
110,337,072 and 109,337,072, respectively, of weighted
average common shares outstanding. No adjustment has been
made for any common stock equivalents outstanding because
their effects would be anti-dilutive. As of March 31, 2008,
potential full dilution was 488,414,337 shares.
(8) Going Concern
Igene has incurred net losses in each year of its existence,
aggregating approximately $49,610,000 from inception to
March 31, 2008 and as of March 31, 2008, Igene's liabilities
exceeded its assets by approximately $15,010,000. These
factors indicate that Igene may not be able to continue in
existence unless it is able to raise additional capital and
attain profitable operations.
As discussed, as of October 31, 2007, Igene has terminated
its relationship with the Joint Venture with Tate & Lyle.
Igene maintains the saleable inventory after the termination
of the relationship and is currently reviewing alternatives
for a future manufacturing alternative. In the interim
Igene will sell the existing inventory in order to maintain
its relationship with customers and use these funds to cover
expenses. We anticipate that our current inventory will
not be substantiated after the third quarter of 2008. No
adjustments to the financial statements have been made as a
result of this uncertainty.
-13-
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 2. 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 WITHIN THE BIOTECH AGRICULTURE AND
AQUACULTURE INDUSTRIES, 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, INCLUDING THOSE DETAILED IN
"RISK FACTORS" THAT ARE INCLUDED FROM TIME-TO-TIME IN THE
COMPANY'S SECURITIES AND EXCHANGE COMMISSION FILINGS. THE
COMPANY ASSUMES NO DUTY TO UPDATE FORWARD-LOOKING STATEMENTS TO
REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH
STATEMENTS.
Critical Accounting Policies
____________________________
The preparation of our financial statements in conformity
with accounting principles generally accepted in the United
States (or "GAAP") 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 of operations presented in the financial statements
and require management to make judgments and estimates that are
inherently uncertain:
The 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.
Revenue from product sales are recognized when there is
persuasive evidence that an arrangement exists, delivery has
occurred, the price is fixed and determinable, and collectability
is reasonably assured. Allowances are established for estimated
uncollectible amounts, product returns and discounts.
The Joint Venture was accounted for under the equity method
of accounting as Igene had a 50% ownership interest.
Igene did not recognize the loss of the Joint Venture beyond
the investment and advances to the Joint Venture. This excess
loss was sold as part of the termination of the Joint Venture.
-14-
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Results of Operations
_____________________
Sales and other revenue
As part of the Joint Venture Agreement, all sales of
AstaXin(R) prior to October 31, 2007 were recognized through the
Joint Venture. Therefore, Igene recorded no sales during 2006 or
in 2007 prior to October 31, 2007. During the first quarter of
2008, Igene recorded sales of $2,871,502. Sales had been limited
in past years due to insufficient production quantity and are
expected to decline to zero sometime during the third quarter of
2008 and remain negligible until a source of production can be
identified and production begins. Igene is currently researching
various alternatives for future production but has not yet
engaged any new source of production. Management believes that
this decision is of fundamental importance to Igene and continues
to seek an appropriate production partner.
Cost of sales and gross profit
As with sales revenue, beginning July 2003 through October
31, 2007, cost of sales and gross profit were recognized through
the Joint Venture. Therefore, Igene recorded no cost of sales or
gross profit during 2006 or in 2007 prior to October 31, 2007.
During the first quarter of 2008, Igene recorded cost of sales of
$2,367,410. This resulted in a gross profit for the period of
$504,092, or 18%. The increase in gross profit is due mainly to
the discount in which the product was purchased at the conclusion
of the Joint Venture. With the termination of the Joint Venture,
there can be no assurance of the continued dependability of
production. As a result, future cost of sales is expected to
increase through the third quarter of 2008, whereupon sales, and
cost of sales, are expected to be negligible until a source of
production can be identified and commencement of production
cannot be predicted. Igene is currently researching various
alternatives for future production. No assurances can be
provided with regard to a new source of production.
Marketing and selling expenses
For the quarters ended March 31, 2008 and 2007, Igene
recorded marketing and selling expense in the amounts of $298,298
and $1,892, respectively, an increase of $296,406. With the
termination of the Joint Venture, Igene has reassumed
responsibility for the marketing and selling function that was
being done by the Joint Venture. It is expected that this level
of marketing and selling expense will be constant as Igene has
reassumed the activities of the Chilean subsidiary and looks to
maintain its customer base through the period in which it engages
a new source of production. However, no assurances can be made
with regard to a new source of production or maintenance of the
customer base. Prior to October 2007, all marketing and selling
expenses incurred by Igene as part of the Joint Venture had been
reimbursed by the Joint Venture. After October 2007, these
expenses are expected to be funded by cash flows from operations,
to the extent available for such purposes. However, we do not
expect cash flows from operations to continue beyond the third
quarter of 2008 unless and until a source of production is
identified and production begins.
Research, development and pilot plant expenses
For the quarters ended March 31, 2008 and 2007, Igene
recorded research and development costs in the amount of $350,104
and $252,114, respectively, an increase of $97,990 or 39%.
Research and development costs have increased as Igene works to
develop new uses for its product. As well, it is expected these
costs will remain at current increased levels in support of
increasing the efficiency of the manufacturing process through
experimentation in the Company's pilot plant, developing higher
yielding strains of yeast and other improvements in the Company's
AstaXin(R) technology. Prior to October of 2007, all research and
development expenses incurred by Igene as part of the Joint
Venture had been reimbursed by the Joint Venture. After October
2007 these expenses are expected to be funded by cash flows from
operations, to the extent available for such purposes. However,
we do not expect cash flows from operations to continue beyond
the third quarter of 2008 unless and until a source of production
is identified and production begins.
-15-
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
General and administrative expenses
General and administrative expenses for the quarter ended
March 31, 2008 and 2007 were $177,110 and $202,913 respectively,
a decrease of $25,803 or 13%. These costs are expected to
remain constant. Igene works to keep overhead costs at a reduced
level and spend funds on research and development efforts. Prior
to October 2007, all general and administrative expenses incurred
related to research and sales of product by Igene as part of the
Joint Venture, had been reimbursed by the Joint Venture. After
October 2007 these expenses are expected to be funded by cash
flows from operations, to the extent available for such purposes.
However, we do not expect cash flows from operations to continue
beyond the third quarter of 2008 unless and until a source of
production is identified and production begins.
Expenses reimbursement by Joint Venture
As part of the Joint Venture Agreement, costs incurred by
Igene related to production, research and development, as well as
those related to the marketing of AstaXin(R), and most of the
general and administrative expenses, were considered costs of the
Joint Venture and therefore were reimbursed by the Joint Venture.
We do not expect to receive any further reimbursements following
the October 2007 termination of the Joint Venture. Therefore,
all expenses incurred by Igene are expected to be funded by cash
flows from operations, to the extent available for such purposes.
We do not expect cash flows from operations to continue beyond
the third quarter of 2008 unless and until a source of production
is identified and production begins. For the quarter ended March
31, 2007, costs reimbursed by the Joint Venture totaled $445,044.
The costs covered $1,892 of marketing costs, $252,114 of research
and development costs and $191,038 of general and administrative
costs.
Interest expense
Interest expense for the quarters ended March 31, 2008 and
2007 were $550,852 and $530,872 respectively, an increase of
$19,980 or 4%. This interest expense (net of interest income)
was composed of interest on Igene's long term financing from its
directors and other stockholders and interest on Igene's
subordinated and convertible debentures, as well as amortization
of discount on Igene's notes and debentures of $351,695 for 2008
and $351,694 for 2007.
Equity in earnings of unconsolidated Joint Venture
Prior to the October 31, 2007 termination of the Joint
Venture, the production, sales and marketing of astaxanthin took
place in the unconsolidated Joint Venture. From inception on
March 18, 2003 through March 31, 2007, the Joint Venture's
results of operations included the following: Gross profit from
inception was a negative $19,763,827 on sales of $31,353,167,
less manufacturing cost of $51,116,994. Selling and general and
administrative expenses were $14,302,539, and interest expense
was $4,244,994. The resulting loss was $38,311,360. Igene's 50%
portion of the Joint Venture loss was $19,155,680.
Because the Company accounted for its investment in the
Joint Venture under the equity method of accounting, it would
ordinarily recognize a loss representing its 50% equity interest
in the loss of the Joint Venture or the amount that is guaranteed
by the Company, if any. However, losses in the Joint Venture
were recognized only to the extent of the investment in and
advances to the Joint Venture. Losses in excess of this amount
were suspended from recognition in the financial statements.
-16-
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
At March 31, 2007, prior to the recognition of its portion
of the Joint Venture loss, Igene's investment in the Joint
Venture consisted of $322,869 and its net advances to the Joint
Venture amounted to $1,110,156, for a total of $1,433,025.
Through the year ended December 31, 2006, Igene recognized
$1,491,981 of its share of a $15,922,400 loss. The remainder of
$14,430,419, was suspended and will be carried forward to offset
Igene's share of earnings from the Joint Venture, if any. During
the quarter ended March 31, 2007, the balance of funds due to
Igene from the Joint Venture was reduced through repayments to
Igene. This net repayment totaled $58,956. This amount is
treated as a recoupment of prior loss and added back to the
$14,430,419 suspended loss. In addition the Joint Venture
incurred an additional loss of $6,466,560, Igene's 50% share of
this was $3,233,280, and the combination increased the suspended
loss by $3,292,236, during the quarter ended March 31, 2007.
This brought the March 31, 2007 suspended loss to $17,722,655.
The balance in the advances to and investment in Joint Venture
account on the Company's financial statements is zero at March
31, 2007.
Net loss and basic and diluted net loss per common share
As a result of the foregoing, the Company reported
comprehensive losses of $650,376 and $477,409, respectively, for
the quarters ended March 31, 2008 and 2007, an increase in the
loss of $172,967 or 36%. This represents a loss of $0.01 and
$0.00 per basic and diluted common share in each of the quarters
ended March 31, 2008 and 2007, respectively. The weighted
average number of shares of common stock outstanding of
110,337,072 and 109,337,072 for the quarters ended March 31, 2008
and 2007, respectively, has increased by 1,000,000 shares. The
increase in outstanding shares resulted from the issuance of
1,000,000 shares of common stock to the Company's Director of
Manufacturing.
Financial Position
During the quarters ended March 31, 2008 and 2007, in
addition to the matters previously discussed, the following
actions also materially affected the Company's financial
position:
o Decreases in accounts receivables, inventory and prepaid
expense for the quarter ended March 31, 2008 of
$3,376,073 were a source of cash, offset by funds used to
decrease accounts payable and accrued expenses by
$978,969; and
o The carrying value of redeemable preferred stock was
increased and interest expense recorded in the amount of
$1,781 in 2008, reflecting cumulative unpaid dividends on
redeemable preferred stock.
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 March 31, 2008, total dividends in arrears on
Igene's preferred stock total $138,952 ($12.48 per share) and are
included in the carrying value of the redeemable preferred stock.
Liquidity and Capital Resources
Historically, Igene has been funded primarily by equity
contributions and loans from stockholders. As of March 31, 2008,
Igene had working capital of $3,752,976, and cash and cash
equivalents of $3,038,316.
Cash provided by operating activities during the three-month
period ended March 31, 2008 equaled $1,949,181 versus cash used
by operating activities of $133,544 for the three-month period
ended March 31, 2007.
Cash used by investing activities during the three-month
period ended March 31, 2008 equaled $157,071, this resulted from
the purchase of equipment, versus cash provided by investing
activities of $58,956, a recoupment of payment to the Joint
Venture for the three-month period ended March 31, 2007.
-17-
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
No cash was used or provided by financing activities during
the first quarter of 2008. Cash provided by financing activities
was $57,000 during the first quarter of 2007, in settlement of
the convertible debentures and used in payment of interest on
those notes.
Over the next twelve months, Igene believes it will need
additional working capital. Part of this funding is expected to
be received from sales of AstaXin(R), resulting in increased cash
through the third quarter of 2008. Thereafter sales are expected
to decline to zero and remain negligible until a source of
production is identified and production begins. There will be
additional delay between the commencement of production and the
receipt of proceeds from any sale of such product. However,
there can be no assurance that projected cash from sales, or
additional funding, will be sufficient for Igene to fund its
continued operations.
The Company does not believe that inflation had a
significant impact on its operations during the three-month
periods ended March 31, 2008 and 2007.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company is a smaller reporting company as defined by
Rule 12b-2 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and is not required to provide the
information required under this item.
Item 4. Controls and Procedures
We carried out an evaluation, under the supervision and with the
participation of our management, including our principal
executive officer and principal financial officer, of the
effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act
(defined below)). Based upon that evaluation, our principal
executive officer and principal financial officer concluded that,
as of the end of the period covered in this report, our
disclosure controls and procedures were not effective to ensure
that information required to be disclosed in reports filed under
the Securities Exchange Act of 1934, as amended (the "Exchange
Act") is recorded, processed, summarized and reported within the
required time periods and is accumulated and communicated to our
management, including our principal executive officer and
principal financial officer, as appropriate to allow timely
decisions regarding required disclosure.
Our management, including our principal executive officer and
principal financial officer, does not expect that our disclosure
controls and procedures or our internal controls will prevent all
error or fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are
met. Further, the design of a control system must reflect the
fact that there are resource constraints and the benefits of
controls must be considered relative to their costs. Due to the
inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues
and instances of fraud, if any, have been detected. To address
the material weaknesses, we performed additional analysis and
other post-closing procedures in an effort to ensure our
consolidated financial statements included in this annual report
have been prepared in accordance with GAAP. Accordingly,
management believes that the financial statements included in
this report fairly present in all material respects our financial
condition, results of operations and cash flows for the periods
presented.
Igene is attempting to increase control over financial reporting
in order to strengthen internal controls.
-18-
IGENE Biotechnology, Inc. and Subsidiary
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which
Igene is a party or to which any of Igene's properties are
subject; nor are there material proceedings known to be
contemplated by any governmental authority; nor are there
material proceedings known to Igene, pending or contemplated, in
which any of Igene's directors, officers, affiliates or any
principal security holders, or any associate of any of the
foregoing, is a party or has an interest adverse to us, except as
set forth below.
In connection with the issuance of convertible notes by
Igene in 2001 to each of NorInnova AS (formerly Forskningsparken
I Tromso AS), Knut Gjernes, Magne Russ Simenson and Nord Invest
AS (collectively, the "note holders"), which convertible notes
matured in November 2004, the note holders filed a complaint
against Igene in Circuit Court of Howard County, Maryland on
November 29, 2006 seeking payment of all outstanding amounts due
under the convertible notes. On February 23, 2007, Igene, paid
an aggregate amount of $762,638 to the note holders as settlement
of all claims related to the convertible notes. The complaint
was dismissed with prejudice on March 6, 2007.
Item 1A. Risk Factors
The Company is a smaller reporting company as defined by
Rule 12b-2 of the Exchange Act and is not required to provide the
information required under this item.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
None.
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 May 14, 2008, total dividends in arrears on the
Company's preferred stock total $138,952 ($12.48 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
None.
Item 5. Other Information
None.
Item 6. Exhibits
(a) Exhibits
EXHIBIT DESCRIPTION
3.1 Articles of Incorporation of the Registrant,
as amended as of November 17, 1997, constituting
Exhibit 3.1 to the Registration Statement No. 333-
41581 on Form SB-2 filed with the SEC on December
5, 1997, are hereby incorporated by reference.
-19-
3.2 Articles of Amendment to Articles of Incorporation
of the Registrant, constituting Exhibit 3.1(b) to
the Registration Statement No. 333-76616 on Form S-
8 filed with the SEC on January 11, 2002, are
hereby incorporated by reference.
3.3 By-Laws of the Registrant, constituting Exhibit 3.2
to the Registration Statement No. 33-5441 on Form S-
1 filed with the SEC on May 6, 1986, are hereby
incorporated by reference.
31.1 Rule 13a-14(a) or 15d-14(a) Certification of the
Registrant's principal executive officer.*
31.2 Rule 13a-14(a) or 15d-14(a) Certification of the
Registrant's principal financial officer.*
32.1 Rule 13a-14(b) or 15d-14(b) Certification of the
Registrant's principal executive officer pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to
Rule 906 of the Sarbanes-Oxley Act of 2002.*
32.2 Rule 13a-14(b) or 15d-14(b) Certification of the
Registrant's principal financial officer pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to
Rule 906 of the Sarbanes-Oxley Act of 2002.*
*Filed herewith.
-20-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IGENE BIOTECHNOLOGY, INC.
_____________________________________
(Registrant)
Date May 14, 2008 By /S/ STEPHEN F. HIU
____________ _____________________________________
STEPHEN F. HIU
President
(principal executive officer)
Date May 14, 2008 By /S/ EDWARD J. WEISBERGER
____________ _____________________________________
EDWARD J. WEISBERGER
Chief Financial Officer
(principal financial officer)
-21-
EXHIBIT INDEX
EXHIBIT DESCRIPTION
NO.
3.1 Articles of Incorporation of the Registrant, as
amended as of November 17, 1997, constituting
Exhibit 3.1 to the Registration Statement No. 333-
41581 on Form SB-2 filed with the SEC on December 5,
1997, are hereby incorporated by reference.
3.2 Articles of Amendment to Articles of Incorporation
of the Registrant, constituting Exhibit 3.1(b) to
the Registration Statement No. 333-76616 on Form S-
8 filed with the SEC on January 11, 2002, are
hereby incorporated by reference.
3.3 By-Laws of the Registrant, constituting Exhibit 3.2
to the Registration Statement No. 33-5441 on Form S-
1 filed with the SEC on May 6, 1986, are hereby
incorporated by reference.
31.1 Rule 13a-14(a) or 15d-14(a) Certification of the
Registrant's principal executive officer.*
31.2 Rule 13a-14(a) or 15d-14(a) Certification of the
Registrant's principal financial officer.*
32.1 Rule 13a-14(b) or 15d-14(b) Certification of the
Registrant's principal executive officer pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to
Rule 906 of the Sarbanes-Oxley Act of 2002.*
32.2 Rule 13a-14(b) or 15d-14(b) Certification of the
Registrant's principal financial officer pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to
Rule 906 of the Sarbanes-Oxley Act of 2002.*
*Filed herewith.
-22-