UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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 (I.R.S. Employer
of incorporation or organization) Identification No.)
9110 Red Branch Road, Columbia, Maryland 21045
______________________________________________ _____________
(Address of principal executive offices (Zip Code)
(410) 997-2599
___________________________________________________
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
___________________ _________________________________________
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (par value $.01 per share)
_______________________________________
(Title of class)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
[ ] Yes [X] No
Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or 15(d) of the Act.
[ ] Yes [X] No
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.
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (229.405) is not
contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-
K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer, or a smaller reporting company. See definition of "large
accelerated filer," "accelerated filer" and "smaller reporting
company" in Rule 12b-2 of the Exchange Act. (Check One):
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 Act).
[ ] Yes [X] No
State the aggregate market value of the voting and non-
voting common equity held by non-affiliates computed by reference
to the price at which the common equity was last sold, or the
average bid and asked price of such common equity, as of the last
business day of the registrant's most recently completed year end
$4,014,363 as of March 30, 2009.
_______________________________
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date. As of March 24, 2009 there were 1,518,503,841 shares of
________________________________________________________
the issuer's common stock outstanding.
______________________________________
CAUTIONARY STATEMENT 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," "TARGET," "INTEND" OR SIMILAR EXPRESSIONS, WE INTEND
TO IDENTIFY FORWARD-LOOKING STATEMENTS. YOU SHOULD NOT PLACE
UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK
ONLY AS OF THE DATE OF THIS REPORT. ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE INDICATED IN SUCH STATEMENTS, DUE TO A
VARIETY OF FACTORS, RISKS AND UNCERTAINTIES INCLUDING, BUT 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, INCLUDING THOSE DETAILED IN
"RISK FACTORS" THAT ARE INCLUDED FROM TIME TO TIME IN THE
COMPANY'S SECURITIES AND EXCHANGE COMMISSION FILINGS. IF ONE OR
MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR IF THE
UNDERLYING ASSUMPTIONS PROVE INCORRECT, OUR ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE EXPECTED OR PROJECTED. WE ASSUME NO
OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS IN ORDER TO
REFLECT ANY EVENT OR CIRCUMSTANCE THAT MAY ARISE AFTER THE DATE
OF THIS REPORT, OTHER THAN AS MAY BE REQUIRED BY APPLICABLE LAW
OR REGULATION.
PART I
ITEM 1. BUSINESS
General
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's natural
astaxanthin product is marketed as AstaXin(R) and is made from
yeast, and used as a source of pigment for coloring farmed
salmonids. 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 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 in Chile,
Igene Chile Comercial, Ltda. 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
contribution was valued at zero.
-3-
On October 31, 2007, Igene and Tate entered into a
Separation Agreement pursuant to which the Joint Venture 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.
On January 8, 2009, Igene entered into an agreement with
Archer-Daniels-Midland Company ("ADM") pursuant to which the
Company and ADM formed a joint venture (the "ADM JV") to
manufacture and sell astaxanthin and derivative products
throughout the world. Each of the Company and ADM has a 50%
ownership interest in the ADM JV and has equal representation on
the Board of Managers of the ADM JV.
Government Regulation
The manufacturing and marketing of most of the products
Igene has developed are, and will likely continue to be, subject
to regulation by various governmental agencies in the United
States, including the Food and Drug Administration ("FDA"), the
Department of Agriculture ("USDA"), the Environmental Protection
Agency ("EPA"), and comparable agencies in other countries.
Igene, as a matter of policy, requires that its products conform
to current Good Manufacturing Practices ("GMPs") (as defined
under the Federal Food, Drug and Cosmetic Act and the rules and
regulations thereunder) and Igene believes all of its products so
conform. The extent of any adverse governmental regulation that
might arise from future administrative or legislative action,
including rules and regulations pertaining to the process of GRAS
(Generally Recognized as Safe) affirmations, cannot be predicted.
In a notice published in the Federal Register on July 6,
2000, the FDA announced the amendment of its color additive
regulations to provide for the safe use of Phaffia yeast, such as
that in Igene's product, AstaXin(R), as a color additive in
aquaculture feeds. This ruling, which became effective August 8,
2000, allows Igene to market AstaXin(R) for aquaculture feeds and
fish produced in, or imported into, the United States. This
ruling is available to the public in the Federal Register. Igene
has also previously obtained approval for AstaXin(R) from the
Canadian Food Inspection Agency ("CFIA"). Additional foreign
approval applications for AstaXin(R) have been granted in the
European Union.
In July 2000, Igene also obtained clearance from the FDA to
market AstaXin(R) as a human dietary supplement in the United
States. Scientific literature indicates that natural
astaxanthin, such as that in Igene's product, AstaXin(R), may
offer health benefits for humans due to its antioxidant
properties. The FDA notification and Igene's submissions are
available to the public from the FDA. Comparable agencies in the
European Union and other foreign countries may have their
own additional registration procedures. No additional
applications for approval of AstaXin(R) as a human nutritional
supplement have yet been submitted.
Igene has not incurred and does not anticipate any material
environmental compliance costs.
Research and Development
As of December 31, 2008, Igene had expended approximately
$18,919,000 on research and development since its inception on
October 27, 1981. The costs listed below for 2007 were
reimbursed by the Joint Venture through October 31, 2007. Sales
of astaxanthin (through Igene and the Joint Venture) resulted in
revenues of $57,000,000 as of December 31, 2008, $39,500,000 of
which were realized through the Joint Venture. From November 1,
2007, through December 31, 2008, $9,931,000 of this revenue was
recorded on the books of Igene. Igene will continue to incur
research and development costs in connection with improvements in
its existing processes and products, but it does not anticipate
development of new processes and products in 2009.
Research and development expenditures for each of the last
two years are as follows:
2008 $ 1,655,908
2007 $ 983,610
-4-
Igene's research and development activities have resulted in
the development of processes to produce the product AstaXin(R)
hereinafter discussed.
Commercial Products
AstaXin(R)
AstaXin(R) is Igene's registered trademark for its dried
yeast product made from a proprietary strain of yeast developed
by Igene. AstaXin(R) is a natural source of astaxanthin, a
pigment which imparts the characteristic red color to the flesh
of salmon, trout, prawns and certain other types of fish and
shellfish. In the ocean, salmon and trout obtain astaxanthin
from krill and other planktonic crustaceans in their diet. A
krill and crustacean diet would be prohibitively expensive for
farm-raised salmonids. Without the addition of astaxanthin, the
flesh of such fish is a pale, off-white color, which is less
appealing to consumers expecting the characteristic "salmon-
colored" fish. Fish feeding trials in Europe, Asia, and North
and South America have demonstrated the efficacy of AstaXin(R) in
pigmenting fish. Igene derived revenue during 2008 from sales of
AstaXin(R), the majority of which were to fish producers in the
aquaculture industry in the European Union, Japan, Chile and
Canada, and marketing efforts for AstaXin(R) are intended for
Norway. Marketing efforts are through Igene personnel to both
farmers and feed manufacturers.
Based on estimates of worldwide production of farm raised
salmon, Igene believes the market for astaxanthin as a color
additive in salmon feed exceeds $200,000,000 per year worldwide,
which would require approximately 10,000 metric tons of
AstaXin(R) to serve 100% of the market. A single competitor, who
produces a chemically synthesized product, presently controls
more than 80% of the world market for astaxanthin as a pigment
for aquaculture.
During 2001, Igene began investigating other possible
commercial uses of astaxanthin, including its application as a
human nutritional supplement. Igene has formulated natural
astaxanthin as a super-antioxidant, AstaXin(R), for the North
American dietary supplement market. Antioxidants are one of the
largest product categories in the health and nutrition industry.
Attempts to pursue this business have only been minimal.
Patents and Trademarks
It is Igene's policy to protect its intellectual property
rights by a variety of means, including applying for patents and
trademarks in the United States and in other countries. Igene
also relies upon trade secrets and improvements, un-patented
proprietary know-how and continuing technological innovation to
develop and maintain its competitive position. Igene places
restrictions in its agreements with third parties with respect to
the use and disclosure of any of its proprietary technology.
Igene also has internal nondisclosure safeguards, including
confidentiality agreements with employees and consultants.
All patents and trademarks are carefully reviewed and those
with no foreseeable commercial value are abandoned to eliminate
costly maintenance fees. Patents and trademarks on technology
and products with recognized commercial value, and which Igene is
currently maintaining, including those for AstaXin(R), have
various remaining lives ranging from 1 to 22 years.
Competition
Competitors in the biotechnology field in the United States
and elsewhere are numerous and include major chemical,
pharmaceutical and food companies, as well as specialized
biotechnology companies. Competition can be expected to increase
as small biotechnology companies continue to be purchased by
major multinational corporations with substantial resources.
Competition is also expected to increase with the introduction of
more diverse products developed by biotechnology firms,
increasing research cooperation among academic institutions and
large corporations, and continued government funding of research
and development activities in the biotechnology field, both in
the United States and overseas. Unlike the majority of
biotechnology companies, which are developing products
principally for the pharmaceutical industry, Igene has focused
its own activities on the development of proprietary products for
use in aquaculture and nutritional supplement industries. In the
future, however, competitors may offer products, that, by reason
of price, or efficacy, or more substantial resources for
technology advances, may be superior to Igene's existing or
future products.
-5-
A single large pharmaceutical company presently dominates
the market for astaxanthin pigment for aquaculture in which
Igene's product, AstaXin(R), is presently marketed and sold.
Igene believes that AstaXin(R), which is made from yeast, will
compete with this dominant producer, and other producers whose
products are chemically synthesized, based on its use of
natural ingredients. As consumers and producers of fish become
more aware of other alternatives, Igene believes that they will
desire natural ingredients, such as those in AstaXin(R).
Several companies are also known to be developing and
marketing other natural astaxanthin products. Some of these
companies' products are made from algae, while others are made
from yeast. Igene believes that AstaXin(R) will compete with
other companies' astaxanthin products which are made from algae,
due to Igene's higher production capacity and lower production
costs, but can provide no assurances in that regard. Igene
also believes that AstaXin(R) will compete with other
companies' astaxanthin products which are also made from yeast
due to Igene's proprietary process to disrupt yeast cell walls,
which, as studies have shown, makes AstaXin(R) more readily
absorbed by fish.
Igene is also beginning to explore the possible use of
AstaXin(R) as a human nutritional supplement. This market is
attractive because of potentially higher profit margins. Other
companies are known to also be developing and marketing
astaxanthin products for the human nutritional supplement market.
Igene cannot yet predict how competitive it would be in this
market.
On January 8, 2009, Igene entered into an agreement with
Archer-Daniels-Midland Company ("ADM") pursuant to which the
Company and ADM formed a joint venture (the "ADM JV") to
manufacture and sell astaxanthin and derivative products
throughout the world. Each of the Company and ADM has a 50%
ownership interest in the ADM JV and has equal representation on
the Board of Managers of the ADM JV. It is hoped that Igene's
technology joined with ADM manufacturing will improve their joint
position in the market.
Sources and Availability of Raw Materials
Raw materials used in the manufacture of AstaXin(R) consist
principally of agricultural commodities widely available in world
markets from many suppliers, which may be used interchangeably.
We do not anticipate material price fluctuations or changes in
availability in these raw materials in the near future, but can
provide no assurances in that regard.
Employees
At December 31, 2008, Igene had 18 full-time employees.
Five full-time employees are in administration and/or marketing,
while the remainder are engaged in research, process development
and support of manufacturing activities. Fifteen employees are
based in the U.S. and three are based in Chile. Igene also
utilizes various consultants on an as-needed or short-term basis.
None of Igene's employees are represented by a labor union
and Igene has experienced no work stoppages. Igene believes its
relations with its employees are satisfactory.
ITEM 1A. RISK FACTORS
Igene 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 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
Igene leases approximately 8,500 square feet of space in the
Oakland Ridge Industrial Park located at 9110 Red Branch Road,
Columbia, Maryland. Igene occupies the space under a lease
extension expiring on January 31, 2011. The approximate current
annual rental expense is $125,000. Approximately 2,000 square
feet of this space is used for executive and administrative
offices and approximately 2,500 square feet is used for research
and development activities. The remaining 4,000 square feet of
space is used for Igene's intermediate-stage or scale-up pilot
plant facility.
-6-
Igene leases approximately 220 square feet of office space
in Puerto Varas, Chile to conduct marketing and technical support
activities by its full-time technical representatives. This
lease renews annually in December of each year unless terminated
by prior notice. Igene also leases warehouse space on a month-to-
month basis as needed for product storage in Chile.
Igene currently owns or leases sufficient equipment and
facilities for its research operations and all of this equipment
is in satisfactory condition and is adequately insured. There
are no current plans for improvement of this property. If
demand for Igene's product continues to increase, Igene plans to
lease additional warehouse space as needed in Chile.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Igene's Annual Meeting of Stockholders was held on November
3, 2008. At the Annual Meeting, the five nominees for director,
all of whom were then-current directors up for reelection, were
reelected as the directors for a one year term. The election
results are as follows:
Votes Against or Votes Non-
For Withheld Abstained Votes
___________ __________ _________ _____
Election of Directors
Stephen F. Hiu 97,356,890 52,630 --- ---
Thomas L. Kempner 97,376,890 32,660 --- ---
Michael G. Kimelman 97,384,811 24,709 --- ---
Sidney R. Knafel 97,376,890 32,630 --- ---
Patrick F. Monahan 97,376,890 32,630 --- ---
An amendment to Igene's Articles of Incorporation was
approved to increase the number of authorized shares of common
stock from 750,000,000 to 3,000,000,000. The election results
are as follows:
Votes Against or Votes Non-
For Withheld Abstained Votes
___________ __________ _________ _____
96,199,547 1,207,472 2,590 ---
An amendment to the Company's 2001 Stock Incentive Plan was
approved to increase the number of shares available for incentive
awards from 55,000,000 to 300,000,000. The election results are
as follows:
Votes Against or Votes Non-
For Withheld Abstained Votes
___________ __________ _________ _____
74,523,367 1,342,161 2,500 ---
-7-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Common Stock
Commencing on or about June 12, 1989, Igene's common stock
began quotation on the over-the-counter market on a limited basis
and is quoted on Pink Sheets. The following table shows, by
calendar quarter, the range of representative bid prices for
Igene's common stock for 2008 and 2007.
Calendar Quarter High Low
________________ _________ _________
2008: First Quarter $ .0180 $ .0130
Second Quarter $ .0150 $ .0060
Third Quarter $ .0130 $ .0060
Fourth Quarter $ .0120 $ .0020
2007: First Quarter $ .0250 $ .0200
Second Quarter $ .0500 $ .0200
Third Quarter $ .0350 $ .0200
Fourth Quarter $ .0230 $ .0100
Igene obtained the above information through Pink Sheets,
LLC, a national quotation bureau. Such quotations reflect inter-
dealer prices, without retail mark-up, mark-down, or commission,
and may not represent actual transactions. The above quotations
do not reflect the "asking price" quotations of the stock.
The approximate number of record holders of Igene's common
stock as of March 31, 2009, was 250. As of March 31, 2009, the
high bid and low offer prices for the common stock, as shown on
Pink Sheets were $.015 and $.010, respectively.
Dividend Policy
When and if funds are legally available for such payment
under statutory restrictions, Igene may pay annual cumulative
dividends on the preferred stock of $.64 per share on an annual
basis. During 1988, Igene declared and paid a cash dividend of
$.16 per share on its preferred stock. In December 1988, Igene
suspended payment of the quarterly dividend of $.16 per share of
preferred stock. No dividends on preferred stock have been
declared or paid since 1988. Any resumption of dividend payments
on preferred stock would require significant improvement in cash
flow. Preferred stock dividends are payable when and if declared
by Igene's board. Unpaid dividends accumulate for future payment
or addition to the liquidation preference and redemption price of
the preferred stock. As of December 31, 2008, total dividends in
arrears on Igene's preferred stock equaled $144,305 (or $12.96
per share) on Igene's Series A Preferred Stock and are included
in the carrying value of the Series A Preferred Stock.
Dividends on common stock are currently prohibited because
of the preferential rights of holders of preferred stock. Igene
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.
8% Notes
Pursuant to the terms of an Indenture dated as of March 31,
1998, as amended (the "Indenture") between Igene and American
Stock Transfer & Trust Company, as Trustee (the "Trustee"), Igene
issued and sold $5,000,000 of its 8% notes (the "8% Notes").
Concurrently with the issuance of the 8% Notes, Igene issued,
pursuant to a Warrant Agreement by and between Igene and American
Stock Transfer & Trust Company (the "Warrant Agent") dated as of
March 31, 1998, as amended (the "Warrant Agreement"), 50,000,000
-8-
warrants to purchase shares of Igene common stock for $.10 per
share expiring March 31, 2008. The warrant purchase price under
the Warrant Agreement was reduced to $.075 per share, and the
maturity date of the 8% Notes was extended to March 31, 2006, by
an amendment dated March 18, 2003, and approved by the requisite
number of holders of the securities.
On March 28, 2006, Igene and American Stock Transfer & Trust
Company, in its capacity as Trustee and Warrant Agent, entered
into a Second Amendment to Indenture, Securities, Warrant
Agreement and Warrant Certificates that extended the maturity
date of the 8% Notes to March 31, 2009, and reduced the warrant
price under the Warrant Agreement from $.075 to $.056 per share.
On October 23, 2008, Igene and American Stock Transfer &
Trust Company, in its capacity as Trustee and Warrant Agent,
entered into a Third Amendment to Indenture, Securities, Warrant
Agreement and Warrant Certificates that extended the maturity
date of the 8% Notes to March 31, 2019. The warrants under the
Warrant Agreement expired as of March 31, 2008.
On December 3, 2008, Igene completed an offering to exchange
145,600 of our shares of common stock, par value $.01 per share,
for each $1,000 principal amount of the 8% Notes outstanding and
accrued interest thereon. As of that date, $4,759,767 of 8%
notes principal were outstanding, with $4,064,450 accrued
interest thereon. Of these notes, $4,436,515 of notes principal
with $3,788,419 of interest were exchanged for 645,956,606 shares
of Igene common stock at a price of $.005 per share. As a
result, an addition to additional paid in capital of $4,995,151
was recorded on the retirement, pursuant to APB 26 for related
party debt forgiveness.
Securities Authorized for Issuance Under Equity Incentive Plans
Equity Compensation Plan Information as of December 31, 2008
number of securities
remaining available for
future issuance under
Number of securities to Weighted-average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected in
Plan category warrants and rights warrants and rights column (a))
______________________ _______________________ ____________________ _______________________
(a) (b) (c)
Equity compensation
plans approved by 40,605,000 $.060 256,627,334
security holders<F1>
Equity compensation
plans not approved by --- --- ---
_______________________ ____________________ ________________________
TOTAL 40,605,000 $.060 256,627,334
_______________________ ____________________ ________________________
<FN>
<FN1> Includes Igene's 2001 Stock Incentive Plan, which
succeeded Igene's 1997 Stock Option Plan, which succeeded
Igene's 1986 Stock Option Plan.
</FN>
-9-
Sales of Unregistered Securities
On November 28, 2008, Igene commenced offerings to exchange
shares of its common stock for its publicly and privately held
debt. On December 3, 2008, a total of 645,956,606 shares of
Igene common stock were exchanged for $4,436,515 in
aggregate principal amount of Igene's publicly held 8% notes and
$3,788,419 in related accrued interest. An additional
762,210,163 shares of Igene common stock were issued in exchange
for $5,618,090 in aggregate principal amount of Igene's privately
held notes and debentures, $3,073,015 of related interest, and
126,729,316 associated warrants, summarized as follows:
o On December 18, 66,371,244 shares of Igene's common stock
were issued in consideration of $762,000 in aggregate
principal amount of 5% convertible debentures and $67,641 of
related accrued interest.
o On December 18, 528,578,590 shares of Igene's common stock
were issued in consideration of $3,814,212 in aggregate
principal amount of 8% convertible debentures, $2,204,106 of
related accrued interest and associated warrants to purchase
66,427,650 shares of common stock.
o On December 18, 147,451,719 shares of Igene's common stock
were issued in consideration of $1,041,878 in aggregate
principal amount of variable rate notes and $801,269 of
related accrued interest. In addition, related warrants to
purchase 60,301,666 shares of common stock were exchanged
for 19,808,610 shares of Igene's common stock.
On October 15, 2007, Mr. Monahan, Igene's Vice President,
Secretary and Director of Manufacturing, was issued 1,000,000
shares of Igene's common stock, valued at $21,000, in connection
with his employment with, and services to, Igene. The shares of
common stock were issued pursuant to the exemption from
registration provided under Section 4(2) of the Securities Act,
as Mr. Monahan is an executive officer of the Company.
ITEM 6. SELECTED FINANCIAL DATA
Igene 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 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Certain statements in this report set forth management's
intentions, plans, beliefs, expectations or predictions of the
future based on current facts and analyses. Actual results may
differ materially from those indicated in such statements, due to
a variety of factors including competitive pressures from other
companies and within the biotech industry, economic conditions in
Igene's primary markets, exchange rate fluctuations, reduced
product demand, increased competition, unavailability of
production 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 Igene's Securities and Exchange Commission (the "SEC")
filings.
Results of Operations
On March 19, 2003, Igene entered into a Joint Venture
Agreement with Tate & Lyle Fermentation Products Ltd., a
subsidiary of Tate & Lyle PLC ("Tate") pursuant to which Igene
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 to the Joint Venture, which included certain of its
facility assets previously used in citric acid production, while
Igene transferred to the Joint Venture its technology relating to
the production of astaxanthin and assets related thereto. The
initial value of Igene's investment in the Joint Venture had been
recorded at an amount equal to the book value of Igene's
consideration contributed at the creation of the Joint Venture.
As the cost of Igene's technology and intellectual property had
been previously expensed and had a carrying amount of zero, the
investment in the Joint Venture had been recorded with a book
value of $316,869, which represents the unamortized production
costs contributed to the Joint Venture. In addition, Igene also
contributed $6,000 to the capital of the Joint Venture. Sales
and cost of sales activity were recorded as part of the
operations of the unconsolidated venture.
-10-
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.
As a result of the Joint Venture, the production, sales and
marketing of astaxanthin through October 2007 took place through
the unconsolidated Joint Venture. From inception on March 18,
2003 through the Joint Venture's final reporting on September 30,
2007, Igene's portion of the Joint Venture's net loss was
$21,826,251. The loss was a result of a 50% interest in the
following, aggregating $43,652,502: (i) gross profit from
inception was a negative $21,304,462 on sales of $38,380,752,
less manufacturing cost of $59,685,214, (ii) selling and general
and administrative expenses were $16,542,813, and (iii) interest
expense was $5,805,227.
Because Igene 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. 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 September 30, 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 $1,007,888, for a total of $1,330,757.
Through December 31, 2006, Igene recognized $1,491,981 of the
$15,922,400 loss, which existed as part of the Joint Venture. In
the first six months of 2007, the balances of the funds due to
Igene were reduced by a net repayment of $258,628, representing
the June 30, 2007 balance of $1,233,353. For the three months
ended September 30, 2007, Igene recognized a loss from the
advance for that period of $97,404. This advance decreased the
additional suspended loss of $1,293,769 for the quarter. The
cumulative suspended loss at September 30, 2007 was $20,495,494
and it was sold as part of the termination of the Joint Venture.
On January 8, 2009, Igene entered into an agreement with
Archer-Daniels-Midland Company ("ADM") pursuant to which the
Company and ADM formed a joint venture (the "ADM JV") to
manufacture and sell astaxanthin and derivative products
throughout the world. Each of the Company and ADM has a 50%
ownership interest in the ADM JV and has equal representation on
the Board of Managers of the ADM JV.
Sales and other revenue
As part of the Joint Venture Agreement with Tate, all sales
of AstaXin(R) prior to October 31, 2007, were recognized through
the Joint Venture. Therefore, Igene recorded no sales in 2007
prior to October 31, 2007. During November and December of 2007,
Igene recorded sales of $2,286,730. For the year ended December
31, 2008, Igene recorded sales of $7,644,477. Sales had been
limited in past years due to insufficient production quantity.
On January 8, 2009, Igene entered into an agreement with ADM
pursuant to which the Company and ADM formed a joint venture to
manufacture and sell astaxanthin. Management believes that this
venture should provide sufficient production to meet future
needs, though there can be no assurance in this matter.
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 in 2007 prior to October 31, 2007. During November
and December of 2007, Igene recorded cost of sales of $1,681,632.
This resulted in a gross profit for the period of $605,098, or
26%. For the year ended December 31, 2008, Igene recorded cost
of sales of $6,395,062. This resulted in a gross profit for the
period of $1,249,415, or 19%. The increase in gross profit over
the activity in the Joint Venture with Tate 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, on
January 8, 2009, Igene entered into an agreement with ADM
pursuant to which the Company and ADM formed a joint venture to
-11-
manufacture and sell astaxanthin. Management believes that this
venture should provide production to meet future needs, though
there can be no assurance in this matter.
Expenses reimbursement by Joint Venture
As part of the Joint Venture Agreement with Tate, 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. During 2007, prior to the
termination of the Joint Venture, costs reimbursed by the Joint
Venture totaled $1,576,701. The reimbursement covered $49,216 of
marketing costs, $861,108 of research and development costs and
$666,377 of general and administrative costs. On January 8,
2009, Igene entered into an agreement with ADM pursuant to which
the Company and ADM formed a joint venture to manufacture and
sell astaxanthin. Management believes that this venture should
provide cash flow from operations, though there can be no
assurance in this matter.
Marketing and selling expenses
Marketing and selling expenses for 2008 were $731,094, an
increase of $572,990, or 382%, from the marketing and selling
expenses of $158,104 for 2007. As a result of the termination of
the Joint Venture with Tate, Igene has reassumed the marketing
and selling of salable product with a corresponding increase in
selling expenses. 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. Prior to
the termination of the Joint Venture, costs reimbursed by the
Joint Venture for marketing costs totaled $49,216 during 2007.
On January 8, 2009, Igene entered into an agreement with ADM
pursuant to which the Company and ADM formed a joint venture to
manufacture and sell astaxanthin. With the creation of the new
joint venture, Igene will continue some of the marketing of the
product while ADM and the joint venture will assume certain of
the marketing responsibilities. As a result, it is expected that
the portion of the responsibilities that are assumed will
decrease this figure in 2009.
Research, development and pilot plant expenses
Research, development and pilot plant expenses for 2008 and
2007 were $1,655,908 and $983,610, respectively, reflecting an
increase of $672,298 or 69%. Cost increases from 2007 to 2008
are partially a result of costs related to the development of the
joint venture with ADM and are also related to costs to support
increasing the efficiency of the manufacturing process through
experimentation in Igene's pilot plant, undertaken in an attempt
to develop higher yielding strains of yeast and other
improvements in Igene's AstaXin(R) technology. Igene is hoping
this combination will lead to a reduced cost for salable product
marketed by Igene when production resumes. However, no
assurances can be made in that regard. Prior to October 2007,
research and development expenses incurred by Igene 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. Prior to the
termination of the Joint Venture, costs reimbursed by the Joint
Venture related to research and development totaled $861,108
during 2007.
General and administrative expenses
General and administrative expenses for 2008 increased by
$77,738, or 13%, from 2007 (to $1,050,703 from $972,965). These
costs are expected to remain consistent. 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 funded by cash flows from operations, to
the extent available for such purposes. Prior to the termination
of the Joint Venture, costs reimbursed by the Joint Venture
related to general and administrative expenses totaled $666,377
during 2007.
Interest expense (net of interest income)
Interest expense for 2008 and 2007 was $2,028,460 and
$2,160,638 respectively, a decrease of $132,178 or 6%. This
interest expense (net of interest income) was composed of
interest on Igene's long term financing from its directors and
-12-
other stockholders and interest on Igene's subordinated and
convertible debentures, as well as amortization of discount on
Igene's notes and debentures of $1,294,680 for 2008 and
$1,406,780 for 2007. The expense recorded for 2007 was reduced
by interest income of $50,581.
Additional paid in capital adjustment from termination of debt
On November 28, 2008, Igene commenced offerings to exchange
shares of its common stock for its publicly and privately held
debt. On December 3, 2008, a total of 645,956,606 shares of
Igene common stock were exchanged for $4,436,515 in
aggregate principal amount of Igene's publicly held 8% notes and
$3,788,419 in related accrued interest. An additional
762,210,163 shares of Igene common stock were issued in exchange
for $5,618,090 in aggregate principal amount of Igene's privately
held notes and debentures, $3,073,015 of related interest, and
126,729,316 associated warrants, summarized as follows:
o On December 18, 66,371,244 shares of Igene's common stock
were issued in consideration of $762,000 in aggregate
principal amount of 5% convertible debentures and $67,641 of
related accrued interest.
o On December 18, 528,578,590 shares of Igene's common stock
were issued in consideration of $3,814,212 in aggregate
principal amount of 8% convertible debentures, $2,204,106 of
related accrued interest and associated warrants to purchase
66,427,650 shares of common stock.
o On December 18, 147,451,719 shares of Igene's common stock
were issued in consideration of $1,041,878 in aggregate
principal amount of variable rate notes and $801,269 of
related accrued interest. In addition, related warrants to
purchase 60,301,666 shares of common stock were exchanged
for 19,808,610 shares of Igene's common stock.
As this was a transaction with a related party, Igene
recorded additional paid in capital as a result of the
termination of this private debt in the amount of $3,654,595.
This plus the gain on the public notes of $4,995,151 resulted in
a total of $8,649,746 in connection with the exchanges, the
combined was recorded as an addition to additional paid in
capital, pursuant to APB 26 for related party debt forgiveness.
Gain on Disposal
During 2007, Igene sold equipment it had determined would
not be of use in future operations and recorded a gain on
disposal of $5,692. This is a onetime occurrence.
Net loss and basic and diluted net loss per common share
As a result of the foregoing results of operations, Igene
reported a net loss of $3,990,937 for 2008 and a net loss of
$1,899,073 for 2007. This resulted in a net loss of $.02 per
basic and diluted common share for 2008 based on a weighted
average of common stock outstanding of 187,037,119. For 2007,
this resulted in a net loss of $.02 per basic common share, based
on a weighted average of common stock outstanding of 109,679,538.
As of December 31, 2008 and 2007, potentially dilutive shares
totaled 52,283,696 and 378,227,265, respectively, and were not
considered in the computation as the result of the loss as the
effect would be anti-dilutive.
Financial Position
During 2008 and 2007, the following also affected Igene's
financial position:
o During 2008, decreases in accounts receivable of $1,673,117
and decreases in inventory of $5,661,257 were sources of
cash. This allowed for decreases in accounts payable of
$4,326,565.
o During 2007, increases in accounts payable and accrued
expenses of $3,569,050, and a decrease in inventory of
$1,814,157 were sources of cash. This allowed for increases
in accounts receivable of $3,698,884.
Since 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
-13-
liquidation preference or redemption value of the preferred
stock. As of December 31, 2008, total dividends in arrears on
Igene's Series A preferred stock equaled $144,297 (or $12.96 per
share) and are included in the carrying value of the preferred
stock.
Liquidity and Capital Resources
Historically, Igene has been funded primarily by equity
contributions and loans from directors and stockholders. As of
December 31, 2008, Igene had working capital of $2,106,548, and
cash and cash equivalents of $1,488,011.
Cash provided by operating activities in 2008 was $705,610
as compared to cash provided of $1,310,465 in 2007, a reduction
of cash provided of $604,855, due mainly to increased cost of
operations.
Cash used by investing activities in 2008 was $226,166 as
compared to $362,901 used by investing activities in 2007. The
higher figure in 2007 is due mainly to the funds invested into
the JV not required during 2008.
Cash provided by financing activities was $57,000 in 2007.
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). On January 8, 2009, Igene
entered into an agreement with ADM pursuant to which the Company
and ADM formed a joint venture to manufacture and sell
astaxanthin. Management believes that this venture should
provide cash flow from operations. However, there can be no
assurance that projected cash from sales, or additional funding,
will be sufficient for Igene to fund its continued operations.
Igene does not believe that inflation had a significant
impact on its operations during 2008 and 2007.
Off-Balance Sheet Arrangements
Igene has no off-balance sheet arrangements that are
reasonably likely to have a current or future effect on its
financial position, revenues, results of operations, liquidity or
capital expenditures.
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-
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Igene 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements follow Part III of
this Annual Report on Form 10-K and are hereby incorporated by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
As of January 11, 2008, Igene dismissed J.H. Cohn LLP
("Cohn") as its independent registered public accounting firm as
approved by the Audit Committee of the Board of Directors. Igene
had appointed Cohn as its registered public accounting firm in
May 2007 after Igene's then-current registered public accounting
firm combined its business with Cohn and thereafter no longer
existed as a separate accounting firm.
The audit report issued by Cohn on the consolidated
financial statements of Igene as of and for the years ended
December 31, 2006 and 2005, included in Igene's amended annual
report on Form 10-KSB/A filed on December 21, 2007, did not
contain an adverse opinion or a disclaimer of opinion, and was
not qualified or modified, as to uncertainty, audit scope or
accounting principles, except as follows:
Cohn's report contains an explanatory paragraph.
The paragraph states that the Company has suffered
recurring losses from operations since inception and
has a working capital deficiency that raises
substantial doubt about its ability to continue as a
going concern. The consolidated financial
statements do not include any adjustments that might
result from the outcome of that uncertainty.
During the years ended December 31, 2006 and 2005 and the
interim period through January 11, 2008, the date of their
dismissal, there have been no disagreements between Igene and
Cohn on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of Cohn,
would have caused Cohn to make reference to the subject matter
thereof in its report on Igene's consolidated financial
statements for such periods other than as described below.
There was a disagreement related to Igene's initial
accounting for warrants issued in connection with certain debt
that arose in connection with Cohn's review of Igene's quarterly
report on Form 10-QSB for the quarterly period ended June 30,
2007. The accounting treatment was discussed with the Audit
Committee of the Board of Directors and resolved to the
satisfaction of Cohn. As a result, Igene restated the financial
statements included in its annual report on Form 10-KSB for the
year ended December 31, 2006, and the Form 10-QSB for the three
months ended March 31, 2007. Igene has authorized Cohn to
respond fully to the inquiries of Igene's new registered public
accounting firm, M&K CPAS, PLLC ("M&K") if any, concerning the
matter.
During the years ended December 31, 2006 and 2005 and the
interim period through January 11, 2008, Cohn did not advise
Igene of any reportable event under Item 304(a)(1)(v) of
Regulation S-K other than as follows: In connection with their
audit of Igene's consolidated financial statements for the years
ended December 31, 2006 and 2005, Cohn advised Igene's management
and the Audit Committee of the Board of Directors of Igene that
Igene did not have the internal controls necessary for the non-
routine recording of warrants issued in connection with certain
of our debt obligations.
Igene appointed M&K as its new independent registered public
accounting firm effective as of January 15, 2008. The selection
of M&K was approved by the Audit Committee of the Board of
Directors of Igene on January 15, 2008.
-15-
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure 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. 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 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.
Management's Report on Internal Control Over Financial Reporting
________________________________________________________________
Our management is responsible for establishing and
maintaining adequate internal control over financial reporting as
defined in Rule 13a-15(f) under the Exchange Act. Our management
assessed the effectiveness of our internal control over financial
reporting as of December 31, 2008. In making this assessment, our
management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission ("COSO") in
Internal Control-Integrated Framework. A material weakness is a
deficiency, or a combination of deficiencies, in internal control
over financial reporting, such that there is a reasonable
possibility that a material misstatement of the company's annual
or interim financial statements will not be prevented or detected
on a timely basis. Our management has identified the following
material weaknesses.
1. As of December 31, 2008, we did not maintain effective
controls over the control environment. Specifically, we
have not formally adopted a written code of business conduct
and ethics that governs the Company's employees, officers
and directors. Additionally, we have not developed and
effectively communicated to our employees our accounting
policies and procedures. This has resulted in inconsistent
practices. Further, the Board of Directors does not
currently have any independent members and no director
qualifies as an independent audit committee financial expert
as defined in Item 407(d)(5)(ii) of Regulation S-K. Since
these entity level programs have a pervasive effect across
the organization, management has determined that these
circumstances constitute a material weakness.
2. As of December 31, 2008, we did not maintain effective
controls over financial statement disclosure. Specifically,
controls were not designed and in place to ensure that all
disclosures required were originally addressed in our
financial statements. Accordingly, management has
determined that this control deficiency constitutes a
material weakness.
3. As of December 31, 2008, we did not maintain effective
controls over equity transactions. Specifically, controls
were not designed and in place to ensure that equity
transactions were properly reflected. Accordingly,
management has determined that this control deficiency
constitutes a material weakness.
Because of these material weaknesses, management has
concluded that the Company did not maintain effective internal
control over financial reporting as of December 31, 2008, based
on the criteria established in "Internal Control-Integrated
Framework" issued by the COSO.
-16-
Changes in Internal Control Over Financial Reporting
____________________________________________________
No change in the Company's internal control over financial
reporting occurred during the quarter ended December 31, 2008,
that materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
This annual report does not include an attestation report of the
Company's registered public accounting firm regarding internal
control over financial reporting. Management's report was not
subject to attestation by the Company's registered public
accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only
management's report in this annual report.
ITEM 9B. OTHER INFORMATION
Pursuant to the terms of an Indenture dated as of March 31, 1998,
as amended (the "Indenture") between the Company and American
Stock Transfer & Trust Company, as Trustee (the "Trustee"), the
Company issued and sold $5,000,000 of its 8% notes (the "8%
Notes"). Concurrently with the issuance of the 8% Notes, the
Company issued, pursuant to a Warrant Agreement by and between
Registrant and American Stock Transfer & Trust Company, as
warrant agent (the "Warrant Agent") dated as of March 31, 1998,
as amended (the "Warrant Agreement"), 50,000,000 warrants to
purchase shares of the Company's common stock for $.10 per share.
The warrant purchase price under the Warrant Agreement was
reduced to $.075 per share, and the maturity date of the 8% Notes
extended to March 31, 2006, by an amendment to the Indenture and
Warrant Agreement dated March 18, 2003 and approved by the
requisite number of holders of the 8% Notes. The warrant
purchase price was further reduced to $.56 per share, and the
maturity date of the 8% Notes as further extended to March 31,
2009 by a second amendment to the Indenture and Warrant Agreement
dated March 28, 2006 and approved by the requisite number of
holders of the 8% Notes.
On October 23, 2008, the Company, Trustee and Warrant Agent
entered into a Third Amendment to Indenture, Securities, Warrant
Agreement and Warrant Certificates (the "Third Amendment") that
extended the maturity date of the 8% Notes to March 31, 2019.
The Third Amendment was approved by more than two-thirds in
principal amount of the holders of 8% Notes effective November 4,
2008, in accordance with Section 6.07 and Section 9.02 of the
Indenture.
The description of the Third Amendment is qualified in its
entirety by reference to the full text of such amendment, a copy
of which is filed as Exhibit 4.5 hereto and is incorporated
herein by reference.
-17-
PART III
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Igene's directors are elected annually by the stockholders of
Igene. The directors, executive officers and key employees of
Igene as of December 31, 2008 are as follows:
Name Age Position with Igene
_______________________ ___ _______________________________
Michael G. Kimelman 70 Chairman of the Board of
Directors<F1>
Thomas L. Kempner 81 Vice Chairman of
the Board of Directors<F2>
Stephen F. Hiu 52 Director, President, Chief
Technical Officer,
and Director of Research and
Development
Patrick F. Monahan 58 Director, Vice President,
Secretary, and Director
of Manufacturing
Sidney R. Knafel 78 Director<F2>
Edward J. Weisberger 44 Chief Financial Officer
<FN>
<FN1> Member of the Audit Committee of the Board of Directors
<FN2> Member of the Compensation Committee of the Board of Directors
</FN>
Each of our directors was elected for a one-year term at Igene's
most recent annual meeting, held on November 3, 2008. Our
officers serve at the discretion of the Board of Directors and
until their respective successors are elected and qualified.
MICHAEL G. KIMELMAN has served as a director of Igene and as
Chairman of the Board of Directors since 1991. At the time and
through the present, Mr. Kimelman has been a founder and member
of Kimelman & Baird, LLC, an investment advisory firm. Mr.
Kimelman also serves on the board and the executive committee of
the Hambletonian Society.
THOMAS L. KEMPNER is Vice Chairman of the Board of Directors and
has been a director of the Company since its inception in 1981.
He also has been Chairman and Chief Executive Officer of Loeb
Partners Corporation, investment bankers, New York, and its
predecessors since 1978. Mr. Kempner is currently a director of
CCC Information Services Group, Inc., Dyax Corporation, Fuel Cell
Energy, Inc., Insight Communications Co., Inc., Intermagnetics
General Corp. and Intersections, Inc. He is also a director
emeritus of Northwest Airlines, Inc.
STEPHEN F. HIU has served as Chief Technical Officer since 2002,
and has served as President and Treasurer of the Company since
1999. Mr. Hiu has served as a director since 1990 and has been
the Company's Director of Research and Development since 1989
and, prior thereto, was Senior Scientist since he joined the
Company in 1985. Mr. Hiu was a post-doctoral Research Associate
at the Virginia Polytechnic Institute and State University,
Blacksburg, Virginia, from January 1984 until December 1985. Dr.
Hiu holds a Ph.D. degree in microbiology from Oregon State
University and a B.S. degree in biological sciences from the
University of California, Irvine.
PATRICK F. MONAHAN has served as Vice President of the Company
since 2002, and as Director of Manufacturing and as a director of
the Company since 1991. Mr. Monahan has also served as Secretary
of the Company since September 1998 and has managed the Company's
fermentation pilot plant since 1982. He received an A.A. degree
in biology from Allegheny Community College and a B.S. degree in
biology with a minor in Chemistry from Frostburg State College,
Frostburg, Maryland.
-18-
SIDNEY R. KNAFEL has served as a director of the Company since
1982. He has also been Managing Partner of SRK Management
Company, a private investment company located in New York City,
since 1981 and has served as Chairman of Insight Communications,
Inc. since 1985. Mr. Knafel is also currently a director of
General American Investors Company, Inc., and of Virtual Scopics,
Inc., as well as a number of private companies.
EDWARD J. WEISBERGER has served as Chief Financial Officer of the
Company since 2001. He is a CPA with multiple years of financial
experience in the public and private sectors with both smaller
and Fortune 100 companies.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on a review of the Section 16(a) reports filed
with the SEC and written representations provided to Igene by
its officers and directors, and holders of more than ten percent
of any class Igene's registered securities, Igene believes that
during fiscal year 2008, (i) one delinquent Form 4 was filed by
Stephen Hiu resulting in two transactions being untimely
reported, (ii) three delinquent Form 4s were filed by Thomas L.
Kempner resulting in 18 transactions being untimely reported,
(iii) two delinquent Form 4s were filed by Michael Kimelman
resulting in 11 transactions being untimely reported and (iv) one
delinquent Form 4 was filed by Patrick Monahan resulting in two
transactions being untimely reported.
Code of Ethics
Due to the size of Igene and its current operations, Igene
has not adopted a code of ethics for its principal executive and
financial officers. Igene's board of directors will revisit this
issue in the future to determine if adoption of a code of ethics
is appropriate. In the meantime, Igene's management intends to
promote honest and ethical conduct, full and fair disclosure in
its reports to the SEC, and compliance with applicable
governmental laws and regulations.
Corporate Governance
The Audit Committee of the Board of Directors is comprised
of one member: Michael G. Kimelman. Mr. Kimelman is an audit
committee financial expert as defined in Item 407(d)(5)(ii) of
Regulation S-K. Under the Nasdaq Marketplace Rules, in addition
to satisfying the independent director requirements under Rule
4200 of such rules, audit committee members must also meet the
criteria for independence set forth in Rule 10A-3(b)(1) under the
Exchange Act (subject to the exemptions provided in Rule 10A-
3(c)): they must not accept any consulting, advisory, or other
compensatory fee from the company other than for board service,
and they must not be an affiliated person of the company. Mr.
Kimelman is not considered independent under the audit committee
standards of the Nasdaq Marketplace Rules.
ITEM 11. EXECUTIVE COMPENSATION
The following tables show the compensation paid or accrued
by Igene to each of the three officers (the "named executive
officers").
Summary Compensation Table
Name and
Principal Position Year Salary($)<F1> Stock Awards ($) ($)<F2> Total
__________________ _____ ______________ ________________ _____________ ____________
Stephen Hiu 2008 $ 163,575 $ 0 $ 11,189 $ 174,764
President 2007 153,886 0 6,396 160,282
2006 142,580 0 6,575 149,155
Patrick Monahan 2008 140,773 0 10,225 150,998
Vice President, 2007 137,914 10,000 <F3> 5,968 153,882
Secretary and 2006 129,965 0 5,838 135,803
Director of
Manufacturing
Edward Weisberger 2008 145,973 0 9,473 155,446
Chief Financial 2007 132,793 0 5,712 138,505
Officer 2006 125,817 0 5,750 131,567
<FN>
<FN1> Gross salary of the named executive officers listed.
<FN2> Includes annual taxable compensation for health insurance
premium and employer match of 401(k).
<FN3> Includes issuance of 1,000,000 shares of Igene common stock
at $.01 per share value based on current stock price in
addition to restriction and blockage discounts.
</FN>
There are no employment agreements or arrangements, written or
unwritten, for any of the executive officers.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information concerning the
outstanding equity awards of each of the named executive officers
as of December 31, 2008. All options reflected on the table are
fully vested.
Number of Securities
Underlying
Unexercised Options Option Exercise Option Expiration
Name (#) Exercisable Price ($/Share) Date
____________________ ____________________ ________________ _________________
Stephen Hiu 2,000,000 .05 01/19/2010
45,000 .065 01/02/2011
4,800,000 .025 08/13/2012
5,000,000 .10 06/25/2014
Patrick Monahan 1,317,500 .05 01/19/2010
2,900,000 .025 08/13/2012
2,000,000 .10 06/25/2014
Edward Weisberger 2,500,000 .05 12/01/2011
500,000 .10 06/25/2014
1,500,000 .027 12/09/2015
Retirement Plans
Effective February 1, 2004, Igene discontinued use of the
Simple Retirement Plan and began use of a 401(k)
savings/retirement plan, or 401(k) Plan. The 401(k) Plan permits
Igene's eligible employees to defer annual compensation, subject
to limitations imposed by the Internal Revenue Code. All
employees that have been employed for six months are eligible for
-20-
the plan. The plan permits elective contributions by Igene's
eligible employees based under the Internal Revenue Code, which
are immediately vested and non-forfeitable upon contribution to
the 401(k) Plan. Effective January 1, 2004, Igene made an
elective contribution, subject to limitations, of 4% of each
eligible employee's compensation for each year. For 2008 that
amount was increased to 5%. Igene's contributions to the plan
for 2008 and 2007 were $42,657 and $28,392, respectively, which
is expensed in the statement of operations.
Life Insurance Plans
Igene provides life insurance benefits to its employees that
in the event of an employee's death would pay to the employee's
beneficiary two times the employee's annual salary, up to
$150,000.
Severance Benefit
In cases where a termination of employment is initiated by
Igene for economic reasons (e.g. reduction in force,
reorganization or position elimination), it is Igene's policy
that the terminated employee will receive one week of severance
at base pay for each year of service, up to a maximum of 12
weeks.
Compensation of Directors
None of Igene's directors were compensated for their services
during fiscal 2008. Directors Hiu and Monahan received
compensation in their capacities as officers of Igene, as
reported in the Summary Compensation Table above.
Stock Option Plans
Igene currently maintains one stock incentive plan. Igene's
2001 Stock Incentive Plan (the "Plan") succeeded Igene's 1997
Stock Option Plan, which succeeded Igene's 1986 Stock Option
Plan, as amended. The Plan was approved by Igene's stockholders
on June 12, 2001, and authorized for issuance restricted stock
and options to purchase up to 55,000,000 shares of common stock.
The number of shares authorized for incentive awards was
increased on November 3, 2008, to 300,000,000.
The purpose of the Plan is to further the long-term
stability and financial success of Igene by attracting and
retaining employees and consultants through the use of stock-
based incentives, and to provide non-employee members of the
Board of Directors with an additional incentive to promote the
success of Igene. It is believed that ownership of Igene common
stock will stimulate the efforts of those employees, consultants
and non-employee directors upon whose judgment and interests
Igene is and will be largely dependent upon the successful
conduct of its business. It is also believed that incentive
awards granted to employees under this Plan will strengthen their
desire to remain employed with Igene and will further the
identification of employees' interests with those of Igene.
Options are exercisable at such rates and times as may be
fixed by the committee. Options also become exercisable in full
upon (i) the holder's retirement on or after his 65th birthday,
(ii) the disability or death of the holder, or (iii) under other
circumstances as determined by the compensation committee.
Options generally terminate on the tenth business day following
cessation of service as an employee, director, consultant or
independent contractor.
Options may be exercised by payment in full of the option
price in cash or by check, or by delivery of previously-owned
shares of common stock having a total fair market value on the
date of exercise equal to the option price, or by such other
methods as permitted by the committee.
The Plan contains anti-dilution provisions in the event of
certain corporate transactions.
The Board of Directors may at any time withdraw from, or
amend, the Plan and any options not heretofore granted.
Stockholder approval is required to (i) increase the number of
shares issuable under the Plans, (ii) increase the number of
options which may be granted to any individual during a year,
(iii) or change the class of persons to whom options may be
granted. No options shall be granted under the Plan after April
30, 2011.
-21-
Options to acquire 43,372,666 shares of common stock have
been granted under the Plan and 40,605,000 options are still
outstanding under the Plan as of December 31, 2008. No options
or restricted awards were granted during 2008 or 2007.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information as of February
18, 2009, with respect to beneficial ownership of shares of
Igene's outstanding common stock by (i) each person known to
Igene to own or beneficially own more than five percent of its
common stock or preferred stock, (ii) each director of Igene, and
(iii) each named executive officer, and (iv) all directors and
executive officers as a group. On March 24, 2009, there were
1,518,503,841 shares of common stock issued and outstanding.
Shares of common stock subject to options or warrants currently
exercisable or exercisable within 60 days of February 18, 2009,
are deemed outstanding for computing the share ownership and
percentage of the person holding such options and warrants, but
are not deemed outstanding for computing the percentage of any
other person. Unless otherwise noted, each beneficial owner
listed on the table below has sole voting and investment power
with respect to his or her shares beneficially owned. No shares
of preferred stock are beneficially owned by the persons listed
below.
Common Stock
________________________________
Number of
Name and Address Shares Percent (%)
_______________________________ _______________ ______________
Directors and officers
______________________
Stephen F. Hiu 13,721,633<F1> 0.87
9110 Red Branch Road
Columbia, MD 21045
Thomas L. Kempner 543,901,561<F2> 34.63
61 Broadway
New York, NY 10006
Michael G. Kimelman 146,982,204<F3> 9.36
100 Park Avenue
New York, NY 10017
Sidney R. Knafel 532,711,201<F4> 33.91
810 Seventh Avenue
New York, NY 10019
Patrick F. Monahan 8,993,033<F5> 0.57
9110 Red Branch Road
Columbia, MD 21045
Edward J. Weisberger 4,570,000<F6> 0.29
9110 Red Branch Road
Columbia, MD 21045
All Directors and Officers 1,250,879,632<F7> 79.63
as a Group (6 persons)
Others
_______
Sheila Baird 111,559,750<F8> 7.10
100 Park Avenue
New York, NY 10017
<FN>
<FN1> Includes 1,876,633 shares held directly or indirectly by Dr.
Hiu and 11,845,000 shares issuable upon exercise of options held
by Dr. Hiu that are currently exercisable.
<FN2> Includes 268,895,202 shares held directly or indirectly by
Mr. Kempner. Also includes (i) 263,800,317 shares held by a
trust under which Mr. Kempner is one of two trustees and the sole
beneficiary and (ii) 11,206,042 shares held by trusts under which
Mr. Kempner is one of two trustees and is a one-third
beneficiary. Mr. Kempner shares voting and investment power with
respect to the shares listed in (i)-(ii) above.
<FN3> Includes 121,982,204 shares held directly or indirectly by
Mr. Kimelman, 14,000,000 shares issuable upon exercise of options
that are currently exercisable, and 11,000,000 shares issuable
upon exercise of warrants that are currently exercisable.
<FN4> Includes 532,711,201 shares held directly or indirectly by
Mr. Knafel.
<FN5> Includes 2,775,533 shares held directly or indirectly by Mr.
Monahan and 6,217,500 shares issuable upon the exercise of
options held by Mr. Monahan that are currently exercisable.
<FN6> Includes 70,000 shares held directly by Mr. Weisberger and
4,500,000 shares issuable upon exercise of options that are
currently exercisable.
<FN7> Includes 1,203,317,132 shares of common stock, 36,562,500
shares issuable upon exercise of options that are currently
exercisable, and 11,000,000 shares issuable upon the exercise of
warrants that are currently exercisable.
<FN8> Includes 111,559,750 shares held directly or indirectly by
Ms. Baird.
</FN>
Equity Incentive Plans
The information set forth under the caption "Securities
Authorized for Issuance Under Equity Incentive Plans" under Item
5 of this Annual Report on Form 10-K is hereby incorporated by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
Certain Relationships and Related Transactions
On November 28, 2008, Igene commenced offerings to exchange
shares of its common stock for its publicly and privately held
debt. Much of Igene's indebtedness was held by current and
former directors. The related party transactions in connection
with the exchange offerings are described below:
o As a result of this transaction, 33,185,622 shares of
Igene's common stock were issued to each of Thomas Kempner
and Sidney Knafel, directors of the Company, in exchange for
the 5% convertible debenture in the principal amount of
$381,000 and $33,820 in related interest, held by each of
them.
o As a result of this transaction, 152,729,546 shares of
Igene's common stock were issued to each of Thomas Kempner
and Sidney Knafel, directors of the Company, in exchange for
the 8% convertible debenture in the principal amount of
$1,107,106 and $655,170 in related interest and warrants,
held by each of them.
o As a result of this transaction, 279,625,624 shares of
Igene's common stock was issued to Thomas Kempner and
276,004,622 shares of Igene's common stock was issued to
Sidney Knafel, directors of the Company, in exchange for
their 8% notes and accrued interest.
o As a result of this transaction, 51,070,264 shares of
Igene's common stock was issued to Thomas Kempner and
43,324,547 shares of Igene's common stock was issued to
Sidney Knafel, directors of the Company, in exchange for
their variable rate demand notes and accrued interest.
In order to provide the Company with working capital as the
inventory received from the termination of the joint venture with
Tate & Lyle PLC is sold and the receivables are collected, on
December 12, 2007, the Company issued and sold an aggregate
-23-
principal amount of $300,000 in 8.5% secured notes, $150,000 to
each of Thomas Kempner and Sidney Knafel. These notes are
secured by the accounts receivable of the Company. As of March
12, 2009 these notes have accrued $31,875 of interest, and no
payments have been made.
On October 15, 2007, Mr. Monahan, the Company's Vice
President, Secretary and Director of Manufacturing, was issued
1,000,000 shares of the Company's common stock, valued at
$21,000, in connection with his employment with, and services to,
the Company. The shares of common stock were issued pursuant to
the exemption from registration provided under Section 4(2) of
the Securities Act of 1933, as amended.
In order to provide the Company with sufficient funds to
settle the litigation with the holders of the convertible notes
issued by the Company in 2001, on February 15, 2007, the Company
issued and sold an aggregate principal amount of $762,000 in 5%
convertible debentures, $381,000 to each of Thomas Kempner and
Sidney Knafel, directors of the Company. These debentures are
convertible into shares of the Company's common stock at $.02 per
share based on the offer made to the original debenture holders
as the market price of the Company's common shares as of February
2007. As reported above, these debentures in the aggregate
principal amount of $762,000, and the related interest in the
aggregate amount of $67,641, were converted into 66,371,244
shares of Igene's common stock in connection with the exchange
offerings.
Director Independence
Since Igene is not a listed company, it has determined to
apply rule 4200(a)(15) of the Nasdaq Marketplace Rules to
determine independence of its directors. Based on such rule,
Igene has determined that none of its directors are deemed to be
independent and that, accordingly, its sole member of its audit
committee, Michael G. Kimelman, is not independent.
-24-
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
REGISTERED PUBLIC ACCOUNTANTS
The accounting firm of M&K CPAS, PLLC ("M&K") audited the
financial statements of the Company for the fiscal year 2008.
M&K was appointed as the Company's new independent registered
public accounting firm effective as of January 15, 2008 and
served as the Company's registered public accountants to audit
the financial statements for 2007. J.H. Cohn LLP ("Cohn")
originally served as the auditor in 2007 and served as the
Company's registered public accountants to audit the restated
financial statements in 2006. Berenson LLP originally served as
the auditor in 2006; however, in May 2007, J.H. Cohn LLP acquired
Berenson LLP in a transaction that was structured as an asset
sale. Each of J.H. Cohn LLP and M&K has advised the Company that
neither the accounting firm nor any of its members or associates
has any direct financial interest in or any connection with the
Company other than as independent public auditors.
AUDIT FEES AND SERVICES
The following table shows the aggregate fees paid or accrued
by the Company for the audit and other services provided by M&K
for fiscal years 2008 and 2007:
FY 2008 FY 2007
________ ________
Audit Fees $ 45,000 $ 47,500
Audit-Related Fees 0 0
Tax Fees 1,500 1,500
All Other Fees 0 0
________ ________
TOTAL $ 46,500 $ 49,000
Audit services provided by M&K for fiscal years 2008 and 2007
consisted of the audit of the consolidated financial statements
and quarterly reviews of financial statements. "Tax Fees"
include charges primarily related to tax return preparation and
tax consulting services. Audit fees for 2007 include $7,500 paid
to Cohn for audit services.
In 2003, the SEC adopted a rule pursuant to the Sarbanes-
Oxley Act of 2002 that, except with respect to certain de minimis
services discussed below, requires audit committee pre-approval
of audit and non-audit services provided by the Company's
independent auditors. The audit committee reviews and pre-
approves audit and non-audit services of the independent auditors
in conformity with the requirements of Sarbanes-Oxley. All of
the 2008 and 2007 services described above were pre-approved by
the audit committee pursuant to this SEC rule.
-25-
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Exhibits filed herewith or incorporated by reference herein
are set forth in the following table prepared in accordance with
Item 601 of Regulations S-K.
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.
4.1 Form of Variable Rate Convertible Subordinated
Debenture Due 2002 (Class A), constituting Exhibit
4.4 to the Registration Statement No. 33-5441 on
Form S-1 filed with the SEC on May 6, 1986, is
hereby incorporated by reference.
4.2 Form of Indenture by and between the Registrant and
American Stock Transfer and Trust Company, as
Trustee, dated as of March 31, 1998, constituting
Exhibit 4.2 to the Registration Statement No. 333-
41581 on Form SB-2/A filed with the SEC on January
23, 1998, is hereby incorporated by reference.
4.3 First Amendment to Indenture, Securities, Warrant
Agreement and Warrant Certificates by and between
Registrant and American Stock Transfer and Trust
Company dated as of March 18, 2003, constituting
Exhibit 10.11 to the Quarterly Report on Form 10-
QSB filed with the SEC on May 14, 2003, is hereby
incorporated by reference.
4.4 Second Amendment to Indenture, Securities, Warrant
Agreement and Warrant Certificates by and between
Registrant and American Stock Transfer and Trust
Company dated as of March 28, 2006, constituting
Exhibit 4.5 to the Annual Report on Form 10-KSB
filed with the SEC on April 13, 2006, is hereby
incorporated by reference.
4.5 Third Amendment to Indenture, Securities, Warrant
Agreement and Warrant Certificates by and between
Registrant and American Stock Transfer and Trust
Company dated as of October 23, 2008.*
10.1 Form of Conversion and Exchange Agreement used in
May 1988 in connection with the conversion and
exchange by certain holders of shares of preferred
stock for common stock and Warrants, constituting
Exhibit 10.19 to the Registration Statement No. 33-
5441 on Form S-1 filed with the SEC on May 6, 1986,
is hereby incorporated by reference.
10.2 Preferred Stockholders' Waiver Agreement dated May
5, 1988, constituting Exhibit 10.3 to the
Registration Statement No. 33-23266 on Form S-1
filed with the SEC on July 22, 1988, is hereby
incorporated by reference.
10.3 Form of Agreement between the Registrant and
Certain Investors in Preferred Stock dated
September 30, 1987, constituting Exhibit 10.4 to
the Registration Statement No. 33-23266 on Form S-
1/A, is hereby incorporated by reference.
10.4 Agreement of Lease between Columbia Warehouse
Limited Partnership and the Registrant effective
December 15, 1995, constituting Exhibit 10.13 to
the Annual Report on Form 10-KSB filed with the SEC
on April 12, 1996, is hereby incorporated by
reference.
-26-
10.5 First Amendment to Lease between the Registrant and
Red Branch Center, LLC made September 13, 2000,
constituting Exhibit 10.8 to the Annual Report on
Form 10-KSB filed with the SEC on April 2, 2001, is
hereby incorporated by reference.
10.6 Separation Agreement between the Registrant and
Tate & Lyle Fermentation Products Ltd. dated as of
October 31, 2007, constituting Exhibit 10.1 to the
Current Report on Form 8-K filed with the SEC on
November 6, 2007, is hereby incorporated by
reference.
10.7 Limited Liability Company Agreement dated as of
January 8, 2009 between Archer-Daniels-Midland
Company and the Registrant, constituting Exhibit
10.1 to the Current Report on Form 8-K filed with
the SEC on January 21, 2009, is hereby incorporated
by reference. [Portions of this exhibit have been
omitted pursuant to a request for confidential
treatment.]
21.1 Subsidiaries*
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
-27-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
IGENE Biotechnology, Inc.
Columbia, Maryland
We have audited the accompanying consolidated balance sheets of
IGENE Biotechnology, Inc. as of December 31, 2008 and 2007, and
the related consolidated statements of operations, stockholders'
deficiency and cash flows for the years then ended. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company's internal control over
financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of IGENE Biotechnology, Inc. as of December 31, 2008 and 2007,
and the results of its operations and cash flows for the periods
described above in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in Note 13 to the financial statements, the Company has suffered
recurring losses from operations which raises substantial doubt
about its ability to continue as a going concern. Management's
plans regarding those matters also are described in Note 13. The
consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ M&K CPAS, PLLC
____________________
M&K CPAS, PLLC
www.mkacpas.com
Houston, Texas
March 25, 2009
-28-
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Balance Sheets
December 31,
2008 2007
_____________ _____________
ASSETS
_______
CURRENT ASSETS
Cash and cash equivalents $ 1,488,011 $ 1,026,350
Accounts receivable 1,045,767 2,718,884
Inventory 2,398,520 8,059,777
Prepaid expenses and other current assets 23,702 38,351
_____________ _____________
TOTAL CURRENT ASSETS 4,956,000 11,843,362
Property and equipment, net 831,838 713,493
5 year non-compete, net 123,181 153,977
Customer contracts --- 233,658
Intellectual property 149,670 149,670
Other assets 5,125 5,125
_____________ _____________
TOTAL ASSETS $ 6,065,814 $ 13,099,285
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
________________________________________
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 2,849,455 $ 7,902,625
_____________ _____________
TOTAL CURRENT LIABILITIES 2,849,455 7,902,625
LONG-TERM DEBT
Notes payable (net of unamortized discount) 353,598 4,643,449
Convertible Debentures (net of unamortized discount) --- 3,244,664
Contingent Liability on Joint Venture Separation 5,000,000 5,000,000
Accrued interest 307,247 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 $20.96 and 23.32, respectively per share.
Authorized 1,312,500 shares; issued and outstanding 11,134 shares.
Redemption amount $233,377 and $226,243, respectively. 233,377 226,243
_____________ _____________
TOTAL LIABILITIES 8,743,677 27,459,057
_____________ _____________
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Common stock -- $.01 par value per share. Authorized
3,000,000,000 shares; issued and outstanding 1,518,503,841
and 110,337,072 shares respectively 15,185,038 1,103,371
Additional paid-in capital 34,885,649 33,276,687
Accumulated deficit (52,730,767) (48,739,830)
Other comprehensive loss (17,783) ---
_____________ _____________
TOTAL STOCKHOLDERS' DEFICIENCY (2,677,863) (14,359,772)
_____________ _____________
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 6,065,814 $ 13,099,285
============= =============
The accompanying notes are an integral part of the consolidated
financial statements.
-29-
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Statements of Operations
Years ended December 31,
2008 2007
_____________ _____________
REVENUE
_______
Sales $ 7,644,477 $ 2,286,730
Cost of sales 6,395,062 1,681,632
_____________ _____________
GROSS PROFIT 1,249,415 605,098
EQUITY IN REPAID ADVANCES (LOSS) OF JOINT VENTURE --- 170,821
_____________ _____________
OPERATING EXPENSES
__________________
Marketing and selling 731,094 158,104
Research, development and pilot plant 1,655,908 983,610
General and administrative 1,050,703 972,965
Less expenses reimbursed by Joint Venture --- (1,576,701)
_____________ _____________
TOTAL OPERATING EXPENSES 3,437,705 537,978
_____________ _____________
OPERATING PROFIT (LOSS) (2,188,290) 237,941
GAIN ON DISPOSAL --- 5,692
OTHER INCOME 225,813 17,932
INTEREST EXPENSE (including amortization of debt
discount of $1,294,680 for 2008, and $1,406,780 for 2007) (2,028,460) (2,160,638)
_____________ _____________
NET (LOSS) $ (3,990,937) $ (1,899,073)
_____________ _____________
OTHER COMPREHENSIVE LOSS
Foreign exchange translation (17,783) ---
TOTAL COMPREHENSIVE (LOSS) $ (4,008,720) $ (1,899,073)
============= =============
NET LOSS PER COMMON SHARE BASIC AND FULLY DILUTED $ (0.02) $ (0.02)
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING 187,037,119 109,679,538
============= =============
The accompanying notes are an integral part of the consolidated
financial statements.
-39-
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Statements of Stockholders' Deficiency
Years ended December 31, 2008 and 2007
Common Stock Additional Other Total
____________________________ Paid-in Accumulated Comprehensive Stockholders'
# Shares Amount Capital Deficit Loss Deficiency
_____________ ____________ ____________ _____________ _____________ _____________
Balance at January 1, 2007 109,337,072 $ 1,093,371 $33,265,687 $(46,840,757) $ --- $(12,481,699)
Shares issued to Director of
Manufacturing 1,000,000 10,000 11,000 --- --- 21,000
Net loss for 2007 --- --- --- (1,899,073) --- (1,899,073)
_____________ ____________ ____________ _____________ _____________ _____________
Balance at December 31, 2007 110,337,072 $ 1,103,371 $33,276,687 $(48,739,830) $ --- $(14,359,772)
Exchange of debt for equity 645,956,606 6,459,566 1,765,419 --- --- 8,224,985
Exchange of debt for equity 762,210,163 7,622,101 (156,457) --- --- 7,465,644
Loss due to currency translation --- --- --- --- (17,783) (17,783)
Net loss for 2008 --- --- --- ( 3,990,937) --- (3,990,937)
_____________ ____________ ____________ _____________ _____________ _____________
Balance at December 31, 2008 1,518,503,841 $15,185,038 $34,885,649 $(52,730,767) $ (17,783) $ (2,677,863)
============= ============ ============ ============= ============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
-31-
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Years ended December 31,
_____________________________
2008 2007
_____________ _____________
CASH FLOWS FROM OPERATING ACTIVITIES
____________________________________
Net income (loss) $ (3,990,937) $ (1,899,073)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Amortization of debt discount 1,294,680 1,406,780
Depreciation 107,821 12,438
Gain on disposal of equipment --- (5,692)
Issuance of common stock for Director of Manufacturing --- 21,000
Amortizations of customer contracts and non-compete 264,454 ---
Increase in preferred stock for cumulative dividend
classified as interest 7,134 7,126
Equity in (repaid advances) loss of unconsolidated joint venture --- 107,821
Decrease (increase) in:
Accounts receivable 1,673,117 (3,698,884)
Inventory 5,661,257 1,814,157
Prepaid expenses and other assets 14,649 (24,258)
Increase (decrease) in:
Accounts payable and other accrued expenses (4,326,565) 3,569,050
_____________ _____________
NET CASH PROVIDED BY OPERATING ACTIVITIES 705,610 1,310,465
_____________ _____________
CASH FLOWS FROM INVESTING ACTIVITIES
____________________________________
Cash proceed from sale of property and equipment --- 20,000
Cash used for purchase of property and equipment (226,166) (275,080)
Recoupment of payment (advances) to joint venture --- (107,821)
_____________ _____________
NET CASH USED IN INVESTING ACTIVITIES (226,166) (362,901)
_____________ _____________
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
_____________ _____________
LOSS DUE TO CURRENCY TRANSLATION (17,783) ---
NET DECREASE IN CASH AND CASH EQUIVALENTS 461,661 1,004,564
CASH AND CASH EQUIVALENTS - BEGINNING OF THE YEAR 1,026,350 21,786
_____________ _____________
CASH AND CASH EQUIVALENTS - END OF THE YEAR $ 1,488,011 $ 1,026,350
============= =============
SUPPLEMENTARY DISCLOSURE AND CASH FLOW INFORMATION
__________________________________________________
Cash paid during the year for interest $ --- $ 57,637
Cash paid during the year for income taxes --- ---
NON-CASH TRANSACTIONS
_____________________
Exchange of assets and liabilities of joint venture partner $ --- $ 9,325,521
Exchange of debt for common stock $ 15,690,630 $ ---
The accompanying notes are an integral part of the consolidated financial
statements.
-32-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2008 and 2007
(1) Summary of Significant Accounting Policies
__________________________________________
Nature of Operations
____________________
Igene Biotechnology, Inc. ("Igene") 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, has an operational subsidiary in Chile,
and through February 2003, had a subsidiary in Norway.
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 a source of pigment for coloring farmed
salmon species. Igene is also venturing to supply
astaxanthin as a nutraceutical ingredient. 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") and Igene
announced a 50:50 joint venture (the "Joint Venture") to
produce AstaXin(R) for the aquaculture industry. 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
include the production of 1,500 tons per annum of
astaxanthin.
On October 31, 2007, Igene and Tate entered into a
Separation Agreement pursuant to which the Joint Venture 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.
On January 8, 2009, Igene entered into an agreement with
Archer-Daniels-Midland Company ("ADM") pursuant to which the
Company and ADM formed a joint venture (the "ADM JV") to
manufacture and sell astaxanthin and derivative products
throughout the world. Each of the Company and ADM has a 50%
ownership interest in the ADM JV and has equal
representation on the Board of Managers of the ADM JV.
Principles of Consolidation
___________________________
The accounts of our other wholly-owned subsidiary, Igene
Chile, are included in the consolidation of these financial
statements. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and cash equivalents
_________________________
Igene considers cash equivalents to be short-term, highly
liquid investments that have original maturities of less
than 90 days. These include interest bearing money market
accounts. There were no cash equivalents as of December 31,
2008 or 2007.
-33-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2008 and 2007
Accounts Receivable
___________________
Accounts receivable are stated at the amount management
expects to collect from the outstanding balances.
Management provides for probable uncollectible amounts
through a charge to earnings and a credit to a valuation
allowance based upon its assessment of the current
collection status of individual accounts. Delinquent
amounts that are outstanding after management has conducted
reasonable collection efforts are written off through a
charge to the valuation allowance and a credit to accounts
receivable. Management has determined no allowance was
necessary as of December 31, 2008 or 2007.
Research and development costs
______________________________
For financial reporting purposes, research, development and
pilot plant scale-up costs are charged to expense as
incurred, consistent with Financial Accounting Standards
Board ("FASB") Statement No. 2.
Property and Equipment
______________________
Property and equipment are stated at cost less accumulated
depreciation and amortization computed using the straight-
line method. Premises and equipment are depreciated over
the useful lives of the assets, which generally range from
three to seven years for furniture, fixtures and equipment,
three to five years for computer software and hardware.
Leasehold improvements are amortized over the terms of the
respective leases or the estimated useful lives of the
improvements, whichever is shorter. The cost of major
renewals and betterments are capitalized, while the costs of
ordinary maintenance and repairs are expensed as incurred.
Estimates
_________
The preparation of financial statements in conformity with
accounting principles generally accepted in the United
States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Foreign Currency Translation and Transactions
_____________________________________________
Since the day-to-day operations of Igene's foreign
subsidiary in Chile are dependent on the economic
environment of the parent's currency, the financial position
and results of operations of Igene's foreign subsidiary are
determined using Igene's reporting currency (U.S. dollars)
as the functional currency. All exchange gains and losses
from remeasurement of monetary assets and liabilities that
are not denominated in U.S. dollars are recognized currently
in other comprehensive income. All transactional gains and
losses are part of income or loss from operations pursuant
to SFAS 52.
Fair value of financial instruments
___________________________________
The carrying amounts of cash and cash equivalents, accounts
receivable, accounts payable, and short-term debt
approximate fair value because of the relatively short
maturity of these instruments. Management believes the
carrying amount of long-term debt approximates fair value
because of similar current rates at which Igene could borrow
funds with consistent remaining maturities.
-34-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2008 and 2007
Accounting for stock-based compensation
_______________________________________
Effective January 1, 2006, Igene began recording
compensation expense associated with stock options and other
forms of equity compensation in accordance with Statement of
Financial Accounting Standards ("SFAS") 123R, "Share-Based
Payment," as interpreted by SEC Staff Accounting Bulletin
No. 107. Prior to January 1, 2006, Igene had accounted for
stock options according to the provisions of APB Opinion No.
25, "Accounting for Stock Issued to Employees," and related
interpretations, and therefore no related compensation
expense was recorded for awards granted with no intrinsic
value. Igene adopted the modified prospective transition
method provided for under SFAS 123R, and, consequently, has
not retroactively adjusted results from prior periods.
Stock issued to employees is recorded at the fair value of
the shares granted based upon the closing market price of
Igene's stock at the measurement date and recognized as
compensation expense over the applicable requisite service
period. Warrants granted to non-employees are recorded at
the estimated fair value of the options granted using the
Black-Scholes pricing model and recognized as general and
administrative expense over the applicable requisite service
period.
Credit Risk
___________
Igene does not require collateral from its customers with
respect to accounts receivable but performs periodic credit
evaluations of such customers' financial conditions. Igene
determines any required allowance by considering a number of
factors including lengths of time accounts receivable are
past due and previous loss history. Igene provides reserves
for accounts receivable when they become uncollectible, and
payments subsequently received on such receivables are
credited to the allowance for doubtful accounts.
Igene's cash may exceed FDIC protection levels at different
points throughout the year; management believes the risk
associated with this possible exposure is minimal. Igene was
within FDIC protection limits at December 31, 2008.
Long-Lived Assets
_________________
SFAS 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," requires that long-lived assets,
including certain identifiable intangibles, be reviewed for
impairment whenever events or changes in circumstances
indicate that the carrying value of the assets in question
may not be recoverable.
SFAS 142, "Goodwill and Other Intangible Assets," provides
that some intangible assets are not subject to periodic
amortization, but are evaluated at least annually for
impairments. Igene received a valuation of its tangible and
intangible assets held December 31, 2007. Igene performed an
impairment test on the valuation of these assets at December
31, 2008 and determined no impairment was necessary.
Inventories
___________
Inventories consist of finished goods, and are stated based
on the valuation received at the close of the separation of
the Joint Venture and are at the lower of cost or market.
Inventory is tracked by specific lot number.
-35-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2008 and 2007
Income Taxes
____________
Igene utilizes the asset and liability method in accounting
for income taxes. Under this method, deferred tax assets and
liabilities are recognized for operating loss and tax credit
carry forwards and for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the year in which those temporary
differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in
tax rates is recognized in the results of operations in the
period that includes the enactment date. A valuation
allowance is recorded to reduce the carrying amounts of
deferred tax assets unless it is more likely than not that
the value of such assets will be realized.
Revenue Recognition
___________________
Igene's revenue recognition policy is consistent with the
criteria set forth in Staff Accounting Bulletin (SAB) 104,
"Revenue Recognition in Financial Statements," for
determining when revenue is realized or realizable and
earned. In accordance with the requirements of SAB 104, the
Company recognizes revenue when (1) persuasive evidence of
an arrangement exists, (2) delivery has occurred, (3) the
seller's price is fixed or determinable, and (4)
collectability is reasonably assured.
Intangible Assets
_________________
Intangible assets with estimable useful lives are amortized
over respective estimated useful lives, and reviewed for
impairment in accordance with SFAS 142, "Goodwill and Other
Intangible Assets." Igene has recorded values for customer
contracts, intellectual property and a non-compete contract
received as part of the separation from Tate & Lyle. These
values are based on the independent valuation received at
the close of the venture. As this valuation was received
after December 31, 2007, and deemed to be accurate as of
that date, no amortization was taken for 2007, and has been
taken in 2008.
Customer contracts are for a term of one year and the value
was amortized over 2008. The non- compete contract is for a
term of five years and will be amortized over the life of
the contract. The original value of the contract was
$153,977 at December 31, 2007, of which $30,796 was
amortized during 2008. Intellectual property will be tested
annually for impairment, and any impaired value shall be
written-off. The intellectual property represents the
technology used in the production of astaxanthin as this
asset is currently creating revenue in excess of its value.
Management has determined its life is currently indefinite.
At December 31, 2008 the value was recorded at $149,670. It
was determined based on future revenue expectations that
this was not impaired.
New accounting pronouncements
_____________________________
In September 2006, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS")
157, "Fair Value Measurements." SFAS 157 defines fair
value, establishes a framework for measuring fair value in
generally accepted accounting principles ("GAAP"), and
expands disclosures about fair value measurements.
Prior to SFAS 157, there were different definitions of fair
value and limited guidance for applying those definitions in
GAAP. Moreover, that guidance was dispersed among the many
accounting pronouncements that require fair value
measurements. SFAS 157 clarifies that the exchange price is
the price in an orderly transaction between market
participants to sell the asset or transfer the liability in
the market in which the reporting entity would transact for
the asset or liability, that is, the principal or most
advantageous market for the asset or liability.
-36-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2008 and 2007
SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. The Company is currently
evaluating the impact, if any, that SFAS 157 will have on
its financial position, results of operations and cash
flows.
In June 2006, the FASB issued Financial Accounting Standards
Board Interpretation ("FIN") 48, "Accounting for Uncertainty
in Income Taxes-an interpretation of FASB Statement No.
109." FIN 48 provides a comprehensive model for the
recognition, measurement and disclosure in the financial
statements of uncertain tax positions taken or expected to
be taken on a tax return. The Company adopted FIN 48
effective beginning on January 1, 2007. The Company is
currently evaluating the impact this interpretation may have
on its future financial position, results of operations,
earnings per share, or cash flows.
Management does not believe the effects of the above
described recent pronouncements or others will have a
significant impact on our financial statements.
(2) Non-cash investing and financing activities
___________________________________________
During November of 2008, Igene commenced the process of
offering to exchange common stock to holders of Igene notes,
debentures and warrants. The exchanges that occurred
resulted in recording of additional paid in capital,
pursuant to APB 26 for related party debt forgiveness, on
the termination of the debt in the amount of $8,649,796.
The details are as follows:
Pursuant to the terms of an Indenture dated as of March 31,
1998, as amended (the "Indenture") between Igene and
American Stock Transfer & Trust Company, as Trustee (the
"Trustee"), Igene issued and sold $5,000,000 of its 8% notes
(the "8% Notes"). Concurrently with the issuance of the 8%
Notes, Igene issued, pursuant to a Warrant Agreement by and
between Igene and American Stock Transfer & Trust Company
(the "Warrant Agent") dated as of March 31, 1998, as amended
(the "Warrant Agreement"), 50,000,000 warrants to purchase
shares of Igene common stock for $.10 per share expiring
March 31, 2008. The warrant purchase price under the
Warrant Agreement was reduced to $.075 per share, and the
maturity date of the 8% Notes was extended to March 31,
2006, by an amendment dated March 18, 2003, and approved by
the requisite number of holders of the securities.
On March 28, 2006, Igene and American Stock Transfer & Trust
Company, in its capacity as Trustee and Warrant Agent,
entered into a Second Amendment to Indenture, Securities,
Warrant Agreement and Warrant Certificates that extended the
maturity date of the 8% Notes to March 31, 2009, and reduced
the warrant price under the Warrant Agreement from $.075 to
$.056 per share.
On October 23, 2008, Igene and American Stock Transfer &
Trust Company, in its capacity as Trustee and Warrant Agent,
entered into a Third Amendment to Indenture, Securities,
Warrant Agreement and Warrant Certificates that extended the
maturity date of the 8% Notes to March 31, 2019. The
warrants under the Warrant Agreement expired as of March 31,
2008.
On December 3, 2008, Igene completed an offering to exchange
145,600 of our shares of common stock, par value $.01 per
share, for each $1,000 principal amount of the 8% Notes
outstanding and accrued interest thereon. As of that date,
$4,759,767 of 8% notes principal were outstanding, with
$4,064,450 accrued interest thereon. Of these notes,
$4,436,515 of notes principal with $3,788,419 of interest
were exchanged for 645,956,606 shares of Igene common stock
at a price of $.005 per share. As a result, additional pain
in capital was recorded for the gain of $4,995,151 on the
retirement, pursuant to APB 26 for related party debt
forgiveness.
-37-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2008 and 2007
On November 28, 2008, Igene commenced an offering to
exchange shares of its common stock to holders of its
privately held debt and associated warrants. Much of this
indebtedness was held by current and past directors and
consisted of the following:
The funds to settle the ProBio litigation were provided by
Igene's directors. On February 15, 2007, Igene issued and
sold $762,000 in aggregate principal amount of 5%
convertible debentures, 50% each to two directors of Igene.
These debentures were convertible into shares of Igene's
common stock at $.02 per share. At the time of the exchange
the accrued interest on this debt was $67,641. All debt and
interest under the 5% convertible debentures were exchanged
for 66,371,244 shares of common stock.
Igene issued $3,814,212 of 8% convertible debentures between
March 2001 and July 2002. The debt had accrued $2,204,106
of interest at the time of the exchange. Also, 66,427,650
warrants were issued in connection with the 8% convertible
debentures. All of the debt and interest, as well as all of
the warrants, were exchanged for 528,578,590 shares of Igene
common stock. The original issuances that comprised this
liability are as follows:
On July 17, 2002, Igene issued and sold $300,000 in
aggregate principal amount of 8% convertible debentures, 50%
each to two directors of Igene. These debentures were
convertible into shares of Igene's common stock at $.03 per
share based on the market price of Igene's shares at the
time the debentures were agreed to. In consideration of the
commitment to purchase the 8% convertible debenture, these
directors also received an aggregate of 10,000,000 warrants
to purchase common stock at $.03 per share.
On February 22, 2002, Igene issued and sold $1,000,000 in
aggregate principal amount of 8% convertible debentures, 50%
each to two directors of Igene. These debentures were
convertible into shares of Igene's common stock at $.04 per
share based on the market price of Igene's shares at the
time the debentures were agreed to. In consideration of the
commitment to purchase the 8% convertible debenture, these
directors also received an aggregate of 25,000,000 warrants
to purchase common stock at $.04 per share.
In March 2001, Igene issued $1,014,211 of 8%, 10-year,
convertible debentures to certain directors of Igene in
exchange for the cancellation of $800,000 of demand notes
payable (including accrued interest of $14,212) and $200,000
in cash. $600,000 of these demand notes were issued during
2000 and $200,000 were issued subsequently. These
debentures were convertible into 10,142,110 shares of
Igene's common stock at $.08 per share. These directors
also received 10,142,110 warrants to purchase common stock
at $.08 per share.
In March 2001, certain directors of Igene also committed
to provide additional funding in the form of 8%, 10-year,
convertible debentures in the amount of $1,500,000. In
consideration of this commitment, these directors also
received 18,750,000 warrants to purchase common stock at
$.08 per share. These debentures are convertible into
18,750,000 shares of Igene's common stock at $.08 per share.
Convertible debentures were summarized as follows:
Accrued
Principal Interest
____________ ____________
8%, 10-year, convertible debenture issued 7/17/02 $ 300,000 $ 152,745
8%, 10-year, convertible debenture issued 2/22/02 1,000,000 538,301
8%, 10-year, convertible debenture issued 3/1/01 1,014,212 567,262
8%, 10-year, convertible debenture issued 3/27/01 1,500,000 945,798
5%, 10-year, convertible debenture issued 2/15/07 762,000 67,641
____________ ____________
$ 4,576,212 $ 2,271,747
-38-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2008 and 2007
Beginning November 16, 1995, and continuing through May 8,
1997, Igene issued promissory notes to certain directors for
aggregate consideration of $1,082,500. These notes specify
that at any time prior to repayment the holder has the right
to convert the notes to common stock of Igene at prices
ranging from $.05 per share to $.135 per share, based on the
market price of common shares at the respective issue dates.
The notes were convertible in total into 13,174,478 shares
of common stock. As a result of the extensions they are now
convertible into 23,421,273 shares of common stock. At the
time of the exchange the debt had accrued interest in the
amount of $832,485. Of the amount outstanding holders of
$1,041,878 of debt with $801,269 of accrued interest agreed
to exchange their holdings for 147,451,719 shares of Igene
common stock. As part of this debt Igene had 60,541,666
warrants outstanding to purchase Igene common stock.
60,301,666 of these warrants were additionally settled in
exchange for 19,808,610 shares of Igene common stock.
In total, 762,210,163 shares of Igene common stock were
issued in exchange for $5,618,090 of notes and debentures,
$3,073,015 of related interest, and 126,729,316 related
warrants.
During 2008 and 2007, Igene recorded dividends in arrears on
its 8% Redeemable Preferred Stock, Series A at $.64 per
share aggregating $7,126 on such preferred stock, which has
been removed from paid-in capital and included in the
carrying value of the redeemable preferred stock. (see also
note 9).
(3) Concentration of Credit Risk
____________________________
Igene is potentially subject to the effects of a
concentration of credit risk in accounts receivable.
Accounts receivable is substantially composed of receivables
from two customers, with one of the customers maintaining
58% of the December 31, 2008 receivables balance and a
second customer maintaining 39% of the December 31, 2008,
receivables balance. Because of the volume of business
transacted with these two customers by Igene, Igene's
ability to collect its receivables from these customers
could adversely affect its business. In order to minimize
risk, Igene strictly evaluates the companies to which it
extends credit and all prices are denominated in U.S.
dollars so as to minimize currency fluctuation risk. Losses
due to credit risks in accounts receivable are expected to
be immaterial.
(4) Property and Equipment
______________________
Property and equipment are stated at cost and are summarized
as follows:
2008 2007
____________ ____________
Laboratory equipment and fixtures $ 184,744 $ 130,964
Idle equipment 793,921 706,667
Pilot plant equipment and fixtures 169,170 91,503
Office furniture and fixtures 44,920 36,990
____________ ____________
1,192,755 966,124
Less accumulated depreciation (360,917) (252,631)
____________ ____________
$ 831,838 $ 713,493
============ ============
(5) Investment in Joint Venture
___________________________
On March 19, 2003, Igene entered into a Joint Venture
Agreement with Tate & Lyle Fermentation Products Ltd., a
subsidiary of Tate & Lyle PLC ("Tate") pursuant to which
Igene 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 to the Joint
Venture, which included certain of its facility assets
previously used in citric acid production, while Igene
transferred to the Joint Venture its technology relating to
the production of astaxanthin and assets related thereto.
The initial value of Igene's investment in the Joint Venture
-39-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2008 and 2007
had been recorded at an amount equal to the book value of
Igene's consideration contributed at the creation of the
Joint Venture. As the cost of Igene's technology and
intellectual property had been previously expensed and had a
carrying amount of zero, the investment in the Joint Venture
had been recorded with a book value of $316,869, which
represents the unamortized production costs contributed to
the Joint Venture. In addition, Igene also contributed
$6,000 to the capital of the Joint Venture. Sales and cost
of sales activity were recorded as part of the operations of
the unconsolidated venture.
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 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. 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 the purchase of a
business. Based on that determination, a 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. The table below shows the original determined fair
value, the reduction, and the subsequent values recorded.
-40-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2008 and 2007
Assets
Fair Value Subject Allocate Excess Fair Value Over Cost
___________________________ to pro-rata _____________________________________________
Credit Debit Reduction Adjustment Credit Debit
___________________________ _____________ _____________ _____________ _____________
Tangible Assets Acquired
Current Assets
Inventory 9,873,934 9,873,934
Non-Current Assets
Downstream Assets and Lab Equipment 4,000,000 4,000,000 (3,569,294) 430,706
Deferred Tax Assets - -
Chilean Subsidiary 8,182 8,182 (7,301) 881
____________ _____________
Total Assets 13,882,116 10,305,521
Assumed Liabilities
Rebate Liabilities 857,550 857,550
A/P 890,000 890,000
Royalty of 5% up to $5M (contingent) 5,000,000 5,000,000
Removal of downstream assets 500,000 500,000
Collection Obligation 51,069 51,069
____________ ____________
Total Liabilities 7,298,619 7,298,619
Net Tangible Assets/Liabilities 6,583,497 3,006,902
Intangible Assets Acquired
5 year non-compete 1,430,000 1,430,000 (1,276,023) 153,977
Customers contracts 2,170,000 2,170,000 (1,936,342) 233,658
Intellectual Property 1,390,000 1,390,000 (1,240,330) 149,670
____________ _____________
Total Intangible Assets Acquired 4,990,000 537,306
Total Net Assets Acquired 11,573,497 8,998,183 (8,029,289) 3,544,208
============ =============
Consideration Paid
Deferred Payment
T&L Calculated Deferred Payment 1,564,207
Downstream Assets and Lab Equipment 1,000,000
Net Deferred Payment 2,564,207
Cash Payment 1
Forgive Receivable from JV 980,000
Fair value Igene shares in JV -
Total Consideration Paid 3,544,208 3,544,208
============ =============
Extraordinary Gain - -
Goodwill/(Negative Goodwill) (8,029,289) -
============ =============
-41-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2008 and 2007
As a result of the Joint Venture, the production, sales and
marketing of astaxanthin through October 2007 took place
through the unconsolidated Joint Venture. From inception on
March 18, 2003 through the Joint Venture's final reporting
on September 30, 2007, Igene's portion of the Joint
Venture's net loss was $21,826,251. The loss was a result
of a 50% interest in the following, aggregating $43,652,502:
(i) gross profit from inception was a negative $21,304,462
on sales of $38,380,752, less manufacturing cost of
$59,685,214, (ii) selling and general and administrative
expenses were $16,542,813, and (iii) interest expense was
$5,805,227.
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
its 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.
At September 30, 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 $1,007,888, for a total of
$1,330,757. Through December 31, 2006, Igene recognized
$1,491,981 of the $15,922,400 loss, which existed as part of
the Joint Venture. In the first six months of 2007, the
balances of the funds due to Igene were reduced by a net
repayment of $258,628, representing the June 30, 2007
balance of $1,233,353. For the three months ended September
30, 2007, Igene recognized a loss from the advance for that
period of $97,404. This advance decreased the additional
suspended loss of $1,293,769 for the quarter. The
cumulative suspended loss at September 30, 2007 was
$20,495,494 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 condensed consolidated financial
statements was zero at September 30, 2007.
The following unaudited condensed statement displays the
activity of the Joint Venture for the period of initial
investment at March 19, 2003 in the Joint Venture through
September 30, 2007. As shown, 50% of the activity, limited
to Igene's investment, is recorded as part of Igene's
Financial Statements as loss from investment in the Joint
Venture:
September 30,
2007
_______________
(unaudited)
ASSETS
CURRENT ASSETS
Cash $ 2,645,000
Account Receivable 4,711,000
Inventory 13,069,000
_______________
20,425,000
OTHER ASSETS
Property, plant and equipment, net 19,668,000
Intangibles 24,614,000
_______________
TOTAL ASSETS $ 64,707,000
===============
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses
(majority of which is due to one joint venturer) $ 48,419,000
Working capital loan 7,628,000
_______________
TOTAL LIABILITIES 56,047,000
Equity 8,660,000
TOTAL LIABILITIES AND EQUITY $ 64,707,000
===============
Period from March 19, 2003
(initial investment) to
September 30, 2007
__________________
Net Sales $ 38,380,752
Less: manufacturing cost (59,685,214)
_______________
Gross Profit (Loss) (21,304,462)
Less: selling, general and administrative (16,542,813)
_______________
Operating Loss (37,847,275)
Interest Expense (5,805,227)
_______________
Net Loss $ (43,652,502)
===============
Igene's 50% equity interest in the net loss $ (21,826,251)
Igene's Investment in and Advances to the Joint Venture (1,330,757)
_______________
Igene's suspended loss at September 30, 2007 $ (20,495,494)
===============
(6) Convertible Debentures
______________________
On November 28, 2008, Igene commenced an offering to
exchange shares of its common stock for its privately held
debt and warrants. Igene's much of this liability was held
by current and past directors and consisted of the
following:
The funds to settle the ProBio litigation were provided by
Igene's directors. On February 15, 2007, Igene issued and
sold $762,000 in aggregate principal amount of 5%
convertible debentures, 50% each to two directors of Igene.
These debentures were convertible into shares of Igene's
common stock at $.02 per share. At the time of the
exchange, the accrued interest on this debt was $67,641.
All debt and interest under the 5% convertible debentures
were exchanged for 66,371,244 shares of common stock.
Igene issued $3,814,212 of 8% convertible debentures between
March 2001 and July 2002. The debt had accrued $2,204,106
of interest at the time of the exchange. Also, 66,427,650
warrants were issued in connection with the 8% convertible
debentures. All of the debt and interest, as well as all of
the warrants, under the 8% convertible debentures were
exchanged for 528,578,590 shares of Igene common stock. The
original issuances that comprised this liability are as
follows:
On July 17, 2002, Igene issued and sold $300,000 in
aggregate principal amount of 8% convertible debentures, 50%
each to two directors of Igene. These debentures were
convertible into shares of Igene's common stock at $.03 per
share based on the market price of Igene's shares at the
time the debentures were agreed to. In consideration of the
commitment to purchase the 8% convertible debenture, these
directors also received an aggregate of 10,000,000 warrants
to purchase common stock at $.03 per share.
-43-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2008 and 2007
On February 22, 2002, Igene issued and sold $1,000,000 in
aggregate principal amount of 8% convertible debentures, 50%
each to two directors of Igene. These debentures were
convertible into shares of Igene's common stock at $.04 per
share based on the market price of Igene's shares at the
time the debentures were agreed to. In consideration of the
commitment to purchase the 8% convertible debenture, these
directors also received an aggregate of 25,000,000 warrants
to purchase common stock at $.04 per share.
In March 2001, Igene issued $1,014,211 of 8%, 10-year,
convertible debentures to certain directors of Igene in
exchange for the cancellation of $800,000 of demand notes
payable (including accrued interest of $14,212) and $200,000
in cash. $600,000 of these demand notes were issued during
2000 and $200,000 were issued subsequently. These
debentures were convertible into 10,142,110 shares of
Igene's common stock at $.08 per share. These directors
also received 10,142,110 warrants to purchase common stock
at $.08 per share.
In March 2001, certain directors of Igene also committed
to provide additional funding in the form of 8%, 10-year,
convertible debentures in the amount of $1,500,000. In
consideration of this commitment, these directors also
received 18,750,000 warrants to purchase common stock at
$.08 per share. These debentures are convertible into
18,750,000 shares of Igene's common stock at $.08 per share.
Convertible debentures were summarized as follows:
Accrued
Principal Interest
____________ ____________
8%, 10-year, convertible debenture issued 7/17/02 $ 300,000 $ 152,745
8%, 10-year, convertible debenture issued 2/22/02 1,000,000 538,301
8%, 10-year, convertible debenture issued 3/1/01 1,014,212 567,262
8%, 10-year, convertible debenture issued 3/27/01 1,500,000 945,798
5%, 10-year, convertible debenture issued 2/15/07 762,000 67,641
____________ ____________
$ 4,576,212 $ 2,271,747
Beginning November 16, 1995, and continuing through May 8,
1997, Igene issued promissory notes to certain directors for
aggregate consideration of $1,082,500. These notes specify
that at any time prior to repayment the holder has the right
to convert the notes to common stock of Igene at prices
ranging from $.05 per share to $.135 per share, based on the
market price of common shares at the respective issue dates.
The notes were convertible in total into 13,174,478 shares
of common stock. As a result of the extensions they are now
convertible into 23,421,273 shares of common stock. At the
time of the exchange, the debt had accrued interest in the
amount of $832,485. Of the amount outstanding, holders of
$1,041,878 of debt with $801,269 of accrued interest agreed
to exchange their holdings for 147,451,719 shares of Igene
common stock. As part of this debt, Igene had 60,541,666
warrants outstanding to purchase Igene common stock.
60,301,666 of these warrants were additionally settled in
exchange for 19,808,610 shares of Igene common stock.
In total, 762,210,163 shares of Igene common stock were
issued in exchange for $5,618,090 of notes and debentures,
$3,073,015 of related interest, and 126,729,316 related
warrants.
(7) Notes Payable
_____________
Pursuant to the terms of an Indenture dated as of March 31,
1998, as amended (the "Indenture") between Igene and
American Stock Transfer & Trust Company, as Trustee (the
"Trustee"), Igene issued and sold $5,000,000 of its 8% notes
(the "8% Notes"). Concurrently with the issuance of the 8%
Notes, Igene issued, pursuant to a Warrant Agreement by and
between Igene and American Stock Transfer & Trust Company
(the "Warrant Agent") dated as of March 31, 1998, as amended
(the "Warrant Agreement"), 50,000,000 warrants to purchase
shares of Igene common stock for $.10 per share expiring
March 31, 2008. The warrant purchase price under the
-44-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2008 and 2007
Warrant Agreement was reduced to $.075 per share, and the
maturity date of the 8% Notes was extended to March 31,
2006, by an amendment dated March 18, 2003, and approved by
the requisite number of holders of the securities.
On March 28, 2006, Igene and American Stock Transfer & Trust
Company, in its capacity as Trustee and Warrant Agent,
entered into a Second Amendment to Indenture, Securities,
Warrant Agreement and Warrant Certificates that extended the
maturity date of the 8% Notes to March 31, 2009, and reduced
the warrant price under the Warrant Agreement from $.075 to
$.056 per share.
On October 23, 2008, Igene and American Stock Transfer &
Trust Company, in its capacity as Trustee and Warrant Agent,
entered into a Third Amendment to Indenture, Securities,
Warrant Agreement and Warrant Certificates that extended the
maturity date of the 8% Notes to March 31, 2019. The
warrants under the Warrant Agreement expired as of March 31,
2008.
On December 3, 2008, Igene completed an offering to exchange
145,600 of our shares of common stock, par value $.01 per
share, for each $1,000 principal amount of the 8% Notes
outstanding and accrued interest thereon. As of that date,
$4,759,767 of 8% notes principal were outstanding, with
$4,064,450 accrued interest thereon. Of these notes,
$4,436,515 of notes principal with $3,788,419 of interest
were exchanged for 645,956,606 shares of Igene common stock
at a price of $.005 per share. As a result, additional paid
in capital was recorded to recognize the gain of $4,995,151
on the retirement, pursuant to APB 26 for related party
debt forgiveness.
Notes payable are summarized as follows as of December 31,
2008:
Accrued
Principal Interest
_____________ _____________
Long-term unsecured notes payable, bearing interest
at prime, scheduled to mature
March 31, 2003, extended to March 31,
2019, convertible into common stock $ 40,622 $ 31,432
Long-term unsecured notes payable, bearing interest
at 8%, scheduled to mature March 31, 2003,
extended to March 31, 2019 323,252 275,815
_____________ _____________
Less unamortized debt discount (10,276)
_____________ _____________
$ 353,598 $ 307,247
============= =============
Combined aggregate amounts of maturities for all notes
payable are in 2019.
Notes Payable was summarized as follows as of December 31,
2007:
Accrued
Principal Interest
_____________ _____________
Long-term unsecured notes payable, bearing interest
at prime, scheduled to mature
March 31, 2003, extended to March 31,
2009, convertible into common stock $ 1,082,500 $ 770,389
Long-term unsecured notes payable, bearing interest
at 8%, scheduled to mature March 31, 2003,
extended to March 31, 2009 4,759,767 3,714,966
_____________ _____________
$ 5,842,267 $ 4,485,355
Less unamortized debt discount (1,198,818)
_____________ _____________
$ 4,643,449 $ 4,485,355
============= =============
-45-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2008 and 2007
(8) Redeemable Preferred Stock
__________________________
Each share of redeemable preferred stock is entitled to vote
on all matters requiring shareholder approval as one class
together with holders of common stock. Each share of
redeemable preferred stock is entitled to two votes and each
share of common stock is entitled to one vote.
Redeemable preferred stock is convertible at the option of
the holder at any time, unless previously redeemed, into
shares of Igene's common stock at the rate of two shares of
common stock for each share of preferred stock (equivalent
to a conversion price of $4.00 per common share), subject to
adjustment under certain conditions.
Shares of redeemable preferred stock are redeemable for cash
in whole or in part at the option of Igene at any time at
the stated value plus accrued and unpaid dividends to the
redemption date. Dividends are cumulative and payable
quarterly on January 1, April 1, July 1 and October 1, since
January 1, 1988.
Mandatory redemption of Series A preferred stock was to be
made in October 2002. As Igene is operating at a negative
cash flow and negative earnings, Maryland law does not allow
for the redemption of these shares. As such they will
remain outstanding and continue to accrue dividends until
such time as Igene is able to undertake redemption, though
there can be no assurance this will develop. Igene does not
expect to be able to redeem the Series A preferred stock
unless, after giving effect to such redemption (a) the
Company would be able to pay its indebtedness in the usual
course of business and (b) the Company's total assets would
be greater than the sum of its total liabilities plus the
amount that would be needed if the Company were to be
dissolved as of the time of the distribution, to satisfy the
preferential rights upon dissolution of stockholders whose
preferential rights on dissolution are superior to those
receiving the distribution.
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 December 31,
2008, total dividends in arrears on Igene's preferred stock
equal $144,305 (or $12.96 per share) on Igene's Series A and
are included in the carrying value of the redeemable
preferred stock. The redemption amount of shares is $8.00
per share plus the accrued dividends. For the 11,134 shares
outstanding this equated to a value of $233,377 and $226,243
for the years ended December 31, 2008 and 2007,
respectively.
(9) Stockholders' Equity
____________________
Options
_______
In June of 2001, the stockholders approved the 2001 Stock
Option Plan (the "2001 Plan"), which succeeds the 1997 Stock
Option Plan (the "1997 Plan"), which succeeded Igene's 1986
Stock Option Plan (the "1986 Plan"), as amended. All
outstanding, unexercised options granted under the 1997 Plan
and the 1986 Plan have expired. The number of shares
authorized for issuance under the 2001 Plan was 55,000,000,
and amended at the November 2008 stockholders' meeting to
300,000,000.
-46-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2008 and 2007
The following is a summary of options granted and
outstanding under the plan as of December 31, 2008 and 2007:
2008 2007
___________________________ ___________________________
Weighted Weighted
Average Average
Exercise Exercise
Number Price Number Price
____________ ____________ ____________ ____________
Options outstanding
and exercisable,
beginning of year 44,845,000 $ .059 44,845,000 $ .059
Options granted --- --- --- ---
Options exercised --- --- --- ---
Options forfeited,
or withdrawn with
consent of holders --- --- --- ---
Options expired 4,240,000 $ .100 --- ---
____________ ____________ ____________ ____________
Options outstanding
and exercisable,
end of year 40,605,000 $ .059 44,845,000 $ .059
============ ============ ============ ============
Options Outstanding
Weighted Average
Exercise Price Shares Remaining Life (Years)
______________ ____________ ______________________
$.025 16,333,000 3.6
$.027 1,500,000 6.9
$.050 1,500,000 0.8
$.050 3,837,500 1.0
$.050 2,500,000 2.9
$.065 45,000 2.0
$.080 5,500,000 2.8
$.100 9,389,500 5.5
____________
$.059 40,605,000
============
Warrants
________
The following table summarizes warrants issued, outstanding
and exercisable:
As of December 31,
_____________________________
2008 2007
____________ ____________
Issued 11,000,000 205,261,073
Outstanding 11,000,000 205,261,073
Exercisable 11,000,000 205,261,073
-47-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2008 and 2007
Common Stock
____________
At December 31, 2008, 11,000,000 shares of authorized but
unissued common stock were reserved for issuance upon
exercise of outstanding warrants, 40,605,000 shares of
authorized but unissued common stock were reserved for
exercise pursuant to outstanding equity awards under the
2001 Stock Option Plan, 22,268 shares of authorized but
unissued common stock were reserved for issuance upon
conversion of Igene's outstanding preferred stock, and
656,428 shares of authorized but unissued stock were
reserved for issuance upon conversion of outstanding
convertible notes.
During November of 2008, Igene commenced offerings to
exchange common stock to holders of Igene notes, debentures
and warrants. The exchanges that occurred resulted in a
gain on the termination of the debt in the amount of
$8,399,925. The details are as follows:
Pursuant to the terms of an Indenture dated as of March 31,
1998, as amended (the "Indenture") between Igene and
American Stock Transfer & Trust Company, as Trustee (the
"Trustee"), Igene issued and sold $5,000,000 of its 8% notes
(the "8% Notes"). Concurrently with the issuance of the 8%
Notes, Igene issued, pursuant to a Warrant Agreement by and
between Igene and American Stock Transfer & Trust Company
(the "Warrant Agent") dated as of March 31, 1998, as amended
(the "Warrant Agreement"), 50,000,000 warrants to purchase
shares of Igene common stock for $.10 per share expiring
March 31, 2008. The warrant purchase price under the
Warrant Agreement was reduced to $.075 per share, and the
maturity date of the 8% Notes was extended to March 31,
2006, by an amendment dated March 18, 2003 and approved by
the requisite number of holders of the securities.
On March 28, 2006, Igene and American Stock Transfer & Trust
Company, in its capacity as Trustee and Warrant Agent,
entered into a Second Amendment to Indenture, Securities,
Warrant Agreement and Warrant Certificates that extended the
maturity date of the 8% Notes to March 31, 2009, and reduced
the warrant price under the Warrant Agreement from $.075 to
$.056 per share.
On October 23, 2008, Igene and American Stock Transfer &
Trust Company, in its capacity as Trustee and Warrant Agent,
entered into a Third Amendment to Indenture, Securities,
Warrant Agreement and Warrant Certificates that extended the
maturity date of the 8% Notes to March 31, 2019. The
warrants under the Warrant Agreement expired as of March 31,
2008.
On December 3, 2008, Igene completed an offering to exchange
145,600 of our shares of common stock, par value $.01 per
share, for each $1,000 principal amount of the 8% Notes
outstanding and accrued interest thereon. As of that date,
$4,759,767 of 8% notes principal were outstanding, with
$4,064,450 accrued interest thereon. Of these notes,
$4,436,515 of notes principal with $3,788,419 of interest
were exchanged for 645,956,606 shares of Igene common stock
at a price of $.005 per share. As a result, additional paid
in capital was recorded to recognize the gain of $4,995,151
on the retirement, pursuant to APB 26 for related party
debt forgiveness.
On November 28, 2008, Igene commenced an offering to
exchange shares of Igene common stock to holders of Igene's
privately held debt and the associated warrants. Igene's
liabilities consisted of the following:
The funds to settle the ProBio litigation were provided by
Igene's directors. On February 15, 2007, Igene issued and
sold $762,000 in aggregate principal amount of 5%
convertible debentures, 50% each to two directors of Igene.
These debentures were convertible into shares of Igene's
common stock at $.02 per share. At the time of the exchange
the accrued interest on this debt was $67,641. All debt and
interest under the 5% convertible debentures were exchanged
for 66,371,244 shares of common stock.
-48-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2008 and 2007
Igene issued $3,814,212 of 8% convertible debentures between
March 2001 and July 2002. The debt had accrued $2,204,106
of interest at the time of the exchange. Also, 66,427,650
warrants were issued in connection with the 8% convertible
debentures. All of the debt and interest, as well as all of
the warrants, were exchanged for 528,578,590 shares of Igene
common stock. The original issuances that comprised this
liability are as follows:
On July 17, 2002, Igene issued and sold $300,000 in
aggregate principal amount of 8% convertible debentures, 50%
each to two directors of Igene. These debentures were
convertible into shares of Igene's common stock at $.03 per
share based on the market price of Igene's shares at the
time the debentures were agreed to. In consideration of the
commitment to purchase the 8% convertible debenture, these
directors also received an aggregate of 10,000,000 warrants
to purchase common stock at $.03 per share.
On February 22, 2002, Igene issued and sold $1,000,000 in
aggregate principal amount of 8% convertible debentures, 50%
each to two directors of Igene. These debentures were
convertible into shares of Igene's common stock at $.04 per
share based on the market price of Igene's shares at the
time the debentures were agreed to. In consideration of the
commitment to purchase the 8% convertible debenture, these
directors also received an aggregate of 25,000,000 warrants
to purchase common stock at $.04 per share.
In March 2001, Igene issued $1,014,211 of 8%, 10-year,
convertible debentures to certain directors of Igene in
exchange for the cancellation of $800,000 of demand notes
payable (including accrued interest of $14,212) and $200,000
in cash. $600,000 of these demand notes were issued during
2000 and $200,000 were issued subsequently. These
debentures were convertible into 10,142,110 shares of
Igene's common stock at $.08 per share. These directors
also received 10,142,110 warrants to purchase common stock
at $.08 per share.
In March 2001, certain directors of Igene also committed to
provide additional funding in the form of 8%, 10-year,
convertible debentures in the amount of $1,500,000. In
consideration of this commitment, these directors also
received 18,750,000 warrants to purchase common stock at
$.08 per share. These debentures are convertible into
18,750,000 shares of Igene's common stock at $.08 per share.
Convertible debentures were summarized as follows:
Accrued
Principal Interest
____________ ____________
8%, 10-year, convertible debenture issued 7/17/02 $ 300,000 $ 152,745
8%, 10-year, convertible debenture issued 2/22/02 1,000,000 538,301
8%, 10-year, convertible debenture issued 3/1/01 1,014,212 567,262
8%, 10-year, convertible debenture issued 3/27/01 1,500,000 945,798
5%, 10-year, convertible debenture issued 2/15/07 762,000 67,641
____________ ____________
$ 4,576,212 $ 2,271,747
Beginning November 16, 1995, and continuing through May 8,
1997, Igene issued promissory notes to certain directors for
aggregate consideration of $1,082,500. These notes specify
that at any time prior to repayment the holder has the right
to convert the notes to common stock of Igene at prices
ranging from $.05 per share to $.135 per share, based on the
market price of common shares at the respective issue dates.
The notes were convertible in total into 13,174,478 shares
of common stock. As a result of the extensions they are now
convertible into 23,421,273 shares of common stock. At the
time of the exchange the debt had accrued interest in the
amount of $832,485. Of the amount outstanding holders of
$1,041,878 of debt with $801,269 of accrued interest agreed
to exchange their holdings for 147,451,719 shares of Igene
common stock. As part of this debt Igene had 60,541,666
warrants outstanding to purchase Igene common stock.
60,301,666 of these warrants were additionally settled in
exchange for 19,808,610 shares of Igene common stock.
-49-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2008 and 2007
In total, 762,210,163 shares of Igene common stock were
issued in exchange for $5,618,090 of notes and debentures,
$3,073,015 of related interest, and 126,729,316 related
warrants. Igene recorded additional paid in capital,
pursuant to APB 26 for related party debt forgiveness, to
recognize the gain on termination of this private debt in
the amount of $3,832,921. This gain plus the gain on the
public notes of $4,567,004 resulted in the $8,399,925.
On October 15, 2007, Mr. Monahan, Igene's Vice President,
Secretary and Director of Manufacturing, was issued
1,000,000 shares of Igene's common stock, valued at $21,000,
in connection with his employment with, and services to,
Igene. The shares of common stock were issued pursuant to
the exemption from registration provided under Section 4(2)
of the Securities Act, as Mr. Monahan is an executive
officer of the Company.
Preferred Stock
_______________
As of December 31, 2008, total dividends in arrears on
Igene's preferred stock equaled $144,297 (or $12.96 per
share) on Igene's Series A and are included in the carrying
value of the redeemable preferred stock.
(10) Net Loss Per Common Share
_________________________
Basic net loss per common share for 2008 and 2007 is based
on 187,037,119 and 109,679,538 weighted average shares,
respectively. For purposes of computing net loss per common
share, the amount of net loss has been increased by
dividends declared and cumulative undeclared dividends in
arrears on preferred stock.
Common stock equivalents, including: options, warrants,
convertible debt, convertible preferred stock, and
exercisable rights have not been included in the computation
of earnings per share in 2008 or 2007 because to do so would
have been anti-dilutive. Potentially dilutive shares
totaled 52,283,696 and 378,077,265 as of December 31, 2008
and 2007, respectively.
(11) Commitments
___________
Igene is obligated for office and laboratory facilities and
other rentals under operating lease agreements, which expire
in 2011. The base annual rentals are approximately $103,000,
increasing to $106,000 by the end of the lease term, plus
the Company's share of taxes, insurance and other costs.
Annual rent expense relating to the leases for the years
ended December 31, 2008 and 2007 approximated $124,470 and
$118,850, respectively. As per SFAS 13, rent expenses will
be recorded on a straight line basis.
Future minimum rental payments, in the aggregate and for
each of the next three years are as follows:
Year Amount
______ ________
2009 103,000
2010 106,000
2011 9,000
________
Total $218,000
========
(12) Income Taxes
____________
No income tax benefit or deferred tax asset is reflected in
the financial statements for 2007 and 2008. Deferred tax
assets are recognized for future deductible temporary
difference and tax loss carry forwards if their realization
is "more likely than not."
At December 31, 2008, Igene has federal and state net
operating loss carry-forwards of approximately $23,990,000
that expire at various dates from 2009 through 2028.
-50-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2008 and 2007
The sources of the deferred tax asset are approximately as
follows:
Net operating loss carry-forward benefit $ 9,356,000
Valuation allowance (9,356,000)
_____________
Deferred tax asset, net $ ---
=============
(13) Going Concern
_____________
Igene has incurred net losses in each year of its existence,
aggregating approximately $52,730,000 from inception to
December 31, 2008 and its liabilities exceeded its assets by
approximately $2,678,000 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.
As of October 31, 2007, Igene terminated its relationship in
the Joint Venture with Tate & Lyle. Igene maintains the
saleable inventory after the termination of the relationship
and will sell the existing inventory in order to maintain
its relationship with customers and use these funds to cover
expenses.
On January 8, 2009, Igene entered into an agreement with
Archer-Daniels-Midland Company ("ADM") pursuant to which the
Company and ADM formed a joint venture (the "ADM JV") to
manufacture and sell astaxanthin and derivative products
throughout the world. Each of the Company and ADM has a 50%
ownership interest in the ADM JV and has equal
representation on the Board of Managers of the ADM JV.
Igene hopes this will provide profitable operations.
(14) Nature of Risks and Concentrations
__________________________________
Revenue during 2008 and 2007 were derived from sales of the
product AstaXin(R). The majority of the 2008 and 2007 sales
were to fish producers in the aquaculture industry.
The preceding concentrations subject Igene to certain risks.
For example, it is considered at least reasonably possible
that any particular customer, distributor, product line, or
provider of services or facilities could be lost in the near
term.
(15) Retirement Plan
_______________
Effective February 1, 2004, Igene discontinued use of its
Simple Retirement Plan and began use of a 401K
savings/retirement plan, or 401(k) Plan. The 401(k) Plan
permits our eligible employees to defer annual compensation,
subject to limitations imposed by the Internal Revenue Code.
All employees that have been employed for six months are
eligible for the plan. The plan permits elective
contributions by the Company's eligible employees based
under the Internal Revenue Code, which are immediately
vested and non-forfeitable upon contribution to the 401(k)
Plan. Effective January 1, 2004, Igene made an elective
contribution, subject to limitations, of 4% of each eligible
employee's compensation for each year. For 2008, the
percentage was increased to 5%. Igene's contributions to
the plan for 2008 and 2007 were $42,657 and $28,392,
respectively, which is expensed in the statement of
operations.
(16) Subsequent events
_________________
On January 8, 2009, Igene entered into an agreement with
Archer-Daniels-Midland Company ("ADM") pursuant to which the
Company and ADM formed a joint venture (the "ADM JV") to
manufacture and sell astaxanthin and derivative products
throughout the world. Each of the Company and ADM has a 50%
ownership interest in the ADM JV and has equal
representation on the Board of Managers of the ADM JV.
Igene hopes this will provide profitable operations.
-51-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By /s/ STEPHEN F. HIU
______________________________________
STEPHEN F. HIU
President, Chief Technical Officer
and Treasurer
Date March 31, 2009
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Signature Title Date
/s/ STEPHEN F. HIU Director, President, Chief March 31, 2009
________________________ Technical Officer (principal
STEPHEN F. HIU executive officer)
/s/ EDWARD J. WEISBERGER Chief Financial Officer March 31, 2009
________________________ (principal financial and
EDWARD J. WEISBERGER accounting officer)
/s/ THOMAS L. KEMPNER Vice Chairman of Board March 31, 2009
________________________ of Directors
THOMAS L. KEMPNER
/s/ MICHAEL G. KIMELMAN Chairman of the Board March 31, 2009
________________________ of Directors
MICHAEL G. KIMELMAN
/s/ SIDNEY R. KNAFEL Director March 31, 2009
________________________
SIDNEY R. KNAFEL
/s/ PATRICK F. MONAHAN Director, Vice President March 31, 2009
________________________ Secretary and
PATRICK F. MONAHAN Director of Manufacturing
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.
4.1 Form of Variable Rate Convertible Subordinated
Debenture Due 2002 (Class A), constituting Exhibit
4.4 to the Registration Statement No. 33-5441 on
Form S-1 filed with the SEC on May 6, 1986, is
hereby incorporated by reference.
4.2 Form of Indenture by and between the Registrant and
American Stock Transfer and Trust Company, as
Trustee, dated as of March 31, 1998, constituting
Exhibit 4.2 to the Registration Statement No. 333-
41581 on Form SB-2/A filed with the SEC on January
23, 1998, is hereby incorporated by reference.
4.3 First Amendment to Indenture, Securities, Warrant
Agreement and Warrant Certificates by and between
Registrant and American Stock Transfer and Trust
Company dated as of March 18, 2003, constituting
Exhibit 10.11 to the Quarterly Report on Form 10-
QSB filed with the SEC on May 14, 2003, is hereby
incorporated by reference.
4.4 Second Amendment to Indenture, Securities, Warrant
Agreement and Warrant Certificates by and between
Registrant and American Stock Transfer and Trust
Company dated as of March 28, 2006, constituting
Exhibit 4.5 to the Annual Report on Form 10-KSB
filed with the SEC on April 13, 2006, is hereby
incorporated by reference.
4.5 Third Amendment to Indenture, Securities, Warrant
Agreement and Warrant Certificates by and between
Registrant and American Stock Transfer and Trust
Company dated as of October 23, 2008.*
10.1 Form of Conversion and Exchange Agreement used in
May 1988 in connection with the conversion and
exchange by certain holders of shares of preferred
stock for common stock and Warrants, constituting
Exhibit 10.19 to the Registration Statement No. 33-
5441 on Form S-1 filed with the SEC on May 6, 1986,
is hereby incorporated by reference.
10.2 Preferred Stockholders' Waiver Agreement dated May
5, 1988, constituting Exhibit 10.3 to the
Registration Statement No. 33-23266 on Form S-1
filed with the SEC on July 22, 1988, is hereby
incorporated by reference.
10.3 Form of Agreement between the Registrant and
Certain Investors in Preferred Stock dated
September 30, 1987, constituting Exhibit 10.4 to
the Registration Statement No. 33-23266 on Form S-
1/A, is hereby incorporated by reference.
10.4 Agreement of Lease between Columbia Warehouse
Limited Partnership and the Registrant effective
December 15, 1995, constituting Exhibit 10.13 to
the Annual Report on Form 10-KSB filed with the SEC
on April 12, 1996, is hereby incorporated by
reference.
10.5 First Amendment to Lease between the Registrant and
Red Branch Center, LLC made September 13, 2000,
constituting Exhibit 10.8 to the Annual Report on
Form 10-KSB filed with the SEC on April 2, 2001, is
hereby incorporated by reference.
10.6 Separation Agreement between the Registrant and
Tate & Lyle Fermentation Products Ltd. dated as of
October 31, 2007, constituting Exhibit 10.1 to the
Current Report on Form 8-K filed with the SEC on
November 6, 2007, is hereby incorporated by
reference.
10.7 Limited Liability Company Agreement dated as of
January 8, 2009 between Archer-Daniels-Midland
Company and the Registrant, constituting Exhibit
10.1 to the Current Report on Form 8-K filed with
the SEC on January 21, 2009, is hereby incorporated
by reference. [Portions of this exhibit have been
omitted pursuant to a request for confidential
treatment.]
21.1 Subsidiaries*
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