U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2009
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
For the transition period from _________ to _________
Commission file number 0-15888
IGENE Biotechnology, Inc.
______________________________________________________
(Exact name of registrant as specified in its charter)
Maryland 52-1230461
_______________________________ ___________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9110 Red Branch Road, Columbia, Maryland 21045-2024
___________________________________________________
(Address of principal executive offices)
(410) 997-2599
____________________________________________________
(Registrant's telephone number, including area code)
None
____________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x] No [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of "large
accelerated filer," "accelerated filer" and "smaller reporting
company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [x]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [x]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
1,518,503,841 shares of common stock, par value $.01, as of
_____________________________________________________________
May 10, 2009.
_____________
IGENE Biotechnology, Inc.
FORM 10-Q
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited).................. 2
Consolidated Statements of Operations (Unaudited......... 3
Consolidated Statement of Stockholders'
Deficiency (Unaudited).............................. 4
Consolidated Statements of Cash Flows (Unaudited)........ 5
Notes to Consolidated Financial Statements (Unaudited)... 6
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations ............... 10
Item 4. Controls and Procedures............................. 14
PART II -- OTHER INFORMATION ................................. 16
Item 3. Defaults Upon Senior Securities..................... 16
SIGNATURES ................................................... 17
EXHIBIT INDEX ................................................ 18
-i-
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Balance Sheets
March 31, December 31,
2009 2008
_____________ _____________
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 937,558 $ 1,488,011
Accounts receivable 1,117,092 1,045,767
Inventory 1,558,084 2,398,520
Due from NaturXan 453,419 ---
Prepaid expenses and other current assets 69,042 23,702
_____________ _____________
TOTAL CURRENT ASSETS 4,135,195 4,956,000
Property and equipment, net 969,537 831,838
5 year non-compete
(net of amortization of $38,495 and $30,796, respectively) 115,482 123,181
Intellectual property 149,670 149,670
Other assets 5,125 5,125
_____________ _____________
TOTAL ASSETS $ 5,375,009 $ 6,065,814
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,170,829 $ 2,849,455
Guarantee in debt of NaturXan 234,210 ---
_____________ _____________
TOTAL CURRENT LIABILITIES 1,405,039 2,849,455
LONG-TERM DEBT
Notes payable (net of unamortized discount) 353,598 353,598
Contingent liability on joint venture separation 5,000,000 5,000,000
Accrued interest 314,345 307,247
REDEEMABLE PREFERRED STOCK
Carrying amount of redeemable preferred stock, 8% cumulative,
convertible, voting, series A, $.01 par value per share. Stated
value was $21.12 and $20.96, respectively. Authorized 1,312,500
shares; issued and outstanding 11,134 shares. 235,150 233,377
_____________ _____________
TOTAL LIABILITIES 7,308,132 8,743,677
_____________ _____________
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
shares. 15,185,038 15,185,038
Additional paid-in capital 34,885,649 34,885,649
Accumulated deficit (51,998,029) (52,730,767)
Other comprehensive income (5,781) (17,783)
_____________ _____________
TOTAL STOCKHOLDERS' DEFICIENCY (1,933,123) (2,677,863)
_____________ _____________
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $ 5,375,009 $ 6,065,814
============= =============
The accompanying notes are an integral part of the financial
statements.
-2-
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Statements of Operations
(Unaudited)
Three months ended
______________________________
March 31, March 31,
2009 2008
______________ ______________
(Unaudited)
REVENUE
_______
Sales $ 1,241,785 $ 2,871,502
Cost of sales 945,185 2,367,410
______________ ______________
GROSS PROFIT 296,600 504,092
LOSS OF JOINT VENTURE (234,210) ---
______________ ______________
OPERATING EXPENSES
__________________
Marketing and selling 106,110 298,298
Research, development and pilot plant 461,175 350,104
General and administrative 232,656 177,110
Less operating expenses reimbursed by Joint Venture (453,419) ---
______________ ______________
TOTAL OPERATING EXPENSES 346,522 825,512
______________ ______________
OPERATING LOSS (284,132) (321,420)
______________ ______________
OTHER INCOME 1,025,741 2,040
INTEREST EXPENSE (including amortization of debt
discount of $351,695 in 2008) (8,871) (550,852)
______________ ______________
NET INCOME (LOSS) $ 732,738 $ (870,232)
______________ ______________
Other comprehensive income
Foreign exchange translation 12,002 219,856
TOTAL COMPREHENSIVE INCOME (LOSS) $ 744,740 $ (650,376)
============== ==============
BASIC AND DILUTED NET INCOME (LOSS) PER
COMMON SHARE $ 0.00 $ (0.01)
============== ==============
WEIGHTED AVERAGE SHARES OUTSTANDING 1,518,503,841 110,337,072
============== ==============
The accompanying notes are an integral part of the financial
statements.
-3-
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Statement of Stockholders' Deficiency
(Unaudited)
Additional Other Total
Common Stock Paid-in Accumulated Comprehensive Stockholders'
(shares/amount) Capital Deficit Income Deficiency
__________________________ ___________ _____________ _____________ _____________
Balance at December 31, 2008 1,518,503,841 $15,185,038 $34,885,649 $(52,730,767) $ (17,783) $ (2,677,863)
Gain due to currency translation --- --- --- --- 12,002 12,002
Net income for the three months ended
March 31, 2009 --- --- --- 732,738 --- 732,738
______________ ___________ ___________ _____________ _____________ _____________
Balance at March 31, 2009 1,518,503,841 $15,185,038 $34,885,649 $(51,998,029) $ (5,781) $ (1,933,123)
============== =========== =========== ============= ============= =============
The accompanying notes are an integral part of the financial
statements.
-4-
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
Three months ended
______________________________
March 31, March 31,
2009 2008
______________ ______________
Cash flows from operating activities
Net income (loss) $ 732,738 $ (870,232)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Amortization of debt discount --- 351,695
Depreciation 42,035 2,720
Increase in preferred stock for cumulative dividend
classified as interest 1,773 1,781
Amortization of customer contracts and non-compete 7,699 66,113
Loss of joint venture 234,209 ---
Gain on forgiveness of debt (1,025,741) ---
Decrease (increase) in:
Accounts receivable (71,325) 1,246,188
Inventory 840,436 2,098,682
Prepaid expenses and other current assets (45,340) 31,203
Increase (decrease) in
Accounts payable and accrued expenses (645,786) (978,969)
______________ ______________
Net cash provided by operating activities 70,698 1,949,181
______________ ______________
Cash flows from investing activities
Purchase of equipment (179,734) (157,071)
Advances to Joint Venture (453,419) ---
______________ ______________
Net cash used in investing activities (633,153) (157,071)
______________ ______________
Cash flows from financing activities
Proceeds from issuance of convertible debentures --- ---
Repayment of convertible debentures --- ---
______________ ______________
Net cash provided by financing activities --- ---
______________ ______________
Gain due to currency translation 12,002 219,856
Net increase (decrease) in cash and cash equivalents (550,453) 2,011,966
Cash and cash equivalents
at beginning of period 1,488,011 1,026,350
______________ ______________
Cash and cash equivalents
at end of period $ 937,558 $ 3,038,316
============== ==============
Supplementary disclosure and cash flow information
__________________________________________________
Cash paid for interest $ --- $ ---
Cash paid for income taxes --- ---
See Note (2) for non-cash investing and financing activities.
The accompanying notes are an integral part of the financial
statements.
-5-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
(1) Unaudited Consolidated Financial Statements
The March 31, 2009 consolidated financial statements
presented herein are unaudited, and in the opinion of
management, include all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation
of financial position, results of operations and cash flows.
Such financial statements do not include all of the
information and footnote disclosures normally included in
financial statements prepared in accordance with accounting
principles generally accepted in the United States of
America. This quarterly report on Form 10-Q should be read
in conjunction with the Annual Report on Form 10-K for IGENE
Biotechnology, Inc. ("Igene") the year ended December 31,
2008. The December 31, 2008 consolidated balance sheet is
derived from the audited balance sheet included therein.
(2) Nature of Operations
IGENE Biotechnology, Inc. ("Igene" or the "Company") was
incorporated in the State of Maryland on October 27, 1981 to
develop, produce and market value-added specialty
biochemical products. Igene is a supplier of natural
astaxanthin, an essential nutrient in different feed
applications and a source of pigment for coloring farmed
salmon species. Igene is also venturing to supply
astaxanthin as a nutraceutical ingredient. Igene is focused
on research and development in the areas of fermentation
technology, nutrition and health and the marketing of
products and applications worldwide. Igene is the developer
of AstaXin(R), a natural astaxanthin product made from
yeast, which is used as a source of pigment for coloring
farmed salmonids.
Igene has devoted its resources to the development of
proprietary processes to convert selected agricultural raw
materials or feedstocks into commercially useful and cost
effective products for the food, feed, flavor and
agrochemical industries. In developing these processes and
products, Igene has relied on the expertise and skills of
its in-house scientific staff and, for special projects,
various consultants.
In 2000, Igene formed a wholly-owned subsidiary, Igene Chile
Comercial, Ltda., in Chile. The subsidiary has a sales and
customer service office in Puerto Varas, Chile, and a
product warehouse in Puerto Montt, Chile.
In an effort to develop a dependable source of production,
on March 19, 2003, Tate & Lyle PLC ("Tate") and Igene
announced a 50:50 joint venture to produce AstaXin(R) for
the aquaculture industry (the "T&L JV". 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 venture, including
its intellectual property and its subsidiary in Chile, was
valued by the parties as approximately equal to Tate's
contribution. For accounting purposes Igene's accounting
contribution was valued at zero.
On October 31, 2007, Igene and Tate entered into a
Separation Agreement pursuant to which the venture was
terminated. As part of the Separation Agreement, Igene sold
to Tate its 50% interest in the venture and the venture sold
to Igene its intellectual property, inventory and certain
assets and lab equipment utilized by the venture as well as
Igene's subsidiary in Chile. The purchase price paid by
Tate to Igene for its 50% interest in the venture was 50% of
the venture's net working capital. The purchase price paid
by Igene for the inventory was an amount equal to 50% of the
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.
-6-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
(continued)
(3) Non-Cash Investing and Financing Activities
During the three months ended March 31, 2009 and 2008, the
Company recorded in each quarter dividends in arrears on 8%
redeemable preferred stock cumulating at $0.16 per share
aggregating to $1,773 and $1,781, respectively.
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 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 $0.10 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 on March 31,
2008.
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. On December 3,
2008, Igene completed an offering to issue 145,600 shares of
our common stock, par value $0.01 per share, in exchange 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
$0.005 per share. As a result, additional paid-in capital
was recorded for the gain of $4,995,151 on the retirement.
Much of the aforementioned indebtedness that was exchanged
for common stock was held by current and past directors and
consisted of the following:
The funds to settle the ProBio litigation were provided to
the Company by Igene's directors On February 15, 2007, Igene
issued and sold 5% convertible debentures with an aggregate
principal amount of $762,000 to two directors of Igene.
These debentures were convertible into shares of Igene's
common stock at $0.02 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:
-7-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
(continued)
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 $0.03 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 $0.03 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 $0.04 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 $0.04 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 $0.08 per share. These directors
also received 10,142,110 warrants to purchase common stock
at $0.08 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
$0.08 per share. These debentures are convertible into
18,750,000 shares of Igene's common stock at $0.08 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 $0.05 per share to $0.135 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.
-8-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
(continued)
(4) Stockholders' Deficiency
As of March 31, 2008, 22,268 shares of authorized but
unissued common stock were reserved for issue upon
conversion of the Company's outstanding preferred stock.
As of March 31, 2009, 40,605,000 shares of authorized but
unissued common stock were reserved for exercise pursuant to
the Company's Employee Stock Option Plans.
As of March 31, 2009, 11,656,428 shares of authorized but
unissued common stock were reserved for the exercise of
outstanding warrants.
(5) Basic and Diluted Net Loss per Common Share
Basic and diluted net loss per common share for the three-
month periods ended March 31, 2009 and 2008 are based on
1,518,503,841 and 110,337,072, respectively, of weighted
average common shares outstanding. No adjustment has been
made for any common stock equivalents outstanding because
their effects would be anti-dilutive. As of March 31, 2009
and 2008, potential full dilution was 1,570,787,537 and
488,414,337 shares, respectively.
(6) Going Concern
Igene has incurred net losses in each year of its existence,
aggregating approximately $52,004,000 from inception to
March 31, 2009 and as of March 31, 2009, Igene's liabilities
exceeded its assets by approximately $1,933,000. These
factors indicate that Igene may not be able to continue in
existence unless it is able to raise additional capital and
attain profitable operations.
As discussed, as of October 31, 2007, Igene has terminated
its relationship with Tate & Lyle. Igene maintains the
saleable inventory after the termination of the
relationship. Igene is selling the existing inventory in
order to maintain its relationship with customers and use
these funds to cover expenses. We anticipate that our
current inventory will run out during the third quarter of
2009.
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.
(7) NaturXan LLC
ADM has provided a working line of credit to the ADM JV
bearing interest at the rate of 4% in excess of the one year
LIBOR. As part of the ADM JV agreement both Igene and ADM
agreed to provide a Guarantee for 50% of the indebtedness of
the new venture NaturXan, LLC, up to $1,612,500. The
$453,419 due from NaturXan is for services provided by Igene
to the ADM JV. These fees are payable within 30 days of the
receipt of the invoice. Unpaid invoices will accrue
interest at the six month LIBOR.
Currently the joint venture is in the process of developing
the manufacturing process. Management expects that during
the second quarter, Igene will provide its equipment and in
connection with the current ADM facility, will undertake
dependable production during the third quarter of 2009. As
of the end of the first quarter Igene has not made an
investment in the ADM JV.
-9-
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
CAUTIONARY STATEMENTS FOR PURPOSES OF "SAFE HARBOR PROVISIONS" OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:
EXCEPT FOR HISTORICAL FACTS, ALL MATTERS DISCUSSED IN THIS
REPORT, WHICH ARE FORWARD-LOOKING, INVOLVE A HIGH DEGREE OF RISK
AND UNCERTAINTY. CERTAIN STATEMENTS IN THIS REPORT SET FORTH
MANAGEMENT'S INTENTIONS, PLANS, BELIEFS, EXPECTATIONS OR
PREDICTIONS OF THE FUTURE BASED ON CURRENT FACTS AND ANALYSES.
WHEN WE USE THE WORDS "BELIEVE", "EXPECT", "ANTICIPATE",
"ESTIMATE", "INTEND", "VENTURING TO" OR SIMILAR EXPRESSIONS, WE
INTEND TO IDENTIFY FORWARD-LOOKING STATEMENTS. YOU SHOULD NOT
PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS. ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE INDICATED IN SUCH
STATEMENTS, DUE TO A VARIETY OF FACTORS, RISKS AND UNCERTAINTIES.
POTENTIAL RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED
TO, COMPETITIVE PRESSURES FROM OTHER COMPANIES WITHIN THE BIOTECH
AGRICULTURE AND AQUACULTURE INDUSTRIES, ECONOMIC CONDITIONS IN
THE COMPANY'S PRIMARY MARKETS, EXCHANGE RATE FLUCTUATIONS,
REDUCED PRODUCT DEMAND, INCREASED COMPETITION, INABILITY TO
PRODUCE REQUIRED CAPACITY, UNAVAILABILITY OF FINANCING,
GOVERNMENT ACTION, WEATHER CONDITIONS AND OTHER UNCERTAINTIES,
INCLUDING THOSE DETAILED IN "RISK FACTORS" THAT ARE INCLUDED FROM
TIME-TO-TIME IN THE COMPANY'S SECURITIES AND EXCHANGE COMMISSION
FILINGS. THE COMPANY ASSUMES NO DUTY TO UPDATE FORWARD-LOOKING
STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OF
SUCH STATEMENTS.
Critical Accounting Policies
____________________________
The preparation of our financial statements in conformity
with accounting principles generally accepted in the United
States (or "GAAP") requires management to make judgments,
assumptions and estimates that affect the amounts reported in our
financial statements and accompanying notes. Actual results
could differ materially from those estimates. The following are
critical accounting policies important to our financial condition
and results of operations presented in the financial statements
and require management to make judgments and estimates that are
inherently uncertain:
The inventories are stated at the lower of cost or market.
Cost is determined using a weighted-average approach, which
approximates the first-in first-out method. If the cost of the
inventories exceeds their expected market value, provisions are
recorded for the difference between the cost and the market
value. Inventories consist of currently marketed products.
Revenue from product sales are recognized when there is
persuasive evidence that an arrangement exists, delivery has
occurred, the price is fixed and determinable, and collectability
is reasonably assured. Allowances are established for estimated
uncollectible amounts, product returns and discounts.
Both Joint Ventures, the T&L JV and the ADM JV were
accounted for under the equity method of accounting as Igene has
a 50% ownership interest.
Igene will recognize the loss of the ADM JV beyond the
investment and advances to the Joint Venture, to the point Igene
maintains guarantees in the debt of the Joint Venture.
-10-
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Results of Operations
_____________________
Sales and other revenue
For the quarters ended March 31, 2009 and 2008, Igene
recorded sales in the amounts of $1,241,785 and $2,871,502,
respectively, a decrease of $1,629,717 or 56%. Sales had been
limited in past years due to insufficient production quantity and
have been limited in the current period as source of production
is being developed and production begins in the new ADM JV.
Management believes that the ADM JV will provide salable product
that will allow Igene to be competitive in the marketplace and
allow for increased sales in the future, though no assurances can
be provided in this matter.
Cost of sales and gross profit
For the quarters ended March 31, 2009 and 2008, Igene
recorded cost of sales in the amounts of $945,185 and $2,367,410,
respectively, a decrease of $1,422,225 or 60%. This resulted in
a gross profit of $296,600, or 23% for the period ended March 31,
2009 and gross profit of $504,092, or 17% for the period ended
March 31, 2008. The increase in gross profit is due mainly to
the discount at which the product was purchased at the conclusion
of the joint venture with Tate & Lyle. As with sales, with the
termination of the joint venture with Tate & Lyle, there can be
no assurance of the continued dependability of production.
Management believes that the ADM JV will provide salable product
that will allow Igene to be competitive in the market place and
allow for increased sales in the future, though no assurances can
be provided in this matter. As a result, future cost of sales is
expected to increase as a new source of production is developed.
Loss from Joint Venture with ADM
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. For the quarter ended March
31, 2009, Igene recorded a loss from the ADM JV of $234,210.
On October 31, 2007, Igene terminated its joint venture with
Tate & Lyle. Igene maintains the salable inventory after the
termination of the relationship. Igene is selling the existing
inventory in order to maintain its relationship with customers
and use these funds to cover expenses. We anticipate that our
current inventory will run out during the third quarter of 2009.
Currently the activities of the new ADM JV are costs related to
the development of the plant and the preparation for the
production of new product. Management expects this production
will begin by the third quarter of 2009. Management believes
that this new ADM JV will provide salable product that will allow
Igene to be competitive in the market place and allow for
increased sales in the future, though no assurances can be
provided in this matter.
Marketing and selling expenses
For the quarters ended March 31, 2009 and 2008, Igene
recorded marketing and selling expense in the amounts of $106,110
and $298,298, respectively, a decrease of $192,188, or 64%. With
the termination of the T&L JV, Igene has reassumed all of the
responsibility for the marketing and selling function. It is
expected that this level of marketing and selling will fluctuate
as Igene has reassumed the activities of the Chilean subsidiary
and looks to maintain its customer base through the period in
which it develops the new source of production. However, no
assurances can be made with regard to a new source of production
or maintenance of the customer base. Prior to October 2007, all
marketing and selling expenses incurred by Igene as part of the
Joint Venture with Tate & Lyle had been reimbursed by that
venture. It is expected that future sales efforts will be
handled directly through the ADM JV and Igene will incur little
marketing and selling expenses. The remaining expenses are
expected to be funded by cash flows from operations, to the
extent available for such purposes.
-11-
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Research, development and pilot plant expenses
For the quarters ended March 31, 2009 and 2008, Igene
recorded research and development costs in the amount of $461,175
and $350,104, respectively, an increase of $111,073 or
approximately 31%. Research and development costs have increased
as Igene works to develop improved product and new uses for its
product, as it prepares to begin production in the new facility.
It is expected these costs will remain at current increased
levels in support of increasing the efficiency of the
manufacturing process through experimentation in the Company's
pilot plant, developing higher yielding strains of yeast and
other improvements in the Company's AstaXin(R) technology. Prior
to October of 2007, all research and development expenses
incurred by Igene as part of the joint venture with Tate & Lyle
had been reimbursed by that venture. Currently these expenses
are expected to be funded by the new ADM JV and cash flows from
operations, to the extent available for such purposes. During
the first quarter of 2009, $438,420 of the 2009 research and
development cost was reimbursed by the ADM JV.
General and administrative expenses
General and administrative expenses for the quarters ended
March 31, 2009 and 2008 were $232,656 and $177,110, respectively,
an increase of $55,546 or 31%. Igene expects general and
administrative costs at the current level. Igene works to reduce
the level of overhead costs and spend funds on research and
development efforts. A small portion of this cost is expected to
be covered by the ADM JV, but the majority of these expenses will
need to be funded by cash flows from operations, to the extent
available for such purposes. $15,000 of the 2009 general and
administrative cost was reimbursed by the ADM JV.
Expense reimbursement by ADM Joint Venture
As part of the ADM Joint Venture Agreement, a portion of
costs incurred by Igene related to production, research and
development, as well as those related to the marketing of
AstaXin(R), are considered costs of the Joint Venture and
therefore will be reimbursed by the ADM JV. For the quarter ended
March 31, 2009, costs reimbursed by the ADM JV totaled $453,419.
The costs covered $438,419 of research and development costs and
$15,000 of general and administrative costs.
Other Income
Igene had other income for the quarter ended March 31, 2009
of $1,025,741. This is a one-time occurrence related to a
liability recorded in a prior period related to the termination
of the joint venture with Tate & Lyle. On February 26, 2009,
Igene signed a settlement agreement of past obligations and made
a final payment to T&L in the amount of $714,227. At the
termination of the joint venture, Igene recorded liabilities of
$890,000 for payments of past payables of the joint venture as
well as $51,000 for costs related to collection of receivables of
the joint venture. The balance is expense that was recorded when
it was thought Igene could be liable to pay additional costs
directly to T&L. With the exception of the $5,000,000 liability
related to future revenue (see Note 2), Igene has settled its
debts related to the joint venture and to Tate & Lyle, and these
costs and expenses were determined to no longer be Igene
liabilities.
Interest expense
Interest expense for the quarters ended March 31, 2009 and
2008 was $8,871 and $550,852 respectively, a decrease of $541,981
or 98%. This interest expense (net of interest income) was
composed of interest on Igene's long term financing from its
directors and other stockholders and interest on Igene's
subordinated and convertible debentures, as well as amortization
of discount on Igene's notes and debentures of $351,695 for 2008.
The reduction in this expense is due to the recapitalization
undertaken by Igene during the fourth quarter of 2008, and the
conversion of the majority of the Igene debt into an equity
position (see Note 3).
-12-
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Net loss and basic and diluted net loss per common share
As a result of the foregoing, the Company reported
comprehensive income $744,740 and comprehensive loss of $650,376,
respectively, for the quarters ended March 31, 2009 and 2008, a
decrease in the loss of $1,395,116. This represents income of
$0.00 and loss of $0.01 per basic and diluted common share in
each of the quarters ended March 31, 2009 and 2008, respectively.
The weighted average number of shares of common stock outstanding
of 1,518,503,841 and 110,337,072 for the quarters ended March 31,
2009 and 2008, respectively, has increased by 1,408,166,769
shares. The increase in outstanding shares resulted mainly from
the shares related to the recapitalization undertaken by Igene
during the fourth quarter of 2008, and the conversion of the
majority of the Igene debt into an equity position (see Note 3).
Financial Position
During the quarters ended March 31, 2009 and 2008, in
addition to the matters previously discussed, the following
actions also materially affected the Company's financial
position:
o Decreases in inventory for the quarter ended March 31, 2009
of $840,436 were a source of cash, offset by funds used to
decrease accounts payable and accrued expenses by $645,786;
and
o Decreases in accounts receivables, inventory and prepaid
expense for the quarter ended March 31, 2008 of $3,376,073
were a source of cash, offset by funds used to decrease
accounts payable and accrued expenses by $978,969; and
o The carrying value of redeemable preferred stock was
increased and interest expense recorded in the amount of
$1,773 and $1,781, respectively in 2009 and 2008,
reflecting cumulative unpaid dividends on redeemable
preferred stock.
In December 1988, as part of an overall effort to contain
costs and conserve working capital, Igene suspended payment of
the quarterly dividend on its preferred stock. Resumption of the
dividend will require significant improvements in cash flow.
Unpaid dividends cumulate for future payment or addition to the
liquidation preference or redemption value of the preferred
stock. As of March 31, 2009, total dividends in arrears on
Igene's preferred stock total $146,078 ($13.12 per share) and are
included in the carrying value of the redeemable preferred stock.
Liquidity and Capital Resources
Historically, Igene has been funded primarily by equity
contributions and loans from stockholders. As of March 31, 2009,
Igene had working capital of $2,730,159, and cash and cash
equivalents of $937,558.
Cash provided by operating activities during the three-month
periods ended March 31, 2009 and March 31, 2008 equaled $70,698
and $1,949,181, respectively. The reduction is due mainly to the
reduced amount of inventory available for sales based on the lack
of production through 2008.
Cash used by investing activities during the three-month
periods ended March 31, 2009 and March 31, 2008 equaled $633,153
and $157,071, respectively. The difference is due mainly to the
cash advanced and due for the ADM JV of $453,419 during the first
quarter of 2009, as the ADM JV prepares for production.
No cash was used or provided by financing activities
during the first quarter of 2009 or 2008.
-13-
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Over the next twelve months, Igene believes it will need
additional working capital. Part of this funding is expected to
be received from sales of AstaXin(R), resulting in increased cash
through the third quarter of 2009. Additional funding is
expected through the ADM JV reimbursement of expenses. There
will be additional delay between the commencement of production
and the receipt of proceeds from any sale of such product.
However, there can be no assurance that projected cash from
sales, or additional funding, will be sufficient for Igene to
fund its continued operations.
The Company does not believe that inflation had a
significant impact on its operations during the three-month
periods ended March 31, 2009 and 2008.
Item 4. Controls and Procedures
We carried out an evaluation, under the supervision and with
the participation of our management, including our principal
executive officer and principal financial officer, of the
effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act
(defined below)). Based upon that evaluation, our principal
executive officer and principal financial officer concluded that,
as of the end of the period covered in this report, our
disclosure controls and procedures were not effective to ensure
that information required to be disclosed in reports filed under
the Securities Exchange Act of 1934, as amended (the "Exchange
Act") is recorded, processed, summarized and reported within the
required time periods and is accumulated and communicated to our
management, including our principal executive officer and
principal financial officer, as appropriate to allow timely
decisions regarding required disclosure.
Our management, including our principal executive officer
and principal financial officer, does not expect that our
disclosure controls and procedures or our internal controls will
guaranty the prevention of any error or fraud. A control system,
no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the
control system are met. Further, the design of a control system
must reflect the fact that there are resource constraints and the
benefits of controls must be considered relative to their
costs. Due to the inherent limitations in all control systems,
no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, have been
detected. To address the material weaknesses, we performed
additional analysis and other post-closing procedures in an
effort to ensure our consolidated financial statements included
in this annual report have been prepared in accordance with GAAP.
Accordingly, management believes that the financial statements
included in this report fairly present in all material respects
our financial condition, results of operations and cash flows for
the periods presented.
Igene is undertaking to improve its internal control over
financial reporting and improve its disclosure controls and
procedures. As of December 31 2008, we had identified the
following material weaknesses which still exist as of March 31,
2009 and through the date of this report.
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 its 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-B. Since
these entity level programs have a pervasive effect across
the organization, management has determined that these
circumstances constitute a material weakness.
-14-
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
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.
-15-
IGENE Biotechnology, Inc. and Subsidiary
PART II
OTHER INFORMATION
Item 3. Defaults Upon Senior Securities
In December 1988, as part of an overall effort to contain costs
and conserve working capital, Igene suspended payment of the
quarterly dividend on its preferred stock. Resumption of the
dividend will require significant improvements in cash flow.
Unpaid dividends cumulate for future payment or addition to the
liquidation preference or redemption value of the preferred
stock. As of March 31, 2009, total dividends in arrears on
Igene's preferred stock total $146,078 ($13.12 per share) and are
included in the carrying value of the redeemable preferred stock.
Item 6. Exhibits
(a) Exhibits
EXHIBIT DESCRIPTION
NO.
3.1 Articles of Incorporation of the Registrant, as
amended as of November 17, 1997, constituting
Exhibit 3.1 to the Registration Statement No. 333-
41581 on Form SB-2 filed with the SEC on December
5, 1997, are hereby incorporated by reference.
3.2 Articles of Amendment to Articles of Incorporation
of the Registrant, constituting Exhibit 3.1(b) to
the Registration Statement No. 333-76616 on Form S-
8 filed with the SEC on January 11, 2002, are
hereby incorporated by reference.
3.3 By-Laws of the Registrant, constituting Exhibit 3.2
to the Registration Statement No. 33-5441 on Form S-
1 filed with the SEC on May 6, 1986, are hereby
incorporated by reference.
31.1 Rule 13a-14(a) or 15d-14(a) Certification of the
Registrant's principal executive officer.*
31.2 Rule 13a-14(a) or 15d-14(a) Certification of the
Registrant's principal financial officer.*
32.1 Rule 13a-14(b) or 15d-14(b) Certification of the
Registrant's principal executive officer pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to
Rule 906 of the Sarbanes-Oxley Act of 2002.*
32.2 Rule 13a-14(b) or 15d-14(b) Certification of the
Registrant's principal financial officer pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to
Rule 906 of the Sarbanes-Oxley Act of 2002.*
*Filed herewith.
-16-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IGENE BIOTECHNOLOGY, INC.
___________________________________
(Registrant)
Date May 15, 2009 By /S/ STEPHEN F. HIU
__________________ ___________________________________
Stephen F. Hiu
President
Date May 15, 2009 By /S/ EDWARD J. WEISBERGER
___________________________________
Edward J. Weisberger
Chief Financial Officer
-17-
EXHIBIT INDEX
EXHIBIT DESCRIPTION
NO.
3.1 Articles of Incorporation of the Registrant, as
amended as of November 17, 1997, constituting
Exhibit 3.1 to the Registration Statement No. 333-
41581 on Form SB-2 filed with the SEC on December
5, 1997, are hereby incorporated by reference.
3.2 Articles of Amendment to Articles of Incorporation
of the Registrant, constituting Exhibit 3.1(b) to
the Registration Statement No. 333-76616 on Form S-
8 filed with the SEC on January 11, 2002, are
hereby incorporated by reference.
3.3 By-Laws of the Registrant, constituting Exhibit 3.2
to the Registration Statement No. 33-5441 on Form S-
1 filed with the SEC on May 6, 1986, are hereby
incorporated by reference.
31.1 Rule 13a-14(a) or 15d-14(a) Certification of the
Registrant's principal executive officer.*
31.2 Rule 13a-14(a) or 15d-14(a) Certification of the
Registrant's principal financial officer.*
32.1 Rule 13a-14(b) or 15d-14(b) Certification of the
Registrant's principal executive officer pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to
Rule 906 of the Sarbanes-Oxley Act of 2002.*
32.2 Rule 13a-14(b) or 15d-14(b) Certification of the
Registrant's principal financial officer pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to
Rule 906 of the Sarbanes-Oxley Act of 2002.*
*Filed herewith.
-18-