UNITED STATES
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 June 30, 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:
There were 1,560,404,297 shares of common stock, par value $0.01,
_________________________________________________________________
issued and outstanding as of August 3, 2009.
____________________________________________
FORM 10-Q
IGENE Biotechnology, Inc.
INDEX
PART I - FINANCIAL INFORMATION
Page
Consolidated Balance Sheets (Unaudited)........................ 5
Consolidated Statements of Operations (Unaudited).............. 6
Consolidated Statement of Stockholders' Deficiency (Unaudited). 7
Consolidated Statements of Cash Flows (Unaudited).............. 8
Notes to Consolidated Financial Statements (Unaudited)......... 9-13
Management's Discussion and Analysis of Financial
Conditions and Results of Operations .......................... 14-18
Controls and Procedures........................................ 19
PART II - OTHER INFORMATION ..................................... 20-21
SIGNATURES ....................................................... 22
EXHIBIT INDEX .................................................... 23
IGENE BIOTECHNOLOGY, INC. QUARTERLY REPORT
UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Balance Sheets
June 30, December 31,
2009 2008
_____________ _____________
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,526,272 $ 1,488,011
Accounts receivable 1,226,969 1,045,767
Inventory 39,628 2,398,520
Due from NaturXan 1,093,626 ---
Prepaid expenses and other current assets 44,421 23,702
_____________ _____________
TOTAL CURRENT ASSETS 3,930,916 4,956,000
Property and equipment (net of accumulated
depreciation of $444,569 and $360,917, respectively) 944,050 831,838
5 year non-compete (net of accumulated amortization of
$46,193 and $30,796, respectively) 107,784 123,181
Intellectual property 149,670 149,670
Other assets 5,125 5,125
_____________ _____________
TOTAL ASSETS $ 5,137,545 $ 6,065,814
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,148,280 $ 2,849,455
Guarantee in debt of NaturXan 558,086 ---
_____________ _____________
TOTAL CURRENT LIABILITIES 1,706,366 2,849,455
LONG-TERM DEBT
Notes payable (net of unamortized discount of $10,276) 353,598 353,598
Contingent liability on joint venture separation 5,000,000 5,000,000
Accrued interest 321,603 307,247
REDEEMABLE PREFERRED STOCK
Carrying amount of redeemable preferred stock,
8% cumulative, convertible, voting, series A,
$0.01 par value per share. Stated value $21.28
and $20.96, respectively. Authorized 1,312,500 shares;
issued and outstanding 11,134 shares. 236,923 233,377
_____________ _____________
TOTAL LIABILITIES 7,618,490 8,743,677
_____________ _____________
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Common stock --- $0.01 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 (52,599,935) (52,730,767)
Other comprehensive income 48,303 (17,783)
_____________ _____________
TOTAL STOCKHOLDERS' DEFICIENCY (2,480,945) (2,677,863)
_____________ _____________
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $ 5,137,545 $ 6,065,814
============= =============
The accompanying notes are an integral part of the financial
statements.
-5-
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Statements of Operations
(Unaudited)
Three months ended Six months ended
____________________________ ____________________________
June 30, June 30, June 30, June 30,
2009 2008 2009 2008
_____________ _____________ _____________ _____________
REVENUE
_______
Sales $ 1,595,525 $ 1,656,167 $ 2,837,310 $ 4,527,669
Cost of sales 1,571,727 1,230,096 2,516,912 3,597,506
_____________ _____________ _____________ _____________
GROSS PROFIT 23,798 426,071 320,398 930,163
LOSS OF JOINT VENTURE (323,876) --- (558,086) ---
_____________ _____________ _____________ _____________
OPERATING EXPENSES
__________________
Marketing and selling 80,274 163,697 186,384 461,995
Research and development 417,340 439,434 878,515 789,538
General and administrative 249,503 227,685 482,159 404,795
Operating expenses reimbursed by Joint Venture (453,418) --- (906,837) ---
_____________ _____________ _____________ _____________
TOTAL OPERATING EXPENSES 293,699 830,816 640,221 1,656,328
_____________ _____________ _____________ _____________
OPERATING LOSS (593,777) (404,745) (877,909) (726,165)
_____________ _____________ _____________ _____________
OTHER INCOME 901 --- 1,026,642 2,040
INTEREST EXPENSE (including amortization of debt discount
of $351,695 and $703,390, respectively, for the three and
six months ended June 30, 2008) (9,030) (550,897) (17,901) (1,101,749)
NET INCOME (LOSS) $ (601,906) $ (955,642) $ 130,832 $ (1,825,874)
_____________ _____________ _____________ _____________
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign exchange translation 54,084 (171,880) 66,086 47,976
TOTAL COMPREHENSIVE INCOME (LOSS) $ (547,822) $ (1,127,522) $ 196,918 $ (1,777,898)
============= ============= ============= =============
BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE $ (0.00) $ (0.01) $ 0.00 $ (0.02)
============= ============= ============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING 1,518,503,841 110,337,072 1,518,503,841 110,337,072
============= ============= ============= =============
The accompanying notes are an integral part of the financial
statements.
-6-
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Statement of Stockholders' Deficiency
(Unaudited)
Additional Other Total
Common Stock Paid-in Accumulated Comprehensive Stockholders'
(shares/amount) Capital Deficit Income Deficiency
__________________________ _____________ _____________ _____________ _____________
Balance at January 1, 2009 1,518,503,841 $15,185,038 $ 34,885,649 $(52,730,767) $ (17,783) $ (2,677,863)
Gain due to currency translation --- --- --- --- 66,086 66,086
Net income for the six months ended
June 30, 2009 --- --- --- 130,832 --- 130,832
_____________ ____________ _____________ _____________ _____________ _____________
Balance at June 30, 2009 1,518,503,841 $15,185,038 $ 34,885,649 $(52,599,935) $ 48,303 $ (2,480,945)
============= =========== ============= ============= ============= =============
The accompanying notes are an integral part of the financial
statements.
-7-
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
Six months ended
____________________________
June 30, June 30,
2009 2008
_____________ _____________
Cash flows from operating activities
Net income (loss) $ 130,832 $ (1,825,874)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Amortization of debt discount --- 703,390
Depreciation 83,651 8,147
Increase in preferred stock for cumulative dividends
classified as interest 3,546 3,566
Amortization of customer contracts and non-compete 15,397 132,227
Loss of joint venture 558,086 ---
Gain on forgiveness of debt (1,025,741) ---
Decrease (increase) in:
Accounts receivable (181,201) 1,378,919
Inventory 2,358,892 3,215,689
Prepaid expenses and other current assets (20,719) 625
Increase in:
Accounts payable and accrued expenses (661,078) (3,211,107)
_____________ _____________
Net cash provided by operating activities 1,261,665 405,582
_____________ _____________
Cash flows from investing activities
Purchase of equipment (195,863) (219,180)
Advances to joint venture (1,093,627) ---
_____________ _____________
Net cash used in investing activities (1,289,490) (219,180)
_____________ _____________
Cash flows from financing activities
Net cash provided by financing activities --- ---
_____________ _____________
Gain due to currency translation 66,086 47,976
Net increase in cash and cash equivalents 38,261 234,378
Cash and cash equivalents at beginning of period 1,488,011 1,026,350
_____________ _____________
Cash and cash equivalents at end of period $ 1,526,272 $ 1,260,728
============= =============
Supplementary disclosure and cash flow information
__________________________________________________
Cash paid for interest $ --- $ ---
Cash paid for income taxes --- ---
See Note (4) for non-cash investing and financing activities.
The accompanying notes are an integral part of the financial
statements.
-8-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
(1) Unaudited Consolidated Financial Statements
The June 30, 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" or the "Company") for 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 was incorporated in the State of Maryland on October
27, 1981 to develop, produce and market value-added
specialty biochemical products. Igene is a supplier of
natural astaxanthin, an essential nutrient in different feed
applications and a source of pigment for coloring farmed
salmon species. Igene is also venturing to supply
astaxanthin as a nutraceutical ingredient. Igene is focused
on research and development in the areas of fermentation
technology, nutrition and health and the marketing of
products and applications worldwide. Igene is the developer
of AstaXin(R), a natural astaxanthin product made from
yeast, which is used as a source of pigment for coloring
farmed salmonids.
Igene has devoted its resources to the development of
proprietary processes to convert selected agricultural raw
materials or feedstocks into commercially useful and cost
effective products for the food, feed, flavor and
agrochemical industries. In developing these processes and
products, Igene has relied on the expertise and skills of
its in-house scientific staff and, for special projects,
various consultants.
In 2000, Igene formed a wholly-owned subsidiary, Igene Chile
Comercial, Ltda., in Chile. The subsidiary has a sales and
customer service office in Puerto Varas, Chile, and a
product warehouse in Puerto Montt, Chile.
In an effort to develop a dependable source of production,
on March 19, 2003, Tate & Lyle PLC ("Tate") and Igene
announced a 50:50 joint venture to produce AstaXin(R) for
the aquaculture industry, which we refer to as the "Joint
Venture." Production utilized Tate's fermentation
capability together with the unique technology developed by
Igene. Part of Tate's existing citric acid facility located
in Selby, England, was modified to include the production of
this product. Tate's investment of approximately
$24,600,000 included certain of its facility assets that
were used in citric acid production. Igene's contribution
to the Joint Venture, including its intellectual property
and its subsidiary in Chile, was valued by the parties as
approximately equal to Tate's contribution. For accounting
purposes, Igene's accounting contribution was valued at
zero.
On October 31, 2007, Igene and Tate entered into a
Separation Agreement pursuant to which the 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.
-9-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
(continued)
(3) Non-Cash Investing and Financing Activities
During the six months ended June 30, 2009 and 2008, the
Company recorded in each quarter dividends in arrears on its
8% Redeemable Preferred Stock accumulating at $0.16 per
share aggregating to $3,546 and $3,566, respectively.
During November of 2008, Igene commenced the process of
offering to exchange its 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 that certain 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 $0.075 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 $0.075 to
$0.056 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 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 pain in capital
was recorded for the gain of $4,995,151 on the retirement.
Much of the aforementioned indebtedness 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:
-10-
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.
-11-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
(continued)
(4) Stockholders' Deficiency
As of June 30, 2009, 22,268 shares of authorized but
unissued common stock were reserved for issue upon
conversion of the Company's outstanding preferred stock.
As of June 30, 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 June 30, 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 and six-month periods ended June 30, 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 antidilutive. As of June 30,
2009 and 2008, potentially dilutive shares totaled
1,570,787,537 and 488,414,337, respectively.
(6) Going Concern
Igene has incurred net losses in each year of its existence,
aggregating approximately $52,600,000 from inception to June
30, 2009 and as of June 30, 2009, Igene's liabilities
exceeded its assets by approximately $2,481,000. 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 had terminated
its relationship with Tate & Lyle. Igene maintained 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
$1,093,626 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 dependable
production during the third quarter of 2009. As of the end
of the second quarter Igene has not made an investment in
the ADM JV.
-12-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
(continued)
(8) Forgiveness of Debt
Igene has recorded a gain 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
Tate & Lyle 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 expense was recorded when it was
thought Igene could be liable for it, but with the exception
of the $5,000,000 liability related to future revenue (see
Note 2), Igene has settled its debt to Tate & Lyle.
(9) Subsequent Event
On June 16, 2009 the Board of Directors of Igene approved a
repurchase of all the outstanding employee stock options and
warrants. It was agreed to repurchase 51,425,000 options
and warrants, using 41,900,456 shares of restricted stock.
Holders of options and warrants were contacted and
agreements were reached. On July 16, 2009, shares were
issued and options and warrants were cancelled.
-13-
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
CAUTIONARY STATEMENTS FOR PURPOSES OF "SAFE HARBOR PROVISIONS" OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:
EXCEPT FOR HISTORICAL FACTS, ALL MATTERS DISCUSSED IN THIS
REPORT, WHICH ARE FORWARD-LOOKING, INVOLVE A HIGH DEGREE OF RISK
AND UNCERTAINTY. CERTAIN STATEMENTS IN THIS REPORT SET FORTH
MANAGEMENT'S INTENTIONS, PLANS, BELIEFS, EXPECTATIONS OR
PREDICTIONS OF THE FUTURE BASED ON CURRENT FACTS AND ANALYSES.
WHEN WE USE THE WORDS "BELIEVE," "EXPECT," "ANTICIPATE,"
"ESTIMATE," "INTEND" OR SIMILAR EXPRESSIONS, WE INTEND TO
IDENTIFY FORWARD-LOOKING STATEMENTS. YOU SHOULD NOT PLACE UNDUE
RELIANCE ON THESE FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE INDICATED IN SUCH 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
____________________________
Except as otherwise provided herein, 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 and the ADM Joint Venture was accounted
for under the equity method of accounting as Igene has a 50%
ownership interest.
Igene will recognize the loss of the ADM Joint Venture
beyond the investment and advances to the ADM Joint Venture, to
the point Igene maintains guarantees in the debt of the ADM Joint
Venture.
-14-
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Results of Operations
_____________________
Sales and other revenue
For the quarters ended June 30, 2009 and 2008, Igene
recorded sales in the amounts of $1,595,525 and $1,656,167,
respectively, an increase of $60,642 or 3%. For the six months
ended June 30, 2009 and 2008, Igene recorded sales in the amounts
of $2,837,310 and $4,527,669, respectively, a decrease of
$1,690,359 or 37%. Sales had been limited in past years due to
insufficient production quantity and have been limited in the
current period as a source of production is being developed and
production begins in the new ADM JV. Management believes that
the ADM JV will provide saleable 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.
Cost of sales and gross profit
For the quarters ended June 30, 2009 and 2008, Igene
recorded cost of sales in the amounts of $1,571,727 and
$1,230,096, respectively, an increase of $341,631 or 27%. This
resulted in a gross profit of $23,798, or 1% for the quarter
ended June 30, 2009 and gross profit of $426,071, or 25% for the
quarter ended June 30, 2008. For the six months ended June 30,
2009 and 2008, Igene recorded cost of sales in the amounts of
$2,516,912 and $3,597,506, respectively, a decrease of $1,080,594
or 30%. This resulted in a gross profit of $320,398, or 11% for
the six months ended June 30, 2009 and gross profit of $930,163,
or 20% for the six months ended June 30, 2008. The gross profit
is due mainly to the discount in 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
saleable 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
For the quarter ended June 30, 2009, Igene recorded a loss
from the ADM JV of $323,876. For the six months ended June 30,
2009, Igene recorded a loss from the ADM JV of $558,086. 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.
On October 31, 2007, Igene 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.
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. For the six months ended June 30,
2009, these expenses resulted in a net loss of $1,116,172.
Igene's 50% interest resulted in the $558,086 loss recorded. The
ADM JV has begun to make product during the second quarter, but
has not yet started to sell product. It is expected sales will
commence during the third quarter of 2009. Management believes
that this new ADM JV will provide saleable 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.
-15-
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Marketing and selling expenses
For the quarters ended June 30, 2009 and 2008, Igene
recorded marketing and selling expense in the amount of $80,274
and $163,697, respectively, a decrease of $83,423 or 50%. For
the six months ended June 30, 2009 and 2008, Igene recorded
marketing and selling expense in the amount of $186,384 and
$461,995, respectively, a decrease of $275,611 or 59%. With the
creation of the ADM JV, responsibility for the marketing and
selling function is being assumed by the Joint Venture. It is
expected that marketing and selling will fluctuate as activities
continue 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 the maintenance of the customer base. These expenses are
expected to be funded by cash flows from operations, to the
extent available for such purposes.
Research, development and pilot plant expenses
For the quarters ended June 30, 2009 and 2008, Igene
recorded research and development costs in the amount of $417,340
and $439,434, respectively, a decrease of $22,094 or
approximately 5%. For the six months ended June 30, 2009 and
2008, Igene recorded research and development costs in the amount
of $878,515 and $789,538, respectively, an increase of $88,977 or
11%. Research and development costs have increased as Igene
works to develop new uses for its product. 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 as it prepares to begin production in the
new facility. Prior to October 2007, all research and
development expenses incurred by Igene as part of the Joint
Venture were reimbursed by the Joint 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 six months ended June 30, 2009, $876,837 of the
research and development cost was reimbursed by the ADM JV.
General and administrative expenses
General and administrative expenses for the quarter ended
June 30, 2009 and 2008 were $249,503 and $227,685, respectively,
an increase of $21,818 or 9%. General and administrative
expenses for the six months ended June 30, 2009 and 2008 were
$482,159 and $404,795 respectively, an increase of $77,364 or
19%. These costs are expected to remain at current levels.
Igene works to reduce 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. $30,000 of the 2009
general and administrative cost was reimbursed by the ADM JV.
Expenses 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 six months
ended June 30, 2009, costs reimbursed by the ADM JV totaled
$906,837. The costs covered $876,837 of research and development
costs and $30,000 of general and administrative costs.
-16-
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Other Income
Igene had other income for the six months ended June 30,
2009 of $1,026,642. Of this amount, $1,025,741 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 Tate & Lyle 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 expense was
recorded when it was thought Igene could be liable for it, but
with the exception of the $5,000,000 liability related to future
revenue (see Note 2), Igene has settled its debt to Tate & Lyle.
Interest expense
Interest expense for the quarters ended June 30, 2009 and
2008 was $9,030 and $550,897, respectively, a decrease of
$541,867 or 98%. This includes amortization of discounts on
Igene's notes and debentures of $351,695 for the quarter ended
June 30, 2008. For the six months ended June 30, 2009 and 2008,
interest expense was $17,901 and $1,101,749, respectively, a
decrease of $1,083,848 or 98%. This includes amortization of
discounts on Igene's notes and debentures of $703,390 for the six
months ended June 30, 2008. The interest expense was almost
entirely composed of interest on the Company's long term
financing from its directors and other stockholders, and interest
on the Company's subordinated debentures in both periods. 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).
Net loss and basic and diluted net loss per common share
As a result of the foregoing, the Company reported
comprehensive losses of $547,822 and $1,127,522, respectively,
for the quarters ended June 30, 2009 and 2008, a decrease in the
loss of $579,700 or 51%. This represents a loss of $0.00 and
$0.01 per basic and diluted common share in each of the quarters
ended June 30, 2009 and 2008, respectively. The Company reported
comprehensive income of $196,918 and comprehensive loss of
$1,777,898, respectively, for the six months ended June 30, 2009
and 2008. This represents income of $0.00 and loss of $0.02 per
basic and diluted common share in each of the six months ended
June 30, 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 and six months ended June 30, 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 six months ended June 30, 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 six months ended June 30,
2009 of $2,358,892 was a source of cash, offset by funds
used to decrease accounts payable and accrued expenses by
$661,078, and increases of accounts receivable of $181,201;
and
o The carrying value of redeemable preferred stock was
increased and interest expense recorded in the amount of
$3,546 in 2009, reflecting cumulative unpaid dividends on
redeemable preferred stock.
-17-
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
In December 1988, as part of an overall effort to contain
costs and conserve working capital, Igene suspended payment of
the quarterly dividend on its preferred stock. Resumption of the
dividend will require significant improvements in cash flow.
Unpaid dividends cumulate for future payment or addition to the
liquidation preference or redemption value of the preferred
stock. As of June 30, 2009, total dividends in arrears on
Igene's preferred stock total $147,860 ($13.28 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 June 30, 2009,
Igene had working capital of $2,224,550, and cash and cash
equivalents of $1,526,272.
Cash provided by operating activities during the six-month
period ended June 30, 2009 equaled $1,261,665 as compared to cash
used by operating activities of $405,582 for the six-month period
ended June 30, 2008.
Cash used by investing activities during the six-month
period ended June 30, 2009 and 2008 equaled $1,289,490 and
$219,180, respectively, resulting from the purchase of equipment
and advances to the ADM JV.
No cash was used or provided by financing activities during
the first six months of 2009 or 2008.
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 six-month periods
ended June 30, 2009 and 2008.
Off-Balance Sheet Arrangements
______________________________
There have been no material changes in the risks related to
off-balance sheet arrangements since the Company's disclosure in
its Annual Report on Form 10-K for the year ended December 31,
2008.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
The Company is a smaller reporting company as defined by
Rule 12b-2 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and is not required to provide the
information required under this item.
-18-
IGENE Biotechnology, Inc. and Subsidiary
Controls and Procedures
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 June 30,
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.
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.
-19-
IGENE Biotechnology, Inc. and Subsidiary
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which
Igene is a party or to which any of Igene's properties are
subject; nor are there pending material bankruptcy, receivership
or similar proceedings with respect to Igene; nor are there
material proceedings pending or 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 1A. Risk Factors
The Company is a smaller reporting company as defined by
Rule 12b-2 of the Exchange Act and is not required to provide the
information required under this item.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
None.
Item 3. Defaults Upon Senior Securities
In December 1988, as part of an overall effort to contain
costs and conserve working capital, the Company suspended payment
of the quarterly dividend on its preferred stock. Resumption of
the dividend will require significant improvements in cash flow.
Unpaid dividends cumulate for future payment or addition to the
liquidation preference or redemption value of the preferred
stock. As of August 4, 2009, total dividends in arrears on the
Company's Series A Convertible Preferred Stock total $147,860
($13.28 per share) and are included in the carrying value of the
redeemable preferred stock.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
-20-
Item 6. 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.
-21-
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 August 14, 2009 By /S/ STEPHEN F. HIU
_______________ _________________________________
STEPHEN F. HIU
President
(principal executive officer)
Date August 14, 2009 By /S/ EDWARD J. WEISBERGER
_______________ _________________________________
EDWARD J. WEISBERGER
Chief Financial Officer
(principal financial officer)
-22-
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.
-23-