U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2010
[ ] 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]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13
or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a
court.
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date:
1,565,504,297 shares of common stock, par value $.01, as of
_____________________________________________________________
May 10, 2010.
_____________
(i)
FORM 10-Q
IGENE Biotechnology, Inc.
INDEX
Page
PART I - FINANCIAL INFORMATION 1
Consolidated Balance Sheets (Unaudited)............................. 1
Consolidated Statements of Operations (Unaudited)................... 2
Consolidated Statement of Stockholders' Deficiency (Unaudited)...... 3
Consolidated Statements of Cash Flows (Unaudited)................... 4
Notes to Consolidated Financial Statements (Unaudited).............. 5
Management's Discussion and Analysis of Financial
Conditions and Results of Operations ............................... 8
Controls and Procedures............................................. 12
PART II - OTHER INFORMATION ............................................ 14
EXHIBIT INDEX ........................................................... 15
SIGNATURES .............................................................. 16
(ii)
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Balance Sheets
March 31, December 31,
2010 2009
_____________ _____________
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,276,195 $ 1,295,222
Accounts receivable 1,929 1,929
Due from Naturxan 2,277,292 2,318,085
Prepaid expenses and other current assets 32,815 44,452
_____________ _____________
TOTAL CURRENT ASSETS 3,588,231 3,659,688
Property and equipment, net 815,213 852,894
5 year non-compete, net 84,687 92,386
Intellectual property 149,670 149,670
Other assets 5,132 5,125
_____________ _____________
TOTAL ASSETS $ 4,642,933 $ 4,759,763
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 451,641 $ 465,405
Guarantee in debt of Naturxan 1,487,784 1,094,502
_____________ _____________
TOTAL CURRENT LIABILITIES 1,939,425 1,559,907
LONG-TERM DEBT
Notes payable (net of unamortized discount) 363,874 363,874
Contingent liability on joint venture separation 5,000,000 5,000,000
Accrued interest 345,337 338,059
REDEEMABLE PREFERRED STOCK
Carrying amount of redeemable preferred stock, 8% cumulative,
convertible, voting, series A, $0.01 par value per share.
Stated value was $21.76 and $21.60, respectively.
Authorized 1,312,500 shares; issued and outstanding
11,134 shares. 242,275 240,494
_____________ _____________
TOTAL LIABILITIES 7,890,911 7,502,334
_____________ _____________
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Common stock --- $0.01 par value per share. Authorized
3,000,000,000 shares; issued and outstanding 1,565,404,297
and 1,560,404,297 shares at March 31, 2010 and
December 31,2009 respectively. 15,654,043 15,604,043
Additional paid-in capital 34,466,644 34,466,644
Accumulated deficit (53,420,561) (52,871,514)
Other comprehensive income 51,896 58,256
_____________ _____________
TOTAL STOCKHOLDERS' DEFICIENCY (3,247,978) (2,742,571)
_____________ _____________
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 4,642,933 $ 4,759,763
============= =============
The accompanying notes are an integral part of the financial statements.
-1-
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Statements of Operations
(Unaudited)
Three months ended
________________________________
March 31, 2010 March 31, 2009
_______________ _______________
REVENUE
Sales $ --- $ 1,241,785
Cost of sales --- 945,184
_______________ _______________
GROSS PROFIT --- 296,601
_______________ _______________
LOSS OF JOINT VENTURE (393,282) (234,210)
OPERATING EXPENSES
Marketing and selling 135,579 145,428
Research, development and pilot plant 469,710 471,037
General and administrative 73,277 219,377
Less operating expenses reimbursed by Joint Venture (530,967) (453,419)
_______________ _______________
TOTAL OPERATING EXPENSES 147,599 382,423
_______________ _______________
OPERATING LOSS (540,881) (320,032)
_______________ _______________
OTHER INCOME --- 1,025,742
INTEREST EXPENSE (8,166) (8,871)
_______________ _______________
NET INCOME (LOSS) $ (549,047) $ 696,839
_______________ _______________
Other comprehensive income (loss)
Foreign exchange translation (6,360) 12,002
TOTAL COMPREHENSIVE INCOME (LOSS) $ (555,407) $ 708,841
=============== ===============
BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE $ (0.00) $ 0.00
=============== ===============
WEIGHTED AVERAGE SHARES OUTSTANDING 1,562,726,519 1,518,503,841
=============== ===============
The accompanying notes are an integral part of the financial statements.
-2-
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, 2010 1,560,404,297 $ 15,604,043 $ 34,466,644 $(52,871,514) $ 58,256 $ (2,742,571)
Shares issue for service 5,000,000 50,000 --- --- --- 50,000
Loss due to currency translation --- --- --- --- (6,360) (6,360)
Net loss for the three months ended
March 31, 2010 --- --- --- (549,047) --- (549,047)
_______________ _____________ _____________ _____________ _____________ _____________
Balance at March 31, 2010 1,565,404,297 $ 15,654,043 $ 34,466,644 $(53,420,561) $ 51,896 $ (3,247,978)
=============== ============= ============= ============= ============= =============
The accompanying notes are an integral part of the financial statements.
-3-
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
Three months ended
_________________________________
March 31, 2010 March 31, 2009
_______________ _______________
Cash flows from operating activities
Net loss $ (549,047) $ (220,999)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 37,681 42,035
Increase in preferred stock for cumulative dividend
classified as interest 1,781 1,773
Recoupment from (Advances to) Joint Venture 40,880 (453,419)
Shares issued for services 50,000 ---
Amortization of customer contracts and non-compete 7,699 7,699
Loss of joint venture 393,282 234,209
Decrease (increase) in:
Accounts receivable --- 54,932
Inventory --- 840,436
Prepaid expenses and other current assets 11,544 (45,340)
Increase (decrease) in:
Accounts payable and accrued expenses (6,487) (820,818)
_______________ _______________
Net cash used in operating activities (12,667) (359,492)
_______________ _______________
Cash flows from investing activities
Purchase of equipment --- (202,963)
Net cash used in investing activities --- (202,963)
_______________ _______________
Cash flows from financing activities
Net cash provided by financing activities --- ---
_______________ _______________
Gain due to currency translation (6,360) 12,002
Net increase (decrease) in cash and cash equivalents (19,027) 550,453
Cash and cash equivalents
at beginning of period 1,295,222 1,488,011
Cash and cash equivalents
at end of period $ 1,276,195 $ 937,558
=============== ===============
Supplementary disclosure and cash flow information
__________________________________________________
Cash paid for interest $ --- $ ---
Cash paid for income taxes --- ---
See Note (3) for non-cash investing and financing activities.
The accompanying notes are an integral part of the financial statements.
-4-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
(1) Unaudited Consolidated Financial Statements
The March 31, 2010 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") for the year ended December
31, 2009 and filed with the SEC on March 31, 2010. The
December 31, 2009 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. 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.
-5-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(continued)
(3) Noncash Investing and Financing Activities
During the three months ended March 31, 2010 and 2009, the
Company recorded in each quarter dividends in arrears on 8%
redeemable preferred stock cumulating at $0.16 per share
aggregating to $1,781 and $1,773, respectively.
(4) Stockholders' Deficiency
As of March 31, 2010, 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, 2010, 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, 2010 and 2009 are based on
1,562,726,519 and 1,518,503,841shares of weighted average
common shares outstanding, respectively. No adjustment has
been made for any common stock equivalents outstanding
because their effects would be anti-dilutive. As of March
31, 2010, potential full dilution was 1,566,082,993 shares.
(6) Going Concern
Igene has incurred net losses in each year of its existence,
aggregating approximately $53,421,000 from inception to
March 31, 2010 and as of March 31, 2010, Igene's liabilities
exceeded its assets by approximately $3,248,000. 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 terminated its
relationship with Tate & Lyle. Igene maintained the
saleable inventory after the termination of the
relationship. Igene sold the existing inventory in order to
maintain its relationship with customers and used these
funds to cover expenses.
On January 8, 2009, Igene entered into an agreement with
Archer-Daniels-Midland Company ("ADM") pursuant to which the
Company and ADM formed a joint venture (the "ADM JV") to
manufacture and sell astaxanthin and derivative products
throughout the world. Each of the Company and ADM has a 50%
ownership interest in the ADM JV and has equal
representation on the Board of Managers of the ADM JV.
(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
$2,277,292 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.
Manufacturing is underway at the ADM facility. Management
expects continued dependable production. As of the end of
the first quarter of 2010, Igene has not made an investment
in the ADM JV.
-6-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
(continued)
(8) Forgiveness of Debt
The March 31, 2009 financials reflect the recording of a
gain of $1,025,742. 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 such amount it. Apart from the
$5,000,000 liability related to future revenue (see Note 2),
Igene has fulfilled all of its payment obligations to Tate &
Lyle.
(9) Issuance of Restricted Shares
The compensation committee and the board of directors
recommended the issuance of 5,000,000 shares of Common Stock
of Igene Biotechnology, Inc. (par value $.01 per share), at
$.01 per share, the market price on February 19, 2010 to its
Manufacturing Consultant, Joseph Downs, in recognition for
his work in helping to facilitate the production process at
the new facility. These shares were issued in the first
quarter of 2010, and they were expensed as part of marketing
and selling expense in the period.
-7-
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
CAUTIONARY STATEMENTS FOR PURPOSES OF "SAFE HARBOR PROVISIONS" OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:
EXCEPT FOR HISTORICAL FACTS, ALL MATTERS DISCUSSED IN THIS
REPORT, WHICH ARE FORWARD-LOOKING, INVOLVE A HIGH DEGREE OF RISK
AND UNCERTAINTY. CERTAIN STATEMENTS IN THIS REPORT SET FORTH
MANAGEMENT'S INTENTIONS, PLANS, BELIEFS, EXPECTATIONS OR
PREDICTIONS OF THE FUTURE BASED ON CURRENT FACTS AND ANALYSES.
WHEN WE USE THE WORDS "BELIEVE," "EXPECT," "ANTICIPATE,"
"ESTIMATE," "INTEND" OR SIMILAR EXPRESSIONS, WE INTEND TO
IDENTIFY FORWARD-LOOKING STATEMENTS. YOU SHOULD NOT PLACE UNDUE
RELIANCE ON THESE FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE INDICATED IN SUCH STATEMENT, DUE TO
A VARIETY OF FACTORS, RISKS AND UNCERTAINTIES. POTENTIAL RISKS
AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, COMPETITIVE
PRESSURES FROM OTHER COMPANIES WITHIN THE BIOTECH AGRICULTURE AND
AQUACULTURE INDUSTRIES, ECONOMIC CONDITIONS IN THE COMPANY'S
PRIMARY MARKETS, EXCHANGE RATE FLUCTUATIONS, REDUCED PRODUCT
DEMAND, INCREASED COMPETITION, INABILITY TO PRODUCE REQUIRED
CAPACITY, UNAVAILABILITY OF FINANCING, GOVERNMENT ACTION, WEATHER
CONDITIONS AND OTHER UNCERTAINTIES, INCLUDING THOSE DETAILED IN
"RISK FACTORS" THAT ARE INCLUDED FROM TIME-TO-TIME IN THE
COMPANY'S SECURITIES AND EXCHANGE COMMISSION FILINGS. THE
COMPANY ASSUMES NO DUTY TO UPDATE FORWARD-LOOKING STATEMENTS TO
REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH
STATEMENTS.
Critical Accounting Policies
____________________________
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:
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.
-8-
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 quarter ended March 31, 2009, Igene recorded sales
in the amount of $1,241,785. Sales had been limited in past
years due to insufficient production quantity and limited in the
current period as source of production is being developed and
production begins in the new ADM JV. 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. All future sales of the ADM JV product
will be recorded through the joint venture.
Cost of sales and gross profit
For the quarter ended March 31, 2009, Igene recorded cost of
sales in the amount of $945,184. This resulted in a gross profit
of $296,601, or 24% for the period ended March 31, 2009. The
gross profit is due mainly to the discount in which the product
was purchased at the conclusion of the joint venture with Tate
and Lyle. As with sales, with the termination of the joint
venture with Tate and Lyle, there can be no assurance of the
continued dependability of production. Sales had been limited in
past years due to insufficient production quantity and limited in
the current period as a source of production is being developed
and production begins in the new ADM JV. 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. As a result, future cost of sales is
expected to increase as a new source of production is developed.
All future cost of sales on the ADM JV product will be recorded
through the joint venture.
Loss of Joint Venture
For the quarter ended March 31, 2010, Igene recorded a loss
from the ADM JV of $393,282. 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 maintained the saleable inventory after the
termination of the relationship. Igene sold the existing
inventory in order to maintain its relationship with customers
and used these funds to cover expenses. The new ADM JV began
selling product in the 3rd quarter of 2009. For the three months
ended March 31, 2010, revenues from sales of product were
$2,590,572. Cost of sales for the three months ended March 31,
2010 were $2,477,238 resulting in a gross profit of $113,334 or
4%. Expenses recorded by the ADM JV were $899,898 resulting in a
net loss of $786,564 for the three months ended March 31, 2010.
Igene's 50% interest resulted in the $393,282 loss recorded.
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.
Marketing and selling expenses
For the quarters ended March 31, 2010 and 2009, Igene
recorded marketing and selling expense in the amounts of $135,579
and $145,428, respectively, a decrease of $9,849, or 7%. 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 expenses will fluctuate as
activities continue to maintain customer base through the period
of transition in which the development of production continues.
However, no assurances can be made with regard to a new source of
production or the maintenance of the customer base. 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 three months ended March 31, 2010, $55,620 of the marketing
cost was reimbursed by the ADM JV.
-9-
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, 2010 and 2009, Igene
recorded research and development expenditures in the amount of
$469,710 and $471,037, respectively, a decrease of $1,327 or less
than 1%. Research and development is underway to develop new
uses for its product. It is expected these expenditures will
remain at current 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. 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 three month period ended March 31, 2010,
$460,347 of the research and development expenditures was
reimbursed by the ADM JV.
General and administrative expenses
General and administrative expenses for the quarters ended
March 31, 2010 and 2009 were $73,277 and $219,377 respectively, a
decrease of $146,100 or 67%. Igene expects general and
administrative expenditures at the current level. Igene works to
reduce the level of overhead expenditures and spend funds on
research and development efforts. A small portion of this
expense is expected to be covered by the ADM JV, but the majority
of these expenses are expected to be paid from cash flows from
operations, to the extent available for such purposes. Of the
2010 general and administrative expenditures, $15,000 was
reimbursed by the ADM JV.
Expenses reimbursed 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, those related to the marketing of AstaXin(R), as
well as those expenditures related to general and administrative
functions of the Joint Venture are considered expenditures of the
Joint Venture and therefore will be reimbursed by the ADM JV.
For the three months ended March 31, 2010, the ADM JV reimbursed
Igene $530,967 for $460,347 for research and development
expenditures, $55,620 for marketing expenditures, and $15,000 for
general and administrative expenditures.
Other income
Igene had other income for the quarter ended March 31, 2009
of $1,025,742. Such income for 2009 was a one-time occurrence
related to a liability recorded in a prior period in connection
with 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 expenditures related to
collection of receivables of the joint venture. This was a one-
time occurrence related to a liability recorded in a prior period
related to the termination of the joint venture with Tate and
Lyle. The expense was recorded when it was thought Igene could
be liable for such amount. Apart from the $5,000,000 liability
related to future revenue (see note 2), Igene has fulfilled all
of its payment obligations to Tate & Lyle.
Interest expense
Interest expense for the quarters ended March 31, 2009 were
$8,166 and $8,871 respectively, a decrease of $705 or 8%. This
interest expense (net of interest income) was for interest on
Igene's long term financing from its directors and other
stockholders, interest on Igene's subordinated and convertible
debentures.
-10-
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 loss of $549,047 and comprehensive income of
$708,841, respectively, for the quarters ended March 31, 2010 and
2009. This represents a loss of $0.00 and a gain of $0.00 per
basic and diluted common share in each of the quarters ended
March 31, 2010 and 2009, respectively. The weighted-average
number of shares of common stock outstanding of 1,562,726,519 and
1,518,503,841 for the quarters ended March 31, 2010 and 2009,
respectively, has increased due to shares issued in repurchase of
employee stock options.
Financial Position
During the quarters ended March 31, 2010 and 2009, in
addition to the matters previously discussed, the following
actions also materially affected the Company's financial
position:
- For 2010 most activity took place as part of the ADM JV and
effects to cash were minimal, Mainly decreases in prepaid
expenses and other assets were a use of cash of $11,544;
and
- Decreases in accounts receivable and inventory for the
quarter ended March 31, 2009 of $895,368 were a source of
cash, offset by funds used to decrease accounts payable and
accrued expenses by $820,818; and
- The carrying value of redeemable preferred stock was
increased and interest expense was recorded in the amount
of $1,781 and $1,773, respectively, in 2010 and 2009,
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, though this
dividend still accrues. Any resumption of the dividend would
require significant improvements in cash flow. Unpaid dividends
will accrue for future payment or addition to the liquidation
preference or redemption value of the preferred stock. As of
March 31, 2010, total dividends in arrears on Igene's preferred
stock total $153,204 ($13.76 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, 2010,
Igene had working capital of $1,648,806, and cash and cash
equivalents of $1,276,195.
Cash used by operating activities during the three-month
period ended March 31, 2010 and March 31, 2009 equaled $12,667
and $359,492, respectively. The reduction is mainly attributable
to the reduction of funds advanced to the joint venture between
2009 and 2010.
Cash used by investing activities during the three-month
period ended March 31, 2009 equaled $202,963, all used in
equipment purchase. No equipment was purchased in the first
quarter of 2010, and there were no funds used in investing
activity.
No cash was used or provided by financing activities
during the first quarter of 2010 or 2009.
-11-
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. 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, 2010 and 2009.
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,
2009.
Item 3. Quantitative and Qualitative Disclosure About Market
Risk
The Company is a smaller reporting company as defined by
Rule 12b-2 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and is not required to provide the
information required under this item.
Item 4. Controls and Procedures
We carried out an evaluation, under the supervision and with
the participation of our management, including our principal
executive officer and principal financial officer, of the
effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) of the Exchange
Act). Based upon that evaluation, our principal executive
officer and principal financial officer concluded that, as of the
end of the period covered in this report, our disclosure controls
and procedures were not effective to ensure that information
required to be disclosed in reports filed under the Exchange Act
is recorded, processed, summarized and reported within the
required time periods and is accumulated and communicated to our
management, including our principal executive officer and
principal financial officer, as appropriate to allow timely
decisions regarding required disclosure.
Our management, including our principal executive officer
and principal financial officer, does not expect that our
disclosure controls and procedures or our internal controls will
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 2009, we identified the following
material weaknesses which still exist as of March 31, 2010 and
through the date of this report.
-12-
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
1. As of March 31, 2010, 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-K. Since
these entity level programs have a pervasive effect across
the organization, management has determined that these
circumstances constitute a material weakness.
2. As of March 31, 2010, 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 March 31, 2010, 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.
-13-
IGENE Biotechnology, Inc. and Subsidiary
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which
Igene is a party or to which any of Igene's properties are
subject; nor are there material proceedings known to be
contemplated by any governmental authority; nor are there
material proceedings known to Igene, pending or contemplated, in
which any of Igene's directors, officers, affiliates or any
principal security holders, or any associate of any of the
foregoing, is a party or has an interest adverse to us.
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, Igene suspended payment of
the quarterly dividend on its preferred stock, though this
dividend still accrues. Any resumption of the dividend would
require significant improvements in cash flow. Unpaid dividends
will accrue for future payment or addition to the liquidation
preference or redemption value of the preferred stock. As of
March 31, 2010, total dividends in arrears on Igene's preferred
stock total $153,204 ($13.76 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.
-14-
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.
-15-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IGENE BIOTECHNOLOGY, INC.
_____________________________________
(Registrant)
Date May 14, 2010 By /S/ STEPHEN F. HIU
_____________ _____________________________________
STEPHEN F. HIU
President
(principal executive officer)
Date May 14, 2010 By /S/ EDWARD J. WEISBERGER
_____________ _____________________________________
EDWARD J. WEISBERGER
Chief Financial Officer
(principal financial officer)
-16-