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, 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 [x] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
There were 1,565,404,297 shares of common stock, par value $0.01,
_________________________________________________________________
issued and outstanding as of August 10, 2010.
_____________________________________________
(i)
FORM 10-Q
IGENE Biotechnology, Inc.
INDEX
PART I - FINANCIAL INFORMATION
Page
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)............ 5-7
Management's Discussion and Analysis of Financial
Conditions and Results of Operations ............................. 8-12
Controls and Procedures........................................... 13
PART II - OTHER INFORMATION ...................................... 14
EXHIBITS .............................................................. 15
SIGNATURES ............................................................ 16
(ii)
IGENE BIOTECHNOLOGY, INC. QUARTERLY REPORT
UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
(iii)
Item 1. Financial Statements
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Balance Sheets
June 30, December 31,
2010 2009
_____________ _____________
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 977,381 $ 1,295,222
Accounts receivable 1,929 1,929
Due from Naturxan 1,992,206 2,318,085
Prepaid expenses and other current assets 11,147 44,452
_____________ _____________
TOTAL CURRENT ASSETS 2,982,663 3,659,688
Property and equipment, net 784,644 852,894
5 year non-compete, net 76,988 92,386
Intellectual property 149,670 149,670
Other assets 5,125 5,125
_____________ _____________
TOTAL ASSETS $ 3,999,090 $ 4,759,763
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 487,638 $ 465,405
Guarantee in debt of Naturxan 1,612,500 1,094,502
_____________ _____________
TOTAL CURRENT LIABILITIES 2,100,138 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 352,141 338,059
REDEEMABLE PREFERRED STOCK
Carrying amount of redeemable preferred stock, 8% cumulative,
convertible, voting, series A, $0.01 par value per share.
Stated value $21.92 and $21.60, respectively. Authorized
1,312,500 shares; issued and outstanding 11,134 shares. 244,056 240,494
_____________ _____________
TOTAL LIABILITIES 8,060,209 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, respectively. 15,654,043 15,604,043
Additional paid-in capital 34,466,645 34,466,645
Accumulated deficit (54,231,774) (52,871,515)
Other comprehensive income 49,967 58,256
_____________ _____________
TOTAL STOCKHOLDERS' DEFICIENCY (4,061,119) (2,742,571)
_____________ _____________
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 3,999,090 $ 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 Six months ended
____________________________ ____________________________
June 30, June 30, June 30, June 30,
2010 2009 2010 2009
_____________ _____________ _____________ _____________
REVENUE
_______
Sales $ --- $ 1,595,525 $ --- $ 2,837,310
Cost of sales --- 1,571,727 --- 2,516,912
_____________ _____________ _____________ _____________
GROSS PROFIT --- 23,798 --- 320,398
LOSS OF JOINT VENTURE (695,439) (323,876) (1,088,721) (558,086)
_____________ _____________ _____________ _____________
OPERATING EXPENSES
__________________
Marketing and selling 216,327 80,274 351,906 186,384
Research and development 513,096 417,340 982,806 878,515
General and administrative 79,291 249,503 152,568 482,159
Operating expenses reimbursed by Joint Venture (682,084) (453,418) (1,213,051) (906,387)
_____________ _____________ _____________ _____________
TOTAL OPERATING EXPENSES 126,630 293,699 274,229 640,221
_____________ _____________ _____________ _____________
OPERATING LOSS (822,069) (593,777) (1,362,950) (877,909)
_____________ _____________ _____________ _____________
OTHER INCOME 13,792 901 13,792 1,026,642
INTEREST EXPENSE (2,935) (9,030) (11,101) (17,901)
_____________ _____________ _____________ _____________
NET INCOME (LOSS) $ (811,212) $ (601,906) $ (1,360,259) $ 130,832
_____________ _____________ _____________ _____________
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign exchange translation (1,929) 54,084 (8,289) 66,086
TOTAL COMPREHENSIVE INCOME (LOSS) $ (813,141) $ ( 547,822) $ (1,368,548) $ 196,918
============= ============= ============= =============
BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============= ============= ============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING 1,565,404,297 1,518,503,841 1,563,123,082 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 $ 34,466,645 $(52,871,515) $ 58,256 $ (2,742,571)
Shares issued for services 5,000,000 50,000 --- --- --- 50,000
Loss due to currency translation --- --- --- --- (8,289) (8,289)
Net loss for the six months ended
June 30, 2010 --- --- --- (1,360,259) --- (1,360,259)
_______________ _____________ _____________ _____________ _____________ _____________
Balance at June 30, 2010 1,565,404,297 $ 15,654,043 $ 34,466,645 $(54,231,774) $ 49,967 $ (4,061,119)
=============== ============= ============= ============= ============= =============
The accompanying notes are an integral part of the financial
statements.
-3-
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
Six months ended
_______________________________
June 30, June 30,
2010 2009
_____________ _____________
Cash flows from operating activities
Net income (loss) $ (1,360,259) $ 130,832
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation 75,362 83,651
Increase in preferred stock for cumulative dividends
classified as interest 3,562 3,546
Recoupment from (advances to) joint venture (244,844) (1,093,627)
Shares issued for services 50,000 ---
Amortization of customer contracts and non-compete 15,398 15,397
Loss of joint venture 1,088,721 558,086
Gain on forgiveness of debt --- (1,025,741)
Decrease (increase) in:
Accounts receivable --- (181,201)
Inventory --- 2,358,892
Prepaid expenses and other current assets 33,304 (20,719)
Increase (decrease) in:
Accounts payable and accrued expenses 36,316 (661,078)
_____________ _____________
Net cash provided by (used in) operating activities (302,440) 168,038
_____________ _____________
Cash flows from investing activities
Purchase of equipment (7,461) (195,863)
Sale of equipment 349 ---
_____________ _____________
Net cash used in investing activities (7,112) (195,863)
_____________ _____________
Cash flows from financing activities
Net cash provided by financing activities --- ---
_____________ _____________
Gain (loss) due to currency translation (8,289) 66,086
Net increase (decrease) in cash and cash equivalents (317,841) 38,261
Cash and cash equivalents at beginning of period 1,295,222 1,488,011
_____________ _____________
Cash and cash equivalents at end of period $ 977,381 $ 1,526,272
============= =============
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.
-4-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
(1) Unaudited Consolidated Financial Statements
The June 30, 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" or the "Company") for the year
ended December 31, 2009. The December 31, 2009 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 Aquasta(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 astaxanthin for
the aquaculture industry, which we refer to as the "Joint
Venture." Production utilized Tate's fermentation
capability together with the unique technology developed by
Igene. Part of Tate's existing citric acid facility located
in Selby, England, was modified to include the production of
this product. Tate's investment of approximately
$24,600,000 included certain of its facility assets that
were used in citric acid production. Igene's contribution
to the Joint Venture, including its intellectual property
and its subsidiary in Chile, was valued by the parties as
approximately equal to Tate's contribution. For accounting
purposes, Igene's accounting contribution was valued at
zero.
On October 31, 2007, Igene and Tate entered into a
Separation Agreement pursuant to which the Joint Venture 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
(Unaudited)
(continued)
(3) Non-Cash Investing and Financing Activities
During the six months ended June 30, 2010 and 2009, the
Company recorded in each quarter dividends in arrears on its
8% Redeemable Preferred Stock accumulating at $0.16 per
share aggregating to $3,562 and $3,546, respectively.
(4) Stockholders' Deficiency
As of June 30, 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 June 30, 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 and six-month periods ended June 30, 2010 and 2009,
are based on 1,565,404,297 and 1,518,503,841, 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, 2010 and 2009, potentially dilutive shares
totaled 1,566,082,993 and 1,570,787,537, respectively.
(6) Going Concern
Igene has incurred net losses in each year of its existence,
aggregating approximately $54,232,000 from inception to June
30, 2010 and as of June 30, 2010, Igene's liabilities
exceeded its assets by approximately $4,061,000. 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 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 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
$1,992,206 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 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 second 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 June 30, 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 Company's Compensation Committee and 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 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 JV were accounted for under
the equity method of accounting as Igene has a 50% ownership
interest.
Igene will recognize the loss of the ADM JV beyond the
investment and advances to the ADM JV, to the point Igene
maintains guarantees in the debt of the ADM JV.
-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 June 30, 2009, Igene recorded sales in
the amounts of $1,595,525. For the six months ended June 30,
2009, Igene recorded sales in the amounts of $2,837,310. 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 ADM JV.
Cost of sales and gross profit
For the quarter ended June 30, 2009, Igene recorded cost of
sales in the amount of $1,571,727. This resulted in a gross
profit of $23,798, or 1%. For the six months ended June 30, 2010
Igene recorded cost of sales in the amount of $2,516,912. This
resulted in gross profit of $320,398, or 11%. 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. 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 ADM JV.
Loss from Joint Venture with Archer-Daniels-Midland-Company
For the quarter ended June 30, 2010, Igene recorded a loss
from the ADM JV of $695,439. For the six months ended June 30,
2010, Igene recorded a loss from the ADM JV of $1,088,721. 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.
The new ADM JV began selling product in the third quarter of
2009. For the six months ended June 30, 2010, revenues from
sales of product were $4,906,295. Cost of sales for the six
months ended June 30, 2010 were $4,779,591, resulting in a gross
profit of $126,704, or 3%. Expenses recorded by the ADM JV were
$2,304,147, resulting in a net loss of $2,177,443 for the six
months ended June 30, 2010. Igene's 50% interest resulted in the
$1,088,721 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.
-9-
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, 2010 and 2009, Igene
recorded marketing and selling expense in the amount of $216,327
and $80,274, respectively, an increase of $136,053 or 169%. For
the six months ended June 30, 2010 and 2009, Igene recorded
marketing and selling expense in the amount of $351,906 and
$186,384, respectively, an increase of $165,522 or 89%. With the
creation of the ADM JV, responsibility for the marketing and
selling function is being assumed by the Joint Venture. With the
transfer of sales activity to the ADM JV, portions of the Igene
sales and marketing operations are being discontinued. This has
pushed these costs to the first half of the year and it is
expected to normalize throughout the year. It is expected that
marketing and selling will continue to fluctuate as activities
continue in order to maintain customer base through the period of
development. 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 ADM JV and cash flows
from operations, to the extent available for such purposes.
During the six months ended June 30, 2010, $200,245 of the
marketing cost was reimbursed by the ADM JV.
Research, development and pilot plant expenses
For the quarters ended June 30, 2010 and 2009, Igene
recorded research and development costs in the amount of $513,096
and $417,340, respectively, an increase of $95,756 or
approximately 23%. For the six months ended June 30, 2010 and
2009, Igene recorded research and development costs in the amount
of $982,806 and $878,515, respectively, an increase of $104,291
or 12%. Research and development costs have increased as Igene
works to develop new uses for its product. It is expected these
costs will remain at these 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
Aquasta(R) technology as it prepares to begin production in the
new facility. 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 month period ended March 31, 2010,
all of the research and development expenditures were reimbursed
by the ADM JV.
General and administrative expenses
General and administrative expenses for the quarter ended
June 30, 2010 and 2009 were $79,291 and $249,503, respectively, a
decrease of $170,212 or 68%. General and administrative expenses
for the six months ended June 30, 2010 and 2009 were $152,568 and
$482,159 respectively, a decrease of $329,591 or 68%. These
costs are expected to remain at such reduced levels. As the ADM
JV continues to develop, a greater amount of the time, effort and
processes will take place within the ADM JV and, as such, the ADM
JV will continue to absorbe portions of the operation no longer
required at Igene. Additionally, Igene and the ADM JV have
worked to reduce overhead expenses and direct such savings to
research and development efforts. A small portion of this
remaining expense 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 2010 general and administrative cost was
reimbursed by the ADM JV.
Expenses reimbursed by ADM Joint Venture
As part of the ADM JV agreement, a portion of costs incurred
by Igene related to production, research and development, those
related to the marketing of Aquasta(R), as well as those
expenditures related to general and administrative functions of
the ADM JV are considered expenditures of the ADM JV and
therefore will be reimbursed by the ADM JV. For the six months
ended June 30, 2010, the ADM JV reimbursed Igene $1,213,051,
$982,806 for research and development expenditures, $200,245 for
marketing expenditures, and $30,000 for general and
administrative expenditures.
-10-
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 satisfied its debt to Tate &
Lyle.
Interest expense
Interest expense for the quarters ended June 30, 2010 and
2009 was $2,935 and $9,030, respectively, a decrease of $6,095 or
67%. For the six months ended June 30, 2010 and 2009, interest
expense was $11,101 and $17,901, respectively, a decrease of
$6,800 or 38%. This interest expense (net of interest income) is
attributable Igene's long-term financing from its directors and
other stockholders and interest on Igene's subordinated and
convertible debentures.
Net loss and basic and diluted net loss per common share
As a result of the foregoing, the Company recorded
comprehensive losses of $813,141 and $547,822, respectively, for
the quarters ended June 30, 2010 and 2009, which is an increase
in the loss of $265,319 or 48%. This represents a loss of $0.00
and $0.00 per basic and diluted common share in each of the
quarters ended June 30, 2010 and 2009, respectively. The Company
reported comprehensive loss of $1,368,548 and comprehensive
income of $196,918, respectively, for the six months ended June
30, 2010 and 2009. This represents loss of $0.00 and income of
$0.00 per basic and diluted common share in each of the six
months ended June 30, 2010 and 2009, respectively. The weighted
average number of shares of common stock outstanding of
1,565,404,297 and 1,518,503,841 for the quarter ended June 30,
2010 and 2009 respectively, has increased by 46,900,456 shares.
The weighted average number of shares of common stock outstanding
of 1,563,123,082 and 1,518,503,841 for the six months ended June
30, 2010 and 2009 respectively, has increased by 44,619,241
shares. The increase in outstanding shares resulted mainly from
the shares issued in connection with the repurchase of employee
stock options.
Financial Position
During the six months ended June 30, 2010 and 2009, in
addition to the matters previously discussed, the following
actions also materially affected the Company's financial
position:
o For 2010 most operating activity occurred at the ADM JV and
effects to cash were minimal, cash position decreased by
$317,841 during the six months ended June 30, 2010, the
leading factor in this was advances to the ADM JV of
$244,844, decreases in prepaid expenses and other assets
and increases in accounts payable combined to offset this
by $69,620; and
o Decreases in inventory for the six months ended June 30,
2009 of $2,358,892 were 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
$3,562 and $3,546 in 2010 and 2009, respectively,
reflecting cumulative unpaid dividends on redeemable
preferred stock.
-11-
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, 2010, total dividends in arrears on
Igene's preferred stock total $154,985 ($13.92 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 its stockholders. At June 30,
2010, Igene had working capital of $882,525, and cash and cash
equivalents of $977,381.
Cash used by operating activities during the six-month
period ended June 30, 2010 equaled $302,440 as compared to cash
provided by operating activities of $168,038 for the six-month
period ended June 30, 2009.
Cash used by investing activities during the six-month
period ended June 30, 2010 and 2009 equaled $7,112 and $195,863,
respectively, resulting from the purchase and sale of equipment
and advances to the ADM JV.
No cash was used or provided by financing activities during
the first six months of 2010 or 2009.
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 Aquasta(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 six-month periods
ended June 30, 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 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.
-12-
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 2009, we had identified the
following material weaknesses which still exist as of June 30,
2010 and through the date of this report.
1. As of June 30 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-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 June 30, 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 June 30, 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 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, 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, 2010, total dividends in arrears on
Igene's preferred stock total $154,985 ($13.92 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
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 August 13, 2010 By /S/ STEPHEN F. HIU
_______________ _____________________________________
STEPHEN F. HIU
President
(principal executive officer)
Date August 13, 2010 By /S/ EDWARD J. WEISBERGER
_____________________________________
EDWARD J. WEISBERGER
Chief Financial Officer
(principal financial officer)
-16-