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) OFTHE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF
THE EXCHANGE ACT
For the transition period from ___________ to _____________
Commission file number 000-15888
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 1,565,404,297 shares of common stock, par value $.01,
_________________________________________________________________
issued and outstanding as of November 9, 2010.
_____________________________________________
(i)
FORM 10-Q
IGENE Biotechnology, Inc.
INDEX
PART I - FINANCIAL INFORMATION
Page
Consolidated Balance Sheets ................................... 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 .................................. 14-15
SIGNATURES ......................................................... 16
EXHIBIT INDEX ...................................................... 17
(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
September 30, December 31,
2010 2009
_______________ _______________
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 269,290 $ 1,295,222
Accounts receivable 1,929 1,929
Due from Naturxan 2,170,433 2,318,085
Prepaid expenses and other current assets 76 44,452
_______________ _______________
TOTAL CURRENT ASSETS 2,441,728 3,659,688
Property and equipment, net 746,964 852,894
5 year non-compete, net 69,289 92,386
Intellectual property 149,670 149,670
Other assets 5,125 5,125
_______________ _______________
TOTAL ASSETS $ 3,412,776 $ 4,759,763
=============== ===============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 517,118 $ 465,405
Guarantee in debt of Naturxan 1,612,500 1,094,502
_______________ _______________
TOTAL CURRENT LIABILITIES 2,129,618 1,559,907
LONG-TERM DEBT
Notes payable 363,874 363,874
Contingent liability on joint venture separation 5,000,000 5,000,000
Accrued interest 359,299 338,059
REDEEMABLE PREFERRED STOCK
Carrying amount of redeemable preferred stock, 8% cumulative,
convertible, voting, series A, $0.01 par value per share.
Stated value $22.08 and $21.60, respectively. Authorized
1,312,500 shares; issued and outstanding 11,134 shares. 245,839 240,494
_______________ _______________
TOTAL LIABILITIES 8,098,630 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
shares 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 (54,859,011) (52,871,515)
Other comprehensive income 52,469 58,256
_______________ _______________
TOTAL STOCKHOLDERS' DEFICIENCY (4,685,854) (2,742,571)
_______________ _______________
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 3,412,776 $ 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 Nine months ended
____________________________ ____________________________
September 30, September 30, September 30, September 30,
2010 2009 2010 2009
_____________ _____________ _____________ _____________
REVENUE
_______
Sales $ --- $ 1,115,789 $ --- $ 3,953,099
Cost of sales --- 461,471 --- 2,978,383
_____________ _____________ _____________ _____________
GROSS PROFIT --- 654,318 --- 974,716
LOSS OF JOINT VENTURE (530,061) (420,342) (1,618,782) (978,428)
_____________ _____________ _____________ _____________
OPERATING EXPENSES
__________________
Marketing and selling 79,553 97,780 431,460 284,164
Research and development 527,646 442,334 1,510,452 1,320,849
General and administrative 61,973 162,070 214,541 644,229
Operating expenses reimbursed by Joint Venture (573,731) (619,419) (1,786,782) ---
_____________ _____________ _____________ _____________
TOTAL OPERATING EXPENSES 95,441 82,765 369,671 722,986
_____________ _____________ _____________ _____________
OPERATING PROFIT (LOSS) (625,502) 151,211 (1,988,453) (726,698)
OTHER INCOME 8,500 --- 22,292 1,026,642
INTEREST EXPENSE (10,234) (36,403) (21,335) (54,304)
_____________ _____________ _____________ _____________
NET INCOME (LOSS) $ (627,236) $ 114,808 $ (1,987,496) $ 245,640
_____________ _____________ _____________ _____________
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign exchange translation 2,502 (8,716) (5,787) 57,370
TOTAL COMPREHENSIVE INCOME (LOSS) $ (624,734) $ 106,092 $ (1,993,283) $ 303,010
============= ============= ============= =============
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 1,553,572,701 1,564,488,546 1,530,321,918
============= ============= ============= =============
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 --- --- --- --- (5,787) (5,787)
Net loss for the nine months
ended September 30, 2010 --- --- --- (1,987,496) --- (1,987,496)
_____________ ___________ ___________ ______________ ______________ ______________
Balance at September 30, 2010 1,565,404,297 $15,654,043 $34,466,645 $ (54,859,011) $ 52,469 $ (4,685,854)
============= =========== =========== ============== ============== ==============
The accompanying notes are an integral part of the financial statements.
-3-
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended
______________________________
September 30, September 30,
2010 2009
_____________ _____________
Cash flows from operating activities
Net income (loss) $ (1,987,496) $ 245,640
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation 113,043 124,774
Increase in preferred stock for cumulative dividends
classified as interest 5,344 5,336
Advances to Joint Venture (953,132) (302,188)
Shares issued for services 50,000 ---
Amortization of customer contracts and non-compete 23,097 23,097
Loss of Joint Venture 1,618,782 978,428
Gain on forgiveness of debt --- (1,025,741)
Decrease (increase) in:
Accounts receivable --- 1,012,165
Inventory --- 2,398,521
Prepaid expenses and other current assets 44,376 (3,309)
Increase (decrease) in:
Accounts payable and accrued expenses 72,954 (2,884,801)
_____________ _____________
Net cash provided by (used in) operating activities (1,013,032) 571,920
_____________ _____________
Cash flows from investing activities
Purchase of equipment (7,461) (195,863)
Sale of equipment 348 ---
_____________ _____________
Net cash used in investing activities (7,113) (195,863)
_____________ _____________
Cash flows from financing activities
Net cash provided by financing activities --- ---
_____________ _____________
Gain (loss) due to currency translation (5,787) 57,370
Net increase (decrease) in cash and cash equivalents (1,025,932) 433,427
Cash and cash equivalents at beginning of period 1,295,222 1,488,011
_____________ _____________
Cash and cash equivalents at end of period $ 269,290 $ 1,921,438
============= =============
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 September 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 Aquasta(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 Joint Venture
Agreement was terminated. As part of the Separation
Agreement, Igene sold to Tate its 50% interest in the Joint
Venture and the Joint Venture sold to Igene its intellectual
property, inventory and certain assets and lab equipment
utilized by the Joint Venture, as well as Igene's subsidiary
in Chile. The purchase price paid by Tate to Igene for its
50% interest in the Joint Venture was 50% of the Joint
Venture's net working capital. The purchase price paid by
Igene for the inventory was an amount equal to 50% of the
Joint Venture's net working capital, the assumption of
various liabilities and the current market price of the
inventory, less specified amounts. In addition, Igene
agreed to pay to Tate an amount equal to 5% of Igene's gross
revenues from the sale of astaxanthin up to a maximum of
$5,000,000. Tate agreed for a period of five years not to
engage in the astaxanthin business.
On January 8, 2009, Igene entered into an agreement with
Archer-Daniels-Midland Company ("ADM") pursuant to which the
Company and ADM formed a joint venture (the "ADM JV") to
manufacture and sell astaxanthin and derivative products
throughout the world. Each of the Company and ADM has a 50%
ownership interest in the ADM JV and has equal
representation on the Board of Managers of the ADM JV.
-5-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
(continued)
(3) Noncash Investing and Financing Activities
During the nine months ended September 30, 2010 and 2009,
the Company recorded in each quarter dividends in arrears on
8% redeemable preferred stock accumulating at $.16 per share
aggregating to $5,344 and $5,336, respectively.
(4) Stockholders' Deficiency
As of September 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 September 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 period ended September 30, 2010 and 2009, are based on
1,565,404,297 and 1,553,572,701, respectively, of weighted
average common shares outstanding. Basic and diluted net
loss per common share for the nine-months ended September
30, 2010 and 2009, are based on 1,564,488,546 and
1,530,321,918, 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 September 30, 2010 and 2009,
potentially dilutive shares totaled 1,566,082,993 and
1,561,082,993, respectively.
(6) Going Concern
Igene has incurred net losses in each year of its existence,
aggregating approximately $54,859,000 from inception to
September 30, 2010 and as of September 30, 2010, Igene's
liabilities exceeded its assets by approximately $4,686,000.
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.
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
$2,170,433 due from Naturxan is for services provided by
Igene to the ADM JV. Excess losses over the Guarantee have
been offset against these service fees. 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 third 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 September 30, 2009 financials reflect the recording of 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 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.
(9) Issuance of Restricted Shares
On June 16, 2009, the Board of Directors of Igene approved a
repurchase of all 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.
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 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 September 30, 2009, Igene recorded
sales in the amounts of $1,115,789. For the nine months ended
September 30, 2009, Igene recorded sales in the amounts of
$3,953,099. 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 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.
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 September 30, 2009, Igene recorded
cost of sales in the amount of $461,471. This resulted in a
gross profit of $654,318, or 59%. For the nine months ended
September 30, 2009, Igene recorded cost of sales in the amount of
$2,978,383, or 38%. This resulted in a gross profit of $974,716,
or 25%. 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 September 30, 2010, Igene recorded a
loss from the ADM JV of $530,061. For the nine months ended
September 30, 2010, Igene recorded a loss from the ADM JV of
$1,618,782. 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 nine months ended September 30, 2010, revenues
from sales of product were $7,732,443. Cost of sales for the
nine month period ended September 30, 2010 were $7,533,201,
resulting in a gross profit of $199,242, or 3%. Expenses
recorded by the ADM JV were $3,436,805 resulting in a net loss of
$3,237,563 for the nine months ended September 30, 2010. Igene's
50% interest resulted in the $1,618,782 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 September 30, 2010 and 2009, Igene
recorded marketing and selling expense in the amount of $79,553
and $97,780, respectively, a decrease of $18,227 or 19%. For the
nine months ended September 30, 2010 and 2009, Igene recorded
marketing and selling expense in the amount of $431,460 and
$284,164, respectively, an increase of $147,296 or 52%. 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 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 new ADM JV and cash
flows from operations, to the extent available for such purposes.
During the nine months ended September 30, 2010, $231,330 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 September 30, 2010 and 2009, Igene
recorded research and development costs in the amount of $527,646
and $442,334, respectively, an increase of $85,312 or
approximately 19%. For the nine months ended September 30, 2010
and 2009, Igene recorded research and development costs in the
amount of $1,510,452 and $1,320,849, respectively, an increase of
$189,603 or 14%. Research and development costs have increased
as Igene works to support 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 nine months ended September 30, 2010, all of the research and
development cost was reimbursed by the ADM JV.
General and administrative expenses
General and administrative expenses for the quarter ended
September 30, 2010 and 2009 were $61,973 and $162,070,
respectively, a decrease of $100,097 or 62%. General and
administrative expenses for the nine months ended September 30,
2010 and 2009 were $214,541 and $644,229, respectively, a
decrease of $429,688 or 67%. 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
absorb 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. $45,000
of the 2010 general and administrative cost was reimbursed by the
ADM JV.
Expenses reimbursed by 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 nine months
ended September 30, 2010, the ADM JV reimbursed Igene $1,786,782,
$1,510,452 for research and development expenditures, $231,330
for marketing expenditures, and $45,000 for general and
administrative expenditures.
Other income
Igene had other income for the nine months ended September
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.
-10-
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Interest expense
Interest expense for the quarters ended September 30, 2010
and 2009 was $10,234 and $36,403, respectively, a decrease of
$26,169 or 72%. For the nine months ended September 30, 2010
and 2009, interest expense was $21,335 and $54,304, respectively,
a decrease of $32,969 or 61%. This interest expense (net of
interest income) is attributable to 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 loss of $624,734 and comprehensive income of
$106,092, respectively, for the quarters ended September 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 quarters ended
September 30, 2010 and 2009, respectively. The Company reported
comprehensive loss of $1,993,283 and comprehensive income of
$303,010, respectively, for the nine months ended September 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 nine months
ended September 30, 2010 and 2009, respectively. The weighted
average number of shares of common stock outstanding of
1,565,404,297 and 1,553,572,701 for the quarters ended September
30, 2010 and 2009, respectively, has increased by 11,831,596
shares. The weighted average number of shares of common stock
outstanding of 1,564,488,546 and 1,530,321,918 for the nine
months ended September 30, 2010 and 2009, respectively, has
increased by 34,166,628 shares. The increase in outstanding
shares resulted mainly from the shares issued in connection with
the repurchase of employee stock options, and shares issued for
services by Igene's manufacturing consultant (note 9).
Financial Position
__________________
During the nine months ended September 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 as a result of
activity related to the ADM JV, cash position decreased by
$1,013,032 during the nine months ended September 30, 2010,
the leading factor in this was advances to the ADM JV of
$953,132, decreases in prepaid expenses and other assets
and increases in accounts payable combined to offset this
by $117,330; and,
o Decreases in inventory for the nine months ended September
30, 2009 of $2,398,521 and accounts receivable of
$1,012,165 were a source of cash, offset by funds used to
decrease accounts payable and accrued expenses by
$2,884,801; and
o The carrying value of redeemable preferred stock was
increased and interest expense recorded in the amount of
$5,344 and $5,336 in 2010 and 2009, respectively,
reflecting cumulative unpaid dividends on redeemable
preferred stock.
In December 1988, as part of an overall effort to contain
costs and conserve working capital, Igene suspended payment of
the quarterly dividend on its preferred stock. Resumption of the
dividend will require significant improvements in cash flow.
Unpaid dividends cumulate for future payment or addition to the
liquidation preference or redemption value of the preferred
stock. As of September 30, 2010, total dividends in arrears on
Igene's preferred stock total $156,767 ($14.08 per share) and are
included in the carrying value of the redeemable preferred stock.
-11-
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Continued)
Liquidity and Capital Resources
_______________________________
Historically, Igene has been funded primarily by equity
contributions and loans from stockholders. As of September 30,
2010, Igene had working capital of $312,110, and cash and cash
equivalents of $269,290.
Cash used in operating activities during the nine-month
period ended September 30, 2010 equaled $1,013,032 as compared to
cash provided by operating activities of $571,920 for the nine-
month period ended September 30, 2009.
Cash used in investing activities during the nine-month
period ended September 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 nine 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
betwee 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 nine-month
periods ended September 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 September
30, 2010 and through the date of this report.
1. As of September 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 September 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 September 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 September 30, 2010, total dividends in arrears on
Igene's preferred stock total $156,767 ($14.08 per share) and are
included in the carrying value of the redeemable preferred stock.
Item 4. Removed and Reserved
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 November 15, 2010 By /S/ STEPHEN F. HIU
_________________ ___________________________________
STEPHEN F. HIU
President
(principal executive officer)
Date November 15, 2010 By /S/ EDWARD J. WEISBERGER
_________________ ___________________________________
EDWARD J. WEISBERGER
Chief Financial Officer
(principal financial officer)
-16-
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
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.
-17-