SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 2007
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-15888
IGENE Biotechnology, Inc.
(Name of Small Business Issuer in Its Charter)
Maryland 52-1230461
________________________________ ______________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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9110 Red Branch Road, Columbia, Maryland 21045
(Address of principal executive offices) (Zip Code)
(410) 997-2599
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which Registered
___________________ _________________________________________
None None
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Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock (par value $.01 per share)
(Title of class)
Check whether the issuer is not required to file reports
pursuant to Section 13 or 15(d) of the Exchange Act. [ ]
Check whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the
past 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 [ ]
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained in this form,
and no disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
YES [ ] NO [X]
State issuer's revenues for its most recent fiscal year
$2,286,730
State the aggregate market value of the voting and non-
voting common equity held by non-affiliates computed by reference
to the price at which the common equity was sold, or the average
bid and asked price of such common equity, as of a specified date
within the past 60 days. $1,012,436 as of April 11, 2008
(Note: The officers and directors of the issuer are considered
affiliates for purposes of this calculation.)
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest practicable
date.
As of April 11, 2008 there were 110,337,072 shares of the
issuer's common stock outstanding.
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CAUTIONARY STATEMENT 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," "TARGET," "INTEND" OR SIMILAR EXPRESSIONS, WE INTEND
TO IDENTIFY FORWARD-LOOKING STATEMENTS. YOU SHOULD NOT PLACE
UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK
ONLY AS OF THE DATE OF THIS REPORT. ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE INDICATED IN SUCH STATEMENT, DUE TO A
VARIETY OF FACTORS, RISKS AND UNCERTAINTIES INCLUDING, BUT NOT
LIMITED TO, COMPETITIVE PRESSURES FROM OTHER COMPANIES AND WITHIN
THE BIOTECH INDUSTRY, 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. IF ONE OR
MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR IF THE
UNDERLYING ASSUMPTIONS PROVE INCORRECT, OUR ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE EXPECTED OR PROJECTED. WE ASSUME NO
OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS IN ORDER TO
REFLECT ANY EVENT OR CIRCUMSTANCE THAT MAY ARISE AFTER THE DATE
OF THIS REPORT, OTHER THAN AS MAY BE REQUIRED BY APPLICABLE LAW
OR REGULATION.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
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 in Chile,
Igene Chile Comercial, Ltda. The subsidiary has a sales and
customer service office in Puerto Varas, Chile, and a product
warehouse in Puerto Montt, Chile.
In an effort to develop a dependable source of production,
on March 19, 2003, Tate & Lyle PLC ("Tate") and Igene announced
a 50:50 joint venture to produce AstaXin(R) for the aquaculture
industry, which we refer to as the "Joint Venture." Production
utilized Tate's fermentation capability together with the unique
technology developed by Igene. Part of Tate's existing citric
acid facility located in Selby, England, was modified to include
the production of this product. Tate's investment of
approximately $24,600,000 included certain of its facility assets
that were used in citric acid production. Igene's contribution
to the Joint Venture, including its intellectual property and its
subsidiary in Chile, was valued by the parties as approximately
equal to Tate's contribution. For accounting purposes Igene's
accounting contribution was valued at zero.
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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.
As a result of the Joint Venture termination, Igene is not
currently producing astaxanthin products, and is researching
several alternatives for a potential new source of production.
At the current pace, Igene expects to have inventories of
existing product necessary to meet demand through the third
quarter of 2008. Igene expects to be out of the market for an
uncertain period of time following the third quarter of 2008
until a new source of production can be identified, commence
operations and yield salable product.
Government Regulation
The manufacturing and marketing of most of the products
Igene has developed are, and will likely continue to be, subject
to regulation by various governmental agencies in the United
States, including the Food and Drug Administration ("FDA"), the
Department of Agriculture ("USDA"), the Environmental Protection
Agency ("EPA"), and comparable agencies in other countries.
Igene, as a matter of policy, requires that its products conform
to current Good Manufacturing Practices ("GMPs") (as defined
under the Federal Food, Drug and Cosmetic Act and the rules and
regulations thereunder) and Igene believes all of its products so
conform. The extent of any adverse governmental regulation that
might arise from future administrative or legislative action,
including current rules and regulations pertaining to the process
of GRAS (Generally Recognized as Safe) affirmations, cannot be
predicted.
In a notice published in the Federal Register on July 6,
2000, the FDA announced the amendment of its color additive
regulations to provide for the safe use of Phaffia yeast, such as
that in Igene's product, AstaXin(R), as a color additive in
aquaculture feeds. This ruling, which became effective August 8,
2000, allows Igene to market its product, AstaXin(R), for
aquaculture feeds and fish produced in, or imported into, the
United States. This ruling is available to the public in the
Federal Register. Igene has also previously obtained approval
for AstaXin(R) from the Canadian Food Inspection Agency (CFIA).
Additional foreign approval applications for AstaXin(R) have been
granted in the European Union.
In July 2000, Igene also obtained clearance from the FDA to
market AstaXin(R) as a human dietary supplement in the United
States. Scientific literature indicates that natural
astaxanthin, such as that in Igene's product, AstaXin(R), may
offer health benefits for humans due to its antioxidant
properties. The FDA notification and Igene's submissions are
available to the public from the FDA. Comparable agencies in the
European Union and other foreign countries may have their own
additional registration procedures. No additional applications
for approval of AstaXin(R) as a human nutritional supplement have
yet been submitted.
Igene has not incurred and does not anticipate any material
environmental compliance costs.
Research and Development
As of December 31, 2007, Igene had expended approximately
$17,253,000 on research and development since its inception on
October 27, 1981. The costs listed below for 2007 and 2006 were
reimbursed by the Joint Venture through October 31, 2007. Sales
of astaxanthin (through Igene and the Joint Venture) resulted in
revenues of $49,400,000 as of December 31, 2007, $39,500,000 of
which were realized through the Joint Venture. From November 1,
through December 31, 2007, $2,286,730 of this revenue was
recorded on the books of Igene. Igene will continue to incur
research and development costs in connection with improvements in
its existing processes and products, but it does not anticipate
development of new processes and products in 2008.
Research and development expenditures for each of the last
two years are as follows:
2007 $ 983,610
2006 $ 847,598
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Igene's research and development activities have resulted in
the development of processes to produce the products hereinafter
discussed.
Commercial Products
AstaXin(R)
AstaXin(R) is Igene's registered trademark for its dried
yeast product made from a proprietary strain of yeast developed
by Igene. AstaXin(R) is a natural source of astaxanthin, a
pigment which imparts the characteristic red color to the flesh
of salmon, trout, prawns and certain other types of fish and
shellfish. In the ocean, salmon and trout obtain astaxanthin
from krill and other planktonic crustaceans in their diet. A
krill and crustacean diet would be prohibitively expensive for
farm-raised salmonids. Without the addition of astaxanthin, the
flesh of such fish is a pale, off-white color, which is less
appealing to consumers expecting the characteristic "salmon-
colored" fish. Fish feeding trials in Europe, Asia, and North
and South America have demonstrated the efficacy of AstaXin(R) in
pigmenting fish. An estimated 1,000,000 metric tons of farm-
raised salmon are produced annually worldwide. The Joint Venture
derived revenue during 2007 and 2006 from sales of AstaXin(R),
the majority of which sales were to fish producers in the
aquaculture industry in Chile. Additional revenues were derived
from sales exported to the European Union, Japan and Canada, and
marketing efforts for AstaXin(R) are intended for Norway.
Marketing efforts are through Igene personnel to both farmers and
feed manufacturers.
Based on estimates of worldwide production of farm raised
salmon, Igene believes the market for astaxanthin as a color
additive in salmon feed exceeds $200,000,000 per year worldwide,
which would require approximately 10,000 metric tons of
AstaXin(R) to serve 100% of the market. A single competitor, who
produces a chemically synthesized product, presently controls
more than 80% of the world market for astaxanthin as a pigment
for aquaculture.
During 2001, Igene began investigating other possible
commercial uses of astaxanthin, including its application as a
human nutritional supplement. Igene has formulated natural
astaxanthin as a super-antioxidant, AstaXin(R), for the North
American dietary supplement market. Antioxidants are one of the
largest product categories in the health and nutrition industry.
Attempts to pursue this business have only been minimal.
Patents and Trademarks
It is Igene's policy to protect its intellectual property
rights by a variety of means, including applying for patents and
trademarks in the United States and in other countries. Igene
also relies upon trade secrets and improvements, un-patented
proprietary know-how and continuing technological innovation to
develop and maintain its competitive position. Igene places
restrictions in its agreements with third parties with respect to
the use and disclosure of any of its proprietary technology.
Igene also has internal nondisclosure safeguards, including
confidentiality agreements with employees and consultants.
All patents and trademarks are carefully reviewed and those
with no foreseeable commercial value are abandoned to eliminate
costly maintenance fees. Patents and trademarks on technology
and products with recognized commercial value, and which Igene is
currently maintaining, include those for AstaXin(R), have various
remaining lives ranging from 1 to 22 years.
Competition
Competitors in the biotechnology field in the United States
and elsewhere are numerous and include major chemical,
pharmaceutical and food companies, as well as specialized
biotechnology companies. Competition can be expected to increase
as small biotechnology companies continue to be purchased by
major multinational corporations with substantial resources.
Competition is also expected to increase with the introduction of
more diverse products developed by biotechnology firms,
increasing research cooperation among academic institutions and
large corporations, and continued government funding of research
and development activities in the biotechnology field, both in
the United States and overseas. Unlike the majority of
biotechnology companies, which are developing products
principally for the pharmaceutical industry, Igene has focused
its own activities on the development of proprietary products for
use in aquaculture and nutritional supplement industries. In the
future, however, competitors may offer products, that, by reason
of price, or efficacy, or more substantial resources for
technology advances, may be superior to Igene's existing or
future products.
-4-
A single large pharmaceutical company presently dominates
the market for astaxanthin pigment for aquaculture in which
Igene's product, AstaXin(R), is presently marketed and sold.
Igene believes that AstaXin(R), which is made from yeast, will
compete with this dominant producer, and other producers whose
products are chemically synthesized, based on its use of natural
ingredients. As consumers and producers of fish become more
aware of other alternatives, Igene believes that they will desire
natural ingredients, such as those in AstaXin(R).
Several companies are also known to be developing and
marketing other natural astaxanthin products. Some of these
companies' products are made from algae, while others are made
from yeast. Igene believes that AstaXin(R) will compete with
other companies' astaxanthin products which are made from algae,
due to Igene's higher production capacity and lower production
costs, but can provide no assurances in that regard. Igene
also believes that AstaXin(R) will compete with other companies'
astaxanthin products which are also made from yeast due to
Igene's proprietary process to disrupt yeast cell walls, which,
as studies have shown, makes AstaXin(R) more readily absorbed by
fish.
Igene is also beginning to explore the possible use of
AstaXin(R) as a human nutritional supplement. This market is
attractive because of potentially higher profit margins. Other
companies are known to also be developing and marketing
astaxanthin products for the human nutritional supplement market.
Igene cannot yet predict how competitive it would be in this
market.
With the termination of the Joint Venture, Igene has
undertaken the process of negotiating for new manufacturing
capacity. The Company estimates the current supply of AstaXin(R)
product will be sold by the fourth quarter of 2008. In finding a
new manufacturing facility, Igene will need to locate a
fermentation facility that will provide both a dependable and a
cost effective structure. Should Igene be able to accomplish
this, it would then need to reenter the market place.
Sources and Availability of Raw Materials
Raw materials used in the manufacture of AstaXin(R) consist
principally of agricultural commodities widely available in world
markets from many suppliers, which may be used interchangeably.
We do not anticipate material price fluctuations or changes in
availability in these raw materials in the near future, but can
provide no assurances in that regard.
Employees
At December 31, 2007, Igene had 18 full-time employees.
Five full-time employees are in administration and/or marketing,
while the remainder are engaged in research, process development
and support of manufacturing activities. Fourteen employees are
based in the U.S, and four are based in Chile. Igene also
utilizes various consultants on an as-needed or short-term basis.
None of Igene's employees are represented by a labor union
and Igene has experienced no work stoppages. Igene believes its
relations with its employees are satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY
Igene leases approximately 8,500 square feet of space in the
Oakland Ridge Industrial Park located at 9110 Red Branch Road,
Columbia, Maryland. Igene occupies the space under a lease
extension expiring on January 31, 2011. The approximate current
annual rental expense is $126,000. Approximately 2,000 square
feet of this space is used for executive and administrative
offices and approximately 2,500 feet is used for research and
development activities. The remaining 4,000 square feet of space
is used for Igene's intermediate-stage or scale-up pilot plant
facility.
Igene leases approximately 220 square feet of office space
in Puerto Varas, Chile to conduct marketing and technical support
activities by its full-time technical representatives. This
lease renews annually in December of each year unless terminated
by prior notice. Igene also leases warehouse space on a month-to-
month basis as needed for product storage in Chile.
Igene currently owns or leases sufficient equipment and
facilities for its research operations and all of this equipment
is in satisfactory condition and is adequately insured. There
are no current plans for improvement of this property. If
demand for Igene's product continues to increase, Igene plans to
lease additional warehouse space as needed in Chile.
-5-
ITEM 3. 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, except as
set forth below.
In connection with the issuance of convertible notes by
Igene in 2001 to each of NorInnova AS (formerly Forskningsparken
I Tromso AS), Knut Gjernes, Magne Russ Simenson and Nord Invest
AS (collectively, the "note holders"), which convertible notes
matured in November 2004, the note holders filed a compliant
against Igene in Circuit Court of Howard County, Maryland on
November 29, 2006 seeking payment of all outstanding amounts due
under the convertible notes. On February 23, 2007, Igene, paid
an aggregate amount of $762,638 to the note holders as settlement
of all claims related to the convertible notes. The complaint
was dismissed with prejudice on March 6, 2007.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
SECURITIES
Common Stock
Commencing on or about June 12, 1989, Igene's common stock
began trading on the over-the-counter market on a limited basis
and is quoted on the National Quotation Bureau's OTC "bulletin
board". The following table shows, by calendar quarter, the
range of representative bid prices for Igene's common stock for
2007 and 2006.
Calendar Quarter High Low
________________ ______ ______
2007: First Quarter $.0250 $.0200
Second Quarter $.0500 $.0200
Third Quarter $.0350 $.0200
Fourth Quarter $.0230 $.0100
2006: First Quarter $.1200 $.0400
Second Quarter $.1200 $.0360
Third Quarter $.0600 $.0250
Fourth Quarter $.0420 $.0090
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Igene obtained the above information through Pink Sheets,
LLC, a national quotation bureau. Such quotations reflect inter-
dealer prices without retail mark-up, mark-down, or commission,
and may not represent actual transactions. The above quotations
do not reflect the "asking price" quotations of the stock.
The approximate number of record holders of Igene's common
stock as of April 11, 2008 was 250. As of April 11, 2008, the
high bid and low offer prices for the common stock, as shown on
the "over-the-counter bulletin board" were $.020 and $.015,
respectively.
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Dividend Policy
When and if funds are legally available for such payment
under statutory restrictions, Igene may pay annual cumulative
dividends on the preferred stock of $.64 per share on a quarterly
basis. During 1988, Igene declared and paid a cash dividend of
$.16 per share on its preferred stock. In December 1988, Igene
suspended payment of the quarterly dividend of $.16 per share of
preferred stock. No dividends have been declared or paid since
1988. Any resumption of dividend payments on preferred stock
would require significant improvement in cash flow. Preferred
stock dividends are payable when and if declared by Igene's
board. Unpaid dividends accumulate for future payment or
addition to the liquidation preference and redemption price of
the preferred stock. As of December 31, 2007, total dividends in
arrears on Igene's preferred stock equaled $137,171 (or $12.32
per share) on Igene's Series A Preferred Stock and are included
in the carrying value of the Series A Preferred Stock.
Dividends on common stock are currently prohibited because
of the preferential rights of holders of preferred stock. Igene
has paid no cash dividends on its common stock in the past and
does not intend to declare or pay any dividends on its common
stock in the foreseeable future.
8% Notes
Pursuant to the terms of an Indenture dated as of March 31,
1998, as amended (the "Indenture") between Igene and American
Stock Transfer & Trust Company, as Trustee (the "Trustee"), Igene
issued and sold $5,000,000 of its 8% notes (the "8% Notes").
Concurrently with the issuance of the 8% Notes, Igene issued,
pursuant to a Warrant Agreement by and between Igene and American
Stock Transfer & Trust Company (the "Warrant Agent") dated as of
March 31, 1998, as amended (the "Warrant Agreement"), 50,000,000
warrants to purchase shares of Igene common stock for $.10 per
share expiring March 31, 2008. The warrant purchase price under
the Warrant Agreement was reduced to $.075 per share, and the
maturity date of the 8% Notes was extended to March 31, 2006, by
an amendment dated March 18, 2003 and approved by the requisite
number of holders of the securities.
On March 28, 2006, Igene and American Stock Transfer & Trust
Company, in its capacity as Trustee and Warrant Agent, entered
into a Second Amendment to Indenture, Securities, Warrant
Agreement and Warrant Certificates (the "Second Amendment") that
extended the maturity date of the 8% Notes to March 31, 2009, and
reduced the warrant price under the Warrant Agreement from $.075
to $.056 per share.
Securities Authorized for Issuance Under Equity Incentive Plans
Equity Compensation Plan Information as of December 31, 2007
Number of securities
remaining available for
future issuance under
Number of securities to Weighted-average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected in
Plan category warrants and rights warrants and rights column (a))
_____________ _______________________ _______________________ _______________________
(a) (b) (c)
Equity compensation 44,845,000 $.059 27,387,334
plans approved by
security holders<F1>
Equity compensation --- --- ---
plans not approved by
security holders
_______________________ _______________________ _______________________
TOTAL 44,845,000 $.059 27,387,334
_______________________ _______________________ _______________________
<F1> Includes Igene's 2001 Stock Incentive Plan, 1997 Stock
Option Plan and 1986 Stock Option Plan (collectively, the
"Plans").
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Sales of Unregistered Securities
During the first quarter of 2006, Igene's manufacturing
agent, Fermic, earned 545,569 shares of common stock as part of
the manufacturing agreement between Igene and Fermic. Fermic
earns 2,250 shares of common stock for each kilogram of pure
astaxanthin produced and delivered, up to 20,000,000 shares, as
part of the manufacturing agreement. The average price is based
on the market value of the shares at the time the product was
produced. The 545,569 shares were earned at an average price of
$.056 per share for 2006. Through December 31, 2006, all
20,000,000 shares have been earned under the manufacturing
agreement. Igene relied on the exemption from registration
provided under Section 4(2) of the Securities Act of 1933, as
amended, to issue the shares to Fermic. Igene relied on the
representations and warranties of Fermic made in the
manufacturing agreement in claiming the aforementioned exemption,
including the representation that Fermic is an "accredited
investor" as defined in Rule 501 of Regulation D promulgated
under the Securities Act of 1933, as amended.
On September 30, 2006, Igene issued 1,000,000 shares of
common stock to the Joint Venture's new Vice President of
Manufacturing, Joseph Downs, as part of his agreement in
accepting the position. The cost was expensed in the third
quarter 2006 as payroll expense, at a cost of $0.05 per share,
for a total expense of $50,000. The shares of common stock were
issued pursuant to the exemption from registration provided under
Section 4(2) of the Securities Act, as Mr. Downs is an executive
of the Company.
On October 15, 2007, Mr. Monahan, Igene's Vice-President,
Secretary and Director of Manufacturing, was issued 1,000,000
shares of Igene's common stock, valued at $21,000, in connection
with his employment with, and services to, Igene. The shares of
common stock were issued pursuant to the exemption from
registration provided under Section 4(2) of the Securities Act,
as Mr. Monahan is an executive officer of the Company.
Default Upon Senior Securities
As previously stated in Igene's quarterly report on Form 10-
QSB for the third quarter of 2001 filed on November 13, 2001,
Igene entered into Convertible Promissory Notes (the "Convertible
Notes") with each of the following note holders for the following
respective amounts (a) NorInnova AS (formerly Forskningsparken I
Tromso AS) for $106,500; (b) Knut Gjernes for $7,500; (c) Magne
Russ Simenson for $378,000; and (d) Nord Invest AS for $313,000.
Each of the Convertible Notes had a maturity date of November 1,
2004. On November 18, 2005, each of the holders of Convertible
Notes provided Igene with written notice of default under each of
the Convertible Notes.
On November 29, 2006, holders of the Convertible Notes filed
a complaint against Igene in the Circuit Court of Howard County,
Maryland seeking payment of all outstanding amounts due under the
Convertible Notes. On February 23, 2007, Igene, paid $762,638
to the Convertible Note holders as settlement of all claims
related to the Convertible Notes. The complaint was dismissed
with prejudice on March 6, 2007.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
Certain statements in this report set forth management's
intentions, plans, beliefs, expectations or predictions of the
future based on current facts and analyses. Actual results may
differ materially from those indicated in such statements, due to
a variety of factors including competitive pressures from other
companies and within the biotech industry, economic conditions in
Igene's primary markets, exchange rate fluctuations, reduced
product demand, increased competition, unavailability of
production 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 Igene's Securities and Exchange Commission (the "SEC")
filings.
Results of Operations
On March 19, 2003, Igene entered into a Joint Venture
Agreement with Tate & Lyle Fermentation Products Ltd., a
subsidiary of Tate & Lyle PLC ("Tate") pursuant to which Igene
and Tate agreed to form a joint venture (the "Joint Venture") to
manufacture, market and sell astaxanthin and derivative products
throughout the world for all uses other than as a nutraceutical
or otherwise for direct human consumption. Tate contributed
$24,600,000 to the Joint Venture, which included certain of its
facility assets previously used in citric acid production, while
-8-
Igene transferred to the Joint Venture its technology relating to
the production of astaxanthin and assets related thereto. The
initial value of Igene's investment in the Joint Venture had been
recorded at an amount equal to the book value of Igene's
consideration contributed at the creation of the Joint Venture.
As the cost of Igene's technology and intellectual property had
been previously expensed and had a carrying amount of zero, the
investment in the Joint Venture had been recorded with a book
value of $316,869, which represents the unamortized production
costs contributed to the Joint Venture. In addition, Igene also
contributed $6,000 to the capital of the Joint Venture. Sales
and cost of sales activity were recorded as part of the
operations of the unconsolidated venture.
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 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 the Chilean sales subsidiary. The purchase price paid
by Tate to Igene for its 50% interest 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.
As a result of the Joint Venture termination, Igene is now
researching several alternatives for a potential new source of
production. At the current pace, Igene expects to have
inventories of existing product necessary to meet demand through
the third quarter of 2008. Igene expects to be out of the market
for an uncertain period of time following the third quarter of
2008 until a new source of production can be identified, commence
operations and yield salable product.
As a result of the Joint Venture, the production, sales and
marketing of astaxanthin through October 2007 took place through
the unconsolidated Joint Venture. From inception on March 18,
2003 through the Joint Venture's final reporting on September 30,
2007, Igene's portion of the Joint Venture's net loss was
$21,826,251. The loss was a result of a 50% interest in the
following: Gross profit from inception was a negative
$21,304,462 on sales of $38,380,752, less manufacturing cost of
$59,685,214. Selling and general and administrative expenses
were $16,542,813, and interest expense was $5,805,227. The
resulting loss was $43,652,502. Igene's 50% portion of the Joint
Venture loss was $21,826,251.
Because Igene accounted for its investment in the Joint
Venture under the equity method of accounting, it would
ordinarily recognize a loss representing its 50% equity interest
in the loss of the Joint Venture. However, losses in the Joint
Venture are recognized only to the extent of the Investment In
and Advances To the Joint Venture. Losses in excess of this
amount were suspended from recognition in the financial
statements and were carried forward to offset Igene's share of
the Joint Venture's future income, if any.
At September 30, 2007, prior to the recognition of its
portion of the Joint Venture loss, Igene's investment in the
Joint Venture consisted of $322,869 and its net advances to the
Joint Venture amounted to $1,007,888, for a total of $1,330,757.
Through December 31, 2006, Igene recognized $1,491,981 of the
$15,922,400 loss, which existed as part of the Joint Venture. In
the first six months of 2007, the balances of the funds due to
Igene were reduced by a net repayment of $258,628, representing
the June 30, 2007 balance of $1,233,353. For the three months
ended September 30, 2007, Igene recognized a loss from the
advance for that period of $97,404. This advance decreased the
additional suspended loss of $1,293,769 for the quarter. The
cumulative suspended loss at September 30, 2007 was $20,495,494
and it was sold as part of the termination of the Joint Venture.
Sales and other revenue
As part of the Joint Venture Agreement, all sales of
AstaXin(R) prior to October 31, 2007 were recognized through the
Joint Venture. Therefore, Igene recorded no sales during 2006 or
in 2007 prior to October 31, 2007. During November and December
of 2007, Igene recorded sales of $2,286,730. Sales had been
limited in past years due to insufficient production quantity and
are expected to decline to zero sometime during the third quarter
of 2008 and remain negligible until a source of production can be
identified and production begins. Igene is currently researching
various alternatives for future production but has not yet
engaged any new source of production. Management believes that
this decision is of fundamental importance to Igene and continues
to seek an appropriate production partner.
-9-
Cost of sales and gross profit
As with sales revenue, beginning July 2003 through October
31, 2007, cost of sales and gross profit were recognized through
the Joint Venture. Therefore, Igene recorded no cost of sales or
gross profit during 2006 or in 2007 prior to October 31, 2007.
During November and December of 2007, Igene recorded cost of
sales of $1,681,632. This resulted in a gross profit for the
period of $605,098, or 26%. The increase in gross profit is due
mainly to the discount in which the product was purchased at the
conclusion of the Joint Venture. With the termination of the
Joint Venture, there can be no assurance of the continued
dependability of production. As a result, future cost of sales
is expected to increase through the third quarter of 2008,
whereupon sales, and cost of sales, are expected to be negligible
until a source of production can be identified and commencement
of production cannot be predicted and no assurances can be
provided. Igene is currently researching various alternatives
for future production.
Expenses reimbursement by Joint Venture
As part of the Joint Venture Agreement, costs incurred by
Igene related to production, research and development, as well as
those related to the marketing of AstaXin(R), and most of the
general and administrative expenses, were considered costs of the
Joint Venture and therefore were reimbursed by the Joint Venture.
We do not expect to receive any further reimbursements following
the October 2007 termination of the Joint Venture. Therefore,
all expenses incurred by Igene are expected to be funded by cash
flows from operations, to the extent available for such purposes.
We do not expect cash flows from operations to continue beyond
the third quarter of 2008 unless and until a source of production
is identified and production begins. During 2007, prior to the
termination of the Joint Venture, costs reimbursed by the Joint
Venture totaled $1,576,701. The reimbursement covered $49,216 of
marketing costs, $861,108 of research and development costs and
$666,377 of general and administrative costs. For the year ended
December 31, 2006, costs reimbursed by the Joint Venture totaled
$1,660,519. Of the reimbursement received, approximately
$848,000 covered research and development costs, $98,000 covered
marketing and selling expenses and approximately $715,000 covered
general and administrative costs.
Marketing and selling expenses
Marketing and selling expenses for 2007 were $158,104, an
increase of $59,864, or 61%, from the marketing and selling
expenses of $98,240 for 2006. As a result of the termination of
the Joint Venture with Tate, Igene has reassumed the marketing
and selling of salable product with a corresponding increase in
selling expenses, and Igene will continue marketing of the
product while reviewing and developing future sources of
production. As a result it is expected this figure will increase
as it is only representative of marketing efforts for less than
one quarter of 2007. Prior to October 2007, all marketing and
selling expenses incurred by Igene as part of the Joint Venture
had been reimbursed by the Joint Venture. After October 2007,
these expenses are expected to be funded by cash flows from
operations, to the extent available for such purposes. However,
we do not expect cash flows from operations to continue beyond
the third quarter of 2008 unless and until a source of production
is identified and production begins. Prior to the termination of
the Joint Venture, costs reimbursed by the Joint Venture for
marketing costs totaled $49,216 during 2007, and $98,000 for the
year ended December 31, 2006.
Research, development and pilot plant expenses
Research, development and pilot plant expenses for 2007 and
2006 were $983,610 and $847,598, respectively, reflecting an
increase of $136,012 or 16%. Costs are expected to be maintained
at this level to support increasing the efficiency of the
manufacturing process through experimentation in Igene's pilot
plant, undertaken in an attempt to develop higher yielding
strains of yeast and other improvements in Igene's AstaXin(R)
technology. Igene is hoping this will lead to a reduced cost for
salable product marketed by Igene when production resumes.
However, no assurances can be made in that regard. Prior to
October of 2007, all research and development expenses incurred
by Igene as part of the Joint Venture had been reimbursed by the
Joint Venture. After October 2007 these expenses are expected to
be funded by cash flows from operations, to the extent available
for such purposes. However, we do not expect cash flows from
operations to continue beyond the third quarter of 2008 unless
and until a source of production is identified and production
begins. Prior to the termination of the Joint Venture, costs
reimbursed by the Joint Venture related to research and
development totaled $861,108 during 2007, and $848,000 for the
year ended December 31, 2006.
-10-
General and administrative expenses
General and administrative expenses for 2007 decreased by
$49,086, or 5%, from 2006 (from $1,022,051 to $972,965). These
costs are expected to remain at the current 2007 level. Prior to
October 2007, all general and administrative expenses incurred
related to research and sales of product by Igene as part of the
Joint Venture, had been reimbursed by the Joint Venture. After
October 2007 these expenses are expected to be funded by cash
flows from operations, to the extent available for such purposes.
However, we do not expect cash flows from operations to continue
beyond the third quarter of 2008 unless and until a source of
production is identified and production begins. Prior to the
termination of the Joint Venture, costs reimbursed by the Joint
Venture related to general and administrative expenses totaled
$666,377 during 2007 and $715,000 for the year ended December 31,
2006.
Interest expense (net of interest income)
Interest expense for 2007 and 2006 was $2,160,638 and
$2,029,928 respectively, an increase of $130,710 or 6%. This
interest expense (net of interest income) was composed of
interest on Igene's long term financing from its directors and
other stockholders and interest on Igene's subordinated and
convertible debentures, as well as amortization of discount on
Igene's notes and debentures of $1,406,780 for 2007 and
$1,276,137 for 2006. The expense recorded for 2007 and 2006 was
reduced by interest income of $50,581 and $77,982 respectively.
Gain on Disposal
During 2007, Igene sold equipment it had determined would
not be of use in future operations and recorded a gain on
disposal of $5,692. This is a onetime occurrence.
Net loss and basic and diluted net loss per common share
As a result of the foregoing results of operations, Igene
reported a net loss of $1,899,073 for 2007 and a net loss of
$2,431,910 for 2006. This resulted in a net loss of $.02 per
basic common share for 2007 based on a weighted average of common
stock outstanding of 109,679,538. As of December 31, 2007,
potentially dilutive shares totaled 378,227,265, and were not
considered in the computation as the result of the loss as the
effect would be anti-dilutive. For the fiscal year 2006, the
result was a net loss per basic and diluted common share of $.02
based on a weighted average of common stock outstanding of
108,387,454.
Financial Position
During 2007 and 2006, the following also affected Igene's
financial position:
- Increases in accounts payable and accrued expenses of
$3,569,050, and a decrease in inventory of $1,814,157 were
sources of cash. This allowed for increases in accounts
receivable of $3,698,884.
- During 2006, decreases in accounts receivable and prepaid
expenses and other assets of $14,619 and $27,419,
respectively, and increases in accounts payable and accrued
expenses of $899,534 were sources of cash.
Since 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 December 31, 2007, total dividends in arrears on
Igene's Series A preferred stock equaled $137,171 (or $12.32 per
share) and are included in the carrying value of the preferred
stock.
Liquidity and Capital Resources
Historically, Igene has been funded primarily by equity
contributions and loans from directors and stockholders. As of
December 31, 2007, Igene had working capital of $3,940,737, and
cash and cash equivalents of $1,026,350.
-11-
Cash provided by operating activities in 2007 was $1,202,644
as compared to cash provided of $100 in 2006.
Cash used by investing activities in 2007 was $255,080 as
compared to $109,147 used by investing activities in 2006.
Cash provided by financing activities was $57,000 in 2007 as
compared to cash provided by financing activities of $11,088
during 2006.
Over the next twelve months, Igene believes it will need
additional working capital. Part of this funding is expected to
be received from sales of AstaXin(R), resulting in increased cash
through the third quarter of 2008. Thereafter sales are expected
to decline to zero and remain negligible until a source of
production is identified and production begins. 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.
Igene does not believe that inflation had a significant
impact on its operations during 2007 and 2006.
Off-Balance Sheet Arrangements
Igene has no off-balance sheet arrangements that are
reasonably likely to have a current or future effect on its
financial position, revenues, results of operations, liquidity or
capital expenditures.
Critical Accounting Policies
The preparation of our financial statements in conformity
with accounting principles generally accepted in the United
States (or "GAAP") requires management to make judgments,
assumptions and estimates that affect the amounts reported in our
financial statements and accompanying notes. Actual results
could differ materially from those estimates. The following are
critical accounting policies important to our financial condition
and results of operations presented in the financial statements
and require management to make judgments and estimates that are
inherently uncertain:
The inventories are stated at the lower of cost or market.
Cost is determined using a weighted-average approach, which
approximates the first-in first-out method. If the cost of the
inventories exceeds their expected market value, provisions are
recorded for the difference between the cost and the market
value. Inventories consist of currently marketed products.
Revenue from product sales are recognized when there is
persuasive evidence that an arrangement exists, delivery has
occurred, the price is fixed and determinable, and collectibility
is reasonably assured. Allowances are established for estimated
uncollectible amounts, product returns and discounts.
The Joint Venture was accounted for under the equity method
of accounting as Igene had a 50% ownership interest.
Igene did not recognize the loss of the Joint Venture beyond
the investment and advances to the Joint Venture. This excess
loss was sold as part of the termination of the Joint Venture.
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements follow Part III of
this Annual Report on Form 10-KSB and are hereby incorporated by
reference.
-12-
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND
FINANCIAL DISCLOSURE
As of January 11, 2008, Igene dismissed J.H. Cohn LLP
("Cohn") as its independent registered public accounting firm as
approved by the Audit Committee of the Board of Directors. Igene
had appointed Cohn as its registered public accounting firm in
May 2007 after Igene's then-current registered public accounting
firm combined its business with Cohn and thereafter no longer
existed as a separate accounting firm.
The audit report issued by Cohn on the consolidated
financial statements of Igene as of and for the years ended
December 31, 2006 and 2005, included in Igene's amended annual
report on Form 10-KSB/A filed on December 21, 2007, did not
contain an adverse opinion or a disclaimer of opinion, and was
not qualified or modified, as to uncertainty, audit scope or
accounting principles, except as follows:
Cohn's report contains an explanatory paragraph.
The paragraph states that the Company has suffered
recurring losses from operations since inception and
has a working capital deficiency that raises
substantial doubt about its ability to continue as a
going concern. The consolidated financial
statements do not include any adjustments that might
result from the outcome of that uncertainty.
During the years ended December 31, 2006 and 2005 and the
interim period through January 11, 2008, the date of their
dismissal, there have been no disagreements between Igene and
Cohn on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of Cohn,
would have caused Cohn to make reference to the subject matter
thereof in its report on Igene's consolidated financial
statements for such periods other than as described below.
There was a disagreement related to Igene's initial
accounting for warrants issued in connection with certain debt
that arose in connection with Cohn's review of Igene's quarterly
report on Form 10-QSB for the quarterly period ended June 30,
2007. The accounting treatment was discussed with the Audit
Committee of the Board of Directors and resolved to the
satisfaction of Cohn. As a result, Igene restated the financial
statements included in its annual report on Form 10-KSB for the
year ended December 31, 2006, and the Form 10-QSB for the three
months ended March 31, 2007. Igene has authorized Cohn to
respond fully to the inquiries of Igene's new registered public
accounting firm, McElravy, Kinchen &Associates, P.C. ("McElravy")
if any, concerning the matter.
During the years ended December 31, 2006 and 2005 and the
interim period through January 11, 2008, Cohn did not advise
Igene of any reportable event under Item 304(a)(1)(v) of
regulation S-K other than as follows: In connection with their
audit of Igene's consolidated financial statements for the years
ended December 31, 2006 and 2005, Cohn advised Igene's management
and the Audit Committee of the Board of Directors of Igene that
Igene did not have the internal controls necessary for the non-
routine recording of warrants issued in connection with certain
of our debt obligations.
Igene appointed McElravy as its new independent registered
public accounting firm effective as of January 15, 2008. The
selection of McElravy was approved by the Audit Committee of the
Board of Directors of Igene on January 15, 2008.
ITEM 8A(T). CONTROLS AND PROCEDURES
Evaluation of Disclosure 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.
-13-
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 prevent all
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.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rule 13a-15(f) under the Exchange Act. Our management assessed
the effectiveness of our internal control over financial
reporting as of December 31, 2007. In making this assessment, our
management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission ("COSO") in
Internal Control-Integrated Framework. A material weakness is a
deficiency, or a combination of deficiencies, in internal control
over financial reporting, such that there is a reasonable
possibility that a material misstatement of the company's annual
or interim financial statements will not be prevented or detected
on a timely basis. We have identified the following material
weaknesses.
1. As of December 31, 2007, we did not maintain effective
controls over the control environment. Specifically, we
have not formally adopted a written code of business conduct
and ethics that governs the Company's employees, officers
and directors. Additionally, we have not developed and
effectively communicated to our employees its accounting
policies and procedures. This has resulted in inconsistent
practices. Further, the Board of Directors does not
currently have any independent members and no director
qualifies as an independent audit committee financial expert
as defined in Item 407(d)(5)(ii) of Regulation S-B. Since
these entity level programs have a pervasive effect across
the organization, management has determined that these
circumstances constitute a material weakness.
2. As of December 31, 2007, we did not maintain effective
controls over financial statement disclosure. Specifically,
controls were not designed and in place to ensure that all
disclosures required were originally addressed in our
financial statements. Accordingly, management has determined
that this control deficiency constitutes a material weakness.
3. As of December 31, 2007, 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.
Because of these material weaknesses, management has concluded
that the Company did not maintain effective internal control over
financial reporting as of December 31, 2007, based on the
criteria established in "Internal Control-Integrated Framework"
issued by the COSO.
This annual report does not include an attestation report of the
Company's registered public accounting firm regarding internal
control over financial reporting. Management's report was not
subject to attestation by the Company's registered public
accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only
management's report in this annual report.
Changes in Internal Control Over Financial Reporting
No change in the Company's internal control over financial
reporting occurred during the quarter ended December 31, 2007,
that materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
-14-
ITEM 8B. OTHER INFORMATION
None.
-15-
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL
PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT
Igene's directors are elected annually by the stockholders
of Igene; however, no annual meeting of stockholders was held in
2007. The directors, executive officers and key employees of
Igene as of December 31, 2007 are as follows:
Name Age Position with Igene
__________________________ _____ __________________________
Michael G. Kimelman 69 Chairman of the Board of
Directors<F1>
Thomas L. Kempner 80 Vice Chairman of
the Board of Directors<F2>
Stephen F. Hiu 51 Director, President, Chief
Technical Officer,
and Director of Research
and Development
Patrick F. Monahan 57 Director, Vice-President,
Secretary, and Director
of Manufacturing
Sidney R. Knafel 77 Director<F2>
Edward J. Weisberger 43 Chief Financial Officer
<F1> Member of the Audit Committee of the Board of Directors
<F2> Member of the Finance Committee of the Board of Directors
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Each of our directors was elected for a one-year term at Igene's
most recent annual meeting, held in July of 2006, and because no
annual stockholder meeting was held in 2007, is currently
holding-over from his prior term. Our officers serve at the
discretion of the Board of Directors and until their respective
successors are elected and qualified.
MICHAEL G. KIMELMAN has served as a director of Igene and as
Chairman of the Board of Directors since 1991. At that time and
through the present, he has been a founder and member of Kimelman
& Baird, LLC. Mr. Kimelman also serves on the Board and the
Executive Committee of the Hambletonian Society.
THOMAS L. KEMPNER is Vice Chairman of the Board of Directors and
has been a director of Igene since its inception in 1981. He
also has been Chairman and Chief Executive Officer of Loeb
Partners Corporation, investment bankers, New York, and its
predecessors since 1978. Mr. Kempner is currently a director of
CCC Information Services Group, Inc., Dyax Corporation, Fuel Cell
Energy, Inc., Insight Communications Co., Inc., and
Intermagnetics General Corp and Intersections, Inc. He is also a
director emeritus of Northwest Airlines, Inc.
STEPHEN F. HIU has served as Chief Technical Officer since 2002,
and has served as President and Treasurer of Igene since 1999.
Mr. Hiu was elected a director in August 1990 and he has been the
Director of Research and Development since January 1989 and,
prior thereto, was Senior Scientist since December 1985, when he
joined Igene. Mr. Hiu was a post-doctoral Research Associate at
the Virginia Polytechnic Institute and State University,
Blacksburg, Virginia, from January 1984 until December 1985. Dr.
Hiu holds a Ph.D. degree in microbiology from Oregon State
University and a B.S. degree in biological sciences from the
University of California, Irvine.
PATRICK F. MONAHAN has served as Vice-President since 2002, and
as Director of Manufacturing and as a director of Igene since
1991. Mr. Monahan has also served as Secretary of Igene since
September 1998 and has managed Igene's fermentation pilot plant
since 1982. He received an Associate of Arts degree in biology
from Allegheny Community College and a B.S. degree in biology
with a minor in Chemistry from Frostburg State College,
Frostburg, Maryland.
-16-
SIDNEY R. KNAFEL has served as a director of Igene since 1982.
He has also been Managing Partner of SRK Management Company, a
private investment company located in New York City, since 1981
and has served as Chairman of Insight Communications, Inc. since
1985. Mr. Knafel is also currently a director of General
American Investors Company, Inc. as well as a number of private
companies.
EDWARD J. WEISBERGER has served as Chief Financial Officer of
Igene since 2001. He is a CPA with multiple years of financial
experience in the public and private sectors with both smaller
and Fortune 100 companies.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on a review of the Section 16(a) reports filed
with the SEC and written representations provided to Igene by its
officers and directors, and holders of more than ten percent of
any class Igene's registered securities, Igene believes that
during fiscal year 2007, all filing requirements applicable to
its reporting officers, directors and greater than ten percent
beneficial owners were timely satisfied except one delinquent
Form 4 filing by Thomas L. Kempner resulting in four transactions
being untimely reported, and one delinquent Form 4 filing by
Michael Kimelman in transactions being untimely reported.
Code of Ethics
Due to the size of Igene and its current operations, Igene has
not adopted a code of ethics for its principal executive and
financial officers. Igene's board of directors will revisit this
issue in the future to determine if adoption of a code of ethics
is appropriate. In the meantime, Igene's management intends to
promote honest and ethical conduct, full and fair disclosure in
its reports to the SEC, and compliance with applicable
governmental laws and regulations.
Corporate Governance
The Audit Committee of the Board of Directors is comprised
of one member: Michael G. Kimelman. Mr. Kimelman is an audit
committee financial expert as defined in Item 407(d)(5)(ii) of
Regulation S-B. Under the Nasdaq Marketplace Rules, in addition
to satisfying the independent director requirements under Rule
4200 of such rules, audit committee members must also meet the
criteria for independence set forth in Rule 10A-3(b)(1) under the
Exchange Act (subject to the exemptions provided in Rule 10A-
3(c)): they must not accept any consulting, advisory, or other
compensatory fee from the company other than for board service,
and they must not be an affiliated person of the company. Mr.
Kimelman is not considered independent under the audit committee
standards of the Nasdaq Marketplace Rules.
ITEM 10. EXECUTIVE COMPENSATION
The following tables show the compensation paid or accrued
by Igene to each of the three officers (the "named executive
officers"). During 2007, no directors were compensated for their
Board or Committee activities. Other than the 1986, 1997 and
2001 Stock Incentive Plans and the Simple Retirement Plan
described below, Igene has no profit sharing or incentive
compensation plans.
Summary Compensation Table
All Other
Name and Compensation
Principal Position Year Salary($)<F1> Stock Awards($) ($)<F2> Total($)
_______________________ ______ ____________ ________________ ____________ ____________
Stephen Hiu 2007 $ 153,886 $ 0 $ 6,396 $ 160,282
President
2006 142,580 0 6,575 149,155
-17-
All Other
Name and Compensation
Principal Position Year Salary($)<F1> Stock Awards($) ($)<F2> Total($)
_______________________ ______ ____________ ________________ ____________ ____________
Patrick Monahan 2007 137,914 10,000<F3> 5,968 153,882
Vice-President,
Secretary and 2006 129,965 0 5,838 135,803
Director of
Manufacturing
Edward Weisberger 2007 132,793 0 5,712 138,505
Weisberger Chief
Financial Officer 2006 125,817 0 5,750 131,567
<F1> Gross Salary of the named executive officers listed.
<F2> Includes annual taxable compensation for health insurance
premium and employer match of 401(k).
<F3> Includes issuance of 1,000,000 shares of Igene common stock
at $.01 per share value based on current stock price in
addition to restriction and blockage discounts.
|
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information concerning the
outstanding equity awards of each of the named executive officers
as of December 31, 2007. All options reflected on the table are
fully vested.
Number of Securities
Underlying
Unexercised Options Option Exercise Option Expiration
Name (#)Exercisable Price ($/Share) Date
_____________________ ____________________ _______________ _________________
Stephen Hiu 2,000,000 $ .10 04/16/2008
2,000,000 .05 01/19/2010
45,000 .065 01/02/2011
4,800,000 .025 08/13/2012
5,000,000 .10 06/25/2014
Patrick Monahan 1,050,000 .10 04/16/2008
1,317,500 .05 01/19/2010
2,900,000 .025 08/13/2012
2,000,000 .10 06/25/2014
Edward Weisberger 2,500,000 .05 12/01/2011
500,000 .10 06/25/2014
1,500,000 .027 12/09/2015
|
Retirement Plans
Effective February 1, 2004, Igene discontinued use of the
Simple Retirement Plan and began use of a 401(k)
savings/retirement plan, or 401(k) Plan. The 401(k) Plan permits
Igene's eligible employees to defer annual compensation, subject
to limitations imposed by the Internal Revenue Code. All
employees that have been employed for six months are eligible
for the plan. The plan permits elective contributions by Igene's
eligible employees based under the Internal Revenue Code, which
are immediately vested and non-forfeitable upon contribution to
the 401(k) Plan. Effective January 1, 2004, Igene made an
elective contribution, subject to limitations, of 4% of each
eligible employee's compensation for each year. Igene's
contributions to the plan for 2007 and 2006 were $28,392 and
$25,996, respectively, which is expensed in the statement of
operations.
-18-
Life Insurance Plans
Igene provides life insurance benefits to its employees that
in the event of an employee's death would pay to the employee's
beneficiary two times the employee's annual salary, up to
$150,000.
Severance Benefit
In cases where a termination of employment is initiated by
Igene for economic reasons (e.g. reduction in force,
reorganization or position elimination), it is Igene's policy
that the terminated employee will receive one week of severance
at base pay for each year of service, up to a maximum of 12
weeks.
Compensation of Directors
None of Igene's directors were compensated for their
services during fiscal 2007. Directors Hiu and Monahan received
compensation in their capacities as officers of Igene, as
reported in the Summary Compensation Table above.
Stock Option Plans
Igene currently maintains three stock incentive plans.
Igene's 2001 Stock Incentive Plan (the "2001 Plan"), which was
approved by Igene's stockholders on June 12, 2001, authorized for
issuance restricted stock and options to purchase up to
55,000,000 shares of common stock. Igene's 1997 Stock Option
Plan (the "1997 Plan"), which was approved by Igene's
stockholders on November 17, 1997, authorized for issuance
options to purchase up to 20,000,000 shares of common stock.
Igene's 1986 Stock Option Plan (the "1986 Plan"), which was
approved by Igene's stockholders on May 5, 1987, authorized for
issuance options to purchase up to 97,000 shares of common stock
(the 2001 Plan, the 1997 Plan and the 1986 Plan are collectively
referred to herein as the "Plans"). A committee of the Board of
Directors administers the Plans.
The purpose of the Plans is to further the long-term
stability and financial success of Igene by attracting and
retaining employees and consultants through the use of stock-
based incentives, and to provide non-employee members of the
Board of Directors with an additional incentive to promote the
success of Igene. It is believed that ownership of Igene common
stock will stimulate the efforts of those employees, consultants
and non-employee directors upon whose judgment and interests
Igene is and will be largely dependent upon the successful
conduct of its business. It is also believed that incentive
awards granted to employees under these Plans will strengthen
their desire to remain employed with Igene and will further the
identification of employees' interests with those of Igene.
Options are exercisable at such rates and times as may be
fixed by the committee. Options also become exercisable in full
upon (i) the holder's retirement on or after his 65th birthday,
(ii) the disability or death of the holder, or (iii) under other
circumstances as determined by the committee. Options generally
terminate on the tenth business day following cessation of
service as an employee, director, consultant or independent
contractor.
Options may be exercised by payment in full of the option
price in cash or by check, or by delivery of previously-owned
shares of common stock having a total fair market value on the
date of exercise equal to the option price, or by such other
methods as permitted by the committee.
The Plans contain anti-dilution provisions in the event of
certain corporate transactions.
The Board of Directors may at any time withdraw from, or
amend, the Plans and any options not heretofore granted.
Stockholder approval is required to (i) increase the number of
shares issuable under the Plans, (ii) increase the number of
options which may be granted to any individual during a year,
(iii) or change the class of persons to whom options may be
granted. No options shall be granted under the 2001 Plan after
April 30, 2011. Igene maintains the 1997 Plan and the 1986 Plan,
but additional options may no longer be granted under those
plans.
Options to acquire 47,612,666 shares of common stock have
been granted under Plans and 44,845,000 options are still
outstanding under the Plans as of December 31, 2007. No options
or restricted awards were granted during 2007 and 2006.
-19-
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information as of March 17,
2008 with respect to beneficial ownership of shares of Igene's
outstanding common stock by (i) each person known to Igene to own
or beneficially own more than five percent of its common stock or
preferred stock, (ii) each director of Igene, and (iii) each
named executive officer, and (iv) all directors and executive
officers as a group. On March 17, 2008 there were 110,337,072
shares of common stock issued and outstanding. Shares of common
stock subject to options or warrants currently exercisable or
exercisable within 60 days of March 17, 2008 are deemed
outstanding for computing the share ownership and percentage of
the person holding such options and warrants, but are not deemed
outstanding for computing the percentage of any other person. No
shares of preferred stock are beneficially owned by the persons
listed below.
Common Stock
__________________________________
Number of
Name and Address Shares Percent *
_____________________________ _______________ ______________
Directors and officers
______________________
Stephen F. Hiu 14,993,633<F1> 12.07
9110 Red Branch Road
Columbia, MD 21045
Thomas L. Kempner 147,804,528<F2> 61.53
61 Broadway
New York, NY 10006
Michael G. Kimelman 50,197,723<F3> 31.52
100 Park Avenue
New York, NY 10017
Sidney R. Knafel 145,777,554<F4> 61.27
810 Seventh Avenue
New York, NY 10019
Patrick F. Monahan 9,315,033<F5> 7.92
9110 Red Branch Road
Columbia, MD 21045
Edward J. Weisberger 4,570,000<F6> 3.98
9110 Red Branch Road
Columbia, MD 21045
All Directors and Officers 372,658,471<F7> 84.25
as a Group (6 persons)
Others
______
Joseph C. Abeles 17,954,407<F8> 14.23
220 E. 42nd Street
New York, NY 10017
Fraydun Manocherian 7,905,135<F9> 7.13
3 New York Plaza
New York, NY 10004
Fermic 20,000,000<F10> 18.13
Col. San Nicolas Tolentino
Iztapalapa 09850 Mexico, D.F.
-20-
<F1> Includes 1,148,633 shares held directly or indirectly by
Dr. Hiu and 13,845,000 shares issuable upon exercise of options
held by Dr. Hiu that are currently exercisable.
<F2> Includes 17,933,110 shares held directly or indirectly by
Mr. Kempner and 536,920 shares issuable upon exercise of
warrants held by Mr. Kempner that are currently exercisable.
Also includes 43,800,135 shares issuable upon conversion of
notes issued by Igene and held by Mr. Kempner. Also includes
(i) 41,582,728 shares issuable upon exercise of warrants held by
a trust under which Mr. Kempner is one of two trustees and the
sole beneficiary, which are currently exercisable (ii)
41,561,125 shares issuable upon exercise of warrants held by a
trust under which Mr. Kempner is one of two trustees and one of
his brothers is the sole beneficiary, which are currently
exercisable (iii) 2,079,411 shares issuable upon exercise of
warrants held by trusts under which Mr. Kempner is one of two
trustees and is a one-third beneficiary that are currently
exercisable, and (iv) 81,120 shares and 229,979 shares issuable
upon exercise of warrants held by trusts under which Mr. Kempner
is executer and is a one-third beneficiary that are currently
exercisable.
<F3> Includes 1,264,360 shares held directly or indirectly by Mr.
Kimelman, and 14,000,000 shares issuable upon exercise of
options, 17,680,341 shares issuable upon the conversion of notes
issued by Igene, and 17,253,022 shares issuable upon exercise of
warrants, all of which are held by Mr. Kimelman and are
currently exercisable.
<F4> Includes 18,190,551 shares held directly or indirectly by
Mr. Knafel, 42,619,509 shares issuable upon the conversion of
notes issued by Igene and held by Mr. Knafel and 84,967,494
shares issuable upon the exercise of warrants owned or
beneficially owned by Mr. Knafel that are currently exercisable.
<F5> Includes 2,047,533 shares held directly or indirectly by
Mr. Monahan and 7,267,500 shares issuable upon the exercise
of options held by Mr. Monahan that are currently exercisable.
<F6> Includes 70,000 shares held directly by Mr. Weisberger and
4,500,000 shares issuable upon exercise of options that are
currently exercisable.
<F7> Includes 42,863,601 shares of common stock, 39,612,500
shares issuable upon exercise of options that are currently
exercisable, 110,823,687 shares issuable upon the conversion of
notes issued by Igene and 197,313,091 shares issuable upon the
exercise of warrants that are currently exercisable.
<F8> Includes the following: 2,128,294 shares held directly or
indirectly by Mr. Abeles, 6,723,701 shares issuable upon the
conversion of $311,663 of long-term notes issued by Igene, and
9,102,412 shares issuable upon exercise of warrants held by Mr.
Abeles that are currently exercisable.
<F9> Includes 7,375,935 shares of common stock owned directly or
indirectly by Mr. Manocherian and 529,200 shares issuable upon
the exercise of warrants owned directly or indirectly by Mr.
Manocherian that are currently exercisable.
<F10> Includes 20,000,000 shares of common stock.
|
Equity Incentive Plans
The information set forth under the caption "Securities
Authorized for Issuance Under Equity Incentive Plans" under Item
5 of this Annual Report on Form 10-KSB is hereby incorporated by
reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
Certain Relationships and Related Transactions
In order to provide Igene with sufficient funds to settle
the litigation with the holders of the convertible notes issued
by Igene in 2001, on February 15, 2007, Igene issued and sold an
aggregate principal amount of $762,000 in 5% convertible
debentures, $381,000 to each of Thomas Kempner and Sidney Knafel,
directors of Igene. These debentures are convertible into shares
of Igene's common stock at $0.02 per share based on the offer
made to the original debenture holders as the market price of
Igene's shares as of February 2007. As of April 15, 2008 these
debentures have accrued $44,450 of interest, and no payments have
been made.
-21-
In order to provide Igene with working capital as the
inventory received from the Joint Venture is sold and the
receivables are collected, on December 12, 2007, Igene issued and
sold an aggregate principal amount of $300,000 in 8.5% secured
notes, $150,000 to each of Thomas Kempner and Sidney Knafel.
These notes are secured by the accounts receivable of Igene. As
of April 12, 2008 these notes have accrued $8,500 of interest,
and no payments have been made.
Director Independence
Since Igene is not a listed company, it has determined to
apply rule 4200(a)(15) of the Nasdaq Marketplace Rules to
determine independence of its directors. Based on such rule,
Igene has determined that none of its directors are deemed to be
independent and that, accordingly, its sole member of its audit
committee, Michael G. Kimelman, is not independent.
-22-
ITEM 13. EXHIBITS
Exhibits filed herewith or incorporated by reference herein
are set forth in the following table prepared in accordance with
Item 601 of Regulations S-B.
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.
4.1 Form of Variable Rate Convertible Subordinated Debenture
Due 2002 (Class A), constituting Exhibit 4.4 to the
Registration Statement No. 33-5441 on Form S-1 filed
with the SEC on May 6, 1986, is hereby incorporated by
reference.
4.2 Form of Indenture by and between the Registrant and
American Stock Transfer and Trust Company, as Trustee,
dated as of March 31, 1998, constituting Exhibit 4.2 to
the Registration Statement No. 333-41581 on Form SB-2/A
filed with the SEC on January 23, 1998, is hereby
incorporated by reference.
4.3 Warrant Agreement by and between the Registrant and
American Stock Transfer and Trust Company, as Warrant
Agent, dated as of March 31, 1998, constituting Exhibit
4.3 to the Registration Statement No. 333-41581 on Form
SB-2/A filed with the SEC on January 23, 1998, is hereby
incorporated by reference.
|
4.4 First Amendment to Indenture, Securities, Warrant
Agreement and Warrant Certificates by and between
Registrant and American Stock Transfer and Trust Company
dated as of March 18, 2003, constituting Exhibit 10.11
to the Quarterly Report on Form 10-QSB filed with the
SEC on May 14, 2003, is hereby incorporated by reference.
4.5 Second Amendment to Indenture, Securities, Warrant
Agreement and Warrant Certificates by and between
Registrant and American Stock Transfer and Trust Company
dated as of March 28, 2006, constituting Exhibit 4.5 to
the Annual Report on Form 10-KSB filed with the SEC on
April 13, 2006, is hereby incorporated by reference.
10.1 Form of Conversion and Exchange Agreement used in May
1988 in connection with the conversion and exchange by
certain holders of shares of preferred stock for common
stock and Warrants, constituting Exhibit 10.19 to the
Registration Statement No. 33-5441 on Form S-1 filed
with the SEC on May 6, 1986, is hereby incorporated by
reference.
10.2 Preferred Stockholders' Waiver Agreement dated May 5,
1988, constituting Exhibit 10.3 to the Registration
Statement No. 33-23266 on Form S-1 filed with the SEC on
July 22, 1988, is hereby incorporated by reference.
10.3 Form of Agreement between the Registrant and Certain
Investors in Preferred Stock dated September 30, 1987,
constituting Exhibit 10.4 to the Registration Statement
No. 33-23266 on Form S-1/A, is hereby incorporated by
reference.
10.4 Agreement of Lease between Columbia Warehouse Limited
Partnership and the Registrant effective December 15,
1995, constituting Exhibit 10.13 to the Annual Report
on Form 10-KSB filed with the SEC on April 12, 1996, is
hereby incorporated by reference.
10.5 First Amendment to Lease between the Registrant and Red
|
Branch Center, LLC made September 13, 2000,
constituting Exhibit 10.8 to the Annual Report on Form
10-KSB filed with the SEC on April 2, 2001, is hereby
incorporated by reference.
-23-
10.6 Separation Agreement between the Registrant and
Tate & Lyle Fermentation Products Ltd. dated as of
October 31, 2007, constituting Exhibit 10.1 to the
Current Report on Form 8-K filed with the SEC on
November 6, 2007, is hereby incorporated by reference.
21.1 Subsidiaries*
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
ITEM 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES
REGISTERED PUBLIC ACCOUNTANTS
The accounting firm of McElravy, Kinchen & Assosicates, P.C.
("McElravy") has been engaged to audit the financial statements
of Igene for the fiscal year 2008. McElravy served as Igene's
registered public accountants to audit the financial statements
for 2007. J.H. Cohn LLP originally served as the auditor in 2007
and served as Igene's registered public accountants to audit the
restated financial statements in 2006 and 2005. Berenson LLP
originally served as the auditor in 2006 and 2005; however, in
May 2007, J.H. Cohn LLP acquired Berenson LLP in a transaction
that was structured as an asset sale. Each of J.H. Cohn LLP and
McElravy has advised Igene that neither the accounting firm nor
any of its members of associates has any direct financial
interest in or any connection with the Company other than as
independent public auditors.
AUDIT FEES AND SERVICES
The following table shows the fees paid or accrued by the
Company for the audit and other services provided by McElravy and
J.H. Cohn LLP for fiscal year 2007, and by J. H. Cohn LLP for
fiscal year 2006:
FY 2007 FY 2006
________ ________
Audit Fees $ 33,000 $100,844
Audit-Related Fees 0 0
Tax Fees 0 5,000
All Other Fees 0 0
________ ________
TOTAL $ 33,000 $105,844
|
Audit services provided by McElravy and J.H. Cohn LLP for
fiscal year 2007, and by J. H. Cohn LLP for fiscal year 2006
consisted of the audit of the consolidated financial statements
of Igene and quarterly reviews of financial statements. "Tax
Fees" include charges primarily related to tax return preparation
and tax consulting services. In 2003, the SEC adopted a rule
pursuant to the Federal Sarbanes-Oxley Act of 2002 that, except
with respect to certain de minimis services discussed below,
requires Audit Committee pre-approval of audit and non-audit
services provided by Igene's independent auditors. All of the
2006 services described above were pre-approved by the Audit
Committee pursuant to this SEC rule to the extent that rule was
applicable during fiscal year 2006.
-24-
The Audit Committee's policy is to pre-approve all audit and
permitted non-audit services, except that de minimis non-audit
services, as defined in Section 10A(i)(1) of the Exchange Act,
may be approved prior to the completion of the independent
auditor's audit. The Audit Committee has reviewed summaries of
the services provided and the related fees and has determined
that the provision of non-audit services is compatible with
maintaining the independence of Berenson LLP.
-25-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
IGENE Biotechnology, Inc.
Columbia, Maryland
We have audited the accompanying consolidated balance sheet of
IGENE Biotechnology, Inc. as of December 31, 2007 and the related
consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits. The financial statements for the
period January 1, 2006 through December 31, 2006, were audited by
other auditors whose reports expressed unqualified opinions on
those statements.
We conducted our audits in accordance with standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company's internal control over
financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of IGENE Biotechnology, Inc. as of December 31, 2007 and the
results of its operations and cash flows for the periods
described above in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in Note 13 to the financial statements, the Company has suffered
recurring losses from operations which raises substantial doubt
about its ability to continue as a going concern. Management's
plans regarding those matters also are described in Note 13. The
consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/S/ McElravy, Kinchen & Associates, P.C.
________________________________________
McElravy, Kinchen & Associates, P.C.
|
www.mkacpas.com
Houston, Texas
April 28, 2008
-26-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Audit Committee and Stockholders
IGENE Biotechnology, Inc.
We have audited the accompanying consolidated statements of
operations, stockholders' deficiency and cash flows of IGENE
Biotechnology, Inc. and subsidiary for the year ended December
31, 2006. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the results of
operation and cash flows of IGENE Biotechnology, Inc. and
subsidiary for the year ended December 31, 2006, in conformity
with accounting principles generally accepted in the United
States of America.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in Note 13 to the consolidated financial statements, the
Company's recurring losses, and limited capitalization raise
substantial doubt about its ability to continue as a going
concern. Management's plans regarding those matters are also
described in Note 13. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
/S/ J. H. COHN LLP
___________________________
J. H. COHN LLP
New York, New York
December 11, 2007
|
-27-
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Balance Sheet
December 31, 2007
ASSETS
______
CURRENT ASSETS
Cash and cash equivalents $ 1,026,350
Accounts receivable 2,718,884
Inventory 8,059,777
Prepaid expenses and other current assets 38,351
______________
TOTAL CURRENT ASSETS 11,843,362
Property and equipment, net 713,493
5 year non-compete 153,977
Customer contracts 233,658
Intellectual property 149,670
Other assets 5,125
______________
TOTAL ASSETS $ 13,099,285
==============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
________________________________________
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 7,902,625
______________
TOTAL CURRENT LIABILITIES 7,902,625
LONG-TERM DEBT
Notes payable (Net of unamortized discount) 4,643,449
Convertible Debentures (Net of unamortized discount) 3,244,664
Contingent Liability on Joint Venture Separation 5,000,000
Accrued interest 6,442,076
REDEEMABLE PREFERRED STOCK
Carrying amount of redeemable preferred stock, 8% cumulative,
convertible, voting, series A, $.01 par value per share.
Stated value $20.32 per share. Authorized 1,312,500 shares;
issued and outstanding 11,134 shares. Redemption amount
$226,243. 226,243
______________
TOTAL LIABILITIES 27,459,057
______________
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Common stock -- $.01 par value per share. Authorized
750,000,000 shares; issued and outstanding 110,337,072 shares 1,103,371
Additional paid-in capital 33,276,687
Accumulated deficit (48,739,830)
______________
TOTAL STOCKHOLDERS' DEFICIENCY (14,359,772)
______________
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 13,099,285
==============
|
The accompanying notes are an integral part of the consolidated
financial statements.
-28-
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Statements of Operations
Years ended December 31,
2007 2006
_____________ _____________
REVENUE
_______
Sales $ 2,286,730 $ ---
Cost of sales 1,681,632 ---
_____________ _____________
GROSS PROFIT 605,098 ---
EQUITY IN REPAID ADVANCES (LOSS) OF JOINT VENTURE 170,821 (109,147)
_____________ _____________
OPERATING EXPENSES
__________________
Marketing and selling 158,104 98,240
Research, development and pilot plant 983,610 847,598
General and administrative 972,965 1,022,051
Less expenses reimbursed by Joint Venture (1,576,701) (1,660,519)
_____________ _____________
TOTAL OPERATING EXPENSES 537,978 307,370
_____________ _____________
OPERATING PROFIT (LOSS) 237,941 (416,517)
GAIN ON DISPOSAL 5,692 ---
OTHER INCOME 17,932 14,535
INTEREST EXPENSE (net of interest income of $50,581 for 2007,
$77,982 for 2006) (including amortization of debt discount
of $1,406,780 for 2007, $1,276,137 for 2006) (2,160,638) (2,029,928)
_____________ _____________
NET GAIN (LOSS) $ (1,899,073) $ (2,431,910)
============= =============
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.02) $ (0.02)
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING 109,679,538 108,387,454
============= =============
|
The accompanying notes are an integral part of the consolidated
financial statements.
-29-
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Statements of Stockholders' Deficiency
Years ended December 31, 2007 and 2006
Common Stock Additional Total
____________________________ Paid-in Accumulated Stockholders'
# Shares Amount Capital Deficit Deficiency
_____________ _____________ _____________ _____________ _____________
Balance at January 1, 2006 107,456,869 $ 1,074,569 $ 29,968,765 $(44,408,847) $(13,365,513)
Conversion of redeemable
preferred stock into common stock 14,750 148 141,452 --- 141,600
Conversion of warrants 7,884 79 709 --- 788
Shares issued to VP of Manufacturing 1,000,000 10,000 40,000 --- 50,000
Additional paid-in capital
as part of debt issuance --- --- 3,082,676 --- 3,082,676
Shares issued for employee stock
incentive program 312,000 3,120 7,180 --- 10,300
Shares issued for manufacturing
agreement 545,569 5,455 24,905 --- 30,360
Net loss for 2006 --- --- --- (2,431,910) (2,431,910)
_____________ _____________ _____________ _____________ _____________
Balance at December 31, 2006 109,337,072 $ 1,093,371 $ 33,265,687 $(46,840,757) $(12,481,699)
Shares issued to Director of Manufacturing 1,000,000 10,000 11,000 --- 21,000
Net loss for 2007 --- --- --- (1,899,073) (1,899,073)
_____________ _____________ _____________ _____________ _____________
Balance at December 31, 2007 110,337,072 $ 1,103,371 $ 33,276,687 $(48,739,830) $(14,359,772)
============= ============= ============= ============= =============
|
The accompanying notes are an integral part of the consolidated
financial statements.
-30-
IGENE Biotechnology, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Years ended December 31,
2007 2006
_____________ _____________
CASH FLOWS FROM OPERATING ACTIVITIES
____________________________________
Net loss $ (1,899,073) $ (2,431,910)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Amortization of debt discount 1,406,780 1,276,137
Depreciation 12,438 16,488
Gain on disposal of equipment (5,692) ---
Issuance of common stock for Director of Manufacturing 21,000 ---
Issuance of common stock for VP of Manufacturing --- 50,000
Manufacturing cost paid in shares of common stock --- 30,360
Increase in preferred stock for cumulative dividend
classified as interest 7,126 8,306
Equity in (repaid advances) loss of unconsolidated joint venture 107,821 109,147
Decrease (increase) in:
Accounts receivable (3,698,884) 14,619
Inventory 1,814,157 ---
Prepaid expenses and other assets (24,258) 27,419
Increase (decrease) in:
Accounts payable and other accrued expenses 3,569,050 899,534
_____________ _____________
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,310,465 100
_____________ _____________
CASH FLOWS FROM INVESTING ACTIVITIES
____________________________________
Cash proceed from sale of property and equipment 20,000 ---
Cash used for purchase of property and equipment (275,080) ---
Recoupment of payment (advances) to joint venture (107,821) (109,147)
_____________ _____________
NET CASH USED IN INVESTING ACTIVITIES (362,901) (109,147)
_____________ _____________
CASH FLOWS FROM FINANCING ACTIVITIES
____________________________________
Proceeds from issuance of convertible debentures 762,000 ---
Repayment of convertible debentures (705,000) ---
Proceeds from exercise of employee stock options --- 10,300
Repayment from exercise of warrants --- 788
_____________ _____________
NET CASH PROVIDED BY FINANCING ACTIVITIES 57,000 11,088
_____________ _____________
NET DECREASE IN CASH AND CASH EQUIVALENTS 1,004,564 (97,959)
CASH AND CASH EQUIVALENTS - BEGINNING OF THE YEAR 21,786 119,745
_____________ _____________
CASH AND CASH EQUIVALENTS - END OF THE YEAR $ 1,026,350 $ 21,786
============= =============
SUPPLEMENTARY DISCLOSURE AND CASH FLOW INFORMATION
__________________________________________________
Cash paid during the year for interest $ 57,637 $ 35,250
Cash paid during the year for income taxes --- ---
NON-CASH TRANSACTIONS
_____________________
Exchange of assets and liabilities of joint venture partner $ 9,325,521 $ ---
|
The accompanying notes are an integral part of the consolidated
financial statements.
-31-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2007 and 2006
(1) Summary of Significant Accounting Policies
Nature of Operations
Igene Biotechnology, Inc. ("Igene") was incorporated under
the laws of the State of Maryland on October 27, 1981 as
"Industrial Genetics, Inc." Igene changed its name to "IGI
Biotechnology, Inc." on August 17, 1983 and to "Igene
Biotechnology, Inc." on April 14, 1986. Igene is located in
Columbia, Maryland and has an operational subsidiary in
Chile and through February 2003 had a subsidiary in Norway.
Igene was formed 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 fermentation technology, pharmacology, nutrition and
health in its marketing of products and applications
worldwide.
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 an effort to develop a dependable source of production,
on March 19, 2003, Tate & Lyle and Igene announced a 50:50
joint venture to produce AstaXin(R) for the aquaculture
industry. Production utilized Tate & Lyle's fermentation
capability together with the unique technology developed by
Igene. Part of Tate & Lyle's existing Selby, England, citric
acid facility was modified to include the production of
1,500 tons per annum of astaxanthin.
On October 31, 2007, the Joint Venture with Tate & Lyle was
terminated. Igene is currently reviewing alternative
sources for future production.
Principles of Consolidation
The accounts of our other wholly-owned subsidiary, Igene
Chile, are included in the consolidation of these financial
statements. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and cash equivalents
Igene considers cash equivalents to be short-term, highly
liquid investments that have original maturities of less
than 90 days. These include interest bearing money market
accounts.
Accounts Receivable
Accounts receivable are stated at the amount management
expects to collect from the outstanding balances.
Management provides for probable uncollectible amounts
through a charge to earnings and a credit to a valuation
allowance based upon its assessment of the current
collection status of individual accounts. Delinquent
amounts that are outstanding after management has conducted
reasonable collection efforts, are written off through a
charge to the valuation allowance and a credit to accounts
receivable. Management has determined no allowance was
necessary as of December 31, 2007.
Research and development costs
For financial reporting purposes, research, development and
pilot plant scale-up costs are charged to expense as
incurred consistent with FASB statement number 2.
-32-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2007 and 2006
Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation and amortization computed using the straight-
line method. Premises and equipment are depreciated over
the useful lives of the assets, which generally range from
three to ten years for furniture, fixtures and equipment,
three to five years for computer software and hardware.
Leasehold improvements are amortized over the terms of the
respective leases or the estimated useful lives of the
improvements, whichever is shorter. The cost of major
renewals and betterments are capitalized, while the costs of
ordinary maintenance and repairs are expensed as incurred.
Estimates
The preparation of financial statements in conformity with
accounting principles generally acceptable in the United
States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Foreign Currency Translation and Transactions
Since the day-to-day operations of Igene's foreign
subsidiary in Chile are dependent on the economic
environment of the parent's currency, the financial position
and results of operations of Igene's foreign subsidiary are
determined using Igene's reporting currency (U.S. dollars)
as the functional currency. All exchange gains and losses
from remeasurement of monetary assets and liabilities that
are not denominated in U.S. dollars are recognized currently
in income.
Fair value of financial instruments
The carrying amounts of cash and cash equivalents, accounts
receivable, accounts payable, and short-term debt
approximate fair value because of the relatively short
maturity of these instruments. Management believes the
carrying amount of long-term debt approximates fair value
because of similar current rates at which Igene could borrow
funds with consistent remaining maturities.
Accounting for stock-based compensation
Effective January 1, 2006, Igene began recording
compensation expense associated with stock options and other
forms of equity compensation in accordance with Statement of
Financial Accounting Standards (SFAS) 123R, "Share-Based
Payment," as interpreted by SEC Staff Accounting Bulletin
No. 107. Prior to January 1, 2006, Igene had accounted for
stock options according to the provisions of APB Opinion No.
25, "Accounting for Stock Issued to Employees," and related
interpretations, and therefore no related compensation
expense was recorded for awards granted with no intrinsic
value. Igene adopted the modified prospective transition
method provided for under SFAS 123R, and, consequently, has
not retroactively adjusted results from prior periods.
Stock issued to employees is recorded at the fair value of
the shares granted based upon the closing market price of
Igene's stock at the measurement date and recognized as
compensation expense over the applicable requisite service
period. Warrants granted to non-employees are recorded at
the estimated fair value of the options granted using the
Black-Scholes pricing model and recognized as general and
administrative expense over the applicable requisite service
period.
-33-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2007 and 2006
Credit Risk
Igene does not require collateral from its customers with
respect to accounts receivable but performs periodic credit
evaluations of such customers' financial conditions. Igene
determines any required allowance by considering a number of
factors including lengths of time accounts receivable are
past due and previous loss history. Igene provides reserves
for accounts receivable when they become uncollectible, and
payments subsequently received on such receivables are
credited to the allowance for doubtful accounts.
Igene's cash may exceed FDIC protection levels at different
points throughout the year; management believes the risk
associated with this possible exposure is minimal. Igene was
within FDIC protection limits at December 31, 2007.
Long-Lived Assets
Statement of Financial Accounting Standards (SFAS) 144,
"Accounting for the Impairment or Disposal of Long-Lived
Assets" requires that long-lived assets, including certain
identifiable intangibles, be reviewed for impairment
whenever events or changes in circumstances indicate that
the carrying value of the assets in question may not be
recoverable.
Statement of Financial Accounting Standards (SFAS) 142
"Goodwill and Other Intangible Assets" provides that some
intangible assets are not subject to periodic amortization,
but are evaluated at least annually for impairments. After a
review of the Company's historical cash flows it was
determined the Company cannot reasonably forecast future
cash flows. Igene received a valuation of its tangible and
intangible assets held December 31, 2007 and has recorded
the values based on the received valuation.
Inventories
Inventories consist of finished goods, and are stated based
on the valuation received at the close of the separation of
the Joint Venture. Inventory is tracked by specific lot
number.
Income Taxes
Igene utilizes the asset and liability method in accounting
for income taxes. Under this method, deferred tax assets and
liabilities are recognized for operating loss and tax credit
carry forwards and for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the year in which those temporary
differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in
tax rates is recognized in the results of operations in the
period that includes the enactment date. A valuation
allowance is recorded to reduce the carrying amounts of
deferred tax assets unless it is more likely than not that
the value of such assets will be realized.
Revenue Recognition
Igene's revenue recognition policy is consistent with the
criteria set forth in Staff Accounting Bulletin (SAB) 104,
"Revenue Recognition in Financial Statements" for
determining when revenue is realized or realizable and
earned. In accordance with the requirements of SAB 104 the
Company recognizes revenue when (1) persuasive evidence of
an arrangement exists, (2) delivery has occurred, (3) the
seller's price is fixed or determinable, and (4)
collectability is reasonably assured.
-34-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2007 and 2006
Intangible Assets
Intangible assets with estimable useful lives are amortized
over respective estimated useful lives, and reviewed for
impairment in accordance with SFAS 142, "Goodwill and Other
Intangible Assets." Igene has recorded values for customer
contracts, intellectual property and a non-compete contract
received as part of the separation from Tate & Lyle. These
values are based on the independent valuation received at
the close of the venture. As this valuation was received
after December 31, 2007 and deemed to be accurate as of that
date, no amortization was taken for 2007, and will begin in
2008.
Customer contracts are for a term of one year and the value
will be amortized over 2008. The non- compete contract is
for a term of five years and will amortized over the life of
the contract. Intellectual property will tested annually
for impairment, and any impaired value shall be written-off.
New accounting pronouncements
In September 2006, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards SFAS 157
"Fair Value Measurements." SFAS 157 defines fair value,
establishes a framework for measuring fair value in
generally accepted accounting principles ("GAAP"), and
expands disclosures about fair value measurements.
Prior to SFAS 157, there were different definitions of fair
value and limited guidance for applying those definitions in
GAAP. Moreover, that guidance was dispersed among the many
accounting pronouncements that require fair value
measurements. SFAS 157 clarifies that the exchange price is
the price in an orderly transaction between market
participants to sell the asset or transfer the liability in
the market in which the reporting entity would transact for
the asset or liability, that is, the principal or most
advantageous market for the asset or liability.
SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. The Company is currently
evaluating the impact, if any, that SFAS 157 will have on
its financial position, results of operations and cash
flows.
In June 2006, the Financial Accounting Standards Board
("FASB") issued Financial Accounting Standards Board
Interpretation FIN 48, "Accounting for Uncertainty in Income
Taxes-an interpretation of FASB Statement No. 109." FIN 48
provides a comprehensive model for the recognition,
measurement and disclosure in the financial statements of
uncertain tax positions taken or expected to be taken on a
tax return. The Company adopted FIN 48 effective beginning
on January 1, 2007. The Company is currently evaluating
the impact this interpretation may have on its future
financial position, results of operations, earnings per
share, or cash flows.
Management does not believe the effects of the above
described recent pronouncements or others will have a
significant impact on our financial statements.
(2) Non-cash investing and financing activities
During 2006, 7,375 shares of redeemable preferred stock,
with a recorded aggregate value of $141,600, were converted
into 14,750 shares of common stock. This included the 8%
Cumulative Convertible Preferred Stock, Series B and has
relieved the Company of this amount of long-term debt.
-35-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2007 and 2006
During the course of 2006, Fermic, Igene's manufacturing
agent, earned 545,569 shares of common stock as part of the
manufacturing agreement. Fermic earned 2,250 shares of
common stock for each kilogram of pure astaxanthin produced
and delivered as part of the agreement. The average price is
based on the market value of the shares at the time the
product was produced. Fermic has earned all 20,000,000
shares available under the contract. The 545,569 shares
were earned at an average price of $.056 per share for 2006.
During 2006, 312,000 shares of common stock were issued as
part of employee stock option exercises. The Company
received $10,300 based on an average exercise price of $.033
per share.
During 2006, 7,884 warrants were exercised for $788. 7,884
new shares of common stock were issued pursuant to the
exercise.
During 2006, 1,000,000 shares of common stock were issued to
the Joint Venture's new Vice President of Manufacturing as
part of his agreement in accepting the position. The cost
was expensed at a cost of $.05 per share or $50,000.
During 2007 and 2006, Igene recorded dividends in arrears on
its 8% Redeemable Preferred Stock, Series A at $.64 per
share aggregating $7,126 and $8,306 respectively, on such
preferred stock which has been removed from paid-in capital
and included in the carrying value of the redeemable
preferred stock. (see also note 9).
(3) Concentration of Credit Risk
Igene is potentially subject to the effects of a
concentration of credit risk in accounts receivable.
Accounts receivable is substantially composed of receivables
from customers in Chile, which is an important market for
Igene's product, AstaXin(R). Chile has from time to time
experienced political unrest and currency instability.
Because of the volume of business transacted by Igene in
Chile, recurrence of such unrest or instability could
adversely affect the businesses of its customers in Chile or
Igene's ability to collect its receivables from these
customers. In order to minimize risk, Igene strictly
evaluates the companies to which it extends credit and all
prices are denominated in U.S. dollars so as to minimize
currency fluctuation risk. Losses due to credit risks in
accounts receivable are expected to be immaterial.
(4) Property and Equipment
Property and equipment are stated at cost and are summarized
as follows:
Laboratory equipment and fixtures $ 130,964
Idle equipment 706,667
Pilot plant equipment and fixtures 91,503
Office furniture and fixtures 36,990
_____________
966,124
Less accumulated depreciation (252,631)
_____________
$ 713,493
=============
|
-36-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2007 and 2006
(5) Investment in Joint Venture
On March 19, 2003, Igene entered into a Joint Venture
Agreement with Tate & Lyle Fermentation Products Ltd., a
subsidiary of Tate & Lyle PLC ("Tate") pursuant to which
Igene and Tate agreed to form a joint venture (the "Joint
Venture") to manufacture, market and sell astaxanthin and
derivative products throughout the world for all uses other
than as a nutraceutical or otherwise for direct human
consumption. Tate contributed $24,600,000 to the Joint
Venture, which included certain of its facility assets
previously used in citric acid production, while Igene
transferred to the Joint Venture its technology relating to
the production of astaxanthin and assets related thereto.
The initial value of Igene's investment in the Joint Venture
had been recorded at an amount equal to the book value of
Igene's consideration contributed at the creation of the
Joint Venture. As the cost of Igene's technology and
intellectual property had been previously expensed and had a
carrying amount of zero, the investment in the Joint Venture
had been recorded with a book value of $316,869, which
represents the unamortized production costs contributed to
the Joint Venture. In addition, Igene also contributed
$6,000 to the capital of the Joint Venture. Sales and cost
of sales activity were recorded as part of the operations of
the unconsolidated venture.
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 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. The purchase price paid by Tate to
Igene for its 50% interest 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.
Upon the termination of the Joint Venture it was determined
that the transaction should be recorded as the purchase of a
business. Based on that determination a valuation expert
was hired to determine the fair value of the assets received
and the liabilities assumed. As the fair value received
exceeded the liabilities assumed the fair value of the
assets received were reduced to equal the liabilities
assumed. The table below shows the original determined fair
value, the reduction, and the subsequent values recorded.
-37-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2007 and 2006
Assets
Fair Value Subject Allocate excess Fair Value over Cost
____________________________ to pro-rata ___________________________________________
Credit Debit Reduction Adjustment Credit Debit
_____________ _____________ _____________ _____________ _____________ _____________
Tangible Assets Acquired
Current Assets
Inventory 9,873,934 9,873,934
Non-Current Assets
Downstream Assets and Lab Equipment 4,000,000 4,000,000 (3,569,294) 430,706
Deferred Tax Assets --- ---
Chilean Subsidiary 8,182 8,182 (7,301) 881
_____________ _____________
Total Assets 13,882,116 10,305,521
Assumed Liabilities
Rebate Liabilities 857,550 857,550
A/P 890,000 890,000
Royalty of 5% up to $5M (contingent) 5,000,000 5,000,000
Removal of downstream assets 500,000 500,000
Collection Obligation 51,069 51,069
_____________ _____________
Total Liabilities 7,298,619 7,298,619
Net Tangible Assets/Liabilities 6,583,497 3,006,902
Intangible Assets Acquired
5 year non-compete 1,430,000 1,430,000 (1,276,023) 153,977
Customers contracts 2,170,000 2,170,000 (1,936,342) 233,658
Assembled WorkForce --- --- --- ---
Intellectual Property 1,390,000 1,390,000 (1,240,330) 149,670
_____________ _____________
Total Intangible Assets Acquired 4,990,000 537,306
Total Net Assets Acquired 11,573,000 8,998,182 (8,029,289) 3,544,208
============= =============
Consideration Paid
Deferred Payment
T&L Calculated Deferred Payment 1,564,207
Downstream Assets and Lab Equipment 1,000,000
Net Deferred Payment 2,564,207
Cash Payment 1
Forgive Receivable from JV 980,000
Fair value Igene shares in JV ---
Total Consideration Paid 3,544,208 3,544,208
============= =============
Extraordinary Gain --- ---
Goodwill/(Negative Goodwill) (8,029,289) ---
============= =============
|
-38-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2007 and 2006
As a result of the Joint Venture termination, Igene is now
researching several alternatives for a potential new source
of production. At the current pace, Igene expects to have
inventories of existing product necessary to meet demand
through the third quarter of 2008. Igene expects to be out
of the market for an uncertain period of time following the
third quarter of 2008 until a new source of production can
be identified, commence operations and yield salable
product.
As a result of the Joint Venture, the production, sales and
marketing of astaxanthin through October 2007 took place
through the unconsolidated Joint Venture. From inception on
March 18, 2003 through the Joint Venture's final reporting
on September 30, 2007, Igene's portion of the Joint
Venture's net loss was $21,826,251. The loss was a result
of a 50% interest in the following: Gross profit from
inception was a negative $21,304,462 on sales of
$38,380,752, less manufacturing cost of $59,685,214.
Selling and general and administrative expenses were
$16,542,813, and interest expense was $5,805,227. The
resulting loss was $43,652,502. Igene's 50% portion of the
Joint Venture loss was $21,826,251.
Because the Company accounts for its investment in the Joint
Venture under the equity method of accounting, it would
ordinarily recognize as part of loss from equity the loss of
its 50% ownership portion of the loss of the Joint Venture.
However, losses in the Joint Venture are recognized only to
the extent of the Investment in and Advances to the Joint
Venture. Losses in excess of this amount are suspended from
recognition in the financial statements and carried forward
to offset Igene's share of the Joint Venture's future
income, if any.
At September 30, 2007, prior to the recognition of its
portion of the Joint Venture loss, Igene's investment in the
Joint Venture consisted of $322,869 and its net advances to
the Joint Venture amounted to $1,007,888, for a total of
$1,330,757. Through December 31, 2006, Igene recognized
$1,491,981 of the $15,922,400 loss, which existed as part of
the Joint Venture. In the first six months of 2007, the
balances of the funds due to Igene were reduced by a net
repayment of $258,628, representing the June 30, 2007
balance of $1,233,353. For the three months ended September
30, 2007, Igene recognized a loss from the advance for that
period of $97,404. This advance decreased the additional
suspended loss of $1,293,769 for the quarter. The
cumulative suspended loss at September 30, 2007 was
$20,495,494 and it will be carried forward to offset Igene's
share of earnings from the Joint Venture, if any. The
balance in the Advances to and Investment in Joint Venture
account on the Company's condensed consolidated financial
statements was zero at September 30, 2007.
The following condensed statement displays the activity of
the Joint Venture for the period of initial investment at
March 19, 2003 in the Joint Venture through September 30,
2007. As shown, 50% of the activity, limited to Igene's
investment, is recorded as part of Igene's Financial
Statements as loss from investment in the Joint Venture:
September 30,
2007
_____________
ASSETS
CURRENT ASSETS
Cash $ 2,645,000
Account Receivable 4,711,000
Inventory 13,069,000
_____________
20,425,000
OTHER ASSETS
Property, plant and equipment, net 19,668,000
Intangibles 24,614,000
_____________
TOTAL ASSETS $ 64,707,000
=============
-39-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2007 and 2006
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses
(majority of which is due to one joint venturer) $ 48,419,000
Working capital loan 7,628,000
_____________
TOTAL LIABILITIES 56,047,000
Equity 8,660,000
TOTAL LIABILITIES AND EQUITY $ 64,707,000
=============
|
Period from March 19, 2003
(initial investment) to
September 30, 2007
__________________________
Net Sales $ 38,380,752
Less: manufacturing cost (59,685,214)
____________________
Gross Profit (Loss) (21,304,462)
Less: selling, general and administrative (16,542,813)
____________________
Operating Loss (37,847,275)
Interest Expense (5,805,227)
____________________
Net Loss $ (43,652,502)
====================
Igene's 50% equity interest in the net loss $ (21,826,251)
Igene's Investment in and Advances to the Joint Venture (1,330,757)
____________________
Igene's suspended loss at September 30, 2007 $ (20,495,494)
====================
|
(6) Convertible Debentures
As previously stated in the Registrant's third quarter Form
10-QSB, on November 13, 2001, Igene entered into Convertible
Promissory Notes (the "Convertible Notes") with each of the
following note holders for the following respective amounts:
(a) NorInnova AS (formerly Forskningsparken I Tromso AS) for
$106,500; (b) Knut Gjernes for $7,500; (c) Magne Russ
Simenson for $378,000; and (d) Nord Invest AS for $313,000.
Each of the Convertible Notes had a maturity date of
November 1, 2004. On November 18, 2005, each of the
Convertible Note Holders provided Igene with written notice
of default under each of the Convertible Notes.
On November 29, 2006, the Convertible Note holders filed a
complaint against the Company in the Circuit Court of Howard
County, Maryland seeking payment of all outstanding amounts
due under the Convertible Notes. On February 23, 2007, the
Company paid $762,638 to the Convertible Note holders as
settlement of all claims related to the Convertible Notes.
The complaint was dismissed with prejudice on March 6, 2007.
In an attempt to settle the matter, the Note holders were
offered the ability to extend the notes they held for a
period of ten years at an interest rate of 5%. The
conversion would be changed from the original debenture rate
of $.10 (ten cents) per share to the current market rate of
$.02 (two cents) per share. They rejected the offer.
The funds to settle the litigation were provided by Igene's
directors using the terms offered above to the debenture
holders. On February 15, 2007, Igene issued and sold
$762,000 in aggregate principal amount of 5% convertible
debentures, 50% each to two directors of Igene. These
debentures are convertible into shares of Igene's common
stock at $.02 per share based on the offer made to the
original debenture holders as the market price of Igene's
shares at the time the debentures terms were agreed upon.
-40-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2007 and 2006
On July 17, 2002, Igene issued and sold $300,000 in
aggregate principal amount of 8% convertible debentures, 50%
each to two directors of Igene. These debentures are
convertible into shares of Igene's common stock at $.03 per
share based on the market price of Igene's shares at the
time the debentures were agreed to. In consideration of the
commitment to purchase the 8% convertible debenture, these
directors also received an aggregate of 10,000,000 warrants
to purchase common stock at $.03 per share. These
debentures, if not converted earlier, become due on July 17,
2012.
On February 22, 2002, Igene issued and sold $1,000,000 in
aggregate principal amount of 8% convertible debentures, 50%
each to two directors of Igene. These debentures are
convertible into shares of Igene's common stock at $.04 per
share based on the market price of Igene's shares at the
time the debentures were agreed to. In consideration of the
commitment to purchase the 8% convertible debenture, these
directors also received an aggregate of 25,000,000 warrants
to purchase common stock at $.04 per share. These
debentures, if not converted earlier, become due on February
22, 2012.
In March 2001, Igene issued $1,014,211 of 8%, 10-year,
convertible debentures to certain directors of Igene in
exchange for the cancellation of $800,000 of demand notes
payable (including accrued interest of $14,212) and $200,000
in cash. $600,000 of these demand notes were issued during
2000 and $200,000 were issued subsequently. These
debentures are convertible into 10,142,110 shares of Igene's
common stock at $.08 per share. These directors also
received 10,142,110 warrants to purchase common stock at
$.08 per share. Interest is payable at maturity.
In March 2001, certain directors of Igene also committed to
provide additional funding in the form of 8%, 10-year,
convertible debentures in the amount of $1,500,000. In
consideration of this commitment, these directors also
received 18,750,000 warrants to purchase common stock at
$.08 per share. These debentures are convertible into
18,750,000 shares of Igene's common stock at $.08 per share.
Interest is payable at maturity.
The warrants issued in connection with the above debt
totaling 66,427,651 warrants have been valued at $1,896,094
utilizing the Black Scholes model. In addition, there was a
beneficial conversion feature due to the resulting bond
discount. The total discount resulting from the valuation
of the warrants and the beneficial conversion feature was
$3,792,188 which is being amortized over the life of the
debt (ten years).
Convertible debentures are summarized as follows as of
December 31, 2007:
Accrued
Principal Interest
_____________ _____________
8%, 10-year, convertible debenture issued 7/17/02 $ 300,000 $ 130,718
8%, 10-year, convertible debenture issued 2/22/02 1,000,000 464,877
8%, 10-year, convertible debenture issued 3/1/01 1,014,212 554,274
8%, 10-year, convertible debenture issued 3/27/01 1,500,000 774,180
5%, 10-year, convertible debenture issued 2/15/07 762,000 32,672
_____________ _____________
$ 4,576,212 $ 1,956,721
Less unamortized debt discount (1,331,548) ---
_____________ _____________
$ 3,244,664 $ 1,956,721
============= =============
|
(7) Notes Payable
This long term debt, approximately $5,800,000 which was
scheduled to become payable in March 2003, had been extended
to be due March 2006. It has been extended a second time to
be due March 2009. Management felt any attempts to satisfy
the debt on its original due date would have had materially
adverse effects on the Company.
-41-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2007 and 2006
As a part of the terms of the first extension of the debt,
the exercise prices of the warrants and any conversion
features were discounted by 25%, thus a $.10 warrant is now
convertible at $.075. As part of the terms of the second
extension of the debt, the exercise prices of the warrants
and any conversion features were discounted again by 25%,
thus a $.075 warrant is now convertible at $.056.
Beginning November 16, 1995 and continuing through May 8,
1997, Igene issued promissory notes to certain directors for
aggregate consideration of $1,082,500. These notes specify
that at any time prior to repayment the holder has the right
to convert the notes to common stock of Igene at prices
ranging from $0.05 per share to $0.135 per share, based on
the market price of common shares at the respective issue
dates. The notes were convertible in total into 13,174,478
shares of common stock. As a result of the extensions they
are now convertible into 23,421,273 shares of common stock.
Concurrently, with each of the $1,082,500 of promissory
notes, the holders also received 13,174,478 warrants for an
equivalent number of shares at the equivalent price per
share. The warrants expire ten years from the date of issue
of the notes. As a result of the extension of debt the
warrant exercise prices were reduced by 25%. These notes
were modified in conjunction with the 1998 rights offering
to be due on March 31, 2003, and have been extended to March
31, 2009 as part of the extension. The notes bear interest
at the prime rate.
As part of the rights offering in March 1998, Igene issued
$5,000,000 of its 8% Notes due March 31, 2003 and 50,000,000
warrants to purchase one share of common stock at an
exercise price of $0.10 per share expiring March 31, 2008.
The maturity date of these notes had been extended to March
31, 2006, and the exercise price reduced to $.075 per share.
The maturity date of these notes have again been extended to
March 31, 2009, and the exercise price reduced to $.056 per
share.
The warrants issued in connection with the above debt
totaling 65,168,639 warrants have been valued at $731,127
utilizing the Black-Scholes valuation model at March 31,
2003. In addition, as a result of the repricing of the
warrants in March 2006, the warrants were re-valued at
$2,663,310. The $1,082,500 of convertible debt has a
beneficial conversion feature in addition to the valuation
of the related warrants. The total discount resulting from
the valuation of the warrants and the beneficial conversion
was $3,082,676 which is being amortized over the life of the
debt (three years).
Payable are summarized as follows as of December 31,
2007:
Accrued
Principal Interest
_____________ _____________
Long-term unsecured notes payable, bearing interest
at prime, scheduled to mature
March 31, 2003, extended to March 31,
2009, convertible into common stock $ 1,082,500 $ 770,389
Long-term unsecured notes payable, bearing interest
at 8%, scheduled to mature March 31, 2003,
extended to March 31, 2009 4,759,767 3,714,966
_____________ _____________
$ 5,842,267 $ 4,485,355
Less unamortized debt discount (1,198,818)
_____________ _____________
$ 4,643,449 $ 4,485,355
============= =============
|
Combined aggregate amounts of maturities for all convertible
debentures and notes payable are as follows:
Year Amount
______ ________
2009 $ 5,842,267
2010 ---
2011 2,514,212
2012 1,300,000
2017 762,000
|
-42-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2007 and 2006
(8) Redeemable Preferred Stock
Each share of redeemable preferred stock is entitled to vote
on all matters requiring shareholder approval as one class
together with holders of common stock. Each share of
redeemable preferred stock is entitled to two votes and each
share of common stock is entitled to one vote.
Redeemable preferred stock is convertible at the option of
the holder at any time, unless previously redeemed, into
shares of Igene's common stock at the rate of two shares of
common stock for each share of preferred stock (equivalent
to a conversion price of $4.00 per common share), subject to
adjustment under certain conditions.
Shares of redeemable preferred stock are redeemable for cash
in whole or in part at the option of Igene at any time at
the stated value plus accrued and unpaid dividends to the
redemption date. Dividends are cumulative and payable
quarterly on January 1, April 1, July 1 and October 1, since
January 1, 1988.
Mandatory redemption of Series A preferred stock was to be
made in October 2002. As Igene is operating at a negative
cash flow and negative earnings, Maryland law does not allow
for the redemption of these shares. As such they will
remain outstanding and continue to accrue dividends until
such time as Igene is able to undertake redemption, though
there can be no assurance this will develop. Igene does not
expect to be able to redeem the Series A preferred stock
unless, after giving effect to such redemption (a) the
Company would be able to pay its indebtedness in the usual
course of business and (b) the Company's total assets would
be greater than the sum of its total liabilities plus the
amount that would be needed if the Company were to be
dissolved as of the time of the distribution, to satisfy the
preferential rights upon dissolution of stockholders whose
preferential rights on dissolution are superior to those
receiving the distribution.
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 December 31,
2007, total dividends in arrears on Igene's preferred stock
equal $137,171 (or $12.32 per share) on Igene's Series A and
are included in the carrying value of the redeemable
preferred stock.
(9) Stockholders' Equity
Options
In June of 2001, the stockholders approved the 2001 Stock
Option Plan (the "2001 Plan"), which succeeds the 1997 Stock
Option Plan (the "1997 Plan"), which succeeded Igene's 1986
Stock Option Plan (the "1986 Plan"), as amended. All
outstanding, unexercised options granted under the 1997 and
1986 Plans remain outstanding with unchanged terms. The
number of shares authorized for issuance under the 2001 Plan
is 55,000,000. This is in addition to the 20,000,000 shares
authorized for issuance under the 1997 Plan, and the
2,000,000 shares authorized for issuance under the 1986
Plan.
43-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2007 and 2006
The following is a summary of options granted and
outstanding under the plans as of December 31, 2007 and
2006:
2007 2006
___________________________________ ___________________________________
Weighted Weighted
Average Average
Exercise Exercise
Number Price Number Price
________________ ________________ ________________ ________________
Options outstanding
and exercisable,
beginning of year 44,845,000 $ .059 48,427,750 $ .061
Options granted --- --- --- ---
Options exercised --- --- 312,000 $ .033
Options forfeited,
or withdrawn with
consent of holders --- --- 1,600,000 $ .100
Options expired --- --- 1,670,750 $ .050
Options outstanding
and exercisable,
end of year 44,845,000 $ .059 44,845,000 $ .059
================ ================ ================ ================
|
Options Outstanding
Weighted Average
Exercise Price Shares Remaining Life (Years)
______________ ______________ ______________________
$.025 16,333,000 4.6
$.027 1,500,000 7.9
$.050 1,500,000 1.8
$.050 3,837,500 2.0
$.050 2,500,000 3.9
$.065 45,000 3.0
$.080 5,500,000 3.8
$.100 10,389,500 6.5
$.100 3,240,000 0.3
______________
$.059 44,845,000
==============
|
Warrants
The following table summarizes warrants issued, outstanding
and exercisable:
As of December 31,
_______________________________
2007 2006
_____________ _____________
Issued 205,261,073 205,261,073
Outstanding 205,261,073 205,261,073
Exercisable 205,261,073 205,261,073
|
-44-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2007 and 2006
Common Stock
At December 31, 2007, 205,261,073 shares of authorized but
unissued common stock were reserved for issuance upon
exercise of outstanding warrants, 44,845,000 shares of
authorized but unissued common stock were reserved for
exercise pursuant to the 1997 and 2001 Stock Option Plans,
22,268 shares of authorized but unissued common stock were
reserved for issuance upon conversion of Igene's outstanding
preferred stock, and 127,948,924 shares of authorized but
unissued stock were reserved for issuance upon conversion of
outstanding convertible notes.
On October 15, 2007, Mr. Monahan, Igene's Vice-President,
Secretary and Director of Manufacturing, was issued
1,000,000 shares of Igene's common stock, valued at $21,000,
in connection with his employment with, and services to,
Igene. The shares of common stock were issued pursuant to
the exemption from registration provided under Section 4(2)
of the Securities Act, as Mr. Monahan is an executive
officer of the Company.
Preferred Stock
As of December 31, 2007, total dividends in arrears on
Igene's preferred stock equal $137,171 (or $12.32 per share)
on Igene's Series A and are included in the carrying value
of the redeemable preferred stock.
(10) Net Loss Per Common Share
Net loss per common share for 2007 and 2006 is based on
109,679,538 and 108,387,454 weighted average shares,
respectively. For purposes of computing net loss per common
share, the amount of net loss has been increased by
dividends declared and cumulative undeclared dividends in
arrears on preferred stock.
Common stock equivalents, including: options, warrants,
convertible debt, convertible preferred stock, and
exercisable rights have not been included in the computation
of earnings per share in 2006 because to do so would have
been anti-dilutive. As of December 31, 2007 and 2006,
dilutive and potentially dilutive shares totaled 378,077,265
and 374,414,599 respectively.
(11) Commitments
Igene is obligated for office and laboratory facilities and
other rentals under operating lease agreements, which expire
in 2011. The base annual rentals are approximately $101,000,
increasing to $106,000 by the end of the lease term, plus
the Company's share of taxes, insurance and other costs.
Annual rent expense relating to the leases for the years
ended December 31, 2007 and 2006 approximated $118,850 and
$118,600, respectively.
Future minimum rental payments, in the aggregate and for
each of the next five years are as follows:
Year Amount
______ __________
2008 $ 101,000
2009 103,000
2010 106,000
2011 9,000
__________
Total $ 319,000
==========
|
-45-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2007 and 2006
Effective May 20, 2000, Igene signed an exclusive
manufacturing agreement with Fermic, S.A. de C.V.
("Fermic"), of Mexico City, Mexico, for the production of
AstaXin(R). The Fermic contract provides that the
manufacturer has a limited exclusive right to produce
AstaXin(R) and is paid a monthly fee in cash, which is based
on manufacturing capacity, plus shares of Igene common stock
based on production quantities. Fermic provides equipment
and facilities necessary to manufacture and store the
product and is responsible for purchasing raw materials.
The Joint Venture is responsible for sales efforts and for
ensuring the quality of the pigment. The Joint Venture also
has a role in ensuring that the manufacturing process works
effectively. The term of the contract has expired.
Based on production of AstaXin(R), Igene had committed to
issue to Fermic up to a maximum of 20,000,000 shares of
Igene common stock during the six year period which expired
May 20, 2006 in accordance with the manufacturing agreement.
Based on quantities of AstaXin(R) produced, all shares have
been earned and issued to Fermic. Since the inception of
the agreement, stock has been recorded as a manufacturing
expense and also as an increase in common stock and
additional paid in capital of $1,356,520. The expense is
now recorded on the books of the Joint Venture with the
related receivable from the Joint Venture on the books of
Igene. This amount has been computed based on the fair
value of the stock as of the period in which the shares were
earned.
(12) Income Taxes
No income tax benefit or deferred tax asset is reflected in
the financial statements. Deferred tax assets are
recognized for future deductible temporary difference and
tax loss carry forwards if their realization is "more likely
than not."
At December 31, 2007 Igene has federal and state net
operating loss carry-forwards of approximately $22,871,000
that expire at various dates from 2008 through 2027. The
recorded deferred tax asset, representing the expected
benefit from the future realization of the net operating
losses, net of the valuation allowance, was $-0- for 2007
and 2006.
The sources of the deferred tax asset are approximately as
follows:
Net operating loss carry-forward benefit $ 7,776,000
Valuation allowance (7,776,000)
____________
Deferred tax asset, net $ ---
============
|
(13) Going Concern
Igene has incurred net losses in each year of its existence,
aggregating approximately $48,739,000 from inception to
December 31, 2007 and its liabilities exceeded its assets by
approximately $14,360,000 at that date. These factors
indicate that Igene will not be able to continue in
existence unless it is able to raise additional capital and
attain profitable operations.
As discussed as of October 31, 2007 Igene has terminated its
relationship with the Joint Venture with Tate & Lyle. Igene
maintains the saleable inventory after the termination of
the relationship and is currently reviewing alternatives for
a future manufacturing alternative. In the interim Igene
will sell the existing inventory in order to maintain its
relationship with customers and use these funds to cover
expenses.
-46-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2007 and 2006
(14) Nature of Risks and Concentrations
Revenue during 2007 and 2006 were derived from sales of the
product, AstaXin(R). The majority of the 2007 and 2006 sales
were to fish producers in the aquaculture industry in Chile.
The preceding concentrations subject Igene to certain risks.
For example, it is considered at least reasonably possible
that any particular customer, distributor, product line, or
provider of services or facilities could be lost in the near
term. The separation from Tate & Lyle has left Igene with
no production facility and inventory which should last
through the fourth quarter of 2008. Igene is currently
reviewing alternatives for manufacturing, but has not yet
secured one. It is also considered at least reasonably
possible that operations located outside the United States
could be disrupted in the near term. However, Igene has at
present no information that would lead it to believe that it
will lose its principal product, principal customers, or its
contracted manufacturer; or that its operations in Mexico
City or Chile will be disrupted, though this belief can not
be assured.
(15) Retirement Plan
Effective February 1, 1997 Igene adopted a Simple Retirement
Plan under Internal Revenue Code Section 408(p). The plan
was a defined contribution plan, which covered all of
Igene's U.S. employees who receive at least $5,000 of
compensation for the preceding year. The plan permitted
elective employee contributions. Effective January 1, 2003,
Igene made an elective contribution of 3% of each eligible
employee's compensation for each year. Igene's
contributions to the plan for 2003 were $17,631.
Effective February 1, 2004 Igene discontinued use of the
Simple Retirement Plan and began use of a 401K
savings/retirement plan, or 401(k) Plan. The 401(k) Plan
permits our eligible employees to defer annual compensation,
subject to limitations imposed by the Internal Revenue Code.
All employees that have been employed for six months are
eligible for the plan. The plan permits elective
contributions by the Company's eligible employees based
under the Internal Revenue Code, which are immediately
vested and non-forfeitable upon contribution to the 401(k)
Plan. Effective January 1, 2004, Igene made an elective
contribution, subject to limitations, of 4% of each eligible
employee's compensation for each year. Igene's
contributions to the plan for 2007 and 2006 were $28,392 and
$25,996, respectively, which is expensed in the statement of
operations.
-47-
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IGENE Biotechnology, Inc.
(Registrant)
By /S/ STEPHEN F. HIU
______________________________________
STEPHEN F. HIU
President, Chief Technical Officer
and Treasurer
|
Date May 1, 2008
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Signature Title Date
_________ _____ ____
/S/ STEPHEN F. HIU Director, President, Chief May 1, 2008
________________________ Technical Officer (principal
STEPHEN F. HIU executive officer)
/S/ EDWARD J. WEISBERGER Chief Financial Officer May 1, 2008
________________________ (principal financial and
EDWARD J. WEISBERGER accounting officer)
/S/ THOMAS L. KEMPNER Vice Chairman of Board May 1, 2008
________________________ of Directors
THOMAS L. KEMPNER
/S/ MICHAEL G. KIMELMAN Chairman of the Board May 1, 2008
________________________ of Directors
MICHAEL G. KIMELMAN
/S/ SIDNEY R. KNAFEL Director May 1, 2008
________________________
SIDNEY R. KNAFEL
/S/ PATRICK F. MONAHAN Director, Vice President May 1, 2008
________________________ Secretary and
PATRICK F. MONAHAN Director of Manufacturing
|
EXHIBIT INDEX
EXHIBIT DESCRIPTION
NO.
3.1 Articles of Incorporation of the Registrant, as amended
as of November 17, 1997, constituting Exhibit 3.1 to the
Registration Statement No. 333-41581 on Form SB-2 filed
with the SEC on December 5, 1997, are hereby
incorporated by reference.
3.2 Articles of Amendment to Articles of Incorporation of
the Registrant, constituting Exhibit 3.1(b) to the
Registration Statement No. 333-76616 on Form S-8 filed
with the SEC on January 11, 2002, are hereby
incorporated by reference.
3.3 By-Laws of the Registrant, constituting Exhibit 3.2 to
the Registration Statement No. 33-5441 on Form S-1 filed
with the SEC on May 6, 1986, are hereby incorporated by
reference.
4.1 Form of Variable Rate Convertible Subordinated Debenture
Due 2002 (Class A), constituting Exhibit 4.4 to the
Registration Statement No. 33-5441 on Form S-1 filed
with the SEC on May 6, 1986, is hereby incorporated by
reference.
4.2 Form of Indenture by and between the Registrant and
American Stock Transfer and Trust Company, as Trustee,
dated as of March 31, 1998, constituting Exhibit 4.2 to
the Registration Statement No. 333-41581 on Form SB-2/A
filed with the SEC on January 23, 1998, is hereby
incorporated by reference.
4.3 Warrant Agreement by and between the Registrant and
American Stock Transfer and Trust Company, as Warrant
Agent, dated as of March 31, 1998, constituting Exhibit
4.3 to the Registration Statement No. 333-41581 on Form
SB-2/A filed with the SEC on January 23, 1998, is hereby
incorporated by reference.
|
4.4 First Amendment to Indenture, Securities, Warrant
Agreement and Warrant Certificates by and between
Registrant and American Stock Transfer and Trust Company
dated as of March 18, 2003, constituting Exhibit 10.11
to the Quarterly Report on Form 10-QSB filed with the
SEC on May 14, 2003, is hereby incorporated by reference.
4.5 Second Amendment to Indenture, Securities, Warrant
Agreement and Warrant Certificates by and between
Registrant and American Stock Transfer and Trust Company
dated as of March 28, 2006, constituting Exhibit 4.5 to
the Annual Report on Form 10-KSB filed with the SEC on
April 13, 2006, is hereby incorporated by reference.
10.1 Form of Conversion and Exchange Agreement used in May
1988 in connection with the conversion and exchange by
certain holders of shares of preferred stock for common
stock and Warrants, constituting Exhibit 10.19 to the
Registration Statement No. 33-5441 on Form S-1 filed
with the SEC on May 6, 1986, is hereby incorporated by
reference.
10.2 Preferred Stockholders' Waiver Agreement dated May 5,
1988, constituting Exhibit 10.3 to the Registration
Statement No. 33-23266 on Form S-1 filed with the SEC on
July 22, 1988, is hereby incorporated by reference.
10.3 Form of Agreement between the Registrant and Certain
Investors in Preferred Stock dated September 30, 1987,
constituting Exhibit 10.4 to the Registration Statement
No. 33-23266 on Form S-1/A, is hereby incorporated by
reference.
10.4 Agreement of Lease between Columbia Warehouse Limited
Partnership and the Registrant effective December 15,
1995, constituting Exhibit 10.13 to the Annual Report
on Form 10-KSB filed with the SEC on April 12, 1996, is
hereby incorporated by reference.
10.5 First Amendment to Lease between the Registrant and Red
|
Branch Center, LLC made September 13, 2000,
constituting Exhibit 10.8 to the Annual Report on Form
10-KSB filed with the SEC on April 2, 2001, is hereby
incorporated by reference.
10.6 Separation Agreement between the Registrant and
Tate & Lyle Fermentation Products Ltd. dated as of
October 31, 2007, constituting Exhibit 10.1 to the
Current Report on Form 8-K filed with the SEC on
November 6, 2007, is hereby incorporated by reference.
21.1 Subsidiaries*
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
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