FINANCIAL INFORMATION
IGENE Biotechnology, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
(Restated)
March 31, December 31,
2007 2006
____________ ____________
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,198 $ 21,786
Prepaid expenses and other current assets 9,833 14,093
____________ ____________
TOTAL CURRENT ASSETS 14,031 35,879
Property and equipment, net 28,898 33,571
Investment in and advances to unconsolidated joint venture --- ---
Other assets 5,125 5,125
____________ ____________
TOTAL ASSETS $ 48,054 $ 74,575
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 131,035 $ 210,424
Convertible debenture --- 705,000
Accrued interest --- 46,570
____________ ____________
TOTAL CURRENT LIABILITIES 131,035 961,994
LONG-TERM DEBT
Notes payable (Net of unamortized discount) 3,872,778 3,615,889
Convertible debentures (Net of unamortized discount) 2,960,249 2,103,444
Accrued interest 5,822,201 5,655,830
REDEEMABLE PREFERRED STOCK
Carrying amount of redeemable preferred stock, 8% cumulative,
convertible, voting, series A, $.01 par value per share.
Stated value was $19.84 and $19.68, respectively.
Authorized 1,312,500 shares, issued and outstanding 11,134.
Redemption amount $220,899 220,899 219,117
____________ ____________
TOTAL LIABILITIES 13,007,162 12,556,274
____________ ____________
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Common stock --- $.01 par value per share. Authorized
750,000,000 shares; issued and outstanding 109,337,072
shares. 1,093,371 1,093,371
Additional paid-in capital 33,265,687 33,265,687
Accumulated deficit (47,318,166) (46,840,757)
____________ ____________
TOTAL STOCKHOLDERS' DEFICIENCY (12,959,108) (12,481,699)
____________ ____________
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 48,054 $ 74,575
============ ============
|
The accompanying notes are an integral part of the condensed
consolidated financial statements.
-6-
IGENE Biotechnology, Inc. and Subsidiary
Condensed Consolidated Statements of Operations
(Unaudited)
(Restated)
Three months ended
_____________________________
March 31, March 31,
2007 2006
____________ ____________
RECOUPMENT OF LOSS (EQUITY IN LOSS) OF JOINT VENTURE $ 58,956 $ (189,902)
____________ ____________
OPERATING EXPENSES
__________________
Marketing and selling 1,892 42,811
Research, development and pilot plant 252,114 208,649
General and administrative 202,913 224,783
Less operating expenses reimbursed by Joint Venture (445,044) (399,943)
____________ ____________
TOTAL OPERATING EXPENSES 11,875 76,300
____________ ____________
OPERATING PROFIT (LOSS) 47,081 (266,202)
____________ ____________
OTHER INCOME 6,382 ---
INTEREST EXPENSE (including amortization of debt discount
of $351,694 and $221,054, respectively) (530,872) (427,453)
____________ ____________
NET LOSS $ (477,409) $ (693,655)
============ ============
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.00) $ (0.01)
============ ============
|
The accompanying notes are an integral part of the condensed
consolidated financial statements.
-7-
IGENE Biotechnology, Inc. and Subsidiary
Condensed Consolidated Statements of Stockholders' Deficiency
(Unaudited)
(Restated)
Additional Total
Common Stock Paid-in Accumulated Stockholders'
(shares/amount) Capital Deficit Deficiency
____________________________ _______________ _______________ _______________
Balance at January 1, 2007 109,337,072 $ 1,093,371 $ 33,265,687 $ (46,840,757) $ (12,481,699)
Net loss for the three months ended
March 31, 2007 --- --- --- (477,409) (477,409)
_____________ _____________ _______________ _______________ _______________
Balance at March 31, 2007 109,337,072 $ 1,093,371 $ 33,265,687 $ (47,318,166) $ (12,959,108)
============= ============= =============== =============== ===============
|
The accompanying notes are an integral part of the condensed
consolidated financial statements.
-8-
IGENE Biotechnology, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows (Restated)
(Unaudited)
Three months ended
_____________________________
March 31, March 31,
2007 2006
____________ ____________
Cash flows from operating activities
Net loss $ (477,409) $ (693,655)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Amortization of debt discount 351,694 221,054
Depreciation 4,673 4,673
Increase in preferred stock for cumulative dividend
classified as interest 1,781 2,961
Manufacturing cost paid in shares of common stock --- 30,360
(Recoupment of payment) Equity in loss of joint venture (58,956) 189,902
Decrease (increase) in:
Accounts receivable --- 10,312
Prepaid expenses and other current assets 4,260 12,083
Increase (decrease) in
Accounts payable and accrued expenses 40,413 224,664
____________ ____________
Net cash provided by (used in) operating activities (133,544) 2,354
____________ ____________
Cash flows from investing activities
Recoupment of payment (advances) to Joint Venture 58,956 (189,902)
____________ ____________
Net cash provided by (used in) investing activities 58,956 (189,902)
____________ ____________
Cash flows from financing activities
Proceeds from issuance of convertible debentures 762,000 ---
Repayment of convertible debentures (705,000) ---
Proceeds from exercise of warrants --- 788
Bank overdraft --- 61,715
Proceeds from exercise of employee stock options --- 5,300
____________ ____________
Net cash provided by financing activities 57,000 67,803
____________ ____________
Net decrease in cash and cash equivalents (17,588) (119,745)
Cash and cash equivalents at beginning of period 21,786 119,745
____________ ____________
Cash and cash equivalents at end of period $ 4,198 $ 0
============ ============
Supplementary disclosure and cash flow information
__________________________________________________
Cash paid for interest $ 57,637 $ ---
Cash paid for income taxes --- ---
See Note (4) for non-cash investing and financing activities.
|
The accompanying notes are an integral part of the condensed
consolidated financial statements.
-9-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(1) Unaudited consolidated financial statements
The March 31, 2007 consolidated financial statements
presented herein are unaudited, and in the opinion of
management, include all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation
of financial position, results of operations and cash flows.
Such financial statements do not include all of the
information and footnote disclosures normally included in
financial statements prepared in accordance with accounting
principles generally accepted in the United States of
America. This quarterly report on Form 10-QSB should be
read in conjunction with Igene's restated Annual Report on
Form 10-KSB/A for the year ended December 31, 2006. The
December 31, 2006 consolidated balance sheet is derived from
the audited balance sheet included therein.
(2) Nature of Operations
Igene Biotechnology, Inc. (the "Company" or "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 is engaged in the
business of industrial microbiology and related
biotechnologies. Igene has operational subsidiaries in
Norway and Chile. The Company is engaged in the business of
developing, marketing, and manufacturing specialty
ingredients for human and animal nutrition. Igene was
formed to develop, produce and market value-added specialty
biochemical products. Igene is a supplier of natural
astaxanthin, an essential nutrient in various feed
applications and a source of pigment for coloring farmed
salmon species. Igene also supplies nutraceutical
ingredients, as well as consumer ready health food
supplements, including astaxanthin. 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 PLC ("Tate & Lyle") and the
Company announced a 50:50 joint venture to produce
AstaXin(R) for the aquaculture industry. Production utilizes
Tate & Lyle's fermentation capability together with the
unique technology developed by Igene. Part of Tate & Lyle's
existing Selby, England, citric acid facility has been
modified to include the production of 1,500 tons per annum
of this product. Tate & Lyle's investment of $25 million
includes certain of its facility assets currently used in
citric acid production. Commercial production has
commenced.
(3) Uncertainty
Igene has incurred net losses in each year of its existence,
aggregating approximately $47,318,000 from inception to
March 31, 2007 and as of March 31, 2007, Igene's liabilities
exceeded its assets by approximately $12,959,000. These
factors indicate that Igene may not be able to continue in
existence unless it is able to raise additional capital and
attain profitable operations.
As discussed in Subsequent Event (note 11) 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.
-10-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(continued)
(4) Noncash investing and financing activities
During the three months ended March 31, 2007 and 2006, the
Company recorded in each quarter dividends in arrears on 8%
redeemable preferred stock accumulating at $.16 per share
aggregating to $1,781 and $2,961, respectively.
During the three months ended March 31, 2006, Fermic,
Igene's manufacturing agent, earned 545,571 shares of common
stock as part of the manufacturing agreement. Fermic earned
2,250 shares of common stock for each kilogram pure
Astaxanthin produced and delivered as part of the agreement.
The average price was based on the market value of the
shares at the time the product was produced. With the
distribution in the first quarter of 2006, Fermic has earned
the 20,000,000 shares in total under the contract.
The 545,571 shares were earned at an average price of $.056
per share. Through March 31, 2006, all 20,000,000 shares
had been earned.
(5) Amendment to Long - Term Liabilities
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
$278,000; 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, the "Notes Litigation". On
February 23, 2007, the Company paid $762,638, representing
the full amount due including interest, to the Convertible
Note holders as settlement of all claims related to the
Notes Litigation. 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 Notes 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 certain 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 were agreed to.
These debentures, if not converted earlier, become due on
February 15, 2017.
(6) Joint Venture
On March 18, 2003, the Company entered into a Joint Venture
Agreement with Tate & Lyle Fermentation Products Ltd.
("Tate"). Pursuant to a Joint Venture Agreement, the
Company 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 in cash to the
Joint Venture, while the Company transferred to the Joint
Venture its technology relating to the production of
astaxanthin and assets related thereto. These assets
continue to be used by the Joint Venture in the same
manner as historically used by the Company.
-11-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(continued)
The Company and Tate each have a 50% ownership interest in
the Joint Venture and equal representation on the Board of
Directors of the Joint Venture. The value of the Company's
initial investment in the Joint Venture has been recorded at
an amount equal to Igene's historical book value. As the
cost of the Company's technology and intellectual property
has been previously expensed and had a carrying amount of
zero, the investment in the Joint Venture was originally
recorded with a book value of $316,869, which represents the
unamortized production costs contributed to the Joint
Venture. The Company also contributed $6,000 to the capital
of the Joint Venture.
Production utilizes Tate's fermentation capability together
with the unique technology developed by Igene. Part of
Tate's existing Selby, England, citric acid facility was
modified to produce up to 1,500 tons per annum of this
astaxanthin. Tate's investment of approximately $25 million
includes certain of its facility assets previously used in
citric acid production. Sales and cost of sales activity
are now recorded as part of the earnings of the
unconsolidated venture.
As a result of the Joint Venture, the production, sales and
marketing of astaxanthin now take place in the
unconsolidated Joint Venture. From inception on March 18,
2003 through March 31, 2007, the Joint Venture's results of
operations included the following: Gross profit from
inception was a negative $19,763,827 on sales of
$31,353,167, less manufacturing cost of $51,116,994.
Selling and general and administrative expenses were
$14,302,539, and interest expense was $4,244,994. The
resulting loss for such period was $38,311,360. Igene's 50%
portion of the Joint Venture loss was $19,155,680 for such
period.
Because the Company accounts 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 or the amount that
is guaranteed by the Company, if any. 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 are carried forward to offset
Igene's share of the Joint Venture's future income, if any.
On June 15, 2005, the Company executed a limited guarantee
for one of the debt obligations of the Joint Venture owing
to the Royal Bank of Scotland. Under the terms of the
limited guarantee, the company agreed to guarantee up to
4,200,000 British pounds sterling. The Company subsequently
entered into an agreement with Tate & Lyle (the other 50%
partner in the Joint Venture) where by Tate & Lyle has
agreed to arrange funds for the Joint Venture, without
recourse to The Company, until the Joint Venture produces a
regular monthly cash flow, as defined, for four consecutive
months. As of May 1, 2007, the Joint Venture had not met
the cash flow requirements. The Company has subsequently
been released from the guarantee by the bank.
At March 31, 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 $1,110,156, for a total of
$1,433,025. Through the year ended December 31, 2006, Igene
recognized $1,491,981 of its share of a $15,922,400 loss.
The remainder of $14,430,419, was suspended and will be
carried forward to offset Igene's share of earnings from the
Joint Venture, if any. During the quarter ended March 31,
2007 the balance of funds due to Igene from the Joint
Venture was reduced through repayments to Igene. This net
repayment totaled $58,956, and is treated as a recoupment of
prior loss. In addition the JV incurred an additional loss
of $6,466,560, Igene's 50% share of this was $3,233,280, the
combination increased the suspended loss by $3,292,236,
during the quarter ended March 31, 2007. This brought the
March 31, 2007 suspended loss to $17,722,655. The balance
in the advances to and investment in Joint Venture account
on the Company's financial statements is zero at March 31,
2007.
-12-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(continued)
On March 29th , 2007 the Company was informed by their 50%
partner in the Joint Venture, Tate and Lyle, that they
determined to write down their portion of the investment in
the Joint Venture. There has been no impairment charge
reflected by the Joint Venture in the enclosed financial
statements as they have not completed their annual
impairment assessment as of March 31, 2007.
The following schedules display certain account balances of
the Joint Venture as of March 31, 2007 and the period since
initial investment at March 18, 2003 (inception):
March 31,
2007
_____________
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,042,000
Accounts Receivable 4,229,000
Inventories 10,491,000
_____________
15,762,000
OTHER ASSETS
Property, plant and equipment, net 20,053,000
Intangibles 24,614,000
_____________
TOTAL ASSETS $ 60,429,000
=============
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 35,211,000
Working capital loan 11,812,000
_____________
TOTAL CURRENT LIABILITIES 47,023,000
Equity 13,406,000
_____________
TOTAL LIABILITIES AND EQUITY $ 60,429,000
=============
|
Period from
March 18, 2003
(initial investment) to
March 31, 2007
_______________________
Net Sales $ 31,353,167
Less: manufacturing cost (51,116,994)
_____________
Gross Profit (Loss) (19,763,827)
Less: selling, general and administrative (14,302,539)
_____________
Operating Loss (34,066,366)
Interest Expense (4,244,994)
_____________
Net Loss $(38,311,360)
=============
Igene's 50% equity interest in the net loss $(19,155,680)
Igene's Investment in and Advances
to the Joint Venture (1,433,025)
_____________
Igene's suspended loss $(17,722,655)
=============
|
-13-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(continued)
Quarter ended Quarter ended
March 31, 2007 March 31, 2006
_______________ _______________
Net Sales $ 3,580,288 $ 3,190,139
Less: manufacturing cost (8,178,136) (3,348,894)
_______________ _______________
Gross Profit (Loss) (4,597,848) (158,755)
Less: selling, general and administrative (1,212,252) (1,104,719)
_______________ _______________
Operating Loss (5,810,100) (1,263,474)
Interest Expense (656,460) (700,900)
_______________ _______________
Net Loss before taxes (6,466,560) (1,964,374)
Tax Expense --- (1,205,900)
_______________ _______________
Net Loss before taxes $ (6,466,560) $ (3,170,274)
=============== ===============
Igene's 50% equity interest in the net loss $ (3,233,280) $ (1,585,137)
Igene's additional Recoupment from (Investment
in and Advances to) the Joint Venture 58,956 (189,902)
_______________ _______________
Igene's incremental suspended loss $ (3,292,236) $ (1,395,235)
=============== ===============
|
(7) Stockholders' Deficiency
As of March 31, 2007, 22,268 shares of authorized but
unissued common stock were reserved for issue upon
conversion of the Company's outstanding preferred stock.
As of March 31, 2007, 72,232,334 shares of authorized but
unissued common stock were reserved for distribution and
exercise pursuant to the Company's Employee Stock Option
Plans.
As of March 31, 2007, 23,421,273 shares of authorized but
unissued common stock were reserved for the conversion of
outstanding convertible promissory notes held by directors
of the Company in the aggregate amount of 1,082,500.
As of March 31, 2007, 66,427,651 shares of authorized but
unissued common stock were reserved for the conversion of
outstanding convertible promissory notes held by directors
of the Company.
As of March 31, 2007 38,250,000 shares of authorized but
unissued common stock were reserved for the conversion of
outstanding convertible promissory notes issued as part of
the settlement of the ProBio notes.
As of March 31, 2007, 205,261,073 shares of authorized but
unissued common stock were reserved for the exercise of
outstanding warrants.
(8) Basic and diluted net loss per common share
Basic and diluted net loss per common share for the three-
month periods ended March 31, 2007 and 2006 are based on
109,337,072 and 107,561,565, respectively, of weighted
average common shares outstanding. No adjustment has been
made for any common stock equivalents outstanding because
their effects would be antidilutive. As of March 31, 2007
and 2006, potentially dilutive shares totaled 405,614,599
and 380,841,782, respectively.
-14-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(continued)
(9) Income Taxes
The Company uses the liability method of accounting for
income taxes as required by SFAS No. 109, "Accounting for
Income Taxes". Under the liability method, deferred-tax
assets and liabilities are determined based on differences
between the financial statement carrying amounts and the tax
bases of existing assets and liabilities (i.e., temporary
differences) and are measured at the enacted rates that will
be in effect when these differences reverse. Deferred
income taxes will be recognized when it is deemed more
likely than not that the benefits of such deferred income
taxes will be realized; accordingly, all net deferred income
taxes have been eliminated by a valuation allowance.
(10) Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards Number
157 - Fair Value Measurements ("SFAS157"). 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") No. 48, "Accounting for Uncertainty
in Income Taxes-an interpretation of FASB Statement
No. 109." FIN No. 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 No. 48
effective January 1, 2007. The interpretation had no impact
on financial position, results of operations, earnings per
share, or cash flows.
In September 2006, the Securities and Exchange Commission
issued SAB No. 108, "Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year
Financial Statements." SAB No. 108 was issued to address
diversity in practice in quantifying financial statement
misstatements. Current practice allows for the evaluation of
materiality on the basis of either (1) the error quantified
as the amount by which the current year income statement was
misstated ("rollover method") or (2) the cumulative error
quantified as the cumulative amount by which the current
year balance sheet was misstated ("iron curtain method").
The guidance provided in SAB 108 requires both methods to be
used in evaluating materiality ("dual approach"). SAB
No. 108 permits companies to initially apply its provisions
either by (1) restating prior financial statements as if the
dual approach had always been used or (2) recording the
cumulative effect of initially applying the "dual approach"
as adjustments to the carrying values of assets and
liabilities as of January 1, 2006 with an offsetting
adjustment recorded to the opening balance of retained
earnings. There were no matters warranting the Company's
consideration under the provisions of SAB No. 108 and,
therefore, it did not have an impact on the Company's
financial position, results of operations, earnings per
share or cash flows.
-15-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(continued)
In February 2007, the FASB issued SFAS No. 159, "The Fair
Value Option for Financial Assets and Financial
Liabilities-Including an Amendment of FASB Statement
No. 115." This Standard allows entities to voluntarily
choose, at specified election dates, to measure many
financial assets and financial liabilities (as well as
certain nonfinancial instruments that are similar to
financial instruments) at fair value. The election is made
on an instrument-by-instrument basis and is irrevocable. If
the fair value option is elected for an instrument, the
Statement specifies that all subsequent changes in fair
value for that instrument shall be reported in earnings.
SFAS No. 159 is effective beginning on January 1, 2008. We
are currently evaluating the impact this new Standard could
have on our financial position and results of operations.
(11) Subsequent Event
On October 31, 2007, Igene Biotechnology, Inc. (the
"Company") and Tate & Lyle Fermentation Products Ltd.
("T&L") entered into a Separation Agreement (the
"Agreement") pursuant to which the Joint Venture Agreement
dated March 19, 2003, as amended, between the parties
(the "Joint Venture") was terminated. As part of the
Agreement, the Company sold to T&L its 50% interest in the
joint venture and the joint venture sold to the Company its
intellectual property, inventory and certain assets and
lab equipment utilized by the Joint Venture. The purchase
price paid by T&L to the Company for its 50% interest
was 50% of the Joint Venture's net working capital. The
purchase price paid by the Company 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. The purchase price paid by the Company for
the intellectual property was $1.00. The purchase price
paid by the Company for the assets and lab equipment was
$1,000,000. In addition, the Company agreed to pay to T&L
an amount equal to 5% of the Company's gross revenues from
the sale of astaxanthin up to a maximum of $5,000,000.
T&L agreed for a period of five years not to engage in the
astaxanthin business.
.
(12) RESTATEMENT - Quarters ended March 31, 2007 and 2006
The Company has historically reported the warrants issued in
connection with the Notes as having zero value and has not
recognized any discount on the Notes but rather recorded the
full face value of the Notes as Long Term Debt in its
consolidated financial statements. The restatement is based
on the Company's using a Black Scholes model and ignoring
any discounts for illiquidity of shares or blockage
discounts. The warrants are valued with a corresponding
amount of discount on the Notes. The amortization of this
discount over the term of the Notes has required the
Registrant to revise its Condensed Consolidated Financial
Statements and the accompanying notes thereto in order to,
among other things, reflect an increase in Additional Paid
in Capital, a decrease in Long Term Debt, an increase in
Accumulated Deficit, an increase in Interest Expense and an
increase in Net Loss and Net Loss per Common Share, for the
quarters ended March 31, 2007 and 2006. The following
presents the effect of the restatement on the Condensed
Consolidated Balance Sheet and Income Statements. There was
no change to the cash flows from operations for any of the
periods.
-16-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(continued)
Previously
Reported Restated
March 31, March 31,
2007 Restatement 2007
_____________ _____________ _____________
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,198 $ 4,198
Accounts receivable 3,750 3,750
Prepaid expenses and other current assets 6,083 6,083
_____________ _____________
TOTAL CURRENT ASSETS 14,031 14,031
Property and equipment, net 28,898 28,898
Investment in and advances to unconsolidated joint venture --- ---
Other assets 5,125 5,125
TOTAL ASSETS $ 48,054 $ 48,054
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 131,035 $ 131,035
_____________ _____________
TOTAL CURRENT LIABILITIES 131,035 131,035
LONG-TERM DEBT
Notes payable (Net of discount) 5,842,267 (1,969,489) 3,872,778
Convertible debentures (Net of discount) 4,576,212 (1,615,963) 2,960,249
Accrued interest 5,822,201 5,822,201
REDEEMABLE PREFERRED STOCK
Carrying amount of redeemable preferred stock, 8% cumulative,
cumulative convertible, voting, series A, $.01 par value per
share. Stated value was $19.84. Authorized 1,312,500 shares,
issued 11,134 220,899 --- 220,899
_____________ _____________ _____________
TOTAL LIABILITIES 16,592,614 (3,585,452) 13,007,162
============= ============= =============
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Common stock --- $.01 par value per share. Authorized
750,000,000 shares; issued and outstanding 109,337,042. 1,093,371 1,093,371
Additional paid-in capital 25,659,696 7,605,991 33,265,687
Accumulated Deficit (43,297,627) (4,020,539) (47,318,166)
_____________ _____________ _____________
TOTAL STOCKHOLDERS' DEFICIENCY (16,544,560) 3,585,452 (12,959,108)
_____________ _____________ _____________
TOTAL LIABILITIES AND DEFICIENCY $ 48,054 $ 48,054
============= =============
|
-17-
IGENE Biotechnology, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(continued)
Reported Restated
Quarter Quarter
March 31, March 31,
2007 Restatement 2007
_____________ _____________ _____________
RECOUPMENT OF LOSS OF JOINT VENTURE $ 58,956 $ 58,956
_____________ _____________
OPERATING EXPENSES
__________________
Marketing and selling 1,892 1,892
Research, development and pilot plant 252,114 252,114
General and administrative 202,913 202,913
Operating expenses reimbursed by Joint Venture (445,044) (445,044)
_____________ _____________
TOTAL OPERATING EXPENSES 11,875 11,875
_____________ _____________
OPERATING PROFIT 47,081 47,081
_____________ _____________
OTHER INCOME 6,382 6,382
INTEREST EXPENSE
(including amortization of debt discount of $351,694) (179,178) (351,694) (530,872)
_____________ _____________ _____________
NET LOSS $ (125,715) $ (351,694) $ (477,409)
============= ============= =============
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.00) $ (0.00) $ (0.00)
============= ============= =============
|
Reported Restated
Quarter Quarter
March 31, March 31,
2006 Restatement 2006
_____________ _____________ _____________
EQUITY IN LOSS OF JOINT VENTURE $ (189,902) $ (189,902)
OPERATING EXPENSES
__________________
Marketing and selling 42,811 42,811
Research, development and pilot plant 208,649 208,649
General and administrative 224,783 224,783
Operating expenses reimbursed by Joint Venture (399,943) (399,943)
_____________ _____________
TOTAL OPERATING EXPENSES 76,300 76,300
OPERATING LOSS (266,202) (266,202)
INTEREST EXPENSE
(including amortization of debt discount of $221,054) (206,399) (221,054) (427,453)
_____________ _____________ _____________
NET LOSS $ (472,601) $ (221,054) $ (693,655)
============= ============= =============
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.00) $ (0.00) $ (0.01)
============= ============= =============
|
-18-
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
CAUTIONARY STATEMENTS FOR PURPOSES OF "SAFE HARBOR PROVISIONS" OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:
EXCEPT FOR HISTORICAL FACTS, ALL MATTERS DISCUSSED IN THIS
REPORT, WHICH ARE FORWARD LOOKING, INVOLVE A HIGH DEGREE OF RISK
AND UNCERTAINTY. CERTAIN STATEMENTS IN THIS REPORT SET FORTH
MANAGEMENT'S INTENTIONS, PLANS, BELIEFS, EXPECTATIONS OR
PREDICTIONS OF THE FUTURE BASED ON CURRENT FACTS AND ANALYSES.
WHEN WE USE THE WORDS "BELIEVE," "EXPECT," "ANTICIPATE,"
"ESTIMATE," "INTEND" OR SIMILAR EXPRESSIONS, WE INTEND TO
IDENTIFY FORWARD-LOOKING STATEMENTS. YOU SHOULD NOT PLACE UNDUE
RELIANCE ON THESE FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE INDICATED IN SUCH STATEMENT, DUE TO
A VARIETY OF FACTORS, RISKS AND UNCERTAINTIES. POTENTIAL RISKS
AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, COMPETITIVE
PRESSURES FROM OTHER COMPANIES WITHIN THE BIOTECH AGRICULTURE AND
AQUACULTURE INDUSTRIES, ECONOMIC CONDITIONS IN THE COMPANY'S
PRIMARY MARKETS, EXCHANGE RATE FLUCTUATIONS, REDUCED PRODUCT
DEMAND, INCREASED COMPETITION, INABILITY TO PRODUCE REQUIRED
CAPACITY, UNAVAILABILITY OF FINANCING, GOVERNMENT ACTION, WEATHER
CONDITIONS AND OTHER UNCERTAINTIES, INCLUDING THOSE DETAILED IN
"RISK FACTORS" THAT ARE INCLUDED FROM TIME-TO-TIME IN THE
COMPANY'S SECURITIES AND EXCHANGE COMMISSION FILINGS.
Critical Accounting Policies
The preparation of our financial statements in conformity
with accounting principles generally accepted in the U.S.
requires management to make judgments, assumptions and estimates
that affect the amounts reported in such 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 presented in the
financial statements and require management to make judgments and
estimates that are inherently uncertain:
The Joint Venture 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.
The Joint Venture recognizes revenue from product sales 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 investment in the Joint Venture is accounted for under
the equity method whereby the Company's 50% ownership percentage
in the Joint Venture's equity is reflected as an asset and the
changes in the Joint Venture's equity as a result of its
operations is reflected in the Company's consolidated statement
of operations subject to certain limitations. Igene's share of
losses in the Joint Venture are recognized only to the extent of
Igene's consideration paid for its initial investment in the
Joint Venture and any net advances Igene has made 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 future income, if any.
Income in the future, if any, will only be recognized once all
previously deferred losses have been exhausted and advances
repaid. The Company evaluates its investment in the Joint
Venture for impairment, as it does for all other assets. The
accounting policies followed by the Joint Venture are in
conformity with accounting principals generally accepted in the
United States of America.
On June 15th 2005, the Company executed a limited guarantee
for one of the debt obligations of the Joint Venture. Under the
terms of the limited guarantee, the Company guaranteed repayment
by the Joint Venture to the Royal Bank of Scotland of 4,200,000
British pounds sterling. The Company subsequently entered into
an agreement with Tate & Lyle (the other 50% partner in the Joint
Venture) where Tate & Lyle has agreed to arrange funds for the
Joint Venture, without recourse to the Company until the Joint
Venture produces a regular monthly cash flow, as defined, for
four consecutive months. As of May 1, 2007, the Joint Venture
had not met the cash flow requirements. The Company has
subsequently been released from the guarantee by the bank.
-19-
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
The Joint Venture entered into a lease of real property with
an affiliate of Tate & Lyle in Selby, England upon which the
manufacturing facility is being completed and operated by the
Joint Venture.
Results of Operations
Sales and other revenue
As part of the Joint Venture agreement, all sales are
recognized through the Joint Venture. Therefore, Igene recorded
no sales of AstaXin(R) since the inception of the Joint
Venture on March 18, 2003.
Management anticipates that the Joint Venture with Tate &
Lyle will provide a more dependable product flow. However, there
can be no assurance of the dependability of production, or that
any increases in production or sales will occur, or that if they
occur, they will be material.
Cost of sales and gross profit
As with Sales Revenue, future Cost of Sales and Gross Profit
is recognized through the Joint Venture. As a result, Igene
reported no gross profit on sales of AstaXin(R) since the
inception of the Joint Venture. The Company attributes poor or
negative gross profit to a combination of pricing pressure in the
market and inefficiencies in production. Management expects that
sales and gross profits may continue to be limited by production
inefficiency resulting from process research and development.
Management expects the level of gross profit to improve in the
future as production efficiency is realized from the Joint
Venture offsetting pricing competition, but can provide no
assurances of future increased production or future profits.
Additionally no cost of sales were recorded as they are also
recorded as part of the Joint Venture activity.
Marketing and selling expenses
For the quarters ended March 31, 2007 and 2006, Igene
recorded marketing and selling expense in the amount of $1,892
and $42,811, respectively, a decrease of $40,919 or 96%. Over
the past year, the majority of the marketing and selling expenses
are being incurred directly by the Joint Venture rather than
being incurred by Igene and then reimbursed by the Joint Venture.
It is expected that this level of marketing and selling expense
will be constant as the Joint Venture assumes the marketing and
sales function, based on the current level of salable product
currently available. As a result of the Joint Venture, Igene is
expecting an increase in salable product with a corresponding
increase in sales costs incurred at the Joint Venture. These
expenses have been reimbursed to Igene by the Joint Venture.
However, no assurances can be made with regard to increased
production from the Joint Venture or the likelihood of future
reimbursements.
Research, development and pilot plant expenses
For the quarters ended March 31, 2007 and 2006, Igene
recorded research and development costs in the amount of $252,114
and $208,649, respectively, an increase of $43,465 or 21%. It is
expected these costs will remain at current increased levels in
support of increasing the efficiency of the manufacturing process
through experimentation in the Company's pilot plant, developing
higher yielding strains of yeast and other improvements in the
Company's AstaXin(R) technology. These costs are currently funded
through reimbursement from the Joint Venture. Igene is hoping
this will lead to an increase in salable product at a reduced
cost to the Joint Venture. However no assurances can be made in
that regard or with respect to future reimbursements from the
Joint Venture.
-20-
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Operating expenses
General and administrative expenses for the quarter ended
March 31, 2007 and 2006 were $202,913 and $224,783 respectively,
a decrease of $21,870 or 10%. These costs are expected to
remain constant, at the current level. Igene works to keep
overhead costs at a reduced level and spend funds on research and
development efforts. A portion of this cost is funded by
reimbursement through the Joint Venture and the remainder will
need to be funded through profitable operations or through
contributions from directors; though neither of these can be
assured.
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 costs related to the marketing of AstaXin(R), are
considered costs of the Joint Venture and therefore are
reimbursed by the Joint Venture. For the quarter ended March 31,
2007, costs reimbursed by the Joint Venture totaled $445,044.
The costs covered $1,892 of marketing costs, $252,114 of research
and development costs and $191,038 of general and administrative
costs. For the quarter ended March 31, 2006, costs reimbursed by
the Joint Venture totaled $399,943. The costs covered $42,811 of
marketing costs, $208,649 of research and development costs and
$148,483 of general and administrative costs. Igene can provide
no assurance of future reimbursements.
Interest expense
Interest expense for the quarters ended March 31, 2007 and
2006, was $530,872 and $427,453, respectively, an increase of
$103,419 or 24%. The interest expense was composed of interest
on the Company's long term financing from its directors and other
stockholders, and interest on the Company's subordinated
debenture in both periods, as well as amortization of discount on
Igene's notes and debentures of $351,694 for the quarter ended
March 31, 2007 and $221,054 for the quarter ended March 31, 2006.
Equity in earnings of unconsolidated Joint Venture
As a result of the Joint Venture, the production, sales and
marketing of astaxanthin now take place in the unconsolidated
Joint Venture. From inception on March 18, 2003 through March
31, 2007, the Joint Venture's results of operations included the
following: Gross profit from inception was a negative
$19,763,827 on sales of $31,353,167, less manufacturing cost of
$51,116,994. Selling and general and administrative expenses
were $14,302,539, and interest expense was $4,244,994. The
resulting loss was $38,311,360. Igene's 50% portion of the Joint
Venture loss was $19,155,680.
Because the Company accounts 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 or the amount that is guaranteed
by the Company, if any. 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 are
carried forward to offset Igene's share of the Joint Venture's
future income, if any.
On June 15, 2005, the Company executed a limited guarantee
for one of the debt obligations of the Joint Venture owed to the
Royal Bank of Scotland. Under the terms of the limited
guarantee, the Company agreed to guarantee up to 4,200,000
British pounds sterling. The Company subsequently entered into
an agreement with Tate & Lyle (the other 50% partner in the Joint
Venture) where Tate & Lyle has agreed to arrange funds for the
Joint Venture, without recourse to Igene Biotechnology, Inc.,
until the Joint Venture produces a regular monthly cash flow, as
defined, for four consecutive months. As of May 1, 2007, the
Joint Venture had not met the cash flow requirements. The
Company has subsequently been released from the guarantee by the
bank.
-21-
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
At March 31, 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 $1,110,156, for a total of $1,433,025. Through the
year ended December 31, 2006, Igene recognized $1,491,981 of its
share of a $15,922,400 loss. The remainder of $14,430,419, was
suspended and will be carried forward to offset Igene's share of
earnings from the Joint Venture, if any. During the quarter
ended March 31, 2007 the balance of funds due to Igene from the
Joint Venture was reduce through repayments to Igene. This net
repayment totaled $58,956. This amount is treated as a
recoupment of prior loss and added back to the $14,430,419
suspended loss. In addition the JV incurred an additional loss
of $6,466,560, Igene's 50% share of this was $3,233,280, the
combination increased the suspended loss by $3,292,236, during
the quarter ended March 31, 2007. This brought the March 31,
2007 suspended loss to $17,722,655. The balance in the advances
to and investment in Joint Venture account on the Company's
financial statements is zero at March 31, 2007.
Net loss and basic and diluted net loss per common share
As a result of the foregoing, the Company reported net losses
of $477,409 and $693,655, respectively, for the quarters ended
March 31, 2007 and 2006, a decrease in the loss of $216,246 or
31%. This represents a loss of $0.00 and $0.01 per basic and
diluted common share for the quarters ended March 31, 2007 and
2006, respectively. The weighted average number of shares of
common stock outstanding of 109,337,072 and 107,561,566 for the
quarters ended March 31, 2007 and 2006, respectively, has
increased by 1,775,506 shares. The increase in outstanding shares
resulted from primarily from the weighted average adjustment of
the issuance 545,569 shares to Igene's manufacturer under the
manufacturing agreement with Fermic, and 1,000,000 shares of
common stock were issued to the Company's new Vice President of
Manufacturing as part of his agreement in accepting the position.
Financial Position
During the quarters ended March 31, 2007 and 2006, in
addition to the matters previously discussed, the following
actions also materially affected the Company's financial
position:
o Increases in accounts payable and accrued expense for the
quarter ended March 31, 2007 of $40,413 was a source of cash,
in addition to a net decrease in prepaid expense of $4,260;
o The carrying value of redeemable preferred stock was
increased and interest expense recorded in the amounts of
$1,781 in 2007, reflecting cumulative unpaid dividends on
redeemable preferred stock.
o Net proceeds of borrowing provided $57,000 in net cash
provided by financing activities. These funds were used to
pay outstanding interest in the settlement of the Notes
Litigation referenced in Section 4, entitled "Amendment to
Long-Term Liabilities."
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 March 31, 2007, total dividends in arrears on
Igene's preferred stock total $131,827 ($11.84 per share) and are
included in the carrying value of the redeemable preferred stock.
Liquidity and Capital Resources
Historically, Igene has been funded primarily by equity
contributions and loans from stockholders. As of March 31, 2007,
Igene had negative working capital of $117,004, and cash and cash
equivalents of $4,198. Currently Igene is also funded by
research and development and selling, general and administrative
expense reimbursements from the Joint Venture.
Cash used by operating activities during the three-month
period ended March 31, 2007 equaled $133,544 versus cash provided
by operating activities of $2,354 for the three-month period
ended March 31, 2006.
-22-
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Cash provided by investing activities during the three-month
period ended March 31, 2007 equaled $58,956 versus cash used by
investing activities of $189,902 for the three-month period ended
March 31, 2006.
Cash provided by financing activities was $57,000 during the
first quarter of 2007, in settlement of the convertible
debentures and used in payment of interest on those notes. Cash
provided by financing activities was $67,803 during the first
quarter of 2006, this was due primarily to employee stock options
exercised and bank overdraft.
Over the next twelve months, Igene believes it will need
additional working capital. Igene hopes to achieve profits from
sales of AstaXin(R) through the Joint Venture. However, there can
be no assurance that projected profits, if any, from sales, or
additional funding from the Joint Venture will be sufficient for
Igene to fund its continued operations.
The Company does not believe that inflation had a
significant impact on its operations during the three-month
periods ended March 31, 2007 and 2006.
Subsequent Event
On October 31, 2007, Igene Biotechnology, Inc. (the
"Company") and Tate & Lyle Fermentation Products Ltd. ("T&L")
entered into a Separation Agreement (the "Agreement")
pursuant to which the Joint Venture Agreement dated March 19,
2003, as amended, between the parties (the "Joint Venture")
was terminated. As part of the Agreement, the Company sold to
T&L its 50% interest in the joint venture and the joint venture
sold to the Company its intellectual property, inventory and
certain assets and lab equipment utilized by the Joint Venture.
The purchase price paid by T&L to the Company for its 50%
interest was 50% of the Joint Venture's net working capital. The
purchase price paid by the Company 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. The purchase
price paid by the Company for the intellectual property was
$1.00. The purchase price paid by the Company for the assets
and lab equipment was $1,000,000. In addition, the Company agreed
to pay to T&L an amount equal to 5% of the Company's gross
revenues from the sale of astaxanthin up to a maximum of
$5,000,000. T&L agreed for a period of five years not to engage
in the astaxanthin business. As a result of the above transaction
Igene will now record all sales activity that had subsequently
been recorded by the JV and will no longer be receiving any
marketing reimbursement.
Controls and Procedures
Item 3
Evaluation of Disclosure Controls and Procedures. Our management
has evaluated, with the participation of our Chief Executive
Officer and our principal financial and accounting officer, the
effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) as of the end of the
fiscal quarter covered by this Quarterly Report on Form 10-QSB/A.
Based upon the evaluation, the Chief Executive Officer and the
principal financial and accounting officer have concluded that as
of the end of such fiscal quarter, our current disclosure
controls and procedures were not effective, because of material
weaknesses in the internal control over financial reporting
described below. We have taken, and are continuing to take,
steps to address these weaknesses as described below. With the
exception of such weaknesses, however, the Chief Executive
Officer and principal financial and accounting officer believe
that our current disclosure controls and procedures are adequate
to ensure that information required to be disclosed in the
reports we file under the Exchange Act is recorded, processed,
summarized and reported on a timely basis.
-23-
IGENE Biotechnology, Inc. and Subsidiary
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Material Weaknesses and Changes in Internal Controls. During the
review of our financial statements for the three and six-month
periods ended June 30, 2007, our current independent registered
public accounting firm identified as a material weakness our
procedure regarding our internal controls over the non-routine
recording of warrants issued in connection with certain of our
debt obligations. The procedure of valuation is one that that
the company has always followed and has been reported in the
company's previous audited and unaudited financial statements.
As defined by the Public Company Accounting Oversight Board
Auditing Standard No. 5, 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 annual or interim financial
statements will not be prevented or detected. Since this was
identified as a material weakness by our current independent
registered public accounting firm in connection with its review
of the financial statements in the June 30, 2007, Form 10-QSB,
the transactions subject to these issues are correctly accounted
for and disclosed by us in the financial statements included in
this Form 10-QSB/A. However, on a going forward basis, management
will continue to evaluate our internal controls over the non-
routine recording of warrants issued in connection with certain
of our debt obligations in order to prevent the recurrence of the
circumstance that resulted in the material weakness identified in
connection with the review of the financial statements in this
Form 10-QSB/A.
There were no changes in Igene's internal control over financial
reporting identified in connection with our evaluation of these
controls during the period covered by this report that could have
significantly affected those controls subsequent to the date of
the evaluation referred to in the previous paragraph, including
any correction action with regard to significant deficiencies and
material weaknesses.
-24-
IGENE Biotechnology, Inc. and Subsidiary