10-Q 1 f10q0619_immucellcorporation.htm QUARTERLY REPORT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2019

 

001-12934

(Commission file number)

 

ImmuCell Corporation

(Exact name of registrant as specified in its charter)

 

Delaware   01-0382980
(State of Incorporation)   (I.R.S. Employer
    Identification No.)

 

56 Evergreen Drive, Portland, ME   04103
(Address of principal executive office)   (Zip Code)

 

(207) 878-2770

(Registrant’s telephone number)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

 

The number of shares of the Registrant’s common stock outstanding at August 1, 2019 was 7,209,595.

 

 

 

 

 

 

ImmuCell Corporation

 

TABLE OF CONTENTS

June 30, 2019

 

  PART I: FINANCIAL INFORMATION  
     
ITEM 1. Unaudited Condensed Financial Statements  
     
  Balance Sheets as of June 30, 2019 and December 31, 2018 1
     
  Statements of Operations during the three-month and six-month periods ended June 30, 2019 and 2018 2
     
  Statements of Comprehensive Loss during the three-month and six-month periods ended June 30, 2019 and 2018 2
     
  Statements of Stockholders’ Equity during the six-month periods ended June 30, 2018 and 2019 3
     
  Statements of Cash Flows during the six-month periods ended June 30, 2019 and 2018 4-5
     
  Notes to Unaudited Condensed Financial Statements 6-22
     
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23-32
     
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 32
     
ITEM 4. Controls and Procedures 32
     
  PART II: OTHER INFORMATION  
     
ITEM 1 THROUGH 6. 33-40
     
  Signature

 

 

 

 

ImmuCell Corporation

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

(Unaudited Condensed)

BALANCE SHEETS

 

  

As of

June 30, 2019

  

As of

December 31, 2018

 
ASSETS        
CURRENT ASSETS:        
Cash and cash equivalents  $1,296,016   $2,521,050 
Short-term investments   8,675,329     
Trade accounts receivable, net   931,493    932,298 
Inventory   2,492,394    2,331,671 
Prepaid expenses and other current assets   657,593    635,817 
Total current assets   14,052,825    6,420,836 
PROPERTY, PLANT AND EQUIPMENT, net   25,129,872    26,027,549 
INTANGIBLE ASSETS, net   124,176    133,728 
GOODWILL   95,557    95,557 
INTEREST RATE SWAPS       40,209 
OTHER ASSETS   6,968    12,953 
TOTAL ASSETS  $39,409,398   $32,730,832 
LIABILITIES AND STOCKHOLDERS’ EQUITY          
CURRENT LIABILITIES:          
Accounts payable and accrued expenses  $861,799   $1,220,660 
Current portion of bank debt   848,462    844,351 
Line of credit       500,000 
Total current liabilities   1,710,261    2,565,011 
LONG-TERM LIABILITIES:          
Bank debt, net of current portion   7,996,902    8,421,487 
Interest rate swaps   57,216     
Total long-term liabilities   8,054,118    8,421,487 
TOTAL LIABILITIES   9,764,379    10,986,498 
CONTINGENT LIABILITIES AND COMMITMENTS (See Note 17)          
STOCKHOLDERS’ EQUITY:          
Common stock, $0.10 par value per share, 11,000,000 and 11,000,000 shares authorized, 7,299,009 and 5,662,645 shares issued and 7,209,595 and 5,568,962 shares outstanding, as of June 30, 2019 and December 31, 2018, respectively   729,901    566,265 
Additional paid-in capital   30,978,936    22,695,557 
Accumulated deficit   (1,825,298)   (1,342,698)
Treasury stock, at cost, 89,414 and 93,683 shares as of June 30, 2019 and December 31, 2018, respectively   (195,608)   (204,947)
Accumulated other comprehensive (loss) income   (42,912)   30,157 
Total stockholders’ equity   29,645,019    21,744,334 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $39,409,398   $32,730,832 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

1

 

 

ImmuCell Corporation

(Unaudited Condensed)

STATEMENTS OF OPERATIONS

 

  

During the Three-Month

Periods Ended June 30,

  

During the Six-Month
Periods Ended June 30,

 
   2019   2018   2019   2018 
Product sales  $2,709,920   $3,014,546   $7,120,481   $5,895,731 
Costs of goods sold   1,461,113    1,527,636    3,670,203    3,049,080 
Gross margin   1,248,807    1,486,910    3,450,278    2,846,651 
Product development expenses   820,051    761,893    1,730,420    1,344,827 
Sales and marketing expenses   523,776    475,226    1,130,880    1,007,130 
Administrative expenses   451,912    443,200    870,605    866,257 
Operating activities   1,795,739    1,680,319    3,731,905    3,218,214 
NET OPERATING LOSS   (546,932)   (193,409)   (281,627)   (371,563)
Other expenses, net   64,891    103,134    176,617    195,251 
LOSS BEFORE INCOME TAXES   (611,823)   (296,543)   (458,244)   (566,814)
Income tax expense   15,333    501,820    24,356    452,672 
NET LOSS  $(627,156)  $(798,363)  $(482,600)  $(1,019,486)
                     
Basic weighted average common shares outstanding   7,209,595    5,481,417    6,421,428    5,479,679 
 Basic net loss per share  $(0.09)  $(0.15)  $(0.08)  $(0.19)
                     
Diluted weighted average common shares outstanding   7,209,595    5,481,417    6,421,428    5,479,679 
Diluted net loss per share  $(0.09)  $(0.15)  $(0.08)  $(0.19)

 

STATEMENTS OF COMPREHENSIVE LOSS

 

  

During the Three-Month

Periods Ended June 30,

  

During the Six-Month

Periods Ended June 30,

 
   2019   2018   2019   2018 
Net loss  $(627,156)  $(798,363)  $(482,600)  $(1,019,486)
Other comprehensive (loss) income:                    
Interest rate swaps, before taxes   (61,333)   21,655    (97,425)   80,280 
Income tax applicable to interest rate swaps   15,333    (5,414)   24,356    (20,180)
Other comprehensive (loss) income, net of taxes   (46,000)   16,241    (73,069)   60,100 
Total comprehensive loss  $(673,156)  $(782,122)  $(555,669)  $(959,386)

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

2

 

 

ImmuCell Corporation

(Unaudited Condensed)

STATEMENTS OF STOCKHOLDERS’ EQUITY

 

   Common Stock   Retained   Treasury Stock   Accumulated      
   Shares   Amount   Additional
paid-in
capital
   Earnings
(Accumulated
Deficit)
   Shares   Amount   Other
Comprehensive
(Loss) Income
   Total
Stockholders’
Equity
 
BALANCE,
December 31, 2017
   5,662,645   $566,265   $22,458,219   $978,973    186,448   $(407,879)  $(638)  $23,594,940 
Net loss               (1,019,486)               (1,019,486)
Other comprehensive income, net of taxes                           60,100    60,100 
Exercise of stock options           (5,615)       (7,531)   16,475        10,860 
Stock-based compensation           167,991                    167,991 
BALANCE,
June 30, 2018
   5,662,645   $566,265   $22,620,595   $(40,513)   178,917   $(391,404)  $59,462   $22,814,405 
                                         
BALANCE,
December 31, 2018
   5,662,645   $566,265   $22,695,557   $(1,342,698)   93,683   $(204,947)  $30,157   $21,744,334 
Net loss               (482,600)               (482,600)
Other comprehensive loss, net of taxes                           (73,069)   (73,069)
Public offering of common stock, net of $696,566 of offering costs   1,636,364    163,636    8,139,800                    8,303,436 
Exercise of stock options           (9,337)       (4,269)   9,339        2 
Stock-based compensation           152,916                    152,916 
BALANCE,
June 30, 2019
   7,299,009   $729,901   $30,978,936   $(1,825,298)   89,414   $(195,608)  $(42,912)  $29,645,019 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

3

 

 

ImmuCell Corporation

(Unaudited Condensed)

STATEMENTS OF CASH FLOWS

 

   During the Six-Month
Periods Ended June 30,
 
   2019   2018 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss  $(482,600)  $(1,019,486)
Adjustments to reconcile net loss to net cash provided by operating activities:          
Depreciation   1,128,327    560,588 
Amortization   9,552    9,552 
Amortization of debt issue costs   8,488    8,408 
Deferred income taxes   24,356    452,546 
Stock-based compensation   152,916    167,991 
Changes in:          
Accounts receivable, gross   805    358,806 
Accrued interest income   (38,329)    
Inventory   (160,723)   212,838 
Prepaid expenses and other current assets   (21,776)   (172,717)
Other assets   5,985    (8,229)
Accounts payable and accrued expenses   (280,462)   (299,416)
Net cash provided by operating activities   346,539    270,881 
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of property, plant and equipment   (300,136)   (1,715,180)
Purchases of investments   (8,637,000)    
Payment of contingent royalties related to 2016 acquisition   (8,914)   (5,723)
Net cash used in investing activities   (8,946,050)   (1,720,903)
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from public offering, net   8,303,436     
Proceeds from debt issuance       267,141 
Line of credit repayment   (500,000)    
Debt principal repayments   (428,961)   (111,749)
Payments of debt issue costs       (522)
Proceeds from exercise of stock options   2    10,860 
Net cash provided by financing activities   7,374,477    165,730 
           
NET DECREASE IN CASH AND CASH EQUIVALENTS   (1,225,034)   (1,284,292)
           
BEGINNING CASH AND CASH EQUIVALENTS   2,521,050    3,798,811 
           
ENDING CASH AND CASH EQUIVALENTS  $1,296,016   $2,514,519 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

4

 

 

ImmuCell Corporation

(Unaudited Condensed)

STATEMENTS OF CASH FLOWS

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

  

During the Six-Month

Periods Ended June 30,

 
   2019   2018 
CASH PAID FOR:        
Income taxes  $4,700   $4,000 
Interest expense  $220,178   $189,968 
NON-CASH ACTIVITIES:          
Change in capital expenditures included in accounts payable and accrued expenses  $(69,486)  $(634,351)
Net change in fair value of interest rate swaps, net of taxes  $73,069   $(60,100)
Fixed asset disposals, gross  $6,394   $6,730 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

5

 

 

ImmuCell Corporation

Notes to Unaudited Condensed Financial Statements

 

1.BUSINESS OPERATIONS

 

ImmuCell Corporation (the “Company”, “we”, “us”, “our”) was originally incorporated in Maine in 1982 and reincorporated in Delaware in 1987, in conjunction with its initial public offering of common stock. We are an animal health company whose purpose is to create scientifically-proven and practical products that improve the health and productivity of dairy and beef cattle. We market products that provide Immediate Immunity™ to newborn dairy and beef cattle. We are developing extensions to the First Defense® product line and are in the late stages of developing Re-Tain™, a treatment for subclinical mastitis. These products help reduce the need to use traditional antibiotics in food producing animals. The Company is subject to certain risks associated with its stage of development including dependence on key individuals and third-party providers of critical goods and services, competition from other larger companies, the successful sale of existing products and the development and acquisition of additional commercially viable products with appropriate regulatory approvals, where applicable. Based on our best estimates and projections, we believe that we have sufficient capital resources to continue operations for at least twelve months from the date of this filing.

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

(a)Basis of Presentation

 

We have prepared the accompanying unaudited financial statements reflecting all adjustments that are, in our opinion, necessary in order to ensure that the financial statements are not misleading. We follow accounting standards set by the Financial Accounting Standards Board (FASB). The FASB sets generally accepted accounting principles (GAAP) that we follow to ensure we consistently report our financial condition, results of operations, earnings per share and cash flows. References to GAAP in these footnotes are to the FASB Accounting Standards Codification™ (Codification). Accordingly, we believe that the disclosures are adequate to ensure that the information presented is not misleading.

 

(b)Cash, Cash Equivalents and Short-Term Investments

 

We consider all highly liquid investment instruments that mature within three months of their purchase dates to be cash equivalents. Cash equivalents are principally invested in securities backed by the U.S. government. Certain cash balances in excess of Federal Deposit Insurance Corporation (FDIC) limits of $250,000 per financial institution per depositor are maintained in money market accounts at financial institutions that are secured, in part, by the Securities Investor Protection Corporation. Amounts in excess of these FDIC limits per bank that are not invested in securities backed by the U.S. government aggregated $1,024,083 and $2,268,737 as of June 30, 2019 and December 31, 2018, respectively. Short-term investments are classified as held to maturity and are comprised of certificates of deposit that mature in more than three months from their purchase dates and not more than twelve months from the balance sheet date. Short-term investments are held at different financial institutions that are insured by the FDIC, within the FDIC limits per financial institution. We account for investments in marketable securities in accordance with Codification Topic 320, Investments — Debt and Equity Securities. See Note 3.

 

(c)Accounts Receivable

 

Accounts receivable are carried at the original invoice amount less an estimate made for doubtful collection. Management determines the allowance for doubtful accounts on a monthly basis by identifying troubled accounts and by using historical experience applied to an aging of accounts. Accounts receivable are considered to be past due if a portion of the receivable balance is outstanding for more than 30 days. Past due accounts receivable are subject to an interest charge. Accounts receivable are written off when deemed uncollectible. The amount of accounts receivable written off during all periods reported was immaterial. Recoveries of accounts receivable previously written off are recorded as income when received. As of June 30, 2019 and December 31, 2018, we determined that no allowance for bad debt was necessary. See Note 4.

 

(d)Inventory

 

Inventory includes raw materials, work-in-process and finished goods and is recorded at the lower of cost, on the first-in, first-out method, or net realizable value (determined as the estimated selling price in the normal course of business, less reasonably predictable costs of completion, disposal and transportation). Work-in-process and finished goods inventories include materials, labor and manufacturing overhead. At each monthly balance sheet date, we evaluate our ending inventories for excess quantities and obsolescence. Inventories that we consider excess or obsolete are reserved. Once inventory is written down and a new cost basis is established, it is not written back up if demand increases. We believe that supplies and raw materials for the production of our products are available from more than one vendor. Our policy is to maintain more than one source of supply for the components used in our products when practicable. See Note 5.

 

6

 

 

ImmuCell Corporation

Notes to Unaudited Condensed Financial Statements (continued)

 

(e)Property, Plant and Equipment

 

We depreciate property, plant and equipment on the straight-line method by charges to operations and costs of goods sold in amounts estimated to expense the cost of the assets from the date they are first put into service to the end of the estimated useful lives of the assets. The facility we have constructed to produce the Nisin Drug Substance for Re-Tain™ is being depreciated over 39 years from when a certificate of occupancy was issued during the fourth quarter of 2017. We began depreciating the equipment for our Drug Substance facility when it was placed in service during the third quarter of 2018. Approximately 89% of these assets are being depreciated over ten years. Significant repairs to fixed assets that benefit more than a current period are capitalized and depreciated over their useful lives. Insignificant repairs are expensed when incurred. See Note 7.

 

(f)Intangible Assets and Goodwill

 

We amortize intangible assets on the straight-line method by charges to costs of goods sold in amounts estimated to expense the cost of the assets from the date they are first put into service to the end of the estimated useful lives of the assets. We have recorded intangible assets related to customer relationships, non-compete agreements, and developed technology, each with defined useful lives. We have classified as goodwill the amounts paid in excess of fair value of the net assets (including tax attributes) acquired in purchase transactions.

 

We assess the impairment of intangible assets and goodwill that have indefinite lives at the reporting unit level on an annual basis (as of December 31st) and whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. We would record an impairment charge if such an assessment were to indicate that the fair value of such assets was less than the carrying value. Judgment is required in determining whether an event has occurred that may impair the value of goodwill or identifiable intangible assets. Factors that could indicate that an impairment may exist include significant under-performance relative to plan or long-term projections, significant changes in business strategy and significant negative industry or economic trends. Although we believe intangible assets and goodwill are properly stated in the accompanying financial statements, changes in strategy or market conditions could significantly impact these judgments and require an adjustment to the recorded balance. No goodwill impairments were recorded during the six-month periods ended June 30, 2019 or 2018. See Notes 2(h), 8 and 9 for additional disclosures.

 

(g)Fair Value Measurements

 

In determining fair value measurements, we follow the provisions of Codification Topic 820, Fair Value Measurements and Disclosures. Codification Topic 820 defines fair value, establishes a framework for measuring fair value under GAAP and enhances disclosures about fair value measurements. The topic provides a consistent definition of fair value which focuses on an exit price, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The topic also prioritizes, within the measurement of fair value, the use of market-based information over entity-specific information and establishes a three-level hierarchy for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date. As of June 30, 2019 and December 31, 2018, the carrying amounts of cash and cash equivalents, short-term investments, accounts receivable, inventory, other assets, accounts payable, deferred revenue and accrued liabilities approximate fair value because of their short-term nature. The amount outstanding under our bank debt facilities is measured at carrying value in our accompanying balance sheets. Our bank debt facilities are valued using Level 2 inputs. The estimated fair value of our bank debt facilities approximates their carrying value based on similar instruments with similar maturities. The three-level hierarchy is as follows:

 

Level 1 —Pricing inputs are quoted prices available in active markets for identical assets or liabilities as of the measurement date.

 

Level 2 —Pricing inputs are quoted prices for similar assets or liabilities, or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market data.

 

Level 3 —Pricing inputs are unobservable for the assets or liabilities, that is, inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability.

 

7

 

 

ImmuCell Corporation

Notes to Unaudited Condensed Financial Statements (continued)

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level of an asset or liability within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. From time to time, we also hold money market mutual funds in a brokerage account, which are classified as cash equivalents and measured at fair value. The fair value of these investments is based on their closing published net asset value.

 

We assess the levels of the investments at each measurement date, and transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfer in accordance with our accounting policy regarding the recognition of transfers between levels of the fair value hierarchy. During the six-month periods ended June 30, 2019 and 2018, there were no transfers between levels. As of June 30, 2019 and December 31, 2018, our Level 1 assets measured at fair value by quoted prices in active markets consisted of bank savings accounts and money market funds. As of June 30, 2019 our bank certificates of deposit were classified as Level 2 and were measured by significant other observable inputs. As of June 30, 2019 and December 31, 2018, our interest rate swaps were classified as Level 2 and were measured by observable market data in combination with expected cash flows for each instrument. There were no assets or liabilities measured at fair value on a nonrecurring basis as of June 30, 2019 or December 31, 2018.

 

   As of June 30, 2019 
   Level 1   Level 2   Level 3   Total 
Assets:                
Cash and money market accounts  $1,296,016           $1,296,016 
Bank certificates of deposit      $8,675,329       $8,675,329 
Liabilities:                    
Interest rate swaps      $57,216       $57,216 

 

   As of December 31, 2018 
   Level 1   Level 2   Level 3   Total 
Assets:                
Cash and money market accounts  $2,521,050           $2,521,050 
Interest rate swaps      $40,209       $40,209 

 

(h)Valuation of Long-Lived Assets

 

We periodically evaluate our long-lived assets, consisting principally of fixed assets and amortizable intangible assets, for potential impairment. In accordance with the applicable accounting guidance for the treatment of long-lived assets, we review the carrying value of our long-lived assets or asset group that is held and used, including intangible assets subject to amortization, for impairment whenever events and circumstances indicate that the carrying value of the assets may not be recoverable. Under the held for use approach, the asset or asset group to be tested for impairment should represent the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. We evaluate our long-lived assets whenever events or circumstances suggest that the carrying amount of an asset or group of assets may not be recoverable. No impairment was recognized during the six-month periods ended June 30, 2019 and 2018.

 

(i)Concentration of Risk

 

Concentration of credit risk with respect to accounts receivable is principally limited to certain customers to whom we make substantial sales. To reduce risk, we routinely assess the financial strength of our customers and, as a consequence, believe that our accounts receivable credit risk exposure is limited. We maintain an allowance for potential credit losses when deemed necessary, but historically we have not experienced significant credit losses related to an individual customer or groups of customers in any particular industry or geographic area. Sales to significant customers that amounted to 10% or more of total product sales are detailed in the following table:

 

  

During the Three-Month

Periods Ended June 30,

  

During the Six-Month

Periods Ended June 30,

 
   2019   2018   2019   2018 
Company A   46%   44%   44%   40%
Company B   23%   20%   26%   22%
Company C   10%   11%   *    11%

 

*Amount is less than 10%

 

8

 

 

ImmuCell Corporation

Notes to Unaudited Condensed Financial Statements (continued)

 

Trade accounts receivable due from significant customers amounted to the percentages of total trade accounts receivable as detailed in the following table:

 

   As of
June 30, 2019
   As of
December 31, 2018
 
Company A   48%   35%
Company B   28%   36%
Company C   12%   15%

 

(j)Interest Rate Swap Agreements

 

All derivatives are recognized on the balance sheet at their fair value. We entered into interest rate swap agreements in 2010 and 2015. On the dates the agreements were entered into, we designated the derivatives as hedges of the variability of cash flows to be paid related to our long-term debt. The agreements have been determined to be highly effective in hedging the variability of identified cash flows, so changes in the fair market value of the interest rate swap agreements are recorded as comprehensive income (loss), until earnings are affected by the variability of cash flows (e.g., when periodic settlements on a variable-rate asset or liability are recorded in earnings). We formally documented the relationship between the interest rate swap agreements and the related hedged items. We also formally assess, both at the interest rate swap agreements’ inception and on an ongoing basis, whether the agreements are highly effective in offsetting changes in cash flow of hedged items. See Note 11.

 

(k)Revenue Recognition

 

For periods beginning on or after January 1, 2018, we recognize revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. ASC 606 is a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers. The core principle is that we recognize the amount of revenue to which we expect to be entitled for the transfer of promised goods or services to customers when a customer obtains control of promised goods or services in an amount that reflects the consideration we expect to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. We conduct our business with customers through valid purchase orders or sales orders which are considered contracts and are not interdependent on one another. A performance obligation is a promise in a contract to transfer a distinct product to the customer. The transaction price is the amount of consideration we expect to receive under the arrangement. Revenue is measured based on consideration specified in a contract with a customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized when or as the customer receives the benefit of the performance obligation. Product transaction prices on a purchase or sale order are discrete and stand-alone. We recognize revenue when we satisfy a performance obligation in a contract by transferring control over a product to a customer when product delivery occurs. Consideration is typically paid approximately 30 days from the time control is transferred. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost in costs of goods sold. We have enhanced disclosures related to disaggregation of revenue sources and accounting policies prospectively as a result of adopting these standards. We do not bill for or collect sales tax because our sales are generally made to distributors and thus our sales to them are not subject to sales tax. We generally have experienced an immaterial amount of product returns. See Note 13.

 

(l)Expense Recognition

 

In 2018, we adopted ASC 340-40, Accounting for Other Assets and Deferred Costs, which requires sales commissions and other third-party acquisition costs resulting directly from securing contracts with customers to be recognized as an asset when incurred and to be expensed over the associated contract term or estimated customer life depending on the nature of the underlying contract. We do not incur costs in connection with product sales to customers that are eligible for capitalization. Advertising costs are expensed when incurred, which is generally during the month in which the advertisement is published. Advertising expenses amounted to $9,816 and $1,229 during the three-month periods ended June 30, 2019 and 2018, respectively, and $40,623 and $22,995 during six-month periods ended June 30, 2019 and 2018, respectively. All product development expenses are expensed as incurred, as are all related patent costs. We capitalize costs to produce inventory during the production cycle, and these costs are charged to costs of goods sold when the inventory is sold to a customer. Adoption of the amended provisions of ASC 340-40 did not have a material impact on our financial statements.

 

9

 

 

ImmuCell Corporation

Notes to Unaudited Condensed Financial Statements (continued)

 

(m)Income Taxes

 

We account for income taxes in accordance with Codification Topic 740, Income Taxes, which requires that we recognize a current tax liability or asset for current taxes payable or refundable and a deferred tax liability or asset for the estimated future tax effects of temporary differences and carryforwards to the extent they are realizable. During the second quarter of 2018, we assessed our historical and near-term future profitability and decided to record $563,252 in non-cash income tax expense to create a full valuation allowance against our net deferred tax assets (which consist largely of net operating loss carryforwards and federal and state tax credits). At that time, we had incurred a net loss for six consecutive quarters, had not been profitable on a year-to-date basis since the nine-month period ended September 30, 2017 and projected additional net losses for some period going forward before returning to profitability. We consider future taxable income and feasible tax planning strategies in assessing the need for a valuation allowance at each quarter end. If we determine that we would be able to realize our deferred tax assets in the future in excess of the net recorded amount over a reasonably short period of time, a reduction of the valuation allowance would increase income in the period such determination was made. Likewise, if we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an increase to the valuation allowance would be charged to income in the period such determination was made.

 

Codification Topic 740-10 clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position must meet before being recognized in the financial statements. In the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. In addition, we are subject to periodic audits and examinations by the Internal Revenue Service and other taxing authorities. With few exceptions, we are no longer subject to income tax examinations by tax authorities for years before 2015. We have evaluated the positions taken on our filed tax returns. We have concluded that no uncertain tax positions exist as of June 30, 2019 or December 31, 2018. Although we believe that our estimates are reasonable, actual results could differ from these estimates. See Note 16.

 

(n)Stock-Based Compensation

 

We account for stock-based compensation in accordance with Codification Topic 718, Compensation-Stock Compensation, which generally requires us to recognize non-cash compensation expense for stock-based payments using the fair-value-based method. The fair value of each stock option grant has been estimated on the date of grant using the Black-Scholes option pricing model. Accordingly, we recorded compensation expense pertaining to stock-based compensation of $70,081 and $96,943 during the three-month periods ended June 30, 2019 and 2018, respectively, and $152,916 and $167,991 during the six-month periods ended June 30, 2019 and 2018, respectively.

 

(o)Net Loss Per Common Share

 

Net loss per common share has been computed in accordance with Codification Topic 260-10, Earnings Per Share. The net loss per share has been computed by dividing the net loss by the weighted average number of common shares outstanding during the period. All stock options are excluded from the denominator in the calculation of dilutive earnings per share when we are in a loss position, as the inclusion would be anti-dilutive. During the three-month periods ended June 30, 2019 and 2018, the weighted average number of shares outstanding was 7,209,595 and 5,481,417, respectively, and there were 379,000 and 480,000 outstanding stock options, respectively, that were not included in the calculations because the effect would have been anti-dilutive. During the six-month periods ended June 30, 2019 and 2018, the weighted average number of shares outstanding was 6,421,428 and 5,479,679, respectively, and there were 379,000 and 480,000 outstanding stock options, respectively, that were not included in the calculations because the effect would have been anti-dilutive.

 

(p)Use of Estimates

 

The preparation of financial statements in conformity with GAAP 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 period. Although we regularly assess these estimates, actual amounts could differ from those estimates. Changes in estimates are recorded during the period in which they become known. Significant estimates include our inventory valuation, valuation of goodwill and long-lived assets, valuation of deferred tax assets, accrued expenses, costs of goods sold, and useful lives of intangible assets.

 

10

 

 

ImmuCell Corporation

Notes to Unaudited Condensed Financial Statements (continued)

 

(q)New Accounting Pronouncements

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance in this ASU supersedes the leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This ASU and its amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption was permitted. We elected to adopt this ASU effective January 1, 2019. In July 2018, the FASB issued ASU 2018-10, Codification improvements to Topic 842, Leases. The amendments in ASU 2018-10 provide more clarification in regards to the application and requirements of Topic 842. In July 2018, the FASB issued ASU 2018-11, Topic 842, Leases - Targeted improvements. The amendments in ASU 2018-11 provide for the option to adopt the standard prospectively and recognize a cumulative-effect adjustment to the opening balance of retained earnings as well as offer a new practical expedient that will allow the Company to elect, by class of underlying asset, to not separate non-lease and lease components in certain circumstances and instead to account for those components as a single item. Based on our current lease agreements and a review of all of our material vendor relationships for potential embedded lease obligations, we have concluded that we are not subject to material lease obligations, and the adoption of Topic 842 did not have a material impact on our financial statements as of January 1, 2019.

 

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting to provide clarity and reduce both diversity in practice and cost complexity when applying the guidance in Topic 718 to a change to the terms and conditions of a stock-based payment award. Topic 718 also provides guidance about the types of changes to the terms or conditions of a share-based payment award that require an entity to apply modification accounting in accordance with Topic 718. The standard is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. We adopted this guidance during the three-month period ended March 31, 2018. The adoption of this guidance did not have a material impact on our financial statements.

 

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The new guidance is intended to more closely align hedge accounting with entities’ hedging strategies, simplify the application of hedge accounting and increase the transparency of hedging programs. Topic 815 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. For cash flow and net investment hedges existing at the date of adoption, Topic 815 must be applied through a cumulative-effect adjustment. The amended presentation and disclosure guidance is required only prospectively. The adoption of Topic 815 did not have a material impact on our financial statements as of January 1, 2019.

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements of fair value measurements. Topic 820 is effective for fiscal years beginning after December 15, 2019, and early adoption is permitted. The adoption of this guidance is not expected to have a material impact on our financial statements.

 

3.CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

 

Cash, cash equivalents and short-term investments (at amortized cost plus accrued interest) consisted of the following:

 

   As of
June 30, 2019
   As of
December 31, 2018
 
Cash and cash equivalents  $1,296,016   $2,521,050 
Short-term investments   8,675,329     
Total  $9,971,345   $2,521,050 

 

Held to maturity securities (certificates of deposit) are carried at amortized cost. We are required by a bank debt covenant to maintain at least $2,000,000 of otherwise unrestricted cash, cash equivalents and short-term investments.

 

4.TRADE ACCOUNTS RECEIVABLE, net

 

Trade accounts receivable amounted to $931,493 and $932,298 as of June 30, 2019 and December 31, 2018, respectively. No allowance for bad debt and product returns was recorded as of June 30, 2019 or December 31, 2018.

 

11

 

 

ImmuCell Corporation

Notes to Unaudited Condensed Financial Statements (continued)

 

5.INVENTORY

 

Inventory consisted of the following:

 

   As of
June 30, 2019
   As of
December 31, 2018
 
Raw materials  $636,005   $338,991 
Work-in-process   1,361,111    1,337,035 
Finished goods   495,278    655,645 
Total  $2,492,394   $2,331,671 

 

6.PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

Prepaid expenses and other current assets consisted of the following:

 

  

As of
June 30, 2019

  

As of
December 31, 2018

 
Prepaid expenses  $189,872   $142,528 
Other receivables(1)   467,721    493,289 
Total  $657,593   $635,817 

 

(1)This amount includes $450,000 due from a third party for the sale of assets. See Note 14.

 

7.PROPERTY, PLANT AND EQUIPMENT, net

 

Property, plant and equipment consisted of the following:

 

   Estimated Useful Lives
(in years)
  As of
June 30, 2019
   As of
December 31, 2018
 
Buildings and improvements  10-39  $17,060,316   $17,018,316 
Laboratory and manufacturing equipment  3-10   15,205,256    15,092,252 
Office furniture and equipment  3-10   729,941    731,510 
Construction in progress  n/a   161,888    91,067 
Land  n/a   516,867    516,867 
Property, plant and equipment, gross      33,674,268    33,450,012 
Accumulated depreciation      (8,544,396)   (7,422,463)
Property, plant and equipment, net     $25,129,872   $26,027,549 

 

As of June 30, 2019 and December 31, 2018, construction in progress consisted principally of down payments towards manufacturing equipment. During the three-month periods ended June 30, 2019 and 2018, $4,564 and $3,300 of property, plant and equipment was disposed of, respectively. During the six-month periods ended June 30, 2019 and 2018, $6,394 and $6,730 of property, plant and equipment was disposed of, respectively. Depreciation expense was $564,522 and $280,692 during the three-month periods ended June 30, 2019 and 2018, respectively, and $1,128,327 and $560,588 during the six-month periods ended June 30, 2019 and 2018, respectively.

 

12

 

 

ImmuCell Corporation

Notes to Unaudited Condensed Financial Statements (continued)

 

8.BUSINESS ACQUISITION

 

On January 4, 2016, we acquired certain business assets and processes from DAY 1™ Technology, LLC of Minnesota. The acquired rights and know-how are primarily related to formulating our bovine antibodies into a gel solution (or paste) for an oral delivery option to newborn calves via a syringe (or tube). This product format offers customers an alternative delivery option to the bolus (the standard delivery format of the bivalent First Defense® product since first approval by the U.S. Department of Agriculture (USDA) and product launch in 1991). This gel formulation had been sold as a feed product without disease claims since 2012. During the fourth quarter of 2018, we achieved USDA approval of an improved bivalent gel formulation and began marketing this product as Dual-Force First Defense®. We achieved Canadian approval of this product during the first quarter of 2019. We were also interested in a gel formulation in anticipation of the launch of Tri-Shield First Defense® (which was approved by the USDA during the fourth quarter of 2017) because the additional rotavirus antibodies in this new product would not fit in a bolus full of E. coli and coronavirus antibodies. This purchase also included certain other related private-label products. The total purchase price was approximately $532,000 (comprised of a $368,000 up front payment, a $97,000 technology transfer payment and estimated royalties of $67,000). Actual royalties paid based on sales from January 1, 2016 through December 31, 2018 were $36,000, and no further royalties are payable under this agreement. The estimated fair values of the assets purchased in this transaction included inventory of approximately $113,000, machinery and equipment of approximately $132,000, a developed technology intangible of approximately $191,000 (which includes an immaterial amount of value associated with customer relationships and a non-compete agreement, and was valued using the relief from royalty method) and goodwill of approximately $96,000. The goodwill arising from the acquisition consists largely of the estimated value of anticipated growth opportunities arising from synergies and efficiencies. The measurement period for the transaction was closed as of June 30, 2016, and we continue to assess any impairment of these assets acquired in accordance with our policies.

 

9.INTANGIBLE ASSETS

 

The intangible assets described in Note 8 are being amortized to costs of goods sold over their useful lives, which are estimated to be 10 years. Intangible amortization expense was $4,776 during both of the three-month periods ended June 30, 2019 and 2018 and $9,552 during both of the six-month periods ended June 30, 2019, and 2018. The net value of these intangibles was $124,176 and $133,728 as of June 30, 2019 and December 31, 2018, respectively. A summary of intangible amortization expense estimated for the periods subsequent to June 30, 2019 is as follows:

 

Period  Amount 
Six-month period ending December 31, 2019  $9,552 
Year ending December 31, 2020   19,104 
Year ending December 31, 2021   19,104 
Year ending December 31, 2022   19,104 
Year ending December 31, 2023   19,104 
After December 31, 2023   38,208 
Total  $124,176 

 

Intangible assets as of June 30, 2019 consisted of the following:

 

   Gross Carrying
Value
   Accumulated Amortization   Net Book
Value
 
Developed technology  $184,100   $(64,435)  $119,665 
Customer relationships   1,300    (455)   845 
Non-compete agreements   5,640    (1,974)   3,666 
Total  $191,040   $(66,864)  $124,176 

 

Intangible assets as of December 31, 2018 consisted of the following:

 

   Gross Carrying
Value
   Accumulated Amortization   Net Book
Value
 
Developed technology  $184,100   $(55,230)  $128,870 
Customer relationships   1,300    (390)   910 
Non-compete agreements   5,640    (1,692)   3,948 
Total  $191,040   $(57,312)  $133,728 

 

13

 

 

ImmuCell Corporation

Notes to Unaudited Condensed Financial Statements (continued)

 

10.ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consisted of the following:

 

   As of
June 30, 2019
   As of
December 31, 2018
 
Accounts payable – trade  $436,017   $531,048 
Accounts payable – capital   3,209    72,695 
Accrued payroll   230,626    358,451 
Accrued professional fees   55,031    93,050 
Accrued other   136,916    165,416 
Total  $861,799   $1,220,660 

 

11.BANK DEBT

 

We have in place five credit facilities and a line of credit with TD Bank N.A. These five credit facilities are secured by substantially all of our assets and are subject to certain restrictions and financial covenants.

 

Proceeds from a $1,000,000 first mortgage on our corporate headquarters and production and research facility at 56 Evergreen Drive in Portland (Loan #1) were received during the third quarter of 2010 with monthly principal and interest payments due for ten years, calculated based on a fifteen-year amortization schedule. A balloon principal payment of $451,885 will be due during the third quarter of 2020. As of June 30, 2019, $528,842 was outstanding under Loan #1.

 

Proceeds from a $2,500,000 second mortgage on this corporate headquarters (Loan #2) were received during the third quarter of 2015 with monthly principal and interest payments due for ten years, calculated based on a twenty-year amortization schedule. A balloon principal payment of approximately $1,550,000 will be due during the third quarter of 2025. As of June 30, 2019, $2,189,248 was outstanding under Loan #2.

 

During the first quarter of 2016, we entered into two additional credit facilities (Loans #3 and #4) aggregating up to approximately $4,500,000. As a result of loan amendments entered into during the first quarter of 2017, these two credit facilities were increased to up to $6,500,000. Loan #3 is comprised of a construction loan of $3,940,000. As amended, interest only was payable at a variable rate equal to the one-month LIBOR (adjusted at each monthly payment date) plus a margin of 2.25% through September 2018, at which time the loan converted to a seven-year term loan facility at the same variable interest rate (which was equal to 4.69% as of June 30, 2019) with monthly principal and interest payments due based on a seven-year amortization schedule. As of June 30, 2019, $3,517,857 was outstanding under Loan #3. Loan #4 is comprised of a construction loan of $2,560,000. As amended, interest only was payable at a variable rate equal to the one-month LIBOR (adjusted at each monthly payment date) plus a margin of 2.25% through March 2018, at which time the loan converted to a term loan facility at the same variable interest rate (which was equal to 4.69% as of June 30, 2019) with monthly principal and interest payments due for ten years, calculated based on a twenty-year amortization schedule. A balloon principal payment of approximately $1,408,000 will be due during the first quarter of 2027. As of June 30, 2019, $2,400,000 was outstanding under Loan #4.

 

Proceeds from a $340,000 first mortgage on our 4,114 square foot warehouse and cold storage facility near to our Re-Tain™ production facility (Loan #5) were received during the first quarter of 2017. This note bears interest at a variable rate equal to the one-month LIBOR (adjusted at each monthly payment date) plus a margin of 2.25% (which was equal to 4.69% as of June 30, 2019) with monthly principal and interest payments due for ten years, calculated based on a twenty-year amortization schedule. A balloon principal payment of approximately $209,000 will be due during the first quarter of 2027. As of June 30, 2019, $315,517 was outstanding under Loan #5.

 

We hedged our interest rate exposures on Loan #1 and Loan #2 with interest rate swap agreements that effectively converted floating interest rates based on the one-month LIBOR plus a margin of 3.25% and 2.25% to the fixed rates of 6.04% and 4.38%, respectively. As of the debt principal repayment date immediately preceding June 30, 2019, the variable rates on these two mortgage notes were 5.66% and 4.63%, respectively. All derivatives are recognized on the balance sheet at their fair value. At the time of the closings and thereafter, the agreements were determined to be highly effective in hedging the variability of the identified cash flows and have been designated as cash flow hedges of the variability in the hedged interest payments. Changes in the fair value of the interest rate swap agreements are recorded in other comprehensive income, net of taxes. The original notional amounts of the interest rate swap agreements of $1,000,000 and $2,500,000 amortize in accordance with the amortization of the mortgage notes. The notional amount of the interest rate swaps was $2,718,090 as of June 30, 2019. The fair values of the interest rate swaps have been determined using observable market-based inputs or unobservable inputs that are corroborated by market data. Accordingly, the interest rate swaps are classified as level 2 within the fair value hierarchy provided in Codification Topic 820, Fair Value Measurements and Disclosures.

 

   During the Three-Month
Periods Ended June 30,
   During the Six-Month
Periods Ended June 30,
 
   2019   2018   2019   2018 
(Receipts) payments required by interest rate swaps  $(1,491)  $2,824   $(3,055)  $8,109 
Other comprehensive (loss) income, net of taxes  $(46,000)  $16,241   $(73,069)  $60,100 

 

14

 

 

ImmuCell Corporation

Notes to Unaudited Condensed Financial Statements (continued)

 

In connection with Loan #1 and Loan #2, we incurred debt issue costs of $26,489 and $34,125, respectively. In connection with Loan #3, Loan #4 and Loan #5, we incurred debt issue costs of $46,734 and $68,072, respectively. The 2017 amendments to Loan #3 and Loan #4 were accounted for as modifications. The amortization of debt issue costs is being recorded as a component of interest expense, included with other expenses net, and is being amortized over the underlying terms of the respective credit facilities.

 

Debt proceeds received and principal repayments made during the three-month periods ended June 30, 2019 and 2018 are reflected in the following table by year and by loan:

 

   During the Three-Month
Period Ended June 30, 2019
   During the Three-Month
Period Ended June 30, 2018
 
   Proceeds from
Debt Issue
   Debt Principal
Repayments
   Proceeds from
Debt Issue
   Debt Principal
Repayments
 
Loan #1  $   $(16,881)  $   $(15,888)
Loan #2       (22,260)       (21,279)
Loan #3       (140,714)        
Loan #4       (32,000)       (32,000)
Loan #5       (2,805)       (2,779)
Total  $   $(214,660)  $   $(71,946)

 

Debt proceeds received and principal repayments made during the six-month periods ended June 30, 2019 and 2018 are reflected in the following table by year and by loan:

 

   During the Six-Month
Period Ended June 30, 2019
   During the Six-Month
Period Ended June 30, 2018
 
   Proceeds from
Debt Issue
   Debt Principal
Repayments
   Proceeds from
Debt Issue
   Debt Principal
Repayments
 
Loan #1  $   $(33,762)  $   $(31,776)
Loan #2       (44,520)       (42,558)
Loan #3       (281,429)        
Loan #4       (64,000)   267,141    (32,000)
Loan #5       (5,250)       (5,415)
Total  $   $(428,961)  $267,141   $(111,749)

 

Principal payments (net of debt issue costs) due under bank loans outstanding as of June 30, 2019 (excluding our $500,000 line of credit) are reflected in the following table by the year that payments are due:

 

   Six-Months ending 12/31/2019   Year
ending 12/31/2020
   Year
ending 12/31/2021
   Year
ending 12/31/2022
   Year
Ending 12/31/2023
   After 12/31/2023   Total 
Loan #1  $35,146   $493,696   $   $   $   $   $528,842 
Loan #2   45,477    94,005    98,538    103,077    107,769    1,740,382    2,189,248 
Loan #3(1)   281,429    562,857    562,857    562,857    562,857    985,000    3,517,857 
Loan #4(1)   64,000    128,000    128,000    128,000    128,000    1,824,000    2,400,000 
Loan #5(2)   5,775    11,962    12,535    13,136    13,765    258,344    315,517 
Subtotal  $431,827   $1,290,520   $801,930   $807,070   $812,391   $4,807,726    8,951,464 
Debt Issue Costs                                 (106,100)
Total                                $8,845,364 

 

(1)These notes bear interest at a variable rate equal to the one-month LIBOR plus a margin of 2.25%. Figures in this table are estimated using an interest rate of approximately 4.69%. The actual interest rate and principal payments will be different.

 

(2)This note bears interest at a variable rate equal to the one-month LIBOR plus a margin of 2.25%. Figures in this table are estimated using an interest rate of approximately 4.69%. The actual interest rate and principal payments will be different.

 

During the third quarter of 2010, we entered into a $500,000 line of credit with TD Bank N.A., which is secured by substantially all of our assets and is subject to certain restrictions and financial covenants. This line of credit has been renewed approximately annually since then, is available as needed and has been extended through May 31, 2020. There was no outstanding balance under this line of credit as of June 30, 2019. As of December 31, 2018, $500,000 was outstanding under this line of credit, which was repaid during the first quarter of 2019. Interest on borrowings against the line of credit is variable at the higher of 4.25% per annum or the one-month LIBOR plus 3.5% per annum.

 

15

 

 

ImmuCell Corporation

Notes to Unaudited Condensed Financial Statements (continued)

 

12.STOCKHOLDERS’ EQUITY

 

On October 28, 2015, we filed a registration statement on Form S-3 (File No. 333-207635) with the Securities and Exchange Commission (SEC) for the potential issuance of up to $10,000,000 in equity securities (subject to certain limitations). This registration statement became effective on November 10, 2015. Under this form of registration statement, we were limited within a twelve-month period to raising gross proceeds of no more than one-third of the market capitalization of our common stock (as determined by the high price of our common stock within the preceding 60 days leading up to a sale of securities) held by non-affiliates (non-insiders) of the Company. Having raised $10,000,000 in gross proceeds under the February 2016, July 2017 and December 2017 equity transactions, described below, no additional equity securities can be issued under this registration statement.

 

On February 3, 2016, we sold 1,123,810 shares of common stock at a price to the public of $5.25 per share in an underwritten public offering pursuant to our effective shelf registration statement on Form S-3, raising gross proceeds of approximately $5,900,000 and resulting in net proceeds to the Company of approximately $5,313,000 (after deducting underwriting discounts and offering expenses incurred in connection with the equity financing).

 

On October 21, 2016, we closed on a private placement of 659,880 shares of common stock to nineteen institutional and accredited investors at $5.25 per share, raising gross proceeds of approximately $3,464,000 and resulting in net proceeds to the Company of approximately $3,161,000 (after deducting placement agent fees and other expenses incurred in connection with the equity financing).

 

On July 27, 2017, we issued 200,000 shares of our common stock at a price of $5.25 per share to two related investors pursuant to our effective shelf registration statement on Form S-3, raising gross proceeds of $1,050,000 and resulting in net proceeds of approximately $1,034,000 (after deducting expenses incurred in connection with the equity financing).

 

On December 21, 2017, we sold 417,807 shares of common stock at a price to the public of $7.30 per share in an underwritten public offering pursuant to our effective shelf registration statement on Form S-3, raising gross proceeds of approximately $3,050,000 and resulting in net proceeds to the Company of approximately $2,734,000 (after deducting underwriting discounts and offering expenses incurred in connection with the equity financing).

 

On November 20, 2018, we filed a registration statement on Form S-3 (File No. 333-228479) with the SEC for the potential issuance of up to $20,000,000 in equity securities (subject to certain limitations). This registration statement became effective on November 29, 2018. Under this form of registration statement, we are limited within a twelve-month period to raising gross proceeds of no more than one-third of the market capitalization of our common stock (as determined by the high price of our common stock within the preceding 60 days leading up to a sale of securities) held by non-affiliates (non-insiders) of the Company.

 

On March 29, 2019, we sold 1,636,364 shares of common stock at a price to the public of $5.50 per share in an underwritten public offering pursuant to our effective shelf registration statement on Form S-3, raising gross proceeds of approximately $9,000,000 and resulting in net proceeds to the Company of approximately $8,303,000 (after deducting underwriting discounts and offering expenses incurred in connection with the equity financing).

 

At the June 15, 2016 Annual Meeting of Stockholders, we reported that our stockholders voted to approve an amendment to the Company’s Certificate of Incorporation to increase the number of shares of common stock authorized for issuance from 8,000,000 to 10,000,000. After careful consideration, we determined that the method of voting instructions described in our Proxy Statement was not consistent with the way the votes were actually recorded in accordance with stock exchange rules. Therefore, during the second quarter of 2017, we elected to treat the amendment as ineffective, and there was no increase in our authorized common stock. At the June 14, 2018 Annual Meeting of Stockholders, our stockholders voted to approve an amendment to the Company’s Certificate of Incorporation to increase the number of shares of common stock authorized for issuance from 8,000,000 to 11,000,000.

 

In June 2000, our stockholders approved the 2000 Stock Option and Incentive Plan (the “2000 Plan”) pursuant to the provisions of the Internal Revenue Code of 1986, under which employees and certain service providers may be granted options to purchase shares of the Company’s common stock at i) no less than fair market value on the date of grant in the case of incentive stock options and ii) no less than 85% of fair market value on the date of grant in the case of non-qualified stock options. Vesting requirements are determined by the Compensation and Stock Option Committee of the Board of Directors on a case by case basis. Originally, 250,000 shares of common stock were reserved for issuance under the 2000 Plan. The stockholders of the Company approved an increase in this number to 500,000 shares in June 2001. All options granted under the 2000 Plan expire no later than ten years from the date of grant. The 2000 Plan expired in February 2010, after which date no further options could be granted under the 2000 Plan. However, outstanding options under the 2000 Plan may be exercised in accordance with their terms.

 

16

 

 

ImmuCell Corporation

Notes to Unaudited Condensed Financial Statements (continued)

 

In June 2010, our stockholders approved the 2010 Stock Option and Incentive Plan (the “2010 Plan”) pursuant to the provisions of the Internal Revenue Code of 1986, under which employees and certain service providers may be granted options to purchase shares of the Company’s common stock at no less than fair market value on the date of grant. At that time, 300,000 shares of common stock were reserved for issuance under the 2010 Plan and subsequently no additional shares have been reserved for the 2010 Plan. Vesting requirements are determined by the Compensation and Stock Option Committee of the Board of Directors on a case by case basis. All options granted under the 2010 Plan expire no later than ten years from the date of grant. The 2010 Plan expires in June 2020, after which date no further options could be granted under the 2010 Plan. However, options outstanding under the 2010 Plan at that time could be exercised in accordance with their terms.

 

In June 2017, our stockholders approved the 2017 Stock Option and Incentive Plan (the “2017 Plan”) pursuant to the provisions of the Internal Revenue Code of 1986, under which employees and certain service providers may be granted options to purchase shares of the Company’s common stock at no less than fair market value on the date of grant. At that time, 300,000 shares of common stock were reserved for issuance under the 2017 Plan and subsequently no additional shares have been reserved for the 2017 Plan. Vesting requirements are determined by the Compensation and Stock Option Committee of the Board of Directors on a case by case basis. All options granted under the 2017 Plan expire no later than ten years from the date of grant. The 2017 Plan expires in March 2027, after which date no further options could be granted under the 2017 Plan. However, options outstanding under the 2017 Plan at that time could be exercised in accordance with their terms.

 

Activity under the stock option plans described above was as follows:

 

   2000 Plan   2010 Plan   2017 Plan   Weighted Average Exercise Price  

Aggregate Intrinsic Value(1)

 
Outstanding at December 31, 2017   117,500    242,500       $4.58   $1,513,980 
Grants       48,500    122,500   $7.38      
Terminations       (19,000)   (11,000)  $6.63      
Exercises   (105,000)   (2,000)      $1.89      
Outstanding at December 31, 2018   12,500    270,000    111,500   $6.37   $266,020 
Grants       10,000    10,000   $7.03      
Terminations       (20,000)      $5.65      
Exercises       (15,000)      $4.80      
Outstanding at June 30, 2019   12,500    245,000    121,500   $6.51   $(3,920)
Vested at June 30, 2019   12,500    63,500       $5.67   $63,150 
Vested and expected to vest at                         
June 30, 2019   12,500    245,000    121,500   $6.51   $(3,920)
Reserved for future grants       11,000    178,500           

 

(1)Intrinsic value is the difference between the fair market value as of the date indicated and as of the date of the option grant.

 

The following table displays additional information about the stock option plans described above:

 

   Number of Shares   Weighted Average
Fair Value at Grant Date
   Weighted Average Exercise Price 
Non-vested stock options as of January 1, 2019   334,000   $3.63   $6.64 
Non-vested stock options as of June 30, 2019   303,000   $3.60   $7.25 
Stock options granted during the six-month period ended June 30, 2019   20,000   $3.31   $7.03 
Stock options that vested during the six-month period ended June 30, 2019   31,000   $4.02   $6.74 
Stock options that were forfeited during the six-month period ended June 30, 2019   20,000   $3.13   $5.65 

 

During the six-month period ended June 30, 2019, one director exercised stock options covering 15,000 shares by the surrender of 10,731 shares of common stock with a fair market value of $71,998 at the time of exercise and the payment of $2 in cash. During the six-month period ended June 30, 2018, four employees exercised stock options covering 11,000 shares. Three thousand of these options were exercised for cash, resulting in total proceeds of $10,850, and 8,000 of these options were exercised by the surrender of 3,469 shares of common stock with a fair market value of $25,040 at the time of exercise and the payment of $10 in cash.

 

17

 

 

ImmuCell Corporation

Notes to Unaudited Condensed Financial Statements (continued)

 

The weighted average remaining life of the options outstanding under the 2000 Plan, the 2010 Plan and the 2017 plan as of June 30, 2019 was approximately 6 years and 4 months. The weighted average remaining life of the options exercisable under these plans as of June 30, 2019 was approximately 4 years and 5 months. The exercise prices of the options outstanding as of June 30, 2019 ranged from $3.15 to $8.90 per share. The 20,000 stock options granted during the six-month period ended June 30, 2019 had exercise prices between $6.50 and $7.50 per share. The 145,000 stock options granted during the six-month period ended June 30, 2018 had exercise prices between $6.81 and $7.80 per share. The aggregate intrinsic value of options exercised during the six-month periods ended June 30, 2019 and 2018 approximated $28,641 and $43,260, respectively. The weighted-average grant date fair values of options granted during the six-month periods ended June 30, 2019 and 2018 were $3.31 and $4.20 per share, respectively. As of June 30, 2019, total unrecognized stock-based compensation related to non-vested stock options aggregated $495,824, which will be recognized over a weighted average period of 1 year and 5 months. The fair value of each stock option grant has been estimated on the date of grant using the Black-Scholes option pricing model, for the purpose discussed in Note 2(n), with the following weighted-average assumptions for the three-month and six-month periods ended June 30, 2019 and 2018:

 

   During the Three-Month
Periods Ended June 30,
   During the Six-Month
Periods Ended June 30,
 
   2019   2018   2019   2018 
Risk-free interest rate   1.81%   2.81%   2.20%   2.51%
Dividend yield   0%   0%   0%   0%
Expected volatility   52%   55%   52%   57%
Expected life   6.5 years    6.5 years    5.3 years    5.2 years 

 

The risk-free interest rate is based on U.S. Treasury yields for a maturity approximating the expected option term, while the other assumptions are derived from averages of our historical data.

 

Common Stock Rights Plan

 

In September 1995, our Board of Directors adopted a Common Stock Rights Plan (the “Rights Plan”) and declared a dividend of one common share purchase right (a “Right”) for each of the then outstanding shares of the common stock of the Company. Each Right entitles the registered holder to purchase from the Company one share of common stock at an initial purchase price of $70.00 per share, subject to adjustment. The description and terms of the Rights are set forth in a Rights Agreement between the Company and American Stock Transfer & Trust Co., as Rights Agent.

 

The Rights (as amended) become exercisable and transferable apart from the common stock upon the earlier of i) 10 days following a public announcement that a person or group (Acquiring Person) has, without the prior consent of the Continuing Directors (as such term is defined in the Rights Agreement), acquired beneficial ownership of 20% or more of the outstanding common stock or ii) 10 days following commencement of a tender offer or exchange offer the consummation of which would result in ownership by a person or group of 20% or more of the outstanding common stock (the earlier of such dates being called the Distribution Date).

 

Upon the Distribution Date, the holder of each Right not owned by the Acquiring Person would be entitled to purchase common stock at a discount to the initial purchase price of $70.00 per share, effectively equal to one half of the market price of a share of common stock on the date the Acquiring Person becomes an Acquiring Person. If, after the Distribution Date, the Company should consolidate or merge with any other entity and the Company were not the surviving company, or, if the Company were the surviving company, all or part of the Company’s common stock were changed or exchanged into the securities of any other entity, or if more than 50% of the Company’s assets or earning power were sold, each Right would entitle its holder to purchase, at the Rights’ then-current purchase price, a number of shares of the acquiring company’s common stock having a market value at that time equal to twice the Right’s exercise price.

 

At any time after a person or group becomes an Acquiring Person and prior to the acquisition by such person or group of 50% or more of the outstanding common stock, the Board of Directors of the Company may exchange the Rights (other than Rights owned by such person or group which have become void), in whole or in part, at an exchange ratio of one share of common stock per Right (subject to adjustment). At any time prior to 14 days following the date that any person or group becomes an Acquiring Person (subject to extension by the Board of Directors), the Board of Directors of the Company may redeem the then outstanding Rights in whole, but not in part, at a price of $0.005 per Right, subject to adjustment.

 

18

 

 

ImmuCell Corporation

Notes to Unaudited Condensed Financial Statements (continued)

 

At various times over the years, our Board of Directors has voted to authorize amendments of the Rights Agreement to extend the Final Expiration Date, which is currently September 19, 2022. Our Board of Directors also has voted to authorize amendments to increase the ownership threshold for determining “Acquiring Person” status to 20%. During the second quarter of 2015, our Board of Directors also voted to authorize an amendment to remove a provision that prevented a new group of directors elected following the emergence of an Acquiring Person (an owner of more than 20% of our stock) from controlling the Rights Plan by maintaining exclusive authority over the Rights Plan with pre-existing directors. We did this because such provisions have come to be viewed with disfavor by Delaware courts. Each time that we made such amendments we entered into amendments to the Rights Agreement with the Rights Agent reflecting such extensions, threshold increases or provision changes. No other changes have been made to the terms of the Rights or the Rights Agreement.

 

13.REVENUE

 

Generally, our products are promoted to veterinarians and dairy and beef producers by our sales team and then sold through distributors. Our primary market is North America. We do sell into select international regions and may expand this international reach in the future. There were no material changes between the allocation and timing of revenue recognition during the year ended December 31, 2018 or the six-month periods ended June 30, 2019 or 2018 (under ASC 606). We do not have any contract assets such as contracts for which we have satisfied the performance obligations but do not yet have the right to bill for or contract liabilities such as customer advances. All trade receivables on our balance sheet are from contracts with customers. We incur no material costs to obtain contracts. As of March 31, 2018, we had a backlog of orders (representing purchase orders received from customers which were not fulfilled or paid) worth approximately $1,245,000 for the First Defense® product line. Before June 30, 2018 we cleared all of this backlog (approximately $901,000) that was related to orders for our bivalent formats of the First Defense® product line (which have been re-branded as Dual-Force First Defense®). Demand for Tri-Shield First Defense® continues to exceed our available inventory, but we are not accepting orders in excess of available inventory, which requires a careful allocation of inventory as it becomes available to address the needs of specific customers. As we increase our production capacity, we anticipate being able to sell Tri-Shield® through normal distribution channels during the second half of 2019. As of December 31, 2018, March 31, 2019 and June 30, 2019, we had received orders for Dual-Force® representing pending orders worth approximately $393,000, $67,000 and $13,000, respectively. We had sufficient inventory on hand to satisfy these orders, but this product did not ship to customers until the beginning of the next quarter because of timing issues at the end of the respective periods.

 

The following table presents our product sales disaggregated by geographic area:

 

   During the Three-Month
Periods Ended June 30,
   During the Six-Month
Periods Ended June 30,
 
   2019   2018   2019   2018 
United States  $2,527,478   $2,544,133   $6,305,225   $5,139,749 
Other   182,442    470,413    815,256    755,982 
Total product sales  $2,709,920   $3,014,546   $7,120,481   $5,895,731 

 

The following table presents our product sales disaggregated by major product category:

 

   During the Three-Month
Periods Ended June 30,
   During the Six-Month
Periods Ended June 30,
 
   2019   2018   2019   2018 
First Defense® product line  $2,672,531   $2,883,482   $6,813,448   $5,664,351 
Other animal health   37,389    131,064    173,432    231,380 
Other           133,601     
Total product sales  $2,709,920   $3,014,546   $7,120,481   $5,895,731 

 

14.GAIN ON SALE OF ASSETS

 

During the third quarter of 2018, we sold the assets underlying our water diagnostic product for $700,000. This sale of assets was recognized as an operating activity at that time in accordance with ASC 610: Other Income and ASC 810: Consolidation. An upfront payment of $250,000 was received upon closing, a second payment of $250,000 was received during the third quarter of 2019 and a third payment of $200,000 is due during the fourth quarter of 2019 (both of these payments receivable were recorded in prepaid expenses and other current assets as of June 30, 2019).

 

19

 

 

ImmuCell Corporation

Notes to Unaudited Condensed Financial Statements (continued)

 

15.OTHER EXPENSES, NET

 

Other expenses, net, consisted of the following:

 

   During the Three-Month
Periods Ended June 30,
   During the Six-Month
Periods Ended June 30,
 
   2019   2018   2019   2018 
Interest expense  $111,990   $106,268   $226,031   $202,284 
Interest income   (47,099)   (3,209)   (49,414)   (7,033)
Other gains       75         
Other expenses, net  $64,891   $103,134   $176,617   $195,251 

 

16.INCOME TAXES

 

Our income tax expense aggregated $15,333 and $501,820 (amounting to 3% and 169% of our loss before income taxes, respectively) during the three-month periods ended June 30, 2019 and 2018, respectively. Our income tax expense aggregated $24,356 and $452,672 (amounting to 5% and 80% of our loss before income taxes, respectively) during the six-month periods ended June 30, 2019 and 2018, respectively. As of December 31, 2018, we had federal net operating loss carryforwards of $11,839,349, of which $10,127,442 do not expire, and $1,711,907 which expire in 2034 through 2037 (if not utilized before then), and state net operating loss carryforwards of $3,485,949 that expire in 2037 through 2038 (if not utilized before then). Additionally, we had federal general business tax credit carryforwards of $407,023 that expire in 2027 through 2038 (if not utilized before then) and state tax credit carryforwards of $763,350 that expire in 2023 through 2038 (if not utilized before then).

 

The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the estimated future tax effects of temporary differences between book and tax treatment of assets and liabilities and carryforwards to the extent they are realizable. During the second quarter of 2018, we assessed our historical and near-term future profitability and recorded approximately $563,000 in non-cash income tax expense to create a full valuation allowance against our net deferred tax assets (which consist largely of net operating loss carryforwards and federal and state tax credits) based on applicable accounting standards and practices. At that time, we had incurred a net loss for five consecutive quarters, had not been profitable on a year-to-date basis since the nine-month period ended September 30, 2017 and projected additional net losses for some period going forward before returning to profitability. Should future profitability be realized at an adequate level, we would be able to release this valuation allowance (resulting in a non-cash income tax benefit) and realize these deferred tax assets before they expire. We will continue to assess the need for the valuation allowance at each quarter and, in the event that actual results differ from these estimates, or we adjust these estimates in future periods, we may need to adjust our valuation allowance. No subsequent adjustments were recorded during the twelve months ended June 30, 2019.

 

Net operating loss carryforwards, credits, and other tax attributes are subject to review and possible adjustment by the Internal Revenue Service. Section 382 of the Internal Revenue Code contains provisions that could place annual limitations on the future utilization of net operating loss carryforwards and credits in the event of a change in ownership of the Company, as defined.

 

The Company files income tax returns in the U.S. federal jurisdiction and several state jurisdictions. We currently have no tax examinations in progress. We also have not paid additional taxes, interest or penalties as a result of tax examinations nor do we have any unrecognized tax benefits for any of the periods in the accompanying financial statements.

 

The Tax Cuts and Jobs Act was enacted on December 22, 2017. This legislation made significant changes in the U.S. tax laws including a reduction in the corporate tax rates, changes to net operating loss carryforwards and carrybacks, and a repeal of the corporate alternative minimum tax. The legislation reduced the U.S. corporate tax rate from the prior rate of 34% to 21%. As a result of the enacted law, we were required to revalue deferred tax assets and liabilities at the rate enacted in 2017. This revaluation resulted in a benefit of $71,000 to income tax expense in continuing operations and a corresponding increase in the deferred tax assets during 2017. On December 22, 2017, the SEC issued Staff Accounting Bulletin #118 that provides additional guidance and allows companies to apply a measurement period of up to twelve months to account for the impacts of this legislation in their financial statements. The accounting for the transitional impacts of this legislation is now complete.

 

20

 

 

ImmuCell Corporation

Notes to Unaudited Condensed Financial Statements (continued)

 

17.CONTINGENT LIABILITIES AND COMMITMENTS

 

Our bylaws, as amended, in effect provide that the Company will indemnify its officers and directors to the maximum extent permitted by Delaware law. In addition, we make similar indemnity undertakings to each director through a separate indemnification agreement with that director. The maximum payment that we may be required to make under such provisions is theoretically unlimited and is impossible to determine. We maintain directors’ and officers’ liability insurance, which may provide reimbursement to the Company for payments made to, or on behalf of, officers and directors pursuant to the indemnification provisions. Our indemnification obligations were grandfathered under the provisions of Codification Topic 460, Guarantees. Accordingly, we have recorded no liability for such obligations as of June 30, 2019. Since our incorporation, we have had no occasion to make any indemnification payment to any of our officers or directors for any reason.

 

The development, manufacturing and marketing of animal health care products entails an inherent risk that liability claims will be asserted against us during the normal course of business. We are aware of no such claims against us as of the date of this filing. We feel that we have reasonable levels of liability insurance to support our operations.

 

We enter into agreements with third parties in the ordinary course of business under which we are obligated to indemnify such third parties from and against various risks and losses. The precise terms of such indemnities vary with the nature of the agreement. In many cases, we limit the maximum amount of our indemnification obligations, but in some cases those obligations may be theoretically unlimited. We have not incurred material expenses in discharging any of these indemnification obligations, and based on our analysis of the nature of the risks involved, we believe that the fair value of the liabilities potentially arising under these agreements is minimal. Accordingly, we have recorded no liabilities for such obligations as of June 30, 2019.

 

We are committed to purchasing certain key parts (syringes) and services (formulation and aseptic filling of Drug Product) pertaining to Re-Tain™, our Nisin-based intramammary treatment of subclinical mastitis in lactating dairy cows, exclusively from two contractors. Because we will not achieve regulatory approval for the sale of Re-Tain™ in the U.S. by December 17, 2019, the contract counter party for formulation and aseptic filling of that product may have the right at that date to terminate the agreement, and we could be liable for a $100,000 termination fee. We are negotiating with this party to amend and extend the contract term to allow us to achieve regulatory approval and initiate commercial launch with the availability of this party’s services. At the same time, we are initiating the capital investment required to perform these services for ourselves with a portion of the capital we raised at the end of the first quarter of 2019, while also seeking an alternative contractor for these services.

 

During the second quarter of 2009, we entered into an exclusive and perpetual (unless terminated for cause) license with the Baylor College of Medicine covering the underlying rotavirus vaccine technology used to generate the specific antibodies for our product line extension, Tri-Shield First Defense®. A milestone payment of $150,000 due upon regulatory approval of the product was accrued at December 31, 2017 and paid in January 2018. The license is also subject to a royalty equal to 4% of the sales of the First Defense® product line realized above the average of the sales of our bivalent product line for the years ended December 31, 2016 and 2015, plus a growth assumption of 6%. Earned royalties due are subject to annual minimums of $5,000, $10,000, $15,000, $20,000 and $25,000 for the years ending December 31, 2017, 2018, 2019, 2020, and 2021 (and thereafter), respectively. Royalties of $10,396 were accrued at December 31, 2018 and paid in January 2019. Royalties of $7,500 were accrued as of June 30, 2019. In addition to the commitments discussed above, we had committed $884,000 to the purchase of inventory, $165,000 to capital expenditures and $227,000 to other obligations as of June 30, 2019.

 

18.SEGMENT INFORMATION

 

We principally operate in the business segment described in Note 1. Pursuant to Codification Topic 280, Segment Reporting, we operate in one reportable business segment, that being the development, acquisition, manufacture and sale of products that improve the health and productivity of dairy and beef cattle. Almost all of our internally funded product development expenses are in support of such products. The significant accounting policies of this segment are described in Note 2. Our single operating segment is defined as the component of our business for which financial information is available and evaluated regularly by our chief operating decision-maker in deciding how to allocate resources and in assessing performance. Our chief operating decision-maker is our President and CEO.

 

Sales of the First Defense® product line aggregated 99% and 96% of our total product sales during the three-month periods ended June 30, 2019 and 2018, respectively. Sales of the First Defense® product line aggregated 96% of our total product sales during the six-month periods ended June 30, 2019 and 2018. Our primary customers for the majority of our product sales (93% and 84% during the three-month periods ended June 30, 2019 and 2018, respectively and 89% and 87% during the six-month periods ended June 30, 2019 and 2018, respectively) are in the U.S. dairy and beef industries. Product sales to international customers, who are also in the dairy and beef industries, aggregated 7% and 16% of our total product sales during the three-month periods ended June 30, 2019 and 2018, respectively, and 10% and 13% of our total product sales during the six-month periods ended June 30, 2019 and 2018, respectively.

 

21

 

 

ImmuCell Corporation

Notes to Unaudited Condensed Financial Statements (continued)

 

19.RELATED PARTY TRANSACTIONS

 

Dr. David S. Tomsche (Chair of our Board of Directors) is a controlling owner of Leedstone Inc., a domestic distributor of ImmuCell products (the First Defense® product line and CMT) and of J-t Enterprises of Melrose, Inc., an exporter. His affiliated companies purchased $290,581 and $337,065 of products from us during the six-month periods ended June 30, 2019 and 2018, respectively, on terms consistent with those offered to other distributors of similar status. We made marketing-related payments of $975 and $11,358 to these affiliated companies during the six-month periods ended June 30, 2019 and 2018, respectively, which represent amounts similar to those offered to other distributors of similar status. These payments were expensed as incurred. Our accounts receivable (subject to standard and customary payment terms) due from these affiliated companies aggregated $3,120 and $16,283 as of June 30, 2019 and December 31, 2018, respectively.

 

20.EMPLOYEE BENEFITS

 

We have a 401(k) savings plan (the Plan) in which all employees completing one month of service with the Company are eligible to participate. Participants may contribute up to the maximum amount allowed by the Internal Revenue Service. We currently match 100% of the first 3% of each employee’s salary that is contributed to the Plan and 50% of the next 2% of each employee’s salary that is contributed to the Plan. Under this matching plan, we paid $33,474 and $29,366 into the plan for the three-month periods ended June 30, 2019 and 2018, respectively, and $64,671 and $54,012 into the plan for the six-month periods ended June 30, 2019 and 2018, respectively.

 

21.SUBSEQUENT EVENTS

 

We have evaluated subsequent events through the time of filing on August 12, 2019, the date we have issued this Quarterly Report on Form 10-Q. As of such date, there were no material, reportable subsequent events.

 

22

 

 

ImmuCell Corporation

 

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed financial statements and the related notes and other financial information included in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. One should review PART II -“OTHER INFORMATION”, ITEM 1A -“RISK FACTORS” of this Quarterly Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

 

Liquidity and Capital Resources

 

We believe that our cash and short-term investments, together with gross margin anticipated to be earned from ongoing product sales, will be sufficient to meet our working capital and capital expenditure requirements and to finance our ongoing business operations for at least twelve months (which is a period of time required by accounting disclosure standards) from the date of this filing. We have funded our business principally from the gross margin on our product sales and equity and debt financings. We were profitable during the unaudited six-month period ended December 31, 2014, during the years ended December 31, 2015 and 2016, during the unaudited nine-month period ended September 30, 2017 and during the unaudited three-month period ended March 31, 2019. The table below summarizes the changes in selected, key accounts (in thousands, except for percentages):

 

   As of   As of   Increase 
   June 30, 2019   December 31, 2018   Amount   % 
Cash, cash equivalents and short-term investments  $9,971   $2,521   $7,450    296%
Net working capital  $12,343   $3,856   $8,487    220%
Total assets  $39,409   $32,731   $6,679    20%
Stockholders’ equity  $29,645   $21,744   $7,901    36%
Common shares outstanding   7,210    5,569    1,641    29%

 

From the first quarter of 2016 through the first quarter of 2019, we raised gross proceeds of approximately $22.5 million (net proceeds were approximately $20.5 million) from five different common equity transactions. No warrants were issued in connection with any of these transactions, and no convertible or preferred securities were issued. During the first and fourth quarters of 2016, we issued an aggregate of 1,783,690 shares of common stock at $5.25 per share, raising net proceeds of approximately $8.5 million in two separate transactions. During the third quarter of 2017, we issued 200,000 shares of common stock at $5.25 per share, raising net proceeds of just over $1.0 million. During the fourth quarter of 2017, we issued 417,807 shares of common stock at $7.30 per share, raising net proceeds of approximately $2.7 million. During the first quarter of 2019, we issued 1,636,364 shares of common stock at $5.50 per share, raising net proceeds of approximately $8.3 million.

 

During 2010 and 2015, we secured two mortgage loans that aggregated $3.5 million with TDBank N.A. During 2016 and 2017, we secured additional debt financing from TDBank N.A. in the form of three different facilities aggregating approximately $6.8 million. As of June 30, 2019, approximately $8.8 million was outstanding under these five facilities. Debt principal repayments (excluding a $500,000 repayment of our line of credit during the first quarter of 2019) were $429,000 and $112,000 during the six-month periods ended June 30, 2019 and 2018, respectively. With a balloon principal payment of approximately $450,000 due during the third quarter of 2020, we intend to explore debt refinancing opportunities to spread principal payments over an extended period of time. Our $500,000 line of credit with TDBank N.A. is available as needed through May 31, 2020 and subject to extension by the bank after that date. The $500,000 balance outstanding under the line of credit as of December 31, 2018 was repaid during the first quarter of 2019, and there was no outstanding balance as of June 30, 2019. These credit facilities are subject to certain restrictions and financial covenants and are secured by substantially all of our assets, including our facility at 56 Evergreen Drive in Portland, which was independently appraised at $4.2 million in connection with the 2015 financing. We are required by bank debt covenant to maintain at least $2 million of otherwise unrestricted cash, cash equivalents and short-term investments, thus reducing the effective availability of our liquid assets for operational needs by that amount. We are negotiating with the bank to return to an acceptable covenant based on income statement performance in order to regain access to these liquid assets. We were in compliance with all applicable covenants as of June 30, 2019.

 

Net cash provided by operating activities amounted to $347,000 during the six-month period ended June 30, 2019 in comparison to net cash provided by operating activities of $271,000 during the six-month period ended June 30, 2018. Cash paid for capital expenditures totaled $300,000 during the six-month period ended June 30, 2019 in comparison to capital expenditures of $1.7 million during the six-month period ended June 30, 2018, reflecting the completion of the investment in our Nisin Drug Substance production facility.

 

23

 

 

ImmuCell Corporation

 

During the third quarter of 2016, we initiated construction of our Nisin Drug Substance production facility for Re-Tain™, our treatment for subclinical mastitis currently in development. We completed construction of the building during the fourth quarter of 2017 and began depreciating these construction costs at that time. We began equipment installation during the third quarter of 2017 and began depreciating these costs when the equipment was placed into service for its intended purpose (which is to produce Nisin) during the third quarter of 2018. The aggregate cost of this investment was $20.8 million. Our total depreciation expense was $1,128,000 and $561,000 during the six-month periods ended June 30, 2019 and 2018, respectively. We anticipate that depreciation expense, while not affecting our cash flows from operations, will result in net operating losses until product sales increase sufficiently to offset these non-cash expenses. Going forward, repayments of the indebtedness incurred to acquire these assets will reduce our cash flows from financing activities.

 

Our capital expenditures from January 1, 2014 through December 31, 2018 were larger than our historical norm principally due to investments to increase our production capacity for the First Defense® product line and to construct and equip our Re-Tain™ production facility, as detailed in the following table:

 

   Paid during the years ended December 31, 
Project Description  2015   2016   2017   2018   Total 
First Defense® production facility addition(1)  $914,000   $   $   $   $914,000 
First Defense® production capacity increase   1,077,000    1,173,000            2,250,000 
Land for Re-Tain production facility   265,000    13,000    53,000        331,000 
Re-Tain production facility and equipment       2,080,000    17,161,000    1,596,000    20,837,000 
Purchase of a warehouse building           472,000        472,000 
Other capital expenditures   463,000    320,000    74,000(2)   434,000    1,291,000 
Total  $2,719,000   $3,586,000   $17,760,000   $2,030,000   $26,095,000 

  

  (1) An additional $1,041,000 was paid during the year ended December 31, 2014, bringing the total cost of this project to $1,955,000. This investment also included the construction and equipping of a pilot plant for small-scale production of Re-Tain™ within our First Defense® production facility that is now used to produce the gel tube formats of the First Defense® product line.

 

(2)This amount is net of a credit of approximately $61,000 for a returned fixed asset acquired during 2016.

 

Our Board of Directors has authorized three investments aggregating approximately $7,350,000. The first is an increase from $500,000 to $850,000 in the amount authorized to be spent on routine and necessary capital expenditures during 2019. As of June 30, 2019 approximately $296,000 of these funds had been spent. The second is an investment of approximately $3 million (a preliminary estimate) in the First Defense® product line to double our liquid processing capacity and increase our freeze drying capacity by 50% in order to enable us to meet anticipated growth in demand for these products. We are in the process of finalizing the plans for this expansion and contracting for the necessary equipment and construction services. Approximately $4,000 had been spent on this project as of June 30, 2019. We expect to complete this project during the middle of 2020. The third is an investment of approximately $4 million (a preliminary estimate) to develop our own formulation and aseptic filling capability for Drug Product for Re-Tain to end our reliance on third-party Drug Product manufacturing services. We expect this facility to be operational during 2022. No funds had yet been spent on this project as of June 30, 2019. These latter two investment estimates are based on internally-generated calculations using, among other things, actual costs incurred for previous construction projects and equipment installations and do not reflect any bids or quotes from third-party providers for either project. The funding for the latter two projects is expected to be provided from the net proceeds we received from the equity issuance we completed during the first quarter of 2019.

 

During the third quarter of 2016, the City of Portland approved a Tax Increment Financing (TIF) credit enhancement package that reduces the real estate taxes on our Nisin Drug Substance production facility by 65% over the eleven-year period beginning on July 1, 2017 and ending June 30, 2028 and by 30% during the twelve-month period ending June 30, 2029, at which time the rebate expires. During the second quarter of 2017, the TIF was approved by the Maine Department of Economic and Community Development. Based on the assessed value of $1.7 million as of April 1, 2017, the TIF reduced our property taxes by approximately $22,000 during the twelve-month period ended June 30, 2018 (the first year of the TIF benefit). Based on the assessed value of $4 million as of April 1, 2018, the TIF reduced our property taxes by approximately $58,000 during the twelve-month period ending June 30, 2019 (the second year of the TIF benefit). The value of the tax savings will increase (decrease) in proportion to any increase (decrease) in the assessment of the building for city real estate tax purposes.

 

24

 

 

ImmuCell Corporation

 

Outlook for the First Defense® product line

 

Having completed (during the first quarter of 2016) an investment of approximately $4.2 million to enlarge our First Defense® production facility and increase our freeze drying capacity by 100% and make other improvements to our liquid processing capacity, we can now produce product with an annual sales value of approximately $18 million. The actual value of the production output will vary subject to product yields, selling price, product format mix and other factors. Since the third quarter of 2016 and through most of 2017, we had sufficient available inventory and were shipping in accordance with the demand of our distributors. However, we quickly sold out of our initial launch quantities of Tri-Shield First Defense® soon after regulatory approval was obtained during the fourth quarter of 2017. Presently, we are only accepting purchase orders from customers to match available inventory, which requires a careful allocation of product supply directly to certain end-users and veterinary clinics. Production of this new product format had not kept pace with demand primarily because of our inability to produce enough of the new, complex rotavirus vaccine that is used to immunize our source cows. We worked on production improvements in our vaccine laboratory throughout 2018. Improvements achieved during the first quarter of 2019 have allowed us to immunize approximately four times as many source cows. The increased supply of finished product is expected to be available for sale during the second half of 2019, and we anticipate being able to sell Tri-Shield® through a mass market strategy during the second half of 2019. While the shortage of this new product resulted in some missed sales opportunities, it is also a positive indication that the market is accepting our new product offering. Given our projections for future demand for the First Defense® product line, we are initiating an additional investment of approximately $3 million (a preliminary estimate) to further increase our liquid processing capacity by 100% and our freeze drying capacity by 50%. We expect that this investment will increase our annual production capacity from approximately $18 million to approximately $27 million effective beginning around the middle of 2020. As noted above, the actual value of this production output will vary subject to product yields, selling price, product format mix and other factors.

 

Results of Operations

 

2019 Compared to 2018

 

Product Sales

 

Investments in the First Defense® product line created positive results during the first half of 2019 with total product sales increasing by 21% over the first half of 2018. Total product sales during the three-month period ended June 30, 2019 decreased by 10%, or $305,000, to $2.7 million, from $3.0 million in the same period in 2018, with domestic sales decreasing by 1%, or $17,000, and international sales decreasing by 61%, or $288,000, in comparison to the same period during 2018. Total product sales during the six-month period ended June 30, 2019 increased by 21%, or $1.2 million, to $7.1 million from $5.9 million during the same period in 2018, with domestic sales increasing by 23%, or $1.2 million, and international sales increasing by 8%, or $59,000, in comparison to the same period during 2018. Total product sales during the trailing twelve-month period ended June 30, 2019 increased by 11%, or $1.2 million, to $12.2 million from $11 million during the same period ended June 30, 2018, with domestic sales increasing by 14%, or $1.3 million, and international sales decreasing by 10%, or $161,000, in comparison to the same period ended June 30, 2018. Sales of Tri-Shield First Defense® increased during each of the three-month, six-month and twelve-month periods ended June 30, 2019 in comparison to the same periods ended June 30, 2018.

 

During the first quarter of 2018, sales demand for Dual-Force First Defense® exceeded available inventory, resulting in a backlog of orders worth approximately $901,000 as of March 31, 2018, which was shipped during the second quarter of 2018. Additionally, as of December 31, 2018, March 31, 2019 and June 30, 2019, we had pending orders for Dual-Force® worth approximately $393,000, $67,000 and $13,000, respectively, resulting from end of quarter timing issues (i.e. not caused by a lack of available inventory) at the end of the respective periods. The estimated value of these backlogs was calculated by multiplying the number of units for which customer orders had been received but were not shipped at the end of the period by the expected selling price. With this large amount of product that was ordered during the first quarter of 2018 (on a demand basis) but not shipped until the second quarter of 2018 (when revenue was recognized), we believe that it is not helpful to compare the sales results for the second quarter of 2019 to the second quarter of 2018. We believe it is more informative to compare the results for the six-month and trailing twelve-month periods ended June 30, 2019 to the corresponding periods ended June 30, 2018 without the confusion caused by the backlog of orders. The backlog as of March 31, 2018 was largely caused by a reduction in the biological yield from an increased colostrum supply. Process improvements have since been made that improve yields despite the inherent biological variability of our raw material. We have now returned to consistently supplying Dual-Force® to the market in a timely manner.

 

25

 

 

ImmuCell Corporation

 

The First Defense® product line continues to benefit from wide acceptance by dairy and beef producers as an effective tool to prevent scours (diarrhea) in newborn calves. Sales of the First Defense® product line aggregated 99% and 96% of our total product sales during the three-month periods ended June 30, 2019 and 2018, respectively, and 96% of our total product sales during the six-month periods ended June 30, 2019 and 2018. Sales of the First Defense® product line decreased by 7% during the three-month period ended June 30, 2019 (see discussion above) in comparison to the same period during 2018. Sales of the First Defense® product line increased by 20% during the six-month period ended June 30, 2019 in comparison to the same period during 2018.

 

Going forward into the second half of 2019 and after, we expect to provide disclosures only about sales of the First Defense® product line as a whole. However, to provide some insight into the new product launch, we are disclosing that sales of Tri-Shield First Defense® were approximately $250,000 (fourth quarter of 2017), $236,000 (first quarter of 2018), $216,000 (second quarter of 2018), $252,000 (third quarter of 2018), $442,000 (fourth quarter of 2018), $669,000 (first quarter of 2019) and $899,000 (second quarter of 2019). Starting with the third quarter of 2019, we expect to be able to produce approximately $1.5 million in sales value of Tri-Shield® per quarter. We are satisfied that we have successfully addressed the vaccine production and biological yield issues, noted above, that limited sales of this new product since commercial launch during the fourth quarter of 2017.

 

During the middle of 2016, we implemented a price increase of approximately 5% for Dual-Force First Defense®. Effective in December of 2018, we implemented an 11% increase for Tri-Shield First Defense®. Effective January 1, 2019, we implemented a 2% increase for Dual-Force®. Going forward, we anticipate making more frequent (but not more than annual) price increases in line with current rates of inflation.

 

Sales of products other than the First Defense® product line decreased by $94,000 during the three-month period ended June 30, 2019 in comparison to the same period during 2018. Sales of these other products aggregated approximately 1% and 4% of our total product sales during the three-month periods ended June 30, 2019 and 2018, respectively. Sales of these other products increased by $76,000 during the six-month period ended June 30, 2019 in comparison to the same period during 2018. Sales of these other products aggregated approximately 4% of our total product sales during the six-month periods ended June 30, 2019 and 2018. We acquired several private label products (our second leading source of product sales during 2018 and third leading source during the first half of 2019) in connection with our January 2016 acquisition of certain gel formulation technology. We sell our own California Mastitis Test (CMT) (our third leading source of product sales during 2018 and fourth leading source during the first half of 2019), which is used to detect somatic cell counts in milk. We have made and sold bulk reagents for Isolate™ (our third leading source of product sales during 2017 and second leading source during the first half of 2019), which is a drinking water test that is sold by our distributor in the United Kingdom. Sales of this product amounted to just $24,000 during the year ended December 31, 2018. A final sale of $134,000 was made during the first quarter of 2019. Because this product is non-core to our strategic focus, we sold the underlying cell line assets and intellectual property to a distributor during the third quarter of 2018 for $700,000. We have retained the rights to all animal health, diagnostic, feed and nutritional applications of this technology.

 

Gross Margin

 

Changes in the gross margin on product sales are summarized in the following tables for the respective periods (in thousands, except for percentages):

 

  

During the Three-Month

Periods Ended June 30,

   (Decrease) 
   2019   2018   Amount   % 
Gross margin  $1,249   $1,487   $(238)   (16%)
Percent of Product sales   46%   49%   (3%)   (7%)
                     

 

  

During the Six-Month

Periods Ended June 30,

   Increase 
   2019   2018   Amount   % 
Gross margin  $3,450   $2,847   $604    21%
Percent of Product sales   48%   48%   -%   -%

 

   During the Trailing Twelve-Month
Periods Ended June 30,
   Increase 
   2019   2018   Amount   % 
Gross margin  $5,798   $4,995   $803    16%
Percent of Product sales   47%   45%   2%   5%

 

26

 

 

ImmuCell Corporation

 

The gross margin as a percentage of product sales was 47% and 45% during the trailing twelve-month periods ended June 30, 2019 and 2018, respectively. This compares to gross margin percentages of 47% and 50% during the years ended December 31, 2018 and 2017, respectively. A number of factors account for the variability in our costs, resulting in some fluctuations in gross margin percentages from quarter to quarter. The gross margin percentage for the legacy formats of the First Defense® product line was in line with prior years in excess of 50%. The new gel formats of our product are more complex and more expensive to produce and presently contribute a lower gross margin. The initial batches of Tri-Shield First Defense® yielded fewer doses at a higher cost than we expected. However, these new formats are creating sales growth for us, and we are focused on increasing total gross margin dollars (product sales less costs of goods sold), even if that is accomplished with a lower gross margin as a percentage of sales. The gross margin is affected by biological yields from our raw material, which do vary over time. Just as our customers’ cows respond differently to commercial dam-level vaccines depending on time of year and immune competency, our source cows have similar biological variances in response to our proprietary vaccines. The value of our First Defense® product line is that we compensate for the variability in a cow’s immune response by standardizing each dose of finished product. This impacts our costs of goods sold but ensures that every calf is equally protected, which is something that dam-level commercial scours vaccines cannot offer. Like most U.S. manufacturers, we have also been experiencing increases in the cost of labor and raw materials. We also invest to sustain compliance with current Good Manufacturing Practice (cGMP) regulations in our production processes. Over time, we have been able to minimize the impact of cost increases by implementing yield improvements. We continue to work on yield improvements and other opportunities to reduce costs, while enhancing process knowledge and robustness. As we evaluate our product costs and selling price, it is one of our goals to continue to achieve a gross margin (before related depreciation and amortization expenses) as a percentage of total sales of approximately 50%.

 

Product Development Expenses

 

During the three-month period ended June 30, 2019, product development expenses increased by 8%, or $58,000, to $820,000 in comparison to $762,000 during the same period in 2018. Product development expenses aggregated 30% and 25% of product sales during the three-month periods ended June 30, 2019 and 2018, respectively. It is important to note that these figures include $397,000 and $143,000 of non-cash depreciation and stock-based compensation expenses during the three-month periods ended June 30, 2019 and 2018, respectively. Excluding these non-cash expenses, cash-based product development expenses decreased by 32%, or $197,000, to $423,000 during the three-month period ended June 30, 2019 in comparison to $619,000 during the same period in 2018. During the six-month period ended June 30, 2019, product development expenses increased by 29%, or $386,000, to $1.7 million in comparison to $1.3 million during the same period in 2018. Product development expenses aggregated 24% and 23% of product sales during the six-month periods ended June 30, 2019 and 2018, respectively. It is important to note that these figures include $802,000 and $283,000 of non-cash depreciation and stock-based compensation expenses during the six-month periods ended June 30, 2019 and 2018, respectively. Excluding these non-cash expenses, cash-based product development expenses decreased by 13%, or $134,000, to $928,000 during the six-month period ended June 30, 2019 in comparison to $1,062,000 during the same period in 2018.

 

During 2000, we acquired an exclusive license from Nutrition 21, Inc. (formerly Applied Microbiology Inc. or AMBI) covering the animal health applications of Nisin and began the development of Re-Tain™, our purified Nisin treatment for subclinical mastitis in lactating dairy cows. During 2004, we bought out this royalty and milestone-based license. The majority of our product development spending has been focused on the development of Re-Tain™. Nisin is a well characterized substance, having been used in food preservation applications for over 50 years. Food-grade Nisin, however, cannot be used in pharmaceutical applications because of its low purity. Our Nisin technology includes processing and purification methods to achieve pharmaceutical-grade purity. Further, Nisin is a bacteriocin that is not used in human medicines and could alleviate some of the social concerns that the widespread use of antibiotics encourages the growth of antibiotic-resistant bacteria (“superbugs”). This antibacterial peptide is known to be effective against most Gram-positive and some Gram-negative bacteria. Mastitis, which costs the dairy industry about $2 billion per year, is currently treated with traditional antibiotic products. Because milk from treated cows must be discarded, treatment is generally reserved for clinical infections when the cow produces non-saleable milk. The “zero milk discard” product feature approved for Re-Tain™ would make earlier treatment of sick cows (subclinical) economically feasible, while these cows are still producing saleable milk. No other existing product can provide this kind of value proposition to dairy producers.

 

Subclinical mastitis, and the study required to achieve an effectiveness claim for it, is defined under the FDA/Center for Veterinary Medicine Guidance #49: Target Animal Safety and Drug Effectiveness Studies for Anti-Microbial Bovine Mastitis Products (Lactating and Non-Lactating Cow Products).  Trial eligibility requires both pretreatment samples to be positive for the mastitis pathogen (except for Staphylococcus aureus and Streptococcus agalactiae, where a single pretreatment sample qualifies a cow for enrollment).  For all pathogens, both samples taken between 14 and 28 days post treatment (and at least 5 days apart) must be negative to be judged a cure.  These conservative criteria generally result in enrolling cows with chronic subclinical disease, which rarely self-resolves. In the field, these cows are generally not treated in order to avoid the label requirement to discard milk from treated cows. We believe that the chronicity of subclinical mastitis is responsible for several negative impacts. Cows infected with subclinical mastitis have greater somatic cell counts (SCC), and producers may be paid less for this lower quality milk.  Cows with subclinical mastitis infections are known to produce less milk, and cows that maintain subclinical mastitis across the dry period have been shown to produce significantly less milk. It has been reported that approximately 25% to 30% of cows with chronic cases of subclinical mastitis may exhibit clinical symptoms that require antibiotic treatments and withholding of milk. The failure to treat subclinical mastitis may result in chronic infections that are unlikely to respond to antibiotic therapy.  Finally, cows with subclinical mastitis maintain a reservoir of infection within the herd and increase exposure of healthy cows to contagious pathogens.

 

27

 

 

ImmuCell Corporation

 

During 2004, we entered into a product development and marketing agreement with Pfizer Animal Health (now known as Zoetis) covering this product. That company elected to terminate the agreement in 2007. We believe that this decision was not based on any unanticipated efficacy or regulatory issues. Rather, we believe the decision was primarily driven by a marketing concern relating to their fear that the milk from treated cows could interfere with the manufacture of certain cultured dairy products. Due to the zero milk discard feature, there is a risk that Nisin from the milk of treated cows could interfere with the manufacture of certain (but not all) commercial cultured dairy products, such as some kinds of cheese and yogurt, if a process tank contains a high enough percentage of milk from treated cows. The impact of this potential interference ranges from a delay in the manufacturing process (which does happen at times for other reasons) to the less likely stopping of a cheese starter culture. Milk from cows that have been treated with our product that is sold exclusively for fluid milk products presents no such risk. We worked with scientists and mastitis experts to conduct a formal risk assessment to quantify the impact that milk from treated cows may have on cultured dairy products. This study concluded that the dilution of milk from treated cows through comingling with milk from untreated cows during normal milk hauling and storage practices reduces the risk of interference with commercial dairy cultures to a negligible level when the product is used in accordance with the product label. We do not believe that such a premium-priced product will be used as part of a whole herd (“blitz”) treatment protocol, which reduces the risk of cheese interference. We do not see this as a significant problem as modern “precision dairying” practices, as well as cost and other economic considerations, support reducing the indiscriminate use of drug treatments.

 

Approval by the Center for Veterinary Medicine, U.S. Food and Drug Administration (FDA) of the New Animal Drug Application (NADA) for Re-Tain™ is required before any sales of the product can be initiated. The NADA is comprised of five principal Technical Sections and one administrative submission that are subject to phased review by the FDA. By statute, each Technical Section submission is generally subject to a six-month review cycle by the FDA. Each Technical Section can be reviewed and approved separately. Upon review and assessment by the FDA that all requirements for a Technical Section have been met, the FDA may issue a Technical Section Complete Letter. The current status of our work on these submissions to the FDA is as follows:

 

1) Environmental Impact: During the third quarter of 2008, we received the Environmental Impact Technical Section Complete Letter from the FDA.

 

2) Target Animal Safety: During the second quarter of 2012, we received the Target Animal Safety Technical Section Complete Letter from the FDA.

 

3) Effectiveness: During the third quarter of 2012, we received the Effectiveness Technical Section Complete Letter from the FDA. The draft product label carries claims for the treatment of subclinical mastitis associated with Streptococcus agalactiae, Streptococcus dysgalactiae, Streptococcus uberis, and coagulase-negative staphylococci in lactating dairy cattle. In our pivotal effectiveness study, statistically significant cure rates were associated with a statistically significant reduction in milk somatic cell count, which is an important measure of milk quality.

 

4) Human Food Safety (HFS): During the third quarter of 2018, we received the Human Food Safety Technical Section Complete Letter from the FDA confirming, among other things, a zero milk discard period and a zero meat withhold period during and after treatment with our product.

 

5) Chemistry, Manufacturing and Controls (CMC): Obtaining FDA approval of the CMC Technical Section is the final critical step to FDA approval and to initial commercial sales. Implementing Nisin production at commercial scale, which is a required component of the CMC Technical Section, has been the most expensive part of this project. We previously entered into an agreement with a multi-national pharmaceutical ingredient manufacturer for our commercial-scale supplies of Nisin. However, we determined during 2014 that the agreement did not offer us the most advantageous supply arrangement in terms of either cost or long-term dependability. We presented this product development opportunity to a variety of large and small animal health companies. While such a corporate partnership could have provided access to a much larger sales and marketing team and allowed us to avoid the large investment in a commercial-scale production facility, we concluded that such a partner would have taken an unduly large share of the gross margin from all future product sales of Re-Tain™. The regulatory and marketing feedback about the prospects for this product that we received from prospective partners, following their due diligence, was positive. During the third quarter of 2014, we completed an investment in facility modifications and processing equipment necessary to produce the Nisin Drug Substance (the active pharmaceutical ingredient) at small-scale. This small-scale facility was used to i) expand our process knowledge and controls, ii) establish operating ranges for critical process parameters, iii) conduct product stability studies, iv) optimize process yields and v) verify the cost of production. We believe these efforts have reduced the risks associated with our investment in the commercial-scale production facility. During the fourth quarter of 2015, we acquired land nearby to our existing Portland facility for the construction of a new commercial-scale Drug Substance production facility. We commenced construction of this facility during the third quarter of 2016 and completed construction during the fourth quarter of 2017. Equipment installation and qualification was initiated during the third quarter of 2017 and completed during the third quarter of 2018. The total cost of this building and equipment investment was approximately $20.8 million.

 

28

 

 

ImmuCell Corporation

 

We made our first phased Drug Substance submission to the FDA of this comprehensive and complex CMC Technical Section during the first quarter of 2019. This Technical Section includes data from the Nisin Drug Substance Registration Batches produced at commercial scale in our new manufacturing facility. This submission is subject to a six-month review period. The timing of this first submission does not directly impact the ultimate regulatory timeline because the second phased Nisin Drug Product submission (which will include responses to the FDA review of the first phased submission and detailed information about the manufacturing process and controls for the Nisin Drug Product) defines the critical path to product approval. Successful FDA inspections of the manufacturing facilities must also be achieved. The second phased Drug Product submission, which is also subject to a six-month review period, will not be made in time to achieve product approval by our original goal of December 2019.

 

Since 2010, we have been a party to a long-term exclusive product development and contract manufacturing agreement with Norbrook Laboratories Limited of Newry, Northern Ireland, an FDA-approved Drug Product manufacturer, covering the Drug Product formulation and aseptic filling services for Re-Tain™. Norbrook has provided services to us under this contract throughout the FDA process for use in all of our pivotal studies. During the fourth quarter of 2015, this agreement was amended and restated to, among other things, extend the term of the agreement to January 1, 2024. It has been our expectation that we would have these services available through both the remainder of the development process to FDA approval and for approximately the first four years of commercial sales of Re-Tain™. However, the agreement includes a provision potentially entitling Norbrook to terminate the agreement if we fail to receive FDA approval for Re-Tain™ by December of 2019. Due to unexpected difficulties and delays encountered by Norbrook at this late stage of the development and the usual FDA timeline for processing CMC Technical Sections, we now anticipate being able to achieve FDA approval during 2021.

 

In anticipation of this potential issue, we are discussing amendments to the existing agreement to avoid early termination. However, we have not yet reached resolution on an amendment, and it remains unclear whether we will be able to reach agreement on a suitable amendment, or if we do, for how long we will continue to have access to Norbrook’s services. Consequently, we have been actively investigating two alternatives: i) securing an agreement for such services with another qualified third party and ii) performing the services in-house by constructing our own formulation and aseptic filling capability. Our potential alternative options for these services are narrowed considerably because our product cannot be formulated or filled in a facility that also processes traditional antibiotics (i.e. beta lactams). These alternatives would likely delay our commencement of commercial sales of Re-Tain™ to at least 2021, we believe, in the case of a new third-party manufacturer, and to 2022, we estimate, in the case of performing these services in-house. Establishing our own Drug Product formulation and aseptic filling capability provides us with the longer-term advantage of controlling the entire manufacturing process for Re-Tain™ in one facility, thereby reducing our dependence on third parties and potentially reducing our manufacturing costs, but it requires us to invest approximately $4 million (a preliminary estimate) in equipment, facility modifications and related validation process. We intend to locate this equipment in our new Nisin Drug Substance facility, occupying space that we had intended to use to double our Drug Substance production capacity if warranted by Re-Tain™ sales volumes during the initial years following product launch. As a result, the maximum production capacity of our new Drug Substance facility will be limited to approximately $10 million per year. This production capacity estimate does not include inventory build strategies in advance of product approval or ongoing yield improvement initiatives.

 

After approval of the CMC Technical Section, there is a 60-day administrative review before anticipated product license approval can be issued and commercial sales can be initiated.

 

We are party to a long-term, exclusive supply agreement with Plas-Pak Industries, Inc. (now owned by Nordson Corporation) of Norwich, Connecticut covering the proprietary syringe that was developed specifically for treating cows with our mastitis product. These syringes were used for all pivotal studies. During the third quarter of 2017, this agreement was extended to January 1, 2024.

 

29

 

 

ImmuCell Corporation

 

Our second most important product development initiatives (in terms of dollars invested and, we believe, potential market impact) have been focused on other improvements, extensions or additions to our First Defense® product line. During the second quarter of 2009 we entered into an exclusive license with the Baylor College of Medicine covering the underlying rotavirus vaccine technology used to generate the specific antibodies for use with animals. This perpetual license (if not terminated for cause) is subject to ongoing royalty payments. We achieved product license approval and initiated market launch of this product, Tri-Shield First Defense®, during the fourth quarter of 2017. During the third quarter of 2018, we obtained approval from the Canadian Food Inspection Agency (CFIA) to sell Tri-Shield® in Canada. We expect to initiate sales in Canada after domestic demand is met. We achieved USDA approval of our bivalent gel tube formulation (formerly marketed as First Defense Technology®) during the fourth quarter of 2018 and have re-branded this product format as Dual-Force First Defense®. During the first quarter of 2019, we obtained CFIA approval to sell Dual-Force® in Canada and have initiated commercial sales there. We are currently working to establish USDA claims for our bivalent bulk powder formulation of First Defense Technology®. We are also investing in additional studies to further support the First Defense® product line in the market.

 

At the same time, we are working to expand our product development pipeline of bacteriocins that can be used as alternatives to traditional antibiotics. During the second quarter of 2015, we entered into an exclusive option agreement to license new bacteriocin technology from the University of Massachusetts Amherst. During the first quarter of 2019, we extended this exclusive option agreement through the first quarter of 2021. This technology focuses on bacteriocins having activity against Gram-negative infections for use in combating mastitis in dairy cattle. Subject to the availability of resources, we intend to begin new development projects that are aligned with our core competencies and market focus. We also remain interested in acquiring, on suitable terms, other new products and technologies that fit with our sales focus on the dairy and beef industries.

 

Sales and Marketing Expenses

 

During the three-month period ended June 30, 2019, sales and marketing expenses increased by approximately 10%, or $49,000, to $524,000 in comparison to $475,000 during the same period in 2018, amounting to 19% and 16% of product sales during the three-month periods ended June 30, 2019 and 2018, respectively. Sales and marketing expenses included $33,000 and $35,000 of non-cash depreciation and stock-based compensation expenses during the three-month periods ended June 30, 2019 and 2018, respectively. During the six-month period ended June 30, 2019, sales and marketing expenses increased by approximately 12%, or $124,000, to $1.1 million in comparison to $1 million during the same period in 2018, amounting to 16% and 17% of product sales during the six-month periods ended June 30, 2019 and 2018, respectively. Sales and marketing expenses included $67,000 and $50,000 of non-cash depreciation and stock-based compensation expenses during the six-month periods ended June 30, 2019 and 2018, respectively. We continue to leverage the efforts of our small sales force by using animal health distributors. These expenses have increased due principally to a strategic decision to invest more to support sales of the First Defense® product line. Our current budgetary objective in 2019 is to invest less than 20% of product sales in sales and marketing expenses on an annual basis. This ratio can come down incrementally as sales grow.

 

Administrative Expenses

 

During the three-month period ended June 30, 2019, administrative expenses increased by approximately 2%, or $9,000, to $452,000 in comparison to $443,000 during the same period in 2018. Administrative expenses included $47,000 and $56,000 of non-cash depreciation and stock-based compensation expenses during the three-month periods ended June 30, 2019 and 2018, respectively. During the six-month period ended June 30, 2019, administrative expenses increased by approximately 1%, or $4,000, to $871,000 in comparison to $866,000 during the same period in 2018. Administrative expenses included $99,000 and $109,000 of non-cash depreciation and stock-based compensation expenses during the six-month periods ended June 30, 2019 and 2018, respectively. We strive to be efficient with these expenses while funding costs associated with complying with the Sarbanes-Oxley Act of 2002 and all the legal, audit and other costs associated with being a publicly-held company. Prior to 2014, we had limited our investment in investor relations spending. Beginning in the second quarter of 2014, we initiated an investment in a more active investor relations program while continuing to provide full disclosure of the status of our business and financial condition in three quarterly reports and one annual report each year, as well as in Current Reports on Form 8-K when legally required or deemed appropriate by management. These efforts may have helped us access the capital markets to fund our growth objectives. Additional information about us is available in our annual Proxy Statement. All of these reports are filed with the SEC and are available on-line or upon request to the Company.

 

Net Operating Loss

 

During the three-month period ended June 30, 2019, our net operating loss of $547,000 was in comparison to a net operating loss of $193,000 during the three-month period ended June 30, 2018. The net operating losses included $639,000 and $382,000 of non-cash depreciation, amortization and stock-based compensation expenses during the three-month periods ended June 30, 2019 and 2018, respectively. During the six-month period ended June 30, 2019, our net operating loss of $282,000 was in comparison to a net operating loss of $372,000 during the six-month period ended June 30, 2018. The net operating losses included $1.3 million and $738,000 of non-cash depreciation, amortization and stock-based compensation expenses during the six-month periods ended June 30, 2019 and 2018, respectively. During all of the periods being reported, non-cash depreciation, amortization and stock-based compensation expenses exceeded our net operating loss.

 

30

 

 

ImmuCell Corporation

 

Other Expenses, net

 

During the three-month periods ended June 30, 2019 and 2018, other expenses, net, aggregated $65,000 and $103,000, respectively. Interest expense (including non-cash amortization of debt issue costs of approximately $4,000 during the three-month periods ended June 30, 2019 and 2018) increased by approximately 5%, or $6,000, to $112,000 during the three-month period ended June 30, 2019 in comparison to $106,000 during the same period in 2018. Interest income increased by approximately $44,000 to $47,000 during the three-month period ended June 30, 2019, in comparison to $3,000 during the comparable period in 2018. More interest income was earned during 2019 because we had more cash and short-term investments on hand due largely to cash generated from an equity issuance that has not yet been expended. During the six-month periods ended June 30, 2019 and 2018, other expenses, net, aggregated $177,000 and $195,000, respectively. Interest expense (including amortization of debt issue costs of approximately $8,000 during the six-month periods ended June 30, 2019 and 2018) increased by approximately 12%, or $24,000, to $226,000 during the six-month period ended June 30, 2019 in comparison to $202,000 during the same period in 2018. Assuming an interest rate of 5.0% on our variable rate notes, we estimate that total interest expense would be approximately $451,000 during the year ending December 31, 2019. Actual interest expense on our variable rate notes will be charged at 2.25% over the one-month LIBOR. The one-month LIBOR was 2.40% as June 30, 2019. Interest income increased by approximately $42,000 to $49,000 during the six-month period ended June 30, 2019, in comparison to $7,000 during the comparable period in 2018. More interest income was earned during 2019 because we had more cash and short-term investments on hand due largely to cash generated from an equity issuance that has not yet been expended.

 

Loss Before Income Taxes and Net Loss

 

During the three-month period ended June 30, 2019, our loss before income taxes of $612,000 was in comparison to a loss before income taxes of $297,000 during the three-month period ended June 30, 2018. Our losses before income taxes included $644,000 and $387,000 of non-cash depreciation, amortization, debt issue costs and stock-based compensation expenses during the three-month periods ended June 30, 2019 and 2018, respectively. During the six-month period ended June 30, 2019, our loss before income taxes of $458,000 was in comparison to a loss before income taxes of $567,000 during the six-month period ended June 30, 2018. Our losses before income taxes included $1.3 million and $747,000 of non-cash depreciation, amortization, debt issue costs and stock-based compensation expenses during the six-month periods ended June 30, 2019 and 2018, respectively. We began depreciating our Nisin Drug Substance production facility during the fourth quarter of 2017, and we began depreciating the related production equipment during the third quarter of 2018. For tax return purposes only, our depreciation expense for the Drug Substance production facility and equipment was approximately $9.2 million and $1.5 million for the years ended December 31, 2018 and 2017, respectively. This significant increase was largely related to accelerated depreciation allowed for tax purposes for our Drug Substance production facility investment. This increased our net operating loss carryforward to approximately $11.8 million as of December 31, 2018 from approximately $1.7 million as of December 31, 2017, which will be available to offset future taxable income. Our preliminary estimate of depreciation expense for books for the year ending December 31, 2019 is approximately $2.3 million. This figure is a preliminary estimate only and actual depreciation expense will vary from this estimate. This depreciation expense (which is far larger than what we have incurred historically) is anticipated to cause, in part, a net loss for the year ending December 31, 2019.

 

During the second quarter of 2018, we assessed our historical and near-term future profitability and recorded approximately $563,000 in non-cash income tax expense to create a full valuation allowance against our net deferred tax assets (which consist largely of net operating loss carryforwards and federal and state tax credits) based on applicable accounting standards and practices. At that time, we had incurred a net loss for five consecutive quarters, had not been profitable on a year-to-date basis since the nine-month period ended September 30, 2017 and projected additional net losses for some period going forward before returning to profitability. Should future profitability be realized at an adequate level, we would be able to release this valuation allowance (resulting in a non-cash income tax benefit) and realize these net deferred tax assets before they expire. We will continue to assess the need for the valuation allowance at each quarter. No such adjustment was recorded during the twelve-month period ended June 30, 2019.

 

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ImmuCell Corporation

 

During the three-month periods ended June 30, 2019 and 2018, we recorded income tax expense at the rate of 3% and 169% of our loss before income taxes, respectively. Our net loss of $627,000, or $0.09 per share, during the three-month period ended June 30, 2019 was in comparison to a net loss of $798,000, or $0.15 per share, during the three-month period ended June 30, 2018. During the six-month periods ended June 30, 2019 and 2018, we recorded income tax expense at the rate of 5% and 80% of our loss before income taxes, respectively. Our net loss of $483,000, or $0.08 per share, during the six-month period ended June 30, 2019 was in comparison to a net loss of $1 million, or $0.19 per share, during the six-month period ended June 30, 2018. On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. This legislation makes significant changes in the U.S. tax laws, including a reduction in the corporate tax rates, changes to net operating loss carryforwards and carrybacks, and a repeal of the corporate alternative minimum tax. The legislation reduced the U.S. corporate tax rate from the current rate of 34% to 21%. Our income tax rate differs from this standard tax rate. While we are recording a full valuation allowance for our net deferred tax assets, discussed above, our income tax expense is largely comprised of the tax effect of our interest rate swap agreements. In addition to these results from our Statements of Operations, we believe it is important to consider our Statements of Cash Flows in the accompanying unaudited financial statements to assess the cash generating ability of our operations.

 

Critical Accounting Policies

 

The financial statements are presented on the basis of accounting principles that are generally accepted in the United States. All professional accounting standards that were effective and applicable to us as of June 30, 2019 have been taken into consideration in preparing the financial statements. The preparation of financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, income taxes, contingencies and the useful lives and carrying values of intangible and long lived assets. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We have chosen to highlight certain policies that we consider critical to the operations of our business and understanding our financial statements.

 

We sell products that provide Immediate Immunity™ to newborn dairy and beef cattle. We recognize revenue in accordance with the five step model in ASC 606. These include i) identification of the contract with the customer, ii) identification of the performance obligations in the contract, iii) determination of the transaction price, iv) allocation of the transaction price to the separate performance obligations in the contract and v) recognition of revenue associated with performance obligations as they are satisfied. We recognize revenue at the time of shipment (including to distributors) for substantially all products, as title and risk of loss pass to the customer on delivery to the common carrier after concluding that collectability is reasonably assured. We do not bill for or collect sales tax because our sales are generally made to distributors and thus our sales to them are not subject to sales tax. We generally have experienced an immaterial amount of product returns.

 

Inventory includes raw materials, work-in-process and finished goods and is recorded at the lower of cost, on the first-in, first-out method, or net realizable value (determined as the estimated selling price in the normal course of business, less reasonably predictable costs of completion, disposal and transportation). Work-in-process and finished goods inventories include materials, labor and manufacturing overhead.

 

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As of June 30, 2019, there have been no significant changes in market risk exposures that materially affected the quantitative and qualitative disclosures as described in Item 7A in our Annual Report on Form 10-K for the year ended December 31, 2018.

 

ITEM 4 - CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures. Our management, with the participation of the individual who serves as our principal executive and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2019. Based on this evaluation, that officer concluded that our disclosure controls and procedures were effective as of that date. Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

 

Changes in Internal Control over Financial Reporting. The individual who serves as our principal executive and principal financial officer periodically evaluates any change in internal control over financial reporting which has occurred during the prior fiscal quarter. We have concluded that there was no change in our internal control over financial reporting that occurred during the quarter ended June 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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ImmuCell Corporation

 

PART II. OTHER INFORMATION

 

ITEM 1 - LEGAL PROCEEDINGS

 

In the ordinary course of business, we may become subject to lawsuits, investigations and claims. Although we cannot predict with certainty the ultimate resolution of any such lawsuits, investigations and claims against us, we do not believe that any pending or threatened legal proceedings to which we are or could become a party will have a material adverse effect on our business, results of operations, or financial condition.

 

ITEM 1A – RISK FACTORS

 

Cautionary Note Regarding Forward-Looking Statements (Safe Harbor Statement):

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements include, but are not limited to, any statements relating to: our plans and strategies for our business; projections of future financial performance; the timing and outcome of pending or anticipated applications for regulatory approvals; factors that may affect the dairy and beef industries and future demand for our products; the scope and timing of ongoing and future product development work and commercialization of our products; future costs of product development efforts; the estimated prevalence rate of subclinical mastitis; the expected efficacy of new products; estimates about the market size for our products; future market share of and revenue generated by current products and products still in development; our ability to increase production output and reduce costs of goods sold associated with our new product, Tri-Shield First Defense®; the future adequacy of our own manufacturing facilities or those of third parties with which we have contractual relationships to meet demand for our products on a timely basis; the anticipated costs of (or time to complete) planned expansions of our manufacturing facilities and the adequacy of our funds available for these projects; the continuing availability to us on reasonable terms of third-party providers of critical products or services; the robustness of our manufacturing processes and related technical issues; estimates about our production capacity; the future adequacy of our working capital and the availability and cost of third-party financing; future regulatory requirements relating to our products; future expense ratios and margins; future compliance with bank debt covenants; future cost of our variable interest rate exposure on most of our bank debt; costs associated with sustaining compliance with current Good Manufacturing Practice (cGMP) regulations in our current operations and attaining such compliance for the facility to produce the Nisin Drug Substance; implementation of international trade tariffs that could reduce the export of dairy products, which could in turn weaken the price received by our customers for their products; our effectiveness in competing against competitors within both our existing and our anticipated product markets; the cost-effectiveness of additional sales and marketing expenditures and resources; anticipated changes in our manufacturing capabilities and efficiencies; the value of our net deferred tax assets; projections about depreciation expense and its impact on income for book and tax return purposes; anticipated competitive and market conditions; and any other statements that are not historical facts. Forward-looking statements can be identified by the use of words such as “expects”, “may”, “anticipates”, “aims”, “intends”, “would”, “could”, “should”, “will”, “plans”, “believes”, “estimates”, “targets”, “projects”, “forecasts”, “seeks” and similar words and expressions. In addition, there can be no assurance that future developments affecting us will be those that we anticipate. Such statements involve risks and uncertainties, including, but not limited to, those risks and uncertainties relating to difficulties or delays in development, testing, regulatory approval, production and marketing of our products (including the First Defense® product line and Re-Tain™), competition within our anticipated product markets, customer acceptance of our new and existing products, product performance, alignment between our manufacturing resources and product demand, our reliance upon third parties for financial support, products and services, changes in laws and regulations, decision making by regulatory authorities, currency values and fluctuations and other risks detailed from time to time in filings we make with the SEC, including our Quarterly Reports on Form 10-Q, our Annual Reports on Form 10-K and our Current Reports on Form 8-K. Such statements involve risks and uncertainties and are based on our current expectations, but actual results may differ materially due to various factors, including the risk factors summarized below and uncertainties otherwise referred to in this Quarterly Report.

 

Production capacity constraints: The failure to meet market demand for our products, discussed elsewhere in this report in more detail, is a risk to our business. Our plan to continue to expand the First Defense® product line requires ongoing review of equipment capacity and utilization across the manufacturing value stream at the 56 Evergreen Drive facility as well as assessment of functional obsolescence and reliability of equipment. With the additional capital we raised at the end of the first quarter of 2019, we expect to invest approximately $3 million to increase our liquid processing capacity by 100% and our freeze drying capacity by 50% for the First Defense® product line. There is a risk that we will not be able to achieve our production capacity growth objectives on a timely basis and that we could experience an interruption to product supply during the expansion process.

 

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ImmuCell Corporation

 

Risk of experiencing higher than anticipated costs, or delays in expanding our manufacturing facilities and risk of failing to access adequate funding to complete the expansion projects: As discussed elsewhere in this report in more detail, we presently intend to invest the aggregate of approximately $7 million to: i) expand our existing production facilities for our First Defense® product line (approximately $3 million) and ii) construct and equip our own formulation and aseptic filling facility for Re-Tain™ (approximately $4 million). The preliminary cost budgets and timelines for these projects have been estimated internally and are not based on any bids or quotes or proposals from contractors or equipment suppliers or other reliable third-party information. Actual bids and binding agreements could result in longer time frames for completion and in higher actual costs, which may outstrip our available resources, and even those actual bids could understate actual costs, due to change orders, delays or other unforeseen events, in any of which instances actual project costs could exceed our current estimates. Also, our ability to fund the completion of these projects may depend on cash flows from future operations, which may not materialize or be available at the needed levels. In addition, completion of either project could be delayed due to factors outside our control, including equipment delivery delays or delays in obtaining FDA approvals for Re-Tain™.

 

Projection of net income (loss): Generally speaking, our financial performance can differ significantly from management projections, due to numerous factors that are difficult to predict or that are beyond our control. Weaker than expected sales of the First Defense® product line could lead to less profits or an operating loss. Large investments in product development (or cost overruns) can result in a net loss. We were profitable during the second half of 2014, during the years ended December 31, 2015 and 2016 and during the nine-month period ended September 30, 2017. During the following five quarters, we incurred net losses (largely due to facility start-up costs and other expenses related to the development of Re-Tain™) before reporting a small profit for the quarter ended March 31, 2019. Depreciation expenses related to the Re-Tain™ production facility and related equipment are expected to contribute to reported net losses until and unless product sales increase to offset these non-cash expenses.

 

Net deferred tax assets: The realizability of our net deferred tax assets is a subjective estimate that is contingent upon many variables. During the second quarter of 2018, we recorded a full valuation allowance against our net deferred tax assets that significantly increased our net loss in comparison to other periods. This non-cash expense could be reversed, and this valuation allowance could be reduced or eliminated, if warranted by our profitability and projected profitability in the future. We will continue to assess the need for the valuation allowance at each quarter.

 

Reliance on sales of the First Defense® product line: We are heavily reliant on the market acceptance of the First Defense® product line to generate product sales and fund our operations. Our business would not have been profitable during the nine consecutive years in the period ended December 31, 2007, during the years ended December 31, 2012, 2013, 2015 and 2016, during the nine-month period ended September 30, 2017 or during the three-month period ended March 31, 2019, without the gross margin that we earned on sales of the First Defense® product line.

 

Concentration of sales: Sales of the First Defense® product line aggregated 96% of our total product sales during the six-month periods ended June 30, 2019 and 2018. Our primary customers for the majority of our product sales (89% and 87% during the six-month periods ended June 30, 2019 and 2018, respectively) are in the U.S. dairy and beef industries. Product sales to international customers, who are also in the dairy and beef industries, aggregated 10% and 13% of our total product sales during the six-month periods ended June 30, 2019 and 2018, respectively. The concentration of our sales from one product into one market is a risk to our business. The animal health distribution segment has been aggressively consolidating over the last few years with larger distributors acquiring smaller distributors. A large portion of our product sales (69% and 62% during the six-month periods ended June 30, 2019 and 2018, respectively) was made to two large distributors. A large portion of our trade accounts receivable (76% as of June 30, 2019 and 72% as of December 31, 2018) was due from these two distributors. We have a good history with these distributors, but the concentration of sales and accounts receivable with a small number of customers does present a risk to us, including risks related to such customers experiencing financial difficulties or altering the basis on which they do business with us in a manner unfavorable to us.

 

Gross margin on product sales: It is one of our goals to again achieve a gross margin (before related depreciation expenses) as a percentage of total sales close to 50% after the initial launch of new products. Depreciation expense will be a larger component of costs of goods sold for Re-Tain™ than it is for the First Defense® product line, and gross margins generally improve over time. Many factors discussed in this report impact our costs of goods sold. There is a risk that we are not able to achieve our gross margin goals, which would adversely affect our operating results and could impact our future operating plans.

 

Product risks: The sale of our products is subject to production, financial, efficacy, regulatory, competitive and other market risks. Elevated standards to achieve and maintain regulatory compliance required to sell our products continue to evolve. Failure to achieve acceptable biological yields from our production processes can materially increase our costs of goods sold and reduce our production output, leading to an order backlog that could adversely affect our operating results. There is no assurance that we will continue to achieve market acceptance at a profitable price level or that we can continue to manufacture our products at a low enough cost to result in a sufficient gross margin to justify their continued manufacture and sale.

 

34

 

 

ImmuCell Corporation

 

Product liability: The manufacture and sale of our products entails a risk of product liability. Our exposure to product liability is mitigated to some extent by the fact that our products are principally directed towards the animal health market. We have maintained product liability insurance in an amount which we believe is reasonable in relation to our potential exposure in this area. We have no history of claims of this nature being made.

 

Regulatory requirements for the First Defense® product line: First Defense® is sold in the United States subject to a product license from the Center for Veterinary Biologics, USDA, which was first obtained in 1991 with subsequent approvals of line extensions in 2017 and 2018. As such, our operations are subject to periodic inspection by the USDA. The potency of serial lots is directly traceable to the original serial used to obtain the product performance claims (the Reference Standard). Due to the unique nature of the label claims, host animal re-testing is not required as long as periodic laboratory analyses continue to support the stability of stored Reference Standard. To date, these analyses have demonstrated strong stability. However, if the USDA were not to approve requalification of the Reference Standard, additional clinical studies could be required to meet regulatory requirements and allow for continued sales of the product, which could interrupt sales and adversely affect our operating results. We expect to be subject to similar regulatory oversight risks in territories outside of the United States where we sell our products.

 

Regulatory requirements for Re-Tain™: The commercial introduction of this product in the United States requires us to obtain FDA approval. Completing the development through to approval of the NADA by the FDA involves risk. While four of the five required Technical Sections have been approved, the development process timeline has been extensive (approximately 19 years) and has involved multiple commercial production strategies. The first phased Chemistry, Manufacturing and Controls Technical Section was submitted for the Nisin Drug Substance during the first quarter of 2019. The timeline for the second phased Nisin Drug Product submission defines the critical path to product approval. To reduce the risk associated with this process, we have met with the FDA on multiple occasions to align on filing strategy and requirements. We have disclosed a timeline of events that could lead to potential approval during 2021. However, there remains a risk that approval could be delayed or not obtained. We are exposed to additional regulatory compliance risks through the subcontractors that we choose to work with to produce Re-Tain™, who also need to satisfy certain regulatory requirements in order to provide us with the products and services we need. International regulatory approvals would be required for sales outside of the United States. European regulatory authorities are not expected to approve a product with a zero milk discard claim, which would remove a significant competitive advantage in that territory. However, the assigned milk discard period may be shorter for our product than it is for other products on the market in Europe.

 

Economics of the dairy and beef industries:

 

·The January count of all cattle and calves in the United States had steadily declined from 97,000,000 as of January 1, 2007 to 88,500,000 as of January 1, 2014. Then this figure increased each year to reach 94,800,000 as of January 1, 2019, which is 0.5% higher than at January 1, 2018. This count as of July 1, 2019 and 2018 was unchanged at 103,000,000.

 

·From 1998 through 2018, the size (annual average) of the U.S. dairy herd ranged from approximately the low of 9,011,000 (2004) to the high of 9,399,000 (2018). This monthly average dropped to 9,336,000 during the first half of 2019.

 

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ImmuCell Corporation

 

·The Class III milk price (an industry benchmark that reflects the value of product used to make cheese) is an important indicator because it defines our customers’ revenue level. This annual average milk price level (measured in dollars per hundred pounds of milk) reached its highest point (since these prices were first reported during 1980) during 2014 at $22.34 (peaking at $24.60 in September 2014). The 2014 high price for milk corresponds to a low count of cattle and calves of 88,500,000 on January 1, 2014 and an average annual U.S. dairy herd size of 9,256,000 during 2014. This average annual herd size from 1998 to 2013 was always lower than the 2014 level (except for during 2008), and since 2014 this average annual herd size has always been higher than the 2014 level. This strong milk price level during 2014 declined to the average of $15.80 during 2015 and further declined to $14.87 during 2016, but increased by 9% to $16.17 during 2017 and then declined by 10% to $14.61 during 2018. During the first half of 2019, this milk price average increased to $15.58. The low price level in 2018 and into 2019 is very challenging to the profitability of our customers. The recent annual fluctuations in this milk price level are demonstrated in the following table:

 

Average Class III Milk Price for

the Year Ended December 31,

 

(Decrease)

Increase

 
2014  2015    
$22.34  $15.80   (29%) 
2015  2016     
$15.80  $14.87   (6%) 
2016  2017     
$14.87  $16.17    9% 
2017  2018     
$16.17  $14.61   (10%) 

 

·The actual level of milk prices may be less important than its level relative to feed costs. One measure of this relationship is known as the milk-to-feed price ratio, which represents the amount of feed that one pound of milk can buy. The highest annual average this ratio has reached since this ratio was first reported in 1985 was 3.64 in 1987. The annual average for this ratio of 1.52 in 2012 was the lowest recorded since it was first reported in 1985. Since this ratio reached 3.24 in 2005, it has not exceeded 3.0. The annual average of 2.54 for 2014 was the highest this ratio has been since it was 2.81 in 2007. This ratio dropped 16% from 2.42 in 2017 to an annual average of 2.04 during 2018. The annual average has not been lower than this level since 2013. This ratio averaged 2.09 during the first half of 2019. An increase in feed costs also has a negative impact on the beef industry. The following table demonstrates the annual volatility and the low values of this ratio recently:

 

Average Milk-To-Feed Price

Ratio for the Year Ended

December 31,

 

 

(Decrease)

Increase

 
2014  2015     
2.54  2.14   (16%) 
2015  2016     
2.14  2.26   6% 
2016  2017     
2.26  2.42   7% 
2017  2018     
2.42  2.04   (16%) 

 

·While the number of cows in the U.S. herd and the production of milk per cow directly influence the supply of milk, the price for milk is also influenced by very volatile international demand for milk products.

 

·The all-time high value (annual average) for a milk cow was $1,993 during 2015. Since then, this annual average value has steadily declined to $1,358 during 2018. The 2018 value represents a 32%, or $635, decrease from the 2015 high. This price dropped to $1,140 during January of 2019 and remained at that level as of April 2019.

 

·The industry data referred to above is compiled from USDA databases. Additionally, the value of newborn bull calves had risen to the unusually high level of approximately $300 to $400 during 2015 but has declined to very little presently, depending on region.

 

Given our focus on the dairy and beef industries, the volatile market conditions and the resulting financial insecurities of our primary end users are risks to our ability to maintain and grow sales at a profitable level. These factors also heighten the challenge of selling premium-priced animal health products (such as Tri-Shield First Defense® and Re-Tain™) into the dairy market.

 

Product development risks: The development of new products is subject to financial, scientific, regulatory, and market risks. Our current business growth strategy relies heavily on the development of Re-Tain™, our new product to treat subclinical mastitis, which has required (and will continue to require) a substantial investment of capital resources and personnel. Our efforts will be subject to inspection and approval by the FDA. There is no assurance whether or when we will obtain all of the data necessary to support regulatory approval for this product.

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ImmuCell Corporation

 

Risks associated with our funding strategy for Re-Tain™: Achieving FDA approval of our pharmaceutical-grade Nisin produced at commercial-scale is the most critical action in front of us on our path to U.S. regulatory approval of Re-Tain™. Having completed construction of the production facility described elsewhere in this report at a cost of approximately $20.8 million, we will continue to incur product development expenses to operate this facility. We do not know whether we will receive the necessary regulatory approvals to manufacture and sell the product, or whether the product will achieve market acceptance and profitability. The additional debt we incurred to fund this project will significantly increase our debt service costs going forward. These loans are subject to certain financial covenants. Absent sufficient sales of Re-Tain™ at a profitable gross margin, we would be required to fund all debt service costs from sales of the First Defense® product line, which would reduce, and could eliminate, our expected profitability going forward and significantly reduce our cash flows.

 

Uncertainty of market size and product sales estimates for Re-Tain™: Estimating the size of the market for any new product is subject to numerous uncertainties. Some of the uncertainties surrounding our product include market acceptance, the development of the subclinical mastitis treatment market, the effect of a premium selling price on market penetration, competition from existing products sold by substantially larger competitors, the risk of competition from other new products, cost of manufacture and integration of milk from treated cows with susceptible cheese starter cultures. Given what we believe to be reasonable assumptions, we estimate that the U.S. market potential for first year sales of our new product could be approximately $5.8 million and could grow to approximately $36.1 million during the fifth year after market launch. The amount of sales that we can capture from this estimated market potential and the timing of when this can be achieved is very difficult to know, and the actual size of the market for our new product may differ materially from our estimates (up or down). We expect the Nisin Drug Substance production facility that we have constructed to have production capacity to meet approximately $10 million in annual sales. This production capacity estimate does not include inventory build strategies in advance of product approval or ongoing yield improvement initiatives. Our new facility was designed to have enough room to add a second fermentation and recovery portion of the production line to be purchased and installed at the cost of approximately $7 million to effectively double production output. However, we now plan to use this available space to perform the formulation and aseptic filling services needed to produce this product in-house. Thus, expansion of this capacity above approximately $10 million would now require other facilities at substantial cost.

 

Exposure to debt service obligations and debt covenants: Rising interest rates could negatively affect our operating results due to the large portion of our borrowings that bear interest at variable rates (which were not effectively converted to fixed rate obligations through interest rate swaps) as well as by increasing dairy farmers’ operating costs and thus putting further financial pressure on an already stressed business sector. Based on the terms of our bank debt agreements effective as of June 30, 2019, we are required by bank debt covenant to maintain at least $2 million of otherwise unrestricted cash, cash equivalents and short-term investments. This requirement effectively reduces the availability of our liquid assets for operational needs and creates a risk of non-compliance.

 

Competition from others: Many of our competitors are significantly larger and more diversified in the relevant markets than we are and have substantially greater financial, marketing, manufacturing and human resources and more extensive product development and sales/distribution capabilities than we do, including greater ability to withstand adverse economic or market conditions and declining revenues and/or profitability. Elanco, Merck and Zoetis, among other companies, sell products that compete directly with the First Defense® product line in preventing scours in newborn calves. The scours product sold by Zoetis sells for approximately half the price of our product, but it does not have an E. coli claim (which ours does). With Tri-Shield First Defense®, we can now compete more effectively against vaccines that are given to the mother cow (dam) to improve the quality of the colostrum that she produces for the newborn calf. Merck and Zoetis dominate the market for these dam vaccine products. The market for the treatment of mastitis in dairy cows is highly competitive and presently is dominated by large companies such as Boehringer Ingelheim, Merck and Zoetis. The mastitis products sold by these large companies are well established in the market and are priced lower than what we expect for our product, but all of them involve traditional antibiotics and are sold subject to a requirement to discard milk during and for a period of time after treatment. There is no assurance that our product will compete successfully in this market. We may not be aware of other companies that compete with us or intend to compete with us in the future.

 

Access to raw materials and contract manufacturing services: Our objective is to maintain more than one source of supply for the components used to manufacture and test our products that we obtain from third parties. However, there is a risk that we could have difficulty in efficiently acquiring essential supplies. We have significantly increased the number of farms from which we purchase colostrum for the First Defense® product line. The loss of farms from which we buy raw material could make it difficult for us to produce enough inventory to meet customer demand. The specific antibodies that we purify from colostrum for the First Defense® product line are not readily available from other sources. We are and will be dependent on our manufacturing facilities and operations in Portland for the production of the First Defense®product line and Re-Tain™. We are and will be dependent on Plas-Pak Industries, Inc. (now owned by Nordson Corporation) for the supply of the syringes used for our gel tube format of Dual-Force First Defense®, Tri-Shield First Defense® and Re-Tain™. The supply contract covering the Re-Tain™ syringes has been extended to January 1, 2024. We expect to be dependent on a contract with Norbrook for the Drug Product formulation and aseptic filling of our Nisin Drug Substance into Drug Product until we complete the investment to perform these services in-house or unless we find an alternative contractor. Norbrook may have the right to terminate the agreement in December 2019 and charge us a $100,000 termination fee if (as we anticipate) we do not receive FDA approval for Re-Tain™ by that date. We have been and are currently negotiating certain contract modifications and a term extension with Norbrook. There is no assurance that this negotiation will be successful for us. Due to the potential loss of this contract as discussed elsewhere in this report, we have initiated an investment in our own facility to perform these services internally. Such a facility must be inspected and approved by the FDA. We are also investigating alternative third-party manufacturers to meet our needs pending the completion of our own facility, but it could be costly and time-consuming to find and qualify an adequate alternative source for these services. Also, our potential alternative options for these services are narrowed considerably because our product cannot be formulated or filled in a facility that also processes traditional antibiotics (i.e. beta lactams). Such a shift could result in significant production interruptions, delay in market launch, significantly increased costs of goods sold and reduced margins, the effects of which could be material and adverse to us. Any significant damage to or other disruption in the services at any of these third-party facilities (including due to regulatory non-compliance) could adversely affect the production of inventory and result in significant added expenses and potential loss of future sales.

 

37

 

 

ImmuCell Corporation

 

Small size; dependence on key personnel: We are a small company with 53 employees (including 3 part-time employees). As such, we rely on certain key employees to support multiple operational functions, with limited redundancy in capacity. The loss of any of these key employees could adversely affect our operations until a qualified replacement is hired and trained. This challenge is heightened by the tight labor market conditions now prevailing. Our competitive position will be highly influenced by our ability to attract and retain key scientific, manufacturing, managerial and sales and marketing personnel, to develop proprietary technologies and products, to obtain USDA or FDA approval for new products, to maintain regulatory compliance with current products and to continue to profitably sell our current products. We continue to monitor our network of independent distributors to maintain our competitive position.

 

Failure to protect intellectual property: In some cases, we have chosen (and may choose in the future) not to seek patent protection for certain products or processes. Instead, we have sought (and may seek in the future) to maintain the confidentiality of any relevant proprietary technology through operational safeguards and contractual agreements. Reliance upon trade secret, rather than patent, protection may cause us to be vulnerable to competitors who successfully replicate our manufacturing techniques and processes. Additionally, there can be no assurance that others may not independently develop similar trade secrets or technology or obtain access to our unpatented trade secrets or proprietary technology. Other companies may have filed patent applications and may have been issued patents involving products or technologies potentially useful to us or necessary for us to commercialize our products or achieve our business goals. There can be no assurance that we will be able to obtain licenses to such patents on terms that are acceptable. There is also a risk that competitors could challenge the claims in patents that have been issued to us.

 

Cost burdens of our reporting obligations as a public company: Operating a public company involves substantial costs to comply with reporting obligations under federal securities laws and the provisions of the Sarbanes-Oxley Act of 2002.

 

Exposure to risks associated with the financial downturn and economic instability: Positive indications about the health of the U.S. economy could prove temporary, and a downturn could occur. Some observers believe that the housing market remains problematic for the overall U.S. economy, the United States has taken on too much national debt and the equity markets are overvalued. Higher interest rates could adversely affect us and the general economy and our customers. The dairy market is presently under extreme economic pressure, causing many of our customers to lose money or only earn minimal profits. A small percentage reduction in the export of dairy products results in a significant drop in the domestic price of milk. A combination of the conditions, trends and concerns summarized above could have a corresponding negative effect on our business and operations, including the demand for our products in the U.S. market and our ability to penetrate or maintain a profitable presence in international markets.

 

Bovine diseases: The potential for epidemics of bovine diseases such as Foot and Mouth Disease, Bovine Tuberculosis, Brucellosis and Bovine Spongiform Encephalopathy (BSE) presents a risk to us and our customers. Documented cases of BSE in the United States have led to an overall tightening of regulations pertaining to ingredients of animal origin, especially bovine. The First Defense® product line is manufactured from bovine milk (colostrum), which is not considered a BSE risk material. Future regulatory action to increase protection of the human food supply could affect the First Defense® product line, although presently we do not anticipate that this will be the case.

 

Biological terrorism: The threat of biological terrorism is a risk to both the economic health of our customers and our ability to economically acquire and collect good quality raw material from our contract farms. Any act of widespread bioterrorism against the dairy industry could adversely affect our operations.

 

38

 

 

ImmuCell Corporation

 

Certain provisions might discourage, delay or prevent a change in control of our Company or changes in our management: Provisions of our certificate of incorporation, our bylaws, our Common Stock Rights Plan or Delaware law may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares of our common stock. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. These provisions include:

 

·limitations on the removal of directors;

 

·advance notice requirements for stockholder proposals and nominations;

 

·the ability of our Board of Directors to alter or repeal our bylaws;

 

·the ability of our Board of Directors to refuse to redeem rights issued under our Common Stock Rights Plan or otherwise to limit or suspend its operation that would work to dilute the stock ownership of a potential hostile acquirer, likely preventing acquisitions that have not been approved by our Board of Directors; and

 

·Section 203 of the Delaware General Corporation Law, which prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder (generally defined as a person which together with its affiliates owns, or within the last three years has owned, 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder) unless the business combination is approved in a prescribed manner.

 

The existence of the foregoing provisions and anti-takeover measures could depress the trading price of our common stock or limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our Company, thereby reducing the likelihood of obtaining a premium for our common stock in an acquisition.

 

Stock market valuation and liquidity: Our common stock trades on The Nasdaq Stock Market (Nasdaq: ICCC). Our average daily trading volume is lower than the volume for most other companies and the bid/ask stock price spread can be larger and prices can be volatile, which could result in investors facing difficulty selling their stock for proceeds that they may expect or desire. Most companies in the animal health sector have market capitalization values that greatly exceed our current market capitalization of approximately $43,000,000 as of August 1, 2019. Our product sales during the year ended December 31, 2018 and the trailing twelve-month period ended June 30, 2019 were $11 million and $12.2 million, respectively. Before gross margin from the sale of new products is achieved, our market capitalization may be heavily dependent on the perceived potential for growth from our products under development.

 

No expectation to pay any dividends or repurchase stock for the foreseeable future: We do not anticipate paying any dividends to, or repurchasing stock from, our stockholders for the foreseeable future. Instead, we expect to use cash to fund product development costs and investments in our facilities and production equipment, and to increase our working capital and to reduce debt. Stockholders must be prepared to rely on market sales of their common stock after price appreciation to earn an investment return, which may never occur. Any determination to pay dividends in the future will be made at the discretion of our Board of Directors and will depend on our financial condition, results of operations, contractual restrictions, restrictions imposed by applicable laws, current and anticipated needs for liquidity and other factors our Board of Directors deems relevant.

 

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None

 

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4 - MINE SAFETY DISCLOSURES

 

None

 

ITEM 5 - OTHER INFORMATION

 

None

 

39

 

 

ImmuCell Corporation

 

ITEM 6 – EXHIBITS

 

Exhibit 31   Certifications required by Rule 13a-14(a).
Exhibit 32   Certification pursuant to Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS   XBRL Instance Document.
101.SCH   XBRL Taxonomy Extension Schema Document.
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB   XBRL Taxonomy Extension Label Linkbase Document.
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document.

 

40

 

 

ImmuCell Corporation

 

SIGNATURE

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  ImmuCell Corporation Registrant
   
Date: August 12, 2019 By: /s/ Michael F. Brigham
    Michael F. Brigham
    President, Chief Executive Officer
and Principal Financial Officer