10-Q

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 March 31, 2020

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 Exchange 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 May 5, 2020 was 7,212,919.

ImmuCell Corporation

TABLE OF CONTENTS

March 31, 2020

PART I: FINANCIAL INFORMATION
ITEM 1.	Unaudited Financial Statements
	Balance Sheets as of March 31, 2020 and December 31, 2019	1
	Statements of Operations during the three-month periods ended March 31, 2020 and 2019	2
	Statements of Comprehensive (Loss) Income during the three-month periods ended March 31, 2020 and 2019	2
	Statements of Stockholders’ Equity during the three-month periods ended March 31, 2019 and 2020	3
	Statements of Cash Flows during the three-month periods ended March 31, 2020 and 2019	4-5
	Notes to Unaudited Financial Statements	6-20
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21-31
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	31
ITEM 4.	Controls and Procedures	32
PART II: OTHER INFORMATION
ITEM 1 THROUGH 6		33-39
	Signature	40

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ImmuCell Corporation

PART 1. FINANCIAL INFORMATION

ITEM 1. UNAUDITED FINANCIAL STATEMENTS

BALANCE SHEETS

	(Unaudited)
	As of March 31, 2020			As of December 31, 2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	6,505,141		$	6,293,293
Short-term investments		493,821			2,480,753
Trade accounts receivable, net		1,875,783			1,637,165
Inventory		1,597,958			2,518,256
Prepaid expenses and other current assets		475,079			259,566
Total current assets		10,947,782			13,189,033
PROPERTY, PLANT AND EQUIPMENT, net		26,173,301			25,265,738
RESTRICTED CASH		1,400,191			—
OPERATING LEASE RIGHT-OF-USE ASSET		1,305,450			—
INTANGIBLE ASSETS, net		109,848			114,624
GOODWILL		95,557			95,557
OTHER ASSETS		22,145			26,884
TOTAL ASSETS	$	40,054,274		$	38,691,836
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	1,196,477		$	1,220,566
Current portion of bank debt		572,197			1,274,790
Current portion of operating lease liability		93,249			—
Total current liabilities		1,861,923			2,495,356
LONG-TERM LIABILITIES:
Bank debt, net of current portion		7,988,351			7,146,676
Operating lease liability, net of current portion		1,213,690			—
Interest rate swaps		—			58,526
Total long-term liabilities		9,202,041			7,205,202
TOTAL LIABILITIES		11,063,964			9,700,558
CONTINGENT LIABILITIES AND COMMITMENTS (See Note 11)
STOCKHOLDERS’ EQUITY:
Common stock, $0.10 par value per share, 11,000,000 shares authorized, 7,299,009 shares issued and 7,212,919 shares outstanding, as of March 31, 2020 and December 31, 2019		729,901			729,901
Additional paid-in capital		31,209,297			31,131,893
Accumulated deficit		(2,760,552	)		(2,638,285	)
Treasury stock, at cost, 86,090 shares as of March 31, 2020 and December 31, 2019		(188,336	)		(188,336	)
Accumulated other comprehensive loss		—			(43,895	)
Total stockholders’ equity		28,990,310			28,991,278
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	40,054,274		$	38,691,836

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

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ImmuCell Corporation

Unaudited

STATEMENTS OF OPERATIONS

	During the Three-Month Periods Ended March 31,
	2020			2019
Product sales	$	4,910,388		$	4,410,561
Costs of goods sold		2,674,285			2,209,090
Gross margin		2,236,103			2,201,471
Product development expenses		974,428			910,370
Sales and marketing expenses		582,897			607,104
Administrative expenses		481,901			418,693
Operating activities, net		2,039,226			1,936,167
NET OPERATING INCOME		196,877			265,304
Other expenses, net		333,776			111,726
(LOSS) INCOME BEFORE INCOME TAXES		(136,899	)		153,578
Income tax (benefit) expense		(14,632	)		9,023
NET (LOSS) INCOME	$	(122,267	)	$	144,555
Basic weighted average common shares outstanding		7,212,919			5,624,504
Basic net (loss) income per share	$	(0.02	)	$	0.03
Diluted weighted average common shares outstanding		7,212,919			5,666,549
Diluted net (loss) income per share	$	(0.02	)	$	0.03

STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

	During the Three-Month Periods Ended March 31,
	2020			2019
Net (loss) income	$	(122,267	)	$	144,555
Other comprehensive income (loss):
Interest rate swaps, before taxes		58,527			(36,092	)
Income tax applicable to interest rate swaps		(14,632	)		9,023
Other comprehensive income (loss), net of taxes		43,895			(27,069	)
Total comprehensive (loss) income	$	(78,372	)	$	117,486

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

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ImmuCell Corporation

Unaudited

STATEMENTS OF STOCKHOLDERS’ EQUITY

	Common Stock										Treasury Stock						Accumulated
	Shares		Amount		Additional paid-in capital			Accumulated Deficit			Shares			Amount			Other Comprehensive Income (Loss)			Total Stockholders’ Equity
During the Three-Month Period Ended March 31, 2019
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 income		—		—		—			144,555			—			—			—			144,555
Other comprehensive loss, net of taxes		—		—		—			—			—			—			(27,069	)		(27,069	)
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		—		—		82,835			—			—			—			—			82,835
BALANCE, March 31, 2019		7,299,009	$	729,901	$	30,908,855		$	(1,198,143	)		89,414		$	(195,608	)	$	3,088		$	30,248,093
During the Three-Month Period Ended March 31, 2020
BALANCE, December 31, 2019		7,299,009	$	729,901	$	31,131,893		$	(2,638,285	)		86,090		$	(188,336	)	$	(43,895	)	$	28,991,278
Net loss		—		—		—			(122,267	)		—			—			—			(122,267	)
Other comprehensive income, net of taxes		—		—		—			—			—			—			43,895			43,895
Stock-based compensation		—		—		77,404			—			—			—			—			77,404
BALANCE, March 31, 2020		7,299,009	$	729,901	$	31,209,297		$	(2,760,552	)		86,090		$	(188,336	)	$	—		$	28,990,310

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

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ImmuCell Corporation

Unaudited

STATEMENTS OF CASH FLOWS

	During the Three-Month Periods Ended March 31,
	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(122,267	)	$	144,555
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation		555,124			563,805
Amortization		4,776			4,776
Amortization and write-off of debt issuance costs		97,948			4,244
Deferred income taxes		(14,632	)		9,023
Stock-based compensation		77,404			82,835
Loss on disposal of fixed assets		3,266			—
Non-cash rent expense		1,490			—
Changes in:
Trade accounts receivable, gross		(238,618	)		(350,798	)
Accrued interest income		21,932			—
Inventory		920,298			295,878
Prepaid expenses and other current assets		(215,513	)		(119,420	)
Other assets		4,739			8,594
Accounts payable and accrued expenses		(238,494	)		33,705
Net cash provided by operating activities		857,453			677,197
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment		(1,252,147	)		(194,403	)
Maturities of investments		1,965,000			—
Proceeds from sale of fixed assets		600			—
Payment of contingent royalties related to 2016 acquisition		—			(8,914	)
Net cash provided by (used for) investing activities		713,453			(203,317	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from public offering, net		—			8,303,436
Proceeds from debt issuance		8,600,000			—
Line of credit repayment		—			(500,000	)
Debt principal repayments		(8,519,078	)		(214,301	)
Payments of debt issuance costs		(39,789	)		—
Proceeds from exercise of stock options		—			2
Net cash provided by financing activities		41,133			7,589,137
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		1,612,039			8,063,017
BEGINNING CASH, CASH EQUIVALENTS AND RESTRICTED CASH		6,293,293			2,521,050
ENDING CASH, CASH EQUIVALENTS AND RESTRICTED CASH	$	7,905,332		$	10,584,067

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

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ImmuCell Corporation

Unaudited

STATEMENTS OF CASH FLOWS

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

	During the Three-Month Periods Ended March 31,
	2020			2019
CASH PAID FOR:
Income taxes		—			—
Interest expense	$	256,420		$	112,227
NON-CASH ACTIVITIES:
Change in capital expenditures included in accounts payable and accrued expenses	$	384,631		$	(72,695	)
Net change in fair value of interest rate swaps, net of taxes	$	(43,895	)	$	27,069
Fixed asset disposals, gross	$	16,294		$	1,830

	As of March 31, 2020		As of March 31, 2019
Cash and cash equivalents	$	6,505,141	$	10,584,067
Restricted cash		1,400,191		—
Cash, cash equivalents and restricted cash	$	7,905,332	$	10,584,067

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

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ImmuCell Corporation

Notes to Unaudited 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 our 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 manufacture and market the First Defense^® product line for the prevention of scours in newborn dairy and beef calves. We are developing improved formulations of this product line providing Immediate Immunity™ to newborn calves and are in the late stages of developing Re-Tain™, a treatment for cows with subclinical mastitis, the most significant cause of economic loss to the dairy industry. These products help reduce the need to use traditional antibiotics in food producing animals. We are subject to certain risks associated with this 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 (which are of a normal recurring nature) 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. You should read these unaudited financial statements in conjunction with our audited financial statements on Form 10-K for the year ended December 31, 2019.

(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 $6,505,141 and $5,792,993 as of March 31, 2020 and December 31, 2019, 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) Trade Accounts Receivable

Accounts receivable are carried at the original invoice amount less an estimate made for doubtful collection when applicable. 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 March 31, 2020 and December 31, 2019, we determined that no allowance for doubtful accounts 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 balance sheet date, we evaluate our ending inventories for excess quantities and obsolescence.

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ImmuCell Corporation

Notes to Unaudited Financial Statements (continued)

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 or farm. Our policy is to maintain more than one source of supply for the components used in our products when practicable. See Note 5.

(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 Nisin 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 31^st) 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 three-month period ended March 31, 2020 or the year ended December 31, 2019. See Notes 2(h) and 8 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 March 31, 2020 and December 31, 2019, the carrying amounts of cash and cash equivalents, short-term investments, accounts receivable, inventory, other assets, accounts payable 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.

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ImmuCell Corporation

Notes to Unaudited 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 three-month periods ended March 31, 2020 and 2019, there were no transfers between levels. As of March 31, 2020 and December 31, 2019, 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 March 31, 2020 and December 31, 2019 our bank certificates of deposit were classified as Level 2 and were measured by other significant observable inputs. As of December 31, 2019, 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 March 31, 2020 or December 31, 2019.

	As of March 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Cash and money market accounts	$	6,505,141	$	—	$	—	$	6,505,141
Bank certificates of deposit		—		493,821		—		493,821
Total	$	6,505,141	$	493,821	$	—	$	6,998,962

	As of December 31, 2019
	Level 1		Level 2			Level 3		Total
Assets:
Cash and money market accounts	$	6,293,293	$	—		$	—	$	6,293,293
Bank certificates of deposit		—		2,480,753			—		2,480,753
Liabilities:
Interest rate swaps		—		(58,526	)		—		(58,526	)
Total, net	$	6,293,293	$	2,422,227		$	—	$	8,715,520

(h) Valuation of Long-Lived Assets

We periodically evaluate our long-lived assets, consisting principally of fixed assets, operating lease right-of-use asset 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 three-month period ended March 31, 2020 or the year ended December 31, 2019.

(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 March 31,
	2020			2019
Company A		38	%		43	%
Company B		31	%		27	%
Company C		11	%		*

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ImmuCell Corporation

Notes to Unaudited 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 March 31, 2020			As of December 31, 2019
Company B		41	%		48	%
Company A		33	%		28	%
Company C		12	%		*

* Amount is less than 10%.

(j) Revenue Recognition

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 14.

(k) Expense Recognition

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 $18,526 and $30,807 during the three-month periods ended March 31, 2020 and 2019, 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.

(l) 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.

9

ImmuCell Corporation

Notes to Unaudited Financial Statements (continued)

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 2016. We have evaluated the positions taken on our filed tax returns. We have concluded that no uncertain tax positions existed as of March 31, 2020 or December 31, 2019. Although we believe that our estimates are reasonable, actual results could differ from these estimates. See Note 16.

(m) 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 $77,404 and $82,835 during the three-month periods ended March 31, 2020 and 2019, respectively.

(n) Net (Loss) Income Per Common Share

Net income (loss) per common share has been computed in accordance with Codification Topic 260-10, Earnings Per Share. The weighted average number of shares outstanding was 7,212,919 and 5,624,504 during the three-month periods ended March 31, 2020 and 2019, respectively. The basic net income per share has been computed by dividing net income by the weighted average number of common shares outstanding during the period. The diluted net income per share has been computed by dividing net income by the weighted average number of shares outstanding during the period plus all outstanding stock options with an exercise price that is less than the average market price of the common stock during the period less the number of shares that could have been repurchased at this average market price with the proceeds from the hypothetical stock option exercises. 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 have been excluded from the denominator in the calculation of dilutive earnings per share when we are in a loss position because their inclusion would be anti-dilutive. Outstanding stock options that were not included in this calculation because the effect would be anti-dilutive amounted to 406,500 and 87,000 as of March 31, 2020 and 2019, respectively.

(o) 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 and are subject to change in the near term. 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.

(p) 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 are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This ASU and its amendments became 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 regard 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 allows us 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 concluded that we were not subject to material lease obligations as of December 31, 2019, and the adoption of Topic 842 did not have a material impact on our financial statements as of January 1, 2019. The lease we entered into on September 12, 2019 to expand our production capacity for the First Defense^® product line with a Possession Date of November 15, 2019 and a Commencement Date of February 13, 2020 has been accounted for in accordance with Topic 842 during the first quarter of 2020. The only material lease pursuant to which we are the lessee is comprised of real estate property. All leases are classified as operating leases, and therefore, were previously not recognized on our balance sheets. With the adoption of Topic 842, operating lease agreements are required to be recognized on our balance sheets as a right-of-use asset with a corresponding lease liability. If at a lease inception date or at some later date during the term of a lease, we consider the exercising of a renewal option to be reasonably certain, we would include the extended term in the calculation of the ROU asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, we utilize our incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. We elected the following practical expedients in conjunction with implementation of Topic 842:

● Inclusion of both the lease and non-lease components for all classes of underlying assets as a single component.

● Election to exclude short-term lease (i.e., lease with initial terms of twelve months or less) from capitalization on our balance sheets.

10

ImmuCell Corporation

Notes to Unaudited Financial Statements (continued)

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 Topic 820 did not have a material impact on our financial statements as of January 1, 2020.

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 March 31, 2020		As of December 31, 2019
Cash and cash equivalents	$	6,505,141	$	6,293,293
Short-term investments		493,821		2,480,753
Total	$	6,998,962	$	8,774,046

Held to maturity securities (certificates of deposit) are carried at amortized cost. As of March 31, 2020, we were required by a bank debt covenant to maintain at least $1,400,000 of otherwise unrestricted cash, cash equivalents and short-term investments in an escrow account in favor of the bank.

4. TRADE ACCOUNTS RECEIVABLE, net

Trade accounts receivable amounted to $1,875,783 and $1,637,165 as of March 31, 2020 and December 31, 2019, respectively. No allowance for bad debt and product returns was recorded as of March 31, 2020 or December 31, 2019.

5. INVENTORY

Inventory consisted of the following:

	As of March 31, 2020		As of December 31, 2019
Raw materials	$	590,720	$	791,558
Work-in-process		844,889		1,207,457
Finished goods		162,349		519,241
Total	$	1,597,958	$	2,518,256

11

ImmuCell Corporation

Notes to Unaudited Financial Statements (continued)

6. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following:

	As of March 31, 2020		As of December 31, 2019
Prepaid expenses	$	406,450	$	218,232
Other receivables		67,829		40,534
Security deposits		800		800
Total	$	475,079	$	259,566

7. PROPERTY, PLANT AND EQUIPMENT, net

Property, plant and equipment consisted of the following:

	Estimated Useful Lives (in years)	As of March 31, 2020			As of December 31, 2019
Laboratory and manufacturing equipment	3-10	$	15,462,319		$	15,437,724
Building and improvements	10-39		17,078,829			17,078,829
Office furniture and equipment	3-10		716,793			719,323
Construction in progress	n/a		2,552,383			1,124,189
Land	n/a		516,867			516,867
Property, plant and equipment, gross			36,327,191			34,876,932
Accumulated depreciation			(10,153,890	)		(9,611,194	)
Property, plant and equipment, net		$	26,173,301		$	25,265,738

As of March 31, 2020 and December 31, 2019, construction in progress consisted principally of payments toward the First Defense^® production capacity expansion project and equipment needed to bring the final formulation and aseptic filling for Re-Tain™ in-house. Approximately $16,294 and $1,830 of property, plant and equipment was disposed of during the three-month periods ended March 31, 2020 and 2019, respectively. Depreciation expense was $555,123 and $563,805 during the three-month periods ended March 31, 2020 and 2019, respectively.

8. INTANGIBLE ASSETS

The developed technology intangible assets of approximately $191,000 (which include an immaterial amount of value associated with customer relationships and a non-compete agreement and was valued using the relief from royalty method) 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 March 31, 2020 and 2019. The net value of these intangibles was $109,848 and $114,624 as of March 31, 2020 and December 31, 2019, respectively. Intangible asset amortization expense is estimated to be approximately $19,104 per year through December 31, 2025.

Intangible assets as of March 31, 2020 consisted of the following:

	Gross Carrying Value		Accumulated Amortization			Net Book Value
Developed technology	$	184,100	$	(78,243	)	$	105,857
Customer relationships		1,300		(552	)		748
Non-compete agreements		5,640		(2,397	)		3,243
Total	$	191,040	$	(81,192	)	$	109,848

Intangible assets as of December 31, 2019 consisted of the following:

	Gross Carrying Value		Accumulated Amortization			Net Book Value
Developed technology	$	184,100	$	(73,640	)	$	110,460
Customer relationships		1,300		(520	)		780
Non-compete agreements		5,640		(2,256	)		3,384
Total	$	191,040	$	(76,416	)	$	114,624

12

ImmuCell Corporation

Notes to Unaudited Financial Statements (continued)

9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following:

	As of March 31, 2020		As of December 31, 2019
Accounts payable – trade	$	171,411	$	401,958
Accounts payable – capital		384,631		170,220
Accrued payroll		196,968		399,501
Accrued professional fees		55,250		73,781
Accrued other		388,217		175,106
Total	$	1,196,477	$	1,220,566

10. BANK DEBT

Prior to a refinancing with Gorham Savings Bank during the first quarter of 2020, we had in place five different credit facilities and a line of credit with TD Bank N.A. 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 bearing interest at the fixed rate of 6.04% per annum (with a 10-year term and a 15-year amortization schedule). A balloon principal payment of $451,885 would have been due during the third quarter of 2020. Proceeds from a $2,500,000 second mortgage on this corporate headquarters (Loan #2) were received during the third quarter of 2015 bearing interest at the fixed rate of 4.38% per annum (with a 10-year term and 25-year amortization schedule). A balloon principal payment of approximately $1,550,000 would have been due during the third quarter of 2025. 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 was a construction loan of $3,940,000. In September 2018, the loan converted to a term loan facility bearing interest at the variable rate equal to the one-month LIBOR plus a margin of 2.25% per annum (with a 7-year term and 7-year amortization schedule). Loan #4 was a construction loan of $2,560,000. In March 2018, the loan converted to a term loan facility bearing interest at the variable rate equal to the one-month LIBOR plus a margin of 2.25% per annum (with a 10-year term and 25-year amortization schedule). A balloon principal payment of approximately $1,408,000 would have been due during the first quarter of 2027. Proceeds from a $340,000 first mortgage on our 4,114 square foot warehouse and cold storage facility (Loan #5) were received during the first quarter of 2017 bearing interest at the variable rate equal to the one-month LIBOR plus a margin of 2.25% per annum (with a 10-year term and 20-year amortization schedule). A balloon principal payment of approximately $206,000 would have been due during the first quarter of 2027.

On March 11, 2020, we closed on a debt financing with Gorham Savings Bank aggregating $8,600,000 and a $1,000,000 line of credit. The debt is comprised of a $5,100,000 mortgage note (Loan #6) that bears interest at a fixed rate of 3.50% per annum (with a 10-year term and 25-year amortization schedule) and a $3,500,000 note (Loan #7) that bears interest at a fixed rate of 3.50% per annum (with a 7-year term and amortization schedule). The line of credit bears interest at a variable rate equal to the one-month LIBOR plus 2.15% per annum. The proceeds were used to repay all bank debt outstanding at the time of closing and to provide some additional working capital. These two credit facilities are secured by liens on substantially all of our assets and are subject to certain restrictions and financial covenants. We were required by a bank debt covenant (before the debt refinancing discussed above) to maintain at least $2,000,000 of otherwise unrestricted cash, cash equivalents and short-term investments. Under the new debt, we are required to hold $1,400,000 in escrow (a non-current asset), which reduces the effective availability of our liquid assets for operational needs by that amount.

In connection with Loan #6 and Loan #7, we incurred debt issuance costs of $39,789. The amortization of debt issuance 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 March 31, 2020 and 2019 are reflected in the following table by year and by loan:

	During the Three-Month Period Ended March 31, 2020					During the Three-Month Period Ended March 31, 2019
	Proceeds from Debt Issuance		Debt Principal Repayments			Proceeds from Debt Issuance		Debt Principal Repayments
Loan #1	$	—	$	(493,696	)	$	—	$	(16,881	)
Loan #2		—		(2,143,771	)		—		(22,260	)
Loan #3		—		(3,236,429	)		—		(140,715	)
Loan #4		—		(2,336,000	)		—		(32,000	)
Loan #5		—		(309,182	)		—		(2,445	)
Loan #6		5,100,000		—			—		—
Loan #7		3,500,000		—			—		—
Total	$	8,600,000	$	(8,519,078	)	$	—	$	(214,301	)

13

ImmuCell Corporation

Notes to Unaudited Financial Statements (continued)

Principal payments (net of debt issue costs) due under bank loans outstanding as of March 31, 2020 (excluding our $1,000,000 line of credit) are reflected in the following table by the year that payments are due:

	During the Nine-Month Period Ending		During the Years Ending December 31,
	December 31, 2020		2021		2022		2023		2024		2025 and After		Total
Loan #6	$	96,820	$	133,397	$	138,141	$	143,055	$	148,142	$	4,440,445	$	5,100,000
Loan #7		335,201		461,055		477,454		494,435		512,021		1,219,834		3,500,000
Subtotal	$	432,021	$	594,452	$	615,595	$	637,490	$	660,163	$	5,660,279		8,600,000
Debt Issuance Costs														(39,452	)
Total													$	8,560,548

On March 11, 2020, we entered into a $1,000,000 line of credit with Gorham Savings Bank, which is secured by substantially all of our assets and is subject to certain restrictions and financial covenants. This line of credit is available as needed through March 10, 2022. There was no outstanding balance under this line of credit as of March 31, 2020. Interest on borrowings against the line of credit is at the rate of the one-month LIBOR plus 2.15% per annum.

11. 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 March 31, 2020. 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 March 31, 2020.

We are committed to purchasing certain key parts (syringes) and services (formulation, aseptic filling and final packaging of Drug Product) pertaining to Re-Tain™, our Nisin-based intramammary treatment of subclinical mastitis in lactating dairy cows, exclusively from contractors. We are investing in the necessary equipment to perform the Drug Product formulation and aseptic filling services in-house.

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^®. The license is 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 $5,000, $10,396 and $76,876 were paid for the years ended December 31, 2017, 2018 and 2019, respectively. Royalties of $28,538 were accrued as of March 31, 2020.

14

ImmuCell Corporation

Notes to Unaudited Financial Statements (continued)

During the first quarter of 2020, we entered into a Severance Agreement with our President and CEO. Under the terms of this agreement, we agreed to pay this executive (or his estate) nine months of his then current salary plus any accrued and unused paid time off in the event of the involuntary termination of his employment by the Company (except for cause) or in the event of termination by him for good reason.

In addition to the commitments discussed above, we had committed $1,078,000 to increase our production capacity for the First Defense^® product line, $1,245,000 to construct and equip our own Drug Product formulation and aseptic filling facility for Re-Tain™, $1,072,000 to the purchase of inventory, $36,000 to capital expenditures and $423,000 to other obligations as of March 31, 2020.

12. OPERATING LEASE

On September 12, 2019, we entered into a lease covering approximately 14,300 square feet of office and warehouse space with a Possession Date of November 15, 2019 and a Commencement Date of February 13, 2020. We are renovating this space to meet our needs in expanding our production capacity for the First Defense^® product line. We are investing approximately $2,350,000 in leasehold improvements that we expect to depreciate over the ten-year lease term beginning upon issuance of a Certificate of Occupancy by the City of Portland. The lease term is ten years with a right to renew for a second ten-year term and a right of first offer to purchase. At this time, we are not reasonably assured that we would exercise this renewal option. A ten-year period is reflected in the right-of-use (ROU) asset and lease liability on our balance sheet. The total lease liability over the initial ten-year term (including inflationary adjustments) aggregates approximately $1,318,945 and includes real estate and personal property taxes, utilities, insurance, maintenance and related building and operating expenses. Our lease includes variable lease and non-lease components that are included in the ROU asset and lease liability. Such payments primarily include common area maintenance charges and increases in rent payments that are driven by factors such as future changes in an index, such as the Consumer Price Index. As of March 31, 2020, the balance of the operating lease ROU asset was $1,305,450 and the operating lease liability was $1,306,939. The calculated amount of the ROU asset and lease liability is impacted by the length of the lease term and the discount rate used for the present value of the minimum lease payments. The following table represents lease costs and other lease information. As we elected, for all classes of underlying assets, not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as real estate taxes and common area maintenance.

	During the Three-Month Periods Ended March 31,
	2020			2019
Lease Cost
Operating lease cost	$	15,597			—
Variable lease cost		5,472			—
Total lease cost	$	21,069			—
Operating Lease
Weighted average remaining lease term (in years)		9.8			—
Weighted average discount rate		4.77	%		—

Future lease payments required under non-cancelable operating leases in effect as of March 31, 2020 were as follows:

	March 31, 2020
During the nine-month period ending December 31, 2020	$	115,050
During the year ending December 31, 2021		159,396
During the year ending December 31, 2022		162,102
During the year ending December 31, 2023		165,120
During the year ending December 31, 2024		168,210
During the years ending December 31, 2025 and after		905,687
Total lease payments (undiscounted cash flows)		1,675,565
Less: imputed interest (discount effect of cash flows)		(368,626	)
Total operating lease liabilities	$	1,306,939

15

ImmuCell Corporation

Notes to Unaudited Financial Statements (continued)

13. STOCKHOLDERS’ EQUITY

From February 2016 to March 2019, we issued the aggregate of 4,037,861 shares of common stock in five different transactions raising gross proceeds of approximately $22,464,000. These funds are essential to funding our business growth plans. The details of each transaction are discussed below.

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 in a public, registered sale 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 Securities and Exchange Commission (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).

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. As of December 31, 2019, no options were outstanding under the 2000 Plan.

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 can be granted under the 2010 Plan. However, options outstanding under the 2010 Plan at that time can be exercised in accordance with their terms. As of March 31, 2020, 255,000 options were outstanding under the 2010 Plan.

16

ImmuCell Corporation

Notes to Unaudited Financial Statements (continued)

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 can be granted under the 2017 Plan. However, options outstanding under the 2017 Plan at that time can be exercised in accordance with their terms. As of March 31, 2020, 151,500 options were outstanding under the 2017 Plan.

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, 2018		12,500			270,00			111,500		$	6.37	$	266,020
Grants		—			26,000			25,000		$	5.90
Terminations		—			(26,000	)		(3,000	)	$	6.05
Exercises		(12,500	)		(15,000	)		—		$	4.37
Outstanding at December 31, 2019		—			255,000			133,500		$	6.48	$	(516,475	)
Grants		—			4,000			18,000		$	4.17
Terminations		—			(4,000	)		—		$	5.88
Exercises		—			—			—		$	—
Outstanding at March 31, 2020		—			255,000			151,500		$	6.36	$	(1,044,945	)
Vested at March 31, 2020		—			159,500			10,000		$	6.05	$	(383,270	)
Vested and expected to vest at March 31, 2020		—			255,000			151,500		$	6.36	$	(1,044,945	)
Reserved for future grants		—			1,000			148,500

⁽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, 2020		321,000	$	3.49	$	6.55
Non-vested stock options as of March 31, 2020		237,000	$	3.39	$	6.58
Stock options granted during the three-month period ended March 31, 2020		22,000	$	2.12	$	4.17
Stock options that vested during the three-month period ended March 31, 2020		102,000	$	3.44	$	6.00
Stock options that were forfeited during the three-month period ended March 31, 2020		4,000	$	3.08	$	5.88

No stock options were exercised during the three-month period ended March 31, 2020. During the three-month period ended March 31, 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 $2 in cash.

17

ImmuCell Corporation

Notes to Unaudited Financial Statements (continued)

The weighted average remaining life of the options outstanding under the 2010 Plan and the 2017 Plan as of March 31, 2020 was approximately 6 years and 3 months. The weighted average remaining life of the options exercisable under these plans as of March 31, 2020 was approximately 5 years and 9 months. The exercise prices of the options outstanding as of March 31, 2020 ranged from $3.15 to $8.90 per share. The 22,000 stock options granted during the three-month period ended March 31, 2020 had exercise prices between $4.00 and $5.92 per share. The 10,000 stock options granted during the three-month period ended March 31, 2019 had exercise prices of $7.50 per share. The aggregate intrinsic value of options exercised during the three-month periods ended March 31, 2020 and 2019 approximated $0 and $28,641, respectively. The weighted-average grant date fair values of options granted during the three-month periods ended March 31, 2020 and 2019 were $2.12 and $3.16, respectively. As of March 31, 2020, total unrecognized stock-based compensation related to non-vested stock options aggregated $343,923, which will be recognized over a weighted average period of 1 year and 6 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(m), with the following weighted-average assumptions for the three-month periods ended March 31, 2020 and 2019:

	During the Three-Month Period Ended March 31, 2020			During the Three-Month Period Ended March 31, 2019
Risk-free interest rate		0.78	%		2.59	%
Dividend yield		0	%		0	%
Expected volatility		52	%		51	%
Expected life		6.5 years			4 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.

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.

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.

18

ImmuCell Corporation

Notes to Unaudited Financial Statements (continued)

14. REVENUE

We primarily offer the First Defense® product line to dairy and beef producers to prevent scours in newborn calves. 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 three-month period ended March 31, 2020 or the year ended December 31, 2019. 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 sheets are from contracts with customers. We incur no material costs to obtain contracts.

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

	During the Three-Month Periods Ended March 31,
	2020		2019
United States	$	4,357,682	$	3,777,746
Other		552,706		632,815
Total product sales	$	4,910,388	$	4,410,561

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

	During the Three-Month Periods Ended March 31,
	2020		2019
First Defense® product line	$	4,819,191	$	4,140,917
Other animal health		91,197		136,043
Other		—		133,601
Total product sales	$	4,910,388	$	4,410,561

15. OTHER EXPENSES, NET

Other expenses, net, consisted of the following:

	During the Three-Month Periods Ended March 31,
	2020			2019
Interest expense(1)	$	346,950		$	114,041
Interest income		(13,174	)		(2,315	)
Other expenses, net	$	333,776		$	111,726

⁽¹⁾ During the three-month period ended March 31, 2020 interest expense included the write-off of $95,000 of debt issuance costs and the payment of $165,000 to terminate our interest rate swap agreements associated with debt that we repaid.

16. INCOME TAXES

Our income tax (benefit) expense aggregated ($14,632) and $9,023 (amounting to (11%) and 6% of our (loss) income before income taxes, respectively) during the three-month periods ended March 31, 2020 and 2019, respectively. As of December 31, 2019, we had federal net operating loss carryforwards of $11,949,860 of which $10,237,953 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 $3,299,929 that expire in 2037 through 2038 (if not utilized before then). Additionally, we had federal general business tax credit carryforwards of $434,838 that expire in 2027 through 2039 (if not utilized before then) and state tax credit carryforwards of $763,350 that expire in 2023 through 2039 (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 $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 credits) based on applicable accounting standards and practices. 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. 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. Adjustments related to the termination of our interest rate swap agreements were recorded during the first quarter of 2020.

19

ImmuCell Corporation

Notes to Unaudited Financial Statements (continued)

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.

17. 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 98% and 94% of our total product sales during the three-month periods ended March 31, 2020 and 2019, respectively. Our primary customers for the majority of our product sales (89% and 86% during the three-month periods ended March 31, 2020 and 2019, 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 11% of our total product sales during the three-month periods ended March 31, 2020 and 2019.

18. 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 $264,830 and $176,866 of products from us during the three-month periods ended March 31, 2020 and 2019, respectively, on terms consistent with those offered to other distributors of similar status. Our accounts receivable (subject to standard and customary payment terms) due from these affiliated companies aggregated $32,101 and $0 as of March 31, 2020 and December 31, 2019, respectively.

19. 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 $29,422 and $31,197 into the plan for the three-month periods ended March 31, 2020 and 2019, respectively.

20. SUBSEQUENT EVENTS

We have evaluated subsequent events through the time of filing on May 13, 2020, the date we have issued this Quarterly Report on Form 10-Q. The COVID-19 pandemic has created a great deal of uncertainty since December 31, 2019. We could experience product shortages, backlogs and production slowdowns due to difficulties accessing needed supplies and labor and other restrictions affecting our ability to consistently deliver our products to market. During April 2020, we received $937,700 in support from the federal government under the Paycheck Protection Program (PPP). This funding accrues interest at a rate of 1% per annum, and our obligation to repay the principal amount of the funding should be forgiven provided we use the proceeds only for eligible payroll costs, utility expenses, rent payments and interest expense on mortgage debt, in each case incurred and paid during the eight-week period from April 13, 2020 through June 8, 2020 (which period may be extended at some future date). At least 75% of such forgiven amounts must be used for eligible payroll costs. If any portion of this funding were not to be applied to eligible expenses during the applicable eight-week period, we expect to repay such excess amount without any prepayment penalty by approximately October 13, 2020. By current estimated calculations, this repayment obligation may be approximately $100,000, due to projected payroll costs during the applicable eight-week period potentially being less than the 2019 levels used to determine the amount of available funding. However, the rules around terms of forgiveness are unclear at this time. While we believe (based on the guidance that has been made available thus far with respect to the loan program) that we will be able to establish our need for approximately $838,000 of the PPP funds to cover eligible expenses, as well as our entitlement to forgiveness of the obligation to repay that amount, there is some risk that, due to our being a publicly-traded company and the scrutiny that is expected to be applied to PPP loans made to publicly-traded borrowers, our entitlement to forgiveness could be challenged and denied or limited. Any such forgiveness of indebtedness, in accordance with the CARES Act, does not give rise to taxable income, but these forgiven expenses may not also be deducted for tax return purposes. As of the time of filing on May 13, 2020, there were no other material, reportable subsequent events.

20

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 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 the Cautionary Note below for a discussion of some of the 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.

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 or operational 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 extent, nature and duration of the COVID-19 pandemic and its consequences, and their direct and indirect impacts on the Company’s production activities, operating results and financial condition and on the customers and markets the Company serves; 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 and producers’ level of interest in treating subclinical mastitis given the current economic and market conditions; 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, efficiency and yield; 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; 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 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 and delays 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 under PART II: OTHER INFORMATION, ITEM 1A – RISK FACTORS and uncertainties otherwise referred to in this Quarterly Report on Form 10-Q.

21

ImmuCell Corporation

Liquidity and Capital Resources

We believe that our cash, cash equivalents 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 the period of time required to be addressed for such purposes by accounting disclosure standards) from the date of this filing. We have funded most of our business operations 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 March 31, 2020		As of December 31, 2019		(Decrease) Increase
					Amount			%
Cash, cash equivalents, short-term investments and restricted cash	$	8,399	$	8,774	$	(375	)		(4	)%
Net working capital	$	9,086	$	10,694	$	(1,608	)		(15	)%
Total assets	$	40,054	$	38,692	$	1,362			4	%
Stockholders’ equity	$	28,990	$	28,991	$	(1	)		(—	)%
Common shares outstanding(1)		7,213		7,213		—			—	%

⁽¹⁾ There were approximately 407,000 and 389,000 shares of common stock reserved for issuance for stock options that were outstanding as of March 31, 2020 and December 31, 2019, respectively.

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 priced between $5.25 and $7.30 per share. No warrants were issued in connection with any of these transactions, and no convertible or preferred securities were issued.

From 2010 to 2017, we secured five different debt financings with TDBank N.A., each with different maturity dates and balloon principal repayment obligations. On March 11, 2020, we closed on a debt refinancing aggregating $8.6 million plus a line of credit in the amount of $1.0 million. The debt is comprised of a $5.1 million mortgage loan that bears interest at a fixed rate of 3.50% per annum (with a 10-year term and 25-year amortization schedule) and a $3.5 million note that bears interest at a fixed rate of 3.50% per annum (with a 7-year term and amortization schedule). The proceeds were used to provide some additional working capital but mostly to refinance $8.3 million of then outstanding bank debt and pay off an interest rate swap termination liability of $165,000. 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 and at $3 million in connection with the 2020 refinancing) and our facility at 33 Caddie Lane in Portland (which was independently appraised at $3.2 million in connection with the 2017 financing and at $2.5 million in connection with the 2020 refinancing). This new debt improves our liquidity by lowering our interest expense and spreading our principal payments out over a longer time period (and by avoiding pending balloon principal payments that existed under some of the repaid debt). We were required by a bank debt covenant (before the debt refinancing discussed above) to maintain at least $2 million of otherwise unrestricted cash, cash equivalents and short-term investments. Under the new debt, we are required to hold $1.4 million in escrow (a non-current asset), which reduces the effective availability of our liquid assets for operational needs by that amount. If we meet or exceed a minimum debt service coverage ratio set by the bank of 1.35 based on our financial performance during the year ending December 31, 2020, the escrow will be released to the extent that we achieve a loan (the amount of principal then outstanding on the $5.1 million mortgage) to value (based on new real estate appraisals at that time) ratio equal to less than 80%. We met this debt service coverage requirement based on our financial results for the year ended December 31, 2019 and the three-month period ended March 31, 2020.

22

ImmuCell Corporation

Net cash provided by operating activities improved to $857,000 during the three-month period ended March 31, 2020 in comparison to $677,000 during the three-month period ended March 31, 2019. Cash paid for capital expenditures totaled almost $1.3 million and $194,000 during the three-month periods ended March 31, 2020 and 2019, respectively. We completed construction of the Drug Substance production facility for Re-Tain™ during the fourth quarter of 2017 and began depreciating these 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 total cost of this investment was $20.8 million. Our total depreciation expense was $555,000 and $564,000 during the three-month periods ended March 31, 2020 and 2019, 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.

Our Board of Directors has authorized three additional investments aggregating approximately $7.8 million. The first is an investment of approximately $3.5 million in the First Defense^® product line to double our liquid processing capacity and increase our freeze drying capacity by 50% to increase our annual production capacity from approximately $18 million to approximately $27 million. The original budget for this project of $3 million has been expanded to $3.5 million to include additional cold storage space and other benefits. We expect to complete renovations to our leased facility to enable this expansion by the end of the second quarter of 2020. The second is an investment of approximately $4 million to develop our own formulation and aseptic filling capability for Re-Tain™ to end our reliance on third-party Drug Product manufacturing services. We expect this facility to be operational during 2022. The third is $300,000 authorized to be spent on routine and necessary capital expenditures during 2020. As detailed in the following table, our capital expenditures during the five-year period from January 1, 2015 to December 31, 2019 have been larger than our historical norm primarily due to investments to increase our production capacity for the First Defense^® product line and to construct and equip our Drug Substance production facility for Re-Tain™ (in thousands, except for footnotes):

	Cash Paid During the Years Ended
	A		B		C		D		E		F		Total
December 31, 2015	$	914	$	1,077	$	265	$	—	$	—	$	463	$	2,719
December 31, 2016		—		1,173		2,093		—		—		320		3,586
December 31, 2017		—		—		17,686		—		—		74		17,760
December 31, 2018		—		—		1,596		—		—		434		2,030
December 31, 2019		—		—		—		279		538		574		1,391
Total	$	914	$	2,250	$	21,640	$	279	$	538	$	1,865	$	27,486

PROJECT A is a 7,100 square foot facility addition at 56 Evergreen Drive. An additional $1,041,000 was paid for this addition during the year ended December 31, 2014 to bring the total cost of Project A to $1,955,000. This investment also included the construction and equipping of a pilot plant for small-scale Drug Substance production facility for Re-Tain™ within our First Defense^® production facility that is now used to produce the gel tube formats of the First Defense^® product line.

PROJECT B is an investment to increase the production capacity of the First Defense^® product line.

PROJECT C is related to the Drug Substance production facility for Re-Tain™. This investment includes $20.8 million for the Drug Substance production facility and related processing equipment plus $331,000 for the land and $472,000 for the acquisition of an adjacent 4,100 square foot warehouse facility.

PROJECT D consists of renovations to a 14,300 square foot leased facility and necessary production equipment to expand the production capacity (in terms of annual sales dollars) for the First Defense^® product line from approximately $18 million to approximately $27 million. The original budget for this project of $3 million has been expanded to $3.5 million to include additional cold storage space and other benefits.

PROJECT E is the investment to bring the formulation and aseptic filling services for Re-Tain™ Drug Product in-house. The full budget for this project is $4 million.

PROJECT F represents other miscellaneous capital investments during the years.

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ImmuCell Corporation

During the three-month period ended March 31, 2020, we invested an additional $1.1 million, $2,000 and $145,000 towards Projects D, E and F, respectively.

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 Drug Substance production facility for Re-Tain™ 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. 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. The following table discloses the split of the new rates we have generated between the City of Portland and the Company:

Assessed Value	Twelve-Month Period Ended	Total New Taxes Generated by the Project		Less: TIF Credit		Net Amount Paid by ImmuCell
$1.7M @ April 1, 2017	June 30, 2018	$	36,000	$	22,000	$	13,000
$4.0M @ April 1, 2018	June 30, 2019	$	90,000	$	58,000	$	32,000
$4.0M @ April 1, 2019	June 30, 2020	$	94,000	$	60,000	$	34,000

Results of Operations

2020 Compared to 2019

Product Sales

Total product sales during the three-month period ended March 31, 2020 increased by 11%, or $500,000, to $4.9 million, from $4.4 million during the first quarter of 2019, with domestic sales increasing by 15% and international sales decreasing by 13% in comparison to 2019. The compound annual growth rate of our total product sales during the nine years ended December 31, 2011 to 2019 was approximately 13%. The compound annual growth rate of our total product sales during the three years ended December 31, 2017 to 2019 was approximately 15%. International sales aggregated 11% and 14% of total sales during the three-month periods ended March 31, 2020 and 2019, respectively. Having resolved the vaccine manufacturing challenge related to the production of Tri-Shield First Defense^® (discussed above), we returned to a mass market distribution strategy for that product during the second half of 2019.

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ImmuCell Corporation

Investments in the First Defense^® product line have created positive results. Sales of the First Defense^® product line increased by 16% during the three-month period ended March 31, 2020 in comparison to the same period during 2019, aggregating 98% and 94% of our total product sales during the three-month periods ended March 31, 2020 and 2019, respectively. Sales of Dual-Force First Defense^® (the bivalent formats of our product delivered via either a bolus, gel tube or bulk powder) were generally flat during 2019 in comparison to 2018 and decreased by approximately 22% during the first quarter of 2020 in comparison to the first quarter of 2019. Most of our growth is being realized through a deliberate strategy to maximize sales of Tri-Shield First Defense^® (the trivalent format of our product delivered via a gel tube) providing broader protection to calves. 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. Our marketing campaign, Beyond Vaccination^®, is all about avoiding unnecessary vaccinations and saving the needles and immune challenge given to the mother cows for critical disease vaccinations and instead delivering First Defense^® to get the newborn calf off to a healthier start. We believe dairy and beef producers are increasingly coming to understand our value proposition of less needles in cows and less antibiotics in calves. There is a strong link between how we sell our product and the challenges we face in producing it. We know better than most how variable a cow’s response is to any vaccine. We see this in every batch of First Defense^® that we produce. The value in First Defense^® is that we adjust for this variability in antibody content, as needed, so the newborn is given a steady, equal level of protection with each dose. Plus, an effectively treated calf is much less likely to require expensive antibiotic treatments or build antibiotic resistance. We are the only manufacturer within the scour prevention space offering polyclonal multi-pathogen antibodies. This technology removes a producer’s reliance on variable vaccine responses to generate passive antibody protection and instead protects every calf equally with a measured dose of Immediate Immunity™ against the most common scour pathogens. We are gaining U.S. market share year after year with our Beyond Vaccination^® approach. Our share of the market (on a unit volume basis) of scour preventative products administered at the calf-level increased to approximately 36% during 2019 (from 34% during 2018 and 32% during 2017). Our share of calves treated in the United States with products administered to calves and those administered to the dam prior to calving (adjusting for two doses of dam-level scour vaccines required for primary vaccination of first-calf-heifers) increased to approximately 11% during 2019 (from 10.3% during 2018 and 9.7% during 2017). Our share of the market of scour preventative products administered at the calf level increased to approximately 41% during the first quarter of 2020 from approximately 35% during the first quarter of 2019. Our share of calves treated in the United States with products administered to calves and those administered to the dam prior to calving increased to approximately 14% during the first quarter of 2020 from approximately 13% during the first quarter of 2019 suggesting the potential for future growth in the dairy market combined with our increased focus on the beef market.

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 currently produce product with an annual sales value of approximately $18 million. The actual value of the production output will vary subject to production 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. During most of 2018 and into the first half of 2019, we could only accept purchase orders from customers for Tri-Shield^® to match available inventory, which required 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. Significant improvements in vaccine yield and process repeatability resolved this shortfall going into 2019. Allowing for the five to six-month production cycle to produce inventory, we were able to return to a mass market selling approach through distribution for Tri-Shield^® during the second half of 2019. Given our projections for future demand for the First Defense^® product line, we have initiated an additional investment of approximately $3.5 million to further increase our liquid processing capacity by 100% and our freeze drying capacity by an additional 50%. During the third quarter of 2019, we entered into a lease covering approximately 14,300 square feet of office, manufacturing and warehouse space, with a Possession Date of November 15, 2019 to enable our expansion plan. The property is located at 175 Industrial Way, which is near our facility at 56 Evergreen Drive in Portland. We expect to have this new space operational by the end of the second quarter of 2020 after completing the build out of the needed production rooms. By moving the final product formulation, filling and assembly for the First Defense^® product line to the leased building, we will free up ample space in our 56 Evergreen Drive facility for the new liquid processing and freeze drying capacity. We expect that this investment will increase the sales value of our annual production capacity from approximately $18 million to approximately $27 million. As noted above, the actual value of this production output will vary based on production yields, selling price, product format mix and other factors. While we pushed production to support sales of $4.9 million during the first quarter of 2020, this output was not enough to meet demand, and we ended the quarter with a backlog of orders worth approximately $1.4 million. The first quarter is always our seasonal best for sales, but the extent of the negative impact of the COVID-19 pandemic on the economics of our customers going forward is very difficult to assess. We need to be prepared for more than the expected seasonal decline in sales during the balance of the year. The funding that we received from the federal government under the Paycheck Protection Program ($938,000 less an estimated return obligation of approximately $100,000) should help us maintain full employment and continue operating, even though we may see a decline in sales and gross margin as a result of the COVID-19 pandemic. However, at this time, some of the eligibility and forgiveness requirements are uncertain. If clarification of the rules works against us, we could be required to repay more than $100,000 and even potentially the full $938,000. We plan to complete the investment to increase our annual production capacity to approximately $27 million, fill the backlog of orders, meet ongoing demand and use any excess production to build inventory stocks going into the first quarter of 2021 to avoid future backlogs. This will require that we invest available cash in inventory. Our inventory balances were $1.6 million and $2.5 million at March 31, 2020 and December 31, 2019, respectively. Our inventory balances consisted of 10% and 21% finished goods as of March 31, 2020 and December 31, 2019, respectively. See Note 5 to the accompanying financial statements for more detail.

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ImmuCell Corporation

After making several inquiries into different laboratories, we were able to have our antibodies tested against COVID-19 during the second quarter of 2020. While we understood that COVID-19 and bovine coronavirus are in different taxonomic groups, we wanted to investigate if our antibodies could offer some cross-neutralization of COVID-19 in the laboratory testing. Unfortunately, the test results indicated that our antibodies offered no viral neutralization activity, meaning they would be ineffective against COVID-19.

Effective in December of 2018, we implemented an 11% price increase for Tri-Shield First Defense^®. Effective January 1, 2019, we implemented a 2% price increase for Dual-Force^®. Effective February 1, 2020, we implemented a price increase of approximately 2% on the First Defense^® product line (except for Tri-Shield^® and the 90-dose bulk powder) and CMT. Going forward, we anticipate implementing annual price increases in line with current rates of inflation.

Sales of products other than the First Defense^® product line decreased by 66%, or $178,000, during the three-month period ended March 31, 2020 in comparison to the same period during 2019. Sales of these other products aggregated approximately 2% and 6% of our total product sales during the three-month periods ended March 31, 2020 and 2019, respectively. We acquired several private label products (our second leading source of product sales during 2019 and 2018) in connection with our January 2016 acquisition of certain gel formulation technology. We sell our own CMT (our third leading source of product sales during 2019 and 2018), which is used to detect somatic cell counts in milk. We have made and sold bulk reagents for Isolate™ (our fourth leading source of product sales during 2019 and 2018), which is a drinking water test that is sold by our former distributor in the United Kingdom. Sales of this product amounted to just $24,000 during the year ended December 31, 2018. We made one final sale of this product to this distributor worth $134,000 during the first quarter of 2019. Because this product was non-core to our strategic focus, we sold the underlying cell line assets and intellectual property to our former 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 table for the respective periods (in thousands, except for percentages):

	During the Twelve-Month Periods Ended March 31,						Increase (Decrease)
	2020			2019			Amount			%
Gross margin	$	2,236		$	2,201		$	35			2	%
Percent of Product sales		46	%		50	%		(4	)%		(9	)%

	During the Twelve-Month Periods Ended March 31,						Increase (Decrease)
	2020			2019			Amount			%
Gross margin	$	6,774		$	6,036		$	739			12	%
Percent of Product sales		48	%		48	%		(1	)%		(1	)%

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ImmuCell Corporation

The gross margin (product sales less costs of goods sold) as a percentage of product sales was 49% and 47% during the years ended December 31, 2019 and 2018, respectively. This compares to gross a margin percentage of 50% during the year ended December 31, 2017. 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 percentage but a higher gross margin dollar per unit. However, these new formats are creating sales growth for us, and we are focused on increasing total gross margin dollars, 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. As discussed above, 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 reduce 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 March 31, 2020, product development expenses increased by 7%, or $64,000, to $974,000 in comparison to $910,000 during the same period in 2019. Product development expenses aggregated 20% and 21% of product sales during the three-month periods ended March 31, 2020 and 2019, respectively. It is important to note that these figures include $405,000 of non-cash depreciation and stock-based compensation expenses during both of the three-month periods ended March 31, 2020 and 2019. We do expect our product development expenses to decrease when Re-Tain™ is commercialized and most of the costs incurred to maintain and run our Drug Substance production facility become part of our costs of goods sold.

The majority of our product development spending has been focused on the development of Re-Tain™, our purified Nisin treatment for subclinical mastitis in lactating dairy cows. 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: 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.

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5) Chemistry, Manufacturing and Controls (CMC): Having previously achieved the four different Technical Section Complete Letters from the FDA discussed above, approval of the CMC Technical Section is the fifth and final significant step required before Re-Tain™ product sales can be initiated in the United States. Implementing Nisin Drug Substance (the active pharmaceutical ingredient) production at our commercial facility, which is a required component of the CMC Technical Section, has been the most expensive and lengthy 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 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 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 Drug Substance production facility. Having raised equity during 2016 and 2017, we were able to move away from these earlier strategies and assume control over the commercial-scale manufacturing process in our own facility. During the fourth quarter of 2015, we acquired land near 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. Total construction and equipment costs aggregated approximately $20.8 million.

We have always believed that the fastest route to FDA approval and market launch is with the services of Norbrook Laboratories Limited of Newry, Northern Ireland (an FDA-approved Drug Product manufacturer), benefiting from their demonstrated expertise in aseptic filling. From 2010 to 2015, we had been a party to an exclusive product development and contract manufacturing agreement with Norbrook covering the Drug Product formulation, aseptic filling and final packaging services. Norbrook 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 create a Product Development and Contract Manufacture Agreement (the 2015 Agreement) to, among other things, extend the term of the agreement to January 1, 2024 provided that FDA approval for commercial sales of Re-Tain™ in the United States was obtained by December 19, 2019. It had 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™. Due to unexpected difficulties and delays encountered by Norbrook and the statutory FDA timeline for processing CMC Technical Sections, this December 2019 product approval target date was not achieved. During the third quarter of 2019, we entered into a Development Services and Commercial Supply Agreement (the 2019 Agreement) with Norbrook. The 2019 Agreement replaces and supersedes the 2015 Agreement in its entirety. Under the 2019 Agreement, Norbrook will continue to provide formulation, aseptic filling and final packaging services as required in order for us to make the needed Drug Product submission to obtain the FDA’s approval of the CMC Technical Section. The 2019 Agreement also provides for Norbrook to perform formulation, aseptic filling and final packaging services in accordance with purchase orders that we submit from time to time for inventory build and subsequent product sales worth up to approximately $7 million for orders placed through December 31, 2021 with deliveries extending into the beginning of 2022. We believe that the 2019 Agreement will enable us to commence sales of Re-Tain™ without delay upon receipt of the anticipated FDA approval. We intend to use the supply provided under the 2019 Agreement to bridge until our own formulation and aseptic filling capacity is available in 2022.

Our potential alternative options for the formulation and aseptic filling services are narrowed considerably because our product cannot be formulated or filled in a facility that also processes traditional antibiotics (i.e. beta lactams). As a consequence, we have decided to perform these services internally. Through a public offering of our common stock in March of 2019, we received net proceeds of approximately $8.3 million, of which approximately $4 million has been allocated to the equipping and commencement of operations of our own Drug Product formulation and aseptic filling facility. Our objective is to meet up to the first $7 million of market demand for Re-Tain™ with product produced by Norbrook under the 2019 Agreement until long-term supply is available from our new, in-house facility. Based on current construction plans and equipment ordering and installation timelines, we expect this facility to be operational during the first quarter of 2022, and we are working to achieve FDA approval of this facility during the fourth quarter of 2022. This new facility will be subject to FDA inspection and approval and will have enough formulation and aseptic filling capacity to exceed the expected production capacity of our Drug Substance facility, which is at least $10 million in annual sales (subject to successful yield performance and yield improvement initiatives). This production capacity estimate is based on management’s assumptions as to product pricing and does not yet reflect inventory build strategies in advance of product approval or ongoing yield improvement initiatives. Establishing our own Drug Product formulation and aseptic filling capability provides us with the longer-term advantage of controlling the manufacturing process for Re-Tain™ in one facility, thereby potentially reducing our manufacturing costs and eliminating international cold chain shipping costs. This integrated manufacturing capability for Re-Tain™ will substantially reduce our dependence on third parties. Upon completion of our formulation and aseptic filling facility, the only significant third-party input for Re-Tain™ will be the Drug Product syringes. It is anticipated that Hubert De Backer of Belgium (HDB) will supply these syringes in accordance with purchase orders that we submit. HDB is a syringe supplier for many of the largest participants in the human and veterinary medical industries, and with whom Norbrook presently works. Based on HDB’s performance history and reputation in the industry, we are confident that HDB will be a dependable supplier of syringes in the quantity and of the quality needed for Re-Tain™. We have not yet determined if we will perform the final packaging services in-house or contract to have those services performed by a qualified third party. The Drug Product formulation and aseptic filling operation will be located in existing facility space that we had intended to utilize to double our Drug Substance production capacity if warranted by sales volumes during the initial years following market launch. As a result, we would need to explore alternative strategies (in parallel with ongoing Drug Substance yield improvement initiatives) to expand our Drug Substance production capacity in order to meet anticipated long-term Re-Tain™ sales demand.

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Under the FDA’s phased submission process, Phase 1 covers the Nisin Drug Substance (DS), and Phase 2 covers the Re-Tain™ Drug Product (formulated Nisin DS filled in a syringe) (DP). This process allows a sponsor to respond to identified queries and/or deficiencies from the first-phased DS submission at the time of the second-phased DS and DP submission, which will include detailed information about the manufacturing process and controls for the DP. This is a very complex and comprehensive Technical Section. We made our first-phased DS submission during the first quarter of 2019. This submission included data from the DS Registration Batches produced at commercial scale in our new DS manufacturing facility. As part of the phased submission process, the FDA issued a Technical Section Incomplete Letter with regard to this first-phased DS submission during the third quarter of 2019 with various requests and queries in addition to referring to the fact that the second-phased DS and DP submission has yet to be submitted. We expected this response. Having reviewed the comments from the FDA, we see no roadblocks on our path to FDA approval for Re-Tain™. We believe we can respond effectively to the FDA’s comments without significant additional cost or time delays. In addition to responding to comments raised by the FDA regarding the first phased DS submission, one of the key components of the second-phased DS and DP submission is demonstrating stability of the product over time using the commercial process and the commercial syringe in its final packaged form. Given a current assessment of the work that has been completed and that needs to be performed, we believe that the second-phased DS and DP submission could be made before the end of 2020. A response from the FDA to our second phased DS and DP submission is anticipated six months after the submission date. The response from the FDA to this second phased DS and DP submission determines the critical path to the timeline to FDA approval of our NADA. If the FDA responds with a Technical Section Complete Letter, approval of our NADA can be expected after a final 60-day administrative review period (the last step in the regulatory approval process). If the FDA responds with a Technical Section Incomplete Letter, one or more additional submissions (each subject to its own six-month review period) would be required until the FDA is satisfied that we have adequately responded to their queries before the final 60-day administrative review period.

Successful FDA inspections of the manufacturing facilities must also be achieved before the NADA can be approved. During the third quarter of 2019, the FDA conducted a pre-approval inspection of our DS facility. This resulted in the issuance of certain deficiencies under the FDA’s Form 483. We submitted responses and data summaries in a phased manner over the fourth quarter of 2019 and first quarter of 2020. This inspection process has been managed without significant cost or any impact on the timeline to product approval. We expect to remain prepared for subsequent inspections by the FDA on an ongoing basis.

Our second most important product development initiative (in terms of dollars invested and, we believe, potential market impact) has 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 animal health rights to the underlying rotavirus vaccine technology that we use to generate the specific antibodies. 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 initiated sales in Canada during the fourth quarter of 2019. 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 the gel tube format of 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 (as opposed the Gram-positive coverage offered by Nisin) 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.

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ImmuCell Corporation

Sales and Marketing Expenses

During the three-month period ended March 31, 2020, sales and marketing expenses decreased by approximately 4%, or $24,000 to $583,000 in comparison to $607,000 during the same period in 2019, amounting to 12% and 14% of product sales during the three-month periods ended March 31, 2020 and 2019, respectively. Sales and marketing expenses included $30,000 and $33,000 of non-cash depreciation and stock-based compensation expenses during the three-month periods ended March 31, 2020 and 2019, 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 2020 is to invest less than 20% of product sales in sales and marketing expenses on an annual basis. This ratio is expected to come down incrementally as sales grow.

Administrative Expenses

During the three-month period ended March 31, 2020, administrative expenses increased by approximately 15%, or $63,000, to $482,000 in comparison to $419,000 during the same period in 2019. Expenses during first quarter of 2020 included fees paid to predecessor auditors, a new employee hiring fee and some extra legal work. Administrative expenses included $46,000 and $53,000 of non-cash depreciation and stock-based compensation expenses during the three-month periods ended March 31, 2020 and 2019, 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, which includes meeting investors in face-to-face meetings in different cities approximately four days per quarter. At the same time, we continue 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 Income

During the three-month period ended March 31, 2020, our net operating income was reduced to $197,000 in comparison to $265,000 during the same period in 2019. The net operating income included $637,000 and $651,000 of non-cash depreciation, amortization of intangible assets and stock-based compensation expenses during the three-month periods ended March 31, 2020 and 2019, respectively. Our debt principal payments are a partial offset to these non-cash expenses, as they represent uses of cash that are not recorded as an expense.

Other expenses, net

During the three-month periods ended March 31, 2020 and 2019, other expenses, net, aggregated $334,000 and $112,000, respectively. Interest expense (including non-cash amortization and write-off of debt issuance costs of approximately $98,000 and $4,000 during the three-month periods ended March 31, 2020 and 2019, respectively) increased by approximately 204%, or $233,000, to $347,000 during the three-month period ended March 31, 2020 in comparison to $114,000 during the same period in 2019. In connection with our March 2020 bank debt refinancing, we wrote off $95,000 in debt issuance costs and paid $165,000 to terminate our interest rate swap agreements, both of which were associated with the repaid debt. Given the debt refinancing to fixed rate loans during the first quarter of 2020, we now anticipate that our interest expense will be approximately $321,000 (excluding the write-off of debt issuance costs and the payment to terminate interest rate swaps, discussed above) during the year ending December 31, 2020. In comparison, during the year ended December 31, 2019, interest expense was $432,000. This projected expense reduction is achieved with more principal outstanding under the refinanced debt structure than would have been outstanding had we not refinanced the debt. Interest income increased by approximately 469%, or $11,000, to $13,000 during the three-month period ended March 31, 2020, in comparison to $2,000 during the same period in 2019. More interest income was earned during 2020 because we had more cash and short-term investments on hand due largely to cash generated from an equity issuance during the latter part of the first quarter of 2019 that has not yet been fully invested in capital expenditures.

(Loss) Income Before Income Taxes

During the three-month period ended March 31, 2020, our loss before income taxes of $137,000 was in contrast to income before income taxes of $154,000 during the three-month period ended March 31, 2019. Our losses before income taxes included $735,000 and $656,000 of non-cash depreciation, amortization of intangible assets, amortization and write-off of debt issuance costs and stock-based compensation expenses during the three-month periods ended March 31, 2020 and 2019, respectively.

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ImmuCell Corporation

Income Taxes and Net Loss

For tax return purposes only, our depreciation expense for the Nisin 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 federal net operating loss carryforward to approximately $11.8 million as of December 31, 2018 from approximately $1.7 million as of December 31, 2017. As of December 31, 2019, our federal net operating loss carryforward was approximately $12 million, which will be available to offset future taxable income.

During the three-month periods ended March 31, 2020 and 2019, we recorded income tax (benefit) expense at the rate of (11%) and 6% of our (loss) income before income taxes. Our net (loss) of ($122,000), or ($0.02) per share, during the three-month period ended March 31, 2020 was in contrast to a net income of $145,000, or $0.03 per share, during the three-month period ended March 31, 2019. 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 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, as discussed above, and therefore not recognizing a benefit on our tax losses, our income tax expense is largely comprised of the tax effect of the interest rate swap agreements that we terminated during March of 2020.

In addition to the above results from our Statements of Operations, we believe it is important to consider our Statements of Cash Flows in the accompanying 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 March 31, 2020 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 calves. 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

We do not believe that inflation, interest rates or currency exchange rates have had a significant effect on our revenues and expenses. However, future increases in inflation or interest rates or the value of the U.S. dollar could affect our customers and the demand for our products. We hope to increase the level of our future sales of products outside the United States. The cost of our products to international customers could be affected by currency fluctuations. The decline of the U.S. dollar against other currencies could make our products less expensive to international customers. Conversely, a stronger U.S. dollar could make our products more costly for international customers. We had outstanding debt totaling approximately $8.6 million at March 31, 2020 that bears interest at the fixed rate of 3.5% per annum and is not subject to interest rate swaps.

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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 March 31, 2020. 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.

Management’s Quarterly Report on Internal Control Over Financial Reporting. The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. We conducted an evaluation of the effectiveness of the internal controls over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included a review of the documentation of controls, evaluation of the design effectiveness of controls, testing the operating effectiveness of the controls and a conclusion on this evaluation. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assesses the effectiveness of the Company’s internal control over financial reporting at the end of each quarter. Based on management’s assessment, we believe that our internal control over financial reporting was effective as of March 31, 2020. This Quarterly Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s internal control report was not subject to annual or quarterly attestation by the Company’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report.

Changes in Internal Controls 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 March 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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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

Production capacity constraints: The inability 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 and our leased facility at 175 Industrial Way, 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 are investing approximately $3.5 million to increase our liquid processing capacity by 100% and our freeze drying capacity by 50% for the First Defense^® product line. While this capacity expansion investment is currently proceeding on budget for completion within our anticipated timeline, 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.

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 above and elsewhere in this report in more detail, we presently intend to invest the aggregate of approximately $7.5 million to: i) expand our existing production facilities for our First Defense^® product line (approximately $3.5 million) and ii) construct and equip our own Drug Product formulation and aseptic filling capability for Re-Tain™ inside our existing Drug Substance facility (approximately $4 million). 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 regulatory approvals.

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.

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 future 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 97% of our total product sales during the years ended December 31, 2019 and 2018 and 98% and 94% during the three-month periods ended March 31, 2020 and 2019, respectively. Our primary customers for the majority of our product sales (89% and 87% during the years ended December 31, 2019 and 2018, respectively, and 89% and 86% during the three-month periods ended March 31, 2020 and 2019, 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 years ended December 31, 2019 and 2018, respectively, and 11% of our total sales during the three-month periods ended March 31, 2020 and 2019. 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 66% during the years ended December 31, 2019 and 2018, respectively, and 68% and 69% during the three-month periods ended March 31, 2020 and 2019, respectively) was made to two large distributors. A large portion of our trade accounts receivable (76% and 72% as of December 31, 2019, and 2018, respectively, and 74% and 71% as of March 31, 2020 and 2019, respectively) 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: One of our goals is to 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. Gross margins generally improve over time, but this anticipated improvement may not be realized. 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.

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ImmuCell Corporation

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 customer relationships and operating results. There is no assurance that we will continue to achieve market acceptance of the First Defense^® product line 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. Similar concerns exist with Re-Tain™ as we bring that product to market.

Increasing dependence on the continuous and reliable operation of our information technology systems: We rely on information systems throughout our company. Any disruption of these systems or significant security breaches could adversely affect our business. Although we maintain information security policies and employ system backup measures and engage in information system redundancy planning and processes, such policies, measures, planning and processes, as well as our current disaster recovery plan may be ineffective or inadequate to address all eventualities. As information systems and the use of software and related applications by us, our business partners, suppliers, and customers become more cloud-based, we become inherently more susceptible to cyberattacks. There has been an increase in global cybersecurity vulnerabilities and threats, including more sophisticated and targeted cyber-related attacks that pose a risk to the security of our information systems and networks and the confidentiality, availability and integrity of data and information. There are reports of increased activity by hackers and scammers during the COVID-19 pandemic. Any such attack or breach could compromise our networks and the information stored thereon could be accessed, publicly disclosed, lost, or stolen. While we have invested in our data and information technology infrastructure (including working with an information security technology consultant to assess and enhance our security systems and procedures, and periodically training our employees in such systems and procedures), there can be no assurance that these efforts will prevent a system disruption, attack, or security breach and, as such, the risk of system disruptions and security breaches from a cyberattack remains. We have not experienced any material adverse effect on our business or operations as a consequence of any such attack or breach but may incur increasing costs in performing the tasks described above. Given the unpredictability of the timing, nature and scope of such disruptions and the evolving nature of cybersecurity threats, which vary in technique and sources, if we or our business partners or suppliers were to experience a system disruption, attack or security breach that impacts any of our critical functions, or our customers were to experience a system disruption, attack or security breach via any of our connected products and services, we could potentially be subject to production downtimes, operational delays or other detrimental impacts on our operations. Furthermore, any access to, public disclosure of, or other loss of data or information (including any of our - or our customers’ or suppliers’ - confidential or proprietary information or personal data or information) as a result of an attack or security breach could result in governmental actions or private claims or proceedings, which could damage our reputation, cause a loss of confidence in our products and services, damage our ability to develop (and protect our rights to) our proprietary technologies and have a material adverse effect on our business, financial condition, results of operations or prospects.

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 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 20 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, and the FDA response was received during the third quarter of 2019. We expect to make the second-phased Drug Substance and Drug Product submission before the end of 2020. Completion of the Drug Product development and scale-up work and subsequent product stability testing defines the remaining timeline to product approval. To reduce the risk associated with this process, we have engaged Norbrook for the Drug Product work and continue to meet with the FDA to align on filing strategy and requirements. We have disclosed a timeline of events that could lead to potential product approval during 2021. We face the risk of potential supply interruption if we do not effectively manage the end of supply provided from Norbrook into the beginning of 2022 with the new supply from our own formulation and aseptic filling facility expected later in 2022. 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.

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ImmuCell Corporation

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 before declining slightly to 94,400,000 as of January 1, 2020.

● From 1998 through 2019, 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 annual average dropped slightly to 9,336,000 during 2019. The herd size average increased slightly to 9,372,000 during the first quarter of 2020. Some analysts project this figure may decrease during the balance of 2020 in response to decreased market demand for dairy products caused by the COVID-19 pandemic, which, in turn, could reduce our sales and have a negative impact on our cash flows.

● 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 in 1980) during 2014 at $22.34 (peaking at $24.60 in September 2014). 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 2019, this milk price average increased by 16% to $16.96. The low price level during 2018 and into the beginning of 2019 was very challenging to the profitability of our customers. This milk price decreased by 1% to $16.77 during the first quarter of 2020. This milk price decreased to $16.25 and $13.07 for the months of March and April of 2020, respectively, due largely to disruption in demand related to the COVID-19 pandemic. The recent annual fluctuations in this milk price level are demonstrated in the following table:

Average Class III Milk Price During the Year Ended December 31,			(Decrease) Increase
2014	$	22.34
2015	$	15.80		(29	)%
2016	$	14.87		(6	)%
2017	$	16.17		9	%
2018	$	14.61		(10	)%
2019	$	16.96		16	%

● 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. This ratio varies farm-to-farm based on individual operating parameters. 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 averaged 2.05 during 2018 and increased to 2.24 during 2019. This ratio increased to 2.33 during the first quarter of 2020 due largely to the declining milk price being offset by lower feed costs. 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 During the Year Ended December 31,		(Decrease) Increase
2014	2.54
2015	2.14		(16	)%
2016	2.26		6	%
2017	2.42		7	%
2018	2.05		(15	)%
2019	2.24		9	%

● 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 steadily declined to $1,208 during 2019 before increasing slightly to $1,250 as of April 1, 2020.

● The industry data referred to above is compiled from USDA databases.

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ImmuCell Corporation

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 are subject to inspection and approval by the FDA. There is no assurance whether or when we will obtain regulatory approval for this product.

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 the construction and equipping of the Drug Substance 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 and maintain this facility. The additional debt we incurred to fund this project has significantly increased 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: Estimating the size of the total addressable market and future sales growth potential for our First Defense^® product line is difficult and subjective. Estimating the size of the market for any new product, such as Re-Tain™, is subject to numerous uncertainties. We do not know whether, or to what extent, our products will achieve or increase market acceptance and profitability. Some of the uncertainties surrounding Re-Tain™ 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. Additionally, this complexity and uncertainty is magnified by the risks relating to and arising out of the duration, extent and nature of adverse effects from the COVID-19 pandemic.

Exposure to debt service obligations and debt covenants: Rising interest rates could negatively affect the operating costs of dairy and beef producers and thus put further financial pressure on an already stressed business sector. We removed this exposure to our business by refinancing our bank debt to fixed rate notes during the first quarter of 2020. Under our refinanced bank debt agreements, we are required by bank debt covenant to maintain at least $1.4 million in cash escrow in favor of the bank until we achieve certain debt service coverage and collateral value metrics. This requirement effectively reduces the availability of our liquid assets for operational needs. We are obligated to make principal and interest payment aggregating approximately $871,000 over the first twelve-month period of our new debt obligations.

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. 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, although 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. Elanco, Merck and Zoetis provide these dam vaccine products to the market. The market for the treatment of subclinical mastitis in dairy cows is highly competitive and presently is dominated by Merck and Zoetis. The subclinical 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 products will compete successfully in these markets. 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 one manufacturer for the supply of the syringes used for our gel tube formats of Dual-Force First Defense^® and Tri-Shield First Defense^® and one other manufacturer for the supply of syringes for Re-Tain™. We expect to be dependent on a contract with Norbrook for the Drug Product formulation and aseptic filling of our Nisin Drug Substance for orders placed through December 31, 2021 with deliveries extending into the beginning of 2022. We expect to complete the investment to perform these services in-house during 2022. The facility we intend to construct to perform these services in-house will be subject to FDA inspection and approval. The 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). Any significant damage to or other disruption in the services at any of these third-party facilities or our own 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.

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ImmuCell Corporation

Small size; dependence on key personnel: We are a small company with 52 employees (including 4 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.

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. If that were to be the case, 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 and administrative burdens 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: The positive indications about the improving health of the U.S. economy since 2008 and prior to the COVID-19 pandemic have proven to be temporary. We seem certain to be headed into a period of significant economic downturn, the severity and duration of which is difficult to know. Prior to the pandemic and the responsive federal economic stimulus programs, many feared the United States had taken on too much national debt. Now the debt load is significantly higher. This period of great uncertainty has resulted in a significant decrease in the equity market valuation. The dairy market is presently under extreme economic pressure, causing many of our customers to lose money or only earn minimal profits. Milk is being dumped on farms largely because of the loss of demand for dairy products from closed restaurants and school lunch programs and other negative impacts of the COVID-19 pandemic. There is also economic uncertainty for beef producers, as the supply chain is interrupted due to closures of processing plants and reduced throughput caused by the COVID-19 pandemic. This is a very unusual situation for farmers that work so hard to improve production quality and efficiency in order to help feed a growing population. A combination of the conditions, trends and concerns summarized above could have a corresponding negative effect on our business and operations, including the supply of the milk we purchase to produce our product, the demand for our products in the U.S. market and our ability to penetrate or maintain a profitable presence in international markets.

Global coronavirus pandemic (novel coronavirus or COVID-19, technically known as SARS-CoV-2): The coronavirus pandemic that began in China and has spread throughout the world has affected international trade and created a worldwide economic crisis. Stock market valuations have declined significantly and the full impact of this viral outbreak on the global economy is very uncertain at this time. We could experience product shortages, backlogs and production slowdowns due to difficulties accessing needed supplies and labor and other restrictions affecting our ability to consistently deliver our products to market. Our exposure to this risk is mitigated to some extent by the fact that our supply chain is not heavily dependent on manufacturers in as yet heavily affected countries, on-going cross-training of our employees, implementation of remote work practices (where feasible) and early compliance with recommended hygiene and social distancing practices. Despite our best efforts and intentions, there is a risk that an employee could become infected and could infect others.

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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.

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 $33 million as of May 5, 2020. Our product sales during the year ended December 31, 2019 were $13.7 million. This means that our market valuation as of May 5, 2020 was equal to approximately 2.4 times our sales during the year ended December 31, 2019. 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 and may therefore be negatively affected by the related uncertainties and risks.

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.

Possible dilution: We may need again to access the capital markets and issue additional common stock in order to fund our growth objectives, as described elsewhere in this report. Such issuances could have a dilutive effect on our existing stockholders.

38

ImmuCell Corporation

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

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.

39

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: May 13, 2020	By:	/s/ Michael F. Brigham
		Michael F. Brigham
		President, Chief Executive Officer and
		Principal Financial Officer

40

EX-31

EXHIBIT 31

ImmuCell Corporation

CERTIFICATIONS REQUIRED BY RULE 13a-14(a)

I, Michael F. Brigham, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of ImmuCell Corporation (the Company);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Company is made known to me by others within the Company, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s Board of Directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: May 13, 2020

/s/ Michael F. Brigham

Michael F. Brigham

President, Chief Executive Officer and

Principal Financial Officer

EX-32

EXHIBIT 32

ImmuCell Corporation

CERTIFICATION PURSUANT TO SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of ImmuCell Corporation (the “Company”) for the period ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael F. Brigham, President, Chief Executive Officer and Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to

§ 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition, results of operations and cash flows of the Company.

This certification is provided pursuant to 18 U.S.C. Section 1350 and Item 601(b)(32) of Regulation S-K (“Item 601(b)(32)”) promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and the Exchange Act. In accordance with clause (ii) of Item 601(b)(32), this certification (A) shall not be deemed “filed” for the purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and (B) shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

/s/ Michael F. Brigham

Michael F. Brigham

President, Chief Executive Officer and
Principal Financial Officer

May 13, 2020

A signed original of this written statement required by Section 906 has been provided to ImmuCell Corporation and will be retained by ImmuCell Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Inventory (Tables)

3 Months Ended

Mar. 31, 2020

Inventory Disclosure [Abstract]

Schedule of inventory

	As of March 31, 2020		As of December 31, 2019
Raw materials	$	590,720	$	791,558
Work-in-process		844,889		1,207,457
Finished goods		162,349		519,241
Total	$	1,597,958	$	2,518,256

XML

Accounts Payable and Accrued Expenses (Tables)

3 Months Ended

Mar. 31, 2020

Payables and Accruals [Abstract]

Schedule of accounts payable and accrued expenses

	As of March 31, 2020		As of December 31, 2019
Accounts payable – trade	$	171,411	$	401,958
Accounts payable – capital		384,631		170,220
Accrued payroll		196,968		399,501
Accrued professional fees		55,250		73,781
Accrued other		388,217		175,106
Total	$	1,196,477	$	1,220,566

XML

Property, Plant and Equipment, Net

3 Months Ended

Mar. 31, 2020

Property, Plant and Equipment [Abstract]

PROPERTY, PLANT AND EQUIPMENT, net

7. PROPERTY, PLANT AND EQUIPMENT, net

Property, plant and equipment consisted of the following:

	Estimated Useful Lives (in years)	As of March 31, 2020			As of December 31, 2019
Laboratory and manufacturing equipment	3-10	$	15,462,319		$	15,437,724
Building and improvements	10-39		17,078,829			17,078,829
Office furniture and equipment	3-10		716,793			719,323
Construction in progress	n/a		2,552,383			1,124,189
Land	n/a		516,867			516,867
Property, plant and equipment, gross			36,327,191			34,876,932
Accumulated depreciation			(10,153,890	)		(9,611,194	)
Property, plant and equipment, net		$	26,173,301		$	25,265,738

As of March 31, 2020 and December 31, 2019, construction in progress consisted principally of payments toward the First Defense^® production capacity expansion project and equipment needed to bring the final formulation and aseptic filling for Re-Tain™ in-house. Approximately $16,294 and $1,830 of property, plant and equipment was disposed of during the three-month periods ended March 31, 2020 and 2019, respectively. Depreciation expense was $555,123 and $563,805 during the three-month periods ended March 31, 2020 and 2019, respectively.

XML

Cash, Cash Equivalents and Short-Term Investments

3 Months Ended

Mar. 31, 2020

Cash and Cash Equivalents [Abstract]

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

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 March 31, 2020		As of December 31, 2019
Cash and cash equivalents	$	6,505,141	$	6,293,293
Short-term investments		493,821		2,480,753
Total	$	6,998,962	$	8,774,046

Held to maturity securities (certificates of deposit) are carried at amortized cost. As of March 31, 2020, we were required by a bank debt covenant to maintain at least $1,400,000 of otherwise unrestricted cash, cash equivalents and short-term investments in an escrow account in favor of the bank.

XML

Contingent Liabilities and Commitments

3 Months Ended

Mar. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

CONTINGENT LIABILITIES AND COMMITMENTS

11. 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 March 31, 2020. 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 March 31, 2020.

We are committed to purchasing certain key parts (syringes) and services (formulation, aseptic filling and final packaging of Drug Product) pertaining to Re-Tain™, our Nisin-based intramammary treatment of subclinical mastitis in lactating dairy cows, exclusively from contractors. We are investing in the necessary equipment to perform the Drug Product formulation and aseptic filling services in-house.

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^®. The license is 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 $5,000, $10,396 and $76,876 were paid for the years ended December 31, 2017, 2018 and 2019, respectively. Royalties of $28,538 were accrued as of March 31, 2020.

During the first quarter of 2020, we entered into a Severance Agreement with our President and CEO. Under the terms of this agreement, we agreed to pay this executive (or his estate) nine months of his then current salary plus any accrued and unused paid time off in the event of the involuntary termination of his employment by the Company (except for cause) or in the event of termination by him for good reason.

In addition to the commitments discussed above, we had committed $1,078,000 to increase our production capacity for the First Defense^® product line, $1,245,000 to construct and equip our own Drug Product formulation and aseptic filling facility for Re-Tain™, $1,072,000 to the purchase of inventory, $36,000 to capital expenditures and $423,000 to other obligations as of March 31, 2020.

XML

Other Expenses, Net (Details Textual)	3 Months Ended
	Mar. 31, 2020 USD ($)
Other Expenses, Net (Textual)
Debt issuance costs	$ 95,000
Payment of debt issuance cost	$ 165,000

XML

Employee Benefits (Details) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Employee Benefits (Textual)
Employee benefits, description	All employees completing one month of service with the Company are eligible to participate.
Defined benefit plans general information, description	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.
Benefits paid	$ 29,422	$ 31,197

XML

Bank Debt (Details 1)	Mar. 31, 2020 USD ($)
Debt Instrument [Line Items]
Year ending 12/31/2020	$ 432,021
Year ending 12/31/2021	594,452
Year ending 12/31/2022	615,595
Year ending 12/31/2023	637,490
Year ending 12/31/2024	660,163
After 12/31/2025	5,660,279
Subtotal	8,600,000
Debt Issuance Costs	(39,452)
Total	8,560,548
Loan #6 [Member]
Debt Instrument [Line Items]
Year ending 12/31/2020	96,820
Year ending 12/31/2021	133,397
Year ending 12/31/2022	138,141
Year ending 12/31/2023	143,055
Year ending 12/31/2024	148,142
After 12/31/2025	4,440,445
Subtotal	5,100,000
Loan #7 [Member]
Debt Instrument [Line Items]
Year ending 12/31/2020	335,201
Year ending 12/31/2021	461,055
Year ending 12/31/2022	477,454
Year ending 12/31/2023	494,435
Year ending 12/31/2024	512,021
After 12/31/2025	1,219,834
Subtotal	$ 3,500,000

XML

Intangible Assets (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Value	$ 191,040	$ 191,040
Accumulated Amortization	(81,192)	(76,416)
Net Book Value	109,848	114,624
Developed technology [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Value	184,100	184,100
Accumulated Amortization	(78,243)	(73,640)
Net Book Value	105,857	110,460
Customer relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Value	1,300	1,300
Accumulated Amortization	(552)	(520)
Net Book Value	748	780
Non-compete agreements [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Value	5,640	5,640
Accumulated Amortization	(2,397)	(2,256)
Net Book Value	$ 3,243	$ 3,384

XML

Stockholders' Equity (Details 2)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Equity [Abstract]
Risk-free interest rate	0.78%	2.59%
Dividend yield	0.00%	0.00%
Expected volatility	52.00%	51.00%
Expected life	6 years 6 months	4 years

XML

Operating Lease (Details 1)	Mar. 31, 2020 USD ($)
Leases [Abstract]
During the nine-month period ending December 31, 2020	$ 115,050
During the year ending December 31, 2021	159,396
During the year ending December 31, 2022	162,102
During the year ending December 31, 2023	165,120
During the year ending December 31, 2024	168,210
During the years ending December 31, 2025 and after	905,687
Total lease payments (undiscounted cash flows)	1,675,565
Less: imputed interest (discount effect of cash flows)	(368,626)
Total operating lease liabilities	$ 1,306,939

XML

Other Expenses, Net (Details) - USD ($)		3 Months Ended
		Mar. 31, 2020	Mar. 31, 2019
Other Income and Expenses [Abstract]
Interest expense	[1]	$ 346,950	$ 114,041
Interest income		(13,174)	(2,315)
Other expenses, net		$ 333,776	$ 111,726

[1] During the three-month period ended March 31, 2020 interest expense included the write-off of $95,000 of debt issuance costs and the payment of $165,000 to terminate our interest rate swap agreements associated with debt that we repaid.

XML

Summary of Significant Accounting Policies (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Assets:
Cash and money market accounts	$ 6,505,141	$ 6,293,293
Bank certificates of deposit	493,821	2,480,753
Liabilities:
Interest rate swaps		(58,526)
Total, net	6,998,962	8,715,520
Fair Value, Inputs, Level 1 [Member]
Assets:
Cash and money market accounts	6,505,141	6,293,293
Bank certificates of deposit
Liabilities:
Interest rate swaps
Total, net	6,505,141	6,293,293
Fair Value, Inputs, Level 2 [Member]
Assets:
Cash and money market accounts
Bank certificates of deposit	493,821	2,480,753
Liabilities:
Interest rate swaps		(58,526)
Total, net	493,821	2,422,227
Fair Value, Inputs, Level 3 [Member]
Assets:
Cash and money market accounts
Bank certificates of deposit
Liabilities:
Interest rate swaps
Total, net

XML

Cash, Cash Equivalents and Short-Term Investments (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019	Mar. 31, 2019
Cash and Cash Equivalents [Abstract]
Cash and cash equivalents	$ 6,505,141	$ 6,293,293	$ 10,584,067
Short-term investments	493,821	2,480,753
Total	$ 6,998,962	$ 8,774,046

XML

Statements of Cash Flows - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$ (122,267)	$ 144,555
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation	555,124	563,805
Amortization	4,776	4,776
Amortization and write-off of debt issuance costs	97,948	4,244
Deferred income taxes	(14,632)	9,023
Stock-based compensation	77,404	82,835
Loss on disposal of fixed assets	3,266
Non-cash rent expense	1,490
Changes in:
Trade accounts receivable, gross	(238,618)	(350,798)
Accrued interest income	21,932
Inventory	920,298	295,878
Prepaid expenses and other current assets	(215,513)	(119,420)
Other assets	4,739	8,594
Accounts payable and accrued expenses	(238,494)	33,705
Net cash provided by operating activities	857,453	677,197
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment	(1,252,147)	(194,403)
Maturities of investments	1,965,000
Proceeds from sale of fixed assets	600
Payment of contingent royalties related to 2016 acquisition		(8,914)
Net cash provided by (used for) investing activities	713,453	(203,317)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from public offering, net		8,303,436
Proceeds from debt issuance	8,600,000
Line of credit repayment		(500,000)
Debt principal repayments	(8,519,078)	(214,301)
Payments of debt issuance costs	(39,789)
Proceeds from exercise of stock options		2
Net cash provided by financing activities	41,133	7,589,137
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	1,612,039	8,063,017
BEGINNING CASH, CASH EQUIVALENTS AND RESTRICTED CASH	6,293,293	2,521,050
ENDING CASH, CASH EQUIVALENTS AND RESTRICTED CASH	7,905,332	10,584,067
CASH PAID FOR:
Income taxes
Interest expense	256,420	112,227
NON-CASH ACTIVITIES:
Change in capital expenditures included in accounts payable and accrued expenses	384,631	(72,695)
Net change in fair value of interest rate swaps, net of taxes	(43,895)	27,069
Fixed asset disposals, gross	16,294	1,830
Cash and cash equivalents	6,505,141	10,584,067
Restricted cash	1,400,191
Cash, cash equivalents and restricted cash	$ 7,905,332	$ 10,584,067

XML

Statements of Operations - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Income Statement [Abstract]
Product sales	$ 4,910,388	$ 4,410,561
Costs of goods sold	2,674,285	2,209,090
Gross margin	2,236,103	2,201,471
Product development expenses	974,428	910,370
Sales and marketing expenses	582,897	607,104
Administrative expenses	481,901	418,693
Operating activities, net	2,039,226	1,936,167
NET OPERATING INCOME	196,877	265,304
Other expenses, net	333,776	111,726
(LOSS) INCOME BEFORE INCOME TAXES	(136,899)	153,578
Income tax (benefit) expense	(14,632)	9,023
NET (LOSS) INCOME	$ (122,267)	$ 144,555
Basic weighted average common shares outstanding	7,212,919	5,624,504
Basic net (loss) income per share	$ (0.02)	$ 0.03
Diluted weighted average common shares outstanding	7,212,919	5,666,549
Diluted net (loss) income per share	$ (0.02)	$ 0.03

XML

Employee Benefits

3 Months Ended

Mar. 31, 2020

Retirement Benefits [Abstract]

EMPLOYEE BENEFITS

19. 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 $29,422 and $31,197 into the plan for the three-month periods ended March 31, 2020 and 2019, respectively.

XML

Other Expenses, Net

3 Months Ended

Mar. 31, 2020

Other Income and Expenses [Abstract]

OTHER EXPENSES, NET

15. OTHER EXPENSES, NET

Other expenses, net, consisted of the following:

	During the Three-Month Periods Ended March 31,
	2020			2019
Interest expense(1)	$	346,950		$	114,041
Interest income		(13,174	)		(2,315	)
Other expenses, net	$	333,776		$	111,726

⁽¹⁾ During the three-month period ended March 31, 2020 interest expense included the write-off of $95,000 of debt issuance costs and the payment of $165,000 to terminate our interest rate swap agreements associated with debt that we repaid.

XML

Revenue (Details 1) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Total product sales	$ 4,910,388	$ 4,410,561
First Defense® product line [Member]
Total product sales	4,819,191	4,140,917
Other animal health [Member]
Total product sales	91,197	136,043
Other [Member]
Total product sales		$ 133,601

XML

Stockholders' Equity (Details 1) - $ / shares	3 Months Ended		12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Employee Stock Option [Member]
Weighted Average Fair Value at Grant Date, Stock options granted during the three-month period ended March 31, 2020	$ 2.12	$ 3.16
Weighted Average Exercise Price, Stock options granted during the three-month period ended March 31, 2020	4.17		$ 5.90
Weighted Average Exercise Price, Stock options that were forfeited during the three-month period ended March 31, 2020	$ 5.88		$ 6.05
Equity Option [Member]
Number of Shares, Non-vested stock options as of January 1, 2020	321,000
Number of Shares, Non-vested stock options as of March 31, 2020	237,000		321,000
Number of Shares, Stock options granted during the three-month period ended March 31, 2020	22,000
Number of Shares, Stock options that vested during the three-month period ended March 31, 2020	102,000
Number of Shares, Stock options that were forfeited during the three-month period ended March 31, 2020	4,000
Weighted Average Fair Value at Grant Date, Non-vested stock options as of January 1, 2020	$ 3.49
Weighted Average Fair Value at Grant Date, Non-vested stock options as of March 31, 2020	3.39		$ 3.49
Weighted Average Fair Value at Grant Date, Stock options granted during the three-month period ended March 31, 2020	2.12
Weighted Average Fair Value at Grant Date, Stock options that vested during the three-month period ended March 31, 2020	3.44
Weighted Average Fair Value at Grant Date, Stock options that were forfeited during the three-month period ended March 31, 2020	3.08
Weighted Average Exercise Price, Non-vested stock options as of January 1, 2020	6.55
Weighted Average Exercise Price, Non-vested stock options as of March 31, 2020	6.58		$ 6.55
Weighted Average Exercise Price, Stock options granted during the three-month period ended March 31, 2020	4.17
Weighted Average Exercise Price, Stock options that vested during the three-month period ended March 31, 2020	6.00
Weighted Average Exercise Price, Stock options that were forfeited during the three-month period ended March 31, 2020	$ 5.88

XML

Operating Lease (Details) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Leases [Abstract]
Operating lease cost	$ 15,597
Variable lease cost	5,472
Total lease cost	$ 21,069
Weighted average remaining lease term (in years)	9 years 9 months 18 days
Weighted average discount rate	4.77%

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Summary of Significant Accounting Policies (Details 1)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Company A [Member]
Revenue, Major Customer [Line Items]
Concentration risk percentage	38.00%	43.00%
Company B [Member]
Revenue, Major Customer [Line Items]
Concentration risk percentage	31.00%	27.00%
Company C [Member]
Revenue, Major Customer [Line Items]
Concentration risk percentage	11.00%		[1]

[1] Amount is less than 10%.

XML

Cash, Cash Equivalents and Short-Term Investments (Details Textual)	3 Months Ended
	Mar. 31, 2020
Cash, Cash Equivalents and Short-Term Investments (Textual)
Debt covenant, description	Bank debt covenant to maintain at least $1,400,000 of otherwise unrestricted cash, cash equivalents and short-term investments.

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Statements of Comprehensive (Loss) Income - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Statement of Comprehensive Income [Abstract]
Net (loss) income	$ (122,267)	$ 144,555
Other comprehensive income (loss):
Interest rate swaps, before taxes	58,527	(36,092)
Income tax applicable to interest rate swaps	(14,632)	9,023
Other comprehensive income (loss), net of taxes	43,895	(27,069)
Total comprehensive (loss) income	$ (78,372)	$ 117,486

XML

Related Party Transactions

3 Months Ended

Mar. 31, 2020

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

18. 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 $264,830 and $176,866 of products from us during the three-month periods ended March 31, 2020 and 2019, respectively, on terms consistent with those offered to other distributors of similar status. Our accounts receivable (subject to standard and customary payment terms) due from these affiliated companies aggregated $32,101 and $0 as of March 31, 2020 and December 31, 2019, respectively.

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Revenue

3 Months Ended

Mar. 31, 2020

Revenue from Contract with Customer [Abstract]

REVENUE

14. REVENUE

We primarily offer the First Defense® product line to dairy and beef producers to prevent scours in newborn calves. 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 three-month period ended March 31, 2020 or the year ended December 31, 2019. 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 sheets are from contracts with customers. We incur no material costs to obtain contracts.

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

	During the Three-Month Periods Ended March 31,
	2020		2019
United States	$	4,357,682	$	3,777,746
Other		552,706		632,815
Total product sales	$	4,910,388	$	4,410,561

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

	During the Three-Month Periods Ended March 31,
	2020		2019
First Defense® product line	$	4,819,191	$	4,140,917
Other animal health		91,197		136,043
Other		—		133,601
Total product sales	$	4,910,388	$	4,410,561

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2020	May 05, 2020
Document and Entity Information [Abstract]
Entity Registrant Name	IMMUCELL CORP /DE/
Entity Central Index Key	0000811641
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Type	10-Q
Document Period End Date	Mar. 31, 2020
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2020
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Current Reporting Status	Yes
Entity Shell Company	false
Entity Interactive Data Current	Yes
Entity Incorporation State Country Code	DE
Entity File Number	001-12934
Entity Common Stock, Shares Outstanding		7,212,919

XML

Business Operations

3 Months Ended

Mar. 31, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

BUSINESS OPERATIONS

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 our 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 manufacture and market the First Defense^® product line for the prevention of scours in newborn dairy and beef calves. We are developing improved formulations of this product line providing Immediate Immunity™ to newborn calves and are in the late stages of developing Re-Tain™, a treatment for cows with subclinical mastitis, the most significant cause of economic loss to the dairy industry. These products help reduce the need to use traditional antibiotics in food producing animals. We are subject to certain risks associated with this 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.

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Prepaid Expenses and Other Current Assets (Tables)

3 Months Ended

Mar. 31, 2020

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Schedule of prepaid expenses and other current assets

	As of March 31, 2020		As of December 31, 2019
Prepaid expenses	$	406,450	$	218,232
Other receivables		67,829		40,534
Security deposits		800		800
Total	$	475,079	$	259,566

XML

Bank Debt (Tables)

3 Months Ended

Mar. 31, 2020

Debt Disclosure [Abstract]

Schedule of debt proceeds received and principal repayments made during the year

	During the Three-Month Period Ended March 31, 2020					During the Three-Month Period Ended March 31, 2019
	Proceeds from Debt Issuance		Debt Principal Repayments			Proceeds from Debt Issuance		Debt Principal Repayments
Loan #1	$	—	$	(493,696	)	$	—	$	(16,881	)
Loan #2		—		(2,143,771	)		—		(22,260	)
Loan #3		—		(3,236,429	)		—		(140,715	)
Loan #4		—		(2,336,000	)		—		(32,000	)
Loan #5		—		(309,182	)		—		(2,445	)
Loan #6		5,100,000		—			—		—
Loan #7		3,500,000		—			—		—
Total	$	8,600,000	$	(8,519,078	)	$	—	$	(214,301	)

Schedule of principal payments due under debt outstanding

	During the Nine-Month Period Ending		During the Years Ending December 31,
	December 31, 2020		2021		2022		2023		2024		2025 and After		Total
Loan #6	$	96,820	$	133,397	$	138,141	$	143,055	$	148,142	$	4,440,445	$	5,100,000
Loan #7		335,201		461,055		477,454		494,435		512,021		1,219,834		3,500,000
Subtotal	$	432,021	$	594,452	$	615,595	$	637,490	$	660,163	$	5,660,279		8,600,000
Debt Issuance Costs														(39,452	)
Total													$	8,560,548

XML

Bank Debt

3 Months Ended

Mar. 31, 2020

Debt Disclosure [Abstract]

BANK DEBT

10. BANK DEBT

Prior to a refinancing with Gorham Savings Bank during the first quarter of 2020, we had in place five different credit facilities and a line of credit with TD Bank N.A. 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 bearing interest at the fixed rate of 6.04% per annum (with a 10-year term and a 15-year amortization schedule). A balloon principal payment of $451,885 would have been due during the third quarter of 2020. Proceeds from a $2,500,000 second mortgage on this corporate headquarters (Loan #2) were received during the third quarter of 2015 bearing interest at the fixed rate of 4.38% per annum (with a 10-year term and 25-year amortization schedule). A balloon principal payment of approximately $1,550,000 would have been due during the third quarter of 2025. 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 was a construction loan of $3,940,000. In September 2018, the loan converted to a term loan facility bearing interest at the variable rate equal to the one-month LIBOR plus a margin of 2.25% per annum (with a 7-year term and 7-year amortization schedule). Loan #4 was a construction loan of $2,560,000. In March 2018, the loan converted to a term loan facility bearing interest at the variable rate equal to the one-month LIBOR plus a margin of 2.25% per annum (with a 10-year term and 25-year amortization schedule). A balloon principal payment of approximately $1,408,000 would have been due during the first quarter of 2027. Proceeds from a $340,000 first mortgage on our 4,114 square foot warehouse and cold storage facility (Loan #5) were received during the first quarter of 2017 bearing interest at the variable rate equal to the one-month LIBOR plus a margin of 2.25% per annum (with a 10-year term and 20-year amortization schedule). A balloon principal payment of approximately $206,000 would have been due during the first quarter of 2027.

On March 11, 2020, we closed on a debt financing with Gorham Savings Bank aggregating $8,600,000 and a $1,000,000 line of credit. The debt is comprised of a $5,100,000 mortgage note (Loan #6) that bears interest at a fixed rate of 3.50% per annum (with a 10-year term and 25-year amortization schedule) and a $3,500,000 note (Loan #7) that bears interest at a fixed rate of 3.50% per annum (with a 7-year term and amortization schedule). The line of credit bears interest at a variable rate equal to the one-month LIBOR plus 2.15% per annum. The proceeds were used to repay all bank debt outstanding at the time of closing and to provide some additional working capital. These two credit facilities are secured by liens on substantially all of our assets and are subject to certain restrictions and financial covenants. We were required by a bank debt covenant (before the debt refinancing discussed above) to maintain at least $2,000,000 of otherwise unrestricted cash, cash equivalents and short-term investments. Under the new debt, we are required to hold $1,400,000 in escrow (a non-current asset), which reduces the effective availability of our liquid assets for operational needs by that amount.

In connection with Loan #6 and Loan #7, we incurred debt issuance costs of $39,789. The amortization of debt issuance 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 March 31, 2020 and 2019 are reflected in the following table by year and by loan:

	During the Three-Month Period Ended March 31, 2020					During the Three-Month Period Ended March 31, 2019
	Proceeds from Debt Issuance		Debt Principal Repayments			Proceeds from Debt Issuance		Debt Principal Repayments
Loan #1	$	—	$	(493,696	)	$	—	$	(16,881	)
Loan #2		—		(2,143,771	)		—		(22,260	)
Loan #3		—		(3,236,429	)		—		(140,715	)
Loan #4		—		(2,336,000	)		—		(32,000	)
Loan #5		—		(309,182	)		—		(2,445	)
Loan #6		5,100,000		—			—		—
Loan #7		3,500,000		—			—		—
Total	$	8,600,000	$	(8,519,078	)	$	—	$	(214,301	)

Principal payments (net of debt issue costs) due under bank loans outstanding as of March 31, 2020 (excluding our $1,000,000 line of credit) are reflected in the following table by the year that payments are due:

	During the Nine-Month Period Ending		During the Years Ending December 31,
	December 31, 2020		2021		2022		2023		2024		2025 and After		Total
Loan #6	$	96,820	$	133,397	$	138,141	$	143,055	$	148,142	$	4,440,445	$	5,100,000
Loan #7		335,201		461,055		477,454		494,435		512,021		1,219,834		3,500,000
Subtotal	$	432,021	$	594,452	$	615,595	$	637,490	$	660,163	$	5,660,279		8,600,000
Debt Issuance Costs														(39,452	)
Total													$	8,560,548

On March 11, 2020, we entered into a $1,000,000 line of credit with Gorham Savings Bank, which is secured by substantially all of our assets and is subject to certain restrictions and financial covenants. This line of credit is available as needed through March 10, 2022. There was no outstanding balance under this line of credit as of March 31, 2020. Interest on borrowings against the line of credit is at the rate of the one-month LIBOR plus 2.15% per annum.

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Prepaid Expenses and Other Current Assets

3 Months Ended

Mar. 31, 2020

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

PREPAID EXPENSES AND OTHER CURRENT ASSETS

6. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following:

	As of March 31, 2020		As of December 31, 2019
Prepaid expenses	$	406,450	$	218,232
Other receivables		67,829		40,534
Security deposits		800		800
Total	$	475,079	$	259,566

XML

Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation

We have prepared the accompanying unaudited financial statements reflecting all adjustments (which are of a normal recurring nature) 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. You should read these unaudited financial statements in conjunction with our audited financial statements on Form 10-K for the year ended December 31, 2019.

(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 $6,505,141 and $5,792,993 as of March 31, 2020 and December 31, 2019, 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) Trade Accounts Receivable

Accounts receivable are carried at the original invoice amount less an estimate made for doubtful collection when applicable. 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 March 31, 2020 and December 31, 2019, we determined that no allowance for doubtful accounts 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 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 or farm. Our policy is to maintain more than one source of supply for the components used in our products when practicable. See Note 5.

(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 Nisin 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 31^st) 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 three-month period ended March 31, 2020 or the year ended December 31, 2019. See Notes 2(h) and 8 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 March 31, 2020 and December 31, 2019, the carrying amounts of cash and cash equivalents, short-term investments, accounts receivable, inventory, other assets, accounts payable 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.

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 three-month periods ended March 31, 2020 and 2019, there were no transfers between levels. As of March 31, 2020 and December 31, 2019, 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 March 31, 2020 and December 31, 2019 our bank certificates of deposit were classified as Level 2 and were measured by other significant observable inputs. As of December 31, 2019, 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 March 31, 2020 or December 31, 2019.

	As of March 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Cash and money market accounts	$	6,505,141	$	—	$	—	$	6,505,141
Bank certificates of deposit		—		493,821		—		493,821
Total	$	6,505,141	$	493,821	$	—	$	6,998,962

	As of December 31, 2019
	Level 1		Level 2			Level 3		Total
Assets:
Cash and money market accounts	$	6,293,293	$	—		$	—	$	6,293,293
Bank certificates of deposit		—		2,480,753			—		2,480,753
Liabilities:
Interest rate swaps		—		(58,526	)		—		(58,526	)
Total, net	$	6,293,293	$	2,422,227		$	—	$	8,715,520

(h) Valuation of Long-Lived Assets

We periodically evaluate our long-lived assets, consisting principally of fixed assets, operating lease right-of-use asset 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 three-month period ended March 31, 2020 or the year ended December 31, 2019.

(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 March 31,
	2020			2019
Company A		38	%		43	%
Company B		31	%		27	%
Company C		11	%		*

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

	As of March 31, 2020			As of December 31, 2019
Company B		41	%		48	%
Company A		33	%		28	%
Company C		12	%		*

* Amount is less than 10%.

(j) Revenue Recognition

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 14.

(k) Expense Recognition

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 $18,526 and $30,807 during the three-month periods ended March 31, 2020 and 2019, 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.

(l) 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 2016. We have evaluated the positions taken on our filed tax returns. We have concluded that no uncertain tax positions existed as of March 31, 2020 or December 31, 2019. Although we believe that our estimates are reasonable, actual results could differ from these estimates. See Note 16.

(m) 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 $77,404 and $82,835 during the three-month periods ended March 31, 2020 and 2019, respectively.

(n) Net (Loss) Income Per Common Share

Net income (loss) per common share has been computed in accordance with Codification Topic 260-10, Earnings Per Share. The weighted average number of shares outstanding was 7,212,919 and 5,624,504 during the three-month periods ended March 31, 2020 and 2019, respectively. The basic net income per share has been computed by dividing net income by the weighted average number of common shares outstanding during the period. The diluted net income per share has been computed by dividing net income by the weighted average number of shares outstanding during the period plus all outstanding stock options with an exercise price that is less than the average market price of the common stock during the period less the number of shares that could have been repurchased at this average market price with the proceeds from the hypothetical stock option exercises. 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 have been excluded from the denominator in the calculation of dilutive earnings per share when we are in a loss position because their inclusion would be anti-dilutive. Outstanding stock options that were not included in this calculation because the effect would be anti-dilutive amounted to 406,500 and 87,000 as of March 31, 2020 and 2019, respectively.

(o) 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 and are subject to change in the near term. 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.

(p) 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 are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This ASU and its amendments became 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 regard 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 allows us 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 concluded that we were not subject to material lease obligations as of December 31, 2019, and the adoption of Topic 842 did not have a material impact on our financial statements as of January 1, 2019. The lease we entered into on September 12, 2019 to expand our production capacity for the First Defense^® product line with a Possession Date of November 15, 2019 and a Commencement Date of February 13, 2020 has been accounted for in accordance with Topic 842 during the first quarter of 2020. The only material lease pursuant to which we are the lessee is comprised of real estate property. All leases are classified as operating leases, and therefore, were previously not recognized on our balance sheets. With the adoption of Topic 842, operating lease agreements are required to be recognized on our balance sheets as a right-of-use asset with a corresponding lease liability. If at a lease inception date or at some later date during the term of a lease, we consider the exercising of a renewal option to be reasonably certain, we would include the extended term in the calculation of the ROU asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, we utilize our incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. We elected the following practical expedients in conjunction with implementation of Topic 842:

● Inclusion of both the lease and non-lease components for all classes of underlying assets as a single component.

● Election to exclude short-term lease (i.e., lease with initial terms of twelve months or less) from capitalization on our balance sheets.

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 Topic 820 did not have a material impact on our financial statements as of January 1, 2020.

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Income Taxes (Details) - USD ($)	3 Months Ended		6 Months Ended	12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Jun. 30, 2018	Dec. 31, 2019
Income Taxes (Textual)
Income tax expense (benefit)	$ (14,632)	$ 9,023
(Loss) income before income taxes, rate	(11.00%)	6.00%
State net operating loss carryforwards				$ 3,299,929
Federal net operating loss carryforwards				11,949,860
Federal net operating loss carryforwards does not expire amount				10,237,953
Federal net operating loss carryforwards expires amount				1,711,907
Federal general business tax credit carryforwards				$ 434,838
Tax credit carryforward, description				Federal net operating loss carryforwards of $11,949,860 of which $10,237,953 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 $3,299,929 that expire in 2037 through 2038 (if not utilized before then). Additionally, we had federal general business tax credit carryforwards of $434,838 that expire in 2027 through 2039 (if not utilized before then) and state tax credit carryforwards of $763,350 that expire in 2023 through 2039 (if not utilized before then).
State tax credit carryforwards				$ 763,350
Non-cash income tax expense to create a full valuation allowance against our net deferred tax assets			$ 563,252

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Subsequent Events (Details) - USD ($)		1 Months Ended
	Jun. 08, 2020	Apr. 30, 2020
Subsequent Event [Member]
Subsequent Events (Textual)
Federal government Paycheck Protection Program		$ 937,700
Accrued interest per annum		1.00%
Forecast [Member]
Subsequent Events (Textual)
Subsequent events, description	At least 75% of such forgiven amounts must be used for eligible payroll costs. If any portion of this funding were not to be applied to eligible expenses during the applicable eight-week period, we expect to repay such excess amount without any prepayment penalty by approximately October 13, 2020. By current estimated calculations, this repayment obligation may be approximately $100,000, due to projected payroll costs during the applicable eight-week period potentially being less than the 2019 levels used to determine the amount of available funding. However, the rules around terms of forgiveness are unclear at this time. While we believe (based on the guidance that has been made available thus far with respect to the loan program) that we will be able to establish our need for approximately $838,000 of the PPP funds to cover eligible expenses, as well as our entitlement to forgiveness of the obligation to repay that amount, there is some risk that, due to our being a publicly-traded company and the scrutiny that is expected to be applied to PPP loans made to publicly-traded borrowers, our entitlement to forgiveness could be challenged and denied or limited. Any such forgiveness of indebtedness, in accordance with the CARES Act, does not give rise to taxable income, but these forgiven expenses may not also be deducted for tax return purposes. As of the time of filing on May 13, 2020, there were no other material, reportable subsequent events.

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Bank Debt (Details) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Debt Instrument [Line Items]
Proceeds from Debt Issuance	$ 8,600,000
Debt Principal Repayments	(8,519,078)	(214,301)
Loan #1 [Member]
Debt Instrument [Line Items]
Proceeds from Debt Issuance
Debt Principal Repayments	(493,696)	(16,881)
Loan #2 [Member]
Debt Instrument [Line Items]
Proceeds from Debt Issuance
Debt Principal Repayments	(2,143,771)	(22,260)
Loan #3 [Member]
Debt Instrument [Line Items]
Proceeds from Debt Issuance
Debt Principal Repayments	(3,236,429)	(140,715)
Loan #4 [Member]
Debt Instrument [Line Items]
Proceeds from Debt Issuance
Debt Principal Repayments	(2,336,000)	(32,000)
Loan #5 [Member]
Debt Instrument [Line Items]
Proceeds from Debt Issuance
Debt Principal Repayments	(309,182)	(2,445)
Loan #6 [Member]
Debt Instrument [Line Items]
Proceeds from Debt Issuance	5,100,000
Debt Principal Repayments
Loan #7 [Member]
Debt Instrument [Line Items]
Proceeds from Debt Issuance	3,500,000
Debt Principal Repayments

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Property, Plant and Equipment, Net (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Property, Plant and Equipment, Net (Textual)
Property, plant and equipment, disposals	$ 16,294	$ 1,830
Depreciation expense	$ 555,124	$ 563,805

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Inventory (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Schedule of inventory
Raw materials	$ 590,720	$ 791,558
Work-in-process	844,889	1,207,457
Finished goods	162,349	519,241
Total	$ 1,597,958	$ 2,518,256

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Other Expenses, Net (Tables)

3 Months Ended

Mar. 31, 2020

Other Income and Expenses [Abstract]

Schedule of other expenses, net

	During the Three-Month Periods Ended March 31,
	2020			2019
Interest expense(1)	$	346,950		$	114,041
Interest income		(13,174	)		(2,315	)
Other expenses, net	$	333,776		$	111,726

⁽¹⁾ During the three-month period ended March 31, 2020 interest expense included the write-off of $95,000 of debt issuance costs and the payment of $165,000 to terminate our interest rate swap agreements associated with debt that we repaid.

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Summary of Significant Accounting Policies (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Jun. 30, 2018	Dec. 31, 2019
Summary of Significant Accounting Policies (Textual)
Federal deposit insurance corporation limits	$ 250,000
Property, plant and equipment, description	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 Nisin 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.
Concentration risk percentage, description	Sales to significant customers that amounted to 10% or more of total product sales.
U.S. government aggregated in excess of FDIC limits	$ 6,505,141			$ 5,792,993
Advertising expenses	18,526	$ 30,807
Stock-based compensation	$ 77,404	$ 82,835
Non-cash income tax expense to create a full valuation allowance against our net deferred tax assets			$ 563,252
Outstanding stock options not included in the calculation because the effect would be anti-dilutive	406,500	87,000
Weighted average number of shares outstanding	7,212,919	5,624,504

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Stockholders' Equity (Details Textual)			1 Months Ended								3 Months Ended		12 Months Ended
	Mar. 29, 2019 USD ($) $ / shares shares	Feb. 03, 2016 USD ($) $ / shares shares	Nov. 20, 2018 USD ($)	Dec. 21, 2017 USD ($) $ / shares shares	Jul. 27, 2017 USD ($) $ / shares shares	Oct. 21, 2016 USD ($) $ / shares shares	Oct. 28, 2015 USD ($)	Jun. 30, 2010 shares	Jun. 30, 2000 shares	Sep. 30, 1995 $ / shares	Mar. 31, 2020 USD ($) $ / shares shares	Mar. 31, 2019 USD ($) Director $ / shares shares	Dec. 31, 2019 $ / shares shares	Dec. 31, 2018 $ / shares	Jun. 14, 2018 shares	Jun. 30, 2017 shares	Jun. 30, 2001 shares
Stockholders' Equity (Textual)
Potential issuance or sale of equity | $							$ 10,000,000
Gross proceeds | $	$ 9,000,000	$ 5,900,000		$ 3,050,000
Net proceeds | $	$ 8,303,000	$ 5,313,000		$ 2,734,000
Common stock shares sold	1,636,364	1,123,810		417,807
Sale of stock, per share | $ / shares	$ 5.50	$ 5.25		$ 7.30
Common stock, shares authorized											11,000,000		11,000,000
Stock option and incentive plan, description											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.
Proceeds from exercise of stock options | $												$ 2
Potential issuance cost in equity securities | $			$ 20,000,000
Registration statement, description							Having raised $10,000,000 in gross proceeds under the February 2016, July 2017 and December 2017 equity transactions.
Employee Stock Option [Member]
Stockholders' Equity (Textual)
Number of directors exercised stock options | Director												1
Aggregate intrinsic value of options exercised | $											$ 0	$ 28,641
Weighted-average grant date fair values of options granted | $ / shares											$ 2.12	$ 3.16
Total unrecognized stock-based compensation related to non-vested stock options | $											$ 343,923
Exercise prices of options outstanding | $ / shares											$ 6.36		$ 6.48	$ 6.37
Weighted average remaining life of unrecognized stock-based compensation related to non-vested											1 year 6 months
Exercise prices | $ / shares													$ 4.37
Equity Option [Member]
Stockholders' Equity (Textual)
Stock option and incentive plan, description											From February 2016 to March 2019, we issued the aggregate of 4,037,861 shares of common stock in five different transactions raising gross proceeds of approximately $22,464,000. These funds are essential to funding our business growth plans.
Stock option granted during the period											22,000
Weighted-average grant date fair values of options granted | $ / shares											$ 2.12
Share-based payment, description												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 $2 in cash.
Equity Option [Member] | Maximum [Member]
Stockholders' Equity (Textual)
Common stock, shares authorized															11,000,000
Equity Option [Member] | Minimum [Member]
Stockholders' Equity (Textual)
Common stock, shares authorized															8,000,000
Investor [Member]
Stockholders' Equity (Textual)
Gross proceeds | $					$ 1,050,000
Net proceeds | $					$ 1,034,000
Common stock shares issued					200,000
Closing share price | $ / shares					$ 5.25
Private Placement [Member]
Stockholders' Equity (Textual)
Gross proceeds | $						$ 3,464,000
Net proceeds | $						$ 3,161,000
Common stock shares sold						659,880
Closing share price | $ / shares						$ 5.25
Common Stock Rights Plan [Member]
Stockholders' Equity (Textual)
Share-based payment, description										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).
Common stock purchase price | $ / shares										$ 70.00
Employee stock, plan description										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).	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.
Sale of common stock, description										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
Option expiry date											Sep. 19, 2022
2010 Plan [Member] | Employee Stock Option [Member]
Stockholders' Equity (Textual)
Common stock reserved for issuance under the plan											1,000
Stock option granted during the period											4,000		26,000
Weighted average remaining life of options outstanding											6 years 3 months
2010 Plan [Member] | Employee Stock Option [Member] | Maximum [Member]
Stockholders' Equity (Textual)
Exercise prices of options outstanding | $ / shares											$ 8.90
Exercise prices | $ / shares											5.92
2010 Plan [Member] | Employee Stock Option [Member] | Minimum [Member]
Stockholders' Equity (Textual)
Exercise prices of options outstanding | $ / shares											3.15
Exercise prices | $ / shares											$ 4.00
2010 Plan [Member] | Employee [Member] | Employee Stock Option [Member]
Stockholders' Equity (Textual)
Common stock reserved for issuance under the plan								300,000			255,000
Stock option expiration period								10 years
Share-based payment, description								The 2010 Plan expires in June 2020, after which date no further options can be granted under the 2010 Plan.
Option expiry date								Jun. 30, 2020
Exercise prices | $ / shares												$ 7.50
2000 Plan [Member] | Employee Stock Option [Member]
Stockholders' Equity (Textual)
Common stock reserved for issuance under the plan
Stock option granted during the period
2000 Plan [Member] | Employee [Member] | Employee Stock Option [Member]
Stockholders' Equity (Textual)
Stock option and incentive plan, description									No less than 85% of fair market value on the date of grant in the case of non-qualified stock options.
Common stock reserved for issuance under the plan									250,000								500,000
Stock option expiration period									10 years
Option expiry date									Feb. 28, 2010
2017 Plan [Member] | Employee Stock Option [Member]
Stockholders' Equity (Textual)
Common stock reserved for issuance under the plan											148,500
Stock option granted during the period											18,000		25,000
Weighted average remaining life of options outstanding											6 years 3 months
2017 Plan [Member] | Employee Stock Option [Member] | Maximum [Member]
Stockholders' Equity (Textual)
Exercise prices of options outstanding | $ / shares											$ 8.90
Exercise prices | $ / shares											5.92
2017 Plan [Member] | Employee Stock Option [Member] | Minimum [Member]
Stockholders' Equity (Textual)
Exercise prices of options outstanding | $ / shares											3.15
Exercise prices | $ / shares											$ 4.00
2017 Plan [Member] | Employee [Member] | Employee Stock Option [Member]
Stockholders' Equity (Textual)
Stock option granted during the period												10,000
Weighted average remaining life of options exercisable											5 years 9 months
All Plan [Member] | Employee [Member] | Employee Stock Option [Member]
Stockholders' Equity (Textual)
Common stock reserved for issuance under the plan																300,000
Stock option granted during the period											22,000
Weighted average remaining life of options exercisable											5 years 9 months

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Operating Lease (Details Textual) - USD ($)	Sep. 12, 2019	Mar. 31, 2020	Dec. 31, 2019
Operating Lease (Textual)
Lease, description	We entered into a lease covering approximately 14,300 square feet of office and warehouse space with a Possession Date of November 15, 2019 and a Commencement Date of February 13, 2020. We are renovating this space to meet our needs in expanding our production capacity for the First Defense® product line. We are investing approximately $2,350,000 in leasehold improvements that we expect to depreciate over the ten-year lease term beginning upon issuance of a Certificate of Occupancy by the City of Portland. The lease term is ten years with a right to renew for a second ten-year term and a right of first offer to purchase. At this time, we are not reasonably assured that we would exercise this renewal option. A ten-year period is reflected in the right-of-use (ROU) asset and lease liability on our balance sheet. The total lease liability over the initial ten-year term (including inflationary adjustments) aggregates approximately $1,318,945 and includes real estate and personal property taxes, utilities, insurance, maintenance and related building and operating expenses.
Operating lease ROU asset		$ 1,305,450
Operating lease liability		$ 1,306,939

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Statements of Stockholders' Equity (Parenthetical)	3 Months Ended
	Mar. 31, 2019 USD ($)
Statement of Stockholders' Equity [Abstract]
Common stock, public offering costs	$ 696,566

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Income Taxes

3 Months Ended

Mar. 31, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

16. INCOME TAXES

Our income tax (benefit) expense aggregated ($14,632) and $9,023 (amounting to (11%) and 6% of our (loss) income before income taxes, respectively) during the three-month periods ended March 31, 2020 and 2019, respectively. As of December 31, 2019, we had federal net operating loss carryforwards of $11,949,860 of which $10,237,953 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 $3,299,929 that expire in 2037 through 2038 (if not utilized before then). Additionally, we had federal general business tax credit carryforwards of $434,838 that expire in 2027 through 2039 (if not utilized before then) and state tax credit carryforwards of $763,350 that expire in 2023 through 2039 (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 $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 credits) based on applicable accounting standards and practices. 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. 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. Adjustments related to the termination of our interest rate swap agreements were recorded during the first quarter of 2020.

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.

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Operating Lease

3 Months Ended

Mar. 31, 2020

Leases [Abstract]

OPERATING LEASE

12. OPERATING LEASE

On September 12, 2019, we entered into a lease covering approximately 14,300 square feet of office and warehouse space with a Possession Date of November 15, 2019 and a Commencement Date of February 13, 2020. We are renovating this space to meet our needs in expanding our production capacity for the First Defense^® product line. We are investing approximately $2,350,000 in leasehold improvements that we expect to depreciate over the ten-year lease term beginning upon issuance of a Certificate of Occupancy by the City of Portland. The lease term is ten years with a right to renew for a second ten-year term and a right of first offer to purchase. At this time, we are not reasonably assured that we would exercise this renewal option. A ten-year period is reflected in the right-of-use (ROU) asset and lease liability on our balance sheet. The total lease liability over the initial ten-year term (including inflationary adjustments) aggregates approximately $1,318,945 and includes real estate and personal property taxes, utilities, insurance, maintenance and related building and operating expenses. Our lease includes variable lease and non-lease components that are included in the ROU asset and lease liability. Such payments primarily include common area maintenance charges and increases in rent payments that are driven by factors such as future changes in an index, such as the Consumer Price Index. As of March 31, 2020, the balance of the operating lease ROU asset was $1,305,450 and the operating lease liability was $1,306,939. The calculated amount of the ROU asset and lease liability is impacted by the length of the lease term and the discount rate used for the present value of the minimum lease payments. The following table represents lease costs and other lease information. As we elected, for all classes of underlying assets, not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as real estate taxes and common area maintenance.

	During the Three-Month Periods Ended March 31,
	2020			2019
Lease Cost
Operating lease cost	$	15,597			—
Variable lease cost		5,472			—
Total lease cost	$	21,069			—
Operating Lease
Weighted average remaining lease term (in years)		9.8			—
Weighted average discount rate		4.77	%		—

Future lease payments required under non-cancelable operating leases in effect as of March 31, 2020 were as follows:

	March 31, 2020
During the nine-month period ending December 31, 2020	$	115,050
During the year ending December 31, 2021		159,396
During the year ending December 31, 2022		162,102
During the year ending December 31, 2023		165,120
During the year ending December 31, 2024		168,210
During the years ending December 31, 2025 and after		905,687
Total lease payments (undiscounted cash flows)		1,675,565
Less: imputed interest (discount effect of cash flows)		(368,626	)
Total operating lease liabilities	$	1,306,939

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Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2020	Dec. 31, 2019
Statement of Financial Position [Abstract]
Common stock, par value (in dollars per share)	$ 0.10	$ 0.10
Common stock, shares authorized	11,000,000	11,000,000
Common stock, shares issued	7,299,009	7,299,009
Common stock, shares outstanding	7,212,919	7,212,919
Treasury stock, shares	86,090	86,090

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Subsequent Events

3 Months Ended

Mar. 31, 2020

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

20. SUBSEQUENT EVENTS

We have evaluated subsequent events through the time of filing on May 13, 2020, the date we have issued this Quarterly Report on Form 10-Q. The COVID-19 pandemic has created a great deal of uncertainty since December 31, 2019. We could experience product shortages, backlogs and production slowdowns due to difficulties accessing needed supplies and labor and other restrictions affecting our ability to consistently deliver our products to market. During April 2020, we received $937,700 in support from the federal government under the Paycheck Protection Program (PPP). This funding accrues interest at a rate of 1% per annum, and our obligation to repay the principal amount of the funding should be forgiven provided we use the proceeds only for eligible payroll costs, utility expenses, rent payments and interest expense on mortgage debt, in each case incurred and paid during the eight-week period from April 13, 2020 through June 8, 2020 (which period may be extended at some future date). At least 75% of such forgiven amounts must be used for eligible payroll costs. If any portion of this funding were not to be applied to eligible expenses during the applicable eight-week period, we expect to repay such excess amount without any prepayment penalty by approximately October 13, 2020. By current estimated calculations, this repayment obligation may be approximately $100,000, due to projected payroll costs during the applicable eight-week period potentially being less than the 2019 levels used to determine the amount of available funding. However, the rules around terms of forgiveness are unclear at this time. While we believe (based on the guidance that has been made available thus far with respect to the loan program) that we will be able to establish our need for approximately $838,000 of the PPP funds to cover eligible expenses, as well as our entitlement to forgiveness of the obligation to repay that amount, there is some risk that, due to our being a publicly-traded company and the scrutiny that is expected to be applied to PPP loans made to publicly-traded borrowers, our entitlement to forgiveness could be challenged and denied or limited. Any such forgiveness of indebtedness, in accordance with the CARES Act, does not give rise to taxable income, but these forgiven expenses may not also be deducted for tax return purposes. As of the time of filing on May 13, 2020, there were no other material, reportable subsequent events.

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Intangible Assets

3 Months Ended

Mar. 31, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

INTANGIBLE ASSETS

8. INTANGIBLE ASSETS

The developed technology intangible assets of approximately $191,000 (which include an immaterial amount of value associated with customer relationships and a non-compete agreement and was valued using the relief from royalty method) 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 March 31, 2020 and 2019. The net value of these intangibles was $109,848 and $114,624 as of March 31, 2020 and December 31, 2019, respectively. Intangible asset amortization expense is estimated to be approximately $19,104 per year through December 31, 2025.

Intangible assets as of March 31, 2020 consisted of the following:

	Gross Carrying Value		Accumulated Amortization			Net Book Value
Developed technology	$	184,100	$	(78,243	)	$	105,857
Customer relationships		1,300		(552	)		748
Non-compete agreements		5,640		(2,397	)		3,243
Total	$	191,040	$	(81,192	)	$	109,848

Intangible assets as of December 31, 2019 consisted of the following:

	Gross Carrying Value		Accumulated Amortization			Net Book Value
Developed technology	$	184,100	$	(73,640	)	$	110,460
Customer relationships		1,300		(520	)		780
Non-compete agreements		5,640		(2,256	)		3,384
Total	$	191,040	$	(76,416	)	$	114,624

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Trade Accounts Receivable, Net

3 Months Ended

Mar. 31, 2020

Receivables [Abstract]

TRADE ACCOUNTS RECEIVABLE, net

4. TRADE ACCOUNTS RECEIVABLE, net

Trade accounts receivable amounted to $1,875,783 and $1,637,165 as of March 31, 2020 and December 31, 2019, respectively. No allowance for bad debt and product returns was recorded as of March 31, 2020 or December 31, 2019.

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Stockholders' Equity (Tables)

3 Months Ended

Mar. 31, 2020

Equity [Abstract]

Schedule of activity under the stock option plans

	2000 Plan			2010 Plan			2017 Plan			Weighted Average Exercise Price		Aggregate Intrinsic Value(1)
Outstanding at December 31, 2018		12,500			270,00			111,500		$	6.37	$	266,020
Grants		—			26,000			25,000		$	5.90
Terminations		—			(26,000	)		(3,000	)	$	6.05
Exercises		(12,500	)		(15,000	)		—		$	4.37
Outstanding at December 31, 2019		—			255,000			133,500		$	6.48	$	(516,475	)
Grants		—			4,000			18,000		$	4.17
Terminations		—			(4,000	)		—		$	5.88
Exercises		—			—			—		$	—
Outstanding at March 31, 2020		—			255,000			151,500		$	6.36	$	(1,044,945	)
Vested at March 31, 2020		—			159,500			10,000		$	6.05	$	(383,270	)
Vested and expected to vest at March 31, 2020		—			255,000			151,500		$	6.36	$	(1,044,945	)
Reserved for future grants		—			1,000			148,500

(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.

Schedule of additional information about the stock option plans

	Number of Shares		Weighted Average Fair Value at Grant Date		Weighted Average Exercise Price
Non-vested stock options as of January 1, 2020		321,000	$	3.49	$	6.55
Non-vested stock options as of March 31, 2020		237,000	$	3.39	$	6.58
Stock options granted during the three-month period ended March 31, 2020		22,000	$	2.12	$	4.17
Stock options that vested during the three-month period ended March 31, 2020		102,000	$	3.44	$	6.00
Stock options that were forfeited during the three-month period ended March 31, 2020		4,000	$	3.08	$	5.88

Schedule of fair value stock option grant using black-scholes option valuation model with the weighted-average assumptions

	During the Three-Month Period Ended March 31, 2020			During the Three-Month Period Ended March 31, 2019
Risk-free interest rate		0.78	%		2.59	%
Dividend yield		0	%		0	%
Expected volatility		52	%		51	%
Expected life		6.5 years			4 years

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

3 Months Ended

Mar. 31, 2020

Cash and Cash Equivalents [Abstract]

Schedule of cash, cash equivalents and short-term investments

	As of March 31, 2020		As of December 31, 2019
Cash and cash equivalents	$	6,505,141	$	6,293,293
Short-term investments		493,821		2,480,753
Total	$	6,998,962	$	8,774,046

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Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of intangible assets

Intangible assets as of March 31, 2020 consisted of the following:

	Gross Carrying Value		Accumulated Amortization			Net Book Value
Developed technology	$	184,100	$	(78,243	)	$	105,857
Customer relationships		1,300		(552	)		748
Non-compete agreements		5,640		(2,397	)		3,243
Total	$	191,040	$	(81,192	)	$	109,848

Intangible assets as of December 31, 2019 consisted of the following:

	Gross Carrying Value		Accumulated Amortization			Net Book Value
Developed technology	$	184,100	$	(73,640	)	$	110,460
Customer relationships		1,300		(520	)		780
Non-compete agreements		5,640		(2,256	)		3,384
Total	$	191,040	$	(76,416	)	$	114,624

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Intangible Assets (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Intangible Assets (Textual)
Developed technology intangible assets	$ 191,000
Intangible amortization expense	$ 4,776	$ 4,776
Intangible asset amortized, useful lives	10 years
Net value	$ 109,848		$ 114,624
Intangible assets, description	Intangible asset amortization expense is estimated to be approximately $19,104 per year through December 31, 2025.

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Prepaid Expenses and Other Current Assets (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Prepaid expenses	$ 406,450	$ 218,232
Other receivables	67,829	40,534
Security deposits	800	800
Total	$ 475,079	$ 259,566

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Bank Debt (Details Textual)		3 Months Ended
	Mar. 11, 2020 USD ($)	Mar. 31, 2020 USD ($)	Mar. 31, 2017 USD ($) ft²	Mar. 31, 2016 USD ($)	Sep. 30, 2015 USD ($)	Sep. 30, 2010 USD ($)
Bank Debt (Textual)
Debt issue costs		$ 39,789
Td Bank [Member] | Loan #1 [Member]
Bank Debt (Textual)
Proceeds from issuance of loan						$ 1,000,000
Interest payments, term						10 years
Loan amortization, term						15 years
Balloon principal payment						$ 451,885
Balloon principal payment due, description						Due during the third quarter of 2020.
Fixed interest rate						6.04%
Td Bank [Member] | Loan #2 [Member]
Bank Debt (Textual)
Proceeds from issuance of loan					$ 2,500,000
Interest payments, term					10 years
Loan amortization, term					25 years
Balloon principal payment					$ 1,550,000
Balloon principal payment due, description					Due during the third quarter of 2025.
Fixed interest rate					4.38%
Td Bank [Member] | Loans #3 and #4 [Member]
Bank Debt (Textual)
Proceeds from issuance of loan			$ 6,500,000	$ 4,500,000
Td Bank [Member] | Loans #3 [Member]
Bank Debt (Textual)
Proceeds from issuance of loan		$ 3,940,000
Interest payments, term		7 years
Loan amortization, term		7 years
Variable interest rate with LIBOR, description		In September 2018, the loan converted to a term loan facility bearing interest at the variable rate equal to the one-month LIBOR plus a margin of 2.25% per annum
Td Bank [Member] | Loans #4 [Member]
Bank Debt (Textual)
Proceeds from issuance of loan		$ 2,560,000
Interest payments, term		10 years
Loan amortization, term		25 years
Balloon principal payment		$ 1,408,000
Balloon principal payment due, description		Due during the first quarter of 2027.
Variable interest rate with LIBOR, description		In March 2018, the loan converted to a term loan facility bearing interest at the variable rate equal to the one-month LIBOR plus a margin of 2.25% per annum.
Td Bank [Member] | Loans #5 [Member]
Bank Debt (Textual)
Proceeds from issuance of loan			$ 340,000
Interest payments, term			10 years
Loan amortization, term			20 years
Balloon principal payment			$ 206,000
Balloon principal payment due, description			Due during the first quarter of 2027.
Variable interest rate with LIBOR, description			Variable rate equal to the one-month LIBOR plus a margin of 2.25%
Warehouse and storage facility | ft²			4,114
Gorham Savings Bank [Member]
Bank Debt (Textual)
Bank debt covenant prior to refinancing	$ 2,000,000
Debt financing	8,600,000
Line of credit	1,000,000
Escrow account	$ 1,400,000
Gorham Savings Bank [Member] | Loan #6 [Member]
Bank Debt (Textual)
Interest payments, term	10 years
Loan amortization, term	25 years
Variable interest rate with LIBOR, description	The line of credit bears interest at a variable rate equal to the one-month LIBOR plus 2.15% per annum.
Fixed interest rate	3.50%
Debt issue costs	$ 39,789
Debt financing	$ 5,100,000
Gorham Savings Bank [Member] | Loans #7 [Member]
Bank Debt (Textual)
Interest payments, term	7 years
Loan amortization, term	7 years
Variable interest rate with LIBOR, description	The line of credit bears interest at a variable rate equal to the one-month LIBOR plus 2.15% per annum.
Fixed interest rate	3.50%
Debt issue costs	$ 39,789
Debt financing	$ 3,500,000

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Related Party Transactions (Details) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Related Party Transactions (Textual)
Revenues from transactions with related party	$ 264,830	$ 176,866
Accounts receivable	$ 32,101		$ 0

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Accounts Payable and Accrued Expenses

3 Months Ended

Mar. 31, 2020

Payables and Accruals [Abstract]

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following:

	As of March 31, 2020		As of December 31, 2019
Accounts payable – trade	$	171,411	$	401,958
Accounts payable – capital		384,631		170,220
Accrued payroll		196,968		399,501
Accrued professional fees		55,250		73,781
Accrued other		388,217		175,106
Total	$	1,196,477	$	1,220,566

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Inventory

3 Months Ended

Mar. 31, 2020

Inventory Disclosure [Abstract]

INVENTORY

5. INVENTORY

Inventory consisted of the following:

	As of March 31, 2020		As of December 31, 2019
Raw materials	$	590,720	$	791,558
Work-in-process		844,889		1,207,457
Finished goods		162,349		519,241
Total	$	1,597,958	$	2,518,256

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Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Schedule of financial assets measured at fair value on nonrecurring basis

	As of March 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Cash and money market accounts	$	6,505,141	$	—	$	—	$	6,505,141
Bank certificates of deposit		—		493,821		—		493,821
Total	$	6,505,141	$	493,821	$	—	$	6,998,962

	As of December 31, 2019
	Level 1		Level 2			Level 3		Total
Assets:
Cash and money market accounts	$	6,293,293	$	—		$	—	$	6,293,293
Bank certificates of deposit		—		2,480,753			—		2,480,753
Liabilities:
Interest rate swaps		—		(58,526	)		—		(58,526	)
Total, net	$	6,293,293	$	2,422,227		$	—	$	8,715,520

Schedule of sales to significant customers

	During the Three-Month Periods ended March 31,
	2020			2019
Company A		38	%		43	%
Company B		31	%		27	%
Company C		11	%		*

Schedule of accounts receivable due from significant customers

	As of March 31, 2020			As of December 31, 2019
Company B		41	%		48	%
Company A		33	%		28	%
Company C		12	%		*

* Amount is less than 10%.

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Property, Plant and Equipment, Net (Tables)

3 Months Ended

Mar. 31, 2020

Property, Plant and Equipment [Abstract]

Schedule of property, plant and equipment

	Estimated Useful Lives (in years)	As of March 31, 2020			As of December 31, 2019
Laboratory and manufacturing equipment	3-10	$	15,462,319		$	15,437,724
Building and improvements	10-39		17,078,829			17,078,829
Office furniture and equipment	3-10		716,793			719,323
Construction in progress	n/a		2,552,383			1,124,189
Land	n/a		516,867			516,867
Property, plant and equipment, gross			36,327,191			34,876,932
Accumulated depreciation			(10,153,890	)		(9,611,194	)
Property, plant and equipment, net		$	26,173,301		$	25,265,738

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Operating Lease (Tables)

3 Months Ended

Mar. 31, 2020

Leases [Abstract]

Schedule of lease costs and other lease information

	During the Three-Month Periods Ended March 31,
	2020			2019
Lease Cost
Operating lease cost	$	15,597			—
Variable lease cost		5,472			—
Total lease cost	$	21,069			—
Operating Lease
Weighted average remaining lease term (in years)		9.8			—
Weighted average discount rate		4.77	%		—

Schedule of future lease payments required under non-cancelable operating leases

	March 31, 2020
During the nine-month period ending December 31, 2020	$	115,050
During the year ending December 31, 2021		159,396
During the year ending December 31, 2022		162,102
During the year ending December 31, 2023		165,120
During the year ending December 31, 2024		168,210
During the years ending December 31, 2025 and after		905,687
Total lease payments (undiscounted cash flows)		1,675,565
Less: imputed interest (discount effect of cash flows)		(368,626	)
Total operating lease liabilities	$	1,306,939

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Contingent Liabilities and Commitments (Details) - USD ($)	3 Months Ended	12 Months Ended
	Mar. 31, 2020	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Contingent Liabilities and Commitments (Textual)
Purchase of inventory	$ 1,072,000
Other obligations	423,000
Capital expenditures	36,000
Capital expenditures committed	1,078,000
Construct and equip commitment	1,245,000
Royalty, percentage		4.00%
Growth assumption, percentage			6.00%
Royalties due for 2017	5,000
Royalties due for 2018	10,000
Royalties due for 2019	15,000
Royalties due for 2020	20,000
Royalties due for 2021 (and thereafter)	25,000
Royalties	$ 28,538			$ 76,876	$ 10,396	$ 5,000

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Accounts Payable and Accrued Expenses (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Payables and Accruals [Abstract]
Accounts payable - trade	$ 171,411	$ 401,958
Accounts payable - capital	384,631	170,220
Accrued payroll	196,968	399,501
Accrued professional fees	55,250	73,781
Accrued other	388,217	175,106
Total	$ 1,196,477	$ 1,220,566

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Property, Plant and Equipment, Net (Details) - USD ($)	3 Months Ended
	Mar. 31, 2020	Dec. 31, 2019
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	$ 36,327,191	$ 34,876,932
Accumulated depreciation	(10,153,890)	(9,611,194)
Property, plant and equipment, net	26,173,301	25,265,738
Laboratory and manufacturing equipment [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	$ 15,462,319	15,437,724
Laboratory and manufacturing equipment [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, Estimated Useful Lives	3 years
Laboratory and manufacturing equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, Estimated Useful Lives	10 years
Building and improvements [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	$ 17,078,829	17,078,829
Building and improvements [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, Estimated Useful Lives	10 years
Building and improvements [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, Estimated Useful Lives	39 years
Office furniture and equipment [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	$ 716,793	719,323
Office furniture and equipment [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, Estimated Useful Lives	3 years
Office furniture and equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, Estimated Useful Lives	10 years
Construction in progress [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	$ 2,552,383	1,124,189
Land [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	$ 516,867	$ 516,867

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Segment Information (Details) - Sales Revenue [Member]	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Segment Information (Textual)
Concentration risk percentage	98.00%	94.00%
U.S. dairy and beef industries [Member]
Segment Information (Textual)
Concentration risk percentage	89.00%	86.00%
International Dairy and Beef [Member]
Segment Information (Textual)
Concentration risk percentage	11.00%	11.00%

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Revenue (Tables)

3 Months Ended

Mar. 31, 2020

Geographic Area [Member]

Disaggregation of Revenue [Line Items]

Schedule of revenue disaggregated by geographic area and major product category

	During the Three-Month Periods Ended March 31,
	2020		2019
United States	$	4,357,682	$	3,777,746
Other		552,706		632,815
Total product sales	$	4,910,388	$	4,410,561

Major Product Category [Member]

Disaggregation of Revenue [Line Items]

Schedule of revenue disaggregated by geographic area and major product category

	During the Three-Month Periods Ended March 31,
	2020		2019
First Defense® product line	$	4,819,191	$	4,140,917
Other animal health		91,197		136,043
Other		—		133,601
Total product sales	$	4,910,388	$	4,410,561

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Summary of Significant Accounting Policies (Details 2)	Mar. 31, 2020	Dec. 31, 2019
Company B [Member]
Revenue, Major Customer [Line Items]
Accounts receivable due from significant customers	41.00%	48.00%
Company A [Member]
Revenue, Major Customer [Line Items]
Accounts receivable due from significant customers	33.00%	28.00%
Company C [Member]
Revenue, Major Customer [Line Items]
Accounts receivable due from significant customers	12.00%		[1]

[1] Amount is less than 10%.

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Trade Accounts Receivable, Net (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Trade Accounts Receivable, Net (Textual)
Trade accounts receivable, net	$ 1,875,783	$ 1,637,165

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Revenue (Details) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Total product sales	$ 4,910,388	$ 4,410,561
United States [Member]
Total product sales	4,357,682	3,777,746
Other [Member]
Total product sales	$ 552,706	$ 632,815

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Stockholders' Equity (Details) - Employee Stock Option [Member] - USD ($)		3 Months Ended	12 Months Ended
		Mar. 31, 2020	Dec. 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted Average Exercise Price, Outstanding, Beginning		$ 6.48	$ 6.37
Weighted Average Exercise Price, Grants		4.17	5.90
Weighted Average Exercise Price, Terminations		5.88	6.05
Weighted Average Exercise Price, Exercises			4.37
Weighted Average Exercise Price, Outstanding, Ending		6.36	$ 6.48
Weighted Average Exercise Price, Vested		6.05
Weighted average exercise price, Vested and expected to vest		$ 6.36
Aggregate Intrinsic Value, Outstanding, Beginning	[1]	$ (516,475)	$ 266,020
Aggregate Intrinsic Value, Outstanding, Ending	[1]	(1,044,945)	$ (516,475)
Aggregate Intrinsic Value, Vested	[1]	(383,270)
Aggregate Intrinsic Value, Vested and expected to vest	[1]	$ (1,044,945)
Two Thousand Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding, Beginning balance			12,500
Grants
Terminations
Exercises			(12,500)
Outstanding, Ending balance
Vested
Vested and expected to vest
Reserved for future grants
2010 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding, Beginning balance		255,000	27,000
Grants		4,000	26,000
Terminations		(4,000)	(26,000)
Exercises			(15,000)
Outstanding, Ending balance		255,000	255,000
Vested		159,500
Vested and expected to vest		255,000
Reserved for future grants		1,000
2017 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding, Beginning balance		133,500	111,500
Grants		18,000	25,000
Terminations			(3,000)
Exercises
Outstanding, Ending balance		151,500	133,500
Vested		10,000
Vested and expected to vest		151,500
Reserved for future grants		148,500

[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.

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Basis of Presentation

(a) Basis of Presentation

We have prepared the accompanying unaudited financial statements reflecting all adjustments (which are of a normal recurring nature) 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. You should read these unaudited financial statements in conjunction with our audited financial statements on Form 10-K for the year ended December 31, 2019.

Cash, Cash Equivalents and Short-Term Investments

(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 $6,505,141 and $5,792,993 as of March 31, 2020 and December 31, 2019, 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.

Trade Accounts Receivable

(c) Trade Accounts Receivable

Accounts receivable are carried at the original invoice amount less an estimate made for doubtful collection when applicable. 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 March 31, 2020 and December 31, 2019, we determined that no allowance for doubtful accounts was necessary. See Note 4.

Inventory

(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 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 or farm. Our policy is to maintain more than one source of supply for the components used in our products when practicable. See Note 5.

Property, Plant and Equipment

(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 Nisin 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.

Intangible Assets and Goodwill

(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 31^st) 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 three-month period ended March 31, 2020 or the year ended December 31, 2019. See Notes 2(h) and 8 for additional disclosures.

Fair Value Measurements

(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 March 31, 2020 and December 31, 2019, the carrying amounts of cash and cash equivalents, short-term investments, accounts receivable, inventory, other assets, accounts payable 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.

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 three-month periods ended March 31, 2020 and 2019, there were no transfers between levels. As of March 31, 2020 and December 31, 2019, 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 March 31, 2020 and December 31, 2019 our bank certificates of deposit were classified as Level 2 and were measured by other significant observable inputs. As of December 31, 2019, 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 March 31, 2020 or December 31, 2019.

	As of March 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Cash and money market accounts	$	6,505,141	$	—	$	—	$	6,505,141
Bank certificates of deposit		—		493,821		—		493,821
Total	$	6,505,141	$	493,821	$	—	$	6,998,962

	As of December 31, 2019
	Level 1		Level 2			Level 3		Total
Assets:
Cash and money market accounts	$	6,293,293	$	—		$	—	$	6,293,293
Bank certificates of deposit		—		2,480,753			—		2,480,753
Liabilities:
Interest rate swaps		—		(58,526	)		—		(58,526	)
Total, net	$	6,293,293	$	2,422,227		$	—	$	8,715,520

Valuation of Long-Lived Assets

(h) Valuation of Long-Lived Assets

We periodically evaluate our long-lived assets, consisting principally of fixed assets, operating lease right-of-use asset 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 three-month period ended March 31, 2020 or the year ended December 31, 2019.

Concentration of Risk

(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 March 31,
	2020			2019
Company A		38	%		43	%
Company B		31	%		27	%
Company C		11	%		*

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

	As of March 31, 2020			As of December 31, 2019
Company B		41	%		48	%
Company A		33	%		28	%
Company C		12	%		*

* Amount is less than 10%.

Revenue Recognition

(j) Revenue Recognition

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 14.

Expense Recognition

(k) Expense Recognition

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 $18,526 and $30,807 during the three-month periods ended March 31, 2020 and 2019, 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.

Income Taxes

(l) 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 2016. We have evaluated the positions taken on our filed tax returns. We have concluded that no uncertain tax positions existed as of March 31, 2020 or December 31, 2019. Although we believe that our estimates are reasonable, actual results could differ from these estimates. See Note 16.

Stock-Based Compensation

(m) 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 $77,404 and $82,835 during the three-month periods ended March 31, 2020 and 2019, respectively.

Net (Loss) Income Per Common Share

(n) Net (Loss) Income Per Common Share

Net income (loss) per common share has been computed in accordance with Codification Topic 260-10, Earnings Per Share. The weighted average number of shares outstanding was 7,212,919 and 5,624,504 during the three-month periods ended March 31, 2020 and 2019, respectively. The basic net income per share has been computed by dividing net income by the weighted average number of common shares outstanding during the period. The diluted net income per share has been computed by dividing net income by the weighted average number of shares outstanding during the period plus all outstanding stock options with an exercise price that is less than the average market price of the common stock during the period less the number of shares that could have been repurchased at this average market price with the proceeds from the hypothetical stock option exercises. 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 have been excluded from the denominator in the calculation of dilutive earnings per share when we are in a loss position because their inclusion would be anti-dilutive. Outstanding stock options that were not included in this calculation because the effect would be anti-dilutive amounted to 406,500 and 87,000 as of March 31, 2020 and 2019, respectively.

Use of Estimates

(o) 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 and are subject to change in the near term. 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.

New Accounting Pronouncements

(p) 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 are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This ASU and its amendments became 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 regard 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 allows us 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 concluded that we were not subject to material lease obligations as of December 31, 2019, and the adoption of Topic 842 did not have a material impact on our financial statements as of January 1, 2019. The lease we entered into on September 12, 2019 to expand our production capacity for the First Defense^® product line with a Possession Date of November 15, 2019 and a Commencement Date of February 13, 2020 has been accounted for in accordance with Topic 842 during the first quarter of 2020. The only material lease pursuant to which we are the lessee is comprised of real estate property. All leases are classified as operating leases, and therefore, were previously not recognized on our balance sheets. With the adoption of Topic 842, operating lease agreements are required to be recognized on our balance sheets as a right-of-use asset with a corresponding lease liability. If at a lease inception date or at some later date during the term of a lease, we consider the exercising of a renewal option to be reasonably certain, we would include the extended term in the calculation of the ROU asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, we utilize our incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. We elected the following practical expedients in conjunction with implementation of Topic 842:

● Inclusion of both the lease and non-lease components for all classes of underlying assets as a single component.

● Election to exclude short-term lease (i.e., lease with initial terms of twelve months or less) from capitalization on our balance sheets.

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 Topic 820 did not have a material impact on our financial statements as of January 1, 2020.

XML

Statements of Stockholders' Equity - USD ($)	Common Stock	Additional paid-in capital	Accumulated Deficit	Treasury Stock	Accumulated Other Comprehensive Income (Loss)	Total
Balance at Dec. 31, 2018	$ 566,265	$ 22,695,557	$ (1,342,698)	$ (204,947)	$ 30,157	$ 21,744,334
Balance, Shares at Dec. 31, 2018	5,662,645			93,683
Net income (loss)			144,555			144,555
Other comprehensive (loss) income, net of taxes					(27,069)	(27,069)
Public offering of common stock, net of $696,566 of offering costs	$ 163,636	8,139,800				8,303,436
Public offering of common stock, net of $696,566 of offering costs, Shares	1,636,364
Exercise of stock options		(9,337)		$ 9,339		2
Exercise of stock options, Shares				(4,269)
Stock-based compensation		82,835				82,835
Balance at Mar. 31, 2019	$ 729,901	30,908,855	(1,198,143)	$ (195,608)	3,088	30,248,093
Balance, Shares at Mar. 31, 2019	7,299,009			89,414
Balance at Dec. 31, 2019	$ 729,901	31,131,893	(2,638,285)	$ (188,336)	(43,895)	28,991,278
Balance, Shares at Dec. 31, 2019	7,299,009			86,090
Net income (loss)			(122,267)			(122,267)
Other comprehensive (loss) income, net of taxes					43,895	43,895
Stock-based compensation		77,404				77,404
Balance at Mar. 31, 2020	$ 729,901	$ 31,209,297	$ (2,760,552)	$ (188,336)		$ 28,990,310
Balance, Shares at Mar. 31, 2020	7,299,009			86,090

XML

Segment Information

3 Months Ended

Mar. 31, 2020

Segment Reporting [Abstract]

SEGMENT INFORMATION

17. 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 98% and 94% of our total product sales during the three-month periods ended March 31, 2020 and 2019, respectively. Our primary customers for the majority of our product sales (89% and 86% during the three-month periods ended March 31, 2020 and 2019, 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 11% of our total product sales during the three-month periods ended March 31, 2020 and 2019.

XML

Stockholders' Equity

3 Months Ended

Mar. 31, 2020

Equity [Abstract]

STOCKHOLDERS' EQUITY

13. STOCKHOLDERS' EQUITY

From February 2016 to March 2019, we issued the aggregate of 4,037,861 shares of common stock in five different transactions raising gross proceeds of approximately $22,464,000. These funds are essential to funding our business growth plans. The details of each transaction are discussed below.

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 in a public, registered sale 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 Securities and Exchange Commission (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).

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. As of December 31, 2019, no options were outstanding under the 2000 Plan.

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 can be granted under the 2010 Plan. However, options outstanding under the 2010 Plan at that time can be exercised in accordance with their terms. As of March 31, 2020, 255,000 options were outstanding under the 2010 Plan.

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 can be granted under the 2017 Plan. However, options outstanding under the 2017 Plan at that time can be exercised in accordance with their terms. As of March 31, 2020, 151,500 options were outstanding under the 2017 Plan.

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, 2018		12,500			270,00			111,500		$	6.37	$	266,020
Grants		—			26,000			25,000		$	5.90
Terminations		—			(26,000	)		(3,000	)	$	6.05
Exercises		(12,500	)		(15,000	)		—		$	4.37
Outstanding at December 31, 2019		—			255,000			133,500		$	6.48	$	(516,475	)
Grants		—			4,000			18,000		$	4.17
Terminations		—			(4,000	)		—		$	5.88
Exercises		—			—			—		$	—
Outstanding at March 31, 2020		—			255,000			151,500		$	6.36	$	(1,044,945	)
Vested at March 31, 2020		—			159,500			10,000		$	6.05	$	(383,270	)
Vested and expected to vest at March 31, 2020		—			255,000			151,500		$	6.36	$	(1,044,945	)
Reserved for future grants		—			1,000			148,500

⁽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, 2020		321,000	$	3.49	$	6.55
Non-vested stock options as of March 31, 2020		237,000	$	3.39	$	6.58
Stock options granted during the three-month period ended March 31, 2020		22,000	$	2.12	$	4.17
Stock options that vested during the three-month period ended March 31, 2020		102,000	$	3.44	$	6.00
Stock options that were forfeited during the three-month period ended March 31, 2020		4,000	$	3.08	$	5.88

No stock options were exercised during the three-month period ended March 31, 2020. During the three-month period ended March 31, 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 $2 in cash.

The weighted average remaining life of the options outstanding under the 2010 Plan and the 2017 Plan as of March 31, 2020 was approximately 6 years and 3 months. The weighted average remaining life of the options exercisable under these plans as of March 31, 2020 was approximately 5 years and 9 months. The exercise prices of the options outstanding as of March 31, 2020 ranged from $3.15 to $8.90 per share. The 22,000 stock options granted during the three-month period ended March 31, 2020 had exercise prices between $4.00 and $5.92 per share. The 10,000 stock options granted during the three-month period ended March 31, 2019 had exercise prices of $7.50 per share. The aggregate intrinsic value of options exercised during the three-month periods ended March 31, 2020 and 2019 approximated $0 and $28,641, respectively. The weighted-average grant date fair values of options granted during the three-month periods ended March 31, 2020 and 2019 were $2.12 and $3.16, respectively. As of March 31, 2020, total unrecognized stock-based compensation related to non-vested stock options aggregated $343,923, which will be recognized over a weighted average period of 1 year and 6 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(m), with the following weighted-average assumptions for the three-month periods ended March 31, 2020 and 2019:

	During the Three-Month Period Ended March 31, 2020			During the Three-Month Period Ended March 31, 2019
Risk-free interest rate		0.78	%		2.59	%
Dividend yield		0	%		0	%
Expected volatility		52	%		51	%
Expected life		6.5 years			4 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.

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.

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.

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Balance Sheets - USD ($)	Mar. 31, 2020	Dec. 31, 2019
CURRENT ASSETS:
Cash and cash equivalents	$ 6,505,141	$ 6,293,293
Short-term investments	493,821	2,480,753
Trade accounts receivable, net	1,875,783	1,637,165
Inventory	1,597,958	2,518,256
Prepaid expenses and other current assets	475,079	259,566
Total current assets	10,947,782	13,189,033
PROPERTY, PLANT AND EQUIPMENT, net	26,173,301	25,265,738
RESTRICTED CASH	1,400,191
OPERATING LEASE RIGHT-OF-USE ASSET	1,305,450
INTANGIBLE ASSETS, net	109,848	114,624
GOODWILL	95,557	95,557
OTHER ASSETS	22,145	26,884
TOTAL ASSETS	40,054,274	38,691,836
CURRENT LIABILITIES:
Accounts payable and accrued expenses	1,196,477	1,220,566
Current portion of bank debt	572,197	1,274,790
Current portion of operating lease liability	93,249
Total current liabilities	1,861,923	2,495,356
LONG-TERM LIABILITIES:
Bank debt, net of current portion	7,988,351	7,146,676
Operating lease liability, net of current portion	1,213,690
Interest rate swaps		58,526
Total long-term liabilities	9,202,041	7,205,202
TOTAL LIABILITIES	11,063,964	9,700,558
CONTINGENT LIABILITIES AND COMMITMENTS (See Note 11)
STOCKHOLDERS' EQUITY:
Common stock, $0.10 par value per share, 11,000,000 shares authorized, 7,299,009 shares issued and 7,212,919 shares outstanding, as of March 31, 2020 and December 31, 2019	729,901	729,901
Additional paid-in capital	31,209,297	31,131,893
Accumulated deficit	(2,760,552)	(2,638,285)
Treasury stock, at cost, 86,090 shares as of March 31, 2020 and December 31, 2019	(188,336)	(188,336)
Accumulated other comprehensive loss		(43,895)
Total stockholders' equity	28,990,310	28,991,278
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 40,054,274	$ 38,691,836