UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
0-15507
Commission file number
IMMUCELL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 01-0382980
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
56 Evergreen Drive
Portland, ME 04103
(Address of principal executive office and zip code)
(207) 878-2770
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Class of Securities: Outstanding at November 13, 1996:
Common Stock, par value $.10 per share 2,329,564
IMMUCELL CORPORATION
INDEX TO FORM 10-Q
SEPTEMBER 30, 1996
PART I: FINANCIAL INFORMATION Page
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets-
September 30, 1996 and December 31, 1995 3-4
Consolidated Statements of Operations for the
three and nine month periods ended
September 30, 1996 and 1995 5
Consolidated Statement of Stockholders' Equity for the
nine month period ended September 30, 1996 6
Consolidated Statements of Cash Flows for the
nine month periods ended September 30, 1996 and 1995 7
Notes to Unaudited Consolidated Financial Statements 8-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 9-11
PART II: OTHER INFORMATION
Items 1 through 6 11-12
Signatures 12
IMMUCELL CORPORATION
PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1996 1995
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 824,194 $1,550,011
Accounts receivable, net 359,955 357,533
Inventories 692,776 636,203
Prepaid expenses and
accrued interest 51,524 26,600
Total current assets 1,928,449 2,570,347
EQUIPMENT, BUILDING AND
IMPROVEMENTS, at cost:
Laboratory equipment 754,755 844,254
Building and improvements 580,448 431,114
Office furniture and equipment 56,387 77,312
Land 50,000 50,000
1,441,590 1,402,680
Less - Accumulated depreciation (601,694) (740,751)
Net equipment, building and
improvements 839,896 661,929
INVESTMENT IN JOINT VENTURES 228,797 --
OTHER ASSETS 840 2,150
TOTAL ASSETS $2,997,982 $3,234,426
The accompanying notes are an integral part of the financial statements.
IMMUCELL CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1996 1995
(unaudited)
CURRENT LIABILITIES:
Accrued expenses $ 274,754 $ 250,412
Accounts payable 180,140 236,471
Current portion of long term debt 224,204
168,884
Deferred income -- 65,000
Total current liabilities 679,098 720,767
LONG TERM DEBT:
Notes payable 424,897 401,055
Mortgage loan 204,118 207,288
Total long term debt 629,015 608,343
STOCKHOLDERS' EQUITY:
Common stock, Par value--$.10 per share
Authorized--8,000,000 shares
Issued--2,719,162 and 2,681,579
shares at September 30,1996 and
December 31, 1995, respectively 271,917 268,159
Capital in excess of par value 8,139,792 8,105,448
Accumulated deficit (6,135,105) (5,881,556)
Treasury stock, at cost --
389,598 shares (586,735) (586,735)
Total stockholders' equity 1,689,869 1,905,316
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 2,997,982 $ 3,234,426
The accompanying notes are an integral part of the financial statements.
IMMUCELL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
========== ========== ========== ========
REVENUES:
Product sales $ 937,310 $ 989,598 $2,971,469 $3,373,193
Collaborative research
and development revenue -- -- 65,000 --
Grant income 74,000 186,053 244,961 434,682
__________ __________ __________ __________
Total revenues 1,011,310 1,175,651 3,281,430 3,807,875
__________ __________ __________ __________
COSTS AND EXPENSES:
Product costs 481,683 451,285 1,377,171 1,518,916
Research and development
expenses 301,174 379,242 1,121,782 1,235,363
Sales and marketing
expenses 163,554 190,818 506,817 586,127
General and administrative
expenses 163,137 181,057 510,130 514,697
__________ __________ __________ __________
Total costs and expenses 1,109,548 1,202,402 3,515,900 3,855,103
__________ __________ __________ __________
Interest and other income 9,419 33,323 35,329 78,527
Interest expense 17,761 16,690 54,408 52,399
__________ __________ __________ __________
Net interest and other
(expense)income (8,342) 16,633 (19,079) 26,128
__________ __________ __________ __________
NET LOSS $ (106,580) $ (10,118) $ (253,549) $ (21,100)
========== ========== ========== ========
NET LOSS PER SHARE $ (.05) $ -- $ (.11) $ (.01)
========== ========== ========== ========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 2,329,564 2,291,981 2,314,443 2,291,981
========== ========== ========== =========
The accompanying notes are an integral part of the financial statements.
IMMUCELL
CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996
(Unaudited)
Common Stock
$.10 Par Value Capital in Treasury Stock Total
------------------ Excess of Accumulated ---------------- Stockholders'
Shares Amount Par Value Deficit Shares Amount Equity
BALANCE,
December 31, 1995 2,681,579 $268,159 $8,105,448 $(5,881,556) 389,598 $(586,735) $1,905,316
Net Loss -- -- -- (253,549) -- -- (253,549)
Exercise of Stock Options 37,583 3,758 34,344 -- -- -- 38,102
BALANCE,
September 30, 1996 2,719,162 $271,917 $8,139,792 $(6,135,105) 389,598 $(586,735) $1,689,869
The accompanying notes are an integral part of the financial statements.
IMMUCELL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
Nine Months Ended
September 30,
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995
Net loss $ (253,549) $ (21,100)
Adjustments to reconcile net loss to
net cash (used for) provided by
operating activities-
Depreciation and amortization 88,718 141,267
Changes in:
Accounts receivable (2,422) (31,180)
Inventories (56,573) (32,863)
Prepaid expenses and accrued interest (24,924) (36,095)
Accounts payable (56,331) (4,007)
Accrued expenses 24,342 51,346
Deferred income (65,000) --
Net cash (used for) provided by
operating activities (345,739) 67,368
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in short-term investments -- (463,536)
(Purchases) sales of equipment, building
and improvements, net (361,355) 29,487
Transfer of net fixed assets to
joint venture 94,670 --
Investment in joint ventures (228,797) --
Decrease in other assets 1,310 8,152
Net cash used for
investing activities (494,172) (425,897)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of debt obligations (124,008) (126,779)
Stock issuance costs -- (8,018)
Proceeds from exercise of stock options 38,102 --
Proceeds from notes payable 200,000 200,000
Net cash provided by
financing activities 114,094 65,203
NET DECREASE IN CASH AND
CASH EQUIVALENTS (725,817) (293,326)
BEGINNING CASH AND CASH EQUIVALENTS 1,550,011 1,295,246
ENDING CASH AND CASH EQUIVALENTS $ 824,194 $1,001,920
CASH PAID FOR INTEREST $ 54,505 $ 53,664
The accompanying notes are an integral part of the financial statements.
IMMUCELL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying statements have been prepared by ImmuCell Corporation
(the "Company") without audit, and reflect the adjustments, all of which are
of a normal recurring nature, that are, in the opinion of management, necessary
for a fair statement of the results for the interim periods presented. Certain
information and footnote disclosures normally included in the annual financial
statements which are prepared in accordance with generally accepted accounting
principles have been condensed or omitted. Accordingly, the Company believes
that although the disclosures are adequate to make the information presented
not misleading, these financial statements should be read in conjunction with
the financial statements and the notes to the financial statements as of
December 31, 1995, contained in the Company's Annual Report to shareholders on
Form 10-K as filed with the Securities and Exchange Commission.
The consolidated financial statements of the Company include the
accounts of the Company and its wholly-owned subsidiary, the Kamar Marketing
Group, Inc. All intercompany accounts and transactions have been eliminated in
consolidation.
(2) Net Loss Per Common Share
The net loss per common share has been computed by dividing the net
loss by the weighted average number of common shares outstanding during the
period. Common stock equivalents outstanding have not been included in the
computation, as the effect would be antidilutive, thereby decreasing the net
loss per common share.
(3) Inventories
Inventories consist of the following:
September 30, December 31,
1996 1995
Raw materials $ 58,179 $ 69,297
Work-in-process 535,963 513,956
Finished goods 98,634 52,950
========= =========
$692,776 $636,203
(4) Investment in Joint Ventures
In the third quarter of 1996, the Company made investments in two joint
ventures, AgriCell Company, LLC ("AgriCell") and Clearwater Diagnostics
Company, LLC ("CDC"). First, the Company and Agri-Mark, Inc. of Methuen,
Massachusetts formed AgriCell to manufacture and sell lactoferrin, a specialty
milk protein derived from cheese whey. The Company invested $125,000 in new
fixed assets, contributed other fixed assets with a net book value of $95,000,
agreed to contribute one half-time equivalent employee during the twelve
month period ending August 31, 1997 and contributed certain proprietary
technology. Agri-Mark agreed to contribute approximately $650,000 for the
purchase of fixed assets and approximately $150,000 to fund the necessary
initial working capital. Agri-Mark has the right to receive 90% of the
proceeds from the joint venture until it obtains the return of its original
investment, after which all proceeds are to be split equally. Second, the
Company and Membrex, Inc., of Fairfield, New Jersey, formed CDC to manufacture
and sell Crypto-Scan{TM} water diagnostic test. This test is designed to
monitor water supplies for the presence of
IMMUCELL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Cryptosporidium, a dangerous parasite for which there is no effective method of
detection. The Company invested $5,000 in cash and contributed certain
proprietary technology to the joint venture and has the right to share equally
with Membrex in all proceeds from the sale of the test for use in monitoring
drinking water.
(5) Debt Obligations
The Company has long term debt obligations, net of current maturities,
as follows:
September 30, December 31,
1996 1995
10.27% Note payable to bank, collateralized by accounts
receivable, inventory and certain fixed assets,
due 1996 to 1998 $287,108 $375,420
9.5% Bank mortgage, collateralized by first security
interest in building, due 1996 to 2000 208,873 212,044
10.0% Note payable to bank collateralized by
accounts receivable, inventory and certain fixed
assets, due 1996 to 2000 200,000 --
9.62% Note payable to bank, collateralized by accounts
receivable, inventory and certain fixed assets,
due 1996 to 1999 157,238 189,763
853,219 777,227
Less current portion 224,204 168,884
Long term debt $629,015 $608,343
Principal payments under the above debt obligations due subsequent to
September 30, 1996 areapproximately as follows: $56,000 - 1996; $231,000 -
1997; $230,000 - 1998; $103,000 - 1999 and $233,000 - 2000.
PART I. FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1996
Total revenues equalled $1,011,000 and $3,281,000 for the three and
nine month periods ended September 30, 1996, respectively, as compared to
$1,176,000 and $3,808,000 in the comparable periods in 1995. Collaborative
research and development revenue and grant income decreased by $112,000 (60%)
and by $125,000 (29%) during the three and nine month periods ended September
30, 1996, respectively compared with the same periods in the previous year.
Grant income was recognized under two federally sponsored research grants that
support one of the Company's passive antibody development programs. This
sponsored research is expected to be completed later this year. The $65,000 in
collaborative research and
IMMUCELL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
development revenue recognized during the first quarter of 1996 supported a
portion of the Company's effort to develop a process to manufacture
lactoferrin, a nutritional milk protein derived from cheese whey.
Product sales decreased by $52,000 (5%) and by $402,000 (12%) to
$937,000 and $2,971,000 during the three and nine month periods ended September
30, 1996, respectively, in comparison to the same periods in the prior year.
Sales of First Defense{R} and the Kamar Heatmount Detector increased by 20%
during the three month period ended September 30, 1996 and decreased by 5%
during the nine month period ended September 30, 1996 as compared to the same
periods of the prior year. The Company attributes the year-to-date decline in
sales primarily to a general weakness in the beef market. When the price of
beef declines, farmers are less likely to invest in products like First
Defense, which prevents an infectious disease in newborn calves. Sales of
First Defense and the Kamar Heatmount Detector aggregated 96% and 89% of total
product sales during the three and nine month periods ended September 30, 1996,
respectively. Comparatively, sales of these two products aggregated 76% and
83% of total product sales during the three and nine month periods ended
September 30, 1995. The higher percentages in 1996 were primarily the result
of less of the Company's diagnostic immunoreagents being sold during 1996.
Reagent sales comprised just 1% and 6% of total product sales during the three
and nine month periods ended September 30, 1996 as compared to 22% and 14%
during the respective periods in 1995.
The gross margin percentage on products sales was maintained between
49% to 55% of product sales for the three and nine month periods ended
September 30, 1996 and 1995. The gross margin decreased by $83,000 (15%) and
by $260,000 (14%) during the three and nine month periods ended September 30,
1996 as compared to the respective periods in 1995. These declines are
consistent with the related decreases in product sales, given the change in
product mix described above.
Research and development expenses declined by $78,000 (21%) during the
three months ended September 30, 1996 and by $114,000 (9%) during the nine
months ended September 30, 1996 as compared to the respective periods in 1995.
These expenses were incurred primarily to develop specific antibodies to
be used to prevent and/or treat gastrointestinal infections in humans.
Additionally, funds have been invested in the development of a product to
detect infectious pathogens in water and in the development of a process
to manufacture lactoferrin, a nutritional milk protein derived from cheese
whey. Research and development expenses exceeded collaborative research and
development revenue and grant income by $227,000 and by $812,000 during the
three and nine month periods ended September 30, 1996, respectively. These
figures compare to $193,000 and $801,000 during the comparable periods in 1995.
Management believes that the losses incurred resulting from the investment in
the research and development of new products is necessary to foster growth for
the Company in the future. It has been, and continues to be, the Company's
strategy to demonstrate efficacy in Phase I/II clinical trials and then
actively pursue corporate partners to fund continued development in exchange
for marketing rights.
The research and development expenses, described above, principally
caused the net operating losses of $107,000 and $254,000 during the three and
nine month periods ended September 30, 1996, respectively. These losses
compare to net operating losses of $10,000 and $21,000 during the three and
nine month periods ended September 30, 1995, respectively. In order to
aggressively develop new products, the Company expects to incur further
operating losses.
LIQUIDITY AND CAPITAL RESOURCES
Total assets decreased by approximately $236,000 to $2,998,000 at
September 30, 1996 from $3,234,000 at December 31, 1995. Cash and cash
equivalents decreased by approximately $726,000 to $824,000 at September 30,
1996 from $1,550,000 at December 31, 1995. Net working capital decreased by
$600,000 to $1,249,000 at September 30, 1996 from $1,850,000 at December 31,
1995. The Company
IMMUCELL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
invested approximately an additional $361,000 in new equipment and building
improvements during the first nine months of 1996. These investments are part
of a completed investment project aggregating approximately $400,000 in new
equipment and building improvements. The Company also invested cash of
approximately $134,000 in two joint ventures described in Note #4 to these
financial statements.
In September 1996, the Company entered into a four year $200,000 note
payable to a bank that bears interest at the rate of 10.0% per year. The
proceeds from this note were used to partially fund the purchase of certain
manufacturing equipment and building improvements.
In April 1994, the Company obtained notice from the National Institute
of Allergy and Infectious Diseases ("NIAID") that it had been awarded a Phase
II Small Business Innovation Research ("SBIR") grant aggregating approximately
$446,000 over two years. This grant period has been extended through October
1996. These funds are being used to develop recombinant vaccines to
Cryptosporidium parvum. In July 1994, the Company obtained notice from the
NIAID that it had been awarded a second Phase II SBIR grant aggregating
approximately $507,000 over two years. This grant period has been extended
through December 1996. These funds are being used to develop a passive
antibody product for the prevention
and/or treatment of cryptosporidiosis in AIDS patients. In September 1996, the
Company obtained notice from the NIAID that it had been awarded a Phase I SBIR
grant aggregating approximately $100,000 over the six month period ending March
31, 1997. These funds will be used to develop a commercial prototype machine
for the Crypto-Scan{TM }water diagnostic test. As of September 30, 1996, the
aggregate of approximately
$128,000 remained available to fund future grant expenditures, of which
approximately $95,000 will be used to fund internal research and development
expenses, and the balance will fund development services performed under
contract by outside laboratories.
The Company believes that it has sufficient capital resources to meet
its working capital requirements and to finance its ongoing business operations
during the next twelve months.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
IMMUCELL CORPORATION
PART II. OTHER INFORMATION
(Continued)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 $200,000 Commercial Note Payable to Peoples Heritage
Bank dated September 13, 1996.
10.1 Limited Liability Company Agreement of AgriCell Company,
LLC dated as of September 10, 1996 between the
Registrant and Agri-Mark, Inc. of Methuen, MA.
10.2 Limited Liability Company Agreement of Clearwater
Diagnostics Company, LLC dated as of September 17, 1996
between the Registrant and Membrex, Inc., of Fairfield,
NJ.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ImmuCell Corporation
Registrant
Date: November 13, 1996 By: /s/ Thomas C. Hatch
Thomas C. Hatch
President and Chief
Executive Officer
Date: November 13, 1996 By: /s/ Michael F. Brigham
Michael F. Brigham
Chief Financial Officer,
Treasurer and Secretary
IMMUCELL CORPORATION
Exhibit Index
Page
4.1 $200,000 Commercial Note Payable to Peoples Heritage Bank
dated September 13, 1996.
10.1 Limited Liability Company Agreement of AgriCell Company, LLC
dated as of September 10, 1996 between the Registrant and Agri-
Mark, Inc., of Methuen, MA.
10.2 Limited Liability Company Agreement of Clearwater Diagnostics
Company, LLC dated as of September 17, 1996 between the
Registant and Membrex, Inc., of Fairfield, NJ.
27.1 Financial Data Schedule