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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 June 30, 1998
[ ] 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 August 12, 1998:
Common Stock, par value $.10 per share 2,428,884
==============================================
IMMUCELL CORPORATION
INDEX TO FORM 10-Q
June 30, 1998
PART I: FINANCIAL INFORMATION PAGE
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
Consolidated Balance Sheets-
June 30, 1998 and December 31, 1997 3-4
Consolidated Statements of Operations for the
three and six month periods ended June 30, 1998 and 1997 5
Consolidated Statement of Stockholders' Equity for the
six month period ended June 30, 1998 6
Consolidated Statements of Cash Flows for the
six month periods ended June 30, 1998 and 1997 7
Notes to Unaudited Consolidated Financial Statements 8-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 10-12
PART II: OTHER INFORMATION
Items 1 through 6 12-13
Signatures 13
IMMUCELL CORPORATION
PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31, 1998
1997
----------- ------------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $1,352,379 $1,021,324
Accounts receivable, net 326,800 681,267
Inventories 535,101 474,526
Prepaid expenses and
accrued interest 72,780 27,041
---------- ----------
Total current assets 2,287,060 2,204,158
EQUIPMENT, BUILDING AND
IMPROVEMENTS, at cost:
Laboratory and manufacturing 825,011 807,969
equipment
Building and improvements 583,472 580,822
Office furniture and equipment 63,212 60,953
Land 50,000 50,000
---------- ----------
1,521,695 1,499,744
Less - Accumulated depreciation 738,680 710,361
---------- ----------
Net equipment, building and
improvements 783,015 789,383
INVESTMENTS IN JOINT VENTURES 224,669 236,669
OTHER ASSETS 840 840
---------- ----------
TOTAL ASSETS $3,295,584 $3,231,050
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
IMMUCELL CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
1998 1997
--------- ---------
(unaudited)
CURRENT LIABILITIES:
Accrued expenses s $ 191,973 $ 174,298
Accounts payable 135,831 157,223
Current portion of long term debt 16,519 230,274
--------- ---------
Total current liabilities 344,323 561,795
LONG TERM DEBT:
Notes payable -- 142,191
Mortgage loan 462,119 197,556
--------- ---------
Total long term debt 462,119 339,747
STOCKHOLDERS' EQUITY:
Common stock, Par value--$.10 per share
Authorized--8,000,000 shares
Issued--2,818,482 and 2,804,482
shares at June 30,1998 and December
31, 1997, respectively 281,848 280,448
Capital in excess of par value 8,338,907 8,319,701
Accumulated deficit (5,544,878) (5,683,906)
Treasury stock, at cost --
389,598 shares (586,735) (586,735)
--------- ---------
Total stockholders' equity 2,489,142 2,329,508
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $3,295,584 $3,231,050
========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
IMMUCELL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIODS
ENDED JUNE 30, 1998 and 1997
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
REVENUES:
Product sales $ 818,251 $ 837,515 $2,128,650 $2,045,874
Technology licensing income -- -- -- 75,000
Grant income 38,136 10,000 62,772 26,881
---------- ---------- ---------- ----------
Total revenues 856,387 847,515 2,191,422 2,147,755
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Product costs 397,726 385,270 950,724 913,860
Research and development
expenses 215,491 318,723 411,861 524,725
Sales and marketing
expenses 175,035 205,026 417,639 447,728
General and administrative
expenses 156,416 136,095 294,310 297,313
---------- ---------- ---------- ----------
Total costs and expenses 944,668 1,045,114 2,074,534 2,183,626
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Equity in earnings of
joint venture -- -- 13,000 --
Interest and other income 19,550 11,999 33,766 20,297
Interest expense 11,502 19,350 24,626 36,892
---------- ---------- ---------- ----------
Net other income (expense) 8,048 (7,351) 22,140 (16,595)
---------- ---------- ---------- ----------
NET (LOSS) PROFIT $ (80,233) $ (204,950) $ 139,028 $ (52,466)
========== ========== ========== ==========
NET (LOSS) PROFIT PER
COMMON SHARE:
Basic $ (.03) $ (.09) $ .06 $ (.02)
Diluted $ (.03) $ (.09) $ .05 $ (.02)
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 2,428,884 2,334,064 2,424,025 2,331,814
Diluted 2,428,884 2,334,064 2,574,875 2,331,814
========== ========== ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
IMMUCELL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998
(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, 1997 2,804,482 $280,448 $8,319,701 $(5,683,906) 389,598 $(586,735) $2,329,508
Net Profit -- -- -- 139,028 -- -- 139,028
Exercise of Stock Options 14,000 1,400 19,206 -- -- -- 20,606
--------- ------- ---------- ---------- ------- -------- ---------
BALANCE,
June 30, 1998 2,818,482 $281,848 $8,338,907 $(5,544,878) 389,598 $(586,735) $2,489,142
========== ======== ========== ========== ======= ======== =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.
IMMUCELL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
Six Months Ended
June 30, CASH FLOWS FROM OPERATING ACTIVITIES:
--------------------
1998 1997
---- ----
Net profit (loss) $ 139,028 $ (52,466)
Adjustments to reconcile net profit
(loss) to net cash provided by
operating activities-
Depreciation and amortization 53,230 48,087
Changes in:
Accounts receivable 354,467 75,635
Inventories (60,575) 78,684
Prepaid expenses and accrued interest (45,739) (56,820)
Accounts payable (21,392) (100,284)
Accrued expenses 20,175 40,363
--------- --------
Net cash provided by
operating activities 439,194 33,199
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment, building
and improvements, net (46,862) (23,050)
Equity in earnings of joint ventures 12,000 (17,000)
--------- --------
Net cash used for
investing activities (34,862) (40,050)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt obligations 480,000 --
Payments of debt obligations (571,383) (111,860)
Proceeds from exercise of stock options 20,606 5,843
Stock issuance costs (2,500) --
--------- --------
Net cash used for
financing activities (73,277) (106,017)
--------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 331,055 (112,868)
BEGINNING CASH AND CASH EQUIVALENTS 1,021,324 1,044,441
--------- ---------
ENDING CASH AND CASH EQUIVALENTS $1,352,379 $ 931,573
========= =========
CASH PAID FOR INTEREST $ 24,614 $ 37,094
========= =========
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, 1997, 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) (LOSS) PROFIT PER COMMON SHARE
Effective for the 1997 fiscal year, the Company adopted STATEMENT OF
FINANCIAL ACCOUNTING STANDARDS NO. 128 - EARNINGS PER SHARE. The Statement
requires dual presentation of basic and diluted profit per share of common
stock on the consolidated statements of operations. The Statement does not
effect the weighted average basis of reporting the net loss per share. Basic
profit per share of common stock has been determined by dividing net profit by
the weighted average number of shares of common stock outstanding during the
period. Diluted profit per share reflects the potential dilution that would
occur if existing stock options were exercised. The following is a
reconciliation of the dual presentations of (loss) profit per share for the
periods presented:
Net Common (Loss)
(Loss) Profit Shares Profit
(NUMERATOR) (DENOMINATOR) PER SHARE
------------- ------------- ---------
THREE MONTHS ENDED JUNE 30, 1998
Basic loss per share $ (80,233) 2,428,884 $(0.03)
=======
Dilutive potential shares 0
---------- ---------
Diluted loss per share $ (80,233) 2,428,884 $(0.03)
THREE MONTHS ENDED JUNE 30, 1997
Basic loss per share $(204,950) 2,334,064 $(0.09)
Dilutive potential shares 0 =======
---------- ---------
Diluted loss per share $(204,950) 2,334,064 $(0.09)
========== ========= =======
SIX MONTHS ENDED JUNE 30, 1998
Basic profit per share $ 139,028 2,424,025 $ 0.06
Dilutive potential shares 150,850 =======
---------- ---------
Diluted profit per share $ 139,028 2,574,875 $ 0.05
========== ========= =======
SIX MONTHS ENDED JUNE 30, 1997
Basic loss per share $ (52,466) 2,331,814 $(0.02)
Dilutive potential shares 0 =======
---------- ---------
Diluted loss per share $ (52,466) 2,331,814 $(0.02)
========== ========= =======
IMMUCELL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(3) INVENTORIES
Inventories consist of the following:
June 30, December 31,
1998 1997
---- ----
Raw materials $ 52,942 $ 17,583
Work-in-process 413,366 376,673
Finished goods 68,793 80,270
-------- -------
$535,101 $474,526
======== =======
(4) DEBT OBLIGATIONS
The Company has long term debt obligations, net of current maturities,
as follows:
June 30, December 31,
1998 1997
---- ----
8.62% Bank mortgage, collateralized by first security
interest in building, due 1998 to 2003 $478,638 --
9.5% Bank mortgage, collateralized by first security
interest in building -- $202,856
10% Note payable to bank, collateralized by accounts
receivable inventory and certain fixed assets -- 146,180
10.27% Note payable to bank, collateralized by accounts
receivable, inventory and certain fixed assets -- 123,456
9.62% Note payable to bank, collateralized by accounts
receivable, inventory and certain fixed assets -- 97,529
--------- ---------
478,638 570,021
Less current portion 16,519 230,274
--------- ---------
Long term debt $462,119 $339,747
========= =========
In May 1998, the Company refinanced its bank debt obligations by
entering into a $480,000 mortgage loan secured by the Company's building
located at 56 Evergreen Drive in Portland, Maine and using these proceeds,
together with an additional $29,000 in cash, to repay all of the then
outstanding bank debt obligations. The new mortgage has a 15 year amortization
schedule with interest payable at the fixed rate of 8.62% per year for the
first five years. The Company intends to repay the then outstanding principal
at the end of this five year period, but the mortgage does provide the option
of resetting at a new fixed interest rate to be determined at that time for one
additional five year period. Principal payments under this mortgage
obligation, due in monthly installments subsequent to June 30, 1998, aggregate
approximately the following: $8,000 - 1998; $17,000 - 1999; $19,000 - 2000;
$21,000 - 2001; $22,000 - 2002; and $392,000 - 2003.
IMMUCELL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(5) INCOME TAXES
The Company's taxable income was fully offset by available net operating
loss carryforwards.
(6) NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued STATEMENT
OF FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 130 - REPORTING COMPREHENSIVE
INCOME, which requires the separate reporting of all changes to shareholders'
equity, and SFAS NO. 131 - DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION, which revises existing guidelines about the level of
financial disclosure of a company's operations. Both statements are effective
for financial statements issued for fiscal years beginning after December 15,
1997. The Company has not determined the impact of the new standards, but does
not expect them to have a material impact to existing financial reporting.
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 SIX MONTH PERIODS ENDED JUNE 30, 1998
Total revenues equalled $856,000 and $2,191,000 for the three and six
month periods ended June 30, 1998, respectively, as compared to $848,000 and
$2,148,000 in the comparable periods in 1997. The 1998 grant income was
recognized under a federally sponsored research grant in support of one of the
Company's passive antibody development programs. The 1997 grant income was
recognized under a federally sponsored research grant in support of the
development of the Company's water test. The $75,000 in technology licensing
income recognized during the first quarter of 1997 was received for an option
payment on a license to use the Company's milk processing technology for the
production of whey protein isolate and certain other proteins.
Product sales decreased by $19,000 (2%) to $818,000 and increased by
$83,000 (4%) during the three and six month periods ended June 30, 1998,
respectively, in comparison to the same periods in the prior year. Sales of
First Defense<reg-trade-mark> and the Kamar<reg-trade-mark> Heatmount{TM}
Detector aggregated 96% and 95% of total product sales during the three and six
month periods ended June 30, 1998, respectively. Comparatively, sales of these
two products aggregated 92% and 93% of total product sales during the three and
six month periods ended June 30, 1997. Sales of these two products increased
by 2% and 6% during the three and six month periods ended June 30, 1998,
respectively, as compared to the same periods of the prior year. In July 1998,
the Company entered into a four year extension to the term of its product
license from Kamar, Inc. to the Kamar Heatmount Detector from December 31, 1999
through December 31, 2003, subject to the right of either party to give 12
months' notice of early termination. Extending this license was an important
element of the Company's strategy to maintain and grow animal health product
sales.
The gross margin percentage on products sales was 51% for the three
month period ended June 30, 1998 and 54% for the three month period ended June
30, 1997 and was 55% for the six month periods ended June 30, 1998 and 1997.
The gross margin decreased by $32,000 (7%) during the three month period ended
June 30, 1998 as compared to the respective period in 1997. The gross margin
increased by $46,000 (4%) during the six month period ended June 30, 1998 as
compared to the respective period in 1997. The changes in gross margin are
consistent with the comparable changes in product sales.
Research and development expenses declined by $103,000 (32%) during the
second quarter of 1998 as compared to the second quarter of 1997 and declined
by $113,000 (22%) during the six months ended June 30, 1998 as compared to the
respective period in 1997. 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. In 1998, increased funding has been invested in the
development of new animal health products that fit the Company's strategy of
delivering cost saving, beneficial products directly to veterinarians and to
dairy and beef farmers. Research and development expenses exceeded technology
licensing and grant income by $177,000 during the three month period ended June
30, 1998 and by $309,000 during the comparable period in 1997. Research and
development expenses exceeded technology licensing and grant income by $349,000
during the six month period ended June 30, 1998 and by $423,000 during the
comparable period in 1997. Research and development expenses aggregated 25%
and 19% of total revenues during the three and six month periods ended June 30,
1998, respectively. Comparatively, research and development expenses
aggregated 38% and 24% of total revenues during the three and six month periods
ended June 30, 1997, respectively.
Sales and marketing expenses decreased by $30,000 (15%) during the three
month period ended June 30, 1998 compared to the same period in 1997,
aggregating 21% of product sales in the 1998 period compared to 24% in 1997.
Sales and marketing expenses decreased by $30,000 (7%) during the six month
period ended June 30, 1998 compared to the same period in 1997, aggregating 20%
of product sales in the 1998 period compared to 22% in 1997. General and
administrative expenses increased by $20,000 (15%) during the three month
period ended June 30, 1998 and decreased by $3,000 (1%) during the six month
period ended June 30, 1998 compared to the same periods in 1997, as the Company
continues its efforts to control these expenses while incurring all the
necessary costs associated with being a publicly held company.
Management believes that the expenses 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, were the principal cause of the net loss of $80,000 for the
three month period ended June 30, 1998. In order to aggressively develop new
products, the Company expects to incur operating losses in the future.
In the third quarter of 1996, the Company made investments in two joint
ventures, AgriCell Company, LLC ("AgriCell") and Clearwater Diagnostics
Company, LLC ("CDC"). The operating activity of these joint ventures from
their inception to June 30, 1998 was not material. AgriCell has installed a
commercial production facility to manufacture lactoferrin, a nutritional
protein derived from cheese whey, and has initiated limited sales. In June
1997, CDC entered into a distribution agreement with an England-based company
covering the sales of Crypto-Scan{TM} water diagnostic test in the United
Kingdom. This test method is currently being evaluated by the U.S.
Environmental Protection Agency.
LIQUIDITY AND CAPITAL RESOURCES
Total assets increased by approximately $65,000 to $3,296,000 at June
30, 1998 from $3,231,000 at December 31, 1997. Cash and cash equivalents
increased by approximately $331,000 to $1,352,000 at June 30, 1998 from
$1,021,000 at December 31, 1997. Net working capital increased by $300,000 to
$1,943,000 at June 30, 1998 from $1,642,000 at December 31, 1997. Stockholders'
equity increased by $160,000 to $2,489,000 at June 30, 1998 from $2,330,000 at
December 31, 1997.
The Company obtained a $710,000 Phase II Small Business Innovation
Research grant in September 1997. As of July 1, 1998, approximately $447,000
was available under this grant to fund additional development expenses,
approximately 64% of which are intended to be 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
At the Annual Meeting of Stockholders held on June 12, 1998, the
stockholders voted to elect the Board of Directors for the next
ensuing year and to approve an amendment to the Company's 1989
Stock Option and Incentive Plan increasing the number of shares of
the Company's common stock reserved for issuance under such Plan
from 290,000 to 340,000 shares.
Each of the six nominees recommended by management to the
stockholders was re-elected to the Board. The following list by
name of director shows how the votes were cast for each director:
Anthony B. Cashen (for: 1,886,617; withhold: 49,374), Thomas
C. Hatch (for: 1,893,133; withhold: 42,858), George W.
Masters (for: 1,893,337; withhold: 42,654), William H.
Maxwell (for: 1,892,287; withhold: 43,704), John R.
McKernan, Jr. (for: 1,892,313; withhold: 43,678) and Mitchel
Sayare (for: 1,892,287; withhold: 43,704).
The proposal to amend the 1989 Stock Option and Incentive Plan was
approved by the stockholders. The voting tabulation was as
follows:
For: 1,787,629, Against: 130,716, Abstain: 17,646
and Broker non-votes: 0.
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 $480,000 Note Payable to Peoples Heritage Bank dated
May 6, 1998.
27.1 Financial Data Schedule (for electronically filed
copies only).
(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: August 12, 1998 By: /S/ THOMAS C. HATCH
Thomas C. Hatch
President and Chief
Executive Officer
Date: August 12, 1998 By: /S/ MICHAEL F. BRIGHAM
Michael F. Brigham
Chief Financial Officer,
Treasurer and Secretary
IMMUCELL CORPORATION
Exhibit Index
4.1 $480,000 Note Payable to Peoples Heritage Bank dated May 6, 1998.
27.1 Financial Data Schedule (for electronically filed copies only).
IMMUCELL CORPORATION
Exhibit 4.1
$480,000 Note Payable to Peoples Heritage Bank dated May 6, 1998