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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 March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
0-15507
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Commission file number
IMMUCELL CORPORATION
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(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
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(Address of principal executive office and zip code)
(207) 878-2770
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(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 May 13, 1999:
Common Stock, par value $.10 per share 2,428,884
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IMMUCELL CORPORATION
INDEX TO FORM 10-Q
March 31, 1999
PART I: FINANCIAL INFORMATION Page
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
Consolidated Balance Sheets-
March 31, 1999 and December 31, 1998 3-4
Consolidated Statements of Operations for the
three month periods ended March 31, 1999 and 1998 5
Consolidated Statement of Stockholders' Equity for the
three month period ended March 31, 1999 6
Consolidated Statements of Cash Flows for the
three month periods ended March 31, 1999 and 1998 7
Notes to Unaudited Consolidated Financial Statements 8-9
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
Signatures 13
IMMUCELL CORPORATION
PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1999 1998
- ----------------------------------------------------------------------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $1,571,163 $1,538,905
Accounts receivable, net 506,045 249,754
Inventories 357,995 475,949
Prepaid expenses 27,314 45,516
---------------------------------
Total current assets 2,462,517 2,310,124
PROPERTY, PLANT AND
EQUIPMENT, at cost:
Laboratory and manufacturing
equipment 834,543 837,179
Building and improvements 583,472 583,472
Office furniture and equipment 84,896 68,540
Land 50,000 50,000
---------------------------------
1,552,911 1,539,191
Less - accumulated depreciation 816,509 789,419
---------------------------------
Net property, plant and
equipment 736,402 749,772
INVESTMENT IN JOINT VENTURE 97,134 84,111
OTHER ASSETS 840 840
---------------------------------
TOTAL ASSETS $3,296,893 $3,144,847
=================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
IMMUCELL CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
1999 1998
- -------------------------------------------------------------------------------
(unaudited)
CURRENT LIABILITIES:
Accrued expenses $ 156,252 $ 286,333
Accounts payable 172,851 140,312
Current portion of long term debt 17,520 17,257
------------------------------------
Total current liabilities 346,623 443,902
LONG TERM DEBT:
Mortgage loan 448,775 453,349
------------------------------------
Total long term debt 448,775 453,349
STOCKHOLDERS' EQUITY:
Common stock, Par value--$.10 per share
Authorized--8,000,000 shares
Issued--2,818,482 shares
at March 31, 1999 and
December 31, 1998 281,848 281,848
Capital in excess of par value 8,338,907 8,338,907
Accumulated deficit (5,532,525) (5,786,424)
Treasury stock, at cost --
389,598 shares (586,735) (586,735)
------------------------------------
Total stockholders' equity 2,501,495 2,247,596
------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $3,296,893 $3,144,847
====================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
IMMUCELL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
MONTH PERIODS ENDED MARCH 31, 1999 and 1998
(Unaudited)
Three Months Ended
March 31,
----------------------------------
1999 1998
----------------------------------
REVENUES:
Product sales $1,366,724 $1,310,398
Grant income 36,876 24,636
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Total revenues 1,403,600 1,335,034
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COSTS AND EXPENSES:
Product costs 585,056 552,999
Research and development
expenses 232,809 196,370
Sales and marketing
expenses 228,761 242,604
General and administrative
expenses 105,817 137,892
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Total costs and expenses 1,152,443 1,129,865
Operating income 251,157 205,169
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OTHER INCOME (EXPENSE):
Equity in earnings of
joint venture -- 13,000
Interest and other income 12,685 14,216
Interest expense (9,943) (13,124)
----------------------------------
Net other income 2,742 14,092
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NET PROFIT $ 253,899 $ 219,261
==================================
NET PROFIT PER COMMON SHARE:
Basic $ 0.10 $ 0.09
Diluted $ 0.10 $ 0.08
==================================
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 2,428,884 2,419,112
Diluted 2,487,093 2,588,853
==================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
IMMUCELL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1999
(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, 1998 2,818,482 $281,848 $8,338,907 $(5,786,424) 389,598 $(586,735) $2,247,596
Net Profit -- -- -- 253,899 -- -- 253,899
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BALANCE,
March 31, 1999 2,818,482 $281,848 $8,338,907 $(5,532,525) 389,598 $(586,735) $2,501,495
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
IMMUCELL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
Three Months Ended
March 31,
- ----------------------------------------------------------------------------------------------
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit $ 253,899 $ 219,261
Adjustments to reconcile net
profit to net cash provided by
operating activities-
Depreciation and amortization 27,090 25,993
Changes in:
Accounts receivable (256,291) 155,872
Inventories 117,954 63,698
Prepaid expenses 18,202 1,503
Accounts payable 32,539 (1,853)
Accrued expenses (130,081) (3,376)
-----------------------------------
Net cash provided by
operating activities 63,312 461,098
-----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant
and equipment, net (13,720) (21,526)
Investments in joint ventures (13,023) (13,000)
-----------------------------------
Net cash used for
investing activities (26,743) (34,526)
-----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of debt obligations (4,311) (61,221)
Proceeds from exercise of stock options -- 20,606
Stock issuance costs -- (2,500)
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Net cash used for
financing activities (4,311) (43,115)
-----------------------------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 32,258 383,457
BEGINNING CASH AND CASH EQUIVALENTS 1,538,905 1,021,324
-----------------------------------
ENDING CASH AND CASH EQUIVALENTS $1,571,163 $1,404,781
-----------------------------------
CASH PAID FOR INTEREST $ 9,973 $ 13,498
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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, 1998, 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) Inventories
Inventories consist of the following:
March 31, December 31,
1999 1998
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Raw materials $ 49,828 $ 61,938
Work-in-process 268,037 383,691
Finished goods 40,130 30,320
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$ 357,995 $ 475,949
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(3) Debt Obligations
The Company has long term debt obligations, net of current maturities,
as follows:
March 31, December 31,
1999 1998
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8.62% Bank mortgage, collateralized by first security
interest in building, due 1998 to 2003 $466,295 $470,606
Less current portion 17,520 17,257
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Long term debt $448,775 $453,349
===============================
(4) 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. Basic profit per share
of common stock would be determined by dividing net profit by the weighted
average number of shares of common stock outstanding during the period.
Diluted profit per share would reflect the potential dilution that would
occur if existing stock options were exercised. The Statement does not
effect the weighted average basis of reporting the net loss per share.
IMMUCELL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In May 1998, the Company refinanced its bank debt obligations by
using the proceeds from a $480,000 mortgage loan together with
approximately $29,000 in additional 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 March 31, 1999, aggregate approximately the following:
$13,000 - 1999; $19,000 - 2000; $20,000 - 2001; $22,000 - 2002; and
$392,000 - 2003.
(5) Segment and Significant Customer Information
The Company principally operates in the business segment described in
Note 1 to its Annual Report on Form 10-K for the year ended December 31, 1998.
The Company's primary customers for the majority of its first quarter 1999
product sales (86%) are in the United States dairy and beef industries.
Revenues derived from foreign customers, who are principally in the dairy
industry, aggregated 13% of the Company's first quarter 1999 product sales.
Government grant income amounted to approximately 3% ($37,000) and 2% ($25,000)
of total revenues in the three month periods ended March 31, 1999 and 1998,
respectively.
In 1998, the Company adopted Statement of Financial Accounting
Standards No. 131. The prior year's segment information has been restated
to present the Company's two reportable segments: (1) Animal Health
Products and (2) Research and Development ("R&D"). The accounting policies
of the segments are the same as those described in Note 2 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998. The
Company evaluates the performance of its segments and allocates resources
to them based on contribution before allocation of corporate overhead
charges. The table below presents information about reported segments for
the three month periods ended March 31, 1999 and 1998:
Animal Health
Three Months Ended March 31, 1999: Products R&D Other Total
- -------------------------------------------------------------------------------------------------------
Product Sales $1,350,626 -- $ 16,098 $1,366,724
Grant Income -- $ 36,876 -- 36,876
Other Income -- -- -- --
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Total Revenues 1,350,626 36,876 16,098 1,403,600
Product Costs 581,153 -- 3,903 585,056
Research and Development Expenses -- 232,809 -- 232,809
Sales and Marketing Expenses 228,761 -- -- 228,761
Other Expenses -- -- 103,075 103,075
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Net Profit (Loss) $ 540,712 $ (195,933) $ (90,880) $ 253,899
=============================================================
Animal Health
Three Months Ended March 31, 1998: Products R&D Other Total
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Product Sales $1,291,079 -- $ 19,319 $1,310,398
Grant Income -- $ 24,636 -- 24,636
Other Income -- -- -- --
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Total Revenues 1,291,079 24,636 19,319 1,335,034
Product Costs 546,063 -- 6,936 552,999
Research and Development Expenses -- 196,370 -- 196,370
Sales and Marketing Expenses 242,604 -- -- 242,604
Other Expenses -- -- 123,800 123,800
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Net Profit (Loss) $ 502,412 $ (171,734) $ (111,417) $ 219,261
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IMMUCELL CORPORATION
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 MONTH PERIOD ENDED MARCH 31, 1999
Total revenues equalled $1,404,000 for the three month period ended
March 31, 1999, as compared to $1,335,000 in the comparable period in 1998.
The grant income in both periods was recognized under a federally sponsored
research grant in support of the Company's passive antibody development
programs.
Product sales increased by $56,000 (4%) to $1,367,000 during the
three month period ended March 31, 1999, in comparison to the same period
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 month periods ended March 31, 1999 and
March 31, 1998, respectively. Sales of these two products increased by 6%
during the three month period ended March 31, 1999, as compared to the same
period 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. for 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.
Gross margin as a percentage of product sales was 57% and 58% during
the three month periods ended March 31, 1999 and 1998, respectively. The
gross margin increased by $24,000 (3%) during the three month period ended
March 31, 1999 as compared to the respective period in 1998.
Research and development expenses increased by $36,000 (19%) to
$233,000 during the first quarter of 1999 as compared to the respective
period in 1998. Research and development expenses aggregated 17% and 15%
of total revenues during the three month periods ended March 31, 1999 and
1998, respectively. Research and development expenses exceeded grant
income by $196,000 (which amount equals 14% of product sales) during the
three month period ended March 31, 1999 and by $172,000 (which amount
equals 13% of product sales) during the comparable period in 1998. In 1999,
increased internal resources have been invested in the development of new
animal health products that fit the Company's objective of commercializing
its proprietary technologies and helping dairy and beef producers and their
veterinarians manage disease and reproduction in their herds. In 1998,
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.
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. Beginning in 1998, the Company
determined to increase development of new animal health products and to
decrease its research and development investment in products targeted towards
the human health care markets. Because funding requirements for these animal
health programs are less than the requirements for the human health programs,
the Company anticipates that it will be able to record a profit for the year
ended December 31, 1999, as compared to 1998 when the profit of $219,000 during
the first quarter was reduced to a net loss of $103,000 for the year ended
December 31, 1998.
Sales and marketing expenses decreased by $14,000 (6%) during the
three month period ended March 31, 1999 compared to the same period in
1998, aggregating 17% of product sales in the 1999 period compared to 19%
in 1998. General and administrative expenses decreased by $32,000 (23%)
during the three month period ended March 31, 1999 compared to the same
period in 1998, as the Company continues its efforts to control these
expenses while incurring all the necessary costs associated with being a
publicly held company.
In the third quarter of 1996, the Company established a joint
venture, AgriCell Company, LLC ("AgriCell"), with Agri-Mark, Inc. of
Methuen, Massachusetts. AgriCell has installed a commercial production
facility in Middlebury, Vermont to manufacture bovine lactoferrin, a
nutritional protein derived from cheese whey. Sales of lactoferrin have
been significantly less than expected due principally to the financial
crisis in South Korea and Japan, the primary markets for lactoferrin. This
negative development resulted in a non-cash charge of approximately
$123,000 against the Company's equity interest in AgriCell during 1998. As
of March 31, 1999, the investment in joint venture asset was valued at
$97,000.
IMMUCELL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
LIQUIDITY AND CAPITAL RESOURCES
Total assets increased by approximately $152,000 to $3,297,000 at
March 31, 1999 from $3,145,000 at December 31, 1998. Cash and cash
equivalents increased by approximately $32,000 to $1,571,000 at March 31,
1999 from $1,539,000 at December 31, 1998. Net working capital increased
by $250,000 to $2,116,000 at March 31, 1999 from $1,866,000 at December 31,
1998. Stockholders' equity increased by $254,000 to $2,501,000 at March
31, 1999 from $2,248,000 at December 31, 1998.
The Company obtained a $710,000 Phase II Small Business Innovation
Research grant in September 1997. As of April 1, 1999, approximately
$191,000 was available under this grant to fund additional development
expenses. Approximately $37,000 of these available funds are budgeted for
closing out the TravelGAM development program, and the balance is intended
to support the DiffGAM{TM} development program.
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.
YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. The
Company's computer equipment and software and devices with imbedded
technology that are time-sensitive may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices,
or engage in similar normal business activities. In the event that the
Company does not effectively address the Year 2000 issue, these functions
could be performed manually on a short-term basis. The Company has
determined that the risks associated with exposure to third parties that
suffer problems with Year 2000 issues are not material because of the
Company's ability to source needed supplies and services from multiple
sources.
In conjunction with a consultant, the Company has reviewed the
ability of its computer equipment and software to function properly with
respect to dates in the Year 2000 and thereafter. For this purpose, the
term "computer equipment and software" includes systems that are commonly
thought of as information technology ("IT") systems, including accounting,
data processing, and telephone/PBX systems, and other miscellaneous
systems, as well as systems that are not commonly thought of as IT systems,
such as alarm systems, fax machines, processing equipment, or other
miscellaneous systems. Based upon its identification and assessment
efforts to date, the Company believes that certain of the computer
equipment and software it currently uses (principally its financial
accounting system and several personal computers) will require replacement
or modification. In addition, in the ordinary course of replacing computer
equipment and software, the Company attempts to obtain replacements that
are Year 2000 compliant. The software and hardware required to address the
Year 2000 issue was identified during the fourth quarter of 1998. The
Company estimates that the total costs of efforts required to address the
Year 2000 issue will not exceed $23,000. These costs, a portion of which
may be capitalized, were incurred during the first quarter of 1999. All of
the new software and hardware has been installed, and the Company is
continuing to run the old general ledger system concurrently with the new
one while implementing the new systems during the second quarter of 1999.
FORWARD-LOOKING STATEMENTS
This Quarterly Report 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 the Company's objectives
concerning future profitability and any other statements that are not
historical facts. 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 the Company's products, competition within the
Company's anticipated product markets, the uncertainties associated with
product development, and other risks detailed from time to time in filings
the Company makes with the Securities and Exchange Commission, including its
Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q. Such
statements are based on management's current expectations, but actual
results may differ materially due to various factors, including those risks
and uncertainties mentioned or referred to in this Quarterly Report.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
(c) Recent Sales of Unregistered Securities
On March 1, 1999, the Company granted non-qualified stock
options to each of Michael F. Brigham, Vice President, Chief
Financial Officer, Treasurer and Secretary of the Company,
Joseph H. Crabb, Vice President and Chief Scientific Officer of
the Company and Stafford C. Walker, Vice President and Chief
Marketing Officer of the Company. The non-qualified stock
options were granted outside of the Company's 1989 Stock Option
and Incentive Plan in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act of
1933. The non-qualified options granted to Messrs. Brigham,
Crabb and Walker are each for 31,100 shares of the Company's
common stock, and are exercisable in one-third increments on and
after March 1, 2000, March 1, 2001 and March 1, 2002,
respectively. The options vest immediately in the event of a
change in control of the Company. The term of each of these
options is ten years, and the exercise price of these options is
$1.3125 per share, the fair market value of the shares on the
date of the grant.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule (for electronically filed
copies only).
(b) Reports on Form 8-K
None
IMMUCELL CORPORATION
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: May 13, 1999 By: /s/ Michael F. Brigham
----------------------------
Michael F. Brigham
Vice President,
Chief Financial Officer,
Treasurer and Secretary
IMMUCELL CORPORATION
Exhibit Index
27.1 Financial Data Schedule (for electronically filed copies only).
IMMUCELL CORPORATION
Exhibit 27.1
Financial Data Schedule as of and for the period ended March 31, 1999