================================================================================
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, 2001
[ ] 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 Identification No.)
of incorporation)
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 May 10, 2001:
Common Stock, par value $.10 per share 2,715,184
================================================================================
IMMUCELL CORPORATION
INDEX TO FORM 10-Q
March 31, 2001
PART I: FINANCIAL INFORMATION Page
----
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
Consolidated Balance Sheets at
December 31, 2000 and March 31, 2001 3-4
Consolidated Statements of Operations for the
three month periods ended March 31, 2000 and 2001 5
Consolidated Statements of Cash Flows for the
three month periods ended March 31, 2000 and 2001 6
Notes to Unaudited Consolidated Financial Statements 7-9
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
Signatures 12
-2-
IMMUCELL CORPORATION
PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS
(unaudited)
December 31, March 31,
2000 2001
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 1,895,149 $ 1,918,841
Accounts receivable, net of
allowance for doubtful accounts
of $39,000 at December 31, 2000
and March 31, 2001 875,066 875,042
Inventories 502,448 644,908
Current portion of deferred tax asset 77,651 588
Prepaid expenses 34,680 55,620
------------ ------------
Total current assets 3,384,994 3,494,999
PROPERTY, PLANT AND
EQUIPMENT, at cost:
Laboratory and manufacturing
equipment 1,005,914 1,014,862
Building and improvements 586,242 586,242
Construction in progress 219,269 405,975
Office furniture and equipment 73,347 75,568
Land 50,000 50,000
------------ ------------
1,934,772 2,132,647
Less - accumulated depreciation 988,374 1,000,537
------------ ------------
Net property, plant and
Equipment 946,398 1,132,110
DEFERRED TAX ASSET 1,851,684 1,851,684
PRODUCT RIGHTS AND OTHER ASSETS, net
of allowance for amortization of $25,000
and $32,000 at December 31, 2000 and
March 31, 2001, respectively 260,840 253,423
------------ ------------
TOTAL ASSETS $ 6,443,916 $ 6,732,216
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
-3-
IMMUCELL CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(unaudited)
December 31, March 31,
2000 2001
------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 239,254 $ 289,008
Accrued expenses 226,010 260,731
Deferred revenue 5,000 45,455
Current portion of long term debt 20,481 20,919
------------ ------------
Total current liabilities 490,745 616,113
LONG TERM DEBT 414,178 408,658
STOCKHOLDERS' EQUITY:
Common stock, Par value--$.10 per share
Authorized--8,000,000 shares
Issued--3,054,782 and 3,104,782
shares at December 31, 2000
and March 31, 2001, respectively 305,478 310,478
Capital in excess of par value 8,833,785 8,881,129
Accumulated deficit (3,013,535) (2,897,427)
Treasury stock, at cost --
389,598 shares (586,735) (586,735)
------------ ------------
Total stockholders' equity 5,538,993 5,707,445
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 6,443,916 $ 6,732,216
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
-4-
IMMUCELL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS FOR
THE THREE MONTH PERIODS ENDED MARCH 31, 2000 AND 2001
(Unaudited)
Three Months Ended
March 31
2000 2001
------------ ------------
REVENUES:
Product sales $ 1,432,904 $ 1,470,278
Grant income 10,910 8,571
Royalty income 3,206 5,284
Technology licensing income -- 4,545
------------ ------------
Total revenues 1,447,020 1,488,678
------------ ------------
COSTS AND EXPENSES:
Product costs 677,554 691,984
Research and development
expenses 161,392 164,671
Sales and marketing
expenses 274,530 320,765
General and administrative
expenses 119,985 132,815
------------ ------------
Total costs and expenses 1,233,461 1,310,235
------------ ------------
Net operating income 213,559 178,443
------------ ------------
Interest and other income 23,121 23,894
Interest expense (9,666) (9,167)
------------ ------------
Net interest and other income 13,455 14,727
------------ ------------
NET PROFIT BEFORE TAXES 227,014 193,170
TAX EXPENSE -- 77,063
------------ ------------
NET PROFIT AFTER TAXES $ 227,014 $ 116,107
============ ============
NET PROFIT PER
COMMON SHARE:
Basic $ 0.09 $ 0.04
Diluted $ 0.08 $ 0.04
============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 2,544,779 2,714,351
Diluted 2,812,389 2,814,052
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
-5-
IMMUCELL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
THREE MONTH PERIODS ENDED MARCH 31, 2000 AND 2001
(Unaudited)
Three Months Ended
March 31,
----------------------------
2000 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit after taxes $ 227,014 $ 116,107
Adjustments to reconcile net
profit to net cash provided
by operating activities-
Depreciation and amortization 32,598 34,010
Changes in:
Accounts receivable (117,632) 24
Inventories (102,969) (142,460)
Prepaid expenses 2,343 (20,940)
Accounts payable 4,501 126,817
Accrued expenses (21,908) 75,177
------------ ------------
Net cash provided by
operating activities 23,947 188,735
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant
and equipment, net (6,756) (212,306)
------------ ------------
Net cash used for
investing activities (6,756) (212,306)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of debt obligations (4,575) (5,082)
Proceeds from exercise of
stock options 266,716 52,345
------------ ------------
Net cash provided by
financing activities 262,141 47,263
------------ ------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 279,332 23,692
BEGINNING CASH AND CASH EQUIVALENTS 1,823,688 1,895,149
------------ ------------
ENDING CASH AND CASH EQUIVALENTS $ 2,103,020 $ 1,918,841
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
-6-
IMMUCELL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
---------------------
The accompanying financial 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, 2000, 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:
December 31, March 31,
2000 2001
------------ ------------
Raw materials $ 110,728 $ 171,407
Work-in-process 336,087 315,629
Finished goods 55,633 157,872
$ 502,448 $ 644,908
(3) DEBT OBLIGATIONS
----------------
The Company has long term debt obligations, net of current
maturities, as follows:
December 31, March 31,
2000 2001
------------ ------------
8.62% Bank mortgage, collateralized
by first security interest
in building, due 2001 to 2003 $ 434,659 $ 429,577
Less current portion 20,481 20,919
Long term debt $ 414,178 $ 408,658
The mortgage, which was entered into in May 1998, 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, 2001, aggregate
approximately the following: $16,000 - 2001; $22,000 - 2002; and $392,000 -
2003.
-7-
IMMUCELL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(4) NET PROFIT PER COMMON SHARE
---------------------------
The basic net profit per share of common stock is determined by
dividing the net profit by the weighted average number of shares of common stock
outstanding during the period. The diluted profit per share reflects the
potential dilution that would occur if existing stock options were exercised.
(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,
2000. The Company's primary customers for the majority (84% and 78% for the
three month periods ended March 31, 2000 and 2001, respectively, of its product
sales are in the United States dairy and beef industries. Sales to foreign
customers, who are principally in the dairy industry, aggregated 14% and 20% of
product sales for the three month periods ended March 31, 2000 and 2001,
respectively.
Pursuant to Statement of Financial Accounting Standards No. 131, the
Company's two reportable segments are: (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, 2000. 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, 2000 and
2001:
Three Months Ended March 31, 2000 Animal Health
(in thousands) Products R&D Other Total
------------ ------------ ------------ ------------
Product sales $ 1,407 -- $ 26 $ 1,433
Grant income -- $ 11 -- 11
Royalty income -- -- 3 3
------------ ------------ ------------ ------------
Total revenues 1,407 11 29 1,447
Product costs 666 -- 12 678
Research and development expenses -- 161 -- 161
Sales and marketing expenses 275 -- -- 275
Other expenses, net -- -- 106 106
Net profit (loss) before taxes 466 (150) (89) 227
Tax expense -- -- -- --
------------ ------------ ------------ ------------
Net profit (loss) after taxes $ 466 $ (150) $ (89) $ 227
============ ============ ============ ============
Three Months Ended March 31, 2001: Animal Health
(in thousands) Products R&D Other Total
------------ ------------ ------------ ------------
Product sales $ 1,426 -- $ 44 $ 1,470
Grant income -- $ 9 -- 9
Royalty income -- -- 5 5
Technology licensing income -- -- 5 5
------------ ------------ ------------ ------------
Total revenues 1,426 9 54 1,489
Product costs 667 -- 25 692
Research and development expenses -- 165 -- 165
Sales and marketing expenses 321 -- -- 321
Other expenses, net -- -- 118 118
------------ ------------ ------------ ------------
Net profit (loss) before taxes 438 (156) (89) 193
Tax expense -- -- 77 77
------------ ------------ ------------ ------------
Net profit (loss) after taxes $ 438 $ (156) $ (166) $ 116
============ ============ ============ ============
-8-
IMMUCELL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(6) INCOME TAXES
------------
The Company accounts for income taxes in accordance with Financial
Accounting Standards Board Statement No. 109. Deferred income taxes reflect the
net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income
tax purposes. The Company utilized approximately $204,000 and $360,000 of net
operating loss carryforwards to offset taxable income in fiscal years 1999 and
2000, respectively. Given the Company's two consecutive years of profitable
results and the expectation of continued profitability, the Company recorded a
tax benefit of approximately $1,967,000 in the fourth quarter of 2000 as a
result of the release of the valuation allowance on the deferred tax asset
related to net operating loss carryforwards. For federal and state income tax
purposes, the Company had remaining net operating loss carryforwards of
$3,819,000 as of December 31, 2000 expiring from 2002 to 2018, that are
available to offset future taxable income. Accordingly, during the first quarter
of 2001, the Company recorded approximately $77,000 in non-cash tax expense and
offset its accrued income taxes payable against its deferred tax assets at March
31, 2001.
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, 2001
Total revenues increased by $42,000 (3%) to $1,489,000 during the
three month period ended March 31, 2001 in comparison to the same period in the
prior year. The Company received $50,000 in March 2001 and anticipates receiving
an additional $50,000 in technology licensing payments in 2001 under a license
agreement covering certain nutritional rights to its DiffGAM technology. This
income is being recognized over the period from March 2001 to December 2002,
during which period the Company has accepted certain obligations to supply
clinical material to the licensee.
Product sales increased by $37,000 (3%) to $1,470,000 during the
three month period ended March 31, 2001, in comparison to the same period in the
prior year. Product sales in the first quarter of 2000 were negatively impacted
by a backlog of orders for FIRST DEFENSE(R) valued at approximately $250,000 as
of March 31, 2000. The value of this backlog increased to approximately
$1,000,000 as of March 31, 2001. The Company is completing a facility addition
to increase its production capacity to enable the Company to fill the backlog of
orders. Sales of FIRST DEFENSE and the KAMAR(R) HEATMOUNT(R) DETECTOR increased
by 5% during the three month period ended March 31, 2001, as compared to the
same period in 2000. Sales of FIRST DEFENSE and the KAMAR HEATMOUNT DETECTOR
aggregated 86% and 89% of total product sales during the three month periods
ended March 31, 2000 and 2001, respectively. Sales of WIPE OUT(R) DAIRY WIPES
comprise the third most significant component of the product sales mix on a
dollar basis. The introduction of sales of TIP-TEST(TM): JOHNE'S has not had a
significant impact on the product mix yet because those sales have been limited
to date principally due to state regulatory barriers that the Company is working
to overcome. In September 2000, the Company entered into a one year extension to
the term of its product license from Kamar, Inc. covering the exclusive
distribution of the KAMAR(R) HEATMOUNT(R) DETECTOR from December 31, 2003
through December 31, 2004. Under the amended license, the Company agreed to
increase the royalty paid to Kamar in return for a reduction in the Company's
obligation to fund certain marketing expenses in support of the product that
will instead be funded by Kamar. The license was also amended so that Kamar no
longer has the right to terminate before expiration of the term without cause.
Gross margin as a percentage of product sales was 53% during the
three month periods ended March 31, 2000 and 2001. The gross margin increased by
$23,000 (3%) during the three month period ended March 31, 2001, compared to the
respective period of the prior year.
Research and development expenses increased by $3,000 (2%) to
$165,000 during the three month period ended March 31, 2001, as compared to the
respective period in 2000. Research and development expenses aggregated 11% of
total revenues during the three month periods ended March 31, 2000 and 2001.
Research and development expenses exceeded grant income by $150,000 (which
amount equals 11% of product sales) and by $156,000 (which
-9-
IMMUCELL CORPORATION
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
amount equals 11% of product sales) during the three month periods ended March
31, 2000 and 2001, respectively. Since 1999, internal resources have been
invested principally 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. During the second quarter of 2000, the Company
initiated a new product development effort utilizing Nisin (the same natural,
antimicrobial protein that is the active disease fighting agent in WIPE OUT) as
a treatment for mastitis in dairy cows. Additionally in 2000, funds were
invested in the development of a product to detect infectious pathogens in
water.
While the Company continues to focus its internally funded research
and development efforts on products for the dairy and beef industry, it is still
the Company's intent to realize some value from its past efforts outside of the
animal health industry through collaborations with others. One such example is a
license agreement entered into in March 2001. The Company licensed certain
DIFFGAM rights for nutritional, risk reduction applications outside of North
America to Novatreat Ltd of Turku, Finland. The Company received $50,000 in
March 2001 and anticipates receiving an additional $50,000 in technology
licensing payments during 2001 in connection with the initial supply of clinical
material to Novatreat under the license and supply agreement. Novatreat will
fund the necessary product development, clinical trial and regulatory costs
going forward. Beginning in 2003 and thereafter, the Company expects to earn a
manufacturing gross margin and royalties on product sales under the long-term
supply component of the agreement. Product ordered by Novatreat will be
manufactured at the Company's plant. The license agreement does not cover the
Company's colonic delivery or milk processing and other related patents.
Management believes that the expenses incurred from the investment in
the research and development of new products are necessary to foster growth for
the Company in the future. Beginning in late 1998, the Company determined to
increase the development of new animal health products and to decrease its
internally funded research and development investment in products targeted
towards the human health care markets. Because funding requirements for animal
health programs are generally less than the requirements for human health
programs, the Company anticipates continued profitable operations.
Sales and marketing expenses increased by $46,000 (17%) during the
three month period ended March 31, 2001 compared to the same period in 2000,
aggregating 19% of product sales in the 2000 period compared to 22% in 2001. It
is the Company's objective to maintain this ratio reasonably consistent with the
rate experienced in the first quarter of 2001 as it launches new products
incurring sales and marketing expenses before significant product sales are
achieved. General and administrative expenses increased by $13,000 (11%) during
the three month period ended March 31, 2001, while the Company continues its
efforts to control these expenses while incurring all the necessary costs
associated with being a publicly held company.
LIQUIDITY AND CAPITAL RESOURCES
Total assets increased by approximately $288,000 to $6,732,000 at
March 31, 2001 from $6,444,000 at December 31, 2000. Cash and cash equivalents
increased by approximately $24,000 to $1,919,000 at March 31, 2001 from
$1,895,000 at December 31, 2000. Net working capital decreased by $15,000 to
$2,879,000 at March 31, 2001 from $2,894,000 at December 31, 2000. Stockholders'
equity increased by $168,000 to $5,707,000 at March 31, 2001 from $5,539,000 at
December 31, 2000.
In March 2001, the Company received a two year grant award
aggregating up to $400,000 from the Maine Technology Institute, a non-profit
corporation created by the General Assembly of the State of Maine. The grant
augments the Company's development of its Nisin-based mastitis treatment, MAST
OUT(TM), by funding significant portions of the costs related to conducting tHE
clinical trials and developing the proprietary manufacturing process required to
obtain FDA approval of the product. If commercialization of the product occurs,
the Company has agreed to repay up to $400,000 within two years after first
commercial sale or up to $800,000 at the rate of 2% of such product sales.
Additionally, in April 2001, the Company received a $70,000 grant from the USDA
to fund certain other aspects of this development program. Furthermore, also in
April 2001, the Company received another $70,000 grant from the USDA to fund
certain aspects of the Company's Johne's disease diagnostic product development
efforts.
-10-
IMMUCELL CORPORATION
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
To increase the production capacity of FIRST DEFENSE(R) in response
to the current backlog of orders and to accommodatE other increasing
manufacturing demands, the Company began construction of a 5,300 square foot
addition to its facility in December 2000 that is estimated to cost
approximately $600,000. Additionally, to benefit from efficiencies in the
production of WIPE OUT(R), the Company intends to invest approximately $200,000
in manufacturing equipment necessary to bring a significant element of the
assembly of this product in-house. Both of these projects are expected to be
completed in the second quarter of 2001.
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.
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
product sales, profitability, expense ratios 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
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
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
-11-
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 14, 2001 By: /s/ Michael F. Brigham
-------------------------------------
Michael F. Brigham
President and Chief Executive Officer
and Treasurer
-12-