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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 September 30, 2001
[ ] 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
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(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 November 12, 2001:
Common Stock, par value $.10 per share 2,725,484
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IMMUCELL CORPORATION
INDEX TO FORM 10-Q
September 30, 2001
PART I: FINANCIAL INFORMATION Page
----
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
Consolidated Balance Sheets at
December 31, 2000 and September 30, 2001 3-4
Consolidated Statements of Operations for the
three and nine month periods ended September 30, 2000 and 2001 5
Consolidated Statements of Cash Flows for the
nine month periods ended September 30, 2000 and 2001 6
Notes to Unaudited Consolidated Financial Statements 7-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 10-13
PART II: OTHER INFORMATION
Items 1 through 6 13
Signatures 14
-2-
IMMUCELL CORPORATION
PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS
-----------
(Unaudited)
December 31, September 30,
2000 2001
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents $1,895,149 $1,369,679
Accounts receivable, net of
allowance for doubtful accounts
of $39,000 at December 31, 2000
and September 30, 2001 875,066 864,472
Inventories 502,448 739,879
Current portion of deferred tax asset 77,651 77,651
Prepaid expenses 34,680 131,281
---------- ----------
Total current assets 3,384,994 3,182,962
PROPERTY, PLANT AND
EQUIPMENT, at cost:
Laboratory and manufacturing
equipment 1,005,914 1,266,527
Building and improvements 586,242 1,257,634
Construction in progress 219,269 --
Office furniture and equipment 73,347 90,912
Land 50,000 50,000
---------- ----------
1,934,772 2,665,073
Less - accumulated depreciation 988,374 1,024,212
---------- ----------
Net property, plant and
equipment 946,398 1,640,861
DEFERRED TAX ASSET 1,851,684 1,736,648
PRODUCT RIGHTS AND OTHER ASSETS, net of
allowance for amortization of $25,000
and $50,000 at December 31, 2000 and
September 30, 2001, respectively 260,840 320,315
---------- ----------
TOTAL ASSETS $6,443,916 $6,880,786
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
-3-
IMMUCELL CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
(Unaudited)
December 31, September 30,
2000 2001
----------- -----------
CURRENT LIABILITIES:
Accounts payable $ 239,254 $ 245,370
Accrued expenses 226,010 237,892
Deferred revenue 5,000 114,550
Current portion of long term debt 20,481 21,844
----------- -----------
Total current liabilities 490,745 619,656
LONG TERM LIABILITIES:
Long term debt 414,178 397,643
Long term portion of deferred revenue -- 93,635
----------- -----------
Total long term liabilities 414,178 491,278
STOCKHOLDERS' EQUITY:
Common stock, Par value--$.10 per share
Authorized--8,000,000 shares
Issued--3,054,782 shares at
December 31, 2000 and 3,115,082
shares at September 30, 2001 305,478 311,508
Capital in excess of par value 8,833,785 8,893,618
Accumulated deficit (3,013,535) (2,848,539)
Treasury stock, at cost --
389,598 shares (586,735) (586,735)
----------- -----------
Total stockholders' equity 5,538,993 5,769,852
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 6,443,916 $ 6,880,786
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
-4-
IMMUCELL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 2001
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
2000 2001 2000 2001
----------- ----------- ----------- -----------
REVENUES:
Product sales $ 1,072,178 $ 1,274,877 $ 3,933,034 $ 4,512,726
Grant income 49,199 61,796 81,266 102,995
Royalty income 16,207 27,389 29,189 55,537
Technology licensing income -- 23,635 -- 41,815
----------- ----------- ----------- -----------
Total revenues 1,137,584 1,387,697 4,043,489 4,713,073
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Product costs 565,263 709,017 1,969,375 2,330,835
Research and development
expenses 230,535 240,310 712,844 656,908
Sales and marketing
expenses 250,313 381,237 754,709 1,038,762
General and administrative
expenses 121,738 142,684 373,574 425,337
----------- ----------- ----------- -----------
Total costs and expenses 1,167,849 1,473,248 3,810,502 4,451,842
----------- ----------- ----------- -----------
Net operating (loss) income (30,265) (85,551) 232,987 261,231
----------- ----------- ----------- -----------
Interest and other income 26,363 14,486 73,803 54,605
Interest expense (9,581) (9,155) (28,825) (27,480)
----------- ----------- ----------- -----------
Net interest and other income 16,782 5,331 44,978 27,125
----------- ----------- ----------- -----------
NET (LOSS) PROFIT BEFORE TAXES (13,483) (80,220) 277,965 288,356
TAX (CREDIT) EXPENSE -- (23,677) -- 123,361
----------- ----------- ----------- -----------
NET (LOSS) PROFIT $ (13,483) $ (56,543) $ 277,965 $ 164,995
NET (LOSS) PROFIT PER
COMMON SHARE:
Basic $ (0.01) $ (0.02) $ 0.11 $ 0.06
Diluted $ (0.01) $ (0.02) $ 0.10 $ 0.06
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 2,665,184 2,716,304 2,620,909 2,715,287
Diluted 2,665,184 2,716,304 2,827,604 2,812,001
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
-5-
IMMUCELL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 2001
(Unaudited)
Nine Months Ended
September 30,
---------------------------------
2000 2001
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit $ 277,965 $ 164,995
Adjustments to reconcile net
profit to net cash (used for)
provided by operating activities-
Depreciation and amortization 98,371 117,555
Deferred income taxes -- 115,036
Changes in:
Accounts receivable (125,710) 10,594
Inventories (187,602) (237,431)
Prepaid expenses (33,573) (96,601)
Accounts payable (144,778) 6,116
Accrued expenses (7,784) 11,882
Deferred income -- 203,186
----------- -----------
Net cash (used for) provided by
operating activities (123,111) 295,332
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant
and equipment (64,604) (813,999)
Loss on disposal of fixed assets -- 27,090
Acquisition of product rights -- (84,584)
----------- -----------
Net cash used for
investing activities (64,604) (871,493)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of
stock options 318,372 65,863
Payments of debt obligations (13,814) (15,172)
----------- -----------
Net cash provided by
financing activities 304,558 50,691
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 116,843 (525,470)
BEGINNING CASH AND CASH EQUIVALENTS 1,823,688 1,895,149
----------- -----------
ENDING CASH AND CASH EQUIVALENTS $ 1,940,531 $ 1,369,679
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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, September 30,
2000 2001
---------- ----------
Raw materials $ 110,728 $ 240,223
Work-in-process 336,087 454,054
Finished goods 55,633 45,602
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$ 502,448 $ 739,879
========== ==========
(3) Debt Obligations
----------------
The Company has long term debt obligations, net of current maturities,
as follows:
December 31, September 30,
2000 2001
---------- ----------
8.62% Bank mortgage, collateralized by first security
interest in building, due 2001 to 2003 $ 434,659 $ 419,487
Less current portion 20,481 21,844
---------- ----------
Long term debt $ 414,178 $ 397,643
========== ==========
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 September 30, 2001,
aggregate approximately the following: $5,000 - 2001; $22,000 - 2002; and
$392,000 - 2003.
-7-
IMMUCELL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(4) Net (Loss) Profit per Common Share
----------------------------------
The basic net (loss) profit per share of common stock is determined by
dividing the net (loss) profit by the weighted average number of shares of
common stock outstanding during the period. The diluted net profit per share
reflects the potential dilution that would occur if existing stock options were
exercised. Approximately 207,000 and 97,000 dilutive stock options were added to
the weighted average number of shares of common stock outstanding in the
computation of diluted earnings per share during the nine months ended September
30, 2000 and 2001, respectively. Options to purchase approximately 24,000 and
371,000 shares were outstanding at September 30, 2000 and 2001, respectively,
but not included in the computation of diluted earnings per share because the
options' exercise prices were greater than the average market price during the
period. Stock options outstanding have not been included in the diluted net loss
per share computation, as the effect would be antidilutive, thereby decreasing
the net loss per common share.
(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 (71% and 68% for the three
month periods ended September 30, 2000 and 2001, respectively) of its product
sales are in the United States dairy and beef industry. Sales to these customers
aggregated 77% and 71% of product sales for the nine month periods ended
September 30, 2000 and 2001, respectively. Sales to foreign customers, who are
principally in the dairy industry, aggregated 27% and 29% of product sales for
the three month periods ended September 30, 2000 and 2001, respectively. Sales
to these foreign customers aggregated 21% and 27% of product sales for the nine
month periods ended September 30, 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 and nine month periods ended September 30,
2000 and 2001:
Three Months Ended September 30, 2000: Animal Health
(in thousands) Products R&D Other Total
------- ------- ------- -------
Product sales $ 1,051 -- $ 21 $ 1,072
Grant income -- $ 49 -- 49
Royalty income -- -- 17 17
------- ------- ------- -------
Total revenues 1,051 49 38 1,138
Product costs 553 -- 12 565
Research and development expenses -- 231 -- 231
Sales and marketing expenses 250 -- -- 250
Other expenses, net -- -- 105 105
------- ------- ------- -------
Net profit (loss) before taxes 248 (182) (79) (13)
Tax expense -- -- -- --
------- ------- ------- -------
Net profit (loss) $ 248 $ (182) $ (79) $ (13)
======= ======= ======= =======
-8-
IMMUCELL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Three Months Ended September 30, 2001: Animal Health
(in thousands) Products R&D Other Total
------- ------- ------- -------
Product sales $ 1,238 -- $ 37 $ 1,275
Grant income -- $ 62 -- 62
Royalty income -- -- 27 27
Technology licensing income -- -- 24 24
------- ------- ------- -------
Total revenues 1,238 62 88 1,388
Product costs 703 -- 6 709
Research and development expenses -- 240 -- 240
Sales and marketing expenses 381 -- -- 381
Other expenses, net -- -- 138 138
------- ------- ------- -------
Net profit (loss) before taxes 154 (178) (56) (80)
Tax credit -- -- 23 23
------- ------- ------- -------
Net profit (loss) $ 154 $ (178) $ (33) $ (57)
======= ======= ======= =======
Nine Months Ended September 30, 2000: Animal Health
(in thousands) Products R&D Other Total
------- ------- ------- -------
Product sales $ 3,854 -- $ 79 $ 3,933
Grant income -- $ 81 -- 81
Royalty income -- -- 29 29
------- ------- ------- -------
Total revenues 3,854 81 108 4,043
Product costs 1,927 -- 42 1,969
Research and development expenses -- 713 -- 713
Sales and marketing expenses 755 -- -- 755
Other expenses, net -- -- 328 328
------- ------- ------- -------
Net profit (loss) before taxes 1,172 (632) (262) 278
Tax expense -- -- -- --
------- ------- ------- -------
Net profit (loss) $ 1,172 $ (632) $ (262) $ 278
======= ======= ======= =======
Nine Months Ended September 30, 2001: Animal Health
(in thousands) Products R&D Other Total
------- ------- ------- -------
Product sales $ 4,392 -- $ 120 $ 4,512
Grant income -- $ 103 -- 103
Royalty income -- -- 56 56
Technology licensing income -- -- 42 42
------- ------- ------- -------
Total revenues 4,392 103 218 4,713
Product costs 2,283 -- 48 2,331
Research and development expenses -- 657 -- 657
Sales and marketing expenses 1,039 -- -- 1,039
Other expenses, net -- -- 398 398
------- ------- ------- -------
Net profit (loss) before taxes 1,070 (554) (228) 288
Tax expense -- -- 123 123
------- ------- ------- -------
Net profit (loss) $ 1,070 $ (554) $ (351) $ 165
======= ======= ======= =======
-9-
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. 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.
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. Accordingly, the Company recorded approximately
$115,000 during the nine month period ended September 30, 2001 in non-cash tax
expense. The total tax expense for the nine month period ended September 30,
2001 aggregated $123,000. No such tax expense was recorded during the comparable
period in 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,
2001
Product sales increased by $203,000 (19%) to $1,275,000 during the
three month period ended September 30, 2001, in comparison to the same period in
the prior year. Product sales increased by $580,000 (15%) to $4,513,000 during
the nine month period ended September 30, 2001. Product sales were negatively
impacted by a backlog of orders for FIRST DEFENSE(R) valued at approximately
$1,100,000 as of September 30, 2001 as compared to a backlog of orders worth
approximately $380,000 as of September 30, 2000. The value of this backlog was
approximately $1,000,000 as of March 31, 2001 and June 30, 2001. The Company
completed a facility addition in May 2001 to increase its production capacity
and intends to significantly reduce the backlog of orders by year end. Sales of
FIRST DEFENSE and the KAMAR(R) HEATMOUNT(R) DETECTOR increased by 23% during the
three month period ended September 30, 2001, as compared to the same period in
2000. Sales of FIRST DEFENSE and the KAMAR HEATMOUNT DETECTOR aggregated 83% and
86% of total product sales during the three month periods ended September 30,
2000 and 2001, respectively. Sales of FIRST DEFENSE and the KAMAR HEATMOUNT
DETECTOR increased by 18% during the nine month period ended September 30, 2001,
as compared to the same period in 2000. Sales of FIRST DEFENSE and the KAMAR
HEATMOUNT DETECTOR aggregated 86% and 88% of total product sales during the nine
month periods ended September 30, 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
in 2000 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 HEATMOUNT 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. Sales of MASTIK(TM) and the CALIFORNIA MASTITIS TEST ("CMT") that
were launched earlier in 2001 have not yet contributed materially to the product
mix.
Total revenues increased by $250,000 (22%) to $1,388,000 during the
three month period ended September 30, 2001 in comparison to the same period in
the prior year. Total revenues increased by $670,000 (17%) to $4,713,000 during
the nine month period ended September 30, 2001. Royalty income is earned on the
sale of whey protein isolate by a collaborator utilizing the Company's milk
protein purification technology. Technology licensing income includes payments
from a licensee to certain nutritional rights to the Company's DIFFGAM
technology and fees from a third party that holds an option to acquire the
Company's interest in its joint venture, AgriCell Company, LLC.
-10-
IMMUCELL CORPORATION
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
As of September 30, 2001, the Company had recorded $208,000 in
deferred revenue under three agreements for which the cash has been received,
but the revenue recognition has been deferred to future periods. First, the
$100,000 in technology licensing income pertaining to the option held by DMV to
acquire the Company's joint venture, AgriCell Company LLC, is being recognized
over the 20 month option period ending March 2003. Second, the $100,000 in
technology licensing income pertaining to the license of certain DIFFGAM rights
to Novatreat is being recognized over the twenty-two month period ending
December 31, 2002, which represents the period during which the Company agreed
to supply clinical material to Novatreat at a discount. Third, $50,000 has been
received as of September 30, 2001 under the Maine Technology Institute grant.
Because of the contingent pay back obligation in connection with this grant, the
funding is being recorded as deferred revenue as the cash is received by the
Company, and no income is being recognized to match the development expenses as
they are incurred. There is no pay back obligation in the event that a product
is not commercialized. In such case, the deferred revenue would be recognized at
the time the product development effort is discontinued.
Gross margin as a percentage of product sales was 47% and 44% during
the three month periods ended September 30, 2000 and 2001, respectively. The
gross margin increased by $59,000 (12%) to $566,000 during the three month
period ended September 30, 2001, as compared to the same period in 2000. Gross
margin as a percentage of product sales was 50% and 48% during the nine months
ended September 30, 2000 and 2001, respectively. The gross margin increased by
$218,000 (11%) to $2,182,000 during the nine month period ended September 30,
2001, as compared to the same period in 2000. At this stage in its development,
the Company's primary objective is increasing product sales. While growing the
dollar value of the gross margin from these sales, the ratio of gross margin to
product sales may decline modestly as the Company works to achieve efficiencies
in its cost of goods sold over time.
Research and development expenses increased by $10,000 (4%) to
$240,000 during the three month period ended September 30, 2001, as compared to
the same period in 2000. Research and development expenses aggregated 20% and
17% of total revenues during the three month periods ended September 30, 2000
and 2001, respectively. Research and development expenses exceeded grant income
and technology licensing income by $181,000 (which net amount equals 17% of
product sales) and by $155,000 (which net amount equals 12% of product sales)
during the three month periods ended September 30, 2000 and 2001, respectively.
Research and development expenses decreased by $56,000 (8%) to $657,000 during
the nine month period ended September 30, 2001, as compared to the same period
in 2000. Research and development expenses aggregated 18% and 14% of total
revenues during the nine month periods ended September 30, 2000 and 2001,
respectively. Research and development expenses exceeded grant income and
technology licensing income by $632,000 (which net amount equals 16% of product
sales) and by $512,000 (which net amount equals 11% of product sales) during the
nine month periods ended September 30, 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 developing innovative and proprietary products that
improve animal health and productivity in the dairy and beef industry. 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 ingredient in WIPE OUT(R) WIPES) as a treatment for mastitis in dairy
cows. The Company recently has experienced some new interest in its WIPE OUT
SKIN AND ENVIRONMENT WIPES. In response, the Company is investing a small amount
of funds in related product development, inventory and business development
expenses. The Company is trying to enter into a collaboration with an
appropriate partner to further the development of this new application of WIPE
OUT DAIRY WIPES. 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 $100,000 in
2001 in technology licensing payments 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 has the right to
earn a manufacturing gross margin and royalties on product sales under the
long-term supply component of the agreement. The license agreement does not
cover the Company's colonic delivery or milk
-11-
IMMUCELL CORPORATION
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
processing and other related patents. Another such example is the August 2001
option agreement under which the Company sold an option to DMV International
Nutritionals for $100,000. DMV has the right to buy the Company's 50% interest
in its lactoferrin producing joint venture, AgriCell Company, LLC, for
$1,300,000 until March 2003.
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 its 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 on an annual
basis. The Company targets the investment of 10% to 13% of its product sales in
research and development expenses, net of grant income and technology licensing
income. However, the costs associated with developing MAST OUT(TM), which is
subject to the approval of the U.S. Food and Drug Administration, are
significantly higher than other products being developed by the Company. The
Company may choose to enter into significant relationships with contract
research organizations over the next two to three years in order to carry out
some of the required product development. These one-time and non-recurring
expenses could temporarily jeopardize the ability of the Company to achieve its
expense rate targets and could even jeopardize some of its quarterly
profitability objectives, while not jeopardizing its annual profitability
objectives. Management believes that the market potential for MAST OUT justifies
such an investment.
Sales and marketing expenses increased by $131,000 (52%) to $381,000
during the three month period ended September 30, 2001 compared to the same
period in 2000, aggregating 23% of product sales in the 2000 period compared to
30% in 2001. Sales and Marketing expenses increased by $284,000 (38%) to
$1,039,000 during the nine month period ended September 30, 2001 compared to the
same period in 2000, aggregating 19% of product sales in the 2000 period
compared to 23% in 2001. It is the Company's objective to maintain this ratio
reasonably close to 20% as it launches new products incurring sales and
marketing expenses before significant product sales are achieved. The ratio was
higher than normal in the 2001 periods due to the sales being lower than
expected in the third quarter of 2001 due to the backlog of orders of FIRST
DEFENSE(R). General and administrative expenses increased by $21,000 (17%) to
$143,000 during the three month period ended September 30, 2001 and by $52,000
(14%) to $425,000 during the nine month period ended September 30, 2001, while
the Company continues its efforts to control these expenses while incurring all
the necessary costs associated with being a publicly held company.
The net profit before taxes for the nine months ended September 30,
2001 was just $10,000 less than the net profit before taxes during the same
period in the prior year. The net profit after taxes was approximately $113,000
less in the current period compared to the prior year principally because no tax
expense was recorded during the 2000 period. See Note #6 to the financial
statements for details.
LIQUIDITY AND CAPITAL RESOURCES
Total assets increased by approximately $437,000 to $6,881,000 at
September 30, 2001 from $6,444,000 at December 31, 2000. Cash and cash
equivalents decreased by approximately $525,000 to $1,370,000 at September 30,
2001 from $1,895,000 at December 31, 2000. Net working capital decreased by
$331,000 to $2,563,000 at September 30, 2001 from $2,894,000 at December 31,
2000. Stockholders' equity increased by $231,000 to $5,770,000 at September 30,
2001 from $5,539,000 at December 31, 2000.
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 cost approximately $650,000. This project was
substantially completed, and the facility became operational in May 2001.
Additionally, to benefit from efficiencies in the production of WIPE OUT(R), the
Company invested approximately $250,000 in manufacturing equipment necessary to
bring a significant element of the assembly of this product in-house. This
equipment installation project was completed in October 2001. The Company
invested working capital of approximately $674,000 in these projects and
approximately $140,000 in other fixed assets during 2001.
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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
(CONTINUED)
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 related 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, and 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. Furthermore,
in June 2001, the Company received a two year grant award aggregating $196,000
from the National Institutes of Health to fund certain aspects of the MAST OUT
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.
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, filling the backlog of orders, 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
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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: November 12, 2001 By: /s/ Michael F. Brigham
----------------------
Michael F. Brigham
President and Chief Executive Officer
and Treasurer
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