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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, 2002
OR
[_] 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 [_]
Amendment ______________________________________________________________________
Indicate by a check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [_] No [X]
End of Amendment _______________________________________________________________
Class of Securities: Outstanding at November 13, 2002:
Common Stock, par value $.10 per share 2,735,984
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IMMUCELL CORPORATION
INDEX TO FORM 10-Q
September 30, 2002
PART I: FINANCIAL INFORMATION Page
- ------- --------------------- ----
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets at December 31, 2001
and September 30, 2002 .................................. 3-4
Consolidated Statements of Operations for the three
and nine month periods ended September 30, 2001 and 2002 5
Consolidated Statements of Cash Flows for the nine month
periods ended September 30, 2001 and 2002 ............... 6
Notes to Unaudited Consolidated Financial Statements .... 7-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .....................9-13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK ....................................... 13
ITEM 4. CONTROLS AND PROCEDURES ................................. 13
PART II: OTHER INFORMATION
ITEMS 1 THROUGH 6 .............................................. 13-14
Signatures .............................................................. 14
Certifications .......................................................... 15
-2-
IMMUCELL CORPORATION
PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS
-----------
(Unaudited)
December 31, September 30,
2001 2002
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 1,883,090 $ 1,323,336
Short-term investments -- 295,260
Accounts receivable, net of allowance
for doubtful accounts of $38,000 and
$20,000 at December 31, 2001 and
September 30, 2002, respectively 974,383 683,395
Inventories 533,864 948,953
Current portion of deferred tax asset 78,650 78,650
Prepaid expenses 37,103 99,161
------------ ------------
Total current assets 3,507,090 3,428,755
PROPERTY, PLANT AND EQUIPMENT, at cost:
Laboratory and manufacturing equipment 1,326,111 1,358,640
Building and improvements 1,270,551 1,321,471
Office furniture and equipment 105,116 89,984
Land 50,000 50,000
------------ ------------
2,751,778 2,820,095
Less - accumulated depreciation 1,067,538 1,072,882
------------ ------------
Net property, plant and
equipment 1,684,240 1,747,213
DEFERRED TAX ASSET 1,616,416 1,496,935
PRODUCT RIGHTS AND OTHER ASSETS, net of
amortization of $61,000 and $91,000
at December 31, 2001 and September 30,
2002, respectively 309,471 279,076
------------ ------------
TOTAL ASSETS $ 7,117,217 $ 6,951,979
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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,
2001 2002
------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 171,260 $ 232,491
Accrued expenses 256,575 180,560
Deferred revenue 114,280 43,645
Current portion of long-term debt 22,317 --
------------ ------------
Total current liabilities 564,432 456,696
LONG-TERM LIABILITIES:
Long-term debt 391,861 --
Long-term portion of deferred revenue 115,270 250,000
------------ ------------
Total long-term liabilities 507,131 250,000
STOCKHOLDERS' EQUITY:
Common stock, Par value-$.10 per share
Authorized-8,000,000 shares Issued -
3,115,082 shares at December 31, 2001
and 3,125,582 shares at September 30, 2002 311,508 312,558
Capital in excess of par value 8,913,981 8,935,649
Accumulated deficit (2,593,100) (2,416,189)
Treasury stock, at cost -- 389,598 shares (586,735) (586,735)
------------ ------------
Total stockholders' equity 6,045,654 6,245,283
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,117,217 $ 6,951,979
============ ============
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, 2001 AND 2002
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
2001 2002 2001 2002
------------ ------------ ------------ ------------
REVENUES:
Product sales $ 1,274,877 $ 1,307,055 $ 4,512,726 $ 4,487,573
Grant income 61,796 39,127 102,995 229,387
Sale of option to technology 10,000 15,000 10,000 45,000
Technology licensing income 13,635 13,635 31,815 40,905
Royalty income 27,389 10,778 55,537 36,545
------------ ------------ ------------ ------------
Total revenues 1,387,697 1,385,595 4,713,073 4,839,410
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Product costs 709,017 686,086 2,330,835 2,391,042
Research and development expenses 240,310 235,416 656,908 652,079
Sales and marketing expenses 381,237 303,519 1,038,762 1,078,246
General and administrative expenses 142,684 127,308 425,337 427,070
------------ ------------ ------------ ------------
Total costs and expenses 1,473,248 1,352,329 4,451,842 4,548,437
------------ ------------ ------------ ------------
Net operating (loss) income (85,551) 33,266 261,231 290,973
------------ ------------ ------------ ------------
Interest and other income 14,486 13,974 54,605 28,233
Interest expense (9,155) -- (27,480) (19,707)
------------ ------------ ------------ ------------
Net interest and other income 5,331 13,974 27,125 8,526
------------ ------------ ------------ ------------
(LOSS) INCOME BEFORE TAXES (80,220) 47,240 288,356 299,499
TAX (BENEFIT) EXPENSE (23,677) 16,761 123,361 122,588
------------ ------------ ------------ ------------
NET (LOSS) INCOME $ (56,543) $ 30,479 $ 164,995 $ 176,911
NET (LOSS) INCOME PER COMMON SHARE:
Basic $ (0.02) $ 0.01 $ 0.06 $ 0.06
Diluted $ (0.02) $ 0.01 $ 0.06 $ 0.06
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic 2,716,304 2,735,984 2,715,287 2,735,330
Diluted 2,716,304 2,795,079 2,812,001 2,807,211
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, 2001 AND 2002
(Unaudited)
Nine Months Ended September 30,
------------------------------
2001 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 164,995 $ 176,911
Adjustments to reconcile net
income to net cash provided
by operating activities-
Depreciation and amortization 117,555 173,920
Deferred income taxes 115,036 119,481
Loss (gain) on disposal of fixed assets 18,790 (1,775)
Changes in:
Accounts receivable 10,594 290,988
Inventories (237,431) (415,089)
Prepaid expenses (96,601) (62,058)
Accounts payable 6,116 61,231
Accrued expenses 11,882 (76,015)
Deferred revenue 203,186 64,095
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Net cash provided by operating activities 314,122 331,689
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (813,999) (207,728)
Proceeds from disposal of fixed assets 8,300 3,005
Increase in short-term investments -- (295,260)
Acquisition of product rights (84,584) --
------------ ------------
Net cash used for investing activities (890,283) (499,983)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 65,863 22,718
Payments of debt obligations (15,172) (414,178)
Net cash provided by (used for) financing activities 50,691 (391,460)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (525,470) (559,754)
BEGINNING CASH AND CASH EQUIVALENTS 1,895,149 1,883,090
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ENDING CASH AND CASH EQUIVALENTS $ 1,369,679 $ 1,323,336
============ ============
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, 2001, 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) Short-term Investments
Short-term investments are comprised principally of certificates of
deposits with original maturities ranging from six to twelve months in amounts
that are within Federal Deposit Insurance Corporation ("FDIC") limits at
financial institutions that are insured by the FDIC.
(3) Inventories
Inventories consist of the following:
December 31, September 30,
2001 2002
------------ ------------
Raw materials $ 223,826 $ 181,675
Work-in-process 245,943 606,596
Finished goods 64,095 160,682
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$ 533,864 $ 948,953
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(4) Debt Obligations
The Company had long-term debt obligations, net of current maturities,
as follows:
December 31, September 30,
2001 2002
------------ ------------
8.62% Bank mortgage,
collateralized by first
security interest in building,
due 2001 to 2003 $ 414,178 $ --
Less current portion 22,317 --
------------ ------------
Long-term debt $ 391,861 $ --
============ ============
The mortgage, which was entered into in May 1998, had a 15 year
amortization schedule with interest payable at the fixed rate of 8.62% per year
for the first five years. In May 2002, the Company utilized approximately
$405,000 in available cash to repay the then outstanding balance of this loan.
-7-
IMMUCELL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(5) 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 recorded non-cash tax (benefit) expense of ($32,000)
and $19,000 during the three month periods ended September 30, 2001 and 2002,
respectively, and of $115,000 and $119,000 during the nine month periods ended
September 30, 2001 and 2002, respectively. The total tax (benefit) expense
aggregated ($24,000) and $17,000 for the three month periods ended September 30,
2001 and 2002, respectively, and $123,000 for the nine month periods ended
September 30, 2001 and 2002. For federal and state income tax purposes, the
Company had remaining net operating loss carryforwards of approximately
$2,298,000 as of December 31, 2001, expiring from 2005 to 2016, that are
available to offset future taxable income. In order to accelerate the
utilization of net operating loss carryforwards in advance of their expiration
dates, income for federal tax purposes was increased by capitalizing
approximately $1,467,000 in research and experimentation expenses that are being
amortized against taxable income over the period from 2002 to 2010.
(6) Net Income (Loss) per Common Share
The basic net (loss) income per share of common stock is determined by
dividing the net income by the weighted average number of shares of common stock
outstanding during the period. The diluted net (loss) income per share reflects
the potential dilution that would occur if existing stock options were exercised
in accordance with the schedule below:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
2001 2002 2001 2002
------------ ------------ ------------ ------------
Weighted average number of shares
outstanding during the period 2,716,304 2,735,984 2,715,287 2,735,330
Dilutive stock options, net -- 59,095 96,714 71,881
------------ ------------ ------------ ------------
Diluted number of shares
outstanding during the period 2,716,304 2,795,079 2,812,001 2,807,211
============ ============ ============ ============
Outstanding options not included in
the calculation because the effect
would be antidilutive or the options'
exercise prices were greater than
the average market price during
the period 652,938 382,872 371,000 318,000
============ ============ ============ ============
(7) Segment and Significant Customer Information
Pursuant to Statement of Financial Accounting Standards No. 131, the
Company operates in one reportable business segment, that being the development,
acquisition, manufacture and marketing of products that improve the health and
productivity of cows for the dairy and beef industry. The accounting policies of
this segment 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, 2001. Almost all of the
Company's internally funded research and development expenses are in support of
products that improve the health and productivity of cows for the dairy and beef
industry. In prior periods, these research and development expenses had been
broken out as a separate segment. Further in prior periods, the general and
administrative expenses necessary to support this segment had been broken out as
a separate segment. The Company's primary customers for the majority (71% and
69% for the nine month periods ended September 30, 2001 and 2002, respectively)
of its product sales are in the United States dairy and beef industry. Sales to
these primary customers amounted to 68% and 70% of product sales during the
three month periods ended September 30, 2001 and 2002, respectively. Sales to
foreign customers, who are principally in the dairy industry, aggregated 27% and
31% of product sales for the nine month periods ended September 30, 2001 and
2002, respectively. Sales to these foreign customers amounted to 29% and 28% of
product sales during the three month periods ended September 30, 2001 and 2002,
respectively.
-8-
IMMUCELL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(8) Subsequent Event
On October 1, 2002, the Company agreed to accept $930,000 from Kamar,
Inc. of Steamboat Springs, Colorado in consideration of the early termination of
a product license. Since 1988, the Company had marketed the Kamar(R)
Heatmount(R) Detector, a product used to detect standing heat in cows, under an
exclusive license from Kamar that was set to expire on December 31, 2004. The
$930,000 approximates the net present value of the expected net contribution
from the product over the final twenty-seven months of the license term, had it
not been terminated. As this license had no book value, the full amount of the
proceeds represents a pre-tax gain of $930,000 before associated legal and
accounting fees. As a result of this transaction, sales, cost of sales and
marketing expenses will be reduced accordingly beginning October 1, 2002.
The Company received $200,000 at closing and the remaining $730,000
was received prior to October 31, 2002. The Company expects to collect
approximately $261,000 in accounts receivable from customers within thirty to
sixty days from October 1, 2002 pertaining to sales of this product made prior
to October 1, 2002. The Company transferred related product inventory on hand at
September 30, 2002 to Kamar for approximately its cost of $158,000.
The following unaudited, pro forma, condensed, consolidated financial
information gives effect to this transaction as if it occurred as of the
beginning of the nine month periods ended September 30, 2001 and 2002:
Nine Months Ended Pro forma Nine Months Ended Pro forma
September 30, 2001 Adjustments Adjusted September 30, 2002 Adjustments Adjusted
-------------- -------------- -------------- -------------- -------------- --------------
Total revenues $ 4,713,073 $ (2,021,931) $ 2,691,142 $ 4,839,410 $ (2,204,077) $ 2,635,333
Sales and marketing
expenses 1,038,762 (538,430) 500,332 1,078,246 (566,922) 511,324
Net operating income 261,231 (185,058) 76,173 290,973 (289,568) 1,405
Net income 164,995 (105,888) 59,107 176,911 (171,045) 5,866
Diluted net income
per common share $ 0.06 $ (0.04) $ 0.02 $ 0.06 $ (0.06) $ 0.00
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, 2002
Product sales increased by 3%, or $32,000, to $1,307,000 during the
three month period ended September 30, 2002, in comparison to $1,275,000 during
the three month period ended September 30, 2001. Sales decreased by less than 1%
to $4,488,000 during the nine month period ended September 30, 2002 in
comparison to the same period in the prior year. Sales of FIRST DEFENSE(R) are
normally seasonal with lower sales expected in the late spring and summer
months. Sales in the third quarter of 2001 were influenced by the backlog of
orders for FIRST DEFENSE that aggregated approximately $1,100,000 as of
September 30, 2001. The Company completed a facility addition in May 2001 to
increase its production capacity and eliminated the backlog of orders as of
December 31, 2001. Sales of FIRST DEFENSE decreased by 11% during the nine month
period ended September 30, 2002 in comparison to the same period in 2001.
Distributor order patterns were influenced by the backlog of orders in 2001.
Sales of WIPE OUT(R) DAIRY WIPES increased by 25% during the nine month period
ended September 30, 2002 in comparison to the same period in 2001. On October 1,
2002, the Company agreed to accept $930,000 from Kamar, Inc. of Steamboat
Springs, Colorado in consideration of the early termination of a product
license. Since 1988, the Company had marketed the Kamar(R) Heatmount(R)
Detector, a product used to detect standing heat in cows, under an exclusive
license from Kamar that was set to expire on December 31, 2004. The $930,000
approximates the net present value of the expected net contribution from the
product over the final twenty-seven months of the license term, had it not been
terminated. As this license had no book value, the full amount of the proceeds
represents a pre-tax gain of $930,000 before associated legal and accounting
fees. As a result of this transaction, sales, cost
-9-
IMMUCELL CORPORATION
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
of sales and marketing expenses will be reduced accordingly beginning October 1,
2002. The following unaudited, pro forma, condensed, consolidated financial
information gives effect to this transaction as if it occurred as of the
beginning of the nine month periods ended September 30, 2001 and 2002:
Nine Months Ended Pro forma Nine Months Ended Pro forma
September 30, 2001 Adjustments Adjusted September 30, 2002 Adjustments Adjusted
-------------- -------------- -------------- -------------- -------------- --------------
Total revenues $ 4,713,073 $ (2,021,931) $ 2,691,142 $ 4,839,410 $ (2,204,077) $ 2,635,333
Sales and marketing
expenses 1,038,762 (538,430) 500,332 1,078,246 (566,922) 511,324
Net operating income 261,231 (185,058) 76,173 290,973 (289,568) 1,405
Net income 164,995 (105,888) 59,107 176,911 (171,045) 5,866
Diluted net income
per common share $ 0.06 $ (0.04) $ 0.02 $ 0.06 $ (0.06) $ 0.00
Total revenues decreased by less than 1% to $1,386,000 during the
three month period ended September 30, 2002 in comparison to the same period in
the prior year. Total revenues increased by 3%, or $126,000, to $4,839,000
during the nine month period ended September 30, 2002 in comparison to
$4,713,000 during the nine month period ended September 30, 2001. Grant income
decreased by 37%, or $23,000, to $39,000 during the three month period ended
September 30, 2002 in comparison to the same period in 2001. Grant income
increased by 123%, or $126,000, to $229,000 during the nine month period ended
September 30, 2002. Approximately 39% and 63% of the grant income during the
three and nine month periods ended September 30, 2002, respectively, was earned
in support of the MAST OUT(TM) product development effort. Royalty income is
earned on the sale of whey protein isolate by a licensee utilizing the Company's
milk protein purification technology. Technology licensing income is being
earned under a license to certain nutritional rights to the Company's DIFFGAM
technology. The sale of an option to technology represents an option the Company
sold to a third party for $100,000 allowing them the right to acquire the
Company's interest in its joint venture, AgriCell Company, LLC, on or before
March 31, 2003 for $1,300,000.
As of September 30, 2002, the Company had recorded $294,000 in
deferred revenue under three agreements for which cash has been received but a
portion of the revenue recognition has been deferred to future periods. First,
$250,000 had been received as of September 30, 2002 under a Development Award
from the State of Maine augmenting the development of MAST OUT. 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 event, the deferred revenue would be recognized at the
time the product development effort is discontinued. Should the product be
commercialized, the Company would have the choice of paying back either: 1) the
grant amount in a lump sum payment within two years of commercialization or 2)
two times the grant amount through a 2% royalty on sales. Second, $100,000 in
technology licensing fees pertaining to the license of certain DIFFGAM rights is
being recognized over the twenty-two month period ending December 2002, which
represents the period during which the Company agreed to supply clinical
material to the licensee at a discount. Third, $100,000 from the sale of an
option to technology allowing an outside party to acquire the Company's joint
venture, AgriCell Company LLC, for $1,300,000 is being recognized over the
twenty month option period ending March 2003.
Gross margin as a percentage of product sales was 44% and 48% during
the three month periods ended September 30, 2001 and 2002, respectively. Gross
margin as a percentage of product sales was 48% and 47% during the nine month
periods ended September 30, 2001 and 2002, respectively. The gross margin
increased by 10%, or $55,000, to $621,000 during the three month period ended
September 30, 2002, as compared to the same period in 2001. The gross margin
decreased by 4%, or $85,000, to $2,097,000 during the nine month period ended
September 30, 2002, as compared to the same period in 2001. Changes in the gross
margin percentage reflect changes in the product sales mix. The gross margin
percentage may increase modestly as the Company works to achieve efficiencies in
its cost of goods sold over time. The Company experiences a better gross margin
from products that it has developed, such as FIRST DEFENSE(R), and a lower gross
margin from licensed-in, acquired and new products. At this stage in its
development, the Company's primary objective is to increase product sales.
-10-
IMMUCELL CORPORATION
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Research and development expenses decreased by 2%, or $5,000, to
$235,000 during the three month period ended September 30, 2002, as compared to
the same period in 2001. Research and development expenses decreased by less
than 1% to $652,000 for the nine month period ended September 30, 2002 in
comparison to the same period in 2001. Research and development expenses
aggregated 17% of total revenues during the three month periods ended September
30, 2001 and 2002. Research and development expenses aggregated 14% and 13% of
total revenues during the nine month periods ended September 30, 2001 and 2002,
respectively. Research and development expenses exceeded grant and technology
licensing income by $165,000 (which net amount equals 13% of product sales) and
by $183,000 (which net amount equals 14% of product sales) during the three
month periods ended September 30, 2001 and 2002, respectively. Research and
development expenses exceeded grant and technology licensing income by $522,000
(which net amount equals 12% of product sales) and by $382,000 (which net amount
equals 9% of product sales) during the nine month periods ended September 30,
2001 and 2002, 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 the development of MAST OUT(TM), a new product utilizing
Nisin (the same natural, antimicrobial protein that is the active ingredient in
WIPE OUT(R) DAIRY Wipes) as a non-antibiotic treatment for mastitis in dairy
cows. The Company anticipates an increase in research and development expenses
during the fourth quarter of 2002 and during the first three quarters of 2003 as
the MAST OUT development effort advances to the more expensive clinical trial
stage.
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 1999, 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 generally targets the investment of 10% to 13% of its product sales in
research and development expenses, net of grant and technology licensing income.
However, the costs associated with developing MAST OUT, which is subject to the
approval of the U.S. Food and Drug Administration, are significantly higher than
other animal health products being developed by the Company. The Company may
choose to enter into significant relationships with outside parties over the
next two years in order to carry out some of the required product development.
As this product is developed, several different one-time and non-recurring
expenditures could temporarily impact the ability of the Company to achieve its
expense rate targets and could even impact the achievement of some of its
quarterly profitability objectives. Management believes that the market
potential for MAST OUT justifies such an investment.
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
the March 2001 license agreement entered into with Novatreat Ltd of Turku,
Finland covering certain DIFFGAM rights for nutritional, risk reduction
applications outside of North America. Another such example is the August 2001
option agreement under which the Company sold an option to DMV International
Nutritionals of the Netherlands which allows DMV the right to buy the Company's
50% interest in its lactoferrin producing joint venture, AgriCell Company, LLC,
until March 2003.
Sales and marketing expenses decreased by 20%, or $78,000, to $304,000
during the three month period ended September 30, 2002 compared to the same
period in 2001, aggregating 30% and 23% of product sales during the three month
periods in 2001 and 2002, respectively. The third quarter 2001 expenses were
higher than normal due to some timing differences. Sales and marketing expenses
increased by 4%, or $39,000, to $1,078,000 during the nine month period ended
September 30, 2002 compared to the same period in 2001, aggregating 23% and 24%
of product sales during the nine month periods in 2001 and 2002, respectively.
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. General and administrative expenses
decreased by 11%, or $15,000, to $127,000 during the three month period ended
September 30, 2002 compared to the same period in 2001. General and
administrative expenses increased by less than 1% to $427,000 during the nine
month period ended September 30, 2002. The Company continues its efforts to
control these expenses while incurring all the necessary costs associated with
being a publicly held company.
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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)
The income before taxes for the three months ended September 30, 2002
of $47,000 compares to a loss before taxes of $80,000 for the three months ended
September 30, 2001. The net income for the three months ended September 30, 2002
of $30,000 ($0.01 per diluted share) compares to a net loss of $57,000 ($0.02
per diluted share) for the three months ended September 30, 2001. The income
before taxes increased by 4%, or $11,000, to $299,000 for the nine month period
ended September 30, 2002 compared to the same period in 2001. The net income
increased by 7%, or $12,000, to $177,000 ($0.06 per diluted share) for the nine
month period ended September 30, 2002, compared to $165,000 ($0.06 per diluted
share) for the same period in 2001. The effective income tax rates were 41% and
43% for the nine months ended September 30, 2002 and 2001, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments decreased by
$264,000 to $1,619,000 at September 30, 2002 from $1,883,000 at December 31,
2001. Total assets decreased by $165,000 to $6,952,000 at September 30, 2002
from $7,117,000 at December 31, 2001. In May 2002, the Company utilized
approximately $405,000 in available cash to repay the then outstanding balance
of its mortgage loan. The Company currently has no outstanding bank debt. Net
working capital increased by $29,000 to $2,972,000 at September 30, 2002 from
$2,943,000 at December 31, 2001. Stockholders' equity increased by $200,000 to
$6,245,000 at September 30, 2002 from $6,046,000 at December 31, 2001.
In consideration of the early termination of a product license
effective October 1, 2002, the Company received $930,000 in October 2002. The
Company expects to collect approximately $261,000 in accounts receivable from
customers within thirty to sixty days from October 1, 2002 pertaining to related
sales made prior to October 1, 2002. The Company transferred related product
inventory on hand at September 30, 2002 to the licensor for approximately its
cost of $158,000.
During the period from October 1, 2002 to June 30, 2003, the Company
anticipates receiving an additional $150,000 under a grant award from the State
of Maine augmenting the development of MAST OUT(TM). Due to a contingent pAy
back obligation, this 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. In addition, the Company's research
and development efforts are being partially funded by four federal research
grants worth the aggregate of $527,000. Because these grants have no contingent
pay back obligations, the income is recognized as the expenses are incurred. As
of September 30, 2002, the aggregate of approximately $185,000 was available
under two of these four grants for future periods.
The Company believes that it has sufficient capital resources to meet
its working capital requirements and to finance its ongoing business operations
during at least 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, research and development expenses, 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.
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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)
RISK FACTORS
FIRST DEFENSE(R) is sold in the United States subject to a product
license approval from the USDA firsT obtained in 1991. The potency of serial
lots is directly traceable to the original serial used to obtain the product
performance claims (the "Reference Standard"). Due to the unique nature of the
FIRST DEFENSE label claims, host animal re-testing is not required as long as
periodic laboratory analyses continue to support the stability of stored
Reference Standard. To date, these analyses have demonstrated strong stability.
However, if, at any time, the USDA does not approve the requalification of the
Reference Standard, additional clinical studies could be required to meet
regulatory requirements and allow for continued sales of the product.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management,
including the individual serving as the principal executive and principal
financial officer, we have evaluated the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Exchange Act
Rule 13a-14 within 90 days of the filing date of this quarterly report. Based on
this evaluation, our chief executive officer and principal financial officer has
concluded that these controls and procedures are effective. There were no
significant changes in our internal controls or in other factors that could
significantly affect these controls subsequent to the date of the evaluation.
Disclosure controls and procedures are our controls and other
procedures that are designed to ensure that information required to be disclosed
by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us in the reports that we
file under the Exchange Act is accumulated and communicated to our management,
including our principal executive and principal financial officer, as
appropriate to allow timely decisions regarding required disclosures.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
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IMMUCELL CORPORATION
PART II. OTHER INFORMATION (CONTINUED)
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
Exhibit 99 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ImmuCell Corporation
--------------------
Registrant
Date: November 13, 2002 By: /s/ Michael F. Brigham
------------------------------
Michael F. Brigham
President and Chief Executive
Officer and Treasurer
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IMMUCELL CORPORATION
CERTIFICATIONS
I, Michael F. Brigham, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ImmuCell
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report;
4. I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and I have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to me by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based on my evaluation
as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
November 13, 2002
/s/ Michael F. Brigham
- ----------------------
Michael F. Brigham
President, Chief Executive Officer and Treasurer
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