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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
0-15507
(Commission file number)
IMMUCELL CORPORATION
(Exact name of Registrant as specified in its charter
Delaware 01-0382980
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
56 Evergreen Drive, Portland, Maine 04103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (207) 878-2770
Securities registered pursuant to Section 12(b) of the Act
Title of each class Name of each exchange
on which registered
Common Stock, par value $.10 per share Boston Stock Exchange
Common Stock Purchase Rights Boston Stock Exchange
Securities registered pursuant to
Section 12 (g) of the Act: Common Stock par value $.10 per share
(Title of class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates of the
Registrant at March 20, 1997 was approximately $5,756,000.
The number of shares of the Registrant's Common Stock outstanding at March 20,
1997 was 2,329,564.
Documents incorporated by reference: Portions of the Registrant's 1997 Proxy
Statement to be filed in connection with the Annual Meeting of shareholders are
incorporated by reference to Part III hereof.
TABLE OF CONTENTS
PART I
ITEM 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ITEM 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . .8
ITEM 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . .8
ITEM 4. Submission of Matters to a Vote of Security Holders . . . . . . .8
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
ITEM 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . .9
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . .9
ITEM 8. Financial Statements and Supplementary Data . . . . . . . . . . 14
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure. . . . . . . . . . . . . . . . . . . . 14
PART III
ITEM 10. Directors and Executive Officers of the Registrant. . . . . . . . 14
ITEM 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . 15
ITEM 12. Security Ownership of Certain Beneficial Owners and Management. 15
ITEM 13. Certain Relationships and Related Transactions. . . . . . . . . 15
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 15
SIGNATURES
PART I
ITEM 1 - BUSINESS
General
ImmuCell Corporation (the "Company") is a biotechnology company that
primarily develops, manufactures and markets milk-derived passive antibody
products to prevent and/or treat gastrointestinal infections in both humans and
animals. Using its core technology, the Company has developed proprietary
methods for the production of commercial quantities of pathogen-specific
antibodies from cows' milk. First Defense{}, which has been
approved by the United States Department of Agriculture ("USDA"), is the first
product using this technology to be commercialized by the Company. Currently,
this product is the only USDA-licensed, bivalent (effective in combatting two
different infectious agents) scours preventive product in capsule form
available on the market. The Company is investing in research and development
that could lead to the commercialization of new products incorporating these
proprietary methods for the prevention and/or treatment of gastrointestinal
infections in humans.
From its inception in 1982, the Company has engaged in the research and
development of both infectious disease diagnostic tests and products for
therapeutic and preventive uses against certain infectious diseases in
animals and humans. Since 1991, this product development effort has focused
more principally on the prevention and treatment of gastrointestinal
infections. Recently, the Company has diversified its product development
pipeline in two significant ways. First, the Company has utilized the
knowledge gained developing a product to treat and/or prevent a
gastrointestinal infection caused by Cryptosporidium parvum to develop a method
to detect the presence of this dangerous parasite in public water supplies.
Secondly, the Company has utilized both its expertise in processing proteins
from cows' milk and its exclusive world-wide license to certain purification
technology to develop a process to separate specialty proteins from cheese
whey.
Research and development expenditures amounted to 29% of total revenues
in 1996. For the Company to benefit from the growth that the successful
introduction of new products may create, the Company intends to continue to
invest a significant portion of revenues in research and development, which
investment could lead to a loss in 1997, which loss could be funded from cash
reserves. In addition, the Company intends to actively pursue licensing
opportunities with corporate partners and funding from government grants to
support research and development expenditures in 1997 and beyond. The amount
of the 1997 profit or loss can not be accurately predicted because of
uncertainties in obtaining corporate partner funding and government grants.
Three Milk Antibody Products Under Development
The Company currently has three bovine-derived specific polyclonal
antibody products under development that are subject to approval by the U.S.
Food and Drug Administration ("FDA") before sales can be initiated. These
products are as follows:
1) TravelGAM{TM} bovine anti-E. coli immunoglobulins: TravelGAM is
intended to prevent diarrhea caused by enterotoxigenic E. coli (commonly known
as Travelers' Diarrhea). Under an Investigational New Drug ("IND") application
approved by the FDA, the Company completed a successful Phase I/II
challenge/protection trial of this product in June 1995. This clinical trial
was performed at an outside laboratory in approximately 25 patients and
demonstrated a 90% protection rate. Unlike First Defense, one of the Company's
animal health products, which is produced from hyperimmunized cows' colostrum,
this product is produced from hyperimmunized cows' milk. In 1996, the Company
performed additional testing to optimize the dose size and delivery format of
the product. The Company is planning a larger Phase II trial in 1997. Outside
funding must be secured before Phase III trials can be completed, which would
also be contingent upon obtaining positive results from Phase II studies.
2) DiffGAM{TM }bovine anti-Clostridium difficile immunoglobulins:
DiffGAM is intended to prevent and/or treat antibiotic-associated colitis that
is caused by toxin-producing Clostridium difficile. DiffGAM is intended to
neutralize the toxins produced by Clostridium difficile in the colons of at-
risk patients. To halt the colitis caused by Clostridium difficile, patients
currently are often taken off the broad spectrum antibiotic therapy and treated
with antibiotics specific for Clostridium difficile. However, the removal of
the broad spectrum antibiotics can lead to the onset of infections that those
antibiotics were intended to prevent. The Company believes that DiffGAM may
provide a safe alternative to the current methods used to treat the Clostridium
difficile infections. Similar to TravelGAM{TM}, this product is produced from
hyperimmunized cows' milk.
The 1996 DiffGAM development effort included optimization of the
current colonic delivery formulation and completion of studies in support of an
IND application, which the Company submitted to the FDA in February 1997. By
the middle of 1997, the Company intends to conduct a clinical trial to
investigate the safety of DiffGAM and the colonic bioavailability of the
current DiffGAM formulation.
3) CryptoGAM{TM }bovine anti-Cryptosporidium immunoglobulins:
CryptoGAM is intended to treat chronic, life-threatening diarrhea (known as
cryptosporidiosis) in AIDS patients. The Company estimates that up to 10,000
U.S. AIDS patients have contracted this disease annually. This estimate may
decrease given the significant impact that new drug treatments may have on
AIDS-related complications. There is currently no therapy available to treat
or prevent this disease. This development effort was initiated by the Company
in 1990, and in 1991 the Company obtained FDA approval of an IND application to
further pursue research on cryptosporidiosis in humans. Subsequent to the
approval of the IND application, CryptoGAM was granted Orphan Drug designation
from the FDA. This designation provides certain market protection for the
first product of its kind approved by the FDA for a particular indication. As
is the case with First Defense,{ }one of the Company's animal
health products, CryptoGAM is produced from hyperimmunized cows' colostrum.
Since 1993, the Company has completed six Phase I/II clinical trials of
CryptoGAM in approximately sixty AIDS patients with cryptosporidiosis and
approximately thirty healthy volunteers. The results of these studies have
indicated that the drug is safe and well-tolerated and that the patients
experienced significant reductions in overall parasite counts. However,
despite this positive safety profile and the positive microbiological activity,
there was no significant improvement in clinical symptoms (principally
diarrhea).
In an effort to access a patient population with certain defined
characteristics, the Company entered into an agreement with the Center for
Special Immunology, Inc. of Fort Lauderdale, Florida ("CSI") in March
1996 to further test CryptoGAM. Under this agreement, the Company is obligated
to manufacture the material required to conduct Phase II and Phase III clinical
trials, and CSI has agreed to conduct the ongoing trials at its expense in
return for a royalty on future sales of the product.
The Company has obtained four Phase I Small Business Innovation
Research ("SBIR") grants and two Phase II SBIR grants from the National
Institutes of Health to support the CryptoGAM and TravelGAM research programs.
These grants have provided aggregate funding of approximately $1,181,000 since
1990, $270,000 of which was recognized in 1996.
Two Joint Ventures Formed in 1996 to Commercialize Two New Products in 1997
1) Clearwater Diagnostics Company, LLC: To capitalize on certain
scientific knowledge gained under the CryptoGAM research program described
above, the Company formed a joint venture with Membrex, Inc. of Fairfield, NJ
("Membrex") to commercialize the combination of certain detection technology
developed by the Company with certain concentration technology owned by Membrex
into a diagnostic test to detect Cryptosporidium parvum oocysts and other
microorganisms in water. Initial sales of this product, Crypto-Scan{TM} water
diagnostic test, are anticipated to begin by the middle of 1997.
The Company has a 50% ownership interest in this joint venture and is
entitled to 50% of the joint venture's profits from the sales of its products
for water industry applications. Beginning in the third year of commercial
sales, this right to profits is reduced to 45%. The Company is also entitled
to 10% of the joint venture's profits from the sale of its products for food
and beverage applications.
The Company obtained a $100,000 Phase I SBIR grant in September 1996 to
complete the development of the water test and to partially fund the design of
a commercial prototype machine. Approximately $51,000 of this grant income was
recognized in 1996. The remaining $49,000 is expected to be recognized in
1997. On March 2, 1997, the first commercial prototype machine was demonsrated
at an international scientific conference attended by water utility
professionals in Newport Beach, California.
2) AgriCell Company, LLC ("AgriCell"): To capitalize on the Company's
milk protein purification experience, the Company and Agri-Mark Inc. of
Methuen, MA ("Agri-Mark") have formed a joint venture to produce and sell a
nutritional protein, known as lactoferrin, from cheese whey. Lactoferrin is an
iron-binding protein that, among several applications, can be used in infant
formula and certain cosmetics. Initial sales of lactoferrin are anticipated to
begin by the middle of 1997.
The Company has a 50% ownership interest in this joint venture and is
entitled to 50% of the joint venture's profits from the sale of lactoferrin
after Agri-Mark has obtained the return of an amount equal to its invested
capital. Agri-Mark is funding a capital investment of approximately $800,000
(approximately $650,000 in fixed assets and $150,000 in working capital) and is
entitled to a 90% priority return until it obtains the return of an amount
equal to this invested capital. Additionally, Agri-Mark has the right to
utilize the Company's technology to produce whey protein isolate from Agri-
Mark's Vermont cheese whey source. The Company is entitled to a royalty on any
such sales.
Commercialization of Milk Processing Technology
Underlying the Company's milk antibody products for human and animal
healthcare applications is a certain expertise developed by the Company to
process and purify milk proteins. This expertise and rights to a purification
system to which the Company holds a world-wide, exclusive license for all milk
and whey protein applications have been licensed to AgriCell. In addition to
being at the center of technology utilized by AgriCell to produce lactoferrin,
the purification system may be used to produce a range of other specialty
proteins from cheese whey that may have commercial utility for certain food
ingredient and other applications. In January 1997, the Company received an
option payment of $75,000 from a large milk processing company that is testing
the Company's purification technology and has the right to obtain a license to
use that technology for the production of whey protein isolate and certain
other proteins (excluding lactoferrin) by paying the Company a licensing fee
in June 1997. The Company would be entitled to a royalty on sales of
whey protein isolate and any other applicable proteins under this license.
Development of Lower Cost Manufacturing Process
Cost will be a significant factor in determining market acceptance of
the Company's products. Although antibody concentrations are much higher in a
cow's first milk, or colostrum, more total antibodies are available in milk
than in colostrum. Although colostrum has a very rich antibody content, it
contains less than 20% of the total antibodies produced by a cow during each
lactation cycle. For this reason, the Company has developed a purification
process that allows the Company to harvest antibodies from a cow's entire
lactation cycle, as opposed to only from the cow's colostrum. The Company
believes this milk purification process may create a significant product cost
advantage.
Dairy and Beef Animal Health Products
In 1988, the Company obtained an exclusive world-wide license to
purchase from Kamar, Inc. of Steamboat Springs, Colorado ("Kamar") and to
market and sell an animal health care product known as the
Kamar Heatmount{TM} Detector. This product is used to detect
the physical mounting of bovines for the determination of standing heat, and is
sold primarily to dairy farmers. In December 1993, the Company entered into a
renewal of its service and license agreement effective through December 31,
1999 with Kamar whereby Kamar will continue to provide the Company warehousing,
distribution and certain other services and the Company will continue to market
the Kamar Heatmount{TM} Detector under an exclusive world-wide
license. The renewal agreement is cancelable by either party upon twelve
months written notice. Continuation of this license is an important element of
the Company's strategy to maintain and grow animal health product sales.
In 1991, the Company obtained approval from the U.S. Department of
Agriculture to sell First Defense,{ } which is manufactured by
the Company from cows' colostrum using the Company's proprietary vaccine and
processing technology. The target disease, "calf scours", is seasonal, with
the highest incidence in the winter calving months. This diarrheal disease
causes dehydration in newborn calves and often leads to serious sickness and
even death.
Other Products
The Company also markets the following animal health care products: 1)
RPT and Accufirm, tradenames for a milk progesterone test used by dairy farmers
to monitor the reproductive status of their cows and 2) RJT, used in the
detection of Mycobacterium paratuberculosis infections (Johne's Disease) in
cattle. Sales of these products have been limited since their commercial
introductions. These products are not a significant focus of the Company's
future.
As an extension of its expertise with infectious diseases, the Company
manufactures immunodiagnostic reagents for certain human infectious disease
diagnostic products. Subject to royalty bearing licenses, the Company
manufactures and sells specific antibody-based immunoreagents used for: 1) the
diagnosis of Group A streptococcal infections, a bacterial infection which
causes "strep throat" and 2) the detection of bacterial infections that cause
sepsis and meningitis in newborn infants (Group B Streptococcus).
While the Company continues its efforts with internally and externally
funded product development programs, the Company is also actively seeking to
enter into licenses to sell new products and technologies.
Marketing and Sales
Like many small manufacturers, the Company sells its animal health
products through large and well known distributors. The manner in which the
Company's products are marketed and distributed depends in large measure upon
the nature of the particular product, its intended users and the country where
it is sold. The distribution channel selected is intended to address the
particular characteristics of the marketplace for a given product. For
example, First Defense is primarily sold through major veterinarian
distributors, and the Kamar Heatmount Detector is sold through bovine semen
distributors. Separate agreements have been entered into for sales through
these distribution channels. ImmuCell engages in the direct marketing and
sales of its products principally through its marketing subsidiary, Kamar
Marketing Group, Inc.
Foreign Sales
Foreign product sales represented approximately 24%, 20% and 21% of the
Company's total revenues for the years ended December 31, 1996, 1995 and 1994,
respectively. The majority of these foreign sales were to European countries,
Australia and New Zealand. It is anticipated that a significant amount of the
Company's future sales will continue to be made outside of the United States.
The Company currently prices most of its products in United States
dollars. An increase in the value of the dollar in any foreign country in
which the Company's products are sold may have the effect of increasing
the local price of such products, thereby leading to a reduction in demand.
Similarly, to the extent that the value of the dollar may decline with respect
to a foreign currency, the Company's competitive position may be enhanced.
Core Technology - Passive Immunoprevention
Enteric infections (infections of the gastrointestinal, or GI, tract)
often result from the unchecked growth of pathogenic microorganisms that enter
the body orally. It is possible to augment the gut-associated immune system by
supplying adequate amounts of the desired protective antibodies by oral
feeding. These externally supplied antibodies function in the GI tract,
offering passive protection from the invading pathogen and thereby augmenting
intestinal secretory immunity. ImmuCell's core technology is directed toward
the efficient production and formulation of such antibodies used to prevent
and/or treat infections. The Company's business strategy is to commercialize
applications of this technology for a portfolio of specifically targeted
antibody products derived from cows' milk.
Orally administered bovine antibodies have been shown to be effective
in preventing infection in numerous studies and can be formulated either as
traditional biologicals or as food additives. Since they are derived from
milk, these products are non-toxic and are inherently safe. In addition, these
products can be produced economically at a commercial scale. The Company
believes that these features could facilitate acceptance of products targeted
at both human and animal health care markets.
When humans or animals are exposed to microorganisms such as bacteria,
viruses or parasites, specific cells of the immune system (T-cells and B-cells)
are activated to eliminate the invading pathogen. Antibodies, which are
protein products of specifically activated B-cells, serve as a front line of
immune defense against infectious diseases. Present in a variety of body
fluids including blood, milk, saliva and intestinal fluids, antibodies are
highly selective in recognizing structural components or antigens present on
foreign microbes. Through attachment to various microbial antigens, antibodies
serve to block infectious invasion and to mark their targets for removal by
cellular elements of the immune system. This ability of antibodies to
specifically recognize and bind with antigens is the basis of the
immunochemical technology employed by the Company.
Passive immune protection is a natural biological phenomenon: all
mammals provide antibodies to their young during nursing. These orally
supplied antibodies are contained in the "natural" food of newborns -
mothers' milk. The presence of certain antibodies can be increased in response
to an immunization with a specific vaccine. The Company has developed an
expertise in developing such proprietary vaccines. These custom vaccines are
used in the Company's proprietary hyperimmunization programs of its donor cows.
The Company's disease-prevention technology utilizes antibodies (produced by
such vaccinated cows and isolated from their milk) that are delivered orally to
prevent gastrointestinal infections.
Once the body has "learned" to make specific antibodies, it is, to a
certain degree, prepared to provide protection against subsequent infection by
the original microbe or pathogen. This is why mature, healthy humans and
animals can produce antibodies to these disease-causing organisms. However,
sometimes the body is unable to produce the antibodies necessary to
"neutralize" an infectious pathogen, leaving the body susceptible to disease
caused by that pathogen such as in the following cases : 1) newborn animals
and humans whose immune systems are not fully functional, 2) adults whose
immune systems are under stress or have been damaged or destroyed by disease
(immunocompromised) and 3) adults who have never been exposed to a particular
pathogen through natural infection or vaccination. For example, newborn calves
that do not receive maternal colostrum (first milk) do not have antibodies to
protect themselves. Additionally, persons with nonfunctional immune systems
are at risk from a variety of common pathogens to which they cannot mount
an immune response, as are travelers to geographic areas where new microbial
pathogens are encountered.
Research and Development
The Company's research and development activities are aimed primarily
at the development of new commercial products, incorporating the Company's
proprietary technology and manufacturing methods, for the prevention of
gastrointestinal infections in humans. The Company's research and development
activities are conducted internally and through contracts with third parties
depending upon the availability of staff, the technical skills required, the
nature of the particular project and other considerations. As additional
opportunities to commercialize the Company's immunochemistry technology become
apparent, the Company may begin new research and development projects. The
Company spent approximately $1,291,000, $1,578,000 and $1,366,000 on research
and development activities during the years ended December 31, 1996, 1995 and
1994, respectively. These expenditures were in part supported by collaborative
research and development revenue and grant income totaling approximately
$386,000, $587,000 and $454,000 during the years ended December 31, 1996, 1995
and 1994, respectively.
The Company has often sought out partners to fund research and
development activities on certain projects in exchange for distribution rights
to the resulting products. The Company has derived significant revenues from
such collaborative research and development contracts. The Company maintains
relationships with several scientific advisors that have particular expertise
in the areas targeted by the Company.
Competition
The Company's competition in the animal and human health care markets
includes other biotechnology companies, major pharmaceutical firms and food and
chemical companies. Many of these competitors have substantially greater
financial, marketing, manufacturing and human resources and more extensive
research and development facilities than the Company. Many of these
competitors may develop technologies and/or products which are superior to
those of the Company, or may be more successful in developing production
capability or in obtaining certain regulatory approvals. At least one company,
GalaGen, is developing colostrum-derived antibody products for preventing
cryptosporidiosis and antibiotic-associated colitis. The Company believes that
its competitive position will be highly influenced by its ability to attract
and retain key scientific and managerial personnel, to develop proprietary
technologies and products, to obtain USDA or FDA approval for new products, and
to raise adequate levels of capital to fund its activities.
The Company believes that First Defense offers two
significant competitive advantages over other products in the market: 1) its
capsule form, which does not require refrigeration, provides ease of
administration by the farmer, and 2) competitive products currently on the
market provide protection against the leading cause of calf scours, while First
Defense provides this protection and additional protection against the second
leading cause of the disease.
The Company believes that supplies and raw materials for the production
of its products are readily available from a number of vendors and farms. It
is the Company's policy to maintain several sources of supply for the
components used in the Company's products.
The Company currently competes on the basis of product performance,
price and distribution capability. The Company has expanded and continues to
seek to expand its network of independent distributors to improve its
competitive position.
Patents and Proprietary Information
The Company has three patent applications pending with the U.S. Patent
and Trademark Office. The first covers certain aspects of the Company's
proprietary manufacturing process to separate antibodies from cows' milk and
certain elements of the Company's TravelGAM{TM} product. The second and third
cover the method used to detect Cryptosporidium parvum in drinking water
supplies. The rights to the second and third patent applications have been
assigned to the Company's joint venture, Clearwater Diagnostics Company, LLC.
The Company has exclusively licensed the right to use certain milk
purification technology for the processing of immunoglobulins and lactoferrin,
which technology is the subject matter of one or more patents owned or
controlled by the Wisconsin Alumni Research Foundation. The Company has also
exclusively licensed the right to use a purification system used by the
Company to manufacture specialty proteins from cows' milk, which is the subject
matter of one or more patents owned or controlled by Advanced Separations
Technologies, Inc. The Company has also exclusively licensed rights to certain
cloned antigens of Cryptosporidium parvum from the Regents of the University of
California, for which a patent application has been filed by the licensor.
This license covers passive antibody and vaccine product applications for
animals and passive antibody product applications for humans. The method
developed by the Company to detect Cryptosporidium parvum in water supplies
includes certain technology developed by Membrex, Inc., which is the subject of
several issued patents which have been assigned to the Company's joint venture,
Clearwater Diagnostics Company, LLC. Going forward, the Company may file
additional patent applications for certain products under development. There
can be no assurance that patents will be issued with respect to any pending or
future applications.
In some cases, the Company has chosen and may choose in the future not to
seek patent protection for certain products or processes. Instead, the Company
has sought and may seek in the future to maintain the confidentiality of any
relevant proprietary technology. Reliance upon trade secret, rather than
patent protection, may cause the Company to be vulnerable to competitors who
successfully replicate the Company's manufacturing techniques and processes.
Additionally, there can be no assurance that others may not independently
develop similar trade secrets or technology or obtain access to the Company's
unpatented trade secrets or proprietary technology. This is particularly true
if the Company enters into joint ventures or other arrangements with respect to
its products, including the manufacture thereof. All of ImmuCell's employees
are required to execute nondisclosure and invention assignment agreements
designed to protect the Company's rights in its proprietary products.
Other companies may have filed patent applications and may have been
issued patents to products and to technologies potentially useful to the
Company or necessary for the Company to commercialize its products or achieve
its business goals. There can be no assurance that the Company will be able to
obtain licenses of such patents on terms acceptable to the Company.
Trademarks
The Company has registered certain trademarks with the U.S. Patent and
Trademark Office in connection with the marketing of its products. The Company
has obtained registration of the trademark, First Defense, for
one of its animal health products. The Company has applied for federal
trademark registration for and intends to use the following marks in
conjunction with the marketing of its products: CryptoGAM{TM} bovine anti-
Cryptosporidium immunoglobulins, Crypto-Scan{TM} water diagnostic test,
TravelGAM{TM} bovine anti-E. coli immunoglobulins and DiffGAM{TM} { }bovine
anti-C. difficile immunoglobulins.
Government Regulation
The manufacture and sale of some of the Company's animal health care
products within the United States is regulated by the USDA. The manufacture
and marketing of disease treatment and prevention products for human medical
applications within the United States is subject to regulation by the FDA.
Comparable agencies exist in foreign countries and foreign sales of the
Company's products will be subject to regulation by such agencies. Many states
(including Maine where the Company's laboratory and production facilities are
located) have laws regulating the production, sale, distribution or use of
biological products, and the Company may have to obtain approvals from
regulatory authorities in states in which it proposes to sell its products.
Depending upon the product and its applications, obtaining USDA and other
regulatory approvals may be a relatively brief and inexpensive procedure or it
may involve extensive clinical tests, incurring significant expenses and an
approval process of several years' duration.
The Company has received USDA approval for First Defense (its scours
preventive product) and RJT (its Johne's Disease diagnostic test). Two of the
Company's new products under development, CryptoGAM (to prevent and/or treat
cryptosporidiosis in AIDS patients) and TravelGAM (to prevent diarrhea in
travelers), are in FDA Phase I/II clinical trials under approved
Investigational New Drug ("IND") applications. An IND application for DiffGAM
(to prevent antibiotic-associated colitis) has been submitted to the FDA for
review. The Company believes that it is in compliance with current USDA and
FDA regulatory requirements relating to the Company's business and products.
Product Liability
The manufacture and marketing of certain of the Company's products
entails a risk of product liability. The Company's current exposure to product
liability is mitigated to some extent by the fact that the Company's
current products have heretofore been principally directed towards the animal
health care market. The Company has maintained product liability insurance in
an amount which it believes is adequate to cover its potential exposure in this
area.
Employees
The Company and its wholly-owned subsidiary, the Kamar Marketing Group,
Inc., currently employ the full-time equivalent of approximately twenty-one
employees. Nine employees are engaged in research and development activities,
seven in manufacturing, three and one-half in finance and administration, and
one and one-half in marketing and sales. The Company is not a party to any
collective bargaining agreement and considers its employee relations to be
excellent.
ITEM 2 - PROPERTIES
In November 1993, the Company paid $350,000 to purchase the 10,000
square foot building in which it had been renting approximately 6,000 square
feet at 56 Evergreen Drive in Portland, Maine. The Company financed the
acquisition through an $85,000 cash payment, a $220,000 first mortgage loan
from a bank and a $45,000 second mortgage loan from the seller, which second
mortgage was subsequently repaid. In March 1996, the Company moved its
manufacturing and warehouse operations into this building. In conjunction
with this consolidation, a lease for approximately 4,000 square feet to the
Company's tenant expired and a lease for approximately 3,300 square feet from
the Company's landlord for manufacturing and warehouse space in a different
building also expired. Facility modifications and improvements and capital
equipment expenditures necessary to complete this consolidation aggregated
approximately $400,000. The Company currently uses the space for all of its
office, laboratory and manufacturing needs.
The Company also maintains access to certain animals, primarily cows,
through contractual relationships with several farms. The Company believes
that these facilities are adequate for all current and projected needs.
ITEM 3 - LEGAL PROCEEDINGS
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock trades on The Nasdaq SmallCap Market tier of
The Nasdaq Stock Market under the symbol: ICCC. Additionally, as of April
1994, the Company's common stock was registered for trading on the Boston Stock
Exchange under the symbol: IMU. No dividends have been declared or paid
on the common stock since its inception, and the Company does not contemplate
the payment of cash dividends in the foreseeable future.
The following table sets forth the high and low sales price information
for ImmuCell's common stock as reported by The Nasdaq Stock Market during the
period January 1, 1995 through December 31, 1996:
1996 1995
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
High $6.13 $4.88 $3.63 $3.63 $1.44 $2.19 $2.75 $2.63
Low $2.06 $3.13 $2.50 $2.06 $1.03 $1.28 $1.75 $1.59
Such market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission. As of March 20, 1997, the Company had
8,000,000 ($.10 per share par value) common shares authorized and 2,329,564
common shares outstanding, and there were approximately 1,800 shareholders of
record. The last sales price of the Company's common stock on March 20, 1997
was $2.56 as quoted on The Nasdaq Stock Market.
ITEM 6 - SELECTED FINANCIAL DATA
The selected financial data set forth below has been derived from the
audited financial statements of the Company. The information should be read in
conjunction with the audited financial statements and related notes appearing
elsewhere in this Form 10-K.
Year Ended December 31,
1996 1995 1994 1993 1992
Statement of Operations Data:
Total Revenues $4,440,188 $4,937,529 $4,438,747 $3,941,342 $3,078,497
Product Sales 4,054,191 4,350,340 3,984,942 3,400,342 2,642,426
Research & Development
Expenses 1,291,043 1,578,145 1,366,294 879,181 505,521
Net (Loss) Profit (66,202) 29,811 (148,266) (22,008) (239,507)
Per Common Share:
Net (Loss) Profit (.03) .01 (.06) (.01) (.11)
Stockholders' Equity .81 .83 .82 .89 .79
Cash Dividend -- -- -- -- --
Balance Sheet Data:
Total Assets 3,131,399 3,234,426 3,074,649 3,126,244 2,301,347
Cash, Cash Equivalents
and Short term
Investments 1,044,441 1,550,011 1,295,246 1,459,510 1,116,905
Current Liabilities 684,163 720,767 569,377 444,034 467,372
Net Working Capital 1,405,099 1,849,580 1,727,525 2,160,300 1,619,305
Long Term Debt
Obligations 570,022 608,343 629,767 349,868 --
Stockholders' Equity $1,877,214 $1,905,316 $1,875,505 $2,332,342 $1,833,975
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Fiscal 1996 Compared to Fiscal 1995
Total revenues for the year ended December 31, 1996 of $4,440,000
decreased by $498,000 (10%) from $4,938,000 in 1995. Product sales for the
year ended December 31, 1996 of $4,054,000 were $296,000 (7%) less than the
product sales recorded in 1995. While product selling prices have generally
increased in line with inflation, the decrease in sales volume is generally due
to a decline in the price of beef at the farm level which leads farmers to
spend less on animal health products.
Sales of the Kamar Heatmount{TM} Detector totaled
approximately $2,289,000 (56% of total product sales) for the year ended
December 31, 1996 as compared to approximately $2,058,000 (47% of total product
sales) for the year ended December 31, 1995. Royalties paid to Kamar, Inc. of
Steamboat Springs, Colorado on these sales equaled approximately $198,000 and
$178,000 for 1996 and 1995, respectively.
Sales of First Defense totaled approximately $1,353,000
(33% of total product sales) for the twelve months ended December 31, 1996 as
compared to approximately $1,603,000 (37% of total product sales) for
the twelve months ended December 31, 1995. The primary cause of the sales
decline was the collapse of calf prices from over $1.00 per pound in 1995 to
less than $.60 per pound in 1996. Given these market conditions, farmers
elected to reduce their expenditures on a product like First
Defense in 1996. The sales of this product are seasonal with
highest sales expected in the winter months.
Sales of the Company's human infectious disease diagnostic reagents
decreased to approximately
$227,000 (6% of total product sales) for the year ended December 31, 1996 from
approximately $553,000 (13% of total product sales) for the year ended December
31, 1995.
Collaborative research and development revenue increased to
approximately $65,000 (1% of total revenues) in 1996 as compared to $10,000
(less than 1% of total revenues) in 1995. This $75,000 in revenue was earned
to support pilot plant development work with the Company's joint venture
partner to produce and sell lactoferrin.
Grant income decreased to approximately $321,000 (7% of total revenues)
in 1996 as compared to $577,000 in 1995. In 1994, the Company was awarded the
aggregate amount of approximately $932,000 under two federal research grants
that partially funded the Company's efforts to develop a product to prevent
infection by Cryptosporidium parvum. Work under these grants was completed in
1996. Approximately $269,000 and $465,000 was recognized in 1996 and 1995,
respectively, under these two grants. Grant income in 1996 also includes
approximately half of a $100,000 federal research grant obtained by the Company
to partially fund the development of a commercial prototype of the Company's
diagnostic test to detect Cryptosporidium parvum in water. Grant income in
1995 included $99,000 from a federal research grant supporting the Company's
effort to develop a milk antibody product to prevent Travelers' Diarrhea and
$13,000 received under a state research grant.
Interest expense exceeded interest income by approximately $30,000 in
1996. Interest and other income exceed interest expense by $33,000 in 1995.
Interest expense was incurred in both years on the Company's outstanding bank
debt. Other income in 1995 and 1994 included rental income from a lease to a
tenant that expired in October 1995.
Product costs amounted to 47% of product sales in 1996 as compared to
45% in 1995. Internally developed products tend to have higher gross margin
percentages than licensed-in products, and the Company expects to achieve
incremental efficiencies in the manufacturing processes, as it continues to
implement process improvements. The gross margin on human infectious disease
diagnostic reagents is better than the gross margin on the Company's animal
health products.
The Company decreased its expenditures for research and development to
approximately $1,291,000 in 1996 as compared to $1,578,000 in 1995. Research
and development expenses exceeded collaborative research and development
revenue and grant income by approximately $905,000 in 1996 and by $991,000 in
1995. The 1996 spending on research and development aggregated 29% of total
revenues as compared to 32% in 1995.
The primary focus of the Company's research and development programs is
on the development of passive antibody products to prevent gastrointestinal
diseases. The Company has one product, CryptoGAM{TM}, in clinical trials to
prevent and/or treat cryptosporidiosis in AIDS patients and a second product,
TravelGAM{TM}, in clinical trials to prevent diarrhea caused by E. coli
(commonly known as Travelers' Diarrhea). The Company filed an Investigational
New Drug ("IND") application in early 1997 for a third product, DiffGAM{TM}, to
prevent and treat antibiotic-associated diarrhea. The Company has also
invested in the development of a test intended to detect the presence of
Cryptosporidium parvum in drinking water. Additionally, the Company has
conducted significant development of a milk purification process that may have
commercial utility for certain food ingredient applications.
Research and development expenses that are not supported by an outside
source of revenue are the primary cause of the Company's loss in 1996. The
Company believes that a net operating loss may be incurred in 1997 and that
this expected loss can be funded internally. The Company believes that
advancing its research and development programs and incurring the resulting
loss is necessary to create value in its product portfolio by performing early
stage validation of its technology. However, for product development to
proceed into more expensive Phase III clinical trials, potential partners or
new sources of capital would be required to fund much of the continued clinical
trial expenses.
Sales and marketing expenses decreased by $96,000 (a 12% decrease) to
$710,000 (18% of total product sales) in 1996 from $806,000 (19% of total
product sales) in 1995. The Company continues to leverage its small sales force
through wholesale distribution channels. General and administrative expenses
were approximately $588,000 in 1996 as compared to $600,000 in 1995. The
Company has continued its efforts to control its general and administrative
expenses while incurring all the necessary expenses associated with being a
publicly held company.
Fiscal 1995 Compared to Fiscal 1994
Total revenues for the year ended December 31, 1995 of $4,938,000
increased by $499,000 (11%) from $4,439,000 in 1994. Product sales for the
year ended December 31, 1995 of $4,350,000 were $365,000 (9%) greater than the
product sales recorded in 1994. While product selling prices have generally
increased in line with inflation, the increase in total product sales is
principally due to an increased volume of product sold.
Sales of the Kamar Heatmount{TM} Detector totaled
approximately $2,058,000 (47% of total product sales) for the year ended
December 31, 1995 as compared to approximately $2,146,000 (54% of total product
sales) for the year ended December 31, 1994. Royalties paid to Kamar, Inc. of
Steamboat Springs, Colorado on these sales equaled approximately $178,000 and
$192,000 for 1995 and 1994, respectively.
Sales of First Defense totaled approximately $1,603,000
(37% of total product sales) for the twelve months ended December 31, 1995 as
compared to approximately $1,298,000 (33% of total product sales) for
the twelve months ended December 31, 1994. The Company obtained USDA approval
to sell this product in September 1991. The sales of this product are seasonal
with highest sales expected in the winter months.
Sales of the Company's human infectious disease diagnostic reagents
increased to approximately
$553,000 (13% of total product sales) for the year ended December 31, 1995 from
approximately $367,000 (9% of total product sales) for the year ended December
31, 1994.
Collaborative research and development revenue decreased to
approximately $10,000 (less than 1% of total revenues) in 1995 as compared to
$250,000 (6% of total revenues) in 1994. The 1995 revenue supported
a small portion of the Company's effort to purify specialty proteins from
cheese whey. The 1994 revenue contributed to the funding of the Company's
research program intended to develop a passive antibody product to prevent
cryptosporidiosis in AIDS patients.
Grant income increased to approximately $577,000 (12% of total
revenues) in 1995 as compared to $204,000 in 1994 principally as the result of
revenue recognized under two federal government research grants obtained by the
Company in 1994. These two grants provide aggregate funding of $932,000 over
two years. Funding aggregating $269,000 under these two grants will be
recognized as the work is completed in 1996. The first grant is intended to
partially fund development of a recombinant vaccine to Cryptosporidium parvum
for animals and humans, utilizing several cloned antigens of Cryptosporidium
parvum to which the Company holds an exclusive world-wide license from the
Regents of the University of California. The second grant supports further
research and development of ImmuCell's passive antibody product to prevent
and/or treat cryptosporidiosis in AIDS patients. The 1995 grant income was
also increased due to the receipt of a $99,000 federal government research
grant to support an epidemiology study related to the Company's passive
antibody product to prevent Travelers' Diarrhea.
Interest and other income exceeded interest expense by approximately
$33,000 in 1995 as compared to a $27,000 excess in 1994. Other income is
comprised primarily of rental income for space leased to a tenant in the
building that the Company owns. Interest expense increased as the result of
additional interest expense incurred under a $500,000 bank note entered into in
October 1994 and a $200,000 bank note entered into in September 1995.
Product costs as a percentage of product sales decreased to 45% in 1995
from 49% in 1994. The Company expects its product sales mix to continue to
shift to more internally developed products which tend to have higher gross
margin percentages than licensed-in products and expects to achieve incremental
efficiencies in the manufacturing processes, as it continues to implement
process development improvements. The increase in sales of human infectious
disease diagnostic reagents also contributed to the improved gross margin, as
the gross margin experienced on these reagents is better than the gross margin
on the Company's animal health products.
The Company increased its expenditures for research and development to
approximately $1,578,000 in 1995 as compared to $1,366,000 in 1994. Research
and development expenses exceeded collaborative research and development
revenue and grant income by approximately $991,000 in 1995 and by $912,000 in
1994. The 1995 spending on research and development aggregated 32% of total
revenues as compared to 31% in 1994.
The primary focus of the Company's research and development programs is
on the development of passive antibody products to prevent gastrointestinal
diseases. The Company has one product, CryptoGAM{TM}, in clinical trials to
prevent and/or treat cryptosporidiosis in AIDS patients and a second product,
TravelGAM{TM}, in clinical trials to prevent diarrhea caused by E. coli
(commonly known as Travelers' Diarrhea). The Company intends to file an
Investigational New Drug ("IND") application by early 1997 for a third product,
DiffGAM{TM}, to prevent Clostridium difficile associated colon diseases that
commonly occur after broad spectrum antibiotic usage. The Company has also
invested in the development of a test intended to detect the presence of
Cryptosporidium parvum in drinking water. Additionally, the Company has
conducted significant development of a milk purification process that may have
commercial utility for certain food ingredient applications. Research and
development expenses that are not supported by an outside source of revenue are
the primary cause of the Company's limited profit in 1995 and operating losses
in prior years.
Sales and marketing expenses increased by $50,000 (a 7% increase) to
$806,000 (19% of total product sales) in 1995 from $756,000 (19% of total
product sales) in 1994. The Company continues to leverage its small sales force
through wholesale distribution channels. General and administrative expenses
were approximately $600,000 in 1995 as compared to $533,000 in 1994. The
Company has continued its efforts to control its general and administrative
expenses while incurring all the necessary expenses associated with being a
publicly held company.
Financial Position, Liquidity and Capital Resources
The Company's total assets decreased to $3,131,000 at December 31, 1996
from $3,234,000 at December 31, 1995. The Company's cash balance as of
December 31, 1996 decreased to $1,044,000 from $1,550,000 at December 31, 1995.
Net working capital decreased to $1,405,000 at December 31, 1996 from
$1,850,000 at December 31, 1995. Stockholders' equity at December 31, 1996 of
$1,877,000 compares to $1,905,000 at December 31, 1995.
As is the case with most early stage biotechnology companies, the
Company funds a large portion of its research and development expenses through
strategic alliances with corporate partners, federal research grants and equity
financing with the prospect of becoming profitable if products can be
successfully commercialized. The size of the Company's research and
development programs and the speed at which these programs are funded is, in
large part, determined by the level of financing completed. However, during
the year ended December 31, 1996, the gross margin from product sales was
sufficient to contribute $869,000 to the research and development programs
after covering all general, sales and administrative expenses. This
$869,000 contribution compares to a $988,000 contribution in 1995, a $737,000
contribution in 1994, a $287,000 contribution in 1993 and a $190,000 deficit
in 1992. The contribution from the operating (non-research and development)
side of the Company's business allows the Company to be less dependent on
raising capital in the equity markets to fund its ongoing operations.
Since 1990, the Company has been awarded five Phase I and two Phase II
Small Business Innovation Research grants from the National Institutes of
Health. These grants aggregate approximately $1,281,000 in funding for the
Company's research and development programs. Approximately $911,000 of this
grant income was recognized prior to 1996, approximately $321,000 was
recognized in 1996 and approximately $49,000 is expected to be recognized in
1997. The Company continues to seek federal research grant support as a means
of leveraging the funds that it is able to spend developing new products.
Long term debt decreased from $608,000 at December 31, 1995 to $570,000
at December 31, 1996. The current portion of these mortgage and bank note debt
obligations increased from $169,000 at December 31, 1995 to $229,000 at
December 31, 1996. The Company is obligated to make monthly principal and
interest payments aggregating $25,000 under these debt obligations. (See Note
4 to the accompanying financial statements for further detail on these debt
obligations).
Management believes that its current cash and investments balance will
be sufficient to meet its operating and capital requirements in 1997.
Management intends to keep expenditure levels in the appropriate relation to
the amount of equity raised, expected revenues and the resulting amount of
available cash.
Forward-Looking Statements
The statements contained in this report which are not historical fact
are "forward-looking statements" that involve various important assumptions,
risks, uncertainties and other factors. There can be no assurance that actual
results will not differ materially from those projected or suggested in such
statements as a result of various factors including, but not limited to, the
risk factors discussed below. The Company is heavily dependent on the
successful development of new products for its future growth. These new
products have the potential to make the Company profitable.
The Company has entered into two joint ventures that are preparing to
launch commercial sales of new products in 1997. First, the manufacturing
facility being constructed by AgriCell for the production of lactoferrin is
intended to produce product valued at up to $2,000,000 annually at full
capacity. (See Item 1 - Business, "Two Joint Ventures Formed in 1996 to
Commercialize Two New Products in 1997.) Secondly, the Company has estimated
that sales by Clearwater Diagnostics Company, LLC of Crypto-Scan{TM }water
diagnostic test could approximate $20,000,000 per year if market acceptance can
be achieved and maintained. (See Item 1 - Business, "Two Joint Ventures Formed
in 1996 to Commercialize Two New Products in 1997".) The Company believes that
its joint ventures can exceed a 50% gross margin on these products, but the
ultimate profitability of these joint ventures can not be predicted at this
time.
If clinical trials are successful, sales of TravelGAM{TM}, DiffGAM{TM}
and CryptoGAM{TM} would not be anticipated to begin until 1999, due to the
complex regulatory process required to obtain approval of these products. If
the products are successfully developed, the Company intends to enter into
marketing alliances with corporate partners to distribute these products. The
Company estimates that any such partner could achieve potential sales of
TravelGAM in the range of $75,000,000 to $125,000,000, and potential sales of
DiffGAM could be approximately twice that amount. Market estimates for sales
of CryptoGAM are being decreased due to the significant impact that new drug
therapies may have on AIDS-related complications. With the expectation of
staying involved with these products as a manufacturer, the Company would
expect to financially benefit from licensing and royalty payments from, and/or
the gross margin on sales made to, its marketing partner(s). The Company
believes it can exceed a 50% gross margin on these products, but the
ultimate profitability of these products can not be predicted at this time.
By reducing research and development expenses, the Company presently
has the ability to report a net profit. However, the Company has elected to
aggressively fund its research and development programs with the objective of
benefiting from the growth that successful new products may create. The
Company intends to fund several important clinical trials in 1997 that may
create a net operating loss. At the same time, the Company is seeking up front
licensing payments for rights to the Company's water test and whey protein
isolate processing technology that, if successfully negotiated, may be
sufficient to create a net operating profit in 1997.
Going forward into 1998, it is the Company's objective to enter into an
alliance(s) with a marketing partner(s) to fund substantially all of the
Company's research and development expenditures. It is the Company's objective
to fund all selling, general and administrative expenses as well as all
research and development expenditures that are not funded by an outside source
with the gross margin earned from current product sales and from available
cash. If the research and development funding objectives are achieved, the
profitability of the Company would principally be determined by the market
acceptance of Crypto-Scan{TM}, lactoferrin and whey protein isolate. Further
growth in profitability would be principally contingent on successfully
entering into marketing alliances with corporate partners and obtaining FDA
approval to sell the Company's milk antibody products for humans.
Risk Factors
The development of these new products is subject to financial,
efficacy, regulatory and market risks. There can be no assurance that the
Company will be able to finance the development of these new product
opportunities nor that, if financed, the new products will be found to be
efficacious and gain the appropriate regulatory approval. Furthermore, if
regulatory approval is obtained, there can be no assurance that the market
estimates will prove to be accurate or that market acceptance at a profitable
price level can be achieved or that the products can be profitably
manufactured.
Effects of Inflation and Interest Rates
The Company believes that neither inflation nor interest rates have had
a significant effect on revenues and expenses.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company, together with the notes
thereto and the report of the accountants thereon, are set forth on Pages F-1
through F-13 at the end of this report.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(A) Information with respect to the Company's directors is incorporated
herein by reference to the section of the Company's 1997 Proxy Statement titled
"Election of the Board of Directors", which is intended to be filed with the
Securities and Exchange Commission within 120 days after the end of the
Company's fiscal year.
(B) The Company's executive officers are as follows:
MICHAEL F. BRIGHAM (Age: 36, Officer Since: October 1991) was elected Chief
Financial Officer and Treasurer of the Company in October 1991 and was
appointed Secretary in December 1995. Prior to that, he served as Director of
Finance and Administration for the Company since September 1989. Prior to
joining the Company, he was employed as an audit manager for the public
accounting firm of Ernst & Young. Mr. Brigham earned his Masters in Business
Administration from New York University in 1989.
JOSEPH H. CRABB, Ph.D. (Age: 42, Officer Since: March 1996) was elected Vice
President of Research and
Development of the Company in March 1996. Prior to that, he served as Director
of Research and Development for the Company. Dr. Crabb currently holds a
Clinical Assistant Professorship at Tufts University School of Veterinary
Medicine and serves on the AIDS and Related Research Study Section 5 at the
Division of Research Grants, National Institutes of Health. Prior to joining
the Company in 1988, Dr. Crabb earned his Ph.D. in Biochemistry from Dartmouth
Medical School and completed postdoctoral studies in microbial pathogenesis at
Harvard Medical School, where he also served on the faculty.
THOMAS C. HATCH (Age: 43, Officer Since: October 1991, Director Since: August
1992) was elected President and Chief Executive Officer of the Company in
October 1991 and is a member of the Executive Committee of the Company's Board
of Directors. Prior to that, he served as Manager of Commercial Development
for the Company since May 1989. Prior to joining the Company, he held various
product management and sales positions in the Animal Health and Crop Protection
Chemical businesses of the American Cyanamid Company. Prior to that, he had
been an Economic Analyst with the U.S. Department of Agriculture in Washington.
Mr. Hatch earned his Masters in Business Administration from the University of
Virginia in 1984.
There is no family relationship between any director, executive
officer, or person nominated or chosen by the Company to become a director or
executive officer.
ITEM 11 - EXECUTIVE COMPENSATION
Information regarding cash compensation paid to executive officers of
the Company is incorporated herein by reference to the section of the Company's
1997 Proxy Statement titled "Executive Compensation", which is intended to be
filed with the Securities and Exchange Commission within 120 days after the end
of the Company's fiscal year.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding ownership of the Company's common stock by
certain owners and management is incorporated herein by reference to the
section of the Company's 1997 Proxy Statement titled "Security Ownership of
Certain Beneficial Owners and Management", which is intended to be filed with
the Securities and Exchange Commission within 120 days after the end of the
Company's fiscal year.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 of the Registrant's 1987 Registration
Statement Number 33-12722 on Form S-1 as filed with the Commission).
3.2 Certificate of Amendment to the Company's Certificate of Incorporation
(incorporated by reference to Exhibit 4.1 to the Registrant's
Quarterly Report on Form 10-Q for the three months ended June
30, 1990).
3.3 Bylaws of the Registrant as amended (incorporated by reference to
Exhibit 3.3 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995).
3.4 Certificate of Amendment to the Company's Certificate of Incorporation
effective August 24, 1992 (incorporated by reference to Exhibit 3.4 of
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992).
4.1 Specimen of the Company's Common Stock Certificate (incorporated by
reference to Exhibit 4.1 to the Registrant's Quarterly Report on Form
10-Q for the three months ended September 30, 1990).
4.2 $220,000 Note payable to Peoples Heritage Bank dated November 3, 1993
(incorporated by reference to Exhibit 4.1 to the Registrant's Current
Report on Form 8-K dated November 4, 1993).
4.3 $500,000 Commercial Note to Peoples Heritage Bank dated October 7, 1994
(incorporated by reference to Exhibit 4.1 to the Registrant's Quarterly
Report on Form 10-Q for the three months ended September 30, 1994).
4.4 $200,000 Commercial Note payable to Peoples Heritage Bank dated September
28, 1995 (incorporated by reference to Exhibit 4.1 to the Registrant's
Quarterly Report on Form 10-Q for the three months ended September 30,
1995).
4.5 Rights Agreement dated as of September 5, 1995, between the Registrant and
American Stock Transfer and Trust Co., as Rights Agent, which includes as
Exhibit A thereto the form of Right Certificate and as Exhibit B thereto
the Summary of Rights to Purchase Common Stock (incorporated by reference
to Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated
September 5, 1995).
4.6 $200,000 Commercial Note Payable to Peoples Heritage Bank dated September
13, 1996 (incorporatedby reference to Exhibit 4.1 to the Registrant's
Quarterly Report on Form 10-Q for the three monthsended September 30,
1996).
10.1{+} 1989 Stock Option and Incentive Plan of the Registrant (incorporated
by reference to Exhibit 10.27 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1989).
10.2{+} Form of Incentive Stock Option Agreement (incorporated by reference to
Exhibit 10.28 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989).
10.3{+} Form of Indemnification Agreement entered into with each of the
Company's directors and officers (incorporated by reference to Exhibit
10.32 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1989).
10.4{+} Employment Agreement dated November 1991 between the Registrant and
Michael F. Brigham (incorporated by reference to Exhibit 10.37 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991).
10.5{+} Employment Agreement dated November 1991 between the Registrant and
Thomas C. Hatch (incorporated by reference to Exhibit 10.38 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991).
10.6{+} Amendment, dated April 1992, to Employment Agreement dated November
1991, between the Registrant and Michael F. Brigham (incorporated by
reference to Exhibit 10.26 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1992).
10.7{+} Amendment, dated April 1992, to Employment Agreement dated November
1991, between the Registrant and Thomas C. Hatch (incorporated by
reference to Exhibit 10.29 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1992).
10.8 License and Supply Agreement between Bio-Vac, Inc. and the Registrant
dated June 15, 1993 (incorporated by reference to Exhibit 10.25 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993).
10.9* ImmuCell - Advanced Separation Technologies, Inc. Agreement for
exclusivity in proteinseparation of milk or whey proteins, dated August
30, 1993 (incorporated by reference to Exhibit10.27 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1993).
10.10 Distribution and Licensing Agreement between Kamar, Inc. and the
Registrant dated December 3, 1993 (incorporated by reference to Exhibit
10.30 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993).
10.11 Amendment No. 1 to Agreement for Exclusivity between Advanced
Separation Technologies, Inc. and the Registrant dated January 14, 1994
(incorporated by reference to Exhibit 10.33 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1993).
10.12** Exclusive License Agreement between The Regents of the University of
California of Alameda, California and the Registrant dated February 23,
1994 (incorporated by reference to Exhibit 10.1 tothe Registrant's
Quarterly Report on Form 10-Q for the three months ended March 31,
1994).
10.13 Non-qualified Stock Option Agreement dated November 10, 1994 between
the Registrant and Redwood MicroCap Fund, Inc (incorporated by
reference to Exhibit 10.25 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994).
10.14 Amendment No. 2 to Agreement for Exclusivity between Advanced
Separation Technologies, Inc. and the Registrant dated December 16,
1994 (incorporated by reference to Exhibit 10.26 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1994).
10.15***License Agreement between Registrant and Wisconsin Alumni Research
Foundation effective March 1, 1995 (incorporated by reference to
Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for
the three months ended March 31, 1995).
10.16 1995 Stock Option Plan for Outside Directors (incorporated by reference
to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for
the three months ended June 30, 1995).
10.17 Form of Stock Option Agreement (incorporated by reference to Exhibit
10.2 to the Registrant's Quarterly Report on Form 10-Q for the three
months ended June 30, 1995).
10.18 Amendment No. 3 to Agreement for Exclusivity between Advanced
Separation Technologies, Inc. and the Registrant dated May 3, 1995
(incorporated by reference to Exhibit 10.5 to the Registrant's
Quarterly Report on Form 10-Q for the three months ended June 30,
1995).
10.19 Amendment No. 4 to Agreement for Exclusivity between Advanced
Separation Technologies, Inc. and the Registrant dated November 15,
1995 (incorporated by reference to Exhibit 10.28 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995).
10.20{+}Employment Agreement dated November 1991 between the Registrant and
Joseph H Crabb (incorporated by reference to Exhibit 10.30 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995).
10.21{+}Amendment, dated March 1992, to Employment Agreement dated November
1991, between theRegistrant and Joseph H. Crabb (incorporated by
reference to Exhibit 10.31 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1995).
10.22{+ }Amendment, dated April 1992, to Employment Agreement dated November
1991, between the Registrant and Joseph H. Crabb (incorporated by
reference to Exhibit 10.32 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995).
10.23****License Agreement dated March 25, 1996 between the Registrant and CSI
Clinical Trials, Inc. of FortLauderdale, Florida (incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the three months ended March 31, 1996).
10.24 Limited Liability Company Agreement of AgriCell Company, LLC dated as
of September 10, 1996between the Registrant and Agri-Mark, Inc. of
Methuen, MA (incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the three months ended
September 30, 1996).
10.25 Limited Liability Company Agreement of Clearwater Diagnostics Company,
LLC dated as of September17, 1996 between the Registrant and Membrex,
Inc. of Fairfield, NJ (incorporated by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the three months ended
September 30, 1996).
21.1 Subsidiaries of the Registrant.
23.1 Consent of Coopers & Lybrand.
27.1 Financial Data Schedule (Filed Only Electronically).
*Confidential Treatment as to certain portions obtained effective until
December 31, 2000. The copy filed as an exhibit omits the information subject
to the Confidential Treatment.
**Confidential Treatment as to certain portions obtained effective
until March 31, 1999. The copy filed as an exhibit omits the information
subject to the Confidential Treatment.
***Confidential Treatment as to certain portions has been requested
effective until March 1, 2005. The copy filed as an exhibit omits the
information subject to the confidentiality request.
****Confidential Treatment as to certain portions has been requested
effective until March 25, 2006. The copy filed as an exhibit omits the
information subject to the confidentiality request.
+ Management contract or compensatory plan or arrangement.
(b) Index to Financial Statement Schedules
Report of Coopers & Lybrand L.L.P., Independent Accountants F-1
Consolidated Balance Sheets - December 31, 1996 and 1995 F-2 to F-3
Consolidated Statements of Operatons for the years ended
December 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1996, 1995, and 1994 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements
F-7 to F-13
All financial statement schedules have been omitted as they are not required,
are not applicable, or the information is included in the consolidated
financial statements or otherwise.
(c) Reports on 8-K
None
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
ImmuCell Corporation
We have audited the accompanying consolidated balance sheets of ImmuCell
Corporation and Subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
ImmuCell Corporation and Subsidiary as of December 31, 1996 and 1995 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Portland, Maine
February 11, 1997
IMMUCELL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 and 1995
ASSETS
1996 1995
CURRENT ASSETS:
Cash and cash equivalents $1,044,441 $1,550,011
Accounts receivable, net of allowance
for doubtful accounts of $49,000 and
$51,000 at December 31, 1996 and 1995,
respectively 370,798 357,533
Inventories 648,276 636,203
Prepaid expenses and accrued interest 25,747 26,600
_______________________
Total current assets 2,089,262 2,570,347
EQUIPMENT, BUILDING AND
IMPROVEMENTS, at cost:
Laboratory and manufacturing equipment 754,891 844,254
Building and improvements 580,747 431,114
Office furniture and equipment 54,977 77,312
Land 50,000 50,000
_______________________
1,440,615 1,402,680
Less-accumulated depreciation 623,987 740,751
_____________________
Net equipment, building and
improvements 816,628 661,929
INVESTMENTS IN JOINT VENTURES 224,669 --
OTHER ASSETS 840 2,150
_______________________
TOTAL ASSETS $3,131,399 $3,234,426
=======================
The accompanying notes are an integral part of the financial
statements.
IMMUCELL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 and 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
________________________
CURRENT LIABILITIES:
Accounts payable $ 269,585 $ 236,471
Accrued expenses 185,256 250,412
Current portion of long term debt 229,322 168,884
Deferred income -- 65,000
________________________
Total current liabilities 684,163 720,767
LONG TERM DEBT:
Notes payable 367,165 401,055
Mortgage loan 202,857 207,288
________________________
Total long term debt 570,022 608,343
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY:
Common stock, Par value - $.10 per share
Authorized-8,000,000
Issued-2,719,162 and 2,681,579
shares at December 31, 1996 and
1995, respectively 271,916 268,159
Capital in excess of par value 8,139,791 8,105,448
Accumulated deficit (5,947,758) (5,881,556)
________________________
2,463,949 2,492,051
Treasury stock,at cost-389,598 shares (586,735) (586,735)
________________________
Total stockholders' equity 1,877,214 1,905,316
________________________
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $3,131,399 $3,234,426
========================
The accompanying notes are an integral part of the financial
statements.
IMMUCELL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
_______________________________________
REVENUES:
Product sales $4,054,191 $4,350,340 $3,984,942
Collaborative research
and development revenue 65,000 10,000 250,000
Grant income 320,997 577,189 203,805
_______________________________________
Total revenues 4,440,188 4,937,529 4,438,747
COSTS AND EXPENSES:
Product costs 1,886,745 1,957,095 1,959,653
Research and development
expenses 1,291,043 1,578,145 1,366,294
Sales and marketing
expenses 710,045 805,875 755,875
General and administrative
expenses 588,446 599,696 532,566 _______________________________________
Total costs and expenses 4,476,279 4,940,811 4,614,388
Interest and other income 44,899 105,624 72,012
Interest expense (75,010) (72,531) (44,637)
_______________________________________
Net interest and other (30,111) 33,093 27,375
_______________________________________
NET (LOSS) PROFIT $ (66,202) $ 29,811 $(148,266)
=======================================
NET (LOSS) PROFIT
PER COMMON SHARE $ (.03) $ .01 $ (.06)
=======================================
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 2,318,244 2,291,981 2,612,294
=======================================
The accompanying notes are an integral part of the financial
statements.
IMMUCELL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
Common Stock
$.10 Par Value Capital in Treasury Stock Total
------------------ Excess of Accumulated ---------------- Stockholders'
Shares Amount Par Value Deficit Shares Amount Equity
BALANCE,
December 31, 1993 2,681,579 $268,159 $8,105,448 $(5,763,101) 46,741 $(278,164) $2,332,342
Acquisition of
treasury stock -- -- -- -- 342,857 (308,571) (308,571)
Net loss -- -- -- (148,266) -- -- (148,266)
________________________________________________________________________________
BALANCE,
December 31, 1994 2,681,579 268,159 8,105,448 (5,911,367) 389,598 (586,735) 1,875,505
Net profit -- -- -- 29,811 -- -- 29,811
BALANCE,
December 31, 1995 2,681,579 268,159 8,105,448 (5,881,556) 389,598 (586,735) 1,905,316
Net loss -- -- -- (66,202) -- -- (66,202)
Exercise of
stock options 37,583 3,757 34,343 -- -- -- 38,100
BALANCE,
December 31, 1996 2,719,162 $271,916 $8,139,791 $(5,947,758) 389,598 $(586,735) $1,877,214
The accompanying notes are an integral part of the financial statements.
IMMUCELL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) profit $ (66,202) $ 29,811 $ (148,266)
Adjustments to reconcile net
(loss) profit to net cash
(used for) provided by
operating activities-
Depreciation and amortization 113,027 182,834 169,502
Changes in:
Accounts receivable (13,265) 43,646 (33,463)
Inventories (12,073) (70,672) (98,311)
Prepaid expenses and accrued
interest 853 8,346 (10,058)
Accounts payable 33,114 77,605 (43,861)
Accrued expenses and deferred
income (130,156) 26,447 80,486
Net cash (used for) provided
by operating activities (74,702) 298,017 (83,971)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment, building
and improvements, net (362,395) (77,318) (417,187)
Investment in joint ventures (130,000) -- --
Decrease (Increase) in other assets 1,310 8,152 (8,152)
Net cash used for investing
activities (491,085) (69,166) (425,339)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt obligations 200,000 200,000 530,000
Payments of debt obligations (177,883) (166,068) (141,275)
Proceeds from issuance of common stock 38,100 -- 285,000
Stock issuance costs -- (8,018) (20,108)
Acquisition of treasury stock -- -- (308,571)
Net cash provided by financing
activities 60,217 25,914 345,046
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (505,570) 254,765 (164,264)
BEGINNING CASH AND CASH
EQUIVALENTS 1,550,011 1,295,246 1,459,510
ENDING CASH AND CASH
EQUIVALENTS $ 1,044,441 $1,550,011 $1,295,246
===================================
CASH PAID FOR INTEREST $ 75,398 $ 73,945 $ 40,290
NON-CASH INVESTING ACTIVITIES:
TRANSFER OF NET FIXED ASSETS
TO JOINT VENTURE $ 94,669 -- --
===================================
The accompanying notes are an integral part of the financial statements.
IMMUCELL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BUSINESS OPERATIONS
ImmuCell Corporation (the "Company") is a biotechnology company that
primarily develops, manufactures and markets milk-derived passive antibody
products to prevent and/or treat gastrointestinal infections in both humans and
animals. The Company was originally incorporated in Maine in 1982 and
reincorporated in Delaware in March 1987. In May 1987, the Company had an
initial public offering of its common stock and became a reporting company
under the Securities Exchange Act of 1934.
The Company is subject to certain risks associated with its stage of
development including dependence on key individuals, competition from other
larger companies, the successful marketing of existing products and the
development of additional commercially viable products.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Consolidation Principles
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. Certain amounts in the 1995 and 1994 financial statements have
been reclassified to conform with the 1996 financial statement presentation.
(b) Cash and Cash Equivalents
The Company considers all highly liquid investment instruments
purchased with an original maturity of three months or less to be cash
equivalents.
(c) Inventories
Inventories include raw materials, work-in-process and finished goods
and are recorded at the lower of standard cost which approximates cost on the
first-in, first-out method or market (net realizable value). Work-in-process
and finished goods inventories include materials, labor and manufacturing
overhead.
Inventories consist of the following:
December 31,
1996 1995
Raw materials $ 55,682 $ 69,297
Work-in-process 548,083 513,956
Finished goods 44,511 52,950
$648,276 $636,203
========= =========
(d) Equipment, Building and Improvements
The Company provides for depreciation and amortization on the straight-
line method by charges to operations in amounts estimated to allocate the cost
of the assets over their estimated useful lives, generally equal to five to ten
years for equipment and ten years for building improvements. The cost of the
building is being depreciated over 30 years.
(e) Revenue Recognition
Revenues related to the sale of manufactured products are recorded at
the time of shipment to the customer. Collaborative research and development
revenue and income on government research grants is recognized under the
percentage-of-completion method. Percentages of completion are determined by
relating the actual cost of work performed to date to the estimated total cost
that the Company is obligated to incur under the applicable agreement.
Indirect costs which are billed to the government are subject to their review.
All related research and development costs are expensed as incurred, as are all
patent costs.
(f) Net (Loss) Profit Per Common Share
The net losses per common share have been computed by dividing the net
loss by the weighted average number of common shares outstanding during the
year. Common stock equivalents outstanding have not been included in the
computation, as the effect would be antidilutive, thereby decreasing the net
loss per common share. The 1995 net profit per common share has also been
computed by dividing the net profit by the weighted average number of common
shares outstanding during the year. The effect of including common stock
equivalents outstanding in this computation would have been less than $.01 per
share.
(g) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual amounts could differ from those estimates.
(3) INVESTMENT IN JOINT VENTURES
In the third quarter of 1996, the Company made investments in two joint
ventures, AgriCell Company, LLC, a Delaware limited liability company,
("AgriCell") and Clearwater Diagnostics Company, LLC, a Delaware limited
liability company, ("CDC"). The operating activity of these joint ventures for
the period from inception to December 31, 1996 was not material.
First, the Company and Agri-Mark, Inc. of Methuen, Massachusetts formed
AgriCell to manufacture and sell lactoferrin, a nutritional milk protein
derived from cheese whey. The Company invested $125,000 in new fixed assets
and other fixed assets with a net book value of approximately $95,000, and
further agreed to contribute one half-time equivalent employee during the
twelve month period ending August 31, 1997 and licensed certain proprietary
technology to AgriCell. Agri-Mark agreed to contribute approximately $650,000
for the purchase of fixed assets and approximately $150,000 to fund the
necessary initial working capital. Agri-Mark has the right to receive 90% of
the profits from the joint venture until it obtains the return of an amount
equal to its original investment, after which all profits are to be split
equally.
Second, the Company and Membrex, Inc., of Fairfield, New Jersey, formed
CDC to manufacture and sell Crypto-Scan{TM }water diagnostic test. This test
is designed to monitor water supplies for the presence of Cryptosporidium, a
dangerous parasite for which there is no effective method of detection. The
Company invested $5,000 in cash and licensed certain proprietary technology to
the joint venture and has the right to initially share equally with Membrex in
all profits from the sale of the test for use in monitoring drinking
water. Membrex is entitled to 55% of the profits beginning in the third year
of commercial sales.
(4) ACCRUED EXPENSES
Accrued expenses consisted of the following:
December 31,
1996 1995
Accrued royalties $ 59,349 $ 66,166
Accrued professional fees 32,682 53,525
Accrued payroll 30,332 55,603
Accrued other 62,893 75,118
$185,256 $250,412
======== ========
(5) DEBT OBLIGATIONS
The Company has long term debt obligations, net of current maturities,
as follows:
December 31,
1996 1995
10.27% Note payable to bank, collateralized by accounts
receivable, inventory and certain fixed assets,
due 1997 to 1998 $256,054 $375,420
9.5% Bank mortgage, collateralized by first security
interest in building, due 1997 to 2000 207,728 212,044
10.0% Note payable to bank, collateralized by accounts
receivable, inventory and certain fixed assets, due 1997
to 2000 189,701 --
9.62% Note payable to bank, collateralized by accounts
receivable, inventory and certain fixed assets, due 1997
to 1999 145,861 189,763
799,344 777,227
Less current portion 229,322 168,884
Long term debt $570,022 $608,343
======== ========
Principal payments under the above debt obligations due subsequent to
December 31, 1996 are approximately as follows: $229,000 (1997); $230,000
(1998); $104,000 (1999); and $236,000 (2000). The difference between the fair
value and the carrying value of these debt obligations is immaterial.
(6) INCOME TAXES
The Company adopted Financial Accounting Standards Board (FASB)
Statement No. 109 effective January 1, 1993. Adoption of the Statement had no
impact on the financial statements as the Company provided a valuation
allowance for its net deferred tax assets at January 1, 1993.
The Company has no net deferred taxes at December 31, 1996 as the net
deferred tax assets (consisting of the tax effect of net operating loss
carryforwards amounting to approximately $2,148,000, tax credit carryforwards
of approximately $217,000 and temporary differences relating principally to
depreciation) have been fully reserved for due to the uncertainty of future
taxable income.
At December 31, 1996 the Company had available net operating loss
carryforwards of approximately $5,370,000. The Company also had available at
December 31, 1996 approximately $217,000 of tax credits to reduce future
federal income taxes, if any. The operating loss and tax credit carryforwards
expire in 1998 through 2011. These carryforwards are subject to review and
possible adjustment by the Internal Revenue Service. The Tax Reform Act of
1986 contains provisions which may limit the net operating loss carryforwards
available to be used in any given year in the event of certain significant
changes in ownership interests. The Company does not believe that the
cumulative effect of all ownership changes to date will reduce the availability
of its net operating loss carryforwards. In 1995, the Company's taxable income
was fully offset by available net operating loss carryforwards.
(7) STOCKHOLDERS' EQUITY
(a) Acquisition of Treasury Stock
In December 1994, the Company repurchased the 342,857 shares of its
common stock held by Cambridge Biotech Corporation for the aggregate
consideration of $308,571. These shares represented approximately 13% of the
Company's common stock prior to the repurchase.
(b) Stock Options
In April 1992, a total of 200,000 nonqualified stock options were issued
to the three executive officers of the Company at $1.05 per share, the then
current market price of the Company's common stock. These options, which were
granted outside of the stock option plans described below, expire in April
2002. Half of these options became exercisable in April 1993, and the
remaining half became exercisable in April 1994.
In November 1994, the Company entered into a non-exclusive investment
banking contract with Redwood MicroCap Fund of Colorado Springs, Colorado
("Redwood"). As compensation for services provided under this contract, the
Company issued 30,000 non-qualified stock options to Redwood, which are
exercisable at $1.45 per share as to 10,000 shares on and after November 2,
1995, an additional 10,000 shares on and after November 2, 1996, and the
remaining 10,000 shares on and after November 2, 1997. The options expire
completely to the extent not exercised on or before November 2, 1999.
(c) Stock Option Plans
In May 1989, the stockholders approved the 1989 Stock Option and
Incentive Plan (the "1989 Plan") pursuant to the provisions of the Internal
Revenue Code of 1986, under which employees may be granted options to purchase
shares of the Company's common stock at i) no less than fair market value on
the date of grant in the case of incentive stock options and ii) no less than
85% of fair market value on the date of grant in the case of non-qualified
stock options. Vesting requirements are determined by the Compensation
and Stock Option Committee of the Board of Directors on a case by case basis.
Originally, 90,000 shares of common stock were reserved for issuance under the
1989 Plan; the stockholders of the Company approved an increase in this number
to 190,000 shares at the August 1992 Annual Meeting and a further increase in
this number to 290,000 shares at the June 1994 Annual Meeting. All options
granted under the 1989 Plan expire no later than ten years from the date of
grant.
In February 1990, the Board of Directors adopted the 1990 Stock Option
Plan for Outside Directors (the "1990 Plan"). The 1990 Plan was approved by
the stockholders of the Company on July 23, 1990. Under the 1990 Plan, each
director who was not an employee of the Company on the date the 1990 Plan was
adopted was automatically granted a non-qualified stock option to purchase
2,250 shares of common stock at the fair market value on the day preceding the
date of grant. Directors who were newly elected to the Board subsequent to
that date received an automatic grant of an option to purchase 2,250 shares, at
the fair market value on the day preceding the date of the grant. All options
granted under the 1990 Plan expire no later than five years from the date of
grant. The 1990 Plan expired on February 2, 1995, and no further grants of
options may be made under the 1990 Plan. The only outstanding grant of options
as of December 31, 1995 was exercised in full as to 2,250 shares during 1996.
In February 1995, the Board of Directors adopted the 1995 Stock Option
Plan for Outside Directors (the "1995 Plan"). The 1995 Plan was approved by the
stockholders of the Company on June 23, 1995. Under the 1995 Plan, each
director who was not an employee of the Company on the date the Plan was
adopted was automatically granted a non-qualified stock option to purchase
8,000 shares of common stock at its fair market value on the date of the grant.
Directors who are newly elected to the Board subsequent to February 1995
receive an automatic grant of an option to purchase 8,000 shares, at fair
market value on the date when such directors are first elected to the Board by
the stockholders. As of February 1995, 64,000 shares of common stock were
reserved for issuance under the 1995 Plan. Options to purchase an aggregate of
40,000 shares were automatically granted on the date the Plan was adopted by
the Board of Directors. Of these 40,000 options, 8,000 terminated in September
1995. Options to purchase another 8,000 shares were automatically granted on
June 23, 1995. One half of the shares subject to the options became
exercisable after the 1996 Annual Meeting of Stockholders, and the remaining
half of the shares subject to the options will become exercisable after the
1997 Annual Meeting of Stockholders. All options granted under the 1995 Plan
expire no later than five years from the date of grant.
Activity under the stock option plans described above, was as follows:
Weighted Average
1989 Plan 1995 Plan 1990 Plan Exercise Price
Balance at December 31, 1993 135,500 9,000 $2.17
Grants 22,500 2,250 2.11
Terminations (4,000) (2,250) 1.57
Balance at December 31, 1994 154,000 0 9,000 2.18
Grants 84,000 48,000 -- 1.69
Terminations (46,750) (8,000) (6,750) 3.57
Balance at December 31, 1995 191,250 40,000 2,250 1.54
Grants 94,500 -- -- 3.44
Terminations (20,417) -- -- 1.37
Exercises (35,333) -- (2,250) 1.01
Balance at December 31, 1996 230,000 40,000 0 2.29
Exercisable at
December 31, 1996 93,632 20,000 0 $1.65
At December 31, 1996, approximately 548,667 common shares were reserved
for future issuance under all warrants, stock options and stock option plans
described above.
(d) Compliance with Financial Accounting Standards Board New Accounting
Standards
In 1995, the Financial Accounting Standards Board ("FASB") issued
"Statement of Financial Accounting Standard (SFAS) No. 123 - Accounting for
Stock-Based Compensation". This statement requires a fair value based method
of accounting for employee and director stock options and would result in
expense recognition for the Company's stock plans. It also permits a Company
to continue to measure compensation expense for such plans using the intrinsic
value based method as prescribed by Accounting Principles Board Opinion No. 25
(APB 25), "Accounting for Stock Issued to Employees". The Company has elected
to follow APB No. 25 in accounting for its stock plans, and accordingly, no
compensation cost has been recognized.
Had compensation cost for the Company's stock plans been determined
based on the fair value requirements of SFAS No. 123, the Company's net (loss)
income and net (loss) income per share would have been reduced to the proforma
amounts indicated below:
1996 1995
Net (loss) income As reported $(66,202) $29,811
Proforma $(176,263) $13,551
Net (loss) income
per share As reported $(.03) $.01
Proforma $(.08) $.01
The weighted average remaining life of the options outstanding under
the 1989 Plan and the 1995 Plan as of December 31, 1996 was approximately seven
years. The exercise price of the options outstanding and options exercisable
as of December 31, 1996 ranged from $1.25 to $4.00 and from $1.25 to $2.19 per
share, respectively. The weighted-average grant date fair values of options
granted during 1996 and 1995 were $2.40 and $1.37 per share, respectively. The
fair value of each stock option grant has been estimated on the date
of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions:
1996 1995
Risk-free interest rate 6.4% 6.4%
Dividend yield 0 0
Expected volatility 89.3% 89.3%
Expected life 5 years 5 years
In February 1997, the FASB issued SFAS No. 128 - "Earnings Per Share",
which is effective for fiscal years ending after December 15, 1997. The
Company has not yet determined what impact this new statement will have on the
financial statements.
(e) Common Stock Rights Plan
On September 5, 1995, the Board of Directors of the Company adopted a
Common Stock Rights Plan and declared a dividend of one common share purchase
right (a "Right") for each of the then outstanding shares of the common stock
of the Company. The dividend was distributed to the shareholders of record as
of the close of business on September 19, 1995. Each Right entitles the
registered holder to purchase from the Company one share of common stock at an
initial purchase price of $70.00 per share, subject to adjustment. The
description and terms of the Rights are set forth in a Rights Agreement between
the Company and American Stock Transfer & Trust Co., as Rights Agent.
The Rights become exercisable and transferrable apart from the common
stock upon the earlier of (i) 10 days following a public announcement that a
person or group (acquiring person) has, without the prior consent of the
Continuing Directors (as such term is defined in the Rights Agreement),
acquired beneficial ownership of 15 percent or more of the outstanding common
stock, or (ii) 10 days following commencement of a tender offer or exchange
offer the consummation of which would result in ownership by a person or group
of 20% or more of the outstanding common stock (the earlier of such dates being
called the "Distribution Date").
Upon the acquisition of 15% or more of the Company's common stock by an
acquiring person, the holder of each Right not owned by the acquiring person
would be entitled to purchase common stock having a market value equal to two
times the exercise price of the Right (i.e., at a 50 percent discount). If,
after the Distribution Date, the Company should consolidate or merge with any
other entity and the Company were not the surviving company, or, if the Company
were the surviving company, all or part of the Company's common stock were
changed or exchanged into the securities of any other entity, or if more than
50% of the Company's assets or earning power were sold, each Right would
entitle its holder to purchase, at the Rights' then-current purchase price, a
number of shares of the acquiring company's common stock having a market value
at that time equal to twice the Right's exercise price.
At any time after a person or group becomes an acquiring person and
prior to the acquisition by such person or group of 50% or more of the
outstanding common stock, the Board of Directors of the Company may exchange
the Rights (other than Rights owned by such person or group which have become
void), in whole or in part, at an exchange ratio of one share of common stock
per Right (subject to adjustment).
At any time prior to fourteen days following the date that any person
or group becomes an acquiring person (subject to extension by the Board of
Directors), the Board of Directors of the Company may redeem the then
outstanding Rights in whole, but not in part, at a price of $.005 per Right,
subject to adjustment. The Rights will expire on the earlier of (i) the close
of business on September 19, 2005, or (ii) the time at which the Rights are
redeemed by the Company.
(8) SEGMENT AND SIGNIFICANT CUSTOMER INFORMATION
The Company operates in the single business segment described in Note
1. The Company's primary customers for the majority of its current product
sales (68%) are in the United States dairy and beef industries. Revenues
derived from foreign customers, who are also in the dairy and beef industries,
were approximately $1,065,000, $862,000 and $952,000 during the years ended
December 31, 1996, 1995 and 1994, respectively.
Collaborative research and development revenue comprised 1% ($65,000),
less than 1% ($10,000) and 6% ($250,000) of total revenues in the years ended
December 31, 1996, 1995 and 1994, respectively. Government grant income
amounted to approximately 7% ($321,000), 12% ($577,000) and 5% ($204,000) of
total revenues in the years ended December 31, 1996, 1995 and 1994,
respectively.
(9) COMMITMENTS AND CONTINGENCIES
The Company has entered into employment contracts with its three
executive officers which could require the Company to pay from two to four
months' salary as severance pay depending upon the circumstances of any
termination of employment of these key employees.
In order to maintain an exclusive world-wide license to the use of a
certain milk whey purification machine for all milk purification applications,
the Company must meet certain performance requirements, including the purchase
of a machine valued at approximately $500,000 by December 1997.
In December 1993, the Company entered into a renewal of its service and
license agreement effective through December 31, 1999 with Kamar, Inc. whereby
Kamar will continue to provide the Company warehousing, distribution and
certain other services and the Company will continue to market a certain bovine
heat detection device under an exclusive world-wide license. The renewal
agreement is cancelable by either party upon twelve months written notice. The
Company is committed to pay Kamar a monthly fee for distribution services and
related license fees of $20,100 until the license agreement is canceled.
Royalties paid on sales made during the years ended December 31, 1996, 1995 and
1994 were $198,000, $178,000 and $192,000, respectively.
The research, manufacturing and marketing of human and animal health
care products by the Company entail an inherent risk that liability claims will
be asserted against the Company. The Company feels it has adequate levels of
liability insurance to support its operations.
(10) EMPLOYEE BENEFITS
The Company has a 401(k) savings plan in which all employees completing
one year of service with the Company (working at least 1,000 hours) are
eligible to participate. Participants may contribute up to 20% of their annual
compensation to the plan, subject to certain limitations. Beginning January 1,
1994, the Company has matched 50% of each employee's contribution to the plan
up to a maximum match of 3% of each employee's compensation. Under this
matching contribution program, the Company paid the aggregate of $22,000,
$23,000 and $21,000 to the plan for the years ended December 31, 1996, 1995 and
1994, respectively. The Company intends to continue this same matching
contribution program in 1997.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
IMMUCELL
CORPORATION
Date: March 27, 1997 By: /s/ Thomas C. Hatch
Thomas C. Hatch
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
We, the undersigned directors and officers of ImmuCell Corporation hereby
severally constitute and appoint Thomas C. Hatch and Michael F. Brigham, and
each of them (with full power to each of them to act alone), our true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for us and in our stead, in any and all capacities, to sign any
and all amendments to this report and all documents relating thereto, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing necessary or advisable to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or any of them, or their substitute or substitutes, may
lawfully do or to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 27, 1997 By: /s/ Michael F. Brigham
Michael F. Brigham
Chief Financial Officer,
Treasurer & Secretary
Date: March 27, 1997 By: /s/ Anthony B. Cashen
Anthony B. Cashen, Director
Date: March 27, 1997 By: /s/ Thomas C. Hatch
Thomas C. Hatch
President, Chief Executive
Officer & Director
Date: March 27, 1997 By: /s/ George W. Masters
George W. Masters
Chairman of Board of Directors
Date: March 27, 1997 By: /s/ William H. Maxwell
William H. Maxwell, M.D., Director
Date: March 27, 1997 By: /s/ John R. McKernan
John R. McKernan, Jr., Director
Date: March , 1997 By:
Mitchel Sayare, Director
IMMUCELL CORPORATION AND SUBSIDIARY
Exhibit Index
21.1 Subsidiaries of the Registrant.
23.1 Consent of Coopers & Lybrand.
27.1 Financial Data Schedule (Filed Only Electronically).
IMMUCELL CORPORATION AND SUBSIDIARY
Exhibit 21.1
Subsidiaries of the Registrant
1) The Kamar Marketing Group, Inc., a Colorado Corporation, is a wholly-
owned subsidiary of the Registrant. Kamar Marketing Group, Inc. sometimes does
business under the name KMG.
2) AgriCell Company, LLC, a Delaware limited liability company, is a joint
venture subsidiary of the Registrant. AgriCell Company, LLC sometimes does
business under the name AgriCell.
3) Clearwater Diagnostics Company, LLC, a Delaware limited liability
company, is a joint venture subsidiary of the Registrant. Clearwater
Diagnostics Company, LLC sometimes does business under the name CDC.
IMMUCELL CORPORATION AND SUBSIDIARY
Exhibit 23.1
Consent of Coopers & Lybrand
CONSENT OF INDEPENDANT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement of
ImmuCell Corporation on Form S-8 of our report dated February 11, 1997, on our
audits of the consolidated financial statements of ImmuCell Corporation, which
report is included in the annual report on Form 10-K for the year ended
December 31, 1996.
/s/ Coopers & Lybrand L.L.P.
Portland, Maine
March 24, 1997
IMMUCELL CORPORATION AND SUBSIDIARY
Exhibit 27.1
Financial Data Schedule (Filed Only Electronically)