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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, 2000
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
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(Commission file number)
IMMUCELL CORPORATION
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(Exact name of Registrant as specified in its charter)
Delaware 01-0382980
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
56 Evergreen Drive, Portland, Maine 04103
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (207) 878-2770
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock par value $.10 per share
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(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, 2001 was approximately $6,406,000.
The number of shares of the Registrant's Common Stock outstanding at March 20,
2001 was 2,715,184.
Documents incorporated by reference: Portions of the Registrant's 2001 Proxy
Statement to be filed in connection with the Annual Meeting of shareholders are
incorporated by reference to Part III hereof.
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TABLE OF CONTENTS
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PART I
ITEM 1. Business ...................................................1
ITEM 2. Properties..................................................7
ITEM 3. Legal Proceedings...........................................7
ITEM 4. Submission of Matters to a Vote of Security Holders.........7
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters.........................................8
ITEM 6. Selected Financial Data.....................................8
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................9
ITEM 8. Financial Statements and Supplementary Data................13
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................13
PART III
ITEM 10. Directors and Executive Officers of the Registrant.........13
ITEM 11. Executive Compensation.....................................14
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management.................................................14
ITEM 13. Certain Relationships and Related Transactions.............14
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K........................................14
SIGNATURES
PART I
ITEM 1 - BUSINESS
GENERAL
ImmuCell Corporation (the "Company") is a biotechnology company
dedicated to producing innovative and proprietary products that improve animal
health and productivity in the dairy and beef industry. In addition to operating
an animal health business, the Company has obtained U.K. regulatory approval to
sell CRYPTO-SCAN(R), a product that is used in the detection of CRYPTOSPORIDIUM
in drinking water. Further, the Company has demonstrated preliminary efficacy in
an open label, Phase I/II efficacy study of DIFFGAM, an alternative to
antibiotics in the treatment and/or prevention of CLOSTRIDIUM
DIFFICILE-associated diarrhea in humans.
From its inception in 1982, the Company has engaged in the research and
development of infectious disease diagnostic tests and products for therapeutic
and preventive uses against certain infectious diseases in animals and humans.
Prior to 1999, the Company invested significant funds in the development of
products utilizing its core technologies for human health product applications.
Since 1999, the Company has focused the majority of its product development
efforts on animal health products for the dairy and beef industry. One result of
this shift in strategic focus to animal health products, which are generally
less expensive to develop than human health products, was that the Company was
able to record consecutive net profits in 1999 and 2000. While working to
minimize deviations from the Company's animal health objectives, the Company
continues to seek a return on the research and development efforts made
principally prior to 1999 in four ways: 1) earning royalty income from the
application of its milk protein purification technology to the production of
whey protein isolate, 2) achieving sales of CRYPTO-SCAN, 3) licensing rights to
DIFFGAM to a partner and 4) realizing a return from the application of its milk
protein purification technology to the production of lactoferrin.
Research and development expenses amounted to 16% and 17% of total
revenues in 2000 and 1999, respectively. Internally funded research and
development expenses (those expenses not supported by outside sources of funding
such as grant income) amounted to 15% and 13% of product sales in 2000 and 1999,
respectively. Going forward in 2001 and beyond, the Company intends to keep
internally funded research and development expenses close to 13% of product
sales, which should result in continued profitability provided that product
sales do not decline. The Company intends to actively pursue external financing
for its research and development efforts through licensing arrangements with
corporate partners and funding from government grants. As product sales
increase, the Company can both reduce the ratio of internally funded research
and development expenses to sales and increase the absolute dollar value of the
investment in product development without jeopardizing the objective of
recording continuing and increasing net operating profits.
ANIMAL HEALTH PRODUCTS FOR THE DAIRY AND BEEF INDUSTRY
In December 2000, the Company acquired the product MASTIK(TM), MASTITIS
ANTIBIOTIC SUSCEPTIBILITY TEST KIT, from Lotek, Inc. of Pomfret Center,
Connecticut. The Company paid $35,000 on closing for the rights to this product
and related patent and must pay another $40,000 by July 2, 2001 to maintain
ownership of the product. MASTIK helps veterinarians and dairy producers quickly
select the antibiotic most likely to be effective in the treatment of individual
cases of mastitis (inflammation of the mammary gland). MASTIK can usually
provide this answer in less than one day, dramatically faster than the other
commonly used antibiotic susceptibility tests. The Company intends a full
commercial launch of this product in March 2001. The Company has developed a
related product, a CALIFORNIA MASTITIS TEST, to test for the presence of
mastitis. The Company intends to initiate sales of this product in April 2001.
In December 1999, the Company acquired rights to the product WIPE
OUT(R) DAIRY WIPES and certain other related rights from Nutrition 21, Inc.
(formerly AMBI Inc.) of Purchase, New York. The transaction included the
purchase of certain equipment, trademarks and a license of intellectual property
for an aggregate of $359,000. The Company also acquired approximately $173,000
of product inventory. The WIPE OUT product consists of pre-moistened towelettes
that are impregnated with Nisin to clean, sanitize and dry the teat area of a
cow in advance of milking. Nisin is a natural antibacterial protein that has
been demonstrated in clinical studies to be an effective aid in the reduction of
disease-causing organisms in dairy cows. The use of Nisin for such applications
is covered by five issued patents that were licensed by Nutrition 21, Inc. to
the Company.
In December 1999, the Company obtained approval from the U.S.
Department of Agriculture ("USDA") to sell TIP-TEST(TM): JOHNE'S, which is a
rapid immunodiagnostic test for the detection of Johne's disease, a chronic
intestinal infection of cattle caused by MYCOBACTERIUM PARATUBERCULOSIS. This
highly sensitive product delivers on-site results from
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a blood or serum sample in about twenty minutes, which is a significant
advantage to dairy and beef producers in comparison to the existing diagnostic
technology that is performed only in certified veterinary diagnostic
laboratories (which is a more time consuming and expensive process). Before
sales can be initiated in any state, the USDA approval is subject to the further
approval of each state veterinarian. The Company has obtained the necessary
state approval in many states and is proceeding to obtain the necessary
approvals throughout the U.S. market. The test format used for this test is the
subject of an exclusive, world-wide license from a third party, which license
also covers the format's use by the Company for two additional bovine
applications.
In 1991, the Company obtained approval from the USDA to sell FIRST
DEFENSE(R), which is manufactured by the Company froM cows' colostrum using the
Company's proprietary vaccine and milk protein purification technologies.
Currently, FIRST DEFENSE is the only USDA-licensed, bivalent (effective in
combating two different infectious agents) scours preventive product on the
market. The target disease, "calf scours", is seasonal, with the highest
incidence in the winter calving months. This diarrhea disease causes dehydration
in newborn calves and often leads to serious sickness and even death. See also
ITEM 7 to this Form 10-K entitled, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS", "Results of Operations", "Fiscal
2000 compared to Fiscal 1999".
In 1988, the Company obtained an exclusive world-wide license to
purchase from Kamar, Inc. of Steamboat Springs, Colorado and to market and sell
an animal health care product known as the KAMAR(R) HEATMOUNT(R) 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 June 1998, the
Company entered into a renewal of its service and license agreement effective
through December 31, 2003 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 DETECTOR under the exclusive
world-wide license. The renewal agreement had been cancelable by either party
upon twelve months written notice. In September 2000, this license was extended
by one year to December 31, 2004, and the right of Kamar to cancel early without
cause was eliminated. In connection with this extension, the Company began to
transition marketing responsibilities for this product back to Kamar. A former
officer of the Company was hired by Kamar Products, LLC to direct certain
marketing efforts for this product going forward in anticipation of the
expiration of the license on December 31, 2004.
The Company also markets the following two animal health products: 1)
RPT(R) and ACCUFIRM(R), trade names for a mILk progesterone test used by dairy
farmers to monitor the reproductive status of their cows and 2) RJT(TM), used in
the detection OF MYCOBACTERIUM PARATUBERCULOSIS infections (Johne's Disease) in
cattle. Sales of these products have been limited since their commercial
introductions. The sales and sales growth potential for these products in the
future are not expected to be significant.
MARKETING AND SALES
The Company engages in the direct marketing and sales of its products
principally through its wholly-owned marketing subsidiary, the Kamar Marketing
Group, Inc. 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. FIRST DEFENSE is primarily sold through major
veterinarian distributors, and the KAMAR HEATMOUNT DETECTOR is sold through
bovine semen distributors and farm supply retailers. Separate agreements have
been entered into for sales through these distribution channels. The Company
sells TIP-TEST(TM): JOHNE'S to bovine veterinarians, and WIPE OUT(R) DAIRY WIPES
are sold directly to The dairy producer.
The Company is a leader in the scours (diarrhea) prevention market with
its product FIRST DEFENSE. TIP-TEST: JOHNE'S is the first approval in what the
Company intends to market as a line of infectious disease diagnostic products.
It is estimated that Johne's disease (caused by MYCOBACTERIUM PARATUBERCULOSIS)
costs the U.S. dairy industry $100 to $200 million per year. The Company hopes
to gain regulatory approval of TIP-TEST: BLV in 2001. BLV stands for a disease
known as bovine Leukosis virus. With the acquisition of WIPE OUT DAIRY WIPES,
the Company entered the mastitis market, which disease costs the U.S. dairy
industry an estimated $1 to $2 billion per year. WIPE OUT helps prevent the
infection, and the Company's new product MASTIK(TM) helps the producer determine
which antibiotic is most likely to help treat it. The Company is also preparing
to launch A CALIFORNIA MASTITIS TEST to determine if mastitis is present and is
developing a Nisin-based treatment for mastitis known as MAST OUT(TM).
The Company spent 18% and 19% of product sales on sales and marketing
expenses in the years ended December 31, 2000 and 1999, respectively. Going
forward, the Company expects to invest slightly more than 20% of
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product sales in selling expenses as it launches new products and initiates new
product sales.
FOREIGN SALES
Foreign product sales represented approximately 22%, 24% and 25% of the
Company's total product sales for the years ended December 31, 2000, 1999 and
1998, respectively. The majority of these foreign sales were to European
countries, Australia, New Zealand and Canada. 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. Price
adjustments have been made on occasion to mitigate these effects. Such a
negative impact of the strong U.S. dollar was experienced in sales to Pacific
rim countries. On the other hand, 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.
RESEARCH AND DEVELOPMENT
Beginning in 1998, the Company shifted the primary focus of its
research and development efforts to products for the animal health industry.
This focus continued in 1999 and 2000 and is expected to continue in 2001 and
beyond. To expand its commercialized line of products for use by dairy and beef
producers, the Company has invested in the development of new diagnostic
products leveraging the Company's experience with infectious diseases. The
Company has also initiated early stage development programs of certain disease
preventive products. In April 2000, the Company exclusively licensed rights to
develop and market Nisin-based products for animal health applications from
Nutrition 21, Inc. Nisin is a bacteriocin with activity against gram positive
and some gram negative bacteria. The lead application of this technology being
developed by the Company is an intrammamary infusion product to treat mastitis.
The Company intends to market this product under the MAST OUT(TM) brand naME if
regulatory approval from the U.S. Food and Drug Administration is obtained. MAST
OUT could prove to be a much needed alternative to the current use of
antibiotics in the treatment of mastitis. Antibiotic use forces producers to
discard milk during the course of antibiotic treatment and contributes to the
growing concern about overuse of antibiotics in food animals. The Company also
obtained an exclusive option from Nutrition 21, Inc. to develop animal health
applications of certain lysostaphin technology. Lysostaphin is a bacteriocin
with activity against STAPHYLOCOCCUS AUREUS.
The Company maintains relationships with several scientific advisors
that have particular expertise in the areas targeted by the Company. 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
technology become apparent, the Company may begin new research and development
projects. The Company spent approximately $922,000, $813,000 and $1,013,000 on
research and development activities during the years ended December 31, 2000,
1999 and 1998, respectively. These expenditures were in part supported by grant
income totaling approximately $96,000, $187,000 and $282,000 during the years
ended December 31, 2000, 1999 and 1998, respectively.
COMMERCIALIZATION OF MILK PROTEIN PURIFICATION TECHNOLOGY FOR NUTRITIONAL
APPLICATIONS
Underlying the Company's milk antibody products for human and animal
health applications is a certain expertise developed by the Company to process
and purify milk proteins. To capitalize on this expertise, in 1996 the Company
formed a joint venture with Agri-Mark Inc. of Methuen, Massachusetts known as
AgriCell Company, LLC to produce and sell a nutritional protein derived from
cheese whey, known as lactoferrin. Lactoferrin is an iron-binding protein that,
among several applications, can be used in infant formula, nutritional
applications and certain cosmetics. The Company licensed certain rights to a
patented purification system to AgriCell for use in the production of
lactoferrin. In 1997, AgriCell commissioned a 6,800 square foot production
facility at Agri-Mark's cheese plant in Middlebury, Vermont which was
subsequently approved by the USDA, allowing the commercial production of
lactoferrin to be initiated. Initial sales of lactoferrin have been limited. The
primary markets for this product at this time are in Asia, and sales have been
negatively impacted by reduced demand from Asian customers and by a decrease in
the world price of the commodity.
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 has funded a capital investment by AgriCell in excess of
$1,000,000 principally in working capital, fixed
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assets and production facility modifications, and Agri-Mark 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 and sell whey protein isolate from Agri-Mark's Vermont
cheese whey source. The Company is entitled to a royalty on any such sales.
In November 1997, the Company licensed certain rights to the same
patented protein purification system described above to Murray Goulburn
Co-operative Co., Limited of Australia for the production of whey protein
isolate and certain other milk proteins (excluding high purity lactoferrin). In
consideration for the license, the Company received a $250,000 payment in 1997
and is entitled to a royalty on the sales of whey protein isolate and any other
milk proteins manufactured under this license. In early 2000, Murray Goulburn
launched commercial sales of whey protein isolate, and approximately $55,000 in
royalty income was earned by the Company in 2000.
PRODUCT TO DETECT PATHOGENS IN DRINKING WATER
The CRYPTO-SCAN(R) water diagnostic test has been developed to
capitalize on certain scientific knowledge gained undeR the Company's CRYPTOGAM
research program described below. The Company is continuing to market its
immunomagnetic separation ("IMS") technology under the CRYPTO-SCAN brand name.
Initial and limited sales of CRYPTO-SCAN began in 1997. During 1997, the Company
entered into a distribution agreement with Adreck Marketing Limited covering
sales in the United Kingdom. Initial sales in the U.K. have been limited as the
Company was working to gain access to the market through the applicable U.K.
regulatory authorities. CRYPTO-SCAN was approved by the U.K. regulatory
authority in November 2000. Subsequent to the regulatory approval of this
product, additional regulatory burdens were imposed by the U.K regulatory
authorities that require that each user of a new product be individually
validated by such authorities before using a new product in regulated testing
procedures. The Company is working to respond to this additional regulatory
burden. Sales in the U.S. market would be influenced significantly by the
policies of the U.S. Environmental Protection Agency.
MILK ANTIBODY PRODUCT UNDER DEVELOPMENT FOR HUMANS
DIFFGAM bovine anti-CLOSTRIDIUM DIFFICILE immunoglobulins is a
bovine-derived specific polyclonal antibody product under clinical development,
which is subject to approval by the U.S. Food and Drug Administration ("FDA")
before sales can be initiated. DIFFGAM is intended to prevent and/or treat
CLOSTRIDIUM DIFFICILE-associated diarrhea ("CDAD") that is caused by
toxin-producing CLOSTRIDIUM DIFFICILE. DIFFGAM is intended to neutralize the
toxins produced by CLOSTRIDIUM DIFFICILE in the colons of affected patients.
CDAD is caused most frequently by the use of broad spectrum oral antibiotics,
which kill bacteria in the colon that normally inhibit the proliferation of
CLOSTRIDIUM DIFFICILE. When CLOSTRIDIUM DIFFICILE then proliferates, producing
toxins that cause disease, the standard treatment is to use oral antibiotics
specific for CLOSTRIDIUM DIFFICILE. This multi-antibiotic treatment approach can
lead to high rates of relapse and the development of antibiotic resistance. The
Company believes that DIFFGAM may provide a safe alternative to the current
methods used to treat CDAD.
The Company has developed a proprietary formulation to deliver active
antibodies to the lower gastrointestinal tract, the site of CLOSTRIDIUM
DIFFICILE infections. The Company believes that this formulation is central to
the effectiveness of DIFFGAM. Using its proprietary milk protein purification
technology, the Company has developed methods for the production of commercial
quantities of pathogen specific antibodies from cows' milk. The Company's milk
protein purification technology, which is directed toward the efficient
production and formulation of antibodies used to prevent and/or treat
gastrointestinal infections, is used to manufacture DIFFGAM and the Company's
commercialized animal health product, FIRST DEFENSE(R).
Unlike FIRST DEFENSE which is produced from the colostrum (or "first
milk") of hyper-immunized cows, DIFFGAM is produced from the milk of
hyper-immunized cows. Although antibody concentrations are much higher in
colostrum, more total antibodies are available from the balance of the lactation
cycle. Specifically, colostrum contains less than 20% of the total antibodies
produced by a cow during the entire 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
colostrum. The Company believes this milk purification process may create a
significant product cost advantage.
Under an Investigational New Drug ("IND") application filed with the
FDA in March 1997, a clinical trial was conducted in mid-1997 demonstrating the
safety of DIFFGAM and the colonic bioavailability of the patented oral
formulation of the product. The Company completed a multi-site Phase I/II
clinical trial of this product in March 2000. The results of this trial
demonstrated the safety and preliminary effectiveness of DIFFGAM in the
treatment of established CDAD. The Company is seeking a partner to fund further
development activities in exchange for marketing rights
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to the product. The Company would expect to benefit from a manufacturing and
supply arrangement with such a partner. The Company does not intend to
internally fund this product development.
In March 2001, the Company licensed certain DIFFGAM rights for
nutritional, risk reduction applications outside of North America to Novatreat
Ltd of Turku, Finland. The Company anticipates receiving $100,000 in fees during
2001 in connection with the initial supply of clinical material to Novatreat
under the license and supply agreement. Novatreat will fund the necessary
product development, clinical trial and regulatory costs going forward. Begining
in 2003 and thereafter, the Company expects to earn a manufacturing gross margin
and royalties on product sales under the long-term supply component of the
agreement. Product ordered by Novatreat will be manufactured at the Company's
plant. The license agreement does not cover the Company's colonic delivery or
milk processing and other related patents.
Clinical development of a second product, TRAVELGAM bovine anti-E. COLI
immunoglobulins, was discontinued in 1998. TRAVELGAM was intended to prevent
diarrhea caused by enterotoxigenic E. COLI (commonly known as Travelers'
Diarrhea). Further development of this product was discontinued principally due
to the lack of a detectible treatment effect in field trials despite the more
positive results from earlier hospital-based trials.
Clinical development of a third product, CRYPTOGAM bovine
anti-CRYPTOSPORIDIUM immunoglobulins, was discontinued in 1997. CRYPTOGAM was
intended to treat chronic, life-threatening diarrhea (known as
cryptosporidiosis) in AIDS patients. The decision to discontinue development was
made principally because the targeted patient population for the product had
materially decreased due to the positive impact of new drug therapies on AIDS
patients.
The Company has obtained four Phase I and three Phase II Small Business
Innovation Research grants from the National Institutes of Health to support the
development of milk antibody products to prevent gastrointestinal infections in
humans. The value of these grants has aggregated approximately $1,891,000 since
1990, $66,000 and $162,000 of which was recognized during the years ended
December 31, 2000 and 1999, respectively.
OTHER PRODUCTS
As an extension of its expertise with infectious diseases and subject
to a royalty bearing license payable to a third party, the Company manufactures
and sells specific antibody-based reagents used for the diagnosis of Group A
streptococcal infections, a bacterial infection which causes "strep throat".
Sales of these reagents have declined significantly in recent years and are not
expected to be a primary focus of the Company's commercial business going
forward.
While the Company continues its efforts with internally and externally
funded product development programs, the Company is also actively seeking to
acquire new products and technologies.
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. The Company believes that FIRST
DEFENSE(R) offerS two significant competitive advantages over other products in
the market: 1) its capsule form, which does not require refrigeration and
provides ease of administration and 2) competitive products currently on the
market provide protection only against a leading cause of calf scours (E. COLI),
while FIRST DEFENSE provides this protection and additional protection against
another leading cause of the disease (coronavirus). Competitive companies have
introduced products similar to the KAMAR(R) HEATMOUNT(R) DETECTOR. The success
of these products could reduce sales of the KAMAR HEATMOUNT DETECTOR.
GelTex Pharmaceuticals Inc. (which company was acquired by Genzyme
Corporation in December 2000), Ophidian Pharmaceuticals Inc., Acambis plc and
Synsorb Biotech Inc. are developing products to prevent and/or treat CLOSTRIDIUM
difficile-associated diarrhea. Dynal, Inc., Idexx Laboratories, Inc. and Hach
Company market competitive immunomagnetic separation products for use in the
detection of CRYPTOSPORIDUM in drinking water.
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, to continue to profitably sell its current
products and to raise adequate levels of capital to fund
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its activities. The Company currently competes on the basis of product
performance, price and distribution capability. The Company continues to monitor
its network of independent distributors to maintain its competitive position.
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.
PATENTS AND PROPRIETARY INFORMATION
In 1998, the Company was issued U.S. Patent No. 5,747,031, covering
certain aspects of the Company's proprietary manufacturing process to separate
antibodies from cows' milk used in the production of DIFFGAM. In June 2000, the
Company was issued U.S. Patent No. 6,074,689 covering the method of formulation
responsible for colonic delivery in DIFFGAM and for other proteins. 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 conjunction with
the December 2000 acquisition of MASTIK(TM), the Company acquired the related
U.S. Patent No. 5,026,638.
In connection with the acquisition of the product, WIPE OUT(R), the
Company licensed rights to several patents coverinG the use of Nisin as a teat
wipe to prevent bovine infections as well as certain proprietary know-how used
in the production of Nisin from Nutrition 21, Inc. In April 2000, the Company
licensed rights to several patents covering the use of Nisin as preventives or
treatments for animal diseases and for certain other veterinary products from
Nutrition 21, Inc. At the same time, the Company also entered into an option to
license rights to several additional patents covering the use and production of
lysostaphin, for use as preventives or treatments for animal diseases and for
certain other veterinary products from Nutrition 21, Inc. The format used in the
TIP-TEST(TM) on-site diagnostic product line is the subject of at least one
issued patent To Hydros Inc. for which the Company has licensed rights. The
Company has also licensed exclusively rights to certain cloned antigens of
CRYPTOSPORIDIUM PARVUM from the Regents of the University of California, for
which two U.S. patents have been issued to the Regents. This license covers
vaccine product applications for animals and was sublicensed by the Company
exclusively to AgriVax Inc. in 1999 in return for a royalty on any product
sales.
In 1999, the Company obtained an exclusive license for pharmaceutical
applications to U.S. Patent No. 5,773,000 entitled "Therapeutic Treatment of
CLOSTRIDIUM DIFFICILE Associated Diseases" from GalaGen, Inc. In connection with
this license, the Company agreed to pay GalaGen a royalty on any related product
sales.
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. All of the Company'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 involving products or 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 to 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 following trademarks: FIRST DEFENSE(R), for one
of itS animal health products, CRYPTO-SCAN(R) for its water diagnostic test and
RPT(R) AND ACCUFIRM(R), for its progesterone test. The Company has applied for
federal trademark registration for the TIP-TEST(TM) on-site diagnostic product
line. In December 1999, tHe Company purchased the federal trademark application
for WIPE OUT(R) and related design and the registered trademark, the "One SteP
Cow Prep(R)". In September 2000, the Company received U.S. registration
#2,385,820 for WIPE OUT, and in November 2000, thE Company received U.S.
registration #2,406,502 for the WIPE OUT design.
6
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 and certain animal health products 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 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 TIP-TEST(TM): JOHNE'S (its
on-site Johne's disease diagnostic test), FIRST DEFENSE(R) (its scours
preventive product) and RJT(TM) (its Johne's disease diagnostic test). The
Company completed an FDA PHAse I/II clinical trial of DIFFGAM (to prevent
CLOSTRIDIUM DIFFICILE-associated diarrhea) under an approved Investigational New
Drug application. Regulatory approval of CRYPTO-SCAN(R) from the Drinking Water
Inspectorate in the United Kingdom was obtained iN November 2000. Laboratory
analysts must be individually validated in the use of this new product before
the Company can expect to realize significant sales of CRYPTO-SCAN. The Company
believes that it is in compliance with current 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 approximately twenty-three employees, including two
part-time employees. The full-time equivalent of approximately ten and one-half
employees are engaged in manufacturing operations, six in research and
development activities, three in finance and administration and two and one-half
in marketing and sales. The manufacturing personnel is utilized, as needed, in
the production of clinical material for use in research and development. The
Company is not a party to any collective bargaining agreement and considers its
employee relations to be excellent.
ITEM 2 - PROPERTIES
The Company owns a 10,000 square foot building at 56 Evergreen Drive in
Portland, Maine. The Company currently uses this space for substantially all of
its office, laboratory and manufacturing needs. The Company is adding
approximately 5,300 square feet of new production space to this building to
increase the production capacity of FIRST DEFENSE and to provide in-house
production capability for WIPE OUT(R) DAIRY WIPES. The facility addition also
includes a storage mezzanine oF approximately 2,000 square feet. The Company
anticipates being able to begin to use this new space in May 2001.
The Company also maintains access to certain animals, primarily cows,
through contractual relationships with several farms.
ITEM 3 - LEGAL PROCEEDINGS
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
7
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. 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 the Company's common stock as reported by The Nasdaq Stock Market during the
period January 1, 1999 through December 31, 2000:
2000 1999
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
-------- -------- -------- -------- -------- -------- -------- --------
High $9.97 $5.31 $4.25 $2.75 $1.75 $1.63 $2.00 $2.63
Low $2.41 $2.50 $2.25 $1.50 $1.06 $1.00 $1.25 $1.50
Such market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission. As of March 20, 2001, the Company had
8,000,000 common shares authorized and 2,715,184 common shares outstanding, and
there were approximately 1,400 shareholders of record. The last sales price of
the Company's common stock on March 20, 2001 was $2.69 as quoted on The Nasdaq
Stock Market.
In connection with a license and sublicense agreement entered into in
April 2000 between the Company and Nutrition 21, Inc. covering proprietary
technology relating to Nisin and lysostaphin, the Company granted to Nutrition
21 Inc. a warrant to purchase 50,000 shares of the Company's common stock at an
exercise price of $5.29 per share. This warrant will not be exercisable unless
and until the Company receives governmental approval of a product that
incorporates technology covered by the license and sublicense agreement. The
rights granted under the warrant will expire on the earlier of April 12, 2003 if
vesting has not occurred by that date, or the fourth anniversary of the vesting
date. The warrant was issued to Nutrition 21 Inc. pursuant to the exemption from
registration contained in Section 4(2) of the Securities Act of 1993, as
amended.
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,
2000 1999 1998 1997 1996
------------ ------------ ------------ ------------ ------------
Statement of Operations Data:
Total revenues $ 5,635,985 $ 4,909,245 $ 4,481,867 $ 4,556,678 $ 4,440,188
Product sales 5,485,003 4,722,374 4,199,851 3,982,789 4,054,191
Research & development
expenses 922,347 812,892 1,012,813 1,068,069 1,291,043
Net profit (loss)
before taxes 475,888 550,843 (102,518) 263,852 (66,202)
Net profit (loss)
after taxes 2,222,046 550,843 (102,518) 263,852 (66,202)
Per Common Share:
Basic net profit (loss) 0.84 0.23 (0.04) 0.11 (0.03)
Diluted net profit (loss) 0.79 0.22 (0.04) 0.10 (0.03)
Stockholders' equity 2.08 1.15 0.93 0.96 0.81
Cash dividend -- -- -- -- --
8
Balance Sheet Data:
Total assets 6,443,916 3,855,979 3,144,847 3,231,050 3,131,399
Cash, cash equivalents
and short term
investments 1,895,149 1,823,689 1,538,905 1,021,324 1,044,441
Current liabilities 490,745 605,923 443,902 561,795 684,163
Net working capital 2,894,249 2,219,386 1,866,222 1,642,363 1,405,099
Long-term debt
obligations 414,178 434,658 453,349 339,747 570,022
Stockholders' equity $ 5,538,993 $ 2,815,398 $ 2,247,596 $ 2,329,508 $ 1,877,214
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
FISCAL 2000 COMPARED TO FISCAL 1999
Total revenues for the year ended December 31, 2000 of $5,636,000
increased by $727,000 (15%) from $4,909,000 in 1999. Product sales for the year
ended December 31, 2000 of $5,485,000 were $763,000 (16%) more than the product
sales recorded in 1999. Sales of WIPE OUT(R) DAIRY WIPES were first recorded in
2000. Product selling prices have generally increased in line witH inflation.
Grant income decreased by $91,000 (48%) to $96,000 in 2000. Royalty income was
first recorded in 2000.
Aggregate sales of FIRST DEFENSE(R) and the KAMAR(R) HEATMOUNT(R)
DETECTOR totaled approximately $4,742,000 (86% of TOtal product sales) for the
year ended December 31, 2000 as compared to approximately $4,517,000 (96% of
total product sales) for the year ended December 31, 1999. The sales of FIRST
DEFENSE are seasonal with highest sales expected in the winter months. Sales of
FIRST DEFENSE increased by 25% in the fourth quarter of 1999 as compared to the
fourth quarter of 1998 and increased by 10% during the year ended December 31,
2000 as compared to 1999. While these significant increases in sales are
positive indications for the product in the long term, the resulting unexpected
reduction in product inventory levels caused by the sudden increase in sales
volume created a backlog of orders worth approximately $250,000 as of March 31,
2000 that increased to approximately $750,000 as of December 31, 2000.
Grant income decreased to approximately $96,000 (2% of total revenues)
in 2000 as compared to $187,000 (4% of total revenues) in 1999. In October 1997,
the Company was awarded approximately $710,000 under a two-year federal research
grant to partially fund the Company's efforts to develop a product to prevent
Travelers' Diarrhea. In 1998, the remaining funding then available under this
grant was reallocated to the development of DIFFGAM. During 1999, the term of
this grant was extended by one year to September 2000. Approximately $66,000 and
$162,000 in grant income was recognized under this grant in 2000 and 1999,
respectively. Grant income in 1999 also included approximately $25,000 from the
State of Maine partially funding early stage research of a bovine vaccine
technology.
Product costs amounted to 51% of product sales in 2000 as compared to
46% in 1999. Internally developed products tend to have higher gross margin
percentages than licensed-in products. Some deterioration of the gross margin
percentage is anticipated as new products are developed and acquired. Over time,
as these products are fully integrated into the Company's manufacturing and
marketing operations, the Company expects to be able to improve the gross margin
percentage. This is the case, for example, with WIPE OUT DAIRY WIPES, a new
product that was acquired by the Company in December 1999. The Company is
investing in the necessary facility addition and production equipment to
eliminate the need for a subcontractor and be able to manufacture this product
internally, which, the Company believes, should improve the gross margin. At
this stage in the Company's development, management is focusing on growing the
absolute dollar value of the gross margin on product sales. The gross margin on
product sales earned in 2000 increased by $114,000 (4%) to $2,684,000 as
compared to the gross margin earned in 1999.
The Company increased its expenditures for research and development to
approximately $922,000 in 2000 as compared to $813,000 in 1999. Research and
development expenses aggregated 16% and 17% of total revenues in 2000 and 1999,
respectively. Research and development expenses exceeded grant income by
approximately $826,000 in 2000 and by $626,000 in 1999. These "net" research and
development expenses increased to 15% of product sales in 2000 from 13% of
product sales in 1999. During 1998, the Company shifted the primary focus of its
research and
9
development efforts to products for the animal health industry. To expand its
commercialized line of products for use by dairy and beef producers, the Company
has invested in the development of new diagnostic products leveraging the
Company's experience with infectious diseases. The Company has also initiated
early stage development programs of certain disease preventive products. The
Company has demonstrated preliminary efficacy of DIFFGAM in a phase I/II
clinical trial to prevent and treat CLOSTRIDIUM DIFFICILE-associated diarrhea.
However, for clinical development to proceed into more expensive Phase II and
III trials, a partner would be required. The Company has also invested in the
development of a test used to detect the presence of CRYPTOSPORIDIUM PARVUM in
drinking water.
Sales and marketing expenses increased by approximately $113,000 (13%)
to $1,003,000 in 2000, aggregating 18% of product sales in 2000, compared to 19%
in 1999. The 13% increase in sales and marketing expenses in 2000 is consistant
with the 16% increase in product sales. The Company anticipates the ratio of
these expenses to product sales to increase modestly as the Company initiates
sales of new products in 2001. The Company continues to leverage its small sales
force through wholesale distribution channels. General and administrative
expenses were approximately $496,000 in 2000 as compared to $439,000 in 1999.
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.
Interest income exceeded interest expense by approximately $63,000 and
$33,000 in 2000 and 1999, respectively. Interest expense was incurred in both
years on the Company's outstanding bank debt. The Company's share of the loss in
the equity of its joint venture (AgriCell Company, LLC) aggregated $97,000 in
1999. No such expense was incurred in 2000. The Company's joint venture loss was
principally caused by the limited sales of lactoferrin. The primary markets for
this product at this time are in Asia, and sales have been negatively impacted
by reduced demand from Asian customers and by a decrease in the world price for
the commodity. As of December 31, 1999, the investment in this joint venture
asset was completely written off. While the operations of the joint venture are
ongoing, any further losses incurred by the joint venture will have no impact on
the Company's financial statements. Such losses could be carried forward to
reduce any future taxable income distributed to the Company by the joint
venture.
The net profit before taxes of $476,000 for the year ended December 31,
2000 compares to $551,000 for the year ended December 31, 1999. During 1999, the
taxable income was fully offset by available net operating loss carryforwards
resulting in no tax expenses being recorded. Given the two consecutive years of
profitable results and the expectation of continued profitability, the Company
recorded approximately $1,746,000 in non-cash tax benefits relating to the
partial release of valuation allowances previously established against deferred
tax benefits associated with certain net operating loss carryforwards that would
offset future tax liabilities, in accordance with Financial Accounting Standards
Board Statement No. 109. As a result of this accounting for income taxes, the
Company recorded a net profit after taxes of $2,222,000 ($0.79 per share) for
the year ended December 31, 2000 compared to $551,000 ($0.22 per share) for the
year ended December 31, 1999. Going forward, the Company expects to record tax
expense at a more typical corporate effective tax rate.
FISCAL 1999 COMPARED TO FISCAL 1998
Total revenues for the year ended December 31, 1999 of $4,909,000
increased by $427,000 (10%) from $4,482,000 in 1998. Product sales for the year
ended December 31, 1999 of $4,722,000 were $523,000 (12%) more than the product
sales recorded in 1998. Product selling prices have generally increased in line
with inflation. Grant income decreased by $95,000 (34%) to $187,000 in 1999.
Aggregate sales of FIRST DEFENSE(R) and the KAMAR(R) HEATMOUNT(R)
DETECTOR totaled approximately $4,517,000 (96% of TOtal product sales) for the
year ended December 31, 1999 as compared to approximately $3,984,000 (95% of
total product sales) for the year ended December 31, 1998. The sales of FIRST
DEFENSE are seasonal with highest sales expected in the winter months. Sales of
FIRST DEFENSE increased by 25% in the fourth quarter of 1999 as compared to the
fourth quarter of 1998.
Grant income decreased to approximately $187,000 (4% of total revenues)
in 1999 as compared to $282,000 (6% of total revenues) in 1998. In October 1997,
the Company was awarded approximately $710,000 under a two-year federal research
grant to partially fund the Company's efforts to develop a product to prevent
Travelers' Diarrhea. In 1998, the remaining funding then available under this
grant was reallocated to the development of DIFFGAM. During 1999, the term of
this grant was extended by one year. Approximately $162,000 and $282,000 in
grant income was recognized under this grant in 1999 and 1998, respectively.
Grant income in 1999 also included approximately $25,000 from the State of Maine
partially funding early stage research of a bovine vaccine technology.
10
Interest income exceeded interest expense by approximately $33,000 and
$20,000 in 1999 and 1998, respectively. Interest expense was incurred in both
years on the Company's outstanding bank debt. The Company's share of the loss in
the equity of its joint venture (AgriCell Company, LLC) aggregated $97,000 and
$123,000 in 1999 and 1998, respectively. The Company's joint venture loss was
principally caused by the limited sales of lactoferrin due to the financial
crisis in Asia, the primary market for this product. As of December 31, 1999,
the investment in this joint venture asset was completely written off. While the
operations of the joint venture are ongoing, any further losses incurred by the
joint venture will have no impact on the Company's financial statements. Such
losses can be carried forward to reduce any future taxable income distributed to
the Company by the joint venture.
Product costs amounted to 46% of product sales in 1999 as compared to
48% in 1998. Internally developed products tend to have higher gross margin
percentages than licensed-in products. Some deterioration of the gross margin
percentage is anticipated as new products are developed and acquired. Over time,
as these products are fully integrated into the Company's manufacturing and
marketing operations, the Company expects to be able to improve the gross margin
percentage. The Company expects product costs as a percentage of product sales
to increase in 2000 as the Company begins to record sales of WIPE OUT(R) DAIRY
WIPES, a new product that was acquired by the Company on December 30, 1999. At
this stage in the Company's development, management is focusing on growing the
absolute dollar value of the gross margin on product sales.
The Company decreased its expenditures for research and development to
approximately $813,000 in 1999 as compared to $1,013,000 in 1998. Research and
development expenses aggregated 17% and 23% of total revenues in 1999 and 1998,
respectively. Research and development expenses exceeded grant income by
approximately $626,000 in 1999 and by $731,000 in 1998. These "net" research and
development expenses were reduced to 13% of product sales in 1999 from 17% of
product sales in 1998. During 1998, the Company shifted the primary focus of its
research and development efforts to products for the animal health industry. To
expand its commercialized line of products for use by dairy and beef producers,
the Company has invested in the development of new diagnostic products
leveraging the Company's experience with infectious diseases. The Company has
also initiated early stage development programs of certain vaccine and disease
preventive products. The Company has one product, DIFFGAM, in human clinical
trials to prevent and treat CLOSTRIDIUM DIFFICILE-associated diarrhea. However,
for clinical development to proceed into more expensive Phase II and III trials,
a partner would be required. The Company has also invested in the development of
a test intended to detect the presence of CRYPTOSPORIDIUM PARVUM in drinking
water.
Sales and marketing expenses increased by approximately $73,000 (9%) to
$890,000 in 1999, aggregating 19% of product sales in 1999 and 1998. The Company
continues to leverage its small sales force through wholesale distribution
channels. General and administrative expenses were approximately $439,000 in
1999 as compared to $637,000 in 1998. This decrease was due principally to the
reduction in payroll resulting from the resignation of the Company's former
President at the end of 1998. General and administrative expenses in 1998
included the accrual of severance costs associated with that resignation. 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 increased to $6,444,000 at December 31, 2000
from $3,856,000 at December 31, 1999. The Company's cash balance as of December
31, 2000 increased to $1,895,000 from $1,824,000 at December 31, 1999. Net
working capital increased to $2,894,000 at December 31, 2000 from $2,219,000 at
December 31, 1999. Stockholders' equity increased to $5,539,000 at December 31,
2000 from $2,815,000 at December 31, 1999. The increases in total assets and
stockholders' equity arise principally from the recognition of a deferred tax
asset previously reserved.
During 2000, approximately $82,000 in cash was provided by operating
activities as the profit of $2,222,000 included a non-cash tax benefit of
$1,746,000 and was net of $133,000 in non-cash depreciation and amortization
expense. Additionally, approximately $422,000 in cash was used to finance an
increase in accounts receivable due principally to a large amount of sales being
realized during the last forty days of 2000 and approximately $117,000 was used
to pay down current liabilities. Investing activities were comprised of a
$275,000 net investment in fixed assets and the $35,000 acquisition of certain
product rights. Financing activities were comprised of regular principal
repayments on the Company's bank debt of approximately $19,000 that were more
than offset by the $318,000 in proceeds from the issuance of common stock upon
the exercise of stock options.
The Company funded its 2000 research and development expenses from
government grants and product sales. The Company's current profitability
provides positive cash flow to fund all operating expenses as well as new
product
11
acquisitions while reporting a net operating profit. During the year ended
December 31, 2000, the $2,684,000 gross margin from product sales more than
funded the aggregate of $2,325,000 in net research and development ("net R&D")
expenses and selling, general and administrative ("S,G&A") expenses. In 1999,
the $2,569,000 gross margin from product sales more than funded the aggregate of
$1,954,000 in net R&D and S,G&A expenses. In 1998, the $2,185,000 gross margin
from product sales was approximately equal to the aggregate net R&D and S,G&A
expenses. Since 1999, it has been the Company's strategy to focus its research
and development efforts on animal health product opportunities. In a manner
similar to many biotechnology product development funding models, further
funding of DIFFGAM would require a strategic alliance with a corporate partner.
In March 2001, the Company received a two year grant award aggregating
up to $400,000 from the Maine Technology Institute, a non-profit corporation
created by the General Assembly of the State of Maine. The grant augments the
Company's development of its Nisin-based mastitis treatment, MAST OUT(TM), by
funding significant portions of the costs related To conducting the clinical
trials and developing the proprietary manufacturing process required to obtain
FDA approval of the product. The grant award carries a contingent pay back
obligation of $800,000, which would be paid as a 2% royalty on related product
sales, if any.
Since 1990, the Company has been awarded five Phase I and three Phase
II Small Business Innovation Research grants from the National Institutes of
Health. These grants aggregate approximately $1,991,000 in funding for the
Company's research and development programs. Approximately $1,925,000 of this
grant income was recognized prior to 2000 and approximately $66,000 was
recognized in 2000, in support of the DIFFGAM clinical development program.
Additionally, since 1994 a small portion of the Company's research and
development efforts has been supported by two grants from the State of Maine
aggregating approximately $45,000. For the two year period ending December 31,
2001, the Company has been awarded $40,000 to participate in a collaborative
study funded by the American Water Work's Association Research Foundation
related to CRYPTO-SCAN(R). The CompanY also received a $10,000 grant from the
Maine Center for Innovation in Biotechnology in 2000 to support a portion of the
Company's Johne's disease diagnostic work. 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 to $414,000 at December 31, 2000, from
$435,000 at December 31, 1999. The current portion of this bank debt obligation
increased to $20,000 at December 31, 2000 from $19,000 at December 31, 1999. In
May 1998, the Company refinanced its bank debt obligations by using the proceeds
from a $480,000 mortgage loan together with approximately $29,000 in additional
cash to repay all of the then outstanding bank debt obligations. The Company is
obligated to make monthly principal and interest payments aggregating
approximately $5,000 under the outstanding debt obligation. (See Note 5 to the
accompanying financial statements for further detail on these debt obligations).
In December 2000, the Company initiated construction of a 5,300 square
foot addition to its facility. This additional manufacturing space is needed in
response to the increased demand for FIRST DEFENSE(R). Additionally, in order to
improvE efficiencies in the manufacture of WIPE OUT(R) DAIRY WIPES, the Company
is investing approximately $250,000 of cash in thE acquisition of equipment
necessary to eliminate the need for a subcontractor and enable the Company to
manufacture the product at its facility. The project is being paid for with
approximately $600,000 of available cash. Payments aggregating approximately
$100,000 had been made to vendors for this construction project as of December
31, 2000. The Company anticipates completion of the build out in May 2001.
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
forward-looking 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 increase the Company's profitability.
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
product sales. Continuation of the Company's profitability in the near term
will, in large part, be determined by the ongoing successful marketing of FIRST
DEFENSE and the KAMAR(R) HEATMOUNT(R) DETECTOR. Growth in the Company's
profitability will, in large part, be determined by The success of the Company's
efforts to market its two new products, TIP-TEST(TM): JOHNE'S and WIPE OUT DAIRY
WIPES as well as iTs ability to effectively develop and acquire additional
animal health products. The Company estimates that it may be able to achieve
future annual sales of $200,000 and $750,000 for TIP-TEST:
12
JOHNE'S and WIPE OUT(R), respectively. The Company needs tO successfully develop
and commercialize new products to replace the anticipated decrease in revenue to
be caused by the December 31, 2004 expiration of the license to sell the
KAMAR(R) HEATMOUNT(R) DETECTOR.
The Company estimates that sales of its CRYPTO-SCAN(R) water diagnostic
test could reach approximately $1 to $2 million per year if regulatory and
market acceptance can be achieved and maintained in the United Kingdom. The
Company anticipates being able to earn a royalty of approximately $100,000 per
year from the use of its technology in the production of whey protein isolate by
an Australian partner for as long as the applicable technology license
arrangement remains in effect.
If further clinical trials are successful, sales of DIFFGAM would not
be anticipated to begin until approximately two to three years after a corporate
partner initiates development of the product, due to the complex regulatory
process required to obtain approval of this product. The Company is seeking to
enter into a marketing alliance with a corporate partner to fund clinical
development beyond the Phase I/II trial that the Company completed in the first
quarter of 2000. Such a partner would distribute the product if FDA approval is
obtained. The Company estimates that any such partner could achieve potential
sales of DIFFGAM of approximately $50,000,000 to $100,000,000. The Company
anticipates being able to financially benefit from a manufacturing and supply
agreement, or other royalty arrangements with a potential marketing partner. The
ultimate profitability of this product cannot be accurately predicted at this
time.
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-15 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 2001 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: 40, Officer Since: October 1991, Director Since: March
1999) was appointed to serve as President and Chief Executive Officer in
February 2000, while maintaining the titles of Treasurer and Secretary, and was
appointed to serve as a Director of the Company in March 1999. He previously had
been elected Vice President of the Company in December 1998 and served as Chief
Financial Officer since October 1991. He has served as Secretary since December
1995 and as Treasurer since October 1991. Prior to that, he served as Director
of Finance and Administration since originally joining the Company in September
1989. Mr. Brigham serves on the Board of Directors of the Biotechnology
Association of Maine and of the Maine Center for Innovation in Biotechnology.
Prior to joining the Company, he was employed as an audit manager for the public
accounting firm of Ernst & Young. Mr. Brigham
13
earned his Masters in Business Administration from New York University in 1989.
JOSEPH H. CRABB, PH.D. (Age: 46, Officer Since: March 1996, Director Since:
March 2001) was appointed to serve as a Director of the Company in March 2001
having previously served in that capacity during the period from March 1999
until February 2000 and was elected Vice President of the Company in December
1998, while maintaining the title of Chief Scientific Officer. He has served as
Chief Scientific Officer since September 1998. Prior to that, he served as Vice
President of Research and Development since March 1996. Prior to that, he served
as Director of Research and Development and Senior Scientist since originally
joining the Company in November 1988. Dr. Crabb currently holds a Clinical
Assistant Professorship at Tufts University School of Veterinary Medicine and
serves on National Institutes of Health and American Water Works Association
advisory committees. 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.
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
2001 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 2001 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
Information regarding certain relationships and related transactions is
incorporated herein by reference to the section of the Company's 2001 Proxy
Statement titled "Certain Relationships and Related Transactions", which is
intended to be filed with the Securities and Exchange Commission within 120 days
after the end of the Company's fiscal year.
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 month period ended June 30, 1990).
3.3 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).
3.4 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).
4.1 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).
4.2 $480,000 Note Payable to Peoples Heritage Bank dated May 6, 1998
(incorporated by reference to Exhibit 4.1 to the Registrant's Quarterly
Report on Form 10-Q for the three months ended June 30, 1998).
4.3 Common Stock Purchase Warrant issued by the Registrant to Nutrition 21,
Inc. dated April 12, 2000 (incorporated by reference to Exhibit 4.1 to
the Registrant's Quarterly Report on Form 10-Q for the three month
period ended June 30, 2000).
14
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+ 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).
10.5+ 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).
10.6 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).
10.7 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).
10.8(1) 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 to the Registrant's
Quarterly Report on Form 10-Q for the three months ended March 31,
1994).
10.9+ 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).
10.10+ 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).
10.11 Limited Liability Company Agreement of AgriCell Company, LLC dated as
of September 10, 1996 between 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).
10.12(2) License Agreement between the Registrant and Murray Goulburn
Co-operative Co., Limited, dated November 14, 1997 (incorporated by
reference to Exhibit 10.26 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1997).
10.13(3) Amendment No. 1 to Distribution and Licensing Agreement between the
Registrant and Kamar, Inc. dated July 1, 1998 (incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the three months ended September 30, 1998).
10.14+ Employment Agreement dated April 29, 1999 between the Registrant and
Michael F. Brigham (incorporated by reference to Exhibit 10.22 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999).
10.15+ Employment Agreement dated April 29, 1999 between the Registrant and
Joseph H. Crabb (incorporated by reference to Exhibit 10.23 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999).
10.16 License Agreement between the Registrant and Hydros Environmental
Diagnostics, Inc. dated December 8, 1999 (incorporated by reference to
Exhibit 10.25 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999).
10.17 Asset Purchase Agreement between the Registrant and Nutrition 21, Inc.
dated December 30, 1999 (incorporated by reference to Exhibit 2 to the
Registrant's Current Report on Form 8-K dated as of December 30, 1999).
10.18+ 2000 Stock Option and Incentive Plan of the Registrant (incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the three month period ended June 30, 2000).
10.19+ Form of Incentive Stock Agreement (incorporated by reference to Exhibit
10.2 to the Registrant's Quarterly Report on Form 10-Q for the three
month period ended June 30, 2000).
10.20+ 2000 Stock Option Plan for Outside Directors of the Registrant
(incorporated by reference to Exhibit 10.3 to the Registrant's
Quarterly Report on Form 10-Q for the three month period ended June 30,
2000).
10.21+ Form of Stock Option Agreement (incorporated by reference to Exhibit
10.4 to the Registrant's Quarterly Report on Form 10-Q for the three
month period ended June 30, 2000).
10.22(4) Amendment No. 2 to Distribution and Licensing Agreement between the
Registrant and Kamar, Inc. dated September 28, 2000 (incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the three month period ended September 30, 2000).
21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit
21.1 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996).
15
23.1 Consent of PricewaterhouseCoopers LLP.
(1) Confidential Treatment as to certain portions obtained effective
until March 31, 2002. The copy filed as an exhibit omits the information subject
to the Confidential Treatment.
(2) Confidential Treatment as to certain portions obtained effective
until November 14, 2012. The copy filed as an exhibit omits the information
subject to the Confidential Treatment.
(3) Confidential Treatment as to certain portions obtained effective
until December 31, 2003. The copy filed as an exhibit omits the information
subject to the Confidential Treatment.
(4) Confidential Treatment as to certain portions has been requested
effective until December 31, 2004. 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 PricewaterhouseCoopers LLP, Independent Accountants F-1
Consolidated Balance Sheets - December 31, 2000 and 1999 F-2 to F-3
Consolidated Statements of Operations for the years
ended December 31, 2000, 1999 and 1998 F-4
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2000, 1999, and 1998 F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 2000, 1999 and 1998 F-6
Notes to Consolidated Financial Statements F-7 to F-15
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 FORM 8-K
None
16
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders of
ImmuCell Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of shareholders' equity, and of cash
flows present fairly, in all material respects, the financial position of
ImmuCell Corporation and Subsidiary at December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States. 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 of these statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audit
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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Portland, Maine
March 28, 2001
F-1
IMMUCELL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
ASSETS
2000 1999
---------------------------
CURRENT ASSETS:
Cash and cash equivalents $1,895,149 $1,823,688
Accounts receivable, net of allowance
for doubtful accounts of $39,000 and
$41,000 at December 31, 2000 and 1999,
respectively 875,066 453,139
Inventories 502,448 520,656
Current portion of deferred tax asset 77,651 --
Prepaid expenses 34,680 27,826
---------------------------
Total current assets 3,384,994 2,825,309
PROPERTY, PLANT AND
EQUIPMENT, at cost:
Laboratory and manufacturing equipment 1,005,914 961,554
Building and improvements 586,242 586,242
Construction in progress 219,269 --
Office furniture and equipment 73,347 63,418
Land 50,000 50,000
---------------------------
1,934,772 1,661,214
Less-accumulated depreciation 988,374 881,384
---------------------------
Net property, plant and
equipment 946,398 779,830
DEFERRED TAX ASSET 1,851,684 --
PRODUCT RIGHTS AND OTHER ASSETS,
net of allowance for amortization
of $25,000 at December 31, 2000 260,840 250,840
---------------------------
TOTAL ASSETS $6,443,916 $3,855,979
===========================
The accompanying notes are an integral part of the financial statements.
F-2
IMMUCELL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
2000 1999
----------------------------
CURRENT LIABILITIES:
Accounts payable $ 239,254 $ 322,241
Accrued expenses 231,010 264,991
Current portion of long term debt 20,481 18,691
----------------------------
Total current liabilities 490,745 605,923
Long term debt 414,178 434,658
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 8)
STOCKHOLDERS' EQUITY:
Common stock, Par value - $.10 per share
Authorized-8,000,000 shares
Issued-3,054,782 and 2,834,682
shares at December 31, 2000 and
1999, respectively 305,478 283,468
Capital in excess of par value 8,833,785 8,354,246
Accumulated deficit (3,013,535) (5,235,581)
Treasury stock, at cost-389,598 shares (586,735) (586,735)
----------------------------
Total stockholders' equity 5,538,993 2,815,398
----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 6,443,916 $ 3,855,979
============================
The accompanying notes are an integral part of the financial statements.
F-3
IMMUCELL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
2000 1999 1998
---------------------------------------------
REVENUES:
Product sales $ 5,485,003 $ 4,722,374 $ 4,199,851
Grant income 96,266 186,871 282,016
Royalty income 54,716 -- --
---------------------------------------------
Total revenues 5,635,985 4,909,245 4,481,867
COSTS AND EXPENSES:
Product costs 2,801,392 2,152,959 2,014,626
Research and development
expenses 922,347 812,892 1,012,813
Sales and marketing
expenses 1,002,910 889,501 816,705
General and administrative
expenses 495,962 438,923 637,439
---------------------------------------------
Total costs and expenses 5,222,611 4,294,275 4,481,583
Operating income 413,374 614,970 284
Interest and other income 100,816 72,763 64,973
Interest expense (38,302) (39,757) (45,217)
Equity in net loss
of joint venture -- (97,133) (122,558)
---------------------------------------------
Net interest and other 62,514 (64,127) (102,802)
---------------------------------------------
NET PROFIT (LOSS)
BEFORE TAXES 475,888 550,843 (102,518)
TAX BENEFIT 1,746,158 -- --
---------------------------------------------
NET PROFIT (LOSS)
AFTER TAXES $ 2,222,046 $ 550,843 $ (102,518)
=============================================
NET PROFIT (LOSS)
PER COMMON SHARE:
Basic $ 0.84 $ 0.23 $ (0.04)
Diluted $ 0.79 $ 0.22 $ (0.04)
=============================================
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 2,632,038 2,432,701 2,426,474
Diluted 2,822,964 2,519,962 2,426,474
=============================================
The accompanying notes are an integral part of the financial statements.
F-4
IMMUCELL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
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, 1997 2,804,482 $ 280,448 $ 8,319,701 $(5,683,906) 389,598 $ (586,735) $ 2,329,508
Net loss -- -- -- (102,518) -- -- (102,518)
Exercise of
stock options 14,000 1,400 19,206 -- -- -- 20,606
-------------------------------------------------------------------------------------------------------
BALANCE,
December 31, 1998 2,818,482 281,848 8,338,907 (5,786,424) 389,598 (586,735) 2,247,596
Net profit
after taxes -- -- -- 550,843 -- -- 550,843
Exercise of
stock options 16,200 1,620 15,339 -- -- -- 16,959
-------------------------------------------------------------------------------------------------------
BALANCE,
December 31, 1999 2,834,682 283,468 8,354,246 (5,235,581) 389,598 (586,735) 2,815,398
Net profit
after taxes -- -- -- 2,222,046 -- -- 2,222,046
Tax benefits related
to stock options -- -- 183,177 -- -- -- 183,177
Exercise of
stock options 220,100 22,010 296,362 -- -- -- 318,372
-------------------------------------------------------------------------------------------------------
BALANCE,
December 31, 2000 3,054,782 $ 305,478 $ 8,833,785 $(3,013,535) 389,598 $ (586,735) $ 5,538,993
=======================================================================================================
The accompanying notes are an integral part of the financial statements.
F-5
IMMUCELL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
2000 1999 1998
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit (loss) after taxes $ 2,222,046 $ 550,843 $ (102,518)
Adjustments to reconcile net
profit (loss) to net cash
provided by operating activities-
Depreciation and amortization 133,158 101,537 105,542
Deferred income taxes (1,746,158) -- --
Equity share in joint venture losses -- 97,134 127,558
Changes in:
Accounts receivable (421,927) 203,385) 431,513
Inventories 18,208 (44,707) (1,423)
Prepaid expenses (6,854) 17,690 (18,475)
Accounts payable (82,987) 181,929 (16,911)
Accrued expenses (33,981) (21,342) 114,535
------------ ------------ ------------
Net cash provided by operating activites 81,505 679,699 639,821
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment, building
and improvements, net (274,726) (131,595) (65,931)
(Investment in) Distribution from
joint venture -- (13,023) 25,000
Acquisition of product rights (35,000) (250,000) --
------------ ------------ ------------
Net cash used for investing activities (309,726) (394,618) (40,931)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt obligations -- -- 480,000
Payments of debt obligations (18,690) (17,257) (579,415)
Proceeds from issuance of common stock 318,372 16,959 20,606
Stock issuance costs -- -- (2,500)
------------ ------------ ------------
Net cash provided by (used for)
financing activities 299,682 (298) (81,309)
------------ ------------ ------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 71,461 284,783 517,581
BEGINNING CASH AND CASH EQUIVALENTS 1,823,688 1,538,905 1,021,324
------------ ------------ ------------
ENDING CASH AND CASH EQUIVALENTS $ 1,895,149 $ 1,823,688 $ 1,538,905
============ ============ ============
CASH PAID FOR INTEREST $ 38,438 $ 39,883 $ 45,153
============ ============ ============
The accompanying notes are an integral part of the financial statements.
F-6
IMMUCELL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BUSINESS OPERATIONS
ImmuCell Corporation (the "Company") is a biotechnology company primarily
engaged in the development of animal health products to expand its
commercialized line of products for use by dairy and beef producers. The Company
was originally incorporated in Maine in 1982 and reincorporated in Delaware in
March 1987, in conjunction with its initial public offering of common stock.
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 and acquisition of additional commercially viable products. In
addition, sales of a significant product are subject to a license that is
scheduled to expire on December 31, 2004.
(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.
(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,
----------------------
2000 1999
-------- --------
Raw materials $110,728 $136,909
Work-in-process 336,087 243,895
Finished goods 55,633 139,852
-------- --------
$502,448 $520,656
======== ========
(D) EQUIPMENT, BUILDING AND IMPROVEMENTS AND INTANGIBLE ASSETS
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. The $250,000
acquisition of certain product rights in December 1999 is valued at cost and is
being amortized to cost of sales over ten years. The $35,000 acquisition of
certain other product rights in December 2000 is valued at cost and is being
amortized to cost of sales over seven and one-half years.
(E) REVENUE RECOGNITION
Revenues related to the sale of manufactured products are recorded at the
time of shipment to the customer.
F-7
Royalty income is recorded on the accrual basis based on sales as reported to
the Company by its licensee pursuant to the terms of the agreement.
Collaborative research and development revenue and income on government research
grants are recognized as reimburseable expenses are incurred. 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. Income from the sale of technology licenses is recognized when definitive
agreement as to terms is reached, which approximates the receipt of the
associated cash payments.
(F) NET PROFIT (LOSS) PER COMMON SHARE
The basic net profit (loss) per common share has been computed in
accordance with Financial Accounting Standards Board Statement No. 128 by
dividing the net profit (loss) by the weighted average number of common shares
outstanding during the year. The denominator in the diluted net profit per
common share calculation in 2000 was increased by 597,738 "in-the-money" common
stock options and reduced by 406,812 shares that could have been repurchased
with the proceeds from the exercise of these common stock options. Options to
purchase 24,000 shares of common stock at $4.00 per share were outstanding
during 2000 but not included in the computation of diluted net profit per share
because the options' exercise prices were greater than the average market price
of the common shares and, therefore, the effect would be antidilutive. The
denominator in the diluted net profit per common share calculation in 1999 was
increased by 409,800 "in-the-money" common stock options and reduced by 322,539
shares that could have been repurchased with the proceeds from the exercise of
these common stock options. Options to purchase 168,667 shares of common stock
at prices ranging from $1.69 to $4.00 per share were outstanding during 1999 but
not included in the computation of diluted net profit per share because the
options' exercise prices were greater than the average market price of the
common shares and, therefore, the effect would be antidilutive. Common stock
equivalents outstanding have not been included in the 1998 diluted net loss per
common share computation, as the effect would be antidilutive, thereby
decreasing the net loss per common share. For additional disclosures regarding
the outstanding common stock options see Notes 7(b) and 7(c).
(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.
(H) SEGMENT INFORMATION
In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION. SFAS No. 131 supersedes SFAS No. 14, FINANCIAL REPORTING FOR
SEGMENTS OF A BUSINESS ENTERPRISE, replacing the "industry segment" approach
with the "management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. SFAS
No. 131 also requires disclosures about products and services, geographic areas,
and major customers. The adoption of SFAS No. 131 did not affect results of
operations or financial position but did affect the disclosure of segment
information (see Note 9, "Segment and Significant Customer Information").
(3) INVESTMENT IN JOINT VENTURE
In 1996, the Company and Agri-Mark, Inc. of Methuen, Massachusetts formed
a joint venture, AgriCell Company, LLC, a Delaware limited liability company, to
manufacture and sell lactoferrin, a nutritional milk protein derived from cheese
whey. The Company licensed certain proprietary technology to AgriCell, invested
$125,000 in new fixed assets and contributed other fixed assets with a net book
value of approximately $95,000 as well as additional personnel costs to assist
in the installation of the commercial production facility. Agri-Mark invested
approximately $1,000,000 in principally working capital, fixed assets and
production facility modifications. 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. As of
December 31, 1999, the investment in this joint venture asset was completely
written off. Since the Company has no obligation to invest further amounts, it
is not expected that the results of the joint venture would have a negative
impact on the Company's financial statements.
F-8
(4) ACCRUED EXPENSES
Accrued expenses consisted of the following:
December 31,
----------------------
2000 1999
-------- --------
Accrued royalties $ 91,730 $ 70,537
Accrued professional fees 25,875 49,370
Accrued payroll 41,327 101,509
Accrued other 72,078 43,575
-------- --------
$231,010 $264,991
======== ========
(5) DEBT OBLIGATIONS
The Company has long term debt obligations, net of current maturities, as
follows:
December 31,
----------------------
2000 1999
-------- --------
8.62% Bank mortgage, collateralized
by first security interest in
building, due 1999 to 2003 $434,659 $453,349
Less current portion 20,481 18,691
-------- --------
Long term debt $414,178 $434,658
======== ========
In May 1998, the Company refinanced its bank debt obligations by using
the proceeds from a $480,000 mortgage loan together with approximately $29,000
in additional cash to repay all of the then outstanding bank debt obligations.
The new mortgage has a 15 year amortization schedule with interest payable at
the fixed rate of 8.62% per year for the first five years. The Company intends
to repay the then outstanding principal at the end of this five year period, but
the mortgage does provide the option of resetting at a new fixed interest rate
to be determined at that time for one additional five year period. Principal
payments under the above debt obligations due subsequent to December 31, 2000
are approximately as follows: $21,000 (2001); $22,000 (2002); and $392,000
(2003). The weighted average interest rate of the bank debt outstanding as of
December 31, 2000 and 1999 is 8.62%. The difference between the fair value and
the carrying value of these debt obligations is immaterial.
(6) INCOME TAXES
The Company accounts for income taxes in accordance with Financial
Accounting Standards Board Statement No. 109. Deferred income taxes reflect the
net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income
tax purposes. The significant components of the Company's deferred tax assets
and liabilities are as follows:
December 31,
1999 2000
------------ ------------
Deferred tax assets:
Net operating loss carryover $ 1,523,424 $ 1,883,878
Expenses currently deductible 77,651 61,046
Research and experimentation amortization 331,163 --
General business credit carryforward 153,968 183,538
------------ ------------
Total deferred tax assets 2,086,206 2,128,462
------------ ------------
Deferred tax liabilities:
Depreciation (2,903) (7,173)
------------ ------------
Total deferred tax liabilities (2,903) (7,173)
------------ ------------
Net deferred tax assets
before valuation allowance 2,083,303 2,121,289
Valuation allowance (153,968) (2,121,289)
------------ ------------
Net deferred tax assets $ 1,929,335 $ --
============ ============
F-9
Income tax benefit consists of the following as of December 31st of the
following years:
2000 1999 1998
---------- ---------- ----------
Current
Federal 142,174 -- --
State 41,003 -- --
---------- ---------- ----------
183,177 -- --
Deferred
Federal (1,497,464) -- --
State (431,871) -- --
---------- ---------- ----------
(1,929,335) -- --
Total (1,746,158) -- --
========== ========== ==========
The actual income tax benefit differs from the expected tax computed by
applying the U.S. Federal corporate tax rate of 34% to income before income tax
as follows:
2000 1999 1998
---------- ---------- ----------
Computed expected tax expense 161,821 187,287 --
State income taxes, net of
federal benefit 28,303 32,465 --
Other 1,469 2,086 --
---------- ---------- ----------
Total income tax expense 191,593 221,838 --
Valuation allowance (1,967,321) (253,955) --
Credit expiring 29,570 32,117 --
---------- ---------- ----------
Total tax (1,746,158) -- --
The Company utilized approximately $360,000 and $204,000 of net operating
loss carryforwards to offset taxable income in fiscal years 2000 and 1999,
respectively. As a result of the Company's two consecutive years of profitable
results and the expectation of continued profitability, the Company recorded a
tax benefit of approximately $1,967,000 as a result of the release of the
valuation allowance on the deferred tax asset related to net operating loss
carryforwards. The remaining valuation allowance of approximately $154,000,
related to the general business credit carryforward has not been released due to
the uncertainty of its use before expiration. This credit expires in the years
2001 through 2006. For federal and state income tax purposes, the Company has
remaining net operating loss carryforwards of $3,819,000, expiring from 2002 to
2018, that are available to offset future taxable income.
(7) STOCKHOLDERS' EQUITY
(A) COMMON STOCK PURCHASE WARRANT
In connection with a license and sublicense agreement entered into in
April 2000 between the Company and Nutrition 21, Inc. covering proprietary
technology relating to Nisin and lysostaphin, the Company granted to Nutrition
21 Inc. a warrant to purchase 50,000 shares of the Company's common stock at an
exercise price of $5.29 per share. This warrant will not be exercisable unless
and until the Company receives governmental approval of a product that
incorporates technology covered by the license and sublicense agreement. The
rights granted under the warrant will expire on the earlier of April 12, 2003 if
vesting has not occurred by that date, or the fourth anniversary of the vesting
date.
(B) NON-QUALIFIED STOCK OPTIONS
In April 1992, a total of 200,000 non-qualified stock options were issued
to the three, then-serving executive officers of the Company at an exercise
price of $1.05 per share, the then current market price of the Company's common
stock. These options were granted outside of the stock option plans described
below. Half of these options became exercisable in April 1993, and the remaining
half became exercisable in April 1994. A former executive officer of the Company
exercised 16,200 of such options during October 1999 and the aggregate of an
additional 133,800 of such options during January and February 2000. The
remaining 50,000 of such options were exercised by the two, current executive
officers of the Company in January 2001.
F-10
In April 1999, a total of 93,300 non-qualified stock options were issued
to the three, then-serving executive officers of the Company at an exercise
price of $1.31 per share, the then current market price of the Company's common
stock. These options were granted outside of the stock option plans described
below. In March 2000, 31,100 of these options became exercisable. In September
2000, 20,734 of these options terminated when one of the officers separated from
the Company. An additional 20,734 options become exercisable in March 2001, and
the remaining 20,734 options become exercisable in March 2002. If not exercised,
10,366 of these options expire in March 2002, and the remaining 62,200 expire in
April 2009.
(C) STOCK OPTION PLANS
In June 2000, the stockholders approved the 2000 Stock Option and
Incentive Plan (the "2000 Employee 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. 250,000 shares of common stock are reserved for issuance under the
2000 Employee Plan. All options granted under the 2000 Employee Plan expire no
later than ten years from the date of grant. The 2000 Employee Plan expires in
June 2010, after which date no further options may be granted under the 2000
Employee Plan; however, any outstanding options under the 2000 Employee Plan may
be exercised in accordance with their terms.
In June 2000, the stockholders approved the 2000 Stock Option Plan for
Outside Directors (the "2000 Outside Director Plan") pursuant to the provisions
of the Internal Revenue Code of 1986. Under the 2000 Outside Director Plan, each
of the five, then-serving outside directors of the Company was automatically
granted a non-qualified stock option to purchase 15,000 shares of common stock
at its fair market value on the date the 2000 Outside Director Plan was approved
by the stockholders. Directors who are newly elected to the Board subsequent to
June 2000 will receive an automatic grant of an option to purchase 15,000
shares, at the fair market value on the date when such directors are first
elected to the Board by the stockholders. One-third of the options subject to
the grant vest on the date that the director is first re-elected to the Board by
the stockholders; an additional 5,000 options vest on the second date that the
director is re-elected to the Board by the stockholders; and the remaining 5,000
options vest on the third date that the director is re-elected to the Board by
the stockholders. 120,000 shares of common stock are reserved for issuance under
the 2000 Outside Director Plan. All options granted under the 2000 Outside
Director Plan expire no later than five years from the date of grant. The 2000
Outside Director Plan expires in June 2005, after which date no further options
may be granted under the 2000 Outside Director Plan; however, any outstanding
options under the 2000 Outside Director Plan may be exercised in accordance with
their terms.
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 and a further increase in this
number to 340,000 shares at the June 1998 Annual Meeting. All options granted
under the 1989 Plan expire no later than ten years from the date of grant. The
1989 Plan expired in March 1999, and no further options may be granted under the
1989 Plan; however, outstanding options under the 1989 Plan may be exercised in
accordance with their terms.
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
were newly elected to the Board subsequent to February 1995 received an
automatic grant of an option to purchase 8,000 shares, at fair market value on
the date when such directors were 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. The 1995 Plan expired in February 2000, and no
further options may be granted under the 1995 Plan. The remaining 28,000
outstanding options under the 1995 Plan were exercised in 2000.
F-11
Activity under the stock option plans described above, was as follows:
2000
2000 Outside Weighted
Employee Director Average
1989 Plan 1995 Plan Plan Plan Exercise Price
-------- -------- -------- -------- --------
Balance at December 31, 1997 254,167 36,000 -- -- $ 2.25
Grants 15,000 -- -- -- 1.66
Terminations (41,534) -- -- -- 2.42
Exercises (14,000) -- -- -- 1.47
-------- -------- -------- --------
Balance at December 31, 1998 213,633 36,000 -- -- 2.23
Grants 79,700 -- -- -- 1.31
Terminations (19,966) (8,000) -- -- 1.65
Exercises -- -- -- -- --
-------- -------- -------- --------
Balance at December 31, 1999 273,367 28,000 -- -- 2.04
Grants -- -- 260,000 75,000 3.23
Terminations (24,895) -- (11,000) (15,000) 2.71
Exercises (58,300) (28,000) -- -- 2.07
-------- -------- -------- --------
Balance at December 31, 2000 190,172 -- 249,000 60,000 2.73
Exercisable at December 31, 2000 142,302 -- -- -- 2.28
======== ======== ======== ========
At December 31, 2000, approximately 621,738 common shares were reserved
for future issuance under all outstanding stock options described above. An
additional 61,000 common shares were reserved for potential future issuance
under future stock option grants.
(D) COMPLIANCE WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARD
("SFAS") NO. 123
SFAS No. 123, "Accounting for Stock-Based Compensation" 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 No. 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 profit (loss)
and basic net profit (loss) per share would have been reduced (increased) to the
pro forma amounts indicated below:
2000 1999 1998
---------- ---------- ----------
Net profit (loss) As reported $2,222,046 $ 550,843 $ (102,518)
Pro forma $1,999,857 $ 464,163 $ (173,061)
Basic net profit
(loss) per share As reported $ 0.84 $ 0.23 $ (0.04)
Pro forma $ 0.76 $ 0.19 $ (0.07)
The weighted average remaining life of the options outstanding under the
1989 Plan, the 2000 Employee Plan and the 2000 Outside Director Plan as of
December 31, 2000 was approximately seven years and one month. The exercise
price of the options outstanding and of the options exercisable as of December
31, 2000 ranged from $1.31 to $4.00. The weighted-average grant date fair values
of options granted during 2000 and 1999 were $3.23 and $1.31 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:
F-12
2000 1999 1998
-------- -------- --------
Risk-free interest rate 5.5% 5.8% 5.1%
Dividend yield 0 0 0
Expected volatility 45.6% 76.2% 79.7%
Expected life 3 years 5 years 5 years
(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) COMMITMENTS AND CONTINGENCIES
In connection with the acquisition of WIPE OUT(R) DAIRY WIPES, the
Company assumed the rights and obligations of a certain sub-contractor
manufacturing contract. As of December 31, 2000, the Company would be obligated
to pay this sub-contractor approximately $51,000 in the event of the termination
of this contract. The contingent liability reduces on a per unit basis as the
Company purchases product from this sub-contractor. In March 2001, upon
termination of this contract and the assumption of rights to make this product
on its own, the Company agreed to pay the subcontractor a licensing fee of
approximately $47,000.
The Company has entered into employment contracts with its two executive
officers which could require the Company to pay three months' salary as
severance pay depending upon the circumstances of any termination of employment
of these key employees.
In June 1998, the Company entered into a renewal of its service and
license agreement effective through December 31, 2003 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
had been cancelable by either party upon twelve months written
F-13
notice. In September 2000, this license was extended by one year to December 31,
2004, and the right of Kamar to cancel early without cause was eliminated. The
Company is committed to pay Kamar a monthly fee for distribution services and
related license fees of approximately $22,000 (adjusted annually for inflation)
until the license agreement terminates. Royalties paid to Kamar on sales made
during the years ended December 31, 2000, 1999 and 1998 were $389,000, $228,000
and $217,000, 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.
(9) SEGMENT AND SIGNIFICANT CUSTOMER INFORMATION
The Company principally operates in the business segment described in
Note 1. The Company's primary customers for the majority of its 2000 product
sales (76%) are in the United States dairy and beef industries. Revenues derived
from foreign customers, who are also in the dairy and beef industries,
aggregated 22% , 24% and 25% of the Company's total product sales for the years
ended December 31, 2000, 1999 and 1998, respectively. Grant income amounted to
approximately 2% ($96,000), 4% ($187,000) and 6% ($282,000) of total revenues in
the years ended December 31, 2000, 1999 and 1998, respectively.
Pursuant to SFAS No. 131, the Company operates in two reportable
segments: (1) Animal Health Products and (2) Research and Development ("R&D").
The accounting policies of the segments are the same as those described in Note
2, "Summary of Significant Accounting Policies." The Company evaluates the
performance of its segments and allocates resources to them based on
contribution before allocation of corporate overhead charges. The table below
presents information about reported segments for the years ending December 31:
Animal Health
2000: Products R&D Other Total
------------ ------------ ------------ ------------
Product sales $ 5,362,380 -- $ 122,623 $ 5,485,003
Grant income -- $ 96,266 -- 96,266
Other income -- -- 54,716 54,716
------------ ------------ ------------ ------------
Total revenues 5,362,380 96,266 177,339 5,635,985
Product costs 2,729,403 -- 71,989 2,801,392
Research and development -- 922,347 -- 922,347
Sales and marketing expenses 1,002,910 -- -- 1,002,910
Other expenses, net -- -- 433,448 433,448
------------ ------------ ------------ ------------
Net profit (loss) before taxes 1,630,067 (826,081) (328,098) 475,888
Tax benefit -- -- 1,746,158 1,746,158
------------ ------------ ------------ ------------
Net profit (loss) after taxes $ 1,630,067 $ (826,081) $ 1,418,060 $ 2,222,046
============ ============ ============ ============
Animal Health
1999: Products R&D Other Total
------------ ------------ ------------ ------------
Product sales $ 4,655,231 -- $ 67,143 $ 4,722,374
Grant income -- $ 186,871 -- 186,871
------------ ------------ ------------ ------------
Total revenues 4,655,231 186,871 67,143 4,909,245
Product costs 2,123,847 -- 29,112 2,152,959
Research and development -- 812,892 -- 812,892
Sales and marketing expenses 889,501 -- -- 889,501
Other expenses, net -- -- 503,050 503,050
------------ ------------ ------------ ------------
Net profit (loss) $ 1,641,883 $ (626,021) $ (465,019) $ 550,843
============ ============ ============ ============
F-14
Animal Health
1998: Products R&D Other Total
------------ ------------ ------------ ------------
Product sales $ 4,120,367 -- $ 79,484 $ 4,199,851
Grant income -- $ 282,016 -- 282,016
Other income -- -- -- --
------------ ------------ ------------ ------------
Total revenues 4,120,367 282,016 79,484 4,481,867
Product costs 1,950,476 -- 64,150 2,014,626
Research and development -- 1,012,813 -- 1,012,813
Sales and marketing expenses 816,705 -- -- 816,705
Other expenses, net -- -- 740,241 740,241
------------ ------------ ------------ ------------
Net profit (loss) $ 1,353,186 $ (730,797) $ (724,907) $ (102,518)
============ ============ ============ ============
(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 base compensation. Under this
matching contribution program, the Company paid approximately $20,000, $18,000
and $24,000 to the plan for the years ended December 31, 2000, 1999 and 1998,
respectively. Beginning January 1, 2001, the Company increased this matching
contribution to 50% of each employee's contribution to the plan up to a maximum
match of 4% of each employee's base compensation.
(11) UNAUDITED QUARTERLY FINANCIAL DATA
The following tables present the quarterly information for fiscal 2000
and fiscal 1999:
Fiscal Quarters Ended
---------------------
Fiscal 2000 March 31 June 30 September 30 December 31
- ----------- ------------ ------------ ------------ ------------
Total revenues $ 1,447,020 $ 1,458,885 $ 1,137,584 $ 1,592,496
Net profit (loss) before taxes 227,014 64,433 (13,483) 197,924
Net profit (loss) after taxes 227,014 64,433 (13,483) 1,944,082*
Net profit (loss) per common share:
Basic $ 0.09 $ 0.02 $ (0.01) $ 0.74
Diluted $ 0.08 $ 0.02 $ (0.01) $ 0.70
*See note 6 for description of deferred tax valuation reserve release.
Fiscal Quarters Ended
---------------------
Fiscal 1999 March 31 June 30 September 30 December 31
- ----------- ------------ ------------ ------------ ------------
Total revenues $ 1,403,600 $ 1,043,129 $ 1,159,179 $ 1,303,337
Net profit before taxes 253,899 78,983 63,188 154,773
Net profit after taxes 253,899 78,983 63,188 154,773
Net profit per common share:
Basic $ 0.10 $ 0.03 $ 0.03 $ 0.07
Diluted $ 0.10 $ 0.03 $ 0.02 $ 0.07
F-15
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 23, 2001 By: /s/ Michael F. Brigham
----------------------------------
Michael F. Brigham
President, Chief Executive Officer
and Treasurer
POWER OF ATTORNEY
We, the undersigned directors and officers of ImmuCell Corporation hereby
severally constitute and appoint Michael F. Brigham our true and lawful
attorney-in-fact and agent, 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 attorney-in-fact
and agent, 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 attorney-in-fact and agent, or his 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 23, 2001 By: /s/ Michael F. Brigham
-----------------------------------
Michael F. Brigham
President, Chief Executive Officer,
Treasurer and Director
Date: March 23, 2001 By: /s/ Anthony B. Cashen
-----------------------------------
Anthony B. Cashen, Director
Date: March 23, 2001 By: /s/ Joseph H. Crabb
-----------------------------------
Joseph H. Crabb
Vice President, Chief Scientific
Officer and Director
Date: March 23, 2001 By: /s/ Keith N. Haffer
-----------------------------------
Keith N. Haffer, Ph.D., Director
Date: March 23, 2001 By: /s/ William H. Maxwell
-----------------------------------
William H. Maxwell, M.D., Director
Date: March 23, 2001 By: /s/ Mitchel Sayare
-----------------------------------
Mitchel Sayare, Ph.D., Director
IMMUCELL CORPORATION AND SUBSIDIARY
Exhibit Index
23.1 Consent of PricewaterhouseCoopers LLP