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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
0-15507
Commission file number
IMMUCELL CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 01-0382980
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(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
56 Evergreen Drive
Portland, ME 04103
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(Address of principal executive office and zip code)
(207) 878-2770
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Class of Securities: Outstanding at August 13, 2002:
Common Stock, par value $.10 per share 2,735,984
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IMMUCELL CORPORATION
INDEX TO FORM 10-Q
June 30, 2002
PART I: FINANCIAL INFORMATION Page
----
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets at December 31, 2001 and June 30, 2002 3-4
Consolidated Statements of Operations for the three
and six month periods ended June 30, 2001 and 2002 5
Consolidated Statements of Cash Flows for the
six month periods ended June 30, 2001 and 2002 6
Notes to Unaudited Consolidated Financial Statements 7-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10-13
PART II: OTHER INFORMATION
Items 1 through 6 13
Signatures 14
2
IMMUCELL CORPORATION
PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS
------
(Unaudited)
December 31, June 30,
2001 2002
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents $1,883,090 $1,299,280
Short-term investments -- 489,145
Accounts receivable, net of allowance for
doubtful accounts of $38,000 at December
31, 2001 and June 30, 2002 974,383 741,198
Inventories 533,864 764,070
Current portion of deferred tax asset 78,650 78,650
Prepaid expenses 37,103 165,658
---------- ----------
Total current assets 3,507,090 3,538,001
PROPERTY, PLANT AND EQUIPMENT, at cost:
Laboratory and manufacturing equipment 1,326,111 1,273,366
Building and improvements 1,270,551 1,300,137
Office furniture and equipment 105,116 89,984
Land 50,000 50,000
---------- ----------
2,751,778 2,713,487
Less - accumulated depreciation 1,067,538 1,046,539
---------- ----------
Net property, plant and equipment 1,684,240 1,666,948
DEFERRED TAX ASSET 1,616,416 1,515,780
PRODUCT RIGHTS AND OTHER ASSETS, net of
amortization of $61,000 and $81,000 at
December 31, 2001 and June 30, 2002,
respectively 309,471 289,208
---------- ----------
TOTAL ASSETS $7,117,217 $7,009,937
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
3
IMMUCELL CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
(Unaudited)
December 31, June 30,
2001 2002
---------- ----------
CURRENT LIABILITIES:
Accounts payable $ 171,260 $ 294,777
Accrued expenses 256,575 228,077
Deferred revenue 114,280 72,280
Current portion of long-term debt 22,317 --
---------- ----------
Total current liabilities 564,432 595,134
LONG-TERM LIABILITIES:
Long-term debt 391,861 --
Long-term portion of deferred revenue 115,270 200,000
---------- ----------
Total long-term liabilities 507,131 200,000
STOCKHOLDERS' EQUITY:
Common stock, Par value-$.10 per share
Authorized-8,000,000 shares
Issued-3,115,082 shares at
December 31, 2001 and 3,125,582
shares at June 30, 2002 311,508 312,558
Capital in excess of par value 8,913,981 8,935,649
Accumulated deficit (2,593,100) (2,446,669)
Treasury stock, at cost -- 389,598 shares (586,735) (586,735)
---------- ----------
Total stockholders' equity 6,045,654 6,214,803
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,117,217 $7,009,937
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
4
IMMUCELL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2002
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
2001 2002 2001 2002
------------ ------------ ------------ ------------
REVENUES:
Product sales $ 1,767,571 $ 1,401,860 $ 3,237,848 $ 3,180,518
Grant income 32,627 121,223 41,199 190,260
Royalty income 22,865 5,423 28,149 25,767
Technology licensing income 13,635 13,635 18,180 27,270
Sale of option to technology -- 15,000 -- 30,000
------------ ------------ ------------ ------------
Total revenues 1,836,698 1,557,141 3,325,376 3,453,815
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Product costs 929,833 843,241 1,621,818 1,704,956
Research and development
expenses 251,926 217,110 416,597 416,663
Sales and marketing
expenses 336,761 383,765 657,525 774,727
General and administrative
expenses 149,838 143,546 282,653 299,762
------------ ------------ ------------ ------------
Total costs and expenses 1,668,358 1,587,662 2,978,593 3,196,108
------------ ------------ ------------ ------------
Net operating income (loss) 168,340 (30,521) 346,783 257,707
------------ ------------ ------------ ------------
Interest and other income 16,226 6,845 40,120 14,259
Interest expense (9,158) (10,982) (18,325) (19,707)
------------ ------------ ------------ ------------
Net interest and other
income (expense) 7,068 (4,137) 21,795 (5,448)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE TAXES 175,408 (34,658) 368,578 252,259
TAX EXPENSE (BENEFIT) 69,977 (12,034) 147,040 105,828
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 105,431 $ (22,624) $ 221,538 $ 146,431
NET INCOME (LOSS)
PER COMMON SHARE:
Basic $ 0.04 $ (0.01) $ 0.08 $ 0.05
Diluted $ 0.04 $ (0.01) $ 0.08 $ 0.05
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 2,715,184 2,735,984 2,714,770 2,734,998
Diluted 2,823,720 2,735,984 2,818,989 2,809,248
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
5
IMMUCELL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2002
(Unaudited)
Six Months Ended
June 30,
--------------------------
2001 2002
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 221,538 $ 146,431
Adjustments to reconcile net
income to net cash provided
by operating activities-
Depreciation and amortization 68,631 113,684
Deferred income taxes 147,040 100,636
Changes in:
Accounts receivable (148,054) 233,185
Inventories (98,323) (230,206)
Prepaid expenses (64,455) (128,555)
Accounts payable 119,533 123,517
Accrued expenses 8,861 (28,498)
Deferred revenue 26,820 42,730
---------- ----------
Net cash provided by operating activities 281,591 372,924
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant
and equipment (658,383) (76,129)
Increase in short-term investments -- (489,145)
Acquisition of product rights (84,585) --
---------- ----------
Net cash used for investing activities (742,968) (565,274)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of
stock options 52,345 22,718
Payments of debt obligations (10,071) (414,178)
---------- ----------
Net cash provided by (used for)
financing activities 42,274 (391,460)
---------- ----------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (419,103) (583,810)
BEGINNING CASH AND CASH EQUIVALENTS 1,895,149 1,883,090
---------- ----------
ENDING CASH AND CASH EQUIVALENTS $1,476,046 $1,299,280
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
6
IMMUCELL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying financial statements have been prepared by ImmuCell
Corporation (the "Company") without audit, and reflect the adjustments, all of
which are of a normal recurring nature, that are, in the opinion of management,
necessary for a fair statement of the results for the interim periods presented.
Certain information and footnote disclosures normally included in the annual
financial statements which are prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Accordingly, the Company
believes that although the disclosures are adequate to make the information
presented not misleading, these financial statements should be read in
conjunction with the financial statements and the notes to the financial
statements as of December 31, 2001, contained in the Company's Annual Report to
shareholders on Form 10-K as filed with the Securities and Exchange Commission.
The consolidated financial statements of the Company include the accounts
of the Company and its wholly-owned subsidiary, the Kamar Marketing Group, Inc.
All intercompany accounts and transactions have been eliminated in
consolidation.
(2) Short-term Investments
Short-term investments are comprised principally of certificates of
deposits with original maturities ranging from three to twelve months in amounts
that are within Federal Deposit Insurance Corporation ("FDIC") limits at
financial institutions that are insured by the FDIC.
(3) Inventories
Inventories consist of the following:
December 31, June 30,
2001 2002
---------- ----------
Raw materials $ 223,826 $ 211,538
Work-in-process 245,943 450,745
Finished goods 64,095 101,787
---------- ----------
$ 533,864 $ 764,070
========== ==========
(4) Debt Obligations
The Company had long-term debt obligations, net of current maturities, as
follows:
December 31, June 30,
2001 2002
---------- ----------
8.62% Bank mortgage, collateralized
by first security interest in building,
due 2001 to 2003 $ 414,178 $ --
Less current portion 22,317 --
---------- ----------
Long-term debt $ 391,861 $ --
========== ==========
The mortgage, which was entered into in May 1998, had a 15 year
amortization schedule with interest payable at the fixed rate of 8.62% per year
for the first five years. In May 2002, the Company utilized approximately
$405,000 in available cash to repay the then outstanding balance of this loan.
7
IMMUCELL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(5) Income Taxes
The Company accounts for income taxes in accordance with Financial
Accounting Standards Board Statement No. 109. Deferred income taxes reflect the
net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income
tax purposes. The Company recorded non-cash tax expense (benefit) of $70,000 and
($14,000) during the three month periods ended June 30, 2001 and 2002,
respectively, and of $147,000 and $101,000 during the six month periods ended
June 30, 2001 and 2002, respectively. The total tax expense (benefit) aggregated
$70,000 and ($12,000) for the three month periods ended June 30, 2001 and 2002,
respectively, and $147,000 and $106,000 for the six month periods ended June 30,
2001 and 2002, respectively. For federal and state income tax purposes, the
Company had remaining net operating loss carryforwards of approximately
$3,297,000 as of December 31, 2001, expiring from 2003 to 2018, that are
available to offset future taxable income.
(6) Net Income (Loss) per Common Share
The basic net income per share of common stock is determined by dividing
the net income by the weighted average number of shares of common stock
outstanding during the period. There were 324,372 common stock equivalents
outstanding that were not included in the calculation of the diluted net loss
per share for the three month period ended June 30, 2002, as the effect would be
antidilutive, thereby decreasing the net loss per common share. The diluted net
income per share reflects the potential dilution that would occur if existing
stock options were exercised in accordance with the schedule below:
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2001 2002 2001 2002
---------- ---------- ---------- ----------
Weighted average number of shares
outstanding during the period 2,715,184 2,735,984 2,714,770 2,734,998
Dilutive stock options, net 108,536 -- 104,219 74,250
---------- ---------- ---------- ----------
Diluted number of shares outstanding
during the period 2,823,720 2,735,984 2,818,989 2,809,248
========== ========== ========== ==========
Outstanding options not included in the
calculation because the options' exercise
prices were greater than the average
market price during the period 321,000 304,000 321,000 304,000
========== ========== ========== ==========
(7) Segment and Significant Customer Information
The Company principally operates in the business segment described in Note
1 to its Annual Report on Form 10-K for the year ended December 31, 2001. The
Company's primary customers for the majority (68% and 59% for the three month
periods ended June 30, 2001 and 2002, respectively) of its product sales are in
the United States dairy and beef industry. Sales to these primary customers
amounted to 72% and 68% of product sales during the six month periods ended June
30, 2001 and 2002, respectively. Sales to foreign customers, who are principally
in the dairy industry, aggregated 31% and 41% of product sales for the three
month periods ended June 30, 2001 and 2002, respectively. Sales to these foreign
customers amounted to 26% and 32% of product sales during the six month periods
ended June 30, 2001 and 2002, respectively.
Pursuant to Statement of Financial Accounting Standards No. 131, the
Company's two reportable segments are: (1) Animal Health Products and (2)
Research and Development ("R&D"). The accounting policies of the segments are
the same as those described in Note 2 to the Company's Annual Report on Form
10-K for the year ended December 31, 2001. The Company evaluates the performance
of its segments and allocates resources to them based on contribution before
allocation of corporate overhead charges. The "Other" category consists of sales
of non-animal health products, royalty income, general and administative
expenses, net interest and taxes. The table below presents information about
reported segments for the three and six month periods ended June 30, 2001 and
2002:
8
IMMUCELL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Three Months Ended June 30, 2001: Animal Health
(in thousands) Products R&D Other Total
---------- ---------- ---------- ----------
Product sales $ 1,729 $ -- $ 39 $ 1,768
Grant income -- 33 -- 33
Royalty income -- -- 23 23
Technology licensing income -- 13 -- 13
---------- ---------- ---------- ----------
Total revenues 1,729 46 62 1,837
Product costs 913 -- 17 930
Research and development expenses -- 252 -- 252
Sales and marketing expenses 337 -- -- 337
General and administrative and other
expenses, net -- -- 143 143
---------- ---------- ---------- ----------
Income (loss) before taxes 479 (206) (98) 175
Tax expense -- -- 70 70
---------- ---------- ---------- ----------
Net income (loss) $ 479 $ (206) $ (168) $ 105
========== ========== ========== ==========
Three Months Ended June 30, 2002: Animal Health
(in thousands) Products R&D Other Total
---------- ---------- ---------- ----------
Product sales $ 1,398 $ -- $ 4 $ 1,402
Grant income -- 121 -- 121
Royalty income -- -- -- 5
Technology licensing income -- 14 -- 14
Sale of option to technology -- -- 15 15
---------- ---------- ---------- ----------
Total revenues 1,398 135 24 1,557
Product costs 842 -- 1 843
Research and development expenses -- 217 -- 217
Sales and marketing expenses 384 -- -- 384
General and administrative and other
expenses, net -- -- 148 148
---------- ---------- ---------- ----------
Income (loss) before taxes 172 (82) (125) (35)
Tax benefit -- -- (12) (12)
---------- ---------- ---------- ----------
Net income (loss) $ 172 $ (82) $ (113) $ (23)
========== ========== ========== ==========
Six Months Ended June 30, 2001: Animal Health
(in thousands) Products R&D Other Total
---------- ---------- ---------- ----------
Product sales $ 3,155 $ -- $ 83 $ 3,238
Grant income -- 41 -- 41
Royalty income -- -- 28 28
Technology licensing income -- 18 -- 18
---------- ---------- ---------- ----------
Total revenues 3,155 59 111 3,325
Product costs 1,579 -- 42 1,621
Research and development expenses -- 417 -- 417
Sales and marketing expenses 658 -- -- 658
General and administrative and other
expenses, net -- -- 260 260
---------- ---------- ---------- ----------
Income (loss) before taxes 918 (358) (191) 369
Tax expense -- -- 147 147
---------- ---------- ---------- ----------
Net income (loss) $ 918 $ (358) $ (338) $ 222
========== ========== ========== ==========
9
IMMUCELL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Six Months Ended June 30, 2002: Animal Health
(in thousands) Products R&D Other Total
---------- ---------- ---------- ----------
Product sales $ 3,169 $ -- $ 12 $ 3,181
Grant income -- $ 190 -- 190
Royalty income -- -- 26 26
Technology licensing income -- 27 -- 27
Sale of option to technology -- -- 30 30
---------- ---------- ---------- ----------
Total revenues 3,169 217 68 3,454
Product costs 1,699 -- 6 1,705
Research and development expenses -- 417 -- 417
Sales and marketing expenses 775 -- -- 775
General and administrative and other
expenses, net -- -- 305 305
---------- ---------- ---------- ----------
Income (loss) before taxes 695 (200) (243) 252
Tax expense -- -- 106 106
---------- ---------- ---------- ----------
Net income (loss) $ 695 $ (200) $ (349) $ 146
========== ========== ========== ==========
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2002
Product sales decreased by 21%, or $366,000, to $1,402,000 during the three
month period ended June 30, 2002, in comparison to the same period in the prior
year. Sales decreased by 1.8%, or $57,000, to $3,181,000 during the six month
period ended June 30, 2002. Sales of FIRST DEFENSE(R) are normally seasonal with
lower sales expected in the late spring and summer months. Higher than expected
sales in the second quarter of 2001 were influenced by the backlog of orders for
FIRST DEFENSE that aggregated approximately $1,000,000 as of June 30, 2001. The
Company completed a facility addition in May 2001 to increase its production
capacity and eliminated the backlog of orders as of December 31, 2001. Combined
sales of FIRST DEFENSE and the KAMAR(R) HEATMOUNT(R) DETECTOR decreased by 22%
during the three month period ended June 30, 2002, as compared to the same
period in 2001. Combined sales of these two products decreased by 1% during the
six month period ended June 30, 2002. Sales of FIRST DEFENSE and the KAMAR
HEATMOUNT DETECTOR aggregated 90% and 88% of total product sales during the
three month periods ended June 30, 2001 and 2002, respectively, and 90% of total
product sales during the six month periods ended June 30, 2001 and 2002. In
September 2000, the Company entered into a one year extension to the term of its
product license from Kamar, Inc. covering the exclusive distribution of the
KAMAR HEATMOUNT DETECTOR from December 31, 2003 through December 31, 2004. Under
the amended license, the Company agreed to increase the royalty paid to Kamar in
return for a reduction in the Company's obligation to fund certain marketing
expenses in support of the product that will instead be funded by Kamar. The
license was also amended so that Kamar no longer has the right to terminate
without cause before expiration of the term. Sales of WIPE OUT(R) DAIRY WIPES
comprise the third most significant component of the product sales mix on a
dollar basis.
Total revenues decreased by 15%, or $280,000, to $1,557,000 during the
three month period ended June 30, 2002 in comparison to the same period in the
prior year. Total revenues increased by 4%, or $128,000, to $3,454,000 during
the six month period ended June 30, 2002. Grant income increased by $89,000 to
$121,000 during the three month period ended June 30, 2002 in comparison to the
same period in 2001. Grant income increased by $149,000 to $190,000 during the
six month period ended June 30, 2002. Approximately 62% and 68% of the grant
income during the three and six month periods ended June 30, 2002, respectively,
was earned in support of the MAST OUT(TM) product development effort. Royalty
income is earned on the sale of whey protein isolate by a licensee utilizing the
Company's milk protein purification technology. Technology licensing income is
being earned under a license to certain nutritional rights to the Company's
DIFFGAM technology. The sale of an option to technology represents an option the
Company sold to a third party allowing them the right to acquire the Company's
interest in its joint venture, AgriCell Company, LLC, on or before March 31,
2003.
10
IMMUCELL CORPORATION
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
As of June 30, 2002, the Company had recorded $272,000 in deferred revenue
under three agreements for which cash has been received but a portion of the
revenue recognition has been deferred to future periods. First, $200,000 had
been received as of June 30, 2002 under a research grant from the State of
Maine. Because of the contingent pay back obligation in connection with this
grant, the funding is being recorded as deferred revenue as the cash is received
by the Company, and no income is being recognized to match the development
expenses as they are incurred. There is no pay back obligation in the event that
a product is not commercialized. In such event, the deferred revenue would be
recognized at the time the product development effort is discontinued. Second,
the $100,000 in technology licensing fees pertaining to the license of certain
DIFFGAM rights is being recognized over the twenty-two month period ending
December 2002, which represents the period during which the Company agreed to
supply clinical material to the licensee at a discount. Third, the $100,000 sale
of an option to technology allowing an outside party to acquire the Company's
joint venture, AgriCell Company LLC, is being recognized over the twenty month
option period ending March 2003.
Gross margin as a percentage of product sales was 47% and 40% during the
three month periods ended June 30, 2001 and 2002, respectively. Gross margin as
a percentage of product sales was 50% and 46% during the six month periods ended
June 30, 2001 and 2002, respectively. Changes in the gross margin percentage
reflect changes in the product sales mix. The gross margin decreased by 33%, or
$279,000, to $559,000 during the three month period ended June 30, 2002, as
compared to the same period in 2001. The gross margin decreased by 9%, or
$140,000, to $1,476,000 during the six month period ended June 30, 2002. At this
stage in its development, the Company's primary objective is increasing product
sales. The ratio of gross margin to product sales may decline modestly as the
Company works to achieve efficiencies in its cost of goods sold over time. The
Company experiences a better gross margin from products that it has developed,
such as FIRST DEFENSE(R), and a lower gross margin from licensed-in, acquired
and new products.
Research and development expenses decreased by 14%, or $35,000, to $217,000
during the three month period ended June 30, 2002, as compared to the same
period in 2001. Research and development expenses were almost unchanged for the
six month period ended June 30, 2002 in comparison to the same period in 2001.
Research and development expenses aggregated 14% of total revenues during the
three month periods ended June 30, 2001 and 2002. Research and development
expenses aggregated 13% and 12% of total revenues during the six month periods
ended June 30, 2001 and 2002, respectively. Research and development expenses
exceeded grant and technology licensing income by $206,000 (which net amount
equals 12% of product sales) and by $82,000 (which net amount equals 6% of
product sales) during the three month periods ended June 30, 2001 and 2002,
respectively. Research and development expenses exceeded grant and technology
licensing income by $357,000 (which net amount equals 11% of product sales) and
by $199,000 (which net amount equals 6% of product sales) during the six month
periods ended June 30, 2001 and 2002, respectively. Since 1999, internal
resources have been invested principally in the development of new animal health
products that fit the Company's objective of commercializing its proprietary
technologies and developing innovative and proprietary products that improve
animal health and productivity in the dairy and beef industry. During the second
quarter of 2000, the Company initiated the development of MAST OUT(TM), a new
product utilizing Nisin (the same natural, antimicrobial protein that is the
active ingredient in WIPE OUT(R) DAIRY WIPES) as a non-antibiotic treatment for
mastitis in dairy cows. The Company anticipates an increase in research and
development expenses later in the year as the MAST OUT development effort
advances to the more expensive clinical trial stage.
Management believes that the expenses incurred from the investment in the
research and development of new products are necessary to foster growth for the
Company in the future. Beginning in 1999, the Company determined to increase its
development of new animal health products and to decrease its internally funded
research and development investment in products targeted towards the human
health care markets. Because funding requirements for animal health programs are
generally less than the requirements for human health programs, the Company
anticipates continued profitable operations on an annual basis. The Company
generally targets the investment of 10% to 13% of its product sales in research
and development expenses, net of grant and technology licensing income. However,
the costs associated with developing MAST OUT, which is subject to the approval
of the U.S. Food and Drug Administration, are significantly higher than other
animal health products being developed by the Company. The Company may choose to
enter into significant relationships with outside parties over the next two to
three years in order to carry out some of the required product development. As
this product is developed, several different one-time and non-recurring
expenditures could temporarily impact the ability of the Company to achieve its
expense rate targets and could even impact the achievement of some of its
quarterly profitability objectives. Management believes that the market
potential for MAST OUT justifies such an investment.
11
IMMUCELL CORPORATION
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
While the Company continues to focus its internally funded research and
development efforts on products for the dairy and beef industry, it is still the
Company's intent to realize some value from its past efforts outside of the
animal health industry through collaborations with others. One such example is
the March 2001 license agreement entered into with Novatreat Ltd of Turku,
Finland covering certain DIFFGAM rights for nutritional, risk reduction
applications outside of North America. Another such example is the August 2001
option agreement under which the Company sold an option to DMV International
Nutritionals of the Netherlands which allows DMV the right to buy the Company's
50% interest in its lactoferrin producing joint venture, AgriCell Company, LLC,
until March 2003.
Sales and marketing expenses increased by 14%, or $47,000, to $384,000
during the three month period ended June 30, 2002 compared to the same period in
2001, aggregating 19% and 27% of product sales during the three month periods
ended June 30, 2001 and 2002, respectively. Sales and marketing expenses
increased by 18%, or $117,000, to $775,000 during the six month period ended
June 30, 2002 compared to the same period in 2001, aggregating 20% and 24% of
product sales during the six month periods in 2001 and 2002, respectively. It is
the Company's objective to maintain this ratio reasonably close to 20% as it
launches new products incurring sales and marketing expenses before significant
product sales are achieved. The decrease in sales principally caused this ratio
to increase in the second quarter of 2002, but management expects results to be
closer to expectation for the full year. General and administrative expenses
decreased by 4%, or $6,000, to $144,000 during the three month period ended June
30, 2002 compared to the same period in 2001. General and administrative
expenses increased by 6%, or $17,000, to $300,000 during the six month period
ended June 30, 2002. The Company continues its efforts to control these expenses
while incurring all the necessary costs associated with being a publicly held
company.
The income before taxes for the three months ended June 30, 2001 of
$175,000 compares to a loss before taxes of $35,000 for the three months ended
June 30, 2002. The net income for the three months ended June 30, 2001 of
$105,000 ($0.04 per diluted share) compares to a net loss of $23,000 ($0.01 per
diluted share) for the three months ended June 30, 2002. The income before taxes
decreased by 32%, or $116,000, to $252,000 for the six month period ended June
30, 2002 compared to the same period in 2001. The net income decreased by 34%,
or $75,000, to $146,000 ($0.05 per diluted share) for the six month period ended
June 30, 2002, compared to $222,000 ($0.08 per diluted share) for the same
period in 2001. The effective income tax rates were 40% and 42% for the six
months ended June 30, 2001 and 2002, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments decreased by $95,000 to
$1,788,000 at June 30, 2002 from $1,883,000 at December 31, 2001. Total assets
decreased by $107,000 to $7,010,000 at June 30, 2002 from $7,117,000 at December
31, 2001. Net working capital was almost unchanged at $2,943,000 at June 30,
2002 and December 31, 2001. Stockholders' equity increased by $169,000 to
$6,215,000 at June 30, 2002 from $6,046,000 at December 31, 2001. In May 2002,
the Company utilized approximately $405,000 in available cash to repay the then
outstanding balance of its mortgage loan. The Company currently has no
outstanding bank debt.
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 MAST OUT(TM) product development effort. Due to a contingent pay back
obligation, the funding is being recorded as deferred revenue as the cash is
received by the Company, and no income is being recognized to match the
development expenses as they are incurred. As of June 30, 2002, $200,000 had
been received under this grant and up to another $200,000 is available for
future periods. There is no pay back obligation in the event that a product is
not commercialized. In such case, the deferred revenue would be recognized at
the time the product development effort is discontinued. In addition, the
Company's research and development efforts are being partially funded by four
federal research grants worth the aggregate of $527,000. Because these grants
have no contingent pay back obligations, the income is recognized as the
expenses are incurred. As of June 30, 2002, the aggregate of approximately
$224,000 was available under these four grants for future periods.
12
IMMUCELL CORPORATION
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
The Company believes that it has sufficient capital resources to meet its
working capital requirements and to finance its ongoing business operations
during at least the next twelve months.
FORWARD-LOOKING STATEMENTS
This Quarterly Report contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, and Section 21E of the
Securities Exchange Act of 1934. Such statements include, but are not limited
to, any statements relating to the Company's objectives concerning future
product sales, research and development expenses, profitability, expense ratios
and any other statements that are not historical facts. Such statements involve
risks and uncertainties, including, but not limited to, those risks and
uncertainties relating to difficulties or delays in development, testing,
regulatory approval, production and marketing of the Company's products,
competition within the Company's anticipated product markets, the uncertainties
associated with product development, and other risks detailed from time to time
in filings the Company makes with the Securities and Exchange Commission,
including its Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q.
Such statements are based on management's current expectations, but actual
results may differ materially due to various factors, including those risks and
uncertainties mentioned or referred to in this Quarterly Report.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held on June 12, 2002, the
stockholders voted on one business matter. The first order of business
was the election of the Board of Directors for the next ensuing year.
Each of the six nominees recommended by management to the stockholders
was elected to the Board. The following list by name of director shows
how the votes were cast for each director:
Michael F. Brigham (for: 2,345,851; withhold: 16,843), Anthony B.
Cashen (for: 2,345,851; withhold: 16,843), Joseph H. Crabb (for:
2,345,851; withhold: 16,843), William H. Maxwell (for: 2,345,851;
withhold: 16,843), Jonathan E. Rothschild (for: 2,345,751;
withhold: 16,943) and Mitchel Sayare (for: 2,345,851; withhold:
16,843).
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 99 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(b) Reports on Form 8-K
None
13
IMMUCELL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ImmuCell Corporation
Registrant
Date: August 13, 2002 By: /s/ Michael F. Brigham
--------------------------------------
Michael F. Brigham
President and Chief Executive Officer
and Treasurer
14