UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-K
________________________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2019
001-12934
(Commission file number)
ImmuCell Corporation
(Exact name of Registrant as specified in its charter)
Delaware
(State of incorporation)
56 Evergreen Drive, Portland, Maine
(Address of principal executive office)
01-0382980
(I.R.S. Employer
Identification No.)
04103
(Zip Code)
Registrant’s telephone number: (207) 878-2770
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 $0.10 per share
(Title of class)
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes
No
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
No
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to
be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that
the Registrant was required to submit and post such files). Yes No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, a smaller reporting company or an emerging growth company. Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company Emerging growth company
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No
The aggregate market value of the voting and non-voting common equity held by non-affiliates at June 30, 2019 was
approximately $40,669,000 based on the closing sales price on June 28, 2019 of $6.50 per share.
The number of shares of the Registrant’s common stock outstanding at March 19, 2020 was 7,212,919.
Documents incorporated by reference: Portions of the Registrant’s definitive Proxy Statement to be filed in
connection with the 2020 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.
ImmuCell Corporation
TABLE OF CONTENTS
December 31, 2019
ITEM 1.
PART I
Business………………………………………………………………………………….
ITEM 1A.
Risk Factors……………………………………………………………………………...
ITEM 1B.
Unresolved Staff Comments……………………………………………………………..
ITEM 2.
Properties…………………………………………………………………………….......
ITEM 3.
Legal Proceedings………………………………………………………………………..
ITEM 4.
ITEM 5.
Mine Safety Disclosures…………………………………………………………………
PART II
Market for Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities…………………………………………………………………………
ITEM 6.
Selected Financial Data………………………………………………………………….
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations………………………………………………………………………………..
ITEM 7A.
Quantitative and Qualitative Disclosures about Market Risk…………………………...
ITEM 8.
Financial Statements and Supplementary Data………………………………………….
ITEM 9.
Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure………………………………………………………………………………..
ITEM 9A
Controls and Procedures…………………………………………………………………
ITEM 9B.
Other Information………………………………………………………………………..
PART III
ITEM 10.
Directors, Executive Officers and Corporate Governance………………………………
ITEM 11.
Executive Compensation………………………………………………………………...
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters…………………………………………………………….
ITEM 13.
Certain Relationships and Related Transactions and Director Independence…………
ITEM 14.
Principal Accounting Fees and Services………………………………………………...
PART IV
1
11
17
17
18
18
18
19
21
31
32
32
32
33
33
34
34
34
34
ITEM 15.
Exhibits and Financial Statement Schedules…………………………………………….
35
Audited Financial Statements…………………………………………………………… F-1 to F-26
Signatures
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ImmuCell Corporation
PART I
ITEM 1 – BUSINESS
Cautionary Note Regarding Forward-Looking Statements (Safe Harbor Statement):
This Annual Report on Form 10-K 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: our plans and strategies for our business; projections of future financial
or operational performance; the timing and outcome of pending or anticipated applications for regulatory approvals;
factors that may affect the dairy and beef industries and future demand for our products; the scope and timing of
ongoing and future product development work and commercialization of our products; future costs of product
development efforts; the estimated prevalence rate of subclinical mastitis; the expected efficacy of new products;
estimates about the market size for our products; future market share of and revenue generated by current products
and products still in development; our ability to increase production output and reduce costs of goods sold associated
with our new product, Tri-Shield First Defense®; the future adequacy of our own manufacturing facilities or those
of third parties with which we have contractual relationships to meet demand for our products on a timely basis; the
anticipated costs of (or time to complete) planned expansions of our manufacturing facilities and the adequacy of
our funds available for these projects; the continuing availability to us on reasonable terms of third-party providers
of critical products or services; the robustness of our manufacturing processes and related technical issues; estimates
about our production capacity, efficiency and yield; the future adequacy of our working capital and the availability
and cost of third-party financing; future regulatory requirements relating to our products; future expense ratios and
margins; future compliance with bank debt covenants; future cost of our variable interest rate exposure on most of
our bank debt; costs associated with sustaining compliance with current Good Manufacturing Practice (cGMP)
regulations in our current operations and attaining such compliance for the facility to produce the Nisin Drug
Substance; implementation of international trade tariffs that could reduce the export of dairy products, which could
in turn weaken the price received by our customers for their products; our effectiveness in competing against
competitors within both our existing and our anticipated product markets; the cost-effectiveness of additional sales
and marketing expenditures and resources; anticipated changes in our manufacturing capabilities and efficiencies;
the value of our net deferred tax assets; projections about depreciation expense and its impact on income for book
and tax return purposes; anticipated market conditions; and any other statements that are not historical facts.
Forward-looking statements can be identified by the use of words such as “expects”, “may”, “anticipates”, “aims”,
“intends”, “would”, “could”, “should”, “will”, “plans”, “believes”, “estimates”, “targets”, “projects”, “forecasts”,
“seeks” and similar words and expressions. In addition, there can be no assurance that future developments affecting
us will be those that we anticipate. 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 our products (including the First Defense® product line and Re-Tain™), competition
within our anticipated product markets, customer acceptance of our new and existing products, product performance,
alignment between our manufacturing resources and product demand, our reliance upon third parties for financial
support, products and services, changes in laws and regulations, decision making and delays by regulatory
authorities, currency values and fluctuations and other risks detailed from time to time in filings we make with the
Securities and Exchange Commission (SEC), including our Quarterly Reports on Form 10-Q, our Annual Reports on
Form 10-K and our Current Reports on Form 8-K. Such statements involve risks and uncertainties and are based on
our current expectations, but actual results may differ materially due to various factors, including the risk factors
summarized under PART I: ITEM 1A – RISK FACTORS of this Annual Report and uncertainties otherwise
referred to in this Annual Report on Form 10-K.
Summary
ImmuCell Corporation was founded in 1982 and completed an initial public offering of common stock in 1987.
After achieving approval from the Center for Veterinary Biologics, U.S. Department of Agriculture (USDA) to sell
First Defense® in 1991, we focused most of our efforts during the 1990’s attempting to develop human product
applications of the underlying milk protein purification technology. Beginning in 1999, we re-focused our business
strategy on the First Defense® product line and other products that improve the health and productivity of dairy and
beef cattle. The demand for animal protein, that must be produced efficiently while ensuring food quality and safety,
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ImmuCell Corporation
increases as the human population grows. Further, our products help address the growing human health concern about
using less antibiotics in food-producing animals. We aim to capitalize on the growth in sales of the First Defense®
product line (a product that provides significant Immediate Immunity™ to newborn dairy and beef livestock) and to
revolutionize the mastitis treatment paradigm with Re-Tain™ (formerly Mast Out®), a product we are developing to
treat this most significant cause of economic loss to the dairy industry.
During 2000, we began the development of Re-Tain™, our purified Nisin treatment for subclinical mastitis in
lactating dairy cows. No sales of this product can be made without prior approval of our New Animal Drug
Application (NADA) by the Center for Veterinary Medicine, U.S. Food and Drug Administration (FDA). We have
now achieved FDA approval for four out of five of the significant regulatory submissions required for product
approval. Regulatory achievements to date have significantly reduced the product development risks in the areas of
safety and effectiveness. Our primary product development focus has now turned to completion of the
manufacturing objectives required for FDA approval.
Since 2006, we have made ongoing efforts to maintain compliance with current Good Manufacturing Practice
(cGMP) regulations in all of our manufacturing operations, which requires a sustained investment that further
enhances the quality of all of our products and our operating efficiency. As we make process improvements, we
continue to invest in personnel, equipment and facility modifications to increase the efficiency and quality of our
operations.
During 2017 and 2016, we issued an aggregate of 2,401,497 shares of common stock, raising net proceeds of
approximately $12.24 million in four separate transactions. Then during the first quarter of 2019, we sold an
additional 1,636,364 shares of common stock at a price to the public of $5.50 per share, raising net proceeds of
approximately $8.3 million. In order to minimize the dilutive effects of these transactions on our existing
stockholders, we chose not to issue any form of convertible or preferred securities and issued these common shares
without any warrants. During 2017 and 2016, we also secured approximately $6.8 million in new debt. During the
first quarter of 2020, we refinanced all of our then outstanding bank debt, as discussed in more detail later in this
report. This new capital has been and is being used to complete the development of Re-Tain™ and increase the
production capacity for the First Defense® product line without relying on funding from a partner or licensee,
thereby keeping control over all product rights and future revenues.
Our operations have been generally profitable, except when we have elected to make unusually large
investments in product development expenses for future growth. During the past four years, we have funded our
operations, completed a significant capital investment in our Drug Substance manufacturing facility for Re-Tain™
and initiated capital investments to increase our production capacity for the First Defense® product line and to bring
the formulation and aseptic filling capabilities for Re-Tain™ in house. Once these capital expenditure investments
are complete, we expect to see decreases in cash and net working capital and increases in total assets and
stockholders’ equity in comparison to the balances as of December 31, 2015. The following table displays the
balances of these accounts (in thousands, except for percentages):
Cash, cash equivalents, short-term investments
and long-term investments
Net working capital
Total assets
Stockholders’ equity
Market capitalization
Common shares outstanding(1)
As of
December 31,
2019
As of
December 31,
2015
$ Increase
Over
F o ur -
Year Period
% Increase
Over
Four-
Year Period
$8,774
$10,694
$38,692
$28,991
$37,147
7,213
$6,524
$7,056
$14,601
$10,614
$23,035
3,055
$2,250
$3,638
$24,091
$18,377
$14,112
4,158
34%
52%
165%
173%
61%
136%
(1) There were approximately 389,000 and 238,000 shares of common stock reserved for issuance under stock options that
were outstanding as of December 31, 2019 and 2015, respectively.
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ImmuCell Corporation
Animal Health Products
The First Defense® product line is manufactured from hyperimmune cows’ colostrum (the antibody rich milk
that a cow produces immediately after giving birth) utilizing our proprietary vaccine and milk protein purification
technologies. The First Defense® product line provides bovine antibodies that newborn calves need but are unable
to produce on their own immediately after birth. The target disease, calf scours (bovine enteritis), causes diarrhea
and dehydration in newborn calves and often leads to serious sickness and even death. The First Defense® product
line is the only USDA-licensed, orally delivered scours preventive product on the market for calves with claims
against E. coli, coronavirus and rotavirus (three leading causes of scours). A single dose of our product provides a
measured level of protection proven to reduce mortality and morbidity. Our milk antibody products provide
Immediate Immunity™ during the first few critical days of life when calves need this protection most. Studies
have shown that calves that scour are more susceptible to other diseases later in life and under-perform calves that
do not contract scours. The direct, two-part mode-of-action of the First Defense® product line delivers specific
immunoglobulins at the gut level to immediately protect against disease, while also providing additional antibodies
that are absorbed into the bloodstream. These circulating antibodies function like a natural timed-release
mechanism, as they are re-secreted into the gut later to provide extended protection. The First Defense® product line
is convenient to use. A calf needs to receive only one dose of First Defense® within the first twelve hours after
birth. The capsule format of this product is stored at room temperature and no mixing is required before it is given to
the calf. The gel tube formats of this product require refrigeration in accordance with product label indications. We
are a leader in the scours prevention market with this product. The third quarter of 2019 marked the 28th anniversary
of the original USDA approval of this product in 1991. During the fourth quarter of 2019, our cumulative sales of
First Defense® since inception exceeded 24,000,000 doses. We believe that these milestones demonstrate the value
of our technology and the long-term market acceptance of our product.
The global coronavirus pandemic (novel coronavirus or COVID-19, technically known as SARS-CoV-2 and
originating from China) has tragically resulted in the deaths of more than 14,000 people and infected more than
330,000 others so far in many countries. Our First Defense® product line protects against bovine coronavirus, which
is in a different coronavirus taxonomic group and therefore not likely to be cross-protective with SARS-CoV-2. We
have contacted experts at the NIAID Respiratory Diseases Branch, CDC, USDA and certain contract research
organizations and universities to understand the related regulatory issues and in an effort to have our antibodies
tested. We would make a public announcement when and if we have any favorable test results.
We believe that the long-term growth in sales of the First Defense® product line may reflect, at least in part,
the success of our strategic decision initiated in 2010 to invest in additional sales and marketing efforts to help us
introduce the expanding First Defense® product line to new customers. We launched a communications campaign at
the end of 2010 that continues to emphasize how the unique ability of the First Defense® product line to provide
Immediate Immunity™ generates a dependable and competitive return on investment for dairy and beef producers.
Preventing newborn calves from becoming sick helps them to reach their genetic potential and reduces the need to
use treatment antibiotics later in life.
Our new product line extension, Tri-Shield First Defense, is the first calf-level, passive antibody product on
the market with USDA-approved disease claims providing Immediate Immunity™ against each of the three leading
causes of calf scours (E. coli, coronavirus and rotavirus). This new product achieved USDA approval during the fourth
quarter of 2017 and was listed with the Organic Materials Research Institute (OMRI) during the first quarter of 2019,
which means it can be used on organic farms. Tri-Shield combines the E. coli and coronavirus antibodies contained in
our bivalent product with a measured level of rotavirus antibody in one preventative dose in a gel tube delivery for-
mat. This unique breadth of claims further differentiates our product from competitive products on the market that
contain only one or two of these label claims. Because it is possible that all farms may not have a rotavirus problem,
we are continuing to sell the bivalent formats of the First Defense product line as options for customers.
Historically, the primary tool to help combat scours has been to vaccinate the mother cow (dam) with a scours
vaccine. With this expanded claim set, we are competing more effectively against these dam-level vaccine products
that are given to increase the antibody level against specific scours-causing pathogens in the colostrum that she pro-
duces for her newborn. It is generally believed that only 80% of animals respond to a vaccine, which could leave
about 20% of calves unprotected. We believe that the variability in a cow’s immune response to vaccines creates a
sales opportunity for our product. Additionally, our research suggests that treatment protocols for dam-level scours
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ImmuCell Corporation
vaccine programs are not always followed, leaving even more calves compromised. Our new marketing campaign,
Beyond Vaccination, emphasizes that by delivering Immediate Immunity™ directly to the calf via the First De-
fense product line, producers can reduce stress-causing injections to the cow and save the associated labor for vac-
cines that are more critical to cow health. Reliance on a dam-level scours vaccine requires that money be spent before
it is known whether the cow is carrying a viable, valued calf. With the First Defense product line, every calf is
equally protected and that investment can be targeted to the calves that are most critical to the operation. This, in turn,
can free up space in the cow’s vaccination schedule to improve her immune response to vaccines that are critical to
her health.
First Defense Technology® is a unique whey protein concentrate that is processed utilizing our proprietary
colostrum (first milk) protein purification methods, for the nutritional and feed supplement markets without the
claims of our USDA-licensed product. During 2012, we initiated a limited launch of a gel tube delivery format of
our First Defense Technology® in a gel solution. We achieved USDA claims for this product format during the
fourth quarter of 2018 and Canadian approval during the first quarter of 2019, and it is now being sold as Dual-
Force First Defense®. We are selling the same concentrated whey proteins in a bulk powder format (no capsule),
which is delivered with a scoop and mixed with colostrum for feeding to calves. We are working to achieve USDA
claims for this product format by 2021. During 2011, Milk Products, LLC of Chilton, Wisconsin launched
commercial sales of their product, Ultra Start® 150 Plus and certain similar private label products, which are
colostrum replacers with First Defense Technology® Inside.
Other competition for resources that dairy producers allocate to their calf enterprises has been increased by the
many new products (principally feed supplements) that have been introduced to the calf market. Warm and dry
weather reduces the producer’s perception of the need for a disease preventative product like the First Defense®
product line. However, heat stress on calves caused by extremely hot summer weather can increase the incidence of
scours, just as harsher winter weather benefits our sales. Market conditions in the dairy and beef industries,
including milk pricing and prices for calves, have weakened since 2014. Milk prices made modest improvements in
2017 over the annual averages for 2016 and 2015 but declined by 10% in 2018 in comparison to 2017. We have
seen an improved milk price during 2019 and into 2020. Despite the market volatility affecting both milk prices and
feed costs, we continue to increase our sales.
During 2001, we began to offer our own, internally developed California Mastitis Test (CMT). CMT is
most often used as a quick on-farm diagnostic to determine which quarter of the udder is mastitic. This test can be
performed at cow-side for early detection of mastitis. CMT products are also made by other manufacturers and are
readily available to the dairy producer.
In connection with our acquisition of certain gel formulation technologies during the first quarter of 2016, we
also acquired private label manufacturing rights covering two feed supplement product lines that we now produce
and sell under private label relationships with Ridley, USA Inc. of Mankato, MN and Genex Cooperative Inc. of
Shawano, WI. These products do not utilize our proprietary antibody technology.
Sales and Markets
Our sales and marketing team consists of one vice president, seven regional manager positions and one inside
sales and marketing position. Presently, one of these regional manager positions is open, but we have engaged two
independent contractors to help increase our sales. The First Defense® product line and CMT are sold primarily
through major animal health distributors who, in turn, sell to veterinary clinics, fleet stores and direct to farms. We
have experienced minimal bad debt with respect to these products. Sales of the First Defense® product line are
normally seasonal, with higher sales expected during the first quarter, largely driven by the beef calving season,
which runs primarily from January to April, unlike the dairy industry in which operations generally calve year
round.
We estimate that the total U.S. market for scours preventative products (including sales of our product) that
are given to newborn calves (the calf-level market) is approximately $21.6 million per year. With the additional
claim for our new product (Tri-Shield First Defense®) against rotavirus, we are now competing against the dam-
level vaccine products that are given to the mother cow to increase the antibody level against specific scours-causing
pathogens in the colostrum that she produces for her newborn. We estimate that the dam-level product category
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ImmuCell Corporation
covers approximately twice as many calves as the calf-level product segment reaches. We estimate that the total
addressable market (both calf and dam levels) is approximately $64.1 million.
The majority of our international sales are to Canada. We price our products in U.S. dollars. To the extent that
the value of the dollar declines with respect to any other currency, our competitive position may be enhanced.
Conversely, an increase in the value of the dollar in any country in which we sell products may have the effect of
increasing the local price of our products, thereby leading to a potential reduction in demand. Generally, our
international sales have been generated through relationships with in-country distributors that have knowledge of the
local regulatory and marketing requirements. We are initiating our plan to expand the number of countries to which
our First Defense® product line is approved for export. Generally, it is our intent to be the holder of these product
registrations for each country rather than rely on distribution partners to gain and hold these registrations. This is a
long regulatory process but allows us to maximize the use of our product label claims. We continue our efforts to
grow sales of the First Defense® product line in North America, where there are approximately 41,119,000 dairy
and beef cows in the United States and 4,640,000 dairy and beef cows in Canada. We believe that significant market
opportunities exist in other international territories. The statistics above are provided by an industry compilation of
USDA data for 2020. However, industry practices, economic conditions, cause of disease, distribution channels and
regulatory requirements may differ in these international markets from what we experience in North America,
potentially making it more difficult or costly for us to generate and sustain sales volumes at profitable margins in
these markets.
We introduced First Defense® into South Korea in 2005 through Medexx Co., Ltd of Gyeonggi-do, Korea and
its equivalent into Japan in 2007 through NYS Co., Ltd of Iwate, Japan. The business in Japan is currently not
active, but we are working to resume sales in this territory. We entered into distribution contracts covering certain
Middle Eastern countries with Triplest for Drugs and Trade of Madaba, Jordan during the first quarter of 2017 (no
sales have yet been achieved under this contract) and covering Iran with Senikco, LLC of Laguna Niguel, CA during
the fourth quarter of 2016 (sales have been initiated under this contract).
With Re-Tain™, we are working to expand our product offerings to include an intramammary treatment for
subclinical mastitis for the mother cow during lactation. Nisin (the active ingredient in Re-Tain™) is a bacteriocin
that is not used in human medicines and could alleviate some of the social concerns that the widespread use of
antibiotics encourages the growth of antibiotic-resistant bacteria (“superbugs”). This antibacterial peptide is known
to be effective against most Gram-positive and some Gram-negative bacteria. Mastitis (inflammation of the
mammary gland) is estimated to cost the U.S. dairy industry approximately $2 billion in economic harm per year,
which makes it the most costly and common disease affecting the dairy industry. The disease diminishes the saleable
quantity and overall value of milk, in addition to causing other herd health and productivity losses. While the benefit
of treating clinical mastitis is widely known, subclinical mastitis (those cases where cows have infected udders, but
still produce saleable milk) is associated with its own significant economic losses and is recognized as a substantial
contributor to clinical mastitis cases. There is a growing awareness of the cascade of adverse events and conditions
associated with subclinical mastitis for both the dairy producer and the milk processor, including reduced or
foregone milk quality premiums, lower milk production (some have estimated approximately 1,500 pounds of lost
milk, or about $270 at $18.00 per hundredweight, per infected cow), shorter shelf life for fluid milk, lower yields
and less flavor for cheese, higher rates of clinical mastitis, lower conception rates, increased abortions and increased
cull rates. Some industry experts have estimated that subclinical mastitis costs the U.S. dairy industry approximately
$1 billion per year.
We believe that Re-Tain™ could revolutionize the way that mastitis is treated by making earlier treatment of
subclinically infected cows (while these cows are still producing saleable milk) economically feasible by not
requiring a milk discard during, or for a period of time after, treatment, which would be a significant competitive
advantage for our product. No other FDA-approved mastitis treatment product on the market can offer this value
proposition. Because the milk from cows treated with traditional antibiotics must be discarded, most dairy producers
simply do not treat subclinically infected cows. It is generally current practice to treat mastitis only when the disease
has progressed to the clinical stage where the milk from an infected cow cannot be sold. The ability to treat such
cases without a milk discard could revolutionize the way mastitis is managed in a herd. It is common practice to
move sick cows from their regular herd group to a sick cow group for treatment and the related milk discard. This
movement causes stress on the cow and a reduction in milk production. Cows treated with our product would not
have to be moved, allowing this costly drop in production to be avoided. Our product likely will be priced at a
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ImmuCell Corporation
premium to the traditional antibiotic products currently on the market, which are all sold subject to a milk discard
requirement. Common milk discard periods cover the duration of treatment and extend from 36 to 96 hours after last
treatment, depending on the antibiotic. On average, a cow produces approximately 60 to 80 pounds of milk per day.
While milk prices vary significantly, at an average value of $18.00 per 100 pounds, a cow produces approximately
$10.80 to $14.40 worth of milk per day. These estimated figures would result in milk discard costs ranging from
approximately $37.80 (for 3.5 days of milk at 60 pounds per day) to $158.40 (for 11 days of milk at 80 pounds per
day) per treated animal. We estimate that the approximate cost to the U.S. dairy industry of this discarded milk may
be around $300 million per year. We believe that the product’s value proposition demonstrates a return on
investment to the dairy producer and the milk processor that will justify a premium over other mastitis treatments on
the market today.
The USDA’s National Animal Health Monitoring System through its Dairy 2014 study suggests that 21% of
all dairy cows are treated with a mastitis drug, of which approximately 51% are treated with third generation
cephalosporins. Many fear that the possible overuse of antibiotics in livestock undermines the effectiveness of drugs
to combat human illnesses and contributes to a rising number of life-threatening human infections from antibiotic-
resistant bacteria, commonly known as “superbugs”. The FDA is committed to addressing this public health risk.
Citing concerns about untreatable, life-threatening infections in humans, new FDA and European regulations are
aimed at restricting the use of antibiotics (including cephalosporins) in food animals and at improving milk quality.
Regulators have recently increased their monitoring of antibiotic residues in milk and meat. During the first quarter
of 2012, the USDA reduced the allowable level of somatic cell counts (SCC) in milk from 750,000 (cells per
milliliter) to 400,000 at the individual farm level (not a blended calculation of comingled milk) in order to qualify
for an EU health certification for export.
The FDA’s Veterinary Feed Directive (VFD) became effective January 1, 2017, restricting the use of
medically important antibiotics for performance purposes and requiring more oversight of antibiotic usage in food
producing animals by a veterinarian, and more changes and restrictions relating to antibiotic usage appear to be
likely. Several major food processors and retailers have implemented policies addressing this growing public health
concern. By reducing the risk of antibiotic residues and slowing the development of antibiotic-resistant organisms,
we can improve food quality and preserve medically important antibiotics for human disease treatment. This would
not be a concern for Re-Tain™ because Nisin is not used for human health. This current environment could be
favorable to the introduction of our new product as an alternative to traditional antibiotics such as penicillin and
cephalosporins. We believe that this changing environment of new regulations and public opinion supports the value
of our ongoing development and commercialization efforts for Re-Tain™. Additionally, we believe that the use of
our First Defense® product line is consistent with this trend of reducing the use of antibiotics because the prevention
of calf scours early in life with our purified colostrum antibodies can reduce the need for treatment antibiotics later
in a calf’s life.
It is difficult to estimate the potential size of the market for the treatment of subclinical mastitis because this
disease is largely left untreated presently. We believe that approximately 20-30% of the U.S. dairy herd is affected
by subclinical mastitis caused by Gram-positive organisms falling within the claim spectrum of our product. This
compares to approximately 2% of the U.S. herd that is thought to be infected with clinical mastitis, where
approximately $60 million per year is spent on drug treatments. We believe that similar market opportunities also
exist outside of the United States and for the treatment of dry (non-lactating) cows. Given what we believe to be
reasonable assumptions, we estimate that the U.S. market potential for first year sales of our new product could be
approximately $5.8 million and could grow to approximately $36.1 million during the fifth year after market launch.
The amount of sales that we can capture from this estimated market potential and the timing of when this can be
achieved is very difficult to know, and the actual size of the market for our new product may differ materially from
our estimates (up or down). We expect the Drug Substance production facility that we constructed for approximately
$20.8 million to have initial annual production capacity sufficient to meet approximately $10 million in sales of Re-
Tain™ at current production yields. This production capacity estimate does not yet reflect any inventory build
strategies in advance of product approval or ongoing yield improvement initiatives. Our new facility is designed to
have enough room to add a second fermentation and recovery portion of the production line to be purchased and
installed at the cost of approximately $7 million to effectively double production output. We would consider making
this investment only after commercial acceptance of the product is demonstrated. That being said, we are presently
planning to use the space originally intended for the second Drug Substance fermentation and recovery production
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ImmuCell Corporation
line for the installation of a Drug Product formulation and aseptic filling module. Thus, expansion of the estimated
annual capacity of the Drug Substance facility beyond approximately $10 million (without factoring in potential
yield improvements) would now require relocation of the Drug Product formulation and aseptic filling module to
another facility, or the acquisition and equipping of other Drug Substance production facilities at substantial
additional cost or alternative manufacturing strategies.
With a measured approach to expanding our customer-facing staff, it is our objective to increase our current
annual level of product sales of almost $14 million to approximately $20 million through both continued growth in
sales of the First Defense® product line and a successful launch of Re-Tain™ as soon as possible. As market
penetration for both new products is achieved and additional resources are dedicated to production, sales, marketing
and technical services, our longer-term goal is to exceed the $30 million level of annual product sales as soon as
possible during the five-year period after the market launch of Re-Tain™.
Product Development
The majority of our product development spending has been focused on the development of Re-Tain™, our
purified Nisin treatment for subclinical mastitis in lactating cows. During the twenty-year period that began on
January 1, 2000 and ended on December 31, 2019, we invested the aggregate of approximately $17.3 million
(excluding depreciation and the capital cost of our Drug Substance production facility) in the development of this
product. This estimated allocation reflects only direct expenditures and includes no allocation of product
development or administrative overhead expenses. Approximately $2.9 million of this investment was offset by
related product licensing revenues and grant income, most of which was earned from 2001 to 2007.
Subclinical mastitis, and the study required to achieve an effectiveness claim for it, is defined under the
FDA/Center for Veterinary Medicine Guidance #49: Target Animal Safety and Drug Effectiveness Studies for Anti-
Microbial Bovine Mastitis Products (Lactating and Non-Lactating Cow Products). Trial eligibility requires both
pretreatment samples to be positive for the mastitis pathogen (except for Staphylococcus aureus and Streptococcus
agalactiae, where a single pretreatment sample qualifies a cow for enrollment). For all pathogens, both samples
taken between 14 and 28 days post treatment (and at least 5 days apart) must be negative to be judged a cure. These
conservative criteria generally result in enrolling cows with chronic subclinical disease, which rarely self-resolves. It
has been reported that approximately 25% to 30% of cows with chronic cases of subclinical mastitis may exhibit
clinical symptoms that require antibiotic treatments and withholding of milk. In the field, these cows are generally
not treated in order to avoid the label requirement to discard milk from treated cows. We believe that the chronicity
of subclinical mastitis is responsible for several negative impacts. Milk from cows infected with subclinical mastitis
has greater somatic cell counts (SCC), and producers may be paid less for this lower quality milk. Cows with
subclinical mastitis infections are known to produce less milk, and cows that maintain subclinical mastitis across the
dry period have been shown to produce significantly less milk. The failure to treat subclinical mastitis may result in
chronic infections that are unlikely to respond to antibiotic therapy. Finally, cows with subclinical mastitis maintain
a reservoir of infection within the herd and increase exposure of healthy cows to contagious pathogens.
During 2000, we acquired an exclusive license from Nutrition 21, Inc. (formerly Applied Microbiology Inc. or
AMBI) to develop and market Nisin-based products for animal health applications, which allowed us to initiate the
development of Re-Tain™. In 2004, we paid Nutrition 21 approximately $965,000 to buy out this royalty and milestone-
based license to Nisin, thereby acquiring control of the animal health applications of Nisin. Nisin is a well characterized
substance, having been used in food preservation applications for over 50 years. Food-grade Nisin, however, cannot be
used in pharmaceutical applications because of its low purity. Our Nisin technology includes patented processing and
purification methods to achieve pharmaceutical-grade purity.
In 2004, we entered into a product development and marketing agreement with Zoetis (formerly Pfizer Animal
Health, a division of Pfizer, Inc.) covering this product. That company elected to terminate the agreement in 2007. We
believe that this decision was not based on any unanticipated efficacy or regulatory issues. Rather, we believe the
decision was primarily driven by a marketing concern relating to their fear that the milk from treated cows could
interfere with the manufacture of certain cultured dairy products. Due to the zero milk discard feature, there is a risk that
Nisin from the milk of treated cows could interfere with the manufacture of certain (but not all) commercial cultured
dairy products, such as some kinds of cheese and yogurt, if a process tank contains a high enough percentage of milk
from treated cows. The impact of this potential interference ranges from a delay in the manufacturing process (which
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ImmuCell Corporation
does happen at times for other reasons) to the less likely stopping of a cheese starter culture. Milk from cows that have
been treated with our product that is sold exclusively for fluid milk products presents no such risk. We worked with
scientists and mastitis experts to conduct a formal risk assessment to quantify the impact that milk from treated cows
may have on cultured dairy products. This study concluded that the dilution of milk from treated cows through
comingling with milk from untreated cows during normal milk hauling and storage practices reduces the risk of
interference with commercial dairy cultures to a negligible level when the product is used in accordance with the product
label. Further, we believe that such a premium-priced product will be used selectively, which reduces the risk of cheese
interference and is consistent with modern “precision dairying” practices that discourage the indiscriminate use of drug
treatments.
Our second most important product development initiatives (in terms of dollars invested and, we believe,
potential market impact) have been focused on other improvements, extensions or additions to our First Defense®
product line. During the second quarter of 2009 we entered into an exclusive license with the Baylor College of
Medicine covering the underlying rotavirus vaccine technology used to generate the specific antibodies for use with
animals. This perpetual license (if not terminated for cause) is subject to ongoing royalty payments. We achieved
product license approval and initiated market launch of this product, Tri-Shield First Defense®, during the fourth
quarter of 2017. During the third quarter of 2018, we obtained approval from the Canadian Food Inspection Agency
to sell Tri-Shield® in Canada. We initiated sales in Canada through our in-country distributor during the fourth
quarter of 2019. We achieved USDA approval of our bivalent gel tube formulation (formerly marketed as First
Defense Technology®) during the fourth quarter of 2018 and have re-branded this product format, together with the
bolus format, as Dual-Force First Defense®. We are currently working to establish USDA claims for our bivalent bulk
powder formulation of First Defense Technology®.
At the same time, we are working to expand our product development pipeline of bacteriocins that can be used
as alternatives to traditional antibiotics. During the second quarter of 2015, we entered into an exclusive option
agreement to license new bacteriocin technology from the University of Massachusetts Amherst. During the first
quarter of 2019, we extended this exclusive option agreement through March of 2021. This technology focuses on
bacteriocins having activity against Gram-negative infections for use in combating mastitis in dairy cattle. Subject to
the availability of resources, we intend to begin new development projects that are aligned with our core competencies
and market focus. We also remain interested in acquiring, on suitable terms, other new products and technologies that
fit with our sales focus on the dairy and beef industries.
Competition
Our competition in the animal health market includes other biotechnology companies and major animal health
companies. Most, if not all, of these competitors have substantially greater financial, marketing, manufacturing and
human resources and more extensive product development capabilities than we do.
We would consider any company that sells an antibiotic to treat mastitis, such as Boehringer Ingelheim, Merck
Animal Health and Zoetis, to be among the potential competitors with respect to Re-Tain™. We expect the FDA to
grant a period of five years of market exclusivity for our product (meaning the FDA would not grant approval to a
second NADA with the same active drug for a period of five years after the first NADA approval is granted) under
Section 512(c)(2)F of the Federal Food, Drug, and Cosmetic Act. The Nisin A to which we have exclusive rights for
animal health applications is produced from our high-yielding, proprietary L. lactis strain and purified to a high
level, providing us with a level of protection over a competitor that might try to develop a similar product.
There are several other products on the market (some with claims and some without) that are delivered to
newborn calves to prevent scours. We believe that the First Defense® product line offers two significant competitive
advantages. First, only the First Defense® product line provides protection against E. coli, coronavirus and
rotavirus, three of the leading causes of calf scours. Second, being derived from colostrum, our product offers
Immediate ImmunityTM through antibodies that both function at the gut level and are absorbed into the blood
stream for future protection. All formats of our product can be administered immediately after birth and are not
negatively affected by maternal colostrum.
Zoetis sells a product that competes directly with the First Defense® product line in preventing scours via oral
delivery to newborn calves. Their product (Calf-Guard®) is a modified-live virus vaccine. Newborn calves respond
poorly to vaccines and the immune system must be given time to develop a response to vaccines. Both our product
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ImmuCell Corporation
and Calf-Guard® carry claims against coronavirus and rotavirus infections, but this competitive product does not
carry a claim against E. coli infections like our product does. It is common practice to delay colostrum feeding when
dosing a calf with Calf-Guard® so that the antibodies in the colostrum do not inactivate this vaccine product. There
is no nutritional benefit to withholding milk from newborn calves. In contrast, we encourage the feeding of four
quarts of high quality colostrum immediately after birth when dosing a calf with our product, which is standard
practice for good calf health. Because the antibodies in our product would likely work to inactivate a modified-live
virus vaccine, rendering it useless or less useful, our product label historically included a precaution that First
Defense® should not be used within five days of such a vaccine. During the first quarter of 2015, the USDA granted
us permission to remove this precaution from our label, and we have done so. We believe that this precaution should
be required on the Calf-Guard® label to prevent inactivation of that product by First Defense® antibodies or by
colostrum. Our product is priced at a premium to Calf-Guard®.
During the fourth quarter of 2016, Merck launched a new competitive product into this market space. This
product (BOVILIS® Coronavirus) is a modified-live virus intranasal vaccine that carries a claim against coronavirus
only.
Around the end of 2019, Elanco Animal Health gave notice to the market that it has discontinued the
manufacture of its competitive products, Bovine Ecolizer® and Bovine Ecolizer + C20, and is presently selling out
available inventory. This product is the smallest of our three significant calf-level competitors.
When compared to the other USDA-approved calf-level scours preventatives, we believe we are first in sales
dollars and second in volume in the U.S. market. This product category is comprised of the four primary brands
discussed above that are given either orally or intranasal to newborn dairy and beef calves immediately after birth.
Our share of the market (on a unit volume basis) of these scour preventative products administered at the calf-level
increased to approximately 36% during 2019 (from 34% during 2018 and 32% during 2017).
With the new rotavirus claim for our product (Tri-Shield First Defense®), we are now also competing against
dam-level vaccine products that are given to the mother cow to increase the antibody level against scours-causing
pathogens in the colostrum that she produces for her newborn. Those products are sold by Elanco (Scour Bos™),
Merck (Guardian®) and Zoetis (ScourGuard®). Despite the best-managed dam vaccine program, colostrum quality is
naturally variable and newborn calves do not always get the antibodies they need from maternal colostrum. We
believe that the measured dose of antibodies in our product provides more consistent protection than such vaccine
products. Our share of calves treated in the U.S. with products administered to calves and those administered to the
dam prior to calving (adjusting for the two doses of dam-level scour vaccines required for primary vaccination of
first-calf-heifers) increased to approximately 11% during 2019 (from 10.3% during 2018 and 9.7% during 2017).
We may not be aware of competition that we face, or may face in the future, from other companies. Our
competitive position will be highly influenced by our ability to attract and retain key scientific, manufacturing,
managerial and sales and marketing personnel, to develop proprietary technologies and products, to obtain USDA,
FDA or foreign approvals for new products, to effectively promote and market our products, to have available
properly licensed, efficient and effective raw material and finished product manufacturing resources and to continue
to profitably sell our current products. We currently compete on the basis of product performance, price and
distribution capability. We continue to monitor our network of independent distributors to maintain our competitive
position.
Intellectual Property
We own a broad collection of intellectual property rights relating to our research, products and processes. This
includes patents, copyrights, trademarks, trade dress, trade secrets, know-how and other intellectual property rights in
the United States and other countries. We believe the ownership of our intellectual property rights is an important
factor in our business and that our success depends in part on such ownership. We also rely heavily on the innovative
skills, technical competence and marketing abilities of our personnel. The Nisin A that is produced from our proprie-
tary strain of L. lactis is an essential component of our intellectual property covering Re-Tain™.
We own: (a) U.S. Patent No. 6,794,181 entitled “Method of Purifying Lantibiotics”, which covers a manufac-
turing process for preparing pharmaceutical-grade Nisin, which was issued in 2004; and (b) U.S. Patent No. 10,023,617
entitled “Methods and Systems of Producing Pharmaceutical Grade Lantibiotics”, which covers key, novel and
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ImmuCell Corporation
proprietary aspects of our manufacturing process for preparing pharmaceutical-grade Nisin, and was issued during the
third quarter of 2018. In the future, we may file additional patent applications for certain products under development.
There can be no assurance that patents will be issued with respect to any pending or future applications. In some cases,
we have chosen (and may choose in the future) not to seek patent protection for certain products or processes. In those
instances, we have sought (and may seek in the future) to maintain the confidentiality of any relevant intellectual
property and other proprietary rights through operational measures and contractual agreements.
We own numerous trademarks and trade dress that are very important to our business, and have several
trademark and trade dress applications and registrations in the United States, Canada, Iran and Turkey. We own the
following U.S. trademark registrations: IMMUCELL, FIRST DEFENSE, FD FIRST DEFENSE (& Design),
FIRST DEFENSE TECHNOLOGY, TRI-SHIELD FIRST DEFENSE, TRI-SHIELD FIRST DEFENSE (&
Design), YOUR CALF CREW, BEYOND VACCINATION, BEYOND VACCINATION (& Design), CALF
HERO, DUAL-FORCE, TRI-SHIELD and MAST OUT. We also own U.S. registrations claiming rights in the
color blue for our blue gel and blue bolus FIRST DEFENSE products. We own a pending U.S. trademark application
for the RE-TAIN trademark. The United States Patent and Trademark Office refused registration of our
IMMEDIATE IMMUNITY trademark, which we use extensively in connection with marketing of all of our
products, on the grounds that the mark is generic. Rather than appeal this finding, we are continuing to build our
common law rights in the brand. The FDA issued a determination that the name, MAST OUT, which we had intended
to use for our purified Nisin product, is overly promotional. Rather than continuing an appeal of this decision, we
selected a new product name, RE-TAIN, which was approved by the FDA during the first quarter of 2019.
Government Regulation
We believe that we are in compliance with current regulatory requirements relating to our business and
products. The manufacture and sale of animal health biologicals within the United States is generally regulated by the
USDA. We have received USDA and Canadian Food Inspection Agency approval for the bolus format of First
Defense® and for the gel tube formats of Tri-Shield First Defense® and Dual-Force First Defense®. Re-Tain™ is
regulated by the FDA, which regulates veterinary drugs. Regulations in the European Union will likely require that
our product be sold subject to a milk discard requirement in that territory, although the duration of the milk discard
requirement may be shorter than the discard requirement applicable to competitive antibiotic products in that market.
Comparable agencies exist in foreign countries, and foreign sales of our products will be subject to regulation by such
agencies. Many countries have laws regulating the production, sale, distribution or use of biological products, and we
may have to obtain approvals from regulatory authorities in countries in which we propose to sell our products.
Depending upon the product and its applications, obtaining 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. We generally rely on in-country experts to assist us with or to perform international
regulatory applications.
Employees
We currently employ 54 employees (including 3 part-time employees). Approximately 31 full-time equivalent
employees are engaged in manufacturing operations, 9.4 full-time equivalent employees in sales and marketing, 7.2
full-time equivalent employees in product development activities and 4.9 full-time equivalent employees in finance
and administration. As needed, we augment our staff with contracted temporary employees. All of our employees
are required to execute non-disclosure and invention assignment agreements (and some are required to execute non-
compete agreements) intended to protect our rights in our proprietary products. We are not a party to any collective
bargaining agreement and consider our employee relations to be excellent.
Public Information
As a reporting company, we file quarterly and annual reports with the Securities and Exchange Commission
(SEC) on Form 10-Q and Form 10-K. We also file current reports on Form 8-K, whenever events warrant or require
such a filing. The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site that contains
reports, proxy and information statements and other information about us that we file electronically with the SEC at
http://www.sec.gov. Our internet address is http://www.immucell.com.
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ImmuCell Corporation
ITEM 1A — RISK FACTORS
Production capacity constraints: The inability to meet market demand for our products, discussed elsewhere in
this report in more detail, is a risk to our business. Our plan to continue to expand the First Defense® product line re-
quires ongoing review of equipment capacity and utilization across the manufacturing value stream at the 56 Ever-
green Drive facility and our leased facility at 175 Industrial Way, as well as assessment of functional obsolescence
and reliability of equipment. With the additional capital we raised at the end of the first quarter of 2019, we are invest-
ing approximately $3.5 million to increase our liquid processing capacity by 100% and our freeze drying capacity by
50% for the First Defense® product line. There is a risk that we will not be able to achieve our production capacity
growth objectives on a timely basis and that we could experience an interruption to product supply during the expan-
sion process.
Risk of experiencing higher than anticipated costs, or delays in expanding our manufacturing facilities and risk
of failing to access adequate funding to complete the expansion projects: As discussed above and elsewhere in this
report in more detail, we presently intend to invest the aggregate of approximately $7.5 million to: i) expand our exist-
ing production facilities for our First Defense® product line (approximately $3.5 million) and ii) construct and equip
our own Drug Product formulation and aseptic filling capability for Re-Tain™ inside our existing Drug Substance
facility (approximately $4 million). Actual project costs could exceed our current estimates. Also, our ability to fund
the completion of these projects may depend on cash flows from future operations, which may not materialize or be
available at the needed levels. In addition, completion of either project could be delayed due to factors outside our
control, including equipment delivery delays or delays in obtaining FDA approvals for Re-Tain™.
Projection of net income (loss): Generally speaking, our financial performance can differ significantly from
management projections, due to numerous factors that are difficult to predict or that are beyond our control. Weaker
than expected sales of the First Defense® product line could lead to less profits or an operating loss.
Net deferred tax assets: The realizability of our net deferred tax assets is a subjective estimate that is contin-
gent upon many variables. During the second quarter of 2018, we recorded a full valuation allowance against our net
deferred tax assets that significantly increased our net loss in comparison to other periods. This non-cash expense
could be reversed, and this valuation allowance could be reduced or eliminated, if warranted by our profitability and
projected profitability in the future. We will continue to assess the need for the valuation allowance at each quarter.
Reliance on sales of the First Defense® product line: We are heavily reliant on the market acceptance of the
First Defense® product line to generate product sales and fund our operations. Our business would not have been
profitable during the nine consecutive years in the period ended December 31, 2007, during the years ended Decem-
ber 31, 2012, 2013, 2015 and 2016, during the nine-month period ended September 30, 2017 or during the three-
month period ended March 31, 2019, without the gross margin that we earned on sales of the First Defense® product
line.
Concentration of sales: Sales of the First Defense® product line aggregated 97% of our total product sales
during the years ended December 31, 2019 and 2018. Our primary customers for the majority of our product sales
(89% and 87% during the years ended December 31, 2019 and 2018, respectively) are in the U.S. dairy and beef in-
dustries. Product sales to international customers, who are also in the dairy and beef industries, aggregated 10% and
13% of our total product sales during the years ended December 31, 2019 and 2018, respectively. The concentration
of our sales from one product into one market is a risk to our business. The animal health distribution segment has
been aggressively consolidating over the last few years with larger distributors acquiring smaller distributors. A
large portion of our product sales (69% and 66% during the years ended December 31, 2019 and 2018, respectively)
was made to two large distributors. A large portion of our trade accounts receivable (76% and 72% as of December
31, 2019, and 2018, respectively) was due from these two distributors. We have a good history with these distribu-
tors, but the concentration of sales and accounts receivable with a small number of customers does present a risk to
us, including risks related to such customers experiencing financial difficulties or altering the basis on which they do
business with us in a manner unfavorable to us.
Gross margin on product sales: It is one of our goals to again achieve a gross margin (before related deprecia-
tion expenses) as a percentage of total sales close to 50% after the initial launch of new products. Depreciation ex-
pense will be a larger component of costs of goods sold for Re-Tain™ than it is for the First Defense® product line.
Gross margins generally improve over time, but this anticipated improvement may not be realized. Many factors
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ImmuCell Corporation
discussed in this report impact our costs of goods sold. There is a risk that we are not able to achieve our gross mar-
gin goals, which would adversely affect our operating results and could impact our future operating plans.
Product risks: The sale of our products is subject to production, financial, efficacy, regulatory, competitive
and other market risks. Elevated standards to achieve and maintain regulatory compliance required to sell our prod-
ucts continue to evolve. Failure to achieve acceptable biological yields from our production processes can materially
increase our costs of goods sold and reduce our production output, leading to an order backlog that could adversely
affect our customer relationships and operating results. There is no assurance that we will continue to achieve mar-
ket acceptance at a profitable price level or that we can continue to manufacture our products at a low enough cost to
result in a sufficient gross margin to justify their continued manufacture and sale.
Increasing dependence on the continuous and reliable operation of our information technology systems: We
rely on information systems throughout our company. Any disruption of these systems or significant security
breaches could adversely affect our business. Although we maintain information security policies and employ sys-
tem backup measures and engage in information system redundancy planning and processes, such policies,
measures, planning and processes, as well as our current disaster recovery plan may be ineffective or inadequate to
address all eventualities. As information systems and the use of software and related applications by us, our business
partners, suppliers, and customers become more cloud-based, we become inherently more susceptible to cyberat-
tacks. There has been an increase in global cybersecurity vulnerabilities and threats, including more sophisticated
and targeted cyber-related attacks that pose a risk to the security of our information systems and networks and the
confidentiality, availability and integrity of data and information. Any such attack or breach could compromise our
networks and the information stored thereon could be accessed, publicly disclosed, lost, or stolen. While we have
invested in our data and information technology infrastructure (including working with an information security tech-
nology consultant to assess and enhance our security systems and procedures, and periodically training our employ-
ees in such systems and procedures), there can be no assurance that these efforts will prevent a system disruption,
attack, or security breach and, as such, the risk of system disruptions and security breaches from a cyberattack re-
mains. We have not experienced any material adverse effect on our business or operations as a consequence of any
such attack or breach, but may incur increasing costs in performing the tasks described above. Given the unpredicta-
bility of the timing, nature and scope of such disruptions and the evolving nature of cybersecurity threats, which
vary in technique and sources, if we or our business partners or suppliers were to experience a system disruption,
attack or security breach that impacts any of our critical functions, or our customers were to experience a system
disruption, attack or security breach via any of our connected products and services, we could potentially be subject
to production downtimes, operational delays or other detrimental impacts on our operations. Furthermore, any ac-
cess to, public disclosure of, or other loss of data or information (including any of our - or our customers’ or suppli-
ers’ - confidential or proprietary information or personal data or information) as a result of an attack or security
breach could result in governmental actions or private claims or proceedings, which could damage our reputation,
cause a loss of confidence in our products and services, damage or ability to develop (and protect our rights to) our
proprietary technologies and have a material adverse effect on our business, financial condition, results of operations
or prospects.
Product liability: The manufacture and sale of our products entails a risk of product liability. Our exposure to
product liability is mitigated to some extent by the fact that our products are directed towards the animal health mar-
ket. We have maintained product liability insurance in an amount which we believe is reasonable in relation to our
potential exposure in this area. We have no history of claims of this nature being made.
Regulatory requirements for the First Defense® product line: First Defense® is sold in the United States sub-
ject to a product license from the Center for Veterinary Biologics, USDA, which was first obtained in 1991 with
subsequent approvals of line extensions in 2017 and 2018. As such, our operations are subject to periodic inspection
by the USDA. The potency of serial lots is directly traceable to the original serial used to obtain the product perfor-
mance claims (the Reference Standard). Due to the unique nature of the label claims, host animal re-testing is not
required as long as periodic laboratory analyses continue to support the stability of stored Reference Standard. To
date, these analyses have demonstrated strong stability. However, if the USDA were not to approve requalification
of the Reference Standard, additional clinical studies could be required to meet regulatory requirements and allow
for continued sales of the product, which could interrupt sales and adversely affect our operating results. We expect
to be subject to similar regulatory oversight risks in territories outside of the United States where we sell our
products.
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Regulatory requirements for Re-Tain™: The commercial introduction of this product in the United States re-
quires us to obtain FDA approval. Completing the development through to approval of the NADA by the FDA involves
risk. While four of the five required Technical Sections have been approved, the development process timeline has
been extensive (approximately 20 years) and has involved multiple commercial production strategies. The first phased
Chemistry, Manufacturing and Controls Technical Section was submitted for the Nisin Drug Substance during the first
quarter of 2019, and the FDA response was received during the third quarter of 2019. We expect to make the second
phased Drug Substance and Drug Product submission before the end of 2020. Completion of the Drug Product devel-
opment and scale-up work and subsequent product stability testing defines the remaining timeline to product approval.
To reduce the risk associated with this process, we have engaged Norbrook for the Drug Product work and continue to
meet with the FDA to align on filing strategy and requirements. We have disclosed a timeline of events that could lead
to potential approval during 2021. However, there remains a risk that approval could be delayed or not obtained. We
are exposed to additional regulatory compliance risks through the subcontractors that we choose to work with to pro-
duce Re-Tain™, who also need to satisfy certain regulatory requirements in order to provide us with the products and
services we need. International regulatory approvals would be required for sales outside of the United States. European
regulatory authorities are expected to require a milk discard period when using such a product, which would remove a
significant competitive advantage in that territory. However, the assigned milk discard period may be shorter for our
product than it is for other mastitis products on the market in Europe.
Economics of the dairy and beef industries:
• The January count of all cattle and calves in the United States had steadily declined from 97,000,000 as of
January 1, 2007 to 88,500,000 as of January 1, 2014. Then this figure increased each year to reach
94,800,000 as of January 1, 2019 before declining slightly to 94,400,000 as of January 1, 2020.
• From 1998 through 2019, the size (annual average) of the U.S. dairy herd ranged from approximately
the low of 9,011,000 (2004) to the high of 9,399,000 (2018). This annual average dropped slightly to
9,336,000 during 2019.
• The Class III milk price (an industry benchmark that reflects the value of product used to make
cheese) is an important indicator because it defines our customers’ revenue level. This annual average
milk price level (measured in dollars per hundred pounds of milk) reached its highest point (since
these prices were first reported in 1980) during 2014 at $22.34 (peaking at $24.60 in September
2014). This strong milk price level during 2014 declined to the average of $15.80 during 2015 and
further declined to $14.87 during 2016, but increased by 9% to $16.17 during 2017 and then de-
clined by 10% to $14.61 during 2018. During 2019, this milk price average increased by 16% to
$16.96. The low price level during 2018 and into the beginning of 2019 was very challenging to the
profitability of our customers. The November 2019 price of $20.45 was the first time the price was
above $20.00 since November 2014. The average price of $18.67 for the second half of 2019 and of
$19.51 for the fourth quarter of 2019 are positive trends that could benefit our customers if maintained.
The recent annual fluctuations in this milk price level are demonstrated in the following table:
Average Class III Milk Price for
the Year Ended December 31,
2014
$22.34
2015
$15.80
2016
$14.87
2017
$16.17
2018
$14.61
2015
$15.80
2016
$14.87
2017
$16.17
2018
$14.61
2019
$16.96
(Decrease)
Increase
(29%)
(6%)
9%
(10%)
16%
• The actual level of milk prices may be less important than its level relative to feed costs. One measure
of this relationship is known as the milk-to-feed price ratio, which represents the amount of feed that
one pound of milk can buy. This ratio varies farm-to-farm based on individual operating parameters. The
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highest annual average this ratio has reached since this ratio was first reported in 1985 was 3.64 in
1987. The annual average for this ratio of 1.52 in 2012 was the lowest recorded since it was first re-
ported in 1985. Since this ratio reached 3.24 in 2005, it has not exceeded 3.0. The annual average of
2.54 for 2014 was the highest this ratio has been since it was 2.81 in 2007. This ratio averaged 2.05
during 2018 and increased to 2.24 during 2019. An increase in feed costs also has a negative impact
on the beef industry. The following table demonstrates the annual volatility and the low values of this
ratio recently:
Average Milk-To-Feed Price
Ratio for the Year Ended
December 31,
2014
2.54
2015
2.14
2016
2.26
2017
2.42
2018
2.05
2015
2.14
2016
2.26
2017
2.42
2018
2.05
2019
2.24
(Decrease)
Increase
(16%)
6%
7%
(15%)
9%
• While the number of cows in the U.S. herd and the production of milk per cow directly influence the
supply of milk, the price for milk is also influenced by very volatile international demand for milk
products.
• The all-time high value (annual average) for a milk cow was $1,993 during 2015. Since then, this
annual average value steadily declined to $1,208 during 2019.
• The industry data referred to above is compiled from USDA databases. Additionally, the value of
newborn bull calves had risen to the unusually high level of approximately $300 to $400 during 2015
but has declined to very little presently, depending on region.
Given our focus on the dairy and beef industries, the volatile market conditions and the resulting financial
insecurities of our primary end users are risks to our ability to maintain and grow sales at a profitable level. These
factors also heighten the challenge of selling premium-priced animal health products (such as Tri-Shield First
Defense® and Re-Tain™) into the dairy market.
Product development risks: The development of new products is subject to financial, scientific, regulatory and
market risks. Our current business growth strategy relies heavily on the development of Re-Tain™, our new
product to treat subclinical mastitis, which has required (and will continue to require) a substantial investment of
capital resources and personnel. Our efforts are subject to inspection and approval by the FDA. There is no
assurance whether or when we will obtain regulatory approval for this product.
Risks associated with our funding strategy for Re-Tain™: Achieving FDA approval of our pharmaceutical-
grade Nisin produced at commercial-scale is the most critical action in front of us on our path to U.S. regulatory
approval of Re-Tain™. Having completed construction of the production facility described elsewhere in this report
at a cost of approximately $20.8 million, we will continue to incur product development expenses to operate and
maintain this facility. The additional debt we incurred to fund this project has significantly increased our debt
service costs going forward. These loans are subject to certain financial covenants. Absent sufficient sales of Re-
Tain™ at a profitable gross margin, we would be required to fund all debt service costs from sales of the First
Defense® product line, which would reduce, and could eliminate, our expected profitability going forward and
significantly reduce our cash flows.
Uncertainty of market size and product sales estimates: Estimating the size of the total addressable market and
future sales growth potential for our First Defense® product line is difficult and subjective. Estimating the size of
the market for any new product, such as Re-Tain™, is subject to numerous uncertainties. We do not know whether,
14
ImmuCell Corporation
or to what extent, our products will achieve or increase market acceptance and profitability. Some of the
uncertainties surrounding Re-Tain™ include market acceptance, the development of the subclinical mastitis
treatment market, the effect of a premium selling price on market penetration, competition from existing products
sold by substantially larger competitors, the risk of competition from other new products, cost of manufacture and
integration of milk from treated cows with susceptible cheese starter cultures.
Exposure to debt service obligations and debt covenants: Rising interest rates could negatively affect the
operating costs of dairy and beef producers and thus put further financial pressure on an already stressed business
sector. We removed this exposure to our business by refinancing our bank debt to fixed rate notes during the first
quarter of 2020. Under our refinanced bank debt agreements, we are required by bank debt covenant to maintain at
least $1.4 million in cash escrow in favor of the bank until we achieve certain debt service coverage and collateral
value metrics. This requirement effectively reduces the availability of our liquid assets for operational needs. We are
obligated to make principal and interest payment aggregating approximately $871,000 over the first twelve-month
period of our new debt obligations.
Competition from others: Many of our competitors are significantly larger and more diversified in the relevant
markets than we are and have substantially greater financial, marketing, manufacturing and human resources and
more extensive product development and sales/distribution capabilities than we do, including greater ability to
withstand adverse economic or market conditions and declining revenues and/or profitability. Merck and Zoetis,
among other companies, sell products that compete directly with the First Defense® product line in preventing
scours in newborn calves. The scours product sold by Zoetis sells for approximately half the price of our product,
although it does not have an E. coli claim (which ours does). With Tri-Shield First Defense®, we can now compete
more effectively against vaccines that are given to the mother cow (dam) to improve the quality of the colostrum
that she produces for the newborn calf. Merck and Zoetis dominate the market for these dam vaccine products. The
market for the treatment of mastitis in dairy cows is highly competitive and presently is dominated by large
companies such as Boehringer Ingelheim, Merck and Zoetis. The mastitis products sold by these large companies
are well established in the market and are priced lower than what we expect for our product, but all of them involve
traditional antibiotics and are sold subject to a requirement to discard milk during and for a period of time after
treatment. There is no assurance that our products will compete successfully in these markets. We may not be aware
of other companies that compete with us or intend to compete with us in the future.
Access to raw materials and contract manufacturing services: Our objective is to maintain more than one
source of supply for the components used to manufacture and test our products that we obtain from third parties.
However, there is a risk that we could have difficulty in efficiently acquiring essential supplies. We have significantly
increased the number of farms from which we purchase colostrum for the First Defense® product line. The loss of
farms from which we buy raw material could make it difficult for us to produce enough inventory to meet customer
demand. The specific antibodies that we purify from colostrum for the First Defense® product line are not readily
available from other sources. We are and will be dependent on our manufacturing facilities and operations in Portland
for the production of the First Defense® product line and Re-Tain™. We are and will be dependent on one manufac-
turer for the supply of the syringes used for our gel tube formats of Dual-Force First Defense® and Tri-Shield First
Defense® and one other manufacturer for the supply of syringes for Re-Tain™. We expect to be dependent on a con-
tract with Norbrook for the Drug Product formulation and aseptic filling of our Nisin Drug Substance for orders
placed through December 31, 2021 with deliveries extending into the beginning of 2022. We expect to complete the
investment to perform these services in-house during 2022. The facility we intend to construct to perform these ser-
vices in-house will be subject to FDA inspection and approval. The potential alternative options for these services are
narrowed considerably because our product cannot be formulated or filled in a facility that also processes traditional
antibiotics (i.e. beta lactams). Any significant damage to or other disruption in the services at any of these third-party
facilities or our own facilities (including due to regulatory non-compliance) could adversely affect the production of
inventory and result in significant added expenses and potential loss of future sales.
Small size; dependence on key personnel: We are a small company with 54 employees (including 3 part-time
employees). As such, we rely on certain key employees to support multiple operational functions, with limited redun-
dancy in capacity. The loss of any of these key employees could adversely affect our operations until a qualified re-
placement is hired and trained. This challenge is heightened by the tight labor market conditions now prevailing. Our
competitive position will be highly influenced by our ability to attract and retain key scientific, manufacturing, mana-
gerial and sales and marketing personnel, to develop proprietary technologies and products, to obtain USDA or FDA
15
ImmuCell Corporation
approval for new products, to maintain regulatory compliance with current products and to continue to profitably sell
our current products.
Failure to protect intellectual property: In some cases, we have chosen (and may choose in the future) not to
seek patent protection for certain products or processes. Instead, we have sought (and may seek in the future) to main-
tain the confidentiality of any relevant proprietary technology through operational safeguards and contractual agree-
ments. Reliance upon trade secret, rather than patent, protection may cause us to be vulnerable to competitors who
successfully replicate our 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 our unpatented trade secrets or
proprietary technology. Other companies may have filed patent applications and may have been issued patents involv-
ing products or technologies potentially useful to us or necessary for us to commercialize our products or achieve our
business goals. If that were to be the case, there can be no assurance that we will be able to obtain licenses to such
patents on terms that are acceptable. There is also a risk that competitors could challenge the claims in patents that
have been issued to us.
Cost burdens of our reporting obligations as a public company: Operating a public company involves substan-
tial costs and administrative burdens to comply with reporting obligations under federal securities laws and the provi-
sions of the Sarbanes-Oxley Act of 2002.
Exposure to risks associated with the financial downturn and economic instability: The positive indications
about the health of the U.S. economy since 2008 and prior to the coronavirus outbreak could prove temporary, and a
downturn could occur. Some observers believe that the housing market remains problematic for the overall U.S. econ-
omy, the United States has taken on too much national debt and the equity markets are overvalued. The ultimate mag-
nitude and duration of the impact of the coronavirus outbreak from China on the economy are unknown. Higher inter-
est rates could adversely affect us and the general economy and our customers. The dairy market is presently under
extreme economic pressure, causing many of our customers to lose money or only earn minimal profits. A small per-
centage reduction in the export of dairy products results in a significant drop in the domestic price of milk. Trade wars
and related tariffs or embargos with China and other countries, or travel and other restrictions related to the corona-
virus outbreak and concerns arising from it, could have a negative impact on our industry and result in a reduction in
our product sales. A combination of the conditions, trends and concerns summarized above could have a correspond-
ing negative effect on our business and operations, including the demand for our products in the U.S. market and our
ability to penetrate or maintain a profitable presence in international markets.
Global coronavirus pandemic (novel coronavirus or COVID-19, technically known as SARS-CoV-2): The
global coronavirus outbreak that began in China and has spread to the United States, Italy, South Korea, Iran, and
other territories has become a pandemic affecting international trade and creating a worldwide economic crisis. Stock
market valuations have declined significantly and the full impact of this viral outbreak on the global economy is very
uncertain at this time. We could experience product shortages, backlogs and production slowdowns due to difficulties
accessing needed supplies and labor and other restrictions affecting our ability to consistently deliver our products to
market. Our exposure to this risk is mitigated to some extent by the fact that our supply chain is not heavily dependent
on manufacturers in as yet heavily affect ed countries, on-going cross-training of our employees and early compliance
with recommended hygiene and social distancing practices.
Bovine diseases: The potential for epidemics of bovine diseases such as Foot and Mouth Disease, Bovine Tu-
berculosis, Brucellosis and Bovine Spongiform Encephalopathy (BSE) presents a risk to us and our customers. Docu-
mented cases of BSE in the United States have led to an overall tightening of regulations pertaining to ingredients of
animal origin, especially bovine. The First Defense® product line is manufactured from bovine milk (colostrum),
which is not considered a BSE risk material. Future regulatory action to increase protection of the human food supply
could affect the First Defense® product line, although presently we do not anticipate that this will be the case.
Biological terrorism: The threat of biological terrorism is a risk to both the economic health of our customers
and our ability to economically acquire and collect good quality raw material from our contract farms. Any act of
widespread bioterrorism against the dairy industry could adversely affect our operations
Certain provisions might discourage, delay or prevent a change in control of our Company or changes in our
management: Provisions of our certificate of incorporation, our bylaws, our Common Stock Rights Plan or Delaware
law may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider
16
ImmuCell Corporation
favorable, including transactions in which stockholders might otherwise receive a premium for their shares of our
common stock. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our
management. These provisions include:
•
•
•
•
limitations on the removal of directors;
advance notice requirements for stockholder proposals and nominations;
the ability of our Board of Directors to alter or repeal our bylaws;
the ability of our Board of Directors to refuse to redeem rights issued under our Common Stock Rights
Plan or otherwise to limit or suspend its operation that would work to dilute the stock ownership of a
potential hostile acquirer, likely preventing acquisitions that have not been approved by our Board of
Directors; and
• Section 203 of the Delaware General Corporation Law, which prohibits a publicly-held Delaware cor-
poration from engaging in a business combination with an interested stockholder (generally defined as
a person which together with its affiliates owns, or within the last three years has owned, 15% of our
voting stock, for a period of three years after the date of the transaction in which the person became an
interested stockholder) unless the business combination is approved in a prescribed manner.
The existence of the foregoing provisions and anti-takeover measures could depress the trading price of our
common stock or limit the price that investors might be willing to pay in the future for shares of our common stock.
They could also deter potential acquirers of our Company, thereby reducing the likelihood of obtaining a premium
for our common stock in an acquisition.
Stock market valuation and liquidity: Our common stock trades on The Nasdaq Stock Market (Nasdaq:
ICCC). Our average daily trading volume is lower than the volume for most other companies and the bid/ask stock
price spread can be larger and prices can be volatile, which could result in investors facing difficulty selling their
stock for proceeds that they may expect or desire. Most companies in the animal health sector have market
capitalization values that greatly exceed our current market capitalization of approximately $33 million as of March
19, 2020. Our product sales during the year ended December 31, 2019 were $13.7 million. This means that our
market valuation as of March 19, 2020 was equal to approximately 2.4 times our sales during the year ended
December 31, 2019. Before gross margin from the sale of new products is achieved, our market capitalization may
be heavily dependent on the perceived potential for growth from our products under development and may therefore
be negatively affected by the related uncertainties and risks.
No expectation to pay any dividends or repurchase stock for the foreseeable future: We do not anticipate
paying any dividends to, or repurchasing stock from, our stockholders for the foreseeable future. Instead, we expect
to use cash to fund product development costs and investments in our facilities and production equipment, and to
increase our working capital and to reduce debt. Stockholders must be prepared to rely on market sales of their
common stock after price appreciation to earn an investment return, which may never occur. Any determination to
pay dividends in the future will be made at the discretion of our Board of Directors and will depend on our financial
condition, results of operations, contractual restrictions, restrictions imposed by applicable laws, current and
anticipated needs for liquidity and other factors our Board of Directors deems relevant.
Possible dilution: We may need again to access the capital markets and issue additional common stock in
order to fund our growth objectives, as described elsewhere in this report. Such issuances could have a dilutive
effect on our existing stockholders.
ITEM 1B — UNRESOLVED STAFF COMMENTS
None
ITEM 2 — PROPERTIES
We own a 35,000 square foot (approximately) building at 56 Evergreen Drive in Portland, Maine. We
currently use this space for substantially all of our office, laboratory and manufacturing needs. When we originally
17
ImmuCell Corporation
purchased this building in 1993, its size was 15,000 square feet, including 5,000 square feet of unfinished space on
the second floor. In 2001, we completed a construction project that added approximately 5,200 square feet of new
manufacturing space on the first floor and approximately 4,100 square feet of storage space on the second floor. In
2007, we built out the 5,000 square feet of unfinished space on the second floor into usable office space. After
moving first floor offices into this new space on the second floor, we modified and expanded the laboratory space on
the first floor and added approximately 2,500 additional square feet of storage space on the second floor. During
2009, we added 350 square feet of cold storage space connected to our first floor production area and added an
additional 600 square feet to the second floor storage area. During the first quarter of 2015, we completed
construction of a two-story addition connected to our facility to provide us with approximately 7,100 additional
square feet for cold storage, production and warehouse space for our operations.
During the fourth quarter of 2015, we exercised an option to acquire land at 33 Caddie Lane in Portland,
Maine which is near our facility at 56 Evergreen Drive, on which we initiated construction of our Drug Substance
production facility for Re-Tain™ during the third quarter of 2016. During the fourth quarter of 2017, we obtained a
certificate of occupancy from the City of Portland for our 16,202 square foot (9,803 on the first floor and 6,399 on
the second floor) Drug Substance production facility.
During the first quarter of 2017, we purchased a 4,114 square foot facility adjacent to the Drug Substance
production facility for Re-Tain™. We are using this warehouse space primarily for storage of inventory, materials
and equipment.
During the first quarter of 2017, we entered into a renewable, two-year lease for approximately 1,350 square
feet of office, warehouse and garage space in New York to support our farm operations. This lease has been
extended through February of 2021.
We are renting approximately 960 square feet in Minnesota for a sales office through at least June of 2020.
On September 12, 2019, we entered into a lease covering approximately 14,300 square feet of office and
warehouse space with a Lease Possession Date of November 15, 2019 and a Lease Commencement Date of
February 13, 2020. We are renovating this space to help us expand our production capacity for the First Defense®
product line. The lease term is ten years with a right to renew for a second ten-year term and a right of first offer to
purchase. The total lease liability over the initial ten-year term (including inflationary adjustments) aggregates
approximately $1.3 million before real estate and personal property taxes, utilities, insurance, maintenance and
related building and operating expenses.
We maintain property insurance in amounts that approximate replacement cost and a modest amount of
business interruption insurance. We also maintain access to certain animals, primarily cows as a source of colostrum
used in the production of the First Defense® product line, through contractual relationships with commercial dairy
farms.
ITEM 3 — LEGAL PROCEEDINGS
In the ordinary course of business, we may become subject to periodic lawsuits, investigations and claims.
Although we cannot predict with certainty the ultimate resolution of any such lawsuits, investigations and claims
against us, we do not believe that any pending or threatened legal proceedings to which we are or could become a
party will have a material adverse effect on our business, results of operations, or financial condition.
ITEM 4 — MINE SAFETY DISCLOSURES
None
PART II
ITEM 5 — MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock trades on The Nasdaq Capital Market tier of The Nasdaq Stock Market under the symbol
ICCC. No dividends have been declared or paid on the common stock since the Company’s inception, and we do not
18
ImmuCell Corporation
anticipate or contemplate the payment of cash dividends in the foreseeable future. As of March 19, 2020, we had
11,000,000 common shares authorized and 7,212,919 common shares outstanding, and there were approximately
730 shareholders of record. The last sales price of our common stock on March 19, 2020 was $4.53 per share as
quoted on The Nasdaq Stock Market. The following table sets forth the high and low sales price information for our
common stock as reported by The Nasdaq Stock Market during the period January 1, 2018 through December 31,
2019:
2019
2018
Three-Month Periods Ended
Three-Month Periods Ended
March 31
June 30
December 31
March 31
June 30
High
Low
$8.28
$5.55
$7.05
$5.85
September 30
$6.85
$5.15
$5.69
$4.70
$8.79
$6.70
$8.65
$6.74
September 30
$9.24
$6.50
December 31
$9.30
$6.38
Equity Compensation Plan Information
The table below summarizes the common stock reserved for issuance upon the exercise of stock options
outstanding as of December 31, 2019 or that could be granted in the future:
Number of shares
to be issued upon exercise of
outstanding options
Weighted-average
exercise price of
outstanding options
Number of shares
remaining available for future issuance
under stock-based compensation plans
(excluding shares reflected in first
column of this table)
Equity compensation plans
approved by stockholders
Equity compensation plans not
approved by stockholders
Total
ITEM 6 — SELECTED FINANCIAL DATA
388,500
—
388,500
$6.48
—
$6.48
168,500
—
168,500
You should read the following consolidated financial data in conjunction with Part II, Item 7 —
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial
statements and the related notes appearing in Part II, Item 8 — “Financial Statements and Supplementary Data” of
this Annual Report on Form 10-K. We prepare our financial statements in conformity with accounting principles
generally accepted in the United States of America (“GAAP”).
We derived the below statements of operations and statements of cash flows data during the years ended
December 31, 2019 and 2018 and the balance sheet data as of December 31, 2019 and 2018 from our audited
financial statements appearing in Part II, Item 8 — “Financial Statements and Supplementary Data” of this Annual
Report on Form 10-K. We derived the statements of operations and statements of cash flows data during the years
ended December 31, 2017, 2016 and 2015 and the balance sheet data as of December 31, 2017, 2016 and 2015 from
our audited financial statements that are not included in this Annual Report on Form 10-K. Our historical results are
not necessarily indicative of the results to be expected in any future period.
The following tables present certain unaudited quarterly financial information during the years ended
December 31, 2019 and 2018, respectively (in thousands, except per share amount):
March 31
June 30
September 30
December 31
During the Three-Month Periods Ended
Statement of Operations Data:
Fiscal 2019:
Product sales
Gross margin
Product development expenses
Selling and administrative expenses
$4,411
2,201
910
1,026
$2,710
1,249
820
976
$2,970
1,451
985
896
$3,632
1,838
972
1,108
19
Net operating income (loss)
Other expenses, net
Income (loss) before taxes
Net income (loss)
Per common share:
Basic net income (loss)
Diluted net income (loss)
Fiscal 2018:
Product Sales
Gross margin
Product development expenses
Selling and administrative expenses
Gain on sale of assets
Net operating loss
Other expenses, net
Loss before income taxes
Net Loss
Per common share:
Basic net loss
Diluted net loss
ImmuCell Corporation
265
112
154
145
$0.03
$0.03
$2,881
1,360
583
955
-
(178)
92
(270)
(221)
($0.04)
($0.04)
(547)
65
(612)
(627)
($0.09)
($0.09)
$3,015
1,487
762
918
-
(193)
103
(297)
(798)
($0.15)
($0.15)
(430)
65
(495)
(503)
($0.07)
($0.07)
$2,154
951
909
891
700
(149)
106
(256)
(250)
($0.05)
($0.05)
(242)
72
(314)
(310)
($0.04)
($0.04)
$2,937
1,396
1,263
1,059
-
(926)
112
(1,038)
(1,052)
($0.19)
($0.19)
The following tables present certain financial information derived from the audited financial statements for the
years ended and as of December 31, 2019 through 2015, respectively (in thousands, except per share amounts):
Statement of Operations Data:
Product sales
Gross margin
Product development expenses
Sales and marketing expenses
Administrative expenses
Gain on sale of assets
Net operating (loss) income
Other expenses, net
(Loss) income before income taxes
Net (loss) income
Per common share:
Basic net (loss) income
Diluted net (loss) income
Cash dividend
Statement of Cash Flows Data:
Net cash provided by (used for) operating
activities
Depreciation and amortization expenses
Balance Sheet Data:
Cash, cash equivalents, short-term investments
and long-term investments
Net working capital
Total assets
Stockholders’ equity
Per outstanding common share:
During the Years Ended December 31,
2019
2018
2017
2016
2015
$13,723
6,740
3,688
2,318
1,688
—
(954)
314
(1,267)
($1,296)
($0.19)
($0.19)
—
$10,986
5,194
3,517
2,085
1,739
700
(1,447)
413
(1,860)
($2,322)
($0.42)
($0.42)
—
$10,431
5,221
2,047
1,893
1,525
—
(243)
196
(438)
($168)
($0.03)
($0.03)
—
$9,544
5,421
1,244
1,831
1,455
—
890
132
758
$508
$0.12
$0.12
—
$10,229
6,251
1,235
1,607
1,286
—
2,122
59
2,064
$1,213
$0.40
$0.38
—
$234
$2,284
($373)
$1,538
$1,176
$920
($222)
$811
$2,900
$529
2019
2018
2017
2016
2015
As of December 31,
$8,774
10,694
38,692
$28,991
$2,521
3,856
32,731
$21,744
$3,799
5,443
34,299
$23,595
$10,624
12,289
24,697
$19,722
$6,534
7,087
14,540
$10,614
20
Cash, cash equivalents, short-term investments
and long-term investments
Stockholders’ equity
$1.22
$4.02
$0.45
$3.90
$0.69
$4.31
$2.19
$4.07
$2.14
$3.47
ImmuCell Corporation
ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read
together with our financial statements and the related notes and other financial information included in Part II, Item
8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. Some of the information
contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with
respect to our plans and strategy for our business and related financing, includes forward-looking statements that
involve risks and uncertainties. One should review Part I, Item 1A — “Risk Factors” of this Annual Report for a
discussion of some of the important factors that could cause actual results to differ materially from the results
described in or implied by the forward-looking statements contained in the following discussion and analysis.
Liquidity and Capital Resources
We believe that our cash, cash equivalents and short-term investments, together with gross margin anticipated
to be earned from ongoing product sales, will be sufficient to meet our working capital and capital expenditure
requirements and to finance our ongoing business operations for at least twelve months (which is the period of time
required to be addressed for such purposes by accounting disclosure standards) from the date of this filing. We have
funded most of our business operations principally from the gross margin on our product sales and equity and debt
financings. We were profitable during the unaudited six-month period ended December 31, 2014, during the years
ended December 31, 2015 and 2016, during the unaudited nine-month period ended September 30, 2017 and during
the unaudited three-month period ended March 31, 2019. The table below summarizes the changes in selected, key
accounts (in thousands, except for percentages):
As of
December 31,
As of
December 31,
Increase
2019
2018
Amount
%
Cash, cash equivalents and short-term
investments
Net working capital
Total assets
Stockholders’ equity
Common shares outstanding(1)
$8,774
$10,694
$38,692
$28,991
7,213
$2,521
$3,856
$32,731
$21,744
5,569
$6,253
$6,838
$5,961
$7,247
1,644
248%
177%
18%
33%
30%
(1)
There were approximately 389,000 and 394,000 shares of common stock reserved for issuance for stock options that were
outstanding as of December 31, 2019 and 2018, respectively.
From the first quarter of 2016 through the first quarter of 2019, we raised gross proceeds of approximately
$22.5 million (net proceeds were approximately $20.5 million) from five different common equity transactions
priced between $5.25 and $7.30 per share. No warrants were issued in connection with any of these transactions, and
no convertible or preferred securities were issued.
During 2010 and 2015, we secured two mortgage loans that aggregated $3.5 million with TDBank N.A.
During 2016 and 2017, we secured additional debt financing from TDBank N.A. in the form of three different
facilities aggregating approximately $6.8 million. As of December 31, 2019, approximately $8.5 million was
outstanding under these five facilities. Debt principal repayments (excluding a $500,000 repayment of our line of
credit during the first quarter of 2019) were $861,000 and $398,000 during the years ended December 31, 2019 and
2018, respectively. The 2010 mortgage carried a balloon principal payment of approximately $452,000 due during
the third quarter of 2020, which was refinanced during the first quarter of 2020 as discussed below. The $500,000
balance outstanding under our $500,000 line of credit with TDBank N.A. as of December 31, 2018 was repaid
during the first quarter of 2019, and there was no outstanding balance as of December 31, 2019. On March 11, 2020,
we closed on a debt refinancing aggregating $8.6 million plus a line of credit in the amount of $1.0 million. The debt
is comprised of a $5.1 million mortgage loan that bears interest at a fixed rate of 3.50% per annum (with a 10-year
21
ImmuCell Corporation
term and 25-year amortization schedule) and a $3.5 million note that bears interest at a fixed rate of 3.50% per
annum (with a 7-year term and amortization schedule). The proceeds were used to provide some additional working
capital but mostly to refinance $8.3 million in outstanding bank debt and pay off an interest rate swap termination
liability of $165,000. These credit facilities are subject to certain restrictions and financial covenants and are secured
by substantially all of our assets, including our facility at 56 Evergreen Drive in Portland (which was independently
appraised at $4.2 million in connection with the 2015 financing and at $3 million in connection with the 2020
refinancing) and our facility at 33 Caddie Lane in Portland (which was independently appraised at $3.2 million in
connection with the 2017 financing and at $2.5 million in connection with the 2020 refinancing). We were required
by a bank debt covenant (before the debt refinancing discussed above) to maintain at least $2 million of otherwise
unrestricted cash, cash equivalents and short-term investments. Under the new debt, we are required to hold $1.4
million in escrow (a non-current asset), which reduces the effective availability of our liquid assets for operational
needs by that amount. The debt service coverage ratio is a measure of our liquidity and ability to repay bank debt. If
we meet or exceed a minimum ratio set by the bank based on our financial performance during the year ending
December 31, 2020, the escrow will be released to the extent that we achieve a loan (the amount of principal then
outstanding on the $5.1 million mortgage) to value ratio based on new real estate appraisals at that time equal to less
than 80%. We met this debt service coverage requirement based on our 2019 results. We were in compliance with
all applicable covenants under the old debt as of December 31, 2019 and are in compliance with all applicable
covenants under the new debt as of the filing date of this report.
Net cash provided by operating activities improved to $234,000 during the year ended December 31, 2019 in
contrast to net cash used for operating activities of $373,000 during the year ended December 31, 2018. Cash paid
for capital expenditures totaled $1.4 million during the year ended December 31, 2019 in comparison to capital
expenditures of $2.0 million during the year ended December 31, 2018. We completed construction of the Drug
Substance production facility for Re-Tain™ during the fourth quarter of 2017 for a total cost of $20.8 million and
began depreciating these costs at that time. We began equipment installation during the third quarter of 2017 a nd
began depreciating these costs when the equipment was placed into service for its intended purpose (which is to
produce Nisin) during the third quarter of 2018. Our total depreciation expense was $2.2 million and $1.5 million
during the years ended December 31, 2019 and 2018, respectively. We anticipate that depreciation expense, while
not affecting our cash flows from operations, will result in net operating losses until product sales increase
sufficiently to offset these non-cash expenses. Going forward, repayments of the indebtedness incurred to acquire
these assets will reduce our cash flows. The following table details the amount and timing of the investment in our
Drug Substance production facility for Re-Tain™ on a cash-paid basis (in thousands, except for footnotes):
Period
Paid through December 31, 2016
Paid during the year ended December 31, 2017
Paid during the ten-month period ended October 31, 2018
Total cost of investment
Amount
$2,080 (1)
17,161 (2)
1,596 (3)
$20,837
(1)
(2)
(3)
This amount does not include approximately $1,250,000 that was capitalized as of December 31, 2016 but not paid until
the first quarter of 2017.
This amount includes approximately $1,250,000 that was capitalized as of December 31, 2016 but paid during the first
quarter of 2017. This amount does not include approximately $641,000 that was capitalized as of December 31, 2017 but
not paid until the first quarter of 2018.
This amount includes approximately $641,000 that was capitalized as of December 31, 2017 but paid during the first
quarter of 2018.
Our Board of Directors has authorized three additional investments aggregating approximately $8 million. The
first is an investment of approximately $3.5 million in the First Defense® product line to double our liquid
processing capacity and increase our freeze drying capacity by 50%. The original budget for this project of $3
million has been expanded to $3.5 million to include additional cold storage space and other benefits.
Approximately $279,000 had been spent on this project as of December 31, 2019. We expect to complete this
project during the middle of 2020. The second is an investment of approximately $4 million to develop our own
formulation and aseptic filling capability for the Drug Product for Re-Tain™ to end our reliance on third-party
Drug Product manufacturing services. We expect this facility to be operational during 2022. Approximately
$538,000 had been spent on this project as of December 31, 2019. The third is $500,000 authorized to be spent on
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routine and necessary capital expenditures during 2020.
As detailed in the following table, our capital expenditures during the five-year period from January 1, 2015 to
December 31, 2019 have been larger than our historical norm primarily due to investments to increase our
production capacity for the First Defense® product line and to construct and equip our Drug Substance production
facility for Re-Tain™ (in thousands, except for footnotes):
December 31, 2015
December 31, 2016
December 31, 2017
December 31, 2018
December 31, 2019
Total
A
$914
—
—
—
—
$914
B
$1,077
1,173
—
—
—
$2,250
Paid During the Years Ended
E
D
C
$265
2,093
17,686
1,596
—
$21,640
$—
—
—
—
279
$279
$—
—
—
—
538
$538
F
$463
320
74
434
574
$1,865
Total
$2,719
3,586
17,760
2,030
1,391
$27,486
PROJECT A is a 7,100 square foot facility addition at 56 Evergreen Drive. An additional $1,041,000 was paid for this
addition during the year ended December 31, 2014 to bring the total cost of Project A to $1,955,000. This
investment also included the construction and equipping of a pilot plant for small-scale Drug Substance
production facility for Re-Tain™ within our First Defense® production facility that is now used to produce
the gel tube formats of the First Defense® product line.
PROJECT B is an investment to increase the production capacity of the First Defense® product line.
PROJECT C is related to the Drug Substance production facility for Re-Tain™. This investment includes the
$20,837,000 described above plus $331,000 for the land and $472,000 for the acquisition of an adjacent
4,100 square foot warehouse facility.
PROJECT D consists of renovations to a 14,300 s quare foot leased facility and necessary production equipment to
expand the production capacity (in terms of annual sales dollars) for the First Defense® product line from
approximately $18 million to $27 million. The original budget for this project of $3 million has been
expanded to $3.5 million to include additional cold storage space and other benefits.
PROJECT E is the investment to bring the formulation and aseptic filling services for Re-Tain™ in-house. The budget
for this project is $4 million.
PROJECT F represents other miscellaneous capital investments during the years.
During the third quarter of 2016, the City of Portland approved a Tax Increment Financing (TIF) credit
enhancement package that reduces the real estate taxes on our Drug Substance production facility for Re-Tain™ by
65% over the eleven-year period beginning on July 1, 2017 and ending June 30, 2028 and by 30% during the twelve-
month period ending June 30, 2029, at which time the rebate expires. During the second quarter of 2017, the TIF was
approved by the Maine Department of Economic and Community Development. The value of the tax savings will
increase (decrease) in proportion to any increase (decrease) in the assessment of the building for city real estate tax
purposes. The following table discloses the split of the new rates we have generated between the City of Portland and the
Company:
Assessed Value
$1.7M @ April 1, 2017
$4.0M @ April 1, 2018
$4.0M @ April 1, 2019
Twelve-Month Period
Ended
June 30, 2018
June 30, 2019
June 30, 2020
Total New
Taxes
Generated by
the Project
$36,000
$90,000
$94,000
Less:
TIF Credit
Net Amount
Paid by
ImmuCell
$22,000
$58,000
$60,000
$13,000
$32,000
$34,000
Outlook for the First Defense® product line
Having completed (during the first quarter of 2016) an investment of approximately $4.2 million to enlarge
our First Defense® production facility and increase our freeze drying capacity by 100% and make other
improvements to our liquid processing capacity, we can currently produce product with an annual sales value of
approximately $18 million. The actual value of the production output will vary subject to production yields, selling
price, product format mix and other factors. Since the third quarter of 2016 and through most of 2017, we had
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sufficient available inventory and were shipping in accordance with the demand of our distributors. However, we
quickly sold out of our initial launch quantities of Tri-Shield First Defense® soon after regulatory approval was
obtained during the fourth quarter of 2017. During most of 2018 and into the first half of 2019, we could only accept
purchase orders from customers for Tri-Shield® to match available inventory, which required a careful allocation of
product supply directly to certain end-users and veterinary clinics. Production of this new product format had not
kept pace with demand primarily because of our inability to produce enough of the new, complex rotavirus vaccine
that is used to immunize our source cows. We worked on production improvements in our vaccine laboratory
throughout 2018. Significant improvements in vaccine yield and process repeatability resolved this shortfall going
into 2019. Allowing for the five to six month production cycle to produce inventory, we were able to return to a
mass market selling approach through distribution for Tri-Shield® during the second half of 2019. While the
shortage of this new product resulted in some missed sales opportunities, it is also a positive indication that the
market is accepting our new product offering. Given our projections for future demand for the First Defense®
product line, we have initiated an additional investment of approximately $3.5 million to further increase our liquid
processing capacity by 100% and our freeze drying capacity by 50%. During the third quarter of 2019, we entered
into a lease covering approximately 14,300 square feet of office and warehouse space, with a Possession Date of
November 15, 2019 to enable our expansion plan. The property is located at 175 Industrial Way, which is near our
facility at 56 Evergreen Drive in Portland. We expect to have use of this new space by the end of the second quarter
of 2020 after completing the build out of the needed production rooms. By moving the final product formulation,
filling and assembly for the First Defense® product line to the leased building, we will free up ample space in our
56 Evergreen Drive facility for the liquid processing and freeze drying ca pacity increases. We expect that this
investment will increase the sales value of our annual production capacity from approximately $18 million to
approximately $27 million. As noted above, the actual value of this production output will vary based on production
yields, selling price, product format mix and other factors.
Results of Operations
2019 Compared to 2018
Product Sales
Investments in the First Defense® product line have created positive results. Total product sales during the
year ended December 31, 2019 increased by 25%, or $2.7 million, to $13.7 million, from $11.0 million during 2018,
with domestic sales increasing by 28% and international sales increasing by 7% in comparison to 2018. The
compound annual growth rate of our total product sales from 2011 to 2019 was approximately 13%. The compound
annual growth rate of our total product sales from 2017 to 2019 was approximately 15%. International sales
aggregated 11% and 13% of total sales during the years ended December 31, 2019 and 2018, respectively. Having
resolved the vaccine manufacturing challenge related to the production of Tri-Shield First Defense® (discussed
above), we returned to a mass market distribution strategy for that product during the second half of 2019. With this
in mind, we believe that a relevant measurement of our progress is the comparison of the sales results during the
second half of 2019 to the second half of 2018. During the six-month period ended December 31, 2019, total
product sales increased by 30%, or $1 .5 million, to $6.6 million in comparison to the six-month period ended
December 31, 2018. The trailing six-month figures are derived by taking sales during the full year less sales through
June 30th of that same year.
Sales of the First Defense® product line increased by 24% during the year ended December 31, 2019 in
comparison to 2018, aggregating 97% of our total product sales during the years ended December 31, 2019 and
2018. Sales of Dual-Force First Defense® (the bivalent formats of our product delivered via either a bolus, gel tube
or bulk powder) were generally flat during 2019 in comparison to 2018, and most of our growth is being realized
through sales of Tri-Shield First Defense® (the trivalent format of our product delivered via a gel tube). The First
Defense® product line continues to benefit from wide acceptance by dairy and beef producers as an effective tool to
prevent scours (diarrhea) in newborn calves. Our marketing campaign, Beyond Vaccination®, is all about avoiding
unnecessary vaccinations and saving the needles to the mother cows for critical disease vaccinations and instead
delivering First Defense® to get the newborn calf off to a healthy start. We believe dairy and beef producers are
increasingly coming to understand our value proposition of less needles in cows and less antibiotics in calves. There
is a strong link between how we sell our product and the challenges we face in producing it. We know better than
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ImmuCell Corporation
most how variable a cow’s response is to any vaccine. We see this in every batch of First Defense® that we produce.
The value in First Defense® is that we adjust for this variability in antibody content, as needed, so the newborn is
given a steady, equal level of protection with each dose. Plus, an effectively treated calf is much less likely to require
expensive antibiotic treatments. We are the only manufacturer within the scour prevention space offering therapeutic
polyclonal antibodies. This technology removes a producer’s reliance on variable vaccine responses to generate
passive antibody protection and instead protects every calf equally with a measured dose of Immediate
Immunity™ against the most common scour pathogens. We are gaining U.S. market share year after year with our
Beyond Vaccination® approach. Our share of the market (on a unit volume basis) of scour preventative products
administered at the calf-level increased to approximately 36% during 2019 (from 34% during 2018 and 32% during
2017). Our share of calves treated in the US with products administered to calves and those administered to the dam
prior to calving (adjusting for two doses of dam-level scour vaccines required for primary vaccination of first-calf-
heifers) increased to approximately 11% during 2019 (from 10.3% during 2018 and 9.7% during 2017).
Effective in December of 2018, we implemented an 11% price increase for Tri-Shield First Defense®.
Effective January 1, 2019, we implemented a 2% price increase for Dual-Force®. Effective February 1, 2020, we
implemented a price increase of approximately 2% on the First Defense® product line (except for Tri-Shield® and
the 90-dose bulk powder) and CMT. Going forward, we anticipate implementing annual price increases in line with
current rates of inflation.
Sales of products other than the First Defense® product line increased by 48%, or $155,000, during the year
ended December 31, 2019 in comparison to 2018. Sales of these other products aggregated approximately 3% of our
total product sales during the years ended December 31, 2019 and 2018. We acquired several private label products
(our second leading source of product sales during 2019 and 2018) in connection with our January 2016 acquisition
of certain gel formulation technology. We sell our own CMT (our third leading source of product sales during 2019
and 2018), which is used to detect somatic cell counts in milk. We have made and sold bulk reagents for Isolate™
(our fourth leading source of product sales during 2019 and 2018), which is a drinking water test that is sold by our
former distributor in the United Kingdom. Sales of this product amounted to just $24,000 during the year ended
December 31, 2018. We made one final sale of this product to this distributor worth $134,000 during the first
quarter of 2019. Because this product was non-core to our strategic focus, we sold the underlying cell line assets and
intellectual property to our former distributor during the third quarter of 2018 for $700,000. We have retained the
rights to all animal health, diagnostic, feed and nutritional applications of this technology.
Gross Margin
Changes in the gross margin on product sales are summarized in the following table for the respective periods
(in thousands, except for percentages):
Gross margin
Percent of Product sales
Gross margin
Percent of Product sales
During the Six-Month Periods
Ended December 31,
Increase
2019
2018
Amount
%
$3,289
50%
$2,347
46%
$942
4%
40%
8%
During the Year
Ended December 31,
Increase
2019
2018
Amount
%
$6,740
49%
$5,194
47%
$1,546
2%
30%
4%
The gross margin (product sales less costs of goods sold) as a percentage of product sales was 49% and 47%
during the years ended December 31, 2019 and 2018, respectively. This compares to gross a margin percentage of
50% during the year ended December 31, 2017. A number of factors account for the variability in our costs,
resulting in some fluctuations in gross margin percentages from quarter to quarter. The gross margin percentage for
the legacy formats of the First Defense® product line was in line with prior years in excess of 50%. The new gel
formats of our product are more complex and more expensive to produce and presently contribute a lower gross
margin percentage. However, these new formats are creating sales growth for us, and we are focused on increasing
total gross margin dollars, even if that is accomplished with a lower gross margin as a percentage of sales. The gross
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ImmuCell Corporation
margin is affected by biological yields from our raw material, which do vary over time. Just as our customers’ cows
respond differently to commercial dam-level vaccines, depending on time of year and immune competency, our
source cows have similar biological variances in response to our proprietary vaccines. The value of our First
Defense® product line is that we compensate for the variability in a cow’s immune response by standardizing each
dose of finished product. This impacts our costs of goods sold but ensures that every calf is equally protected, which
is something that dam-level commercial scours vaccines cannot offer. Like most U.S. manufacturers, we have also
been experiencing increases in the cost of labor and raw materials. We also invest to sustain compliance with current
Good Manufacturing Practice (cGMP) regulations in our production processes. Over time, we have been able to
reduce the impact of cost increases by implementing yield improvements. We continue to work on yield
improvements and other opportunities to reduce costs, while enhancing process knowledge and robustness. As we
evaluate our product costs and selling price, it is one of our goals to continue to achieve a gross margin (before
related depreciation and amortization expenses) as a percentage of total sales of approximately 50%.
Product Development Expenses
During the year ended December 31, 2019, product development expenses increased by 5%, or $171,000, to
$3,688,000 in comparison to $3,517,000 during 2018. Product development expenses aggregated 27% and 32% of
product sales during the years ended December 31, 2019 and 2018, respectively. It is important to note that these
figures include $1,621,000 and $931,000 of non-cash depreciation and stock-based compensation expenses during
the years ended December 31, 2019 and 2018, respectively. Excluding these non-cash expenses, cash-based product
development expenses decreased by 20%, or $519,000, to $2,067,000 during the year ended December 31, 2019 in
comparison to $2,585,000 during 2018. We do expect our product development expenses to decrease when Re-
Tain™ is commercialized and most of the costs incurred to maintain and run our Drug Substance production facility
become part of our costs of goods sold.
The majority of our product development spending has been focused on the development of Re-Tain™, our
purified Nisin treatment for subclinical mastitis in lactating dairy cows. Approval by the Center for Veterinary
Medicine, U.S. Food and Drug Administration (FDA) of the New Animal Drug Application (NADA) for Re-Tain™
is required before any sales of the product can be initiated. The NADA is comprised of five principal Technical
Sections and one administrative submission that are subject to phased review by the FDA. By statute, each
Technical Section submission is generally subject to a six-month review cycle by the FDA. Each Technical Section
can be reviewed and approved separately. Upon review and assessment by the FDA that all requirements for a
Technical Section have been met, the FDA may issue a Technical Section Complete Letter. The current status of our
work on these submissions to the FDA is as follows:
1) Environmental Impact: During the third quarter of 2008, we received the Environmental Impact Technical Section
Complete Letter from the FDA.
2) Target Animal Safety: During the second quarter of 2012, we received the Target Animal Safety Technical Section
Complete Letter from the FDA.
3) Effectiveness: During the third quarter of 2012, we received the Effectiveness Technical Section Complete Letter
from the FDA. The draft product label carries claims for the treatment of subclinical mastitis associated with
Streptococcus agalactiae, Streptococcus dysgalactiae, Streptococcus uberis, and coagulase-negative staphylococci
in lactating dairy cattle. In our pivotal effectiveness study, statistically significant cure rates were associated with a
statistically significant reduction in milk somatic cell count, which is an important measure of milk quality.
4) Human Food Safety: During the third quarter of 2018, we received the Human Food Safety Technical Section
Complete Letter from the FDA confirming, among other things, a zero milk discard period and a zero meat
withhold period during and after treatment with our product.
5) Chemistry, Manufacturing and Controls (CMC): Having previously achieved the four different Technical Section
Complete Letters from the FDA discussed above, approval of the CMC Technical Section is the fifth and final
significant step required before Re-Tain™ product sales can be initiated in the United States. Implementing Nisin
Drug Substance (the active pharmaceutical ingredient) production at our commercial facility, which is a required
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ImmuCell Corporation
component of the CMC Technical Section, has been the most expensive and lengthy part of this project. We
previously entered into an agreement with a multi-national pharmaceutical ingredient manufacturer for our
commercial-scale supplies of Nisin. However, we determined during 2014 that the agreement did not offer us the
most advantageous supply arrangement in terms of either cost or long-term dependability. We presented this
product development opportunity to a variety of large and small animal health companies. While such a corporate
partnership could have provided access to a much larger sales and marketing team and allowed us to avoid the
large investment in a commercial-scale production facility, we concluded that a partner would have taken an
unduly large share of the gross margin from all future product sales of Re-Tain™. The regulatory and marketing
feedback about the prospects for this product that we received from prospective partners, following their due
diligence, was positive. During the third quarter of 2014, we completed an investment in facility modifications and
processing equipment necessary to produce the Nisin Drug Substance at small-scale. This small-scale facility was
used to: i) expand our process knowledge and controls, ii) establish operating ranges for critical process
parameters, iii) conduct product stability studies, iv) optimize process yields and v) verify the cost of production.
We believe these efforts have reduced the risks associated with our investment in the commercial-scale Drug
Substance production facility. Having raised equity during 2016 and 2017, we were able to move away from these
earlier strategies and assume control over the commercial-scale manufacturing process in our own facility. During
the fourth quarter of 2015, we acquired land near our existing Portland facility for the construction of a new
commercial-scale Drug Substance production facility. We commenced construction of this facility during the third
quarter of 2016 and completed construction during the fourth quarter of 2017. Equipment installation and
qualification was initiated during the third quarter of 2017 and completed during the third quarter of 2018. Total
construction and equipment costs aggregated approximately $20.8 million.
We have always believed that the fastest route to FDA approval and market launch is with the services of
Norbrook Laboratories Limited of Newry, Northern Ireland (an FDA-approved Drug Product manufacturer),
benefiting from their demonstrated expertise in aseptic filling. From 2010 to 2015, we had been a party to an
exclusive product development and contract manufacturing agreement with Norbrook covering the Drug Product
formulation, aseptic filling and final packaging services. Norbrook provided services to us under this contract
throughout the FDA process for use in all of our pivotal studies. During the fourth quarter of 2015, this agreement
was amended and restated to create a Product Development and Contract Manufacture Agreement (the 2015
Agreement) to, among other things, extend the term of the agreement to January 1, 2024 provided that FDA
approval for commercial sales of Re-Tain™ in the United States was obtained by December 19, 2019. It had been
our expectation that we would have these services available through both the remainder of the development process
to FDA approval and for approximately the first four years of commercial sales of Re-Tain™. Due to unexpected
difficulties and delays encountered by Norbrook and the statutory FDA timeline for processing CMC Technical
Sections, this December 2019 product approval target date was not achieved. During the third quarter of 2019, we
entered into a Development Services and Commercial Supply Agreement (the 2019 Agreement) with Norbrook. The
2019 Agreement replaces and supersedes the 2015 Agreement in its entirety. Under the 2019 Agreement, Norbrook
will continue to provide formulation, aseptic filling and final packaging services as required in order for us to make
the needed Drug Product submission to obtain the FDA’s approval of the CMC Technical Section. The 2019
Agreement also provides for Norbrook to perform formulation, aseptic filling and final packaging services in
accordance with purchase orders that we submit from time to time for inventory build and subsequent product sales
of approximately $7 million for orders placed through December 31, 2021 with deliveries extending into the
beginning of 2022. We believe that the 2019 Agreement will enable us to commence sales of Re-Tain™ without
delay upon receipt of the anticipated FDA approval.
Our potential alternative options for the formulation and aseptic filling services are narrowed considerably
because our product cannot be formulated or filled in a facility that also processes traditional antibiotics (i.e. beta
lactams). As a consequence, we have decided to perform these services internally. Through a public offering of our
common stock in March of 2019, we received net proceeds of approximately $8.3 million, of which approximately
$4 million has been allocated to the equipping and commencement of operations of our own Drug Product
formulation and aseptic filling facility. Our objective is to meet up to the first $7 million of market demand for Re-
Tain™ with product produced by Norbrook under the 2019 Agreement until long-term supply is available from our
new, in-house facility. Based on current construction plans and equipment ordering and installation timelines, we
expect this facility to be operational during 2022. This new facility will be subject to FDA inspection and approval
and will have enough formulation and aseptic filling capacity to exceed the expected production capacity of our
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ImmuCell Corporation
Drug Substance facility, which is approximately $10 million in annual sales. This production capacity estimate is
based on management’s assumptions as to product pricing and does not yet reflect inventory build strategies in
advance of product approval or ongoing yield improvement initiatives. The formulation and aseptic filling operation
will be located in existing facility space that we had intended to utilize to double our Drug Substance production
capacity if warranted by sales volumes during the initial years following market launch. As a result, we would need
to further expand our Drug Substance facilities in order to meet Re-Tain™ sales in excess of approximately $10
million per year. Establishing our own Drug Product formulation and aseptic filling capability provides us with the
longer-term advantage of controlling the entire manufacturing process for Re-Tain™ in one facility, thereby
potentially reducing our manufacturing costs and eliminating international cold chain shipping costs. This integrated
manufacturing capability for Re‐Tain™ will substantially reduce our dependence on third parties. Upon completion
of our formulation and aseptic filling facility, the only significant third‐party input for Re‐Tain™ will be the Drug
Product syringes. It is anticipated that Hubert De Backer of Belgium (HDB) will supply these syringes in
accordance with purchase orders that we submit. HDB is a syringe supplier for many of the largest participants in
the human and veterinary medical industries, and with whom Norbrook presently works. Based on HDB’s
performance history and reputation in the industry, we are confident that HDB will be a dependable supplier of
syringes in the quantity and of the quality needed for Re‐Tain™. As a consequence, we have discontinued our
syringe supply agreement for Re-Tain™ with Nordson Corporation (formerly Plas-Pak Industries, Inc.). We have
not yet determined if we will perform the final packaging services in-house or contract to have those services
performed by a qualified third party.
Under the FDA’s phased submission process, Phase 1 concerns the Nisin Drug Substance (DS), and Phase 2
concerns the Re-Tain™ Drug Product (formulated Nisin DS filled in a syringe) (DP). This process allows a sponsor
to respond to identified queries and/or deficiencies from the first phased DS submission at the time of the second
phased DS and DP submission, which will include detailed information about the manufacturing process and
controls for the DP. This is a very complex and comprehensive Technical Section. We made our first phased DS
submission during the first quarter of 2019. This submission included data from the DS Registration Batches
produced at commercial scale in our new DS manufacturing facility. As part of the phased submission process, the
FDA issued a Technical Section Incomplete Letter with regard to this first phased DS submission during the third
quarter of 2019 with various requests and queries in addition to referring to the fact that the second phased DS and
DP submission has yet to be submitted. We expected this response. Having reviewed the comments from the FDA,
we see no roadblocks on our path to FDA approval for Re-Tain™. We believe we can respond effectively to the
FDA’s comments without significant additional cost or time delays. In addition to responding to comments raised by
the FDA regarding the first phased DS submission, one of the key components of the second phased DS and DP
submission is demonstrating stability of the product over time using the commercial process and the commercial
syringe in its final packaged form. Given a current assessment of the work that needs to be performed, we believe
that the second phased DS and DP submission could be made before the end of 2020. A response from the FDA to
our second phased DS and DP submission is anticipated six months after the submission date. The response from the
FDA to this second phased DS and DP submission determines the critical path to the timeline to FDA approval of
our NADA. If the FDA responds with a Technical Section Complete Letter, approval of our NADA can be expected
after a final 60-day administrative review period (the last step in the regulatory approval process). If the FDA
responds with a Technical Section Incomplete Letter, one or more additional submissions (each subject to its own
six-month review period) would be required until the FDA is satisfied that we have adequately responded to their
queries before the final 60-day administrative review period.
Successful FDA inspections of the manufacturing facilities must also be achieved before the NADA can be
approved. During the third quarter of 2019, the FDA conducted a pre-approval inspection of our DS facility. This
resulted in the issuance of certain deficiencies under the FDA’s Form 483. We submitted responses and data
summaries in a phased manner over the fourth quarter of 2019 and first quarter of 2020. This inspection process has
been managed without significant cost or any impact on the timeline to product approval. We expect to remain
prepared for subsequent inspections by the FDA on an ongoing basis.
Our second most important product development initiative (in terms of dollars invested and, we believe,
potential market impact) has been focused on other improvements, extensions or additions to our First Defense®
product line. During the second quarter of 2009, we entered into an exclusive license with the Baylor College of
Medicine covering the animal health rights to the underlying rotavirus vaccine technology that we use to generate
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ImmuCell Corporation
the specific antibodies. This perpetual license (if not terminated for cause) is subject to ongoing royalty payments.
We achieved product license approval and initiated market launch of this product, Tri-Shield First Defense®,
during the fourth quarter of 2017. During the third quarter of 2018, we obtained approval from the Canadian Food
Inspection Agency (CFIA) to sell Tri-Shield® in Canada. We initiated sales in Canada during the fourth quarter of
2019. We achieved USDA approval of our bivalent gel tube formulation (formerly marketed as First Defense
Technology®) during the fourth quarter of 2018 and have re-branded this product format as Dual-Force First
Defense®. During the first quarter of 2019, we obtained CFIA approval to sell Dual-Force® in Canada and have
initiated commercial sales there. We are currently working to establish USDA claims for our bivalent bulk powder
formulation of First Defense Technology®. We are also investing in additional studies to further support the First
Defense® product line in the market.
At the same time, we are working to expand our product development pipeline of bacteriocins that can be used
as alternatives to traditional antibiotics. During the second quarter of 2015, we entered into an exclusive option
agreement to license new bacteriocin technology from the University of Massachusetts Amherst. During the first
quarter of 2019, we extended this exclusive option agreement through the first quarter of 2021. This technology
focuses on bacteriocins having activity against Gram-negative infections (as opposed the Gram-positive coverage
offered by Nisin) for use in combating mastitis in dairy cattle. Subject to the availability of resources, we intend to
begin new development projects that are aligned with our core competencies and market focus. We also remain
interested in acquiring, on suitable terms, other new products and technologies that fit with our sales focus on the
dairy and beef industries.
Sales and Marketing Expenses
During the year ended December 31, 2019, sales and marketing expenses increased by approximately 11%, or
$233,000 to $2,318,000 in comparison to $2,085,000 during 2018, amounting to 17% and 19% of product sales
during the years ended December 31, 2019 and 2018, respectively. Sales and marketing expenses included $109,000
and $111,000 of non-cash depreciation and stock-based compensation expenses during the years ended December
31, 2019 and 2018, respectively. We continue to leverage the efforts of our small sales force by using animal health
distributors. These expenses have increased due principally to a strategic decision to invest more to support sales of
the First Defense® product line. Our current budgetary objective in 2020 is to invest less than 20% of product sales
in sales and marketing expenses on an annual basis. This ratio is expected to come down incrementally as sales
grow.
Administrative Expenses
During the year ended December 31, 2019, administrative expenses decreased by approximately 3%, or
$51,000, to $1,688,000 in comparison to $1,739,000 during 2018. Administrative expenses included $208,000 and
$218,000 of non-cash depreciation and stock-based compensation expenses during the years ended December 31,
2019 and 2018, respectively. We strive to be efficient with these expenses while funding costs associated with
complying with the Sarbanes-Oxley Act of 2002 and all the legal, audit and other costs associated with being a
publicly-held company. Prior to 2014, we had limited our investment in investor relations spending. Beginning in the
second quarter of 2014, we initiated an investment in a more active investor relations program, which includes
meeting investors in face-to-face meetings in different cities approximately four days per quarter. At the same time,
we continue to provide full disclosure of the status of our business and financial condition in three quarterly reports
and one annual report each year, as well as in Current Reports on Form 8-K when legally required or deemed
appropriate by management. These efforts may have helped us access the capital markets to fund our growth
objectives. Additional information about us is available in our annual Proxy Statement. All of these reports are filed
with the SEC and are available on-line or upon request to the Company.
Gain on Sale of Assets
We sold the assets underlying our water diagnostic product for $700,000 and recognized the gain as an operating
activity during the third quarter of 2018. An upfront payment of $250,000 was received upon closing, a second
payment of $250,000 was received during the third quarter of 2019 and a third payment of $200,000 was received
29
ImmuCell Corporation
during the fourth quarter of 2019. No such transaction has been recorded since then.
Net Operating Loss
During the year ended December 31, 2019, our net operating loss was reduced to $954,000 in comparison to
$1,447,000 during 2018. The net operating losses included $2,581,000 and $1,865,000 of non-cash depreciation,
amortization and stock-based compensation expenses during the years ended December 31, 2019 and 2018,
respectively. During both of the years being reported, non-cash depreciation, amortization and stock-based
compensation expenses exceeded our net operating loss. Our debt principal payments are a partial offset to these
non-cash expenses, as they represent uses of cash that are not recorded as an expense.
Other expenses, net
During the years ended December 31, 2019 and 2018, other expenses, net, aggregated $314,000 and $413,000,
respectively. Interest expense (including non-cash amortization of debt issue costs of approximately $17,000 during
the years ended December 31, 2019 and 2018) increased by approximately 1%, or $4,000, to $432,000 during the
year ended December 31, 2019 in comparison to $428,000 during 2018. Given the debt refinancing to fixed rate
loans during the first quarter of 2020, we now anticipate that our interest expense will be approximately $317,000
during the year ending December 31, 2020. This projected expense reduction is achieved with more principal
outstanding under the refinanced debt structure than would have been outstanding had we not refinanced. Interest
income increased by approximately 727%, or $104,000, to $118,000 during the year ended December 31, 2019, in
comparison to $14,000 during 2018. More interest income was earned during 2019 because we had more cash and
short-term investments on hand due largely to cash generated from an equity issuance during the first quarter of
2019 that has not yet been fully invested in capital expenditures.
Loss Before Income Taxes
During the year ended December 31, 2019, our loss before income taxes of $1,267,000 was in comparison to a
loss before income taxes of $1,860,000 during the year ended December 31, 2018. Our losses before income taxes
included $2,598,000 and $1,882,000 of non-cash depreciation, amortization, debt issue costs and stock-based
compensation expenses during the years ended December 31, 2019 and 2018, respectively. During both of the years
being reported, non-cash depreciation, amortization and stock-based compensation expenses exceeded our loss
before income taxes. Our debt principal payments are a partial offset to these non-cash expenses, as they represent
uses of cash that are not recorded as an expense.
Income Taxes and Net Loss
For tax return purposes only, our depreciation expense for the Nisin Drug Substance production facility and
equipment was approximately $9.2 million and $1.5 million for the years ended December 31, 2018 and 2017,
respectively. This significant increase was largely related to accelerated depreciation allowed for tax purposes for
our Drug Substance production facility investment. This increased our federal net operating loss carryforward to
approximately $11.8 million as of December 31, 2018 from approximately $1.7 million as of December 31, 2017,
which will be available to offset future taxable income. As of December 31, 2019, our federal net operating loss
carry forward was approximately $12 million.
During the second quarter of 2018, we assessed our historical and near-term future profitability and recorded
approximately $563,000 in non-cash income tax expense to create a full valuation allowance against our net deferred
tax assets (which consist largely of net operating loss carryforwards and federal and state tax credits) based on
applicable accounting standards and practices. At that time, we had incurred a net loss for five consecutive quarters,
had not been profitable on a year-to-date basis since the nine-month period ended September 30, 2017 and projected
additional net losses for some period going forward before returning to profitability. Should future profitability be
realized at an adequate level, we would be able to release this valuation allowance (resulting in a non-cash income
tax benefit) and realize these net deferred tax assets before they expire. We will continue to assess the need for the
valuation allowance at each quarter. No such adjustment has been recorded through December 31, 2019.
During the years ended December 31, 2019 and 2018, we recorded income tax expense at the rate of 2% and
25% of our loss before income taxes. Our net loss of $1.3 million, or $0.19 per share, during the year ended
December 31, 2019 was in comparison to a net loss of $2.3 million, or $0.42 per share, during the year ended
30
ImmuCell Corporation
December 31, 2018. On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. This legislation makes
significant changes in the U.S. tax laws, including a reduction in the corporate tax rates, changes to net operating
loss carryforwards and carrybacks, and a repeal of the corporate alternative minimum tax. The legislation reduced
the U.S. corporate tax rate from 34% to 21%. Our income tax rate differs from this standard tax rate. While we are
recording a full valuation allowance for our net deferred tax assets, as discussed above, and therefore not
recognizing a benefit on our tax losses, our income tax expense is largely comprised of the tax effect of our interest
rate swap agreements.
In addition to the above results from our Statements of Operations, we believe it is important to consider our
Statements of Cash Flows in the accompanying financial statements to assess the cash generating ability of our
operations.
Critical Accounting Policies
The financial statements are presented on the basis of accounting principles that are generally accepted in the
United States. All professional accounting standards that were effective and applicable to us as of December 31,
2019 have been taken into consideration in preparing the financial statements. The preparation of financial
statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate
our estimates, including those related to revenue recognition, income taxes, contingencies and the useful lives and
carrying values of intangible and long lived assets. We base our estimates on historical experience and on various
other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions. We have chosen to
highlight certain policies that we consider critical to the operations of our business and understanding our financial
statements.
We sell products that provide Immediate Immunity™ to newborn dairy and beef cattle. We recognize revenue
in accordance with the five step model in ASC 606. These include i) identification of the contract with the customer, ii)
identification of the performance obligations in the contract, iii) determination of the transaction price, iv) allocation
of the transaction price to the separate performance obligations in the contract and v) recognition of revenue associ-
ated with performance obligations as they are satisfied. We recognize revenue at the time of shipment (including to
distributors) for substantially all products, as title and risk of loss pass to the customer on delivery to the common car-
rier after concluding that collectability is reasonably assured. We do not bill for or collect sales tax because our sales
are generally made to distributors and thus our sales to them are not subject to sales tax. We generally have experi-
enced an immaterial amount of product returns.
Inventory includes raw materials, work-in-process and finished goods and is recorded at the lower of cost, on the
first-in, first-out method, or net realizable value (determined as the estimated selling price in the normal course of busi-
ness, less reasonably predictable costs of completion, disposal and transportation). Work-in-process and finished goods
inventories include materials, labor and manufacturing overhead.
ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We believe that neither inflation nor interest rates nor currency exchange rates have had a significant effect on
our revenues and expenses. However, future increases in inflation or interest rates or the value of the U.S. dollar
could affect our customers and the demand for our products. We hope to increase the level of our future sales of
products outside the United States. The cost of our products to international customers could be affected by currency
fluctuations. The decline of the U.S. dollar against other currencies could make our products less expensive to
international customers. Conversely, a stronger U.S. dollar could make our products more costly for international
customers. During 2010, we hedged our interest rate exposure to a $1.0 million mortgage with an interest rate swap
agreement that effectively converted a floating interest rate to the fixed rate of 6.04%. During 2015, we hedged our
interest rate exposure to a $2.5 million mortgage with an interest rate swap agreement that effectively converted a
floating interest rate to the fixed rate of 4.38%. As of December 31, 2019, approximately $2.6 million was
outstanding under these two mortgages. We had outstanding debt totaling approximately $5.9 million at December
31, 2019 that bears interest at variable rates and is not subject to interest rate swaps.
31
ImmuCell Corporation
ITEM 8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our financial statements, together with the notes thereto and the reports of the independent registered public
accounting firms thereon, are set forth on Pages F-1 through F-26 at the end of this report. The index to these
financial statements is as follows:
Report of Wipfli LLP, Independent Registered Public Accounting Firm
Report of RSM US LLP, Independent Registered Public Accounting Firm
Balance Sheets as of December 31, 2019 and 2018
Statements of Operations during the years ended December 31, 2019 and 2018
Statements of Comprehensive Loss during the years ended December 31, 2019 and 2018
Statements of Stockholders’ Equity during the years ended December 31, 2018 and 2019
Statements of Cash Flows during the years ended December 31, 2019 and 2018
Notes to Financial Statements
F-1
F-2
F-3
F-4
F-4
F-5
F-6 to F-7
F-8 to F-26
ITEM 9 — CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On April 10, 2019, we informed RSM US LLP (RSM) that RSM had been dismissed as our independent
registered public accounting firm due to our desire to work with a local firm and to obtain such services at a lower
cost. This decision was authorized by our Audit Committee and ratified by our Board of Directors.
There were no disagreements between us and RSM on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of RSM, would have caused RSM to make reference to the subject matter of the disagreements in either
of RSM’s reports on our financial statements for the years ended December 31, 2018 or 2017. During the years
ended December 31, 2018 and 2017, there were no reportable events (as defined in Item 304(a)(l)(v) of Regulation
S-K), except for the material weakness in our internal control over financial reporting as disclosed in our Quarterly
Reports on Forms 10-Q for the interim periods ended June 30, 2018 and September 30, 2018. None of such reports
contained any adverse opinion or disclaimer or were qualified or modified as to uncertainty, audit scope or
accounting principles.
On April 12, 2019, we engaged Wipfli LLP (Wipfli) as our independent registered public accounting firm for
the year ended December 31, 2019 beginning with a customary review of our financial statements as of and for the
quarter ended March 31, 2019.
During the two most recent fiscal years and the interim periods preceding Wipfli’s engagement, and through
the date of their engagement, neither we nor anyone on our behalf had previously consulted with Wipfli regarding
either: (a) the application of accounting principles to a specified transaction, either completed or proposed; or the
type of audit opinion that might be rendered on our financial statements, and neither a written report was provided
nor oral advice was provided to us that Wipfli concluded was an important factor considered by us in reaching a
decision as to the accounting, auditing or financial reporting issue or (b) any matter that was either the subject of a
disagreement (as defined in paragraph 304 (a)(l)(iv) of Regulation S-K and the related instructions thereto) or a
reportable event (as described in paragraph 304(a)(l)(v) of Regulation S-K).
ITEM 9A — CONTROLS AND PROCEDURES
Disclosure Controls and Procedures. Our management, with the participation of the individual who serves as
our principal executive and principal financial officer, evaluated the effectiveness of our disclosure controls and
procedures as of December 31, 2019. Based on this evaluation, that officer concluded that our disclosure controls
and procedures were effective as of that date. Disclosure controls and procedures are designed to ensure that
information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i)
recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and
(ii) accumulated and communicated to our management, including our principal executive and principal financial
officer, as appropriate to allow timely decisions regarding required disclosures.
Management’s Annual Report on Internal Control Over Financial Reporting. The management of the
Company is responsible for establishing and maintaining adequate internal control over financial reporting. The
32
ImmuCell Corporation
Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. We conducted an evaluation of the effectiveness of the internal controls
over financial reporting based on the framework in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included a review of the
documentation of controls, evaluation of the design effectiveness of controls, testing the operating effectiveness of
the controls and a conclusion on this evaluation. Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assesses the effectiveness of the Company’s internal control over financial reporting at the end of
each quarter. Based on management’s assessment, we believe that our internal control over financial reporting was
effective as of December 31, 2019.
This Annual Report does not include an attestation report of the Company’s independent registered public
accounting firm regarding internal control over financial reporting. Management’s internal control report was not
subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the
Securities and Exchange Commission that permit the Company to provide only management’s report.
Changes in Internal Controls over Financial Reporting. The individual who serves as our principal executive
and principal financial officer periodically evaluates any change in internal control over financial reporting which
has occurred during the prior fiscal quarter. We have concluded that there was no change in our internal control over
financial reporting that occurred during the quarter or year ended December 31, 2019 that has materially affected, or
is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B — OTHER INFORMATION
None
PART III
ITEM 10 — DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Executive Officers of the Company
Our executive officers as of March 25, 2020 were as follows:
MICHAEL F. BRIGHAM (Age: 59, Officer since 1991, Director since 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 had 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 served as a member of
the Board of Directors of the United Way of York County from 2012 to 2019, serving as its Treasurer until June
2016 and as Chair of the Board of Directors for one year and as a member of its Executive Committee. Mr. Brigham
served as the Treasurer of the Board of Trustees of the Kennebunk Free Library from 2005 to 2011. He re-joined the
Finance Committee of the library in 2012. Prior to joining the Company, he was employed as an audit manager for
the public accounting firm of Ernst & Young. Mr. Brigham earned his Masters in Business Administration from
New York University in 1989 and a Bachelor of Arts degree (with a double major in Economics and Spanish) from
Trinity College in Hartford, Connecticut in 1983.
BOBBI JO BROCKMANN (Age: 43, Officer since February 2015, Director since January 2018) served as a
Director of the Company from March 2017 to September 2017 and from January 2018 to the present. She was
promoted to Vice President of Sales and Marketing in February 2015. She joined the Company as Director of Sales
and Marketing in January 2010. Prior to that, she had been employed as Director of Sales since May 2008 and Sales
33
ImmuCell Corporation
Manager from February 2004 to April 2008 at APC, Inc. of Ankeny, Iowa, a developer and marketer of functional
protein products for animal health and nutrition. Prior to that, she held other sales and marketing positions at
APC, W & G Marketing Company, Inc. of Ames, Iowa, The Council for Agricultural Science and Technology of
Ames, Iowa and Meyocks Group Advertising of West Des Moines, Iowa after graduating from Iowa State
University.
JOSEPH H. CRABB, Ph.D. (Age: 65, Officer since 1996) 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. He served as a Director of the Company from March 2001 (having previously served
in that capacity from March 1999 until February 2000) until September 2017. He served as Chair of the Board of
Directors from June 2009 to February 2013. Concurrent with his employment, he has served on national study
sections and advisory panels, served as a peer reviewer, and held several adjunct faculty positions. 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.
ELIZABETH L. WILLIAMS (Age: 64, Officer since April 2016) joined the Company in April 2016 as Vice
President of Manufacturing Operations. Previously, she led the U.S. Region for Zoetis as Vice President, Global
Manufacturing and Supply. Prior to that, she held multiple Site Leader positions at Pfizer Animal Health facilities in
Lincoln, Nebraska (2008-2011), Conshohocken, Pennsylvania (2006-2008) and Lee’s Summit, Missouri (2003-
2006). She led the manufacturing organization (1999-2003) and the Process and Product Development group (1995-
1999), achieving registration, approval and successful scale-up of five new products at the Lee’s Summit facility.
She earned her Masters of Business Administration from Rockhurst University in Kansas City, Missouri and her
Bachelor’s degree in Biology from the University of Missouri.
Information with respect to our directors is incorporated herein by reference to the section of our 2020 Proxy
Statement titled “Election of the Board of Directors”, which we intend to file with the Securities and Exchange
Commission within 120 days after December 31, 2019. 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 compensation paid to our executive officers is incorporated herein by reference to the
section of our 2020 Proxy Statement titled “Executive Officer Compensation”, which we intend to file with the
Securities and Exchange Commission within 120 days after December 31, 2019.
ITEM 12 — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information regarding ownership of our common stock by certain owners and management is incorporated
herein by reference to the section of our 2020 Proxy Statement titled “Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters”, which we intend to file with the Securities and
Exchange Commission within 120 days after December 31, 2019.
ITEM 13 — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
Information regarding certain relationships and related transactions and director independence is incorporated
herein by reference to the section of our 2020 Proxy Statement titled “Certain Relationships and Related
Transactions and Director Independence”, which we intend to file with the Securities and Exchange Commission
within 120 days after December 31, 2019.
ITEM 14 — PRINCIPAL ACCOUNTING FEES AND SERVICES
Information regarding our principal accounting fees and services is incorporated by reference to the section of
our 2020 Proxy Statement titled “Principal Accounting Fees and Services”, which we intend to file with the
34
ImmuCell Corporation
Securities and Exchange Commission within 120 days after December 31, 2019.
PART IV
ITEM 15 — EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
3.1
3.2
3.3
3.4
3.5
3.6
4.1
4.1A
4.1B
4.1C
4.1D
4.1E
4.1F
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of the Company’s
1987 Registration Statement No. 33-12722 on Form S-1 as filed with the Commission).
Certificate of Amendment to the Company’s Certificate of Incorporation effective July 23, 1990
(incorporated by reference to Exhibit 3.2 of the Company’s Annual Report on Form 10-K for the year
ended December 31, 2008).
Certificate of Amendment to the Company’s Certificate of Incorporation effective August 24, 1992
(incorporated by reference to Exhibit 3.3 of the Company’s Annual Report on Form 10-K for the year
ended December 31, 2008).
Certificate of Amendment to the Company’s Certificate of Incorporation effective June 16, 2016
(incorporated by reference to Exhibit 3.1 of the Company’s Amended Current Report on Form 8-K/A
filed on June 16, 2016).
Certificate of Amendment to the Company’s Certificate of Incorporation effective June 18, 2018
(incorporated by reference to Exhibit 3.1 to Company’s Current Report on Form 8-K filed on June 18,
2018).
Bylaws of the Company as amended (incorporated by reference to Exhibit 3.4 of the Company’s Annual
Report on Form 10-K for the year ended December 31, 2008).
Rights Agreement dated as of September 5, 1995, between the Company 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 Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31,
2009).
First Amendment to Rights Agreement dated as of June 30, 2005 (incorporated by reference to
Exhibit 4.1A of the Company’s Current Report on Form 8-K filed on July 5, 2005).
Second Amendment to Rights Agreement dated as of June 30, 2008 (incorporated by reference to Exhibit
4.1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008).
Third Amendment to Rights Agreement dated as of August 9, 2011 (incorporated by reference to Exhibit
4.1 of the Company’s Quarterly Report on Form 10-Q for the three-month period ended June 30, 2011).
Fourth Amendment to Rights Agreement dated as of June 16, 2014 (incorporated by reference to Exhibit
4.1D of the Company’s Current Report on Form 8-K filed on June 17, 2014).
Fifth Amendment to Rights Agreement dated as of April 15, 2015 (incorporated by reference to Exhibit
4.1 of the Company’s Quarterly Report on Form 10-Q for the three-month period ended March 31, 2015).
Sixth Amendment to Rights Agreement dated as of August 10, 2017 (incorporated by reference to Exhibit
4.1 to the Company’s Quarterly Report on Form 10-Q for the three-month period ended June 30, 2017).
+ Form of Indemnification Agreement (updated) entered into with each of the Company’s Directors and
Officers (incorporated by reference to Exhibit 10.3A to the Company’s Annual Report on Form 10-KSB
for the year ended December 31, 2006).
+ 2000 Stock Option and Incentive Plan of the Company (incorporated by reference to Exhibit 10.6 of the
Company’s Annual Report on Form 10-K for the year ended December 31, 2008).
+ Form of Incentive Stock Agreement (incorporated by reference to Exhibit 10.7 of the Company’s
Annual Report on Form 10-K for the year ended December 31, 2008).
+ Amendment to Employment Agreement between the Company and Michael F. Brigham dated March
26, 2010 (incorporated by reference to Exhibit 10.6 of the Company’s Annual Report on Form 10-K for
the year ended December 31, 2009).
+ Amendment to Employment Agreement between the Company and Joseph H. Crabb dated March 26,
2010 (incorporated by reference to Exhibit 10.7 of the Company’s Annual Report on Form 10-K for the
year ended December 31, 2009).
+ 2010 Stock Option and Incentive Plan of the Company (incorporated by reference to Exhibit 10.6 of the
Company’s Annual Report on Form 10-K for the year ended December 31, 2010).
+ Form of Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.7 of the
Company’s Annual Report on Form 10-K for the year ended December 31, 2010).
+2017 Stock Option and Incentive Plan of the Company (incorporated by reference to Exhibit 10.1 of the
35
ImmuCell Corporation
Company’s Quarterly Report on Form 10-Q for the three-month period ended June 30, 2017).
10.9* +Form of Incentive Stock Option Agreement.
10.10 +Incentive Compensation Agreement dated March 21, 2019 between the Company and Elizabeth L.
Williams (incorporated by reference to Exhibit 10.21 to the Company’s Annual Report on Form 10-K for
the year ended December 31, 2019).
10.11 +Amended and Restated Incentive Compensation Agreement between the Company Bobbi Jo
Brockmann (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K
filed on April 12, 2019).
10.12 Development Services and Commercial Supply Agreement between the Company and Norbrook
Laboratories Limited dated as of September 5, 2019 (incorporated by reference to Exhibit 99.2 of the
Company’s Current Report on Form 8-K filed on September 11, 2019).
10.13 Termination Agreement between the Company and Nordson Corporation dated as of September 10, 2019
(incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed on
September 11, 2019).
Indenture of Lease for Premises Located in Portland, Maine between the Company and TVP, LLC
(incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on
September 17, 2019).
10.14
10.15 Term Note for $5,100,000 between the Company and Gorham Savings Bank dated March 11, 2020
(incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on March
12, 2020).
10.16 Term Note for $3,500,000 between the Company and Gorham Savings Bank dated March 11, 2020
(incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed on March
12, 2020).
10.17 Loan Agreement for $5,100,000 between the Company and Gorham Savings Bank dated March 11, 2020
(incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed on March
12, 2020).
10.18 Loan Agreement for $3,500,000 between the Company and Gorham Savings Bank dated March 11, 2020
(incorporated by reference to Exhibit 99.5 to the Company’s Current Report on Form 8-K filed on March
12, 2020.
10.19 Line of Credit Agreement for up to $1,000,000 between the Company and Gorham Savings Bank dated
March 11, 2020 (incorporated by reference to Exhibit 99.6 to the Company’s Current report on Form 8-K
filed on March 12, 2020).
10.20* Severance Agreement between the Company and Michael F. Brigham dated as of March 25, 2020.
10.21* Amended and Restated Incentive Compensation Agreement between the Company and Bobbi Jo
14
Brockmann dated as of March 25, 2020.
Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14 of the Company’s Current
Report on Form 8-K filed on March 20, 2014).
23.1* Consent of Wipfli LLP.
23.2* Consent of RSM US LLP.
31*
32*
Certifications required by Rule 13a-14(a).
Certification pursuant to Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
101 INS XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB XBRL Taxonomy Extension Label Linkbase Document.
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.
+
*
Management contract or compensatory plan or arrangement.
Filed herewith.
36
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of ImmuCell Corporation
Opinion on the Financial Statements
We have audited the accompanying balance sheet of ImmuCell Corporation (the Company) as of December
31, 2019, the related statements of operations, comprehensive loss, stockholders’ equity and cash flows for the year
then ended, and the related notes to the financial statements (collectively, the financial statements). In our opinion,
the financial statements present fairly, in all material respects, the financial position of the Company as of December
31, 2019, and the results of its operations and its cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our
audit also included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial statements. We believe that our audit provides a
reasonable basis for our opinion.
/s/ WIPFLI LLP
We have served as the Company’s auditor since 2019.
South Portland, Maine
March 27, 2020
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of ImmuCell Corporation
Opinion on the Financial Statements
We have audited the accompanying balance sheet of ImmuCell Corporation (the Company) as of December
31, 2018, the related statements of operations, comprehensive loss, stockholders’ equity and cash flows for the year
then ended, and the related notes to the financial statements (collectively, the financial statements). In our opinion,
the financial statements present fairly, in all material respects, the financial position of the Company as of December
31, 2018, and the results of its operations and its cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our
audit also included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial statements. We believe that our audit provides a
reasonable basis for our opinion.
/s/ RSM US LLP
We served as the Company’s auditor from 2016 to 2018.
Boston, Massachusetts
March 27, 2020
F-2
ImmuCell Corporation
BALANCE SHEETS
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Short-term investments
Trade accounts receivable, net
Inventory
Prepaid expenses and other current assets
Total current assets
As of December 31,
2019
2018
$6,293,293
2,480,753
1,637,165
2,518,256
259,566
13,189,033
$2,521,050
—
932,298
2,331,671
635,817
6,420,836
PROPERTY, PLANT AND EQUIPMENT, net
25,265,738
26,027,549
INTANGIBLE ASSETS, net
GOODWILL
INTEREST RATE SWAPS
OTHER ASSETS
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses
Current portion of bank debt
Line of credit
Total current liabilities
LONG-TERM LIABILITIES:
Bank debt, net of current portion
Interest rate swaps
Total long-term liabilities
TOTAL LIABILITIES
CONTINGENT LIABILITIES AND COMMITMENTS (See Note 12)
STOCKHOLDERS’ EQUITY:
Common stock, $0.10 par value per share, 11,000,000 and 11,000,000 shares
authorized, 7,299,009 and 5,662,645 shares issued and 7,212,919 and
5,568,962 shares outstanding, as of December 31, 2019 and 2018,
respectively
Additional paid-in capital
Accumulated deficit
Treasury stock, at cost, 86,090 and 93,683 shares as of December 31, 2019
and 2018, respectively
Accumulated other comprehensive (loss) income
Total stockholders’ equity
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
114,624
95,557
—
26,884
$38,691,836
133,728
95,557
40,209
12,953
$32,730,832
$1,220,566
1,274,790
—
2,495,356
7,146,676
58,526
7,205,202
9,700,558
$1,220,660
844,351
500,000
2,565,011
8,421,487
—
8,421,487
10,986,498
729,901
31,131,893
(2,638,285)
(188,336)
(43,895)
28,991,278
$38,691,836
566,265
22,695,557
(1,342,698)
(204,947)
30,157
21,744,334
$32,730,832
The accompanying notes are an integral part of these financial statements.
F-3
ImmuCell Corporation
STATEMENTS OF OPERATIONS
Product sales
Costs of goods sold
Gross margin
OPERATING EXPENSES (INCOME):
Product development expenses
Sales and marketing expenses
Administrative expenses
Gain on sale of assets
Operating activities, net
NET OPERATING LOSS
Other expenses, net
During the Years Ended December 31,
2019
$13,722,872
6,983,152
6,739,720
2018
$10,986,297
5,792,392
5,193,905
3,687,609
2,318,112
1,687,907
—
7,693,628
3,516,619
2,084,903
1,738,953
(700,000)
6,640,475
(953,908)
(1,446,570)
313,505
413,481
LOSS BEFORE INCOME TAXES
(1,267,413)
(1,860,051)
Income tax expense
NET LOSS
Basic weighted average common shares outstanding
Basic net loss per share
Diluted weighted average common shares outstanding
Diluted net loss per share
28,174
461,620
($1,295,587)
($2,321,671)
6,818,960
($0.19)
6,818,960
($0.19)
5,486,154
($0.42)
5,486,154
($0.42)
STATEMENTS OF COMPREHENSIVE LOSS
Net loss
Other comprehensive (loss) income:
Interest rate swaps, before taxes
Income tax applicable to interest rate swaps
Other comprehensive (loss) income, net of taxes
Total comprehensive loss
During the Years Ended December 31,
2019
($1,295,587)
2018
($2,321,671)
(98,735)
24,683
(74,052)
($1,369,639)
41,206
(10,411)
30,795
($2,290,876)
The accompanying notes are an integral part of these financial statements.
F-4
ImmuCell Corporation
STATEMENTS OF STOCKHOLDERS’ EQUITY
Common Stock
Treasury Stock
Shares
Amount
Additional
paid-in
capital
Retained
Earnings
(Accumulated
Deficit)
Shares
Amount
Accumulated
Other
Comprehensive
(Loss) Income
Total
Stockholders’
Equity
BALANCE,
December 31, 2017
5,662,645 $566,265 $22,458,219
$978,973
186,448
($407,879)
($638)
$23,594,940
Net loss
Other comprehensive
income, net of taxes
Exercise of stock options
Stock-based
compensation
—
—
—
—
—
—
—
—
— (2,321,671)
—
—
—
(2,321,671)
—
(106,678)
344,016
—
—
—
—
(92,765)
—
202,932
30,795
—
30,795
96,254
—
—
—
344,016
BALANCE,
December 31, 2018
Net loss
Other comprehensive
loss, net of taxes
Public offering of
common stock, net of
$696,566 of offering
costs
Exercise of stock options
Stock-based
compensation
BALANCE,
December 31, 2019
5,662,645 $566,265 $22,695,557 ($1,342,698)
93,683
($204,947)
$30,157 $21,744,334
—
—
—
—
— (1,295,587)
—
—
—
—
—
—
—
(1,295,587)
(74,052)
(74,052)
1,636,364
—
163,636
—
8,139,800
(16,608)
—
—
313,144
—
—
—
—
(7,593)
—
—
16,611
—
—
—
—
8,303,436
3
313,144
7,299,009 $729,901 $31,131,893 ($2,638,285)
86,090
($188,336)
($43,895) $28,991,278
The accompanying notes are an integral part of these financial statements.
F-5
ImmuCell Corporation
STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash provided by (used for) operating
($1,295,587)
($2,321,671)
During the Years Ended December 31,
2019
2018
activities:
Depreciation
Amortization
Amortization of debt issuance costs
Deferred income taxes
Stock-based compensation
Gain on sale of assets
Loss on disposal of fixed assets
Changes in:
Trade accounts receivable, gross
Accrued interest income
Inventory
Prepaid expenses and other current assets
Other assets
Accounts payable and accrued expenses
Deferred revenue
Net cash provided by (used for) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment
Maturities of investment
Purchases of investments
Payment of contingent royalties related to 2016 acquisition
Proceeds from sale of assets
Net cash used for investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from public offering, net
Proceeds from debt issuance
Proceeds from line of credit
Debt principal repayments
Line of credit repayment
Payments of debt issue costs
Proceeds from exercise of stock options
Net cash provided by financing activities
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
BEGINNING CASH AND CASH EQUIVALENTS
ENDING CASH AND CASH EQUIVALENTS
2,248,317
19,104
16,976
24,684
313,144
—
2,469
(704,867)
(27,753)
(186,585)
(73,749)
(13,931)
(88,711)
—
233,511
(1,391,446)
7,670,000
(10,123,000)
(8,914)
450,000
(3,403,360)
8,303,436
—
—
(861,347)
(500,000)
—
3
6,942,092
3,772,243
2,521,050
$6,293,293
1,501,607
19,104
16,829
462,315
344,016
(700,000)
1,733
411,724
—
(281,939)
128,849
(12,033)
80,162
(24,100)
(373,404)
(2,029,895)
—
—
(14,077)
250,000
(1,793,972)
—
693,640
500,000
(398,308)
—
(1,971)
96,254
889,615
(1,277,761)
3,798,811
$2,521,050
(1,277,761)
The accompanying notes are an integral part of these financial statements
F-6
ImmuCell Corporation
STATEMENT OF CASH FLOWS
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Income taxes
Interest expense
During the Years Ended December 31,
2019
2018
$3,566
$420,956
$4,222
$403,535
NON-CASH ACTIVITIES:
Change in capital expenditures included in accounts payable and accrued
expenses
Net change in fair value of interest rate swaps, net of taxes
Fixed asset disposals, gross
$97,530
$74,052
$62,055
($568,695)
($30,795)
$22,681
The accompanying notes are an integral part of these financial statements.
F-7
ImmuCell Corporation
Notes to Audited Financial Statements
1. BUSINESS OPERATIONS
ImmuCell Corporation (the “Company”, “we”, “us”, “our”) was originally incorporated in Maine in 1982 and
reincorporated in Delaware in 1987, in conjunction with our initial public offering of common stock. We are an
animal health company whose purpose is to create scientifically-proven and practical products that improve the
health and productivity of dairy and beef cattle. We market products that provide Immediate Immunity™ to
newborn dairy and beef cattle. We are developing improved formulations of the First Defense® product line for the
prevention of scours in newborn calves and are in the late stages of developing Re-Tain™, a treatment for cows
with subclinical mastitis, the most significant cause of economic loss to the dairy industry. These products help
reduce the need to use traditional antibiotics in food producing animals. We are subject to certain risks associated
with this stage of development including dependence on key individuals and third-party providers of critical goods
and services, competition from other larger companies, the successful sale of existing products and the development
and acquisition of additional commercially viable products with appropriate regulatory approvals, where applicable.
Based on our best estimates and projections, we believe that we have sufficient capital resources to continue
operations for at least twelve months from the date of this filing.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
We have prepared the accompanying audited financial statements reflecting all adjustments that are, in our
opinion, necessary in order to ensure that the financial statements are not misleading. We follow accounting
standards set by the Financial Accounting Standards Board (FASB). The FASB sets generally accepted accounting
principles (GAAP) that we follow to ensure we consistently report our financial condition, results of operations,
earnings per share and cash flows. References to GAAP in these footnotes are to the FASB Accounting Standards
Codification™ (Codification). Accordingly, we believe that the disclosures are adequate to ensure that the
information presented is not misleading.
(b) Cash, Cash Equivalents and Short-Term Investments
We consider all highly liquid investment instruments that mature within three months of their purchase dates
to be cash equivalents. Cash equivalents are principally invested in securities backed by the U.S. government.
Certain cash balances in excess of Federal Deposit Insurance Corporation (FDIC) limits of $250,000 per financial
institution per depositor are maintained in money market accounts at financial institutions that are secured, in part,
by the Securities Investor Protection Corporation. Amounts in excess of these FDIC limits per bank that are not
invested in securities backed by the U.S. government aggregated $5,792,993 and $2,268,737 as of December 31,
2019 and 2018, respectively. Short-term investments are classified as held to maturity and are comprised of
certificates of deposit that mature in more than three months from their purchase dates and not more than twelve
months from the balance sheet date. Short-term investments are held at different financial institutions that are
insured by the FDIC, within the FDIC limits per financial institution. We account for investments in marketable
securities in accordance with Codification Topic 320, Investments — Debt and Equity Securities. See Note 3.
(c) Accounts Receivable
Accounts receivable are carried at the original invoice amount less an estimate made for doubtful collection.
Management determines the allowance for doubtful accounts on a monthly basis by identifying troubled accounts
and by using historical experience applied to an aging of accounts. Accounts receivable are considered to be past
due if a portion of the receivable balance is outstanding for more than 30 days. Past due accounts receivable are
subject to an interest charge. Accounts receivable are written off when deemed uncollectible. The amount of
accounts receivable written off during all periods reported was immaterial. Recoveries of accounts receivable
previously written off are recorded as income when received. As of December 31, 2019 and 2018, we determined
that no allowance for doubtful accounts was necessary. See Note 4.
F-8
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
(d) Inventory
Inventory includes raw materials, work-in-process and finished goods and is recorded at the lower of cost, on
the first-in, first-out method, or net realizable value (determined as the estimated selling price in the normal course
of business, less reasonably predictable costs of completion, disposal and transportation). Work-in-process and
finished goods inventories include materials, labor and manufacturing overhead. At each balance sheet date, we
evaluate our ending inventories for excess quantities and obsolescence. Inventories that we consider excess or
obsolete are reserved. Once inventory is written down and a new cost basis is established, it is not written back up if
demand increases. We believe that supplies and raw materials for the production of our products are available from
more than one vendor or farm. Our policy is to maintain more than one source of supply for the components used in
our products when practicable. See Note 5.
(e) Property, Plant and Equipment
We depreciate property, plant and equipment on the straight-line method by charges to operations and costs of
goods sold in amounts estimated to expense the cost of the assets from the date they are first put into service to the
end of the estimated useful lives of the assets. The facility we have constructed to produce the Nisin Drug Substance
for Re-Tain™ is being depreciated over 39 years from when a certificate of occupancy was issued during the fourth
quarter of 2017. We began depreciating the equipment for our Nisin Drug Substance facility when it was placed in
service during the third quarter of 2018. Approximately 89% of these assets are being depreciated over ten years.
Significant repairs to fixed assets that benefit more than a current period are capitalized and depreciated over their
useful lives. Insignificant repairs are expensed when incurred. See Note 7.
(f) Intangible Assets and Goodwill
We amortize intangible assets on the straight-line method by charges to costs of goods sold in amounts
estimated to expense the cost of the assets from the date they are first put into service to the end of the estimated
useful lives of the assets. We have recorded intangible assets related to customer relationships, non-compete
agreements, and developed technology, each with defined useful lives. We have classified as goodwill the amounts
paid in excess of fair value of the net assets (including tax attributes) acquired in purchase transactions. We assess
the impairment of intangible assets and goodwill that have indefinite lives at the reporting unit level on an annual
basis (as of December 31st) and whenever events or changes in circumstances indicate that the carrying value of the
asset may not be recoverable. We would record an impairment charge if such an assessment were to indicate that the
fair value of such assets was less than the carrying value. Judgment is required in determining whether an event has
occurred that may impair the value of goodwill or identifiable intangible assets. Factors that could indicate that an
impairment may exist include significant under-performance relative to plan or long-term projections, significant
changes in business strategy and significant negative industry or economic trends. Although we believe intangible
assets and goodwill are properly stated in the accompanying financial statements, changes in strategy or market
conditions could significantly impact these judgments and require an adjustment to the recorded balance. No
goodwill impairments were recorded during the years ended December 31, 2019 or 2018. See Notes 2(h), 8 and 9
for additional disclosures.
(g) Fair Value Measurements
In determining fair value measurements, we follow the provisions of Codification Topic 820, Fair Value
Measurements and Disclosures. Codification Topic 820 defines fair value, establishes a framework for measuring
fair value under GAAP and enhances disclosures about fair value measurements. The topic provides a consistent
definition of fair value which focuses on an exit price, which is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the measurement date. The topic
also prioritizes, within the measurement of fair value, the use of market-based information over entity-specific
information and establishes a three-level hierarchy for fair value measurements based on the nature of inputs used in
the valuation of an asset or liability as of the measurement date. As of December 31, 2019 and 2018, the carrying
amounts of cash and cash equivalents, short-term investments, accounts receivable, inventory, other assets, accounts
payable, deferred revenue and accrued liabilities approximate fair value because of their short-term nature. The
F-9
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
amount outstanding under our bank debt facilities is measured at carrying value in our accompanying balance sheets.
Our bank debt facilities are valued using Level 2 inputs. The estimated fair value of our bank debt facilities
approximates their carrying value based on similar instruments with similar maturities. The three-level hierarchy is
as follows:
Level 1 — Pricing inputs are quoted prices available in active markets for identical assets or liabilities as of the
measurement date.
Level 2 — Pricing inputs are quoted prices for similar assets or liabilities, or inputs that are observable, either
directly or indirectly, for substantially the full term through corroboration with observable market
data.
Level 3 — Pricing inputs are unobservable for the assets or liabilities, that is, inputs that reflect the reporting
entity’s own assumptions about the assumptions market participants would use in pricing the asset
or liability.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.
In such cases, the level of an asset or liability within the fair value hierarchy is based on the lowest level of input
that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair
value measurement in its entirety requires judgment, and considers factors specific to the investment. From time to
time, we also hold money market mutual funds in a brokerage account, which are classified as cash equivalents and
measured at fair value. The fair value of these investments is based on their closing published net asset value.
We assess the levels of the investments at each measurement date, and transfers between levels are recognized
on the actual date of the event or change in circumstances that caused the transfer in accordance with our accounting
policy regarding the recognition of transfers between levels of the fair value hierarchy. During the years ended
December 31, 2019 and 2018, there were no transfers between levels. As of December 31, 2019 and 2018, our Level
1 assets measured at fair value by quoted prices in active markets consisted of bank savings accounts and money
market funds. As of December 31, 2019 our bank certificates of deposit were classified as Level 2 and were
measured by significant other observable inputs. As of December 31, 2019 and 2018, our interest rate swaps were
classified as Level 2 and were measured by observable market data in combination with expected cash flows for
each instrument. There were no assets or liabilities measured at fair value on a nonrecurring basis as of December
31, 2019 or 2018.
As of December 31, 2019
Level 1
Level 2
Level 3
Total
Assets:
Cash and money market accounts
Bank certificates of deposit
$6,293,293
—
$—
2,480,753
Liabilities:
Interest rate swaps
Total, net
(58,526)
$6,293,293 $2,422,227
—
$—
—
—
$—
$6,293,293
2,480,753
(58,526)
$8,715,520
As of December 31, 2018
Level 1
Level 2
Level 3
Total
Assets:
Cash and money market accounts
Interest rate swaps
Total
$2,521,050
—
$2,521,050
$—
40,209
$40,209
$—
—
$—
$2,521,050
40,209
$2,561,259
F-10
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
(h)Valuation of Long-Lived Assets
We periodically evaluate our long-lived assets, consisting principally of fixed assets and amortizable
intangible assets, for potential impairment. In accordance with the applicable accounting guidance for the treatment
of long-lived assets, we review the carrying value of our long-lived assets or asset group that is held and used,
including intangible assets subject to amortization, for impairment whenever events and circumstances indicate that
the carrying value of the assets may not be recoverable. Under the held for use approach, the asset or asset group to
be tested for impairment should represent the lowest level for which identifiable cash flows are largely independent
of the cash flows of other groups of assets and liabilities. We evaluate our long-lived assets whenever events or
circumstances suggest that the carrying amount of an asset or group of assets may not be recoverable. No
impairment was recognized during the years ended December 31, 2019 and 2018.
(i) Concentration of Risk
Concentration of credit risk with respect to accounts receivable is principally limited to certain customers to
whom we make substantial sales. To reduce risk, we routinely assess the financial strength of our customers and, as
a consequence, believe that our accounts receivable credit risk exposure is limited. We maintain an allowance for
potential credit losses when deemed necessary, but historically we have not experienced significant credit losses
related to an individual customer or groups of customers in any particular industry or geographic area. Sales to
significant customers that amounted to 10% or more of total product sales are detailed in the following table:
Company A
Company B
During the Years Ended
December 31,
2019
2018
42%
27%
43%
23%
Trade accounts receivable due from significant customers amounted to the percentages of total trade accounts
receivable as detailed in the following table:
Company B
Company A
Company C
* Amount is less than 10%.
(j) Interest Rate Swap Agreements
As of
December 31, 2019
As of
December 31, 2018
36%
35%
15%
48%
28%
*
All derivatives are recognized on the balance sheet at their fair value. We entered into interest rate swap
agreements in 2010 and 2015. On the dates the agreements were entered into, we designated the derivatives as
hedges of the variability of cash flows to be paid related to our long-term debt. The agreements have been
determined to be highly effective in hedging the variability of identified cash flows, so changes in the fair market
value of the interest rate swap agreements are recorded as comprehensive income (loss), until earnings are affected
by the variability of cash flows (e.g., when periodic settlements on a variable-rate asset or liability are recorded in
earnings). We formally documented the relationship between the interest rate swap agreements and the related
hedged items. We also formally assess, both at the interest rate swap agreements’ inception and on an ongoing basis,
whether the agreements are highly effective in offsetting changes in cash flow of hedged items. See Note 11.
(k) Revenue Recognition
For periods beginning on or after January 1, 2018, we recognize revenue in accordance with Accounting
Standards Codification (ASC) 606, Revenue from Contracts with Customers. ASC 606 is a single comprehensive
model for companies to use in accounting for revenue arising from contracts with customers. The core principle is that
we recognize the amount of revenue to which we expect to be entitled for the transfer of promised goods or services to
F-11
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
customers when a customer obtains control of promised goods or services in an amount that reflects the consideration we
expect to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature,
amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. We conduct our business
with customers through valid purchase orders or sales orders which are considered contracts and are not interdependent on
one another. A performance obligation is a promise in a contract to transfer a distinct product to the customer. The transaction
price is the amount of consideration we expect to receive under the arrangement. Revenue is measured based on consideration
specified in a contract with a customer. The transaction price of a contract is allocated to each distinct performance obligation
and recognized when or as the customer receives the benefit of the performance obligation. Product transaction prices on a
purchase or sale order are discrete and stand-alone. We recognize revenue when we satisfy a performance obligation in a
contract by transferring control over a product to a customer when product delivery occurs. Consideration is typically paid
approximately 30 days from the time control is transferred. Shipping and handling costs associated with outbound freight
after control over a product has transferred to a customer are accounted for as a fulfillment cost in costs of goods sold. We
have enhanced disclosures related to disaggregation of revenue sources and accounting policies prospectively as a result
of adopting these standards. We do not bill for or collect sales tax because our sales are generally made to distributors
and thus our sales to them are not subject to sales tax. We generally have experienced an immaterial amount of product
returns. See Note 14.
(l) Expense Recognition
In 2018, we adopted ASC 340-40, Accounting for Other Assets and Deferred Costs, which requires sales
commissions and other third party acquisition costs resulting directly from securing contracts with customers to be
recognized as an asset when incurred and to be expensed over the associated contract term or estimated customer life
depending on the nature of the underlying contract. We do not incur costs in connection with product sales to customers
that are eligible for capitalization. Advertising costs are expensed when incurred, which is generally during the month
in which the advertisement is published. Advertising expenses amounted to $58,483 and $28,415 during the years
ended December 31, 2019 and 2018, respectively. All product development expenses are expensed as incurred, as
are all related patent costs. We capitalize costs to produce inventory during the production cycle, and these costs are
charged to costs of goods sold when the inventory is sold to a customer. Adoption of the amended provisions of
ASC 340-40 did not have a material impact on our financial statements.
(m) Income Taxes
We account for income taxes in accordance with Codification Topic 740, Income Taxes, which requires that
we recognize a current tax liability or asset for current taxes payable or refundable and a deferred tax liability or
asset for the estimated future tax effects of temporary differences and carryforwards to the extent they are realizable.
During the second quarter of 2018, we assessed our historical and near-term future profitability and decided to
record $563,252 in non-cash income tax expense to create a full valuation allowance against our net deferred tax
assets (which consist largely of net operating loss carryforwards and federal and state tax credits). At that time, we
had incurred a net loss for six consecutive quarters, had not been profitable on a year-to-date basis since the nine-
month period ended September 30, 2017 and projected additional net losses for some period going forward before
returning to profitability. We consider future taxable income and feasible tax planning strategies in assessing the
need for a valuation allowance at each quarter end. If we determine that we would be able to realize our deferred tax
assets in the future in excess of the net recorded amount over a reasonably short period of time, a reduction of the
valuation allowance would increase income in the period such determination was made. Likewise, if we determine
that we would not be able to realize all or part of our net deferred tax asset in the future, an increase to the valuation
allowance would be charged to income in the period such determination was made.
Codification Topic 740-10 clarifies the accounting for income taxes by prescribing a minimum recognition
threshold that a tax position must meet before being recognized in the financial statements. In the ordinary course of
business, there are transactions and calculations where the ultimate tax outcome is uncertain. In addition, we are
subject to periodic audits and examinations by the Internal Revenue Service and other taxing authorities. With few
exceptions, we are no longer subject to income tax examinations by tax authorities for years before 2016. We have
evaluated the positions taken on our filed tax returns. We have concluded that no uncertain tax positions exist as of
December 31, 2019 or 2018. Although we believe that our estimates are reasonable, actual results could differ from
these estimates. See Note 17.
F-12
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
(n) Stock-Based Compensation
We account for stock-based compensation in accordance with Codification Topic 718, Compensation-Stock
Compensation, which generally requires us to recognize non-cash compensation expense for stock-based payments
using the fair-value-based method. The fair value of each stock option grant has been estimated on the date of grant
using the Black-Scholes option pricing model. Accordingly, we recorded compensation expense pertaining to stock-
based compensation of $313,144 and $344,016 during the years ended December 31, 2019 and 2018, respectively.
(o) Net Loss Per Common Share
Net loss per common share has been computed in accordance with Codification Topic 260-10, Earnings Per
Share. The net loss per share has been computed by dividing the net loss by the weighted average number of
common shares outstanding during the period. All stock options have been excluded from the denominator in the
calculation of dilutive earnings per share when we are in a loss position, as the inclusion would be anti-dilutive. The
weighted average number of shares outstanding was 6,818,960 and 5,486,154 during the years ended December 31,
2019 and 2018, respectively. Outstanding stock options that were not included in this calculation because the effect
would be anti-dilutive amounted to 388,500 and 394,000 as of December 31, 2019 and 2018, respectively.
(p) Use of Estimates
The preparation of financial statements in conformity with GAAP 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. Although we regularly assess these estimates, actual amounts could differ from those estimates. Changes in
estimates are recorded during the period in which they become known. Significant estimates include our inventory
valuation, valuation of goodwill and long-lived assets, valuation of deferred tax assets, accrued expenses, costs of
goods sold, and useful lives of intangible assets.
(q) New Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance in this ASU supersedes
the leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize lease assets
and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as
either finance or operating, with classification affecting the pattern of expense recognition in the income statement.
This ASU and its amendments became effective for fiscal years beginning after December 15, 2018, including in-
terim periods within those fiscal years. Early adoption was permitted. We elected to adopt this ASU effective January
1, 2019. In July 2018, the FASB issued ASU 2018-10, Codification improvements to Topic 842, Leases. The amend-
ments in ASU 2018-10 provide more clarification in regards to the application and requirements of Topic 842. In
July 2018, the FASB issued ASU 2018-11, Topic 842, Leases - Targeted improvements. The amendments in ASU
2018-11 provide for the option to adopt the standard prospectively and recognize a cumulative-effect adjustment to
the opening balance of retained earnings as well as offer a new practical expedient that allows us to elect, by class of
underlying asset, to not separate non-lease and lease components in certain circumstances and instead to account for
those components as a single item. Based on our current lease agreements and a review of all of our material vendor
relationships for potential embedded lease obligations, we have concluded that we are not subject to material lease obli-
gations as of December 31, 2019, and the adoption of Topic 842 did not have a material impact on our financial state-
ments as of January 1, 2019. The lease we entered into on September 12, 2019 to expand our production capacity for
the First Defense® product line with a Possession Date of November 15, 2019 and a Commencement Date of February
13, 2020 will be accounted for in accordance with Topic 842 during the first quarter of 2020.
In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718) Scope of
Modification Accounting to provide clarity and reduce both diversity in practice and cost complexity when applying
the guidance in Topic 718 to a change to the terms and conditions of a stock-based payment award. Topic 718 also
provides guidance about the types of changes to the terms or conditions of a share-based payment award that require
an entity to apply modification accounting in accordance with Topic 718. The standard is effective for interim and
annual reporting periods beginning after December 15, 2017, with early adoption permitted. We adopted this
guidance during the three-month period ended March 31, 2018. The adoption of this guidance did not have a
F-13
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
material impact on our financial statements.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted
Improvements to Accounting for Hedging Activities. The new guidance is intended to more closely align hedge
accounting with entities’ hedging strategies, simplify the application of hedge accounting and increase the
transparency of hedging programs. Topic 815 is effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years, with early adoption permitted. For cash flow and net investment
hedges existing at the date of adoption, Topic 815 must be applied through a cumulative-effect adjustment. The
amended presentation and disclosure guidance is required only prospectively. The adoption of Topic 815 did not
have a material impact on our financial statements as of January 1, 2019.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure
Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure
requirements of fair value measurements. Topic 820 is effective for fiscal years beginning after December 15, 2019,
and early adoption is permitted. The adoption of this guidance is not expected to have a material impact on our
financial statements.
3. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash, cash equivalents and short-term investments (at amortized cost plus accrued interest) consisted of the
following:
Cash and cash equivalents
Short-term investments
Total
As of
December 31, 2019
As of
December 31, 2018
$2,521,050
—
$2,521,050
$6,293,293
2,480,753
$8,774,046
Held to maturity securities (certificates of deposit) are carried at amortized cost. We are required by a bank
debt covenant to maintain at least $2,000,000 of otherwise unrestricted cash, cash equivalents and short-term
investments.
4. TRADE ACCOUNTS RECEIVABLE, net
Trade accounts receivable amounted to $1,637,165 and $932,298 as of December 31, 2019 and 2018,
respectively. No allowance for bad debt and product returns was recorded as of December 31, 2019 or 2018.
5. INVENTORY
Inventory consisted of the following:
Raw materials
Work-in-process
Finished goods
Total
F-14
As of
December 31, 2019
As of
December 31, 2018
$338,991
1,337,035
655,645
$2,331,671
$791,558
1,207,457
519,241
$2,518,256
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
6. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following:
As of
December 31, 2019
Prepaid expenses
Other receivables(1)
Security deposits
Total
As of
December 31, 2018
$142,528
493,289
-
$635,817
$218,232
40,534
800
$259,566
(1)
This amount as of December 31, 2018 includes $450,000 due from a third party for the sale of assets. See Note 15.
7. PROPERTY, PLANT AND EQUIPMENT, net
Property, plant and equipment consisted of the following:
Laboratory and manufacturing equipment
Building and improvements
Office furniture and equipment
Construction in progress
Land
Property, plant and equipment, gross
Accumulated depreciation
Property, plant and equipment, net
Estimated Useful
Lives
(in years)
3-10
10-39
3-10
n/a
n/a
As of
December 31, 2019
As of
December 31, 2018
$15,092,252
17,018,316
731,510
91,067
516,867
33,450,012
(7,422,463)
$26,027,549
$15,437,724
17,078,829
719,323
1,124,189
516,867
34,876,932
(9,611,194)
$25,265,738
As of December 31, 2019, construction in progress consisted principally of payments toward the First
Defense® production capacity expansion project and equipment needed to bring the aseptic filling for Re-Tain™ in-
house. As of December 31, 2018, construction in progress consisted principally of down payments towards two
pieces of manufacturing equipment. Approximately $62,055 and $22,681 of property, plant and equipment was
disposed of during the years ended December 31, 2019 and 2018, respectively. Depreciation expense was
$2,248,317 and $1,501,607 during the years ended December 31, 2019 and 2018, respectively.
8. BUSINESS ACQUISITION
On January 4, 2016, we acquired certain business assets and processes from DAY 1™ Technology, LLC of
Minnesota. The acquired rights and know-how are primarily related to formulating our bovine antibodies into a gel
solution (or paste) for an oral delivery option to newborn calves via a syringe (or tube). This product format offers
customers an alternative delivery option to the bolus (the standard delivery format of the bivalent First Defense®
product since first approval by the U.S. Department of Agriculture (USDA) and product launch in 1991). This gel
formulation had been sold as a feed product without disease claims since 2012. During the fourth quarter of 2018,
we achieved USDA approval of an improved bivalent gel formulation and began marketing this product as Dual-
Force First Defense®. We achieved Canadian approval of this product during the first quarter of 2019. We were
also interested in a gel formulation in anticipation of the launch of Tri-Shield First Defense® (which was approved
by the USDA during the fourth quarter of 2017) because the additional rotavirus antibodies in this new product
would not fit in a bolus full of E. coli and coronavirus antibodies. This purchase also included certain other related
private-label products. The total purchase price was approximately $532,000 (comprised of a $368,000 up front
payment, a $97,000 technology transfer payment and estimated royalty of $67,000). Actual royalties paid based on
sales from January 1, 2016 through December 31, 2018 were $36,000, and no further royalties are payable under
this agreement. The estimated fair values of the assets purchased in this transaction included inventory of
approximately $113,000, machinery and equipment of approximately $132,000, a developed technology intangible
of approximately $191,000 (which includes an immaterial amount of value associated with customer relationships
F-15
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
and a non-compete agreement, and was valued using the relief from royalty method) and goodwill of approximately
$96,000. The goodwill arising from the acquisition consists largely of the estimated value of anticipated growth
opportunities arising from synergies and efficiencies. The measurement period for the transaction was closed as of
June 30, 2016, and we continue to assess any impairment of these assets acquired in accordance with our policies.
9. INTANGIBLE ASSETS
The intangible assets described in Note 8 are being amortized to costs of goods sold over their useful lives,
which are estimated to be 10 years. Intangible amortization expense was $19,104 during both of the years ended
December 31, 2019 and 2018. The net value of these intangibles was $114,624 and $133,728 as of December 31,
2019 and 2018, respectively. A summary of intangible amortization expense estimated for the periods subsequent to
December 31, 2019 is as follows:
During the Years Ending December 31,
2020
2021
2022
2023
2024
2025
Total
Amount
19,104
19,104
19,104
19,104
19,104
19,104
$114,624
Intangible assets as of December 31, 2019 consisted of the following:
Developed technology
Customer relationships
Non-compete agreements
Total
Gross Carrying
Value
Accumulated
Amortization
$184,100
1,300
5,640
$191,040
($73,640)
(520)
(2,256)
($76,416)
Net Book
Value
$110,460
780
3,384
$114,624
Intangible assets as of December 31, 2018 consisted of the following:
Developed technology
Customer relationships
Non-compete agreements
Total
Gross Carrying
Value
Accumulated
Amortization
$184,100
1,300
5,640
$191,040
($55,230)
(390)
(1,692)
($57,312)
Net Book
Value
$128,870
910
3,948
$133,728
10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
Accounts payable – trade
Accounts payable – capital
Accrued payroll
Accrued professional fees
Accrued other
Total
F-16
As of
December 31, 2019
As of
December 31, 2018
$531,048
72,695
358,451
93,050
165,416
$1,220,660
$401,958
170,220
399,501
73,781
175,106
$1,220,566
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
11. BANK DEBT
We have in place five credit facilities and a line of credit with TD Bank N.A. These five credit facilities are
secured by substantially all of our assets and are subject to certain restrictions and financial covenants.
Proceeds from a $1,000,000 first mortgage on our corporate headquarters and production and research facility
at 56 Evergreen Drive in Portland (Loan #1) were received during the third quarter of 2010 with monthly principal
and interest payments due for ten years, calculated based on a fifteen-year amortization schedule. A balloon
principal payment of $451,885 will be due during the third quarter of 2020. As of December 31, 2019, $493,696 was
outstanding under Loan #1.
Proceeds from a $2,500,000 second mortgage on this corporate headquarters (Loan #2) were received during
the third quarter of 2015 with monthly principal and interest payments due for ten years, calculated based on a
twenty-year amortization schedule. A balloon principal payment of approximately $1,550,000 will be due during the
third quarter of 2025. As of December 31, 2019, $2,143,771 was outstanding under Loan #2.
We hedged our interest rate exposures on Loan #1 and Loan #2 with interest rate swap agreements that
effectively converted floating interest rates based on the one-month LIBOR plus a margin of 3.25% and 2.25% to
fixed rates of 6.04% and 4.38%, respectively. As of the debt principal repayment date immediately preceding
December 31, 2019, the variable rates on these two mortgage notes were 4.99% and 4.04%, respectively. All
derivatives are recognized on the balance sheet at their fair value. At the time of the closings and thereafter, the
agreements were determined to be highly effective in hedging the variability of the identified cash flows and have
been designated as cash flow hedges of the variability in the hedged interest payments. Changes in the fair value of
the interest rate swap agreements are recorded in other comprehensive income, net of taxes. The original notional
amounts of the interest rate swap agreements of $1,000,000 and $2,500,000 amortize in accordance with the
amortization of the mortgage notes. The notional amount of the interest rate swaps was $2,637,467 as of December
31, 2019. The fair values of the interest rate swaps have been determined using observable market-based inputs or
unobservable inputs that are corroborated by market data. Accordingly, the interest rate swaps are classified as level
2 within the fair value hierarchy provided in Codification Topic 820, Fair Value Measurements and Disclosures.
(Receipts) payments required by interest rate swaps
Other comprehensive (loss) income, net of taxes
During the Year
Ended December 31,
2019
($675)
($74,052)
2018
$9,581
$30,795
During the first quarter of 2016, we entered into two additional credit facilities (Loans #3 and #4) aggregating
up to approximately $4,500,000. As a result of loan amendments entered into during the first quarter of 2017, these
two credit facilities were increased to up to $6,500,000. Loan #3 is a construction loan of $3,940,000. As amended,
interest only was payable at a variable rate equal to the one-month LIBOR (adjusted at each monthly payment date)
plus a margin of 2.25% through September 2018, at which time the loan converted to a seven-year term loan facility
at the same variable interest rate (which was equal to 3.96% as of December 31, 2019) with monthly principal and
interest payments due based on a seven-year amortization schedule. As of December 31, 2019, $3,236,429 was
outstanding under Loan #3. Loan #4 is a construction loan of $2,560,000. As amended, interest only was payable at
a variable rate equal to the one-month LIBOR (adjusted at each monthly payment date) plus a margin of 2.25%
through March 2018, at which time the loan converted to a term loan facility at the same variable interest rate
(which was equal to 3.96% as of December 31, 2019) with monthly principal and interest payments due for ten
years, calculated based on a twenty-year amortization schedule. A balloon principal payment of approximately
$1,408,000 will be due during the first quarter of 2027. As of December 31, 2019, $2,336,000 was outstanding
under Loan #4.
Proceeds from a $340,000 first mortgage on our 4,114 square foot warehouse and cold storage facility near
our Re-Tain™ production facility (Loan #5) were received during the first quarter of 2017. This note bears interest
at a variable rate equal to the one-month LIBOR (adjusted at each monthly payment date) plus a margin of 2.25%
(which was equal to 4.01% as of December 31, 2019) with monthly principal and interest payments due for ten
F-17
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
years, calculated based on a twenty-year amortization schedule. A balloon principal payment of approximately
$206,000 will be due during the first quarter of 2027. As of December 31, 2019, $309,182 was outstanding under
Loan #5.
In connection with Loan #1 and Loan #2, we incurred debt issue costs of $26,489 and $34,125, respectively.
In connection with Loan #3, Loan #4 and Loan #5, we incurred total debt issue costs of $114,806. The 2017
amendments to Loan #3 and Loan #4 were accounted for as modifications. The amortization of debt issue costs is
being recorded as a component of interest expense, included with other expenses, net, and is being amortized over
the underlying terms of the respective credit facilities.
Debt proceeds received and principal repayments made during the years ended December 31, 2019 and 2018
are reflected in the following table by year and by loan:
Loan #1
Loan #2
Loan #3
Loan #4
Loan #5
Total
During the Year
Ended December 31, 2019
During the Year
Ended December 31, 2018
Proceeds from
Debt Issuance
Debt Principal
Repayments
Proceeds from Debt
Issuance
Debt Principal
Repayments
$—
—
—
—
—
$—
($68,908)
(89,997)
(562,857)
(128,000)
(11,585)
($861,347)
$—
—
426,499
267,141
—
$693,640
($64,876)
(86,097)
(140,714)
(96,000)
(10,621)
($398,308)
Principal payments (net of debt issue costs) due under bank loans outstanding as of December 31, 2019
(excluding our $500,000 line of credit) are reflected in the following table by the year that payments are due:
During the Years Ended December 31,
2020
$493,696
94,005
562,857
128,000
12,575
$1,291,133
2021
$—
98,538
562,857
128,000
13,088
$802,483
2022
$—
103,077
562,857
128,000
13,623
$807,557
Loan #1
Loan #2
Loan #3(1)
Loan #4(1)
Loan #5(2)
Subtotal
Debt Issuance Costs
Total
After
December 31,
2024
2023
2024
$—
107,769
562,857
128,000
14,180
$—
$—
1,627,759
112,623
422,144
562,857
1,696,000
128,000
240,956
14,760
$812,806 $818,240 $3,986,859
Total
$493,696
2,143,771
3,236,429
2,336,000
309,182
8,519,078
(97,612)
$8,421,466
(1)
(2)
These notes bear interest at a variable rate equal to the one-month LIBOR plus a margin of 2.25%. Figures in this table are
estimated using an interest rate of approximately 3.96%. The actual interest rate and principal payments will be different.
This note bears interest at a variable rate equal to the one-month LIBOR plus a margin of 2.25%. Figures in this table are
estimated using an interest rate of approximately 4.01%. The actual interest rate and principal payments will be different.
During the third quarter of 2010, we entered into a $500,000 line of credit with TD Bank N.A., which is
secured by substantially all of our assets and is subject to certain restrictions and financial covenants. This line of
credit has been renewed approximately annually since then, is available as needed and has been extended through
May 31, 2020. There was no outstanding balance under this line of credit as of December 31, 2019. As of December
31, 2018, $500,000 was outstanding under this line of credit, which was repaid during the first quarter of 2019.
Interest on borrowings against the line of credit is variable at the higher of 4.25% per annum or the one-month
LIBOR plus 3.5% per annum.
12. CONTINGENT LIABILITIES AND COMMITMENTS
Our bylaws, as amended, in effect provide that the Company will indemnify its officers and directors to the
maximum extent permitted by Delaware law. In addition, we make similar indemnity undertakings to each director
F-18
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
through a separate indemnification agreement with that director. The maximum payment that we may be required to
make under such provisions is theoretically unlimited and is impossible to determine. We maintain directors’ and
officers’ liability insurance, which may provide reimbursement to the Company for payments made to, or on behalf
of, officers and directors pursuant to the indemnification provisions. Our indemnification obligations were
grandfathered under the provisions of Codification Topic 460, Guarantees. Accordingly, we have recorded no
liability for such obligations as of December 31, 2019. Since our incorporation, we have had no occasion to make
any indemnification payment to any of our officers or directors for any reason.
The development, manufacturing and marketing of animal health care products entails an inherent risk that
liability claims will be asserted against us during the normal course of business. We are aware of no such claims
against us as of the date of this filing. We feel that we have reasonable levels of liability insurance to support our
operations.
We enter into agreements with third parties in the ordinary course of business under which we are obligated to
indemnify such third parties from and against various risks and losses. The precise terms of such indemnities vary
with the nature of the agreement. In many cases, we limit the maximum amount of our indemnification obligations,
but in some cases those obligations may be theoretically unlimited. We have not incurred material expenses in
discharging any of these indemnification obligations, and based on our analysis of the nature of the risks involved,
we believe that the fair value of the liabilities potentially arising under these agreements is minimal. Accordingly,
we have recorded no liabilities for such obligations as of December 31, 2019.
We are committed to purchasing certain key parts (syringes) and services (final formulation, aseptic filling and
final packaging of Drug Product) pertaining to Re-Tain™, our Nisin-based intramammary treatment of subclinical
mastitis in lactating dairy cows, exclusively from two contractors. We are investing in the necessary equipment to
perform the final formulation, aseptic filling and final packaging services in-house.
During the second quarter of 2009, we entered into an exclusive and perpetual (unless terminated for cause)
license with the Baylor College of Medicine covering the underlying rotavirus vaccine technology used to generate
the specific antibodies for our product line extension, Tri-Shield First Defense®. The license is subject to a royalty
equal to 4% of the sales of the First Defense® product line realized above the average of the sales of our bivalent
product line for the years ended December 31, 2016 and 2015, plus a growth assumption of 6%. Earned royalties due
are subject to annual minimums of $5,000, $10,000, $15,000, $20,000 and $25,000 for the years ending December
31, 2017, 2018, 2019, 2020, and 2021 (and thereafter), respectively. Royalties of $5,000 were accrued as of
December 31, 2017 and paid in January 2018. Royalties of $10,396 were accrued as of December 31, 2018 and paid
in January 2019. Royalties of $76,876 were accrued as of December 31, 2019 and paid in January 2020.
On September 12, 2019, we entered into a lease covering approximately 14,300 square feet of office and
warehouse space with a Possession Date of November 15, 2019 and a Commencement Date of February 13, 2020.
We are renovating this space to meet our needs in expanding our production capacity for the First Defense® product
line. The lease term is ten years with a right to renew for a second ten-year term and a right of first offer to purchase.
The total lease liability over the initial ten-year term (including inflationary adjustments) aggregates approximately
$1.3 million before real estate and personal property taxes, utilities, insurance, maintenance and related building and
operating expenses.
During the first quarter of 2020, we entered into a Severance Agreement with our President and CEO. Under
the terms of this agreement, we agreed to pay this executive (or his estate) nine months of his then current salary
plus any accrued and unused paid time off in the event of the involuntary termination of his employment by the
Company (except for cause) or in the event of termination by him for good reason.
In addition to the commitments discussed above, we had committed $2,318,000 to increase our production
capacity for the First Defense® product line, $1,245,000 to construct and equip our own formulation and aseptic
filling facility for Re-Tain™, $547,000 to the purchase of inventory and $145,000 to other obligations as of
December 31, 2019.
F-19
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
13. STOCKHOLDERS’ EQUITY
On October 28, 2015, we filed a registration statement on Form S-3 (File No. 333-207635) with the Securities
and Exchange Commission (SEC) for the potential issuance of up to $10,000,000 in equity securities (subject to
certain limitations). This registration statement became effective on November 10, 2015. Under this form of
registration statement, we were limited within a twelve-month period to raising gross proceeds of no more than one-
third of the market capitalization of our common stock (as determined by the high price of our common stock within
the preceding 60 days leading up to a sale of securities) held by non-affiliates (non-insiders) of the Company.
Having raised $10,000,000 in gross proceeds under the February 2016, July 2017 and December 2017 equity
transactions described below, no additional equity securities can be issued under this registration statement.
On February 3, 2016, we sold 1,123,810 shares of common stock at a price to the public of $5.25 per share in
an underwritten public offering pursuant to our effective shelf registration statement on Form S-3, raising gross
proceeds of approximately $5,900,000 and resulting in net proceeds to the Company of approximately $5,313,000
(after deducting underwriting discounts and offering expenses incurred in connection with the equity financing).
On October 21, 2016, we closed on a private placement of 659,880 shares of common stock to nineteen
institutional and accredited investors at $5.25 per share, raising gross proceeds of approximately $3,464,000 and
resulting in net proceeds to the Company of approximately $3,161,000 (after deducting placement agent fees and
other expenses incurred in connection with the equity financing).
On July 27, 2017, we issued 200,000 shares of our common stock at a price of $5.25 per share in a public,
registered sale to two related investors pursuant to our effective shelf registration statement on Form S-3, raising
gross proceeds of $1,050,000 and resulting in net proceeds of approximately $1,034,000 (after deducting expenses
incurred in connection with the equity financing).
On December 21, 2017, we sold 417,807 shares of common stock at a price to the public of $7.30 per share in
an underwritten public offering pursuant to our effective shelf registration statement on Form S-3, raising gross
proceeds of approximately $3,050,000 and resulting in net proceeds to the Company of approximately $2,734,000
(after deducting underwriting discounts and offering expenses incurred in connection with the equity financing).
On November 20, 2018, we filed a registration statement on Form S-3 (File No. 333-228479) with the Securities
and Exchange Commission (SEC) for the potential issuance of up to $20,000,000 in equity securities (subject to certain
limitations). This registration statement became effective on November 29, 2018. Under this form of registration
statement, we are limited within a twelve-month period to raising gross proceeds of no more than one-third of the market
capitalization of our common stock (as determined by the high price of our common stock within the preceding 60
days leading up to a sale of securities) held by non-affiliates (non-insiders) of the Company.
On March 29, 2019, we sold 1,636,364 shares of common stock at a price to the public of $5.50 per share in
an underwritten public offering pursuant to our effective shelf registration statement on Form S-3, raising gross
proceeds of approximately $9,000,000 and resulting in net proceeds to the Company of approximately $8,303,000
(after deducting underwriting discounts and offering expenses incurred in connection with the equity financing).
In June 2000, our stockholders approved the 2000 Stock Option and Incentive Plan (the “2000 Plan”) pursuant
to the provisions of the Internal Revenue Code of 1986, under which employees and certain service providers 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, 250,000 shares of common stock
were reserved for issuance under the 2000 Plan. The stockholders of the Company approved an increase in this
number to 500,000 shares in June 2001. All options granted under the 2000 Plan expire no later than ten years from
the date of grant. The 2000 Plan expired in February 2010, after which date no further options could be granted
under the 2000 Plan. As of December 31, 2019, no options were outstanding under the 2000 Plan.
In June 2010, our stockholders approved the 2010 Stock Option and Incentive Plan (the “2010 Plan”) pursuant
to the provisions of the Internal Revenue Code of 1986, under which employees and certain service providers may
F-20
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
be granted options to purchase shares of the Company’s common stock at no less than fair market value on the date
of grant. At that time, 300,000 shares of common stock were reserved for issuance under the 2010 Plan and
subsequently no additional shares have been reserved for the 2010 Plan. Vesting requirements are determined by the
Compensation and Stock Option Committee of the Board of Directors on a case by case basis. All options granted
under the 2010 Plan expire no later than ten years from the date of grant. The 2010 Plan expires in June 2020, after
which date no further options can be granted under the 2010 Plan. However, options outstanding under the 2010
Plan at that time can be exercised in accordance with their terms.
In June 2017, our stockholders approved the 2017 Stock Option and Incentive Plan (the “2017 Plan”) pursuant
to the provisions of the Internal Revenue Code of 1986, under which employees and certain service providers may
be granted options to purchase shares of the Company’s common stock at no less than fair market value on the date
of grant. At that time, 300,000 shares of common stock were reserved for issuance under the 2017 Plan and
subsequently no additional shares have been reserved for the 2017 Plan. Vesting requirements are determined by the
Compensation and Stock Option Committee of the Board of Directors on a case by case basis. All options granted
under the 2017 Plan expire no later than ten years from the date of grant. The 2017 Plan expires in March 2027, after
which date no further options can be granted under the 2017 Plan. However, options outstanding under the 2017
Plan at that time can be exercised in accordance with their terms.
Activity under the stock option plans described above was as follows:
2000 Plan
2010 Plan
2017 Plan
Weighted
Average
Exercise Price
Aggregate
Intrinsic
Value(1)
Outstanding at December 31, 2017
Grants
Terminations
Exercises
Outstanding at December 31, 2018
Grants
Terminations
Exercises
Outstanding at December 31, 2019
Vested at December 31, 2019
Vested and expected to vest at
December 31, 2019
Reserved for future grants
117,500
—
—
(105,000)
12,500
—
—
(12,500)
—
—
—
—
242,500
48,500
(19,000)
(2,000)
270,000
26,000
(26,000)
(15,000)
255,000
67,500
—
122,500
(11,000)
—
111,500
25,000
(3,000)
—
133,500
—
255,000
1,000
133,500
167,500
$266,020
$4.58 $1,513,980
$7.38
$6.63
$1.89
$6.37
$5.90
$6.05
$4.37
$6.48 ($516,475)
($65,890)
$6.13
$6.48 ($516,475)
(1)
Intrinsic value is the difference between the fair market value as of the date indicated and as of the date of the option grant.
The following table displays additional information about the stock option plans described above:
Non-vested stock options as of January 1, 2019
Non-vested stock options as of December 31, 2019
Stock options granted during the year ended December 31, 2019
Stock options that vested during the year ended December 31, 2019
Stock options that were forfeited during the year ended December 31,
2019
Weighted
Average
Fair Value at
Grant Date
Weighted
Average
Exercise
Price
Number of
Shares
334,000
321,000
51,000
36,000
$3.63
$3.49
$2.93
$4.10
29,000
$3.39
$6.64
$6.55
$5.90
$6.87
$6.05
F-21
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
During the year ended December 31, 2019, one director and two employees exercised stock options covering
27,500 shares by the surrender of 19,907 shares of common stock with a fair market value of $120,172 at the time of
exercise and the payment of $3 in cash. During the year ended December 31, 2018, seven employees exercised stock
options covering an aggregate of 107,000 shares, of which 51,500 of these shares were acquired for cash, resulting
in total proceeds of $96,240, and 55,500 of these shares were acquired by the surrender of 14,235 shares of common
stock with a fair market value of $105,785 at the time of exercise and the payment of $14 in cash.
The weighted average remaining life of the options outstanding under the 2010 Plan and the 2017 Plan as of
December 31, 2019 was approximately 6 years and 4 months. The weighted average remaining life of the options
exercisable under these plans as of December 31, 2019 was approximately 4 years and 10 months. The exercise
prices of the options outstanding as of December 31, 2019 ranged from $3.15 to $8.90 per share. The 51,000 stock
options granted during the year ended December 31, 2019 had exercise prices between $5.175 and $7.50 per share.
The 171,000 stock options granted during the year ended December 31, 2018 had exercise prices between $6.81 and
$8.43 per share. The aggregate intrinsic value of options exercised during 2019 and 2018 approximated $46,091 and
$582,590, respectively. The weighted-average grant date fair values of options granted during 2019 and 2018 were
$2.93 and $3.83 per share, respectively. As of December 31, 2019, total unrecognized stock-based compensation
related to non-vested stock options aggregated $386,887, which will be recognized over a weighted average period
of 1 year and 2 months. The fair value of each stock option grant has been estimated on the date of grant using the
Black-Scholes option pricing model, for the purpose discussed in Note 2(n), with the following weighted-average
assumptions for the years ended December 31, 2019 and 2018:
Risk-free interest rate
Dividend yield
Expected volatility
Expected life
During the Year Ended
December 31, 2019
1.9%
0%
51%
6 years
During the Year Ended
December 31, 2018
2.6%
0%
56%
5.4 years
The risk-free interest rate is based on U.S. Treasury yields for a maturity approximating the expected option
term, while the other assumptions are derived from averages of our historical data.
Common Stock Rights Plan
In September 1995, our Board of Directors adopted a Common Stock Rights Plan (the “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. 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 (as amended) become exercisable and transferable 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 20% 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 Distribution Date, the holder of each Right not owned by the Acquiring Person would be entitled to
purchase common stock at a discount to the initial purchase price of $70.00 per share, effectively equal to one half
of the market price of a share of common stock on the date the Acquiring Person becomes an Acquiring Person. 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
F-22
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
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 14 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 $0.005 per Right, subject to adjustment.
At various times over the years, our Board of Directors has voted to authorize amendments of the Rights
Agreement to extend the Final Expiration Date, which is currently September 19, 2022. Our Board of Directors also
has voted to authorize amendments to increase the ownership threshold for determining “Acquiring Person” status to
20%. During the second quarter of 2015, our Board of Directors also voted to authorize an amendment to remove a
provision that prevented a new group of directors elected following the emergence of an Acquiring Person (an owner of
more than 20% of our stock) from controlling the Rights Plan by maintaining exclusive authority over the Rights Plan
with pre-existing directors. We did this because such provisions have come to be viewed with disfavor by Delaware
courts. Each time that we made such amendments we entered into amendments to the Rights Agreement with the
Rights Agent reflecting such extensions, threshold increases or provision changes. No other changes have been made
to the terms of the Rights or the Rights Agreement.
At the June 14, 2018 Annual Meeting of Stockholders, our stockholders voted to approve an amendment to the
Company’s Certificate of Incorporation to increase the number of shares of common stock authorized for issuance
from 8,000,000 to 11,000,000.
14. REVENUE
We primarily offer the First Defense product line to dairy and beef producers to prevent scours in newborn
calves. Generally, our products are promoted to veterinarians and dairy and beef producers by our sales team and
then sold through distributors. Our primary market is North America. We do sell into select international regions and
may expand this international reach in the future. There were no material changes between the allocation and timing
of revenue recognition during the years ended December 31, 2019 or December 31, 2018 (under ASC 606). We do
not have any contract assets such as contracts for which we have satisfied the performance obligations but do not yet
have the right to bill for or contract liabilities such as customer advances. All trade receivables on our balance sheets
are from contracts with customers. We incur no material costs to obtain contracts.
The following table presents our product sales disaggregated by geographic area:
United States
Other
Total product sales
During the Years Ended December 31,
2019
$12,191,108
1,531,764
$13,722,872
2018
$9,559,142
1,427,155
$10,986,297
The following table presents our product sales disaggregated by major product category:
product line
First Defense
Other animal health
Other
Total product sales
During the Years Ended December 31,
2019
2018
$13,244,396
344,875
133,601
$13,722,872
$10,663,265
298,932
24,100
$10,986,297
F-23
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
15. GAIN ON SALE OF ASSETS
During the third quarter of 2018, we sold the assets underlying our water diagnostic product for $700,000.
This sale of assets was recognized as an operating activity at that time in accordance with ASC 610: Other Income
and ASC 810: Consolidation. An upfront payment of $250,000 was received upon closing, a second payment of
$250,000 was received during the third quarter of 2019 and a third payment of $200,000 was received during the
fourth quarter of 2019 (these latter two payments were recorded in prepaid expenses and other current assets as of
December 31, 2018).
16. OTHER EXPENSES, NET
Other expenses, net, consisted of the following:
Interest expense
Interest income
Other expenses, net
17. INCOME TAXES
During the Years Ended December 31,
2019
2018
$431,788
(118,283)
$313,505
$427,782
(14,301)
$413,481
Our income tax expense aggregated $28,174 and $461,620 (amounting to 2% and 25% of our loss before
income taxes, respectively) for the years ended December 31, 2019 and 2018, respectively. As of December 31,
2019, we had federal net operating loss carryforwards of $11,949,860 of which $10,237,953 does not expire and
$1,711,907 expires in 2034 through 2037 (if not utilized before then) and state net operating loss carryforwards of
$3,299,929 that expire in 2037 through 2038 (if not utilized before then). Additionally, we had federal general
business tax credit carryforwards of $434,838 that expire in 2027 through 2039 (if not utilized before then) and state
tax credit carryforwards of $763,350 that expire in 2023 through 2039 (if not utilized before then).
The provision for income taxes is determined using the asset and liability approach of accounting for income
taxes. Under this approach, deferred taxes represent the estimated future tax effects of temporary differences
between book and tax treatment of assets and liabilities and carryforwards to the extent they are realizable. During
the second quarter of 2018, we assessed our historical and near-term future profitability and recorded $563,252 in non-cash
income tax expense to create a full valuation allowance against our net deferred tax assets (which consist largely of net
operating loss carryforwards and federal and state credits) based on applicable accounting standards and practices. At that
time, we had incurred a net loss for six consecutive quarters, had not been profitable on a year-to-date basis since the nine-
month period ended September 30, 2017 and projected additional net losses for some period going forward before returning
to profitability. Should future profitability be realized at an adequate level, we would be able to release this valuation
allowance (resulting in a non-cash income tax benefit) and realize these deferred tax assets before they expire. We will
continue to assess the need for the valuation allowance at each quarter and, in the event that actual results differ from these
estimates, or we adjust these estimates in future periods, we may need to adjust our valuation allowance. No subsequent
adjustments were recorded.
Net operating loss carryforwards, credits, and other tax attributes are subject to review and possible
adjustment by the Internal Revenue Service. Section 382 of the Internal Revenue Code contains provisions that
could place annual limitations on the future utilization of net operating loss carryforwards and credits in the event of
a change in ownership of the Company, as defined.
The Company files income tax returns in the U.S. federal jurisdiction and several state jurisdictions. We
currently have no tax examinations in progress. We also have not paid additional taxes, interest or penalties as a
result of tax examinations nor do we have any unrecognized tax benefits for any of the periods in the accompanying
financial statements.
F-24
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
The income tax provision consisted of the following:
Current
Federal
State
Current subtotal
Deferred
Federal
State
Deferred subtotal, gross
Valuation allowance
Deferred subtotal, net
Income tax expense
During the Year Ended December 31,
2019
2018
$—
3,490
3,490
(240,458)
(31,205)
(271,663)
296,347
24,684
$28,174
$—
(820)
(820)
(274,495)
(504,072)
(778,567)
1,241,007
462,440
$461,620
The actual income tax expense differs from the expected tax computed by applying the U.S. federal corporate
tax rate of 21% to the loss before income taxes during the years ended December 31, 2019 and 2018 respectively, as
follows:
During the Year Ended December 31,
2019
2018
$
%
$
%
Computed expected income tax expense rate
State income taxes, net of federal expense
Share-based compensation
Tax credits
Valuation allowance
Other
Income tax expense/rate
($266,157)
(21,894)
37,811
(27,815)
296,347
9,882
$28,174
(21.00%)
(1.73)
2.98
(2.19)
23.38
0.78
2.22%
($390,610)
136,843
67,181
(602,813)
1,241,007
10,012
$461,620
(21.00%)
7.36
3.61
(32.41)
66.72
0.54
24.82%
The significant components of our deferred tax assets, net, consisted of the following:
Product rights
Property, plant and equipment
Federal general business tax credits
Federal net operating loss carryforwards
State tax credits carryover
Interest rate swaps
Prepaid expenses and other
UNICAP
Incentive compensation
Valuation allowance
Deferred tax assets, net
18. SEGMENT INFORMATION
As of December 31,
2019
$6,709
(2,306,435)
434,838
2,509,471
841,558
14,632
(12,070)
16,756
31,895
(1,537,354)
$—
2018
$14,226
(2,534,799)
407,023
2,486,263
845,967
(10,052)
13,354
19,025
—
(1,241,007)
$—
We principally operate in the business segment described in Note 1. Pursuant to Codification Topic 280,
Segment Reporting, we operate in one reportable business segment, that being the development, acquisition,
manufacture and sale of products that improve the health and productivity of dairy and beef cattle. Almost all of our
F-25
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
internally funded product development expenses are in support of such products. The significant accounting policies
of this segment are described in Note 2. Our single operating segment is defined as the component of our business
for which financial information is available and evaluated regularly by our chief operating decision-maker in
deciding how to allocate resources and in assessing performance. Our chief operating decision-maker is our
President and CEO.
Sales of the First Defense® product line aggregated 97% of our total product sales during the years ended
December 31, 2019 and 2018. Our primary customers for the majority of our product sales (89% and 87% during the
years ended December 31, 2019 and 2018, respectively) are in the U.S. dairy and beef industries. Product sales to
international customers, who are also in the dairy and beef industries, aggregated 10% and 13% of our total product
sales during the years ended December 31, 2019 and 2018, respectively.
19. RELATED PARTY TRANSACTIONS
Dr. David S. Tomsche (Chair of our Board of Directors) is a controlling owner of Leedstone Inc., a domestic
distributor of ImmuCell products (the First Defense product line and CMT), and of J-t Enterprises of Melrose, Inc.,
an exporter. His affiliated companies purchased $490,323 and $527,819 of products from us during the years ended
December 31, 2019 and 2018, respectively, on terms consistent with those offered to other distributors of similar
status. We made marketing-related payments of $975 and $12,380 to these affiliated companies during the years
ended December 31, 2019 and 2018, respectively, that were expensed as incurred. Our accounts receivable (subject
to standard and customary payment terms) due from these affiliated companies aggregated $0 and $16,283 as of
December 31, 2019 and 2018, respectively.
20. EMPLOYEE BENEFITS
We have a 401(k) savings plan (the Plan) in which all employees completing one month of service with the
Company are eligible to participate. Participants may contribute up to the maximum amount allowed by the Internal
Revenue Service. We currently match 100% of the first 3% of each employee’s salary that is contributed to the Plan
and 50% of the next 2% of each employee’s salary that is contributed to the Plan. Under this matching plan, we paid
$126,638 and $104,843 into the plan for the years ended December 31, 2019 and 2018, respectively.
21. SUBSEQUENT EVENTS
We have evaluated subsequent events through the time of filing on March 27, 2020, the date we have issued
this Annual Report on Form 10-K. The global coronavirus pandemic has created a great deal of uncertainty since
December 31, 2019. We could experience product shortages, backlogs and production slowdowns due to difficulties
accessing needed supplies and labor and other restrictions affecting our ability to consistently deliver our products to
market. On March 11, 2020, we closed on a debt financing with Gorham Savings Bank aggregating $8,600,000 and
a $1,000,000 line of credit. The debt is comprised of a $5,100,000 mortgage note that bears interest at a fixed rate of
3.50% per annum (with a 10-year term and 25-year amortization schedule) and a $3,500,000 note that bears interest
at a fixed rate of 3.50% per annum (with a 7-year term and amortization schedule). The line of credit bears interest
at a variable rate equal to the one (1) month LIBOR plus 2.15% per annum. The proceeds were used to repay all
bank debt outstanding at the time of closing (see Note 11) and to provide some additional working capital. We were
required by a bank debt covenant (before the debt refinancing discussed above) to maintain at least $2 million of
otherwise unrestricted cash, cash equivalents and short-term investments. Under the new debt, we are required to
hold $1.4 million in escrow (a non-current asset), which reduces the effective availability of our liquid assets for
operational needs by that amount. This debt is secured by liens on substantially all of our assets. As of the time of
filing on March 27, 2020, there were no other material, reportable subsequent events.
F-26
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.
Signatures
ImmuCell Corporation
Registrant
Date: March 27, 2020
By: /s/ Michael F. Brigham
Michael F. Brigham President, Chief Executive Officer and
Principal Financial Officer
POWER OF ATTORNEY
We, the undersigned directors 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 re-substitution, 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.
In accordance with the Exchange Act, 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, 2020
By: /s/ Michael F. Brigham
Michael F. Brigham
President, Chief Executive Officer,
Principal Financial Officer and Director
Date: March 23, 2020
By: /s/ Bobbi Jo Brockmann
Bobbi Jo Brockmann, Vice President of Sales
and Marketing and Director
Date: March 23, 2020
Date: March 23, 2020
Date: March 23, 2020
Date: March 23, 2020
Date: March 23, 2020
By: /s/ David S. Cunningham
David S. Cunningham, Director
By: /s/ Steven T. Rosgen
Steven T. Rosgen, Director
By: /s/ Jonathan E. Rothschild
Jonathan E. Rothschild, Director
By: /s/ David S. Tomsche
David S. Tomsche, DVM, Director
By: /s/ Paul R. Wainman
Paul R. Wainman, Director
EXHIBIT 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statements (Nos. 333-214641 and 333-
228479) on Form S-3 and the Registration Statements (Nos. 333-02631, 333-65514, 333-167721 and 333-237428)
on Form S-8 of ImmuCell Corporation of our report dated March 27, 2020, relating to the financial statements of
ImmuCell Corporation, appearing in this Annual Report on Form 10-K of ImmuCell Corporation for the year ended
December 31, 2019.
/s/ WIPFLI LLP
South Portland, Maine
March 27, 2020
EXHIBIT 23.2
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statements (Nos. 333-214641 and 333-
228479) on Form S-3 and the Registration Statements (Nos. 333-02631, 333-65514, 333-167721 and 333-237428)
on Form S-8 of ImmuCell Corporation of our report dated March 22, 2019, relating to the financial statements of
ImmuCell Corporation, appearing in this Annual Report on Form 10-K of ImmuCell Corporation for the year ended
December 31, 2019.
/s/ RSM US LLP
Boston, Massachusetts
March 27, 2020
EXHIBIT 31
CERTIFICATIONS REQUIRED BY RULE 13a-14(a)
I, Michael F. Brigham, certify that:
1. I have reviewed this Annual Report on Form 10-K of ImmuCell Corporation (the Company);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the Company as
of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under my supervision, to ensure that material information relating to the Company is made known to me
by others within the Company, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this
report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) disclosed in this report any change in the Company’s internal control over financial reporting that occurred
during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over
financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the
Company’s auditors and the audit committee of the Company’s Board of Directors (or persons performing the
equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant
role in the Company’s internal control over financial reporting.
Date: March 27, 2020
/s/ Michael F. Brigham
Michael F. Brigham
President, Chief Executive Officer and Principal Financial Officer
EXHIBIT 32
CERTIFICATION REQUIRED BY SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of ImmuCell Corporation (the “Company”) for the
period ended December 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, Michael F. Brigham, President, Chief Executive Officer and Principal Financial Officer of the
Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities
Exchange Act of 1934, as amended (the Exchange Act); and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition,
results of operations and cash flows of the Company.
This certification is provided pursuant to 18 U.S.C. Section 1350 and Item 601(b)(32) of Regulation S-K (Item
601(b)(32)) promulgated under the Securities Act of 1933, as amended (the Securities Act), and the Exchange Act.
In accordance with clause (ii) of Item 601(b)(32), this certification (A) shall not be deemed “filed” for the purposes
of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and (B) shall not be deemed
to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that
the Company specifically incorporates it by reference.
/s/ Michael F. Brigham
Michael F. Brigham
President, Chief Executive Officer and Principal Financial Officer
March 27, 2020
A signed original of this written statement required by Section 906 has been provided to ImmuCell Corporation
and will be retained by ImmuCell Corporation and furnished to the Securities and Exchange Commission or its staff
upon request.