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, 2022
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 offices)
01-0382980
(I.R.S. Employer
Identification No.)
04103
(Zip Code)
(207) 878-2770
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common Stock, $0.10 par value per share
ICCC
Nasdaq
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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit 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
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of
its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. Yes No
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that require a recovery analysis of incentive-based
compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
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, 2022 was approximately
$64,443,000 based on the closing sales price on June 30, 2022 of $8.69 per share.
The number of shares of the registrant’s common stock outstanding as of March 10, 2023 was 7,746,864.
Documents incorporated by reference: Portions of the registrant’s definitive Proxy Statement to be filed in connection with the 2023
Annual Meeting of Stockholders are incorporated by reference into Part III hereof.
ImmuCell Corporation
TABLE OF CONTENTS
December 31, 2022
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 Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities…………………………………………………………..
ITEM 6
[Reserved]………………………………………………………………………………..
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………………………………………………………………………..
ITEM 9C
ITEM 10
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections…….…………….
PART III
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
ITEM 15
Principal Accountant Fees and Services………………………………………………...
PART IV
Exhibits and Financial Statement Schedules...……………………...…………………...
ITEM 16
Form 10-K Summary…………………………………………….……………….……...
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38
Audited Financial Statements…………………………………………………………… F-1 to F-25
Signatures
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 the Private Securities
Litigation Reform Act of 1995, as amended. Forward-looking statements can be identified by the fact that they do not relate strictly to
historical or current facts, and will often include words such as “expects”, “may”, “anticipates”, “aims”, “intends”, “would”, “could”,
“should”, “will”, “plans”, “believes”, “estimates”, “targets”, “projects”, “forecasts”, “seeks” and similar words and expressions. Such
statements include, but are not limited to, any forward-looking 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; future demand for our products; the extent, nature and duration of the COVID-19 pandemic and its
consequences, and their direct and indirect impacts on our production activities, operating results and financial condition and on the
customers and markets that we serve; the impact of Russia’s military invasion of Ukraine and attack on its people on the world
economy including inflation and the price and availability of grain and oil; the impact of the global supply-chain disruptions on our
ability to obtain, in a timely and cost-effective fashion, all the supplies and components we need to produce our products; the impact
of inflation and rising interest rates on our operating expenses and financial results; 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 and producers’ level of interest in treating subclinical mastitis given the current economic and
market conditions; 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 per unit; the 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 impacts of backlogs on customer relationships; the efficacy or
timeline to complete our contamination remediation efforts; the likelihood, severity or impact of future contamination events; 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 robustness of our manufacturing processes and related technical issues; estimates about our production capacity,
efficiency and yield; future regulatory requirements relating to our products; future expense ratios and margins; the efficacy of our
investments in our business; future compliance with bank debt covenants; anticipated changes in our manufacturing capabilities and
efficiencies; our effectiveness in competing against competitors within both our existing and our anticipated product markets;
projections about depreciation expense and its impact on income for book and tax return purposes; and any other statements that are
not historical facts. These statements are intended to provide management's current expectation of future events as of the date of this
earnings release, are based on management's estimates, projections, beliefs and assumptions as of the date hereof; and are not
guarantees of future performance. Such statements involve known and unknown risks and uncertainties that may cause the Company's
actual results, financial or operational performance or achievements to be materially different from those expressed or implied by
these forward-looking statements, 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 (including the consequences of backlogs),
uncertainty associated with the timing and volume of customer orders as we come out of a prolonged backlog, adverse impacts of
supply chain disruptions on our operations and customer and supplier relationships, commercial and operational risks relating to our
current and planned expansion of production capacity, and other risks and uncertainties 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 on Form 10-K and uncertainties otherwise referred to in this Annual Report. In addition,
there can be no assurance that future risks, uncertainties or developments affecting us will be those that we anticipate. We undertake
no obligation to update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a
result of new information, future developments or otherwise.
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. We support the dairy and beef industries’ purpose to produce nutritious proteins
efficiently while ensuring food quality and safety. Our products help address the growing human health concern about using less
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ImmuCell Corporation
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®, a novel 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 achieved FDA approval for four out of five of the
significant Technical Sections required for product approval, and we are preparing to make a third submission of the fifth Technical
Section. 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.
From the first quarter of 2016 through the second quarter of 2021, we issued an aggregate of 4,553,017 shares of common stock,
raising gross proceeds of approximately $26.7 million in six separate transactions. 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. Net of debt issuance costs, we had approximately $10.2 million in outstanding debt under five
different credit facilities as of December 31, 2022 compared to approximately $9.1 million as of December 31, 2021. This new equity
and debt capital has been, and is being, used to increase the production capacity for the First Defense® product line and complete the
development of Re-Tain® without relying on funding from a partner or licensee, thereby keeping control over all product rights and
future revenues.
During the past seven years, we have funded our operations, constructed an FDA regulated Drug Substance manufacturing
facility for Re-Tain® and invested capital to increase our production capacity for the First Defense® product line. We have also
initiated another capital investment to bring the formulation and aseptic filling capabilities for Re-Tain® in house in order to end our
present reliance on an outside contractor. The following table displays the changes in the balances of certain accounts over this period
(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,
2022
2015
$ (Decrease)
Increase
Over
S e v e n -
Year Period
% (Decrease)
Increase
Over
Seven-
Year Period
$5,792
$10,923
$44,861
$30,380
$47,256
7,747
$6,524
$7,056
$14,601
$10,614
$23,035
3,055
($733)
$3,867
$30,260
$19,766
$24,221
4,692
(11%)
55%
207%
186%
105%
154%
(1) Additionally, there were approximately 605,000 and 238,000 shares of common stock reserved for issuance under stock options that were
outstanding as of December 31, 2022 and 2015, respectively.
Production Capacity Increase and Product Contamination
During 2018, it became clear that demand for Tri-Shield First Defense® was outpacing production. In response to this
increasing demand, we began a series of investments during 2019 to increase our production capacity for the First Defense® product
line to approximately $30 million per year. The necessary facility expansions and new equipment needed to increase production
capacity were in place by the end of 2022. See PART I: ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, “Liquidity and Capital Resources”, for more detail about our
production capacity.
Unfortunately, as this increased production capacity was coming online, a product contamination event was detected by standard
in-process quality control testing around the end of the third quarter of 2022. Contamination events during 2022 (largely this one
around the end of the third quarter) resulted in a total charge to costs of goods sold of approximately $588,000. We took immediate
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ImmuCell Corporation
steps to address the contamination, and production ran without issue during the balance of the fourth quarter of 2022. Then during the
first quarter of 2023 our standard in-process quality control testing detected a second contamination event. The related charge to costs
of goods sold during the first quarter of 2023 is expected to be up to approximately $200,000, of which approximately $114,000 worth
of product remains under evaluation. In response, we have slowed down our production output as we take the necessary steps to assess
and remediate the issues and perform a deep sanitization of our facilities and process equipment to ensure that any product that is put
to market meets all quality standards. We believe that the ongoing implementation of our capacity expansion plans and the corrective
actions being taken in response to these contamination events should allow us to operate at the higher level of production output going
forward without further significant contaminations. We are working diligently to address the situation and believe we are taking the
appropriate steps to emerge from this problem stronger with the production capacity in place to produce approximately $30 million of
product per year going forward.
This production slowdown during the first quarter of 2023, has, in part, caused an increase in the amount of our order backlog
from approximately $2.5 million as of December 31, 2022 to approximately $8 million as of March 10, 2023. However, we do not
believe this backlog number is highly relevant anymore as it includes very old orders, redundancy in demand and orders that may be
cancelled. We expect to report reduced sales during the first quarter of 2023 and a large backlog as of March 31, 2023. We are on
track to produce approximately $3.2 million to $3.4 million of product during the first quarter of 2023, which is approximately 56%
less than our $7.5 million quarterly production target. While this is less than we need, our remediation efforts are beginning to work as
we cautiously come back into production. Due to the loss in earned gross margin that is being incurred during the first quarter of 2023,
we have made the decision to defer, for the time being, completion of the incremental planned investment to increase our production
capacity further to approximately $40 million per year.
The increase in sales demand for First Defense® is both exciting and challenging for us. One view is that we are operating with
short supply caused largely by contamination events on the First Defense® side, while not yet achieving FDA approval of Re-Tain®.
However, the other view is that we are approaching both approximately $30 million in annual production capacity for First Defense®
(with a flex option to get to approximately $40 million per year in the future) while also advancing to the final stages of a very
significant FDA product development initiative.
Animal Health Products
The First Defense® product line is manufactured from hyperimmunized 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 pre-formed antibody products provide
Immediate Immunity™ during the first few critical weeks of life when calves need this protection most. Studies have shown 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. Our capsule
format of this product, which requires no mixing, is stored at room temperature. The gel tube formats of this product require
refrigeration in accordance with product label indications. We are the market leader (in terms of both unit volume and dollar sales)
when compared to other calf-level scours preventatives and have greater market potential as we gain market share from the dam-level
(pre-calving scour vaccines) competitors. The third quarter of 2021 marked the 30th anniversary of the original USDA approval of this
product in 1991. During the third quarter of 2022, our cumulative sales of First Defense® since inception exceeded 30 million doses.
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, which is the leading cause of death in preweaned calves. Our Beyond Vaccination®
marketing campaign focuses on providing antibodies without vaccination. A 100% vaccine protection rate is biologically impossible.
The First Defense® product line removes the variability associated with a scour vaccine response and instead provides a measured
level of pre-formed antibodies, protecting each calf with an equal level of scours protection. There is a strong link between how we
sell our product and the challenges we face in producing it. We know better than 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 by standardizing the antibody content, as needed, so the newborn is given a steady, equal level of protection with each
dose. 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. Plus, an
effectively treated calf is much less likely to require expensive antibiotic treatments and build antibiotic resistance. We are the only
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manufacturer within the scour prevention space offering polyclonal multi-pathogen antibodies. The market is learning that the best
preventative for scours may not be a vaccine, and we are continuing to educate the market about the health benefits of a measured
dose of pre-formed antibodies.
The 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 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 rotavirus antibodies in a single-dose gel tube delivery
format. This unique breadth of claims further differentiates our product from calf-level competitive products on the market that contain
only one or two of these label claims. The unique virus-like particle (VLP) technology that is used in our production process increases
rotavirus titers in colostrum to a level much greater than traditional vaccine technology can. Because it is possible that some farms may
not have (or perceive to have) a rotavirus problem, we are continuing to sell the bivalent formats of the First Defense product line as
options for customers.
Historically, the most common tool to help combat scours has been to vaccinate the mother cow (dam) with a scours vaccine and
deliver the antibodies that she produces in her milk to the 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 vaccine
programs are not always followed, leaving even more calves compromised. We are competing effectively against these dam-level
vaccine products. Our marketing campaign, Beyond Vaccination, emphasizes that by delivering Immediate Immunity™ directly to
the calf via the First Defense product line, producers can reduce stress-causing injections to the cow. 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, 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.
Preventing newborn calves from becoming sick helps them to reach their genetic potential and reduces the need to use treatment
antibiotics later in life. 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 to invest in additional sales and marketing efforts to help us introduce the expanding First
Defense® product line to new customers. Our communications campaign 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.
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. 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.
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 acquired private label
manufacturing rights covering a feed supplement product sold by Genex Cooperative, Inc. of Shawano, Wisconsin. This product was
discontinued by mutual agreement during the first quarter of 2022. Annual sales of this private label product were less than $170,000
during each of the years ended December 31, 2021 and 2020.
Sales and Markets
Our sales and marketing team consists of one vice president, one commercial research and technical services veterinarian, one
commercial leader of stakeholder engagement, one director of marketing and customer service and eight regional sales managers. 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. 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
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ImmuCell Corporation
industry in which operations generally calve year round. 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. 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. Despite the market volatility affecting both milk prices and feed costs, we expect to continue to
increase our sales over the long term (despite a drop in 2022).
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 $27.9 million per year. With the additional claim for our new product (Tri-
Shield First Defense®) against rotavirus, we are now also 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 covers approximately twice as many calves as the calf-level product
segment reaches. We estimate that the total domestic addressable market (both calf and dam levels) is approximately $74.5 million per
year.
Based on market share information that we purchase from the leading source of this data for the animal health sector, we are
gaining market share in the United States year after year. We aim to continue these market share gains in both the dairy and beef
segments. Our share of the market (calculated on the basis of calves treated) of the scour preventative products administered at the
calf-level was approximately:
2018
34%
2019
36%
2020
41%
2021
43%
2022
44%
Our share of the market (calculated on the basis of calves treated) of both products administered at the calf-level and vaccines
administered to the dam prior to calving (adjusting for two doses of dam-level scour vaccines required for primary vaccination of first-
calf heifers) was approximately:
2018
10.3%
2019
11%
2020
12.6%
2021
13.2%
2022
14.4%
We continue our efforts to grow sales of the First Defense® product line in North America, where there are approximately 40
million dairy and beef cows in the United States and approximately 4.5 million dairy and beef cows in Canada. We believe that
significant market opportunities exist in other international territories. 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. 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. We are working with Medexx to expand our business in South Korea to
include the registration of Tri-Shield First Defense®. 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, California during the fourth quarter of 2016 (sales have been initiated under this contract). We are
investigating the requirements to sell the First Defense® product line in Mexico, Pakistan and Israel.
With Re-Tain®, we are working to expand our product portfolio to include an intramammary infusion for the treatment of
subclinical mastitis in lactating dairy cows. Mastitis is inflammation of the mammary gland typically associated with a bacterial
infection. It is estimated to cost the U.S. dairy industry approximately $2 billion in economic harm per year. It is the most costly and
common disease affecting the dairy industry. This illness is categorized as either clinical mastitis or subclinical mastitis. Clinical
mastitis infections cause visibly abnormal milk which cannot be sold. On the other hand, subclinical mastitis infections do not cause
any visible changes in milk or udder appearance, making it difficult to detect. Most mastitis cases treated today are those that reach the
clinical stage even though it is understood that clinical cases are only the tip of the mastitis iceberg. Milk from cows with subclinical
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ImmuCell Corporation
mastitis can still be sold if not treated with traditional antibiotics. Milk from cows treated with traditional antibiotics must be discarded
for the duration of the treatment and for 1.5 to 4 days after the last treatment, depending on the antibiotic that was used. The cost of
that milk discard along with the stress and risk in moving the cow to the hospital pen is thought to be the primary reasons more
subclinical mastitis cases are not treated today. However, the cascade of negative events triggered by subclinical mastitis for both the
dairy producer and the milk processor are significant. These include lower milk production (some have estimated approximately 1,500
pounds of lost milk, or about $270 at $18.00 per hundredweight per infected cow per lactation), higher rates of clinical mastitis, lower
conception rates, increased abortions, increased cull rates, reduced or foregone milk quality premiums, shorter shelf life for fluid milk,
and both lower yields and less flavor for cheese. Cows with subclinical mastitis maintain a reservoir of infection within the herd and
increase exposure of healthy cows to contagious pathogens. Subclinical mastitis also increases the risk of various quality defects on a
variety of final dairy products.
The active ingredient in Re-Tain® is pharmaceutical-grade Nisin-A. FDA approval for this drug would establish an entirely new
class of anti-infective that is different from those currently available to treat mastitis. This new class, called bacteriocins, are anti-
microbial polypeptides with no resistance risk for human health. Bacteriocins selectively target Gram+ bacteria, the same bacteria that
commonly cause mastitis. We expect Re-Tain® will be the first FDA-approved intramammary treatment for subclinical mastitis
without a milk discard or meat withhold. This gives us the opportunity to revolutionize the way mastitis is treated, since Re-Tain® is
specifically designed to treat ahead of clinical signs without a milk discard and, as a result, cows can reach their peak milk production
and not be sent to the hospital pen.
Re-Tain® likely will be priced at a premium to the traditional antibiotic products currently on the market, which are all sold
subject to a milk discard requirement. We estimate that the approximate cost to the U.S. dairy industry of this discarded milk may be
around $300 million per year. These high milk discard costs associated with traditional antibiotic treatments lead producers to only
treat mastitis after clinical signs develop. The Re-Tain® label will be for subclinical mastitis (not clinical). Without a milk discard
cost, we expect producers to be more motivated to identify and treat cows at the subclinical stage. 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.
It is difficult to accurately estimate the potential size of the subclinical mastitis market because presently this disease is largely
left untreated. We believe that approximately 20% to 40% of the U.S. dairy herd is infected with subclinical mastitis at any given time.
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. Rarely is an industry revolutionized overnight. Getting producers to change protocols to
make subclinical mastitis treatment a standard and routine procedure is going to take initiative, but we believe producers are eager for
something new and better since the FDA has not approved an intramammary treatment within the last 20 years. Similar market
opportunities are likely to exist outside the United States. We believe the use of Re-Tain® could be expanded, with additional data and
regulatory approval, to support treatment late in lactation and possibly for clinical stage mastitis. We also believe there may be a
market for Re-Tain® in small ruminants, where the majority of mastitis cases are caused by strep-like organisms aligned with our
effectiveness data.
Based on consultations with industry experts and key opinion leaders, we have opted to carefully control the launch of this novel
product over the first 18 to 24 months after FDA approval, as we seek to transform the way that mastitis is treated in the dairy industry
over the long term. Our goal is to help early adopters select treatment candidates, develop easy to use protocols, optimize treatment
results and realize a positive return on their investment. We intend to limit initial distribution of Re-Tain® to a level that enables our
sales team to select the optimal dairy farms at which to introduce Re-Tain® and to limit the initial numbers of participating farms so
that the desired levels of support and guidance relating to effective usage of Re-Tain® can be provided with our available resources.
Our overarching objective is to minimize the risk of early stage unsatisfactory outcomes that could harm the longer term prospects and
market acceptance of Re-Tain®. This strategy also reduces the amount of inventory that we would need to build at risk before
regulatory approval is achieved, and it reduces the amount of cash we would need to spend to purchase inventory from our contract
manufacturer before our in-house aseptic filling services are approved by the FDA. This strategic choice means that we have elected
not to pursue an alternative strategy that might have maximized short-term, initial sales quickly through a mass market approach
where we provide product to distribution and let them sell it to as many farms as possible. While we are dedicated to increasing our
sales revenue, we must consider the damage a mass market strategy could cause to the long-term value of the product. We have seen
products sold by much larger companies that were substantially damaged by such failed market launch strategies. We continue to
develop detailed launch plans, focusing on the readiness of dairy operators to successfully introduce Re-Tain® to their herds. We
believe that these prudent steps, while potentially leading to lower initial Re-Tain® revenues, may create a smooth and successful
launch and could safeguard the longer term performance of our investment in Re-Tain®.
Because Nisin is a naturally occurring bacteriocin that is not used in human medicines, it could alleviate some of the social and
public health concerns that the widespread use of antibiotics encourages the growth of antibiotic-resistant bacteria. For example, there
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is a fear that the possible overuse of antibiotics in livestock undermines the effectiveness of these 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 has expressed a commitment 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. By reducing the risk of antibiotic residues and slowing the
development of antibiotic-resistant organisms, we believe that we can improve food quality and preserve medically important
antibiotics for human disease treatment. This current environment is 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 to use treatment antibiotics later in a calf’s life.
In the big picture, we are introducing an entirely new class of antimicrobials as an animal drug, a bacteriocin, that does not
promote resistance against antibiotics used in human medicine, making it more socially responsible. As the great NHL hockey player,
Wayne Gretzky, is known to have said, “I skate to where the puck is going to be, not where it has been.” This is motivational to us.
We believe our product fits very well with where the industry is going to be in the coming years. Sustainability objectives of the
industry require that less antibiotics be used in food producing animals, yet a new product to treat mastitis has not been developed in
years (other than new formulations of the same old stuff). The over-use of antibiotics that are medically important to human healthcare
is a growing concern of our society and an active issue with the FDA, largely because of the growing evidence that this over-use
contributes to antibiotic resistance. The industry could keep treating this very significant disease with traditional antibiotics, but it
takes innovation to bring a bacteriocin like Nisin to market. Re-Tain® will, when introduced, offer a needed alternative to these
traditional antibiotics. We believe that societal animal welfare objectives will put more and more pressure on the industry to treat cows
with subclinical infections.
We expect the Drug Substance production facility that we constructed for approximately $20.8 million to have initial annual
production capacity sufficient to meet at least $10 million in sales of Re-Tain® at current production yields. This production capacity
estimate does not yet reflect any inventory build strategies or ongoing yield improvement initiatives. Expansion of the estimated
annual capacity of the Drug Substance facility beyond approximately $10 million (without factoring in potential yield improvements)
would 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 or adopting alternative manufacturing strategies.
In an effort to provide greater visibility into the launch of Re-Tain®, we have expanded Note 17, “Segment Information”, to the
accompanying audited financial statements to now display a break-out of our financial results among the following three components
of our business: i) Scours, ii) Mastitis and iii) Other. This will allow investors to see our progress with both product lines. We
generally do not provide financial projections, as we know such projections can prove to be materially inaccurate. However, in this
case, we are providing a high-level projection for Re-Tain® that under our controlled launch plan strategy, we estimate that we can
achieve sales of approximately $1 million in 2024 and then achieve approximately twice that in 2025. This assumes FDA approval is
achieved and that product launch is initiated around the end of 2023. If we are successful with this launch strategy, we would aim to
grow this curve in 2026 and after. We believe this strategy lends itself to a more gradual adoption curve but higher and more
sustainable sales over the long-term. Actual sales results will vary from these projections up or down.
Through continued growth in sales of the First Defense® product line, and as additional resources are dedicated to production,
sales, marketing and technical services, it is our objective to exceed our total product sales of approximately $19 million achieved
during the year ended December 31, 2022 as soon as possible. Our longer-term goal is to exceed $35 million of annual total product
sales as soon as possible during the five-year period after the market launch of Re-Tain®.
Product Development
Most 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 23-year period that began on January 1, 2000 and ended on December 31, 2022, we
invested an aggregate of approximately $25.2 million (excluding depreciation and the capital cost of our Drug Substance production
facility) in the development of this product. This estimation 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.
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.
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Food-grade Nisin, however, cannot be used in pharmaceutical applications because of its low purity. A much less pure preparation of our
active ingredient, Nisin, is commonly used as a food preservative and has been given “Generally Regarded as Safe” (GRAS) status by
the FDA. Our Nisin technology includes patented processing and purification methods to achieve pharmaceutical-grade purity.
During 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 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. Among the measures that
we intend to deploy will be detailed guidance on limiting the portion of a herd that is treated with Re-Tain® at any one time in order to
avoid concentration levels in the milk that could lead to the rejection of the contents in a cheese tank.
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.
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 a perpetual, exclusive license with the Baylor College of Medicine covering the underlying rotavirus vaccine
technology used to generate the specific antibodies for use with animals. 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 as Dual-Force First
Defense®. We are currently working to establish USDA claims for our bivalent bulk powder formulation of First Defense Technology®.
We are also working to expand our product development pipeline of antimicrobials that can be used as alternatives to traditional
antibiotics through expansions of our Nisin technology and yield improvements. 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.
Our Nisin A 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, the First
Defense® product line is the only calf-level product that provides protection against E. coli, coronavirus and rotavirus, three of the
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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 and Calf-Guard® carry claims against
coronavirus and rotavirus infections, but this competing 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 or health 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 competing 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 had discontinued the manufacture of its competing products, Bovine Ecolizer® and
Bovine Ecolizer + C20, and subsequently exited the market during the first quarter of 2021. This product was the smallest of our three
significant calf-level competitors. During the first quarter of 2023, we learned that some of our dam-level scour competitors were tight
in supply and may not be able to meet all of their marketing demand.
When compared to the other USDA-approved calf-level scours preventatives, we lead in both sales dollars and calves treated
within the U.S. market. This product category is comprised of the three primary brands discussed above that are given either orally or
intranasally to newborn dairy and beef calves immediately after birth. With the 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.
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 and effectively produce and market proprietary technologies and products. We need to obtain USDA, FDA or
foreign approvals for new products to effectively promote and market our products. We must have available properly licensed,
efficient and effective raw material and finished product manufacturing resources to continue to profitably sell our current products.
We currently compete on the basis of product performance, price, distribution capability and customer support. We continue to
monitor our network of independent distributors to maintain our competitive position.
Intellectual Property
We own a broad collection of registered and unregistered intellectual property rights relating to our research, products and
processes. These rights include 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 proprietary strain of L. lactis is an
essential component of our intellectual property covering Re-Tain®. We enter into and rely on confidentiality and proprietary rights
agreements with our employees, contractors and business partners to protect our trade secrets, proprietary developments and
confidential information.
We own: (a) U.S. Patent No. 6,794,181 entitled “Method of Purifying Lantibiotics”, which covers a manufacturing 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 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
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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.
ImmuCell Corporation
We own numerous trademarks and trade dress that are very important to our business and have several trademark and trade dress
registrations in the United States, Canada and Iran. 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 RE-TAIN. We also own U.S. registrations claiming rights in the color
blue for our blue gel and blue bolus FIRST DEFENSE products. The United States Patent and Trademark Office refused registration
of our IMMEDIATE IMMUNITY trademark, which we use 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 as we do with
other brands from time to time. 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 Re-Tain® 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 competing 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 74 employees (including 7 part-time employees) in comparison to 67 employees (including 7 part-time
employees) approximately a year ago. Approximately 48.4 full-time equivalent employees are engaged in quality and manufacturing
operations, 13.5 full-time equivalent employees in sales and marketing, 6.7 full-time equivalent employees in product development
activities (primarily supporting facility maintenance and operation, regulatory filings and commercial scale-up for Re-Tain®) and 5.4
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, respectively. 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.
ITEM 1A— RISK FACTORS
Financial Risks
Gross margin on product sales: One of our goals is to achieve a gross margin (before related depreciation expenses) as a
percentage of total sales approaching 50% after the initial launch of new products. Depreciation expense 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 for Re-Tain®. Many factors discussed in this report (including inflation and the COVID-
related and other cost increases, supply-chain disruptions and the rising price of oil and other commodities and supplies) impact our
costs of goods sold. There is a risk (which was experienced during 2022) that we are not able to achieve our gross margin goals, which
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would adversely affect our operating results and could impact our future operating plans. There is a risk that our plans to maintain or
improve our gross margin may not be realized due to cost increases, additional manufacturing contamination events, the inability to
raise our selling prices, or any combination of these factors.
Exposure to interest rates and debt service obligations: 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, which could indirectly, but materially
and adversely, affect our business. We removed the direct aspect of this particular exposure to our business by refinancing our bank
debt with fixed rate notes at 3.50% per annum during the first quarter of 2020. The $2 million in additional mortgage debt we secured
during the first quarter of 2022 bears interest at the fixed rate of 3.58% per annum. The two State of Maine loans aggregating
$900,000 bear interest at the fixed rate of 5% per annum. Increasing interest rates would negatively impact the cost of any future
borrowings. The additional debt we incurred to fund our growth objectives has significantly increased our total debt service costs. We
are obligated to make principal and interest payments aggregating approximately $1.4 million during both of the years ending
December 31, 2023 and 2024. See Note 10 to the accompanying audited financial statements for more details about our debt. A
decline in sales or gross margin, coupled with this debt service burden, could impair our ability to fund our capital and operating needs
and objectives.
Debt covenants: Our bank debt is subject to certain financial covenants. We are required to meet a minimum debt service
coverage (DSC) ratio of 1.35, which is measured annually. Our actual DSC ratios were 0.44, 2.68 and 2.03 for the years ended
December 31, 2022, 2021 and 2020, respectively. There can be no assurance that we can exceed that required level in subsequent
years. By negotiation with the bank in connection with a mortgage debt financing during the first quarter of 2022, the required
minimum DSC ratio was reduced to 1.0 for the year ending December 31, 2022. Subsequently, our bank waived the required
compliance with this rate for the year ended December 31, 2022. During the first quarter of 2023, the DSC ratio covenant for the year
ending December 31, 2023 was waived by our bank. Instead, we are required to meet a minimum DSC ratio requirement of 1.35 for
the twelve-month periods ending June 30, 2024, September 30, 2024 and December 31, 2024 and then again annually after that. If we
are unable to achieve the required DSC ratio going forward or reach a favorable agreement with our bank regarding that requirement
(including an amendment to or waiver of such requirement), we would be in violation of that covenant, which could result in
unfavorable amendments to the terms of our bank debt or have other adverse impacts on our business and results of operations.
Currency exchange fluctuation: We do not believe that currency exchange rates have had a significant effect on our revenues
and expenses. However, future increases in 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. The current devaluation of the dollar makes Euro-based purchases more expensive for us.
Inflation: Inflation is having a material and adverse impact on almost all supplies we purchase and labor we hire and retain.
Continuing or increasing inflationary trends could materially reduce our gross margin on product sales if we are unable or unwilling to
impose offsetting price increases on our customers. According to the Consumer Price Index for All Urban Consumers (CPI-U) during
the year ended December 31, 2022, the all items index increased 6.5% before seasonal adjustment.
Projection of net (loss) income: 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 deeper operating losses. The timing of FDA approval of Re-Tain® will have a
material impact on our net (loss) income until sufficient commercial sales are generated and sustained.
Risks associated with our funding strategy for Re-Tain®: The inability to maintain adequate cash and liquidity to support the
commercialization of Re-Tain® is a risk to our business. Achieving FDA approval of our pharmaceutical-grade Nisin produced at
commercial-scale is the most critical action remaining in front of us on our path to U.S. regulatory approval of Re-Tain®. Having
completed the construction and equipping of the Drug Substance 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 until
commercialization. Absent sufficient sales of Re-Tain® at a profitable gross margin, we would be required to fund all debt service
costs from available cash and 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 based on our experience and understanding of market dynamics but is
inherently subjective. Estimating the size of the market for any new product, such as Re-Tain®, involves more uncertainties than do
projections for established products. We do not know whether, or to what extent, our products will achieve, maintain or increase
market acceptance and profitability. Some of the uncertainties surrounding Re-Tain® include the product’s effectiveness against
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currently prevalent pathogens, market acceptance, the effect of a premium selling price on market penetration, cost of manufacture,
competition from new and existing products sold by substantially larger competitors with greater market reach and promotional
resources and other risks described under “Product Risks” – “Sales risks pertaining to Re-Tain®” below. Since Re-Tain® is a novel
approach to treating mastitis, there are many uncertainties with regards to how quickly and to what extent we can develop the
subclinical mastitis treatment market. We believe that polypeptide antimicrobial technology may be viewed positively (relative to
traditional antibiotics). If realized, this may offset some of these risks and result in better overall market acceptance.
Net deferred tax assets: The realizability of our net deferred tax assets is a subjective estimate that is contingent 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 actual and projected profitability in the future. We will continue to
assess the need for the valuation allowance each quarter.
Product Risks
Product risks generally: We set objectives for our products that we believe we can achieve, but the achievement of such goals is
not a certainty. 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 products 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 lower margins and/or an order backlog that could adversely affect our customer relationships and operating results.
First Defense® is sold, and we expect Re-Tain® to be sold, at significant price premiums relative to competitive products. There is no
assurance that we will continue to achieve market acceptance of the First Defense® product line, or achieve and sustain market
acceptance of Re-Tain®, 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. As we bring Re-Tain® to market, these risks could be
heightened by the additional uncertainties associated with introducing a new product requiring a shift in customer behavior.
Contamination events in our production process: Around the end of the third quarter of 2022 and during the first quarter of
2023, we experienced certain contamination events in our production process. We are at risk of further such production
contaminations resulting in more scrapped inventory if we do not achieve an adequate level of sanitization and quality controls in our
production process from farms to finished goods. These risks could result in a slowdown or shutdown of our production capacity if not
managed effectively.
Sales risks pertaining to Re-Tain®: Actual or prospective Re-Tain® customers may decide to discontinue, reduce or avoid usage
of Re-Tain® due to the following risks:
1) A rejection of a tank of milk by a positive milk inhibitor test because too much of the milk in a bulk tank is comprised of milk
from cows being treated with Re-Tain®, when tested randomly for inhibitors by a milk hauler.
2) A failed or stalled cheese tank occurs when our recommended on-farm limit of 3% to 5% of milk from cows being treated
with Re-Tain® is exceeded or not effectively diluted through the milk transportation and collection system, if a cheese starter culture
is used that is susceptible to Nisin.
3) Producers’ current practice generally is to treat only clinical mastitis, which has the visual indicator of abnormal milk. In
order to gain market penetration for Re-Tain®, we will need to change that practice and increase awareness of the importance of
treating subclinical disease. This will require the producers’ ability and willingness to diagnose without visual indicators. Users of Re-
Tain® could have unsatisfactory treatment outcomes if they lack the equipment needed to measure and monitor somatic cell counts
(SCC) of the herd or individual cows (for which data is needed). This risk limits our access to treatment cows because about 40% of
farms do not presently access this kind of testing at the cow level, and thus are not good candidates for the use of Re-Tain®.
4) Lower than anticipated treatment cure rates could be experienced because the product is administered to cows that we would
not identify as the best treatment candidates based on SCC data.
5) Lower than anticipated treatment cure rates could be experienced because the product is administered to cows that are
infected with pathogens outside of our label claims.
6) Off-label use of our product in cows infected with clinical mastitis before we have run the required studies and achieved a
label claim extension for this disease state, resulting in negative treatment outcomes.
7) Producers either do not choose to use it or might use it improperly, rather than follow our label instructions to administer one
dose after each of three consecutive milkings, or they may limit use within the herd in an abundance of caution to avoid the negative
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outcomes described above.
ImmuCell Corporation
Reliance on sales of the First Defense® product line: We are 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 years ended December 31,
2012, 2013, 2015 and 2016, during the nine-month periods ended September 30, 2017 or during the three-month periods ended March
31, 2019, December 31, 2020, June 30, 2021, September 30, 2021, December 31, 2021 and March 31, 2022 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 99% and 98% of our total product sales during the
years ended December 31, 2022 and 2021, respectively. Our primary customers for the majority of our product sales (92% and 86%
during the years ended December 31, 2022 and 2021, 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 8% and 14% of our total product sales during the
years ended December 31, 2022 and 2021, respectively. The concentration of our sales from one product into just two markets (the
dairy and beef markets) 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 (73% during both of the
years ended December 31, 2022 and 2021) was made to two large distributors. A large portion of our trade accounts receivable (69%
and 72% as of December 31, 2022 and 2021, respectively) was due from these two distributors. We have a good history with these
distributors, 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.
Production capacity constraints: We invested approximately $3.7 million from 2019 to the first quarter of 2022 to increase our
production capacity (in terms of annual sales dollars) for the First Defense® product line from approximately $16.5 million to
approximately $23 million based on current selling prices and estimated production yields. During the fourth quarter of 2021, we
reached this new, higher level of production output on an annualized basis. While this capacity expansion investment has proceeded
very close to budget, there is a risk of cost overruns in our ongoing projects and any future production expansions that we may
undertake, and a risk that we will not be able to achieve our production capacity growth objectives on a timely basis, resulting in a
continuing or increasing shortfall in supply to the market. The inability to meet market demand for our products is a risk to our business.
The historically large backlog of orders, as well as any ongoing order backlog, presents a risk that we could lose customers during this
period that are not easily regained thereafter, when our production capacity is expected to meet or exceed sales demand. During 2021,
we initiated three additional investments aggregating approximately $4.7 million to increase our annual production capacity for the
First Defense® product line to approximately $30 million, which we completed at the end of 2022. We are making initial plans and
investments to further increase our production capacity in 2024 and after. Our plan to continue to expand the First Defense® product
line requires ongoing review of equipment capacity and utilization across the manufacturing value stream at the 56 Evergreen Drive
facility and our leased facility at 175 Industrial Way, as well as assessment of functional obsolescence and reliability of equipment. This
review and assessment could identify a need to fund unexpected equipment maintenance or replacement costs.
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 market. 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 Risks
Regulatory requirements for the First Defense® product line: First Defense® is sold in the United States subject 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 a result, our operations are subject to periodic inspection by the USDA, and we are at risk of an
unfavorable outcome from such inspections. The potency of serial lots is directly traceable to the original serial used to obtain the
product performance claims (the Reference Standard). Due to the unique nature of the 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. Territories outside of the United States may require additional regulatory oversight
that we may not be able to meet with our current facilities, processes and resources.
Regulatory requirements for Re-Tain®: The commercial introduction of this product in the United States requires 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 regulatory development process timeline has been extensive (approximately 15 years from
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ImmuCell Corporation
when the product rights were returned to us by a former partner in 2007) and has involved multiple commercial production strategies and
multiple submissions of the Chemistry, Manufacturing and Controls (CMC) Technical Section. Most recently, we received an Incomplete
Letter from the FDA regarding this CMC Technical Section during the third quarter of 2022. The principal issue remaining is a successful
pre-approval re-inspection of our manufacturing facility. We are completing preparations for this re-inspection. This clarifies the required
path to product approval. To reduce the risk associated with this process, we are working with a qualified contract manufacturer
(Norbrook) for alignment of the required validations and Drug Product manufacture and have met with the FDA to clarify filing strategy
and requirements. Our CMC Technical Section submission will be subject to a statutory six-month review period by the FDA. We believe
we can successfully complete the pre-approval re-inspection inside of this time frame. However, our efforts continue to be subject to
inspection and approval by the FDA and other factors outside of our control, and there remains a risk that the required FDA approvals
of our product and facilities could be delayed or not obtained. International regulatory approvals would be required for sales of Re-Tain®
outside of the United States, and there is a risk that these approvals would be or become too costly to pursue or be delayed or not
obtained. Sales in these international territories would also be subject to milk discard and meat withhold restrictions, thereby reducing the
competitive advantage of Re-Tain® in those territories.
Economic Risks Pertaining to the Dairy and Beef Industries
The industry data referred to below is compiled from USDA databases.
Cattle count: 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, reaching 94,800,000 as of January 1, 2019 before
declining to 93,800,000 as of both January 1, 2020 and January 1, 2021. This count continued to decline to 92,100,000 and to
89,300,000 as of January 1, 2022 and 2023, respectively. Reflecting seasonal trends, this figure was equal to 102,000,000,
101,000,000 and 98,800,000 as of July 1, 2020, 2021 and 2022, respectively. A significant decline in the cattle count could negatively
affect the size of our addressable market.
Herd size: Prior to 1957, there were over 20,000,000 cows in the U.S. dairy herd. Prior to 1986, there were over 10,000,000
cows in the U.S. dairy herd. From 1998 through 2021, the size (annual average) of the U.S. dairy herd ranged from approximately the low
of 9,011,000 in 2004 to the high of 9,448,000 in 2021. This average declined to 9,402,000 during the year ended December 31, 2022. A
significant decline in the herd size could negatively affect the size of our addressable market.
Milk cow price: 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 $1,205 during 2019 before increasing to $1,300 during 2020 and to $1,363 during 2021. This price
for 2022 increased significantly to an average of $1,598, which is a 17% increase over 2021. This price as of January 2023 increased
by another 8% to $1,720. A significant decline in the milk cow price could negatively affect the size of our addressable market.
Milk price: The dairy market, similar to many others, has been unstable for several reasons including as a result of the pandemic.
The price paid to producers for milk has been very volatile. This market volatility, and the resulting impact on our primary end users,
could negatively impact our ability to maintain and grow sales at a profitable level. 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), which price level has never been repeated. During the year ended
December 31, 2020, this average milk price was equal to $18.16, but it was extremely volatile during the year due largely to disruption in
demand related to the COVID-19 pandemic. The one-month fluctuation of 73% from a low of $12.14 in May 2020 to $21.04 in June 2020
set an all-time record for variability. The average price for 2021 decreased by 6% to $17.08. This price average increased by 29% to $21.96
during the year ended December 31, 2022. The average price decreased by 15% to $18.61 during the first two months of 2023. The annual
fluctuations in this milk price level are demonstrated in the following table:
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ImmuCell Corporation
Average Class III Milk Price During
the Years Ended December 31,
(Decrease)
Increase
2014
2015
2016
2017
2018
2019
2020
2021
2022
$22.34
$15.80
$14.87
$16.17
$14.61
$16.96
$18.16
$17.08
$21.96
(29%)
(6%)
9%
(10%)
16%
7%
(6%)
29%
Feed Costs: 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. An increase in
feed costs also has a negative impact on the beef industry and therefore could have a resulting negative impact on our business and results
of operations. This ratio varies farm-to-farm based on individual operating parameters. Since this ratio reached 3.24 in 2005, it has not
exceeded 3.00. This ratio averaged 1.74 for 2021, amounting to a significant decline of 25% from the 2020 average of 2.32. This
average has not been lower since 2012. During 2022, this ratio improved by 10% to 1.92. This ratio dropped to 1.73 in January 2023.
The following table demonstrates the annual volatility and the low values of this ratio recently:
Average Milk-To-Feed Price Ratio During
the Years Ended December 31,
(Decrease)
Increase
2014
2015
2016
2017
2018
2019
2020
2021
2022
2.54
2.14
2.26
2.42
2.05
2.25
2.32
1.74
1.92
(16%)
6%
7%
(15%)
10%
3%
(25%)
10%
Market volatility: 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. 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® and Re-Tain®) into the dairy market.
Small Size of Company
Dependence on key personnel: We are a small company with 74 employees (including 7 part-time employees). As such, we rely
on certain key employees to support multiple operational functions, with limited redundancy in capacity. The loss of any of these key
employees could adversely affect our operations until a qualified replacement is hired and trained, which could be even more
challenging in the present very difficult labor market. Our competitive position will be highly influenced by our ability to attract, retain
and motivate key scientific, manufacturing, managerial and sales and marketing personnel. We will require increased staffing levels to
operate our expanded First Defense® production capacity and to operate our Re-Tain® production facility. The cost of attracting and
retaining the needed additional personnel in this current job market and inflationary environment could adversely affect our margins and
profitability.
Reliance on outside party to provide certain services under contract for us: We are exposed to additional regulatory compliance
risks through the subcontractors that we choose to work with to produce Re-Tain®, who also need to satisfy certain regulatory
requirements in order to provide us with the products and services we need. One example of this outside reliance is Norbrook, our Drug
Product (DP) contract manufacturer. Because Norbrook has elected to terminate its supply agreement with us effective as of the end of
2022 (with final deliveries anticipated during the middle of 2023), we are investing approximately $4 million to construct and equip our
own DP formulation and aseptic filling capability for Re-Tain® inside our existing Drug Substance facility. Due to the loss in gross
margin during the first quarter of 2023 caused by the slowdown in production output necessary to remediate a product contamination
event, we have decided to defer spending of approximately 42% of these funds for the time being. We face the risk of potential supply
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ImmuCell Corporation
interruption and adverse effects on the market launch of Re-Tain® if we do not effectively manage the end of the DP supply provided
from our contract manufacturer for orders scheduled for delivery during the second half of 2023 (with product expiries during the second
half of 2025) to align with the new supply from our own formulation and aseptic filling facility, which we currently expect to be
operational during 2025. The objective of this investment is to end our reliance on an outside party to perform these services for us.
Actual project costs could exceed our current estimates. Completion of this project could be delayed due to a number of factors outside
our control, including delays in equipment fabrication, equipment delivery or facility construction. In addition, there is a risk that we fail
to achieve regulatory approval of the new facility or that such approval is delayed or requires significant additional expenditures to
obtain.
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®, 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. Elanco, Merck and Zoetis provide these dam vaccine products to the market. There are many companies competing in the
mastitis treatment market, most notably Boehringer Ingelheim, Merck and Zoetis. The subclinical mastitis products sold by these large
companies are well established in the market and are priced lower than what we expect for Re-Tain®, 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 (unlike our
product which carries zero milk discard and zero milk withhold claims). 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.
Global Risks
Impact of global COVID-19 pandemic and Russia’s unprovoked military invasion of Ukraine: We are facing significant
production constraints, supply disruptions and inflationary increases which appear to have been caused, in large part directly or
indirectly, by the pandemic and Russia’s unprovoked military invasion of Ukraine. The extent and duration of the negative impact of
the pandemic on the economics of our customers and on the demand for our products going forward are very difficult to assess. The
dairy market, similar to many others, has been unstable as a result of the pandemic. The price paid to producers for milk has been very
volatile. The Class III milk price has been extremely volatile during the pandemic. Initially, stay at home orders disrupted the food
service supply system as schools closed and restaurants were shut down. In response, producers were forced to reduce the supply of
milk to the market by drying off cows early, culling cows from the herd and dumping milk, among other tactics. Market conditions
have improved somewhat, but this volatility remains a concern. Additionally, like most input costs, the cost of grain and other feed is
rising, which puts a strain on the profitability of our customers. There is also economic uncertainty for beef producers, as the supply
chain is interrupted or otherwise adversely affected due to closures of processing plants and reduced throughput. This is a very
unusual situation for farmers that work so hard to improve production quality and efficiency in order to help feed a growing
population with high-quality and cost-effective proteins. The pandemic has created risk and continues to create uncertainty and
challenges for us. The emergence of the Delta and Omicron variants and the resulting rising number of positive cases during the latter
part of 2021 and into 2022 has been a more recent concern. The pandemic has created or contributed to global supply-chain
disruptions and has affected international trade, while creating a worldwide health and economic crisis. While presently there are some
indications that suggest the situation may be improving, the full impact of this viral outbreak on the global economy, and the duration
of such impact, remains very uncertain at this time. Stock market valuations have declined and recovered somewhat but remain very
volatile. Inflation has increased significantly, and tax rates may increase. There is a risk of a period of economic downturn, the
severity and duration of which are difficult to know. Prior to the pandemic and the responsive federal economic stimulus programs,
many feared the United States had taken on too much national debt. Now the debt load is significantly higher. A combination of the
conditions, trends and concerns summarized above could have a corresponding negative effect on our business and operations,
including the supply of the colostrum we purchase to produce our First Defense® product line, the demand for our products in the
U.S. market and our ability to penetrate or maintain a profitable presence in international markets. We are experiencing shortages in
key components and needed products, backlogs and production slowdowns due to difficulties accessing needed supplies and labor and
other restrictions which increase our costs and affect our ability to consistently deliver our products to market in a timely manner. Our
exposure to this risk is mitigated to some extent by the fact that our supply chain is not heavily dependent on foreign manufacturers,
by our on-going cross-training of our employees, by qualifying alternate suppliers and components and by our early and continued
compliance with recommended hygiene. Despite our best efforts and intentions, there is a risk that an employee could become infected
and could infect others. Russia’s unprovoked military invasion of Ukraine and attack on its people is having a significant negative
impact on the world economy, worsening trends that were already moving in an unfavorable direction. Among other exposures, the
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ImmuCell Corporation
increasing price of oil is already impacting our transportation-related expenses materially, and we expect this supply stress to increase
the cost of petroleum-based products that we purchase (mostly plastics).
Climate change: Our business, and our activities and the activities of our customers and suppliers, could be disrupted by climate
change. Potential physical risks from climate change may include altered distribution and intensity of rainfall, prolonged droughts or
flooding, increased frequency of wildfires and other natural disasters, rising sea levels, and a rising heat index, any of which could
cause negative impacts to our and our customers’ and suppliers’ businesses. Increased temperatures and rising water levels may
negatively impact our dairy and beef livestock customers by increasing the prevalence of parasites and diseases that affect food
animals. The physical changes caused by climate change may also prompt changes in regulations or consumer preferences which in
turn could have negative consequences for our and our customers’ businesses. Climate change may negatively impact our customers’
operations, through climate-related impacts such as increased air and water temperatures, rising water levels and increased incidence
of disease in livestock. In addition, concerns regarding greenhouse gas emissions and other potential environmental impacts of
livestock production have led to some consumers opting to limit or avoid consuming animal products. If such events affect our
customers’ businesses, they may purchase fewer of our products, and our revenues may be negatively impacted. Climate driven
changes could have a material adverse impact on the financial performance of our business and on our customers. In addition,
increased frequency of natural disasters and adverse weather conditions may disrupt our manufacturing processes or our supply chain.
These disruptions may have a material adverse effect on our business, financial condition, results of operations and/or cash flows.
Bovine diseases: The potential for epidemics of bovine diseases such as Foot and Mouth Disease, Bovine Tuberculosis,
Brucellosis and Bovine Spongiform Encephalopathy (BSE) presents a risk to us and our customers. Documented 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.
Risks Pertaining to Common Stock
Stock market valuation and liquidity: Our common stock trades on The Nasdaq Stock Market (Nasdaq: ICCC). Our average
daily trading volume (which was approximately 6,612 shares per day during the 20-day period ended March 10, 2023) is lower, our
bid/ask stock price spread can be larger and our share price can be more volatile than what other companies experience, which could
result in investors facing difficulty selling their stock for proceeds that they may expect or desire. Our share price as of March 10,
2023 was $5.49. Most companies in the animal health sector have market capitalization values that greatly exceed our current market
capitalization of approximately $43 million as of March 10, 2023. Our product sales during the year ended December 31, 2022 were
approximately $19 million. This means that our market valuation as of March 10, 2023 was equal to approximately 2 times our sales
during the year ended December 31, 2022. 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 product under development and may therefore be negatively
affected by the related uncertainties and risks.
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 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, potentially
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 corporation 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.
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ImmuCell Corporation
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.
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 to access the capital markets again 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.
Other Risks
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, we are experiencing 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. A significant reduction in farm capacity 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 will be dependent on one manufacturer for the supply of syringes for Re-Tain®. We
are currently dependent on a contract with Norbrook for the Drug Product (DP) formulation and aseptic filling of our Nisin DP for
orders scheduled for delivery during the second half of 2023. The facility we are constructing to perform these services in-house will be
subject to FDA inspection and approval, the outcome and timing of which are not within our control. We expect to achieve FDA
approval for use of our DP facility during 2025. 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 issues
or non-compliance) would adversely affect the production of inventory and result in significant added expenses and potential loss of
future sales.
Failure to protect intellectual property: The protection and enforcement of our intellectual property rights may require the
expenditure of significant financial, managerial and operational resources. We rely on trademark, copyright and patent law, trade secret
protection, agreements and other methods with our employees and others to protect our proprietary rights. However, we may be unable
to adequately protect our intellectual property rights or prevent third parties from infringing or misappropriating our intellectual
property rights. We may not be able to obtain registration for all intellectual property we seek to register, and effective intellectual
property protection may not be available in every country in which our products are sold. 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 maintain the confidentiality of any relevant proprietary technology through trade secrets, operational safeguards and contractual
agreements. Reliance upon trade secret, rather than patent, protection may cause us to be vulnerable to competitors who successfully
replicate (knock off) our manufacturing techniques and processes. Further, our confidentiality agreements may not effectively prevent
disclosure of our proprietary information, technologies and processes and may not provide an adequate remedy in the event of
unauthorized disclosure of such information. Others may independently develop similar trade secrets or technology or obtain access to
our unpatented trade secrets or proprietary technology. Others may have filed patent applications and may have been issued patents
involving 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 to us. Any of our intellectual property rights may be challenged by others or invalidated through administrative process or
litigation. Third parties may claim in the future, that we have infringed their intellectual property rights, which could result in significant
costs and potential damages and license requirements. We may initiate claims or litigation against others for infringement,
misappropriation or violation of our intellectual property rights or other proprietary rights or to establish the validity of such rights.
However, we may be unable to discover or determine the extent of any infringement, misappropriation or other violation of our
intellectual property rights and other proprietary rights. In addition, we may be unable to prevent third parties from infringing upon,
misappropriating or otherwise violating our intellectual property rights and other proprietary rights.
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.
18
ImmuCell Corporation
Although we maintain information security policies and employ system 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 cyberattacks.
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. There are reports of increased activity by hackers and scammers during the COVID-19 pandemic. Russia’s
unprovoked military invasion of Ukraine may elevate the risk of such cyberattacks. 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 technology consultant to assess and
enhance our security systems and procedures, and periodically training our employees 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 remains. 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
unpredictability 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 access to, public disclosure of, or other loss of data or information, including any of our
(or our customers’ or suppliers’) 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 our 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. While this exposure is common
to all companies, larger companies with greater resources may be better able to mitigate this risk than we can.
ITEM 1B — UNRESOLVED STAFF COMMENTS
None
ITEM 2 — PROPERTIES
Building 56:
During 1993, we purchased a 15,000 square foot facility (that included 5,000 square feet of unfinished office space on the
second floor) at 56 Evergreen Drive in Portland, Maine. We currently use this space for substantially all of our: i) office and
laboratory needs, ii) vaccine manufacturing operations, iii) liquid processing operations and iv) freeze-drying operations for our
USDA-regulated product line. All of our powder milling and filling operations, gel formulation operations and assembly services have
been relocated out of this building. During 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. During 2007, we
built out the 5,000 square feet of unfinished space on the second floor into usable office space. After moving offices from the first
floor 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 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. These additions increased the size of the
facility to approximately 34,850 square feet.
Building 33:
During 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. Our FDA-regulated operations are
conducted in this building.
Building 14:
During 2017, we purchased a 4,080 square foot facility adjacent to the Drug Substance production facility for Re-Tain® at 14
Wedge Way in Portland, Maine. We are using this warehouse space primarily for storage of inventory, materials and equipment. We
are presently modifying this facility for packing, shipping and cold storage for Re-Tain® and other warehousing needs. We expect
these modifications to be complete during the middle of 2023.
19
ImmuCell Corporation
Building 175:
During 2019, we entered into a lease covering approximately 14,300 square feet of office and warehouse space to expand our
USDA-regulated manufacturing operations. We have renovated this space (a Certificate of Occupancy was issued during the second
quarter of 2020) to help us expand our production capacity and improve quality for the First Defense® product line. This space is
being used for all of our powder milling and filling, gel formulation and assembly services. The original lease term was ten years with
a right to renew for a second ten-year term and a right of first offer to purchase. During the third quarter of 2022, we entered into a
new 20-year lease covering a facility that is now being constructed by our landlord (Building 165, described below), which is adjacent
to (and could be connected to) Building 175. In connection with this new lease, the lease to Building 175 was extended by
approximately 13 years to match the expiration of the other lease to Building 165.
Building 165:
During the third quarter of 2022, we committed to lease an additional 15,400 square feet of space at 165 Industrial Way in
Portland, Maine, which could be connected to Building 175, over a 20-year term. The lease commencement date is when the landlord
is issued a Certificate of Occupancy for the building shell, which is anticipated to be around the beginning of the second quarter of
2023. Lease payments begin four months after this date. We intend to use this space for the following three purposes: 1) improve
product quality by moving powder milling out of Building 56, 2) provide much needed additional warehouse space and 3) provide
space for additional freeze-drying equipment to increase our production capacity to approximately $40 million per year. Due to the
loss in gross margin on product sales during the first quarter of 2023 caused by the slowdown in production output necessary to
remediate a product contamination event, we have decided to defer, for the time being, completion of the investment to build out
Building 165. The objective to separate our powder milling operations out of Building 56 has been achieved by moving milling to
Building 175 for the time being.
Other:
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 Warsaw, New York to support our farm operations. This lease was extended through and terminated at
the end of March of 2021. During March of 2021, we entered into a different renewable, two-year lease for approximately 1,300
square feet of office, storage and parking space in New York. Subsequently, we entered into a new two-year lease to the same
property through March of 2025 that includes an option to renew for an additional two-year term. We are renting approximately 960
square feet in Winona, Minnesota for a sales office. This lease automatically renews with 4% increases for one-year terms unless we
or the landlord give 60-days’ notice of a change. The current term expires in June 2023. We do not expect to provide notice of
cancellation at this time. We also maintain access to cows (as a source of colostrum used in the production of the First Defense®
product line) through contractual relationships with commercial dairy farms. We maintain property insurance in amounts that
approximate replacement cost and a modest amount of business interruption insurance.
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 REGISTRANT’S 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. As of March
10, 2023, we had 15,000,000 common shares authorized and 7,746,864 common shares outstanding, and there were approximately
661 shareholders of record. We have not paid dividends on our common stock and do not have any present plan or expectation to pay
dividends.
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, 2022 or that could be granted in the future:
20
ImmuCell Corporation
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)
605,000
—
605,000
$7.19
—
$7.19
229,500
—
229,500
Equity compensation plans
approved by stockholders
Equity compensation plans not
approved by stockholders
Total
Purchase of Equity Securities
During 2022, we accepted $30,670 in cash in consideration for the exercise of stock options. During 2021, we accepted $11,693
in cash and the surrender of 17,128 stock options with a fair market value ranging from $9.52 to $10.02 per share at the time of exercise
in consideration for the exercise of stock options. In all cases, new shares were issued from treasury stock.
ITEM 6 — [RESERVED]
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
audited 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, 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, objectives
or expectations described in or implied by the forward-looking statements contained in the following discussion and analysis.
Liquidity and Capital Resources
Net cash (used for) operating activities was ($1.5) million during the year ended December 31, 2022 in contrast to net cash
provided by operating activities of $954,000 during the year ended December 31, 2021. The $2.5 million decrease in net cash
provided by operating activities from period to period was largely the net result of a $2.4 million increase in the net loss with $2
million more cash being used to build inventory being net against $1.8 million more cash being generated by the collection of
accounts receivable. As we increased our production capacity to eliminate the backlog of orders, our inventory balance increased to $6
million as of December 31, 2022 from $3.1 million as of December 31, 2021. Our total depreciation and amortization expense was
approximately $2.5 million during both of the years ended December 31, 2022 and 2021. We anticipate that depreciation expense,
while not affecting our cash flows from operations, will be a significant factor in creating annual net operating losses until and unless
product sales increase sufficiently to offset these non-cash expenses. Net cash (used for) investing activities was ($4) million during
the year ended December 31, 2022 in comparison to net cash (used for) investing activities of ($1.6) million during the year ended
December 31, 2021. Approximately $4 million and $2.6 million of cash was used to acquire property, plant and equipment during the
years ended December 31, 2022 and 2021, respectively, which payments were largely related to our ongoing investments to expand
our manufacturing facilities. Net cash provided by financing activities decreased to $1.1 million during the year ended December 31,
2022 in comparison to net cash provided by financing activities of $3.9 million during the year ended December 31, 2021. During
2022, we received $2 million in debt proceeds compared to $400,000 in debt proceeds received during 2021. We raised no new equity
during 2022, but during 2021, we raised $4.2 million from a public offering of common stock. Debt principal repayments will
continue to reduce our cash flows.
We entered into several bank debt refinancings and amendments with Gorham Savings Bank (GSB) from the first quarter of
2020 to the first quarter of 2022 that have improved our liquidity by spreading our principal payments out over a longer period of time
and pushing out balloon principal payment obligations that existed under some of the repaid debt. Also, because all of this debt bears
interest at fixed rates, we are avoiding the adverse effects of rising interest rates on our debt service costs. The blended interest rate on
this debt, including the State of Maine debt from the Maine Technology Institute (MTI) described below, is 3.65% per annum (3.52%
per annum excluding the MTI debt). As of December 31, 2022, we had total bank debt outstanding (including the MTI debt) of
approximately $10.2 million as compared to approximately $9.1 million as of December 31, 2021. Debt principal repayments
aggregated approximately $897,000 and $768,000 during the years ended December 31, 2022 and 2021, respectively. We anticipate
that debt principal repayments will aggregate approximately $1 million during the year ending December 31, 2023. Interest expense
(excluding amortization of debt issuance costs) was approximately $341,000 and $307,000 during the years ended December 31, 2022
21
ImmuCell Corporation
and 2021, respectively. We anticipate that interest expense will be approximately $352,000 during the year ending December 31,
2023. During the first quarter of 2022, the availability of our $1.0 million line of credit, which bears interest at the National Prime
Rate per annum, was extended until March 11, 2024. These credit facilities are secured by substantially all of our assets, including our
facility at 56 Evergreen Drive in Portland (which was independently appraised at $6.3 million in connection with the 2022 financing)
and our facility at 33 Caddie Lane in Portland (which was independently appraised at $3.2 million in connection with a 2017 financing
and at $2.5 million in connection with a 2020 refinancing). These credit facilities are subject to certain restrictions and financial
covenants. We are required to meet a minimum debt service coverage (DSC) ratio set by GSB of 1.35. Our actual DSC ratio was equal
to 2.68, 2.03 and 1.57 during the years ended December 31, 2021, 2020 and 2019, respectively. By negotiation with GSB in
connection with the 2022 financing, the required minimum DSC ratio was reduced to 1.0 for the year ending December 31, 2022. The
actual DSC ratio during the year ended December 31, 2022 was 0.44. The compliance requirement with the DSC ratio was waived by
GSB for 2022. During the first quarter of 2023, the DSC ratio covenant for the year ending December 31, 2023 was waived by GSB.
Instead, we are required to meet a minimum DSC ratio requirement of 1.35 for the twelve-month periods ending June 30, 2024,
September 30, 2024 and December 31, 2024 and then again annually after that.
During June 2020, we received a $500,000 loan from the Maine Technology Institute (MTI). The first 2.25 years of this loan
were interest-free with no interest accrual or required principal payments. Principal and interest payments at a fixed rate of 5% per
annum are due quarterly over the final 5 years of the loan, which began during the fourth quarter of 2022 and continues through the
third quarter of 2027. During July 2021, we received an additional $400,000 loan from the MTI. The first 2 years of this second loan
are interest-free with no interest accrual or required principal payments. Principal and interest payments at a fixed rate of 5% per
annum are due quarterly over the final 5.5 years of the loan, beginning during the third quarter of 2023 and continuing through the
fourth quarter of 2028. Both loans are unsecured and subordinated to all other bank debt from GSB and may be prepaid without
penalty at any time. This support from the State of Maine through the MTI helps us move forward aggressively with our investments
while increasing our total employee count.
From the first quarter of 2016 through the second quarter of 2021, we raised gross proceeds of approximately $26.7 million (net
proceeds were approximately $24.8 million) from six different common equity transactions priced between $5.25 and $8.25 per share
with a weighted average price of approximately $5.87 per share. No warrants were issued in connection with any of these transactions,
and no convertible or preferred securities were issued. This capital, together with our bank debt and gross margin from product sales,
has allowed us to transform the Company. We are (and have been) investing significantly to increase our capacity to produce the First
Defense® product line from approximately $16.5 million to approximately $40 million in annual sales volume per year. The actual
value of our production capacity varies based on biological and process yields, product format mix, selling price and other factors.
Based on our best estimates and projections, we believe that our cash and cash equivalents, together with gross margin anticipated to
be earned from ongoing product sales, will be sufficient to meet our currently planned working capital and capital expenditure
requirements and to finance our ongoing business operations for at least 12 months (which is the period of time required to be
addressed for such purposes by accounting disclosure standards) from the date of this filing. The table below summarizes the changes
in selected, key accounts (in thousands, except for percentages):
Cash and cash equivalents
Net working capital
Total assets
Stockholders’ equity
Common shares outstanding(1)
As of
December 31, 2022
As of
December 31, 2021
(Decrease) Increase
Amount
%
$5,792
$10,923
$44,861
$30,380
7,747
$10,185
$13,730
$44,466
$32,577
7,742
($4,394)
($2,808)
$395
($2,197)
5
(43%)
(20%)
<1%
(7%)
<1%
(1) There were approximately 605,000 and 443,000 shares of common stock reserved for issuance for stock options that were
outstanding as of December 31, 2022 and 2021, respectively.
We have invested and continue to invest in eight different capital expenditure projects to increase our production capacity for the
First Defense® product line and complete the development of Re-Tain®. When we describe the production capacity for the First
Defense® product line in this report, it should be noted that the actual value of this capacity varies based on biological and process
yields, product format mix, selling price and other factors. From 2014 to 2019, we initiated four capital expenditure investments, as
described in the following table (in thousands):
22
Year Ended December 31, 2014
Year Ended December 31, 2015
Year Ended December 31, 2016
Year Ended December 31, 2017
Year Ended December 31, 2018
Year Ended December 31, 2019
Year Ended December 31, 2020
Year Ended December 31, 2021
Year Ended December 31, 2022
Total Paid through December 31, 2022
Estimate to Complete
Total Project Cost
ImmuCell Corporation
Cash Paid on Projects Initiated before 2021 During the
A
$1,041
1,991
1,173
—
—
—
—
—
—
4,205
—
$4,205
B
C
D
Total
$—
265
2,093
17,686
1,596
—
—
—
—
$—
—
—
—
—
279
2,938
432
4
$—
—
—
—
—
538
581
886
308
$1,041
2,256
3,266
17,686
1,596
817
3,519
1,318
312
21,640
—
$21,640
3,653
—
$3,653
2,313
1,687
$4,000
31,811
1,687
$33,498
PROJECT A included a 7,100 square foot facility addition at 56 Evergreen Drive and related equipment (including freeze-dryer
#2) and cold storage capacity to increase the production capacity for the First Defense® product line. During the first quarter of 2016,
we completed this investment, increasing our freeze-drying capacity by 100% and making other improvements to our liquid
processing capacity, which increased our annual production capacity (in terms of annual sales dollars) to approximately $16.5 million.
This investment also included the construction and equipping of a pilot plant for small-scale Drug Substance production for Re-Tain®
within our First Defense® production facility at 56 Evergreen Drive. After PROJECT B was completed, this space was converted for
use in the production of the gel tube formats of the First Defense® product line at 56 Evergreen Drive. After PROJECT C was
completed, this space was converted to double our liquid processing capacity at 56 Evergreen Drive.
PROJECT B was related to the Drug Substance production facility for Re-Tain® at 33 Caddie Lane. During the fourth quarter
of 2017, we completed construction of the Drug Substance production facility. We began equipment installation during the third
quarter of 2017, and we completed this installation during the third quarter of 2018. The total cost of this investment for the Drug
Substance production facility and related processing equipment was $20.8 million plus $331,000 for the land and $472,000 for the
acquisition of an adjacent 4,080 square foot warehouse facility at 14 Wedge Way, which will be used for packing, shipping and cold
storage of Re-Tain® and other warehousing needs. (See PROJECT G, below).
PROJECT C consisted of significant renovations to a 14,300 square foot leased facility at 175 Industrial Way, some facility
modifications at 56 Evergreen Drive and the necessary production equipment (including freeze-dryer #3) to increase the annual
production capacity of the First Defense® product line (in terms of annual sales dollars) from approximately $16.5 million to
approximately $23 million. This expansion involved a 50% increase in our freeze-drying equipment and a 100% increase in our liquid
processing capacity. Renovations to our leased facility at 175 Industrial Way to enable this expansion were completed during the
second quarter of 2020. By moving our powder and gel filling and assembly services from 56 Evergreen Drive into this new space at
175 Industrial Way, we created space at 56 Evergreen Drive for the installation of the expanded freeze-drying capacity. The new
facilities are built to contemporary cGMP standards with good material and people flows. A site license approval for this new facility
at 175 Industrial Way was issued by the USDA during the third quarter of 2020. During the second quarter of 2021, we completed the
relocation of our gel formulation equipment from 56 Evergreen Drive to 175 Industrial Way, which created the space necessary to
double our liquid processing capacity at 56 Evergreen Drive. We obtained site license approval of the expanded freeze-drying capacity
at 56 Evergreen Drive from the USDA during the third quarter of 2021, and we obtained site license approval of the expanded liquid
processing capacity at 56 Evergreen Drive from the USDA during the third quarter of 2022. As part of this investment, we also made
the facility modifications at 56 Evergreen Drive to create the space necessary to expand our freeze-drying equipment (including
freeze-dryer #4) by an additional 33%, which would increase our annual production capacity from approximately $23 million to
approximately $30 million or more (together with the work involved in PROJECT F discussed below).
PROJECT D is a $4 million budgeted investment to bring the formulation and aseptic filling capabilities for Re-Tain® Drug
Product into available space in our Drug Substance facility to end our reliance on third-party Drug Product manufacturing services.
We began initial equipment installation during the first quarter of 2022. We have presently paused this installation work pending
concurrence with the FDA pertaining to our third submission of the CMC Technical Section, which is discussed in greater detail
below. Due to the loss in gross margin during the first quarter of 2023 caused by the slowdown in production output necessary to
remediate a product contamination event, we have decided to defer spending of approximately 42% of these funds for the time being.
23
We anticipate FDA approval of this facility (which is a requirement for commercial manufacturing) during 2025 if we resume
spending on this project in the coming months.
During 2021, we initiated three more capital expenditure investments, and during the second quarter of 2022, we initiated one
additional capital expenditure investment, as described in the following table (in thousands):
ImmuCell Corporation
Cash Paid on Projects Initiated During 2021 or After During the
Total
E
H
G
F
Year Ended December 31, 2021
Year Ended December 31, 2022
Total Paid through December 31, 2022
Estimate to Complete
Total Project Cost
$452
213
665
85
$750
$296
661
957
—
$957
$282
1,904
2,186
888
$3,074
$—
33
33
4,367
$4,400
$1,030
2,811
3,841
5,340
$9,181
PROJECT E represents a $750,000 budget for equipment and vehicle investments necessary to expand and improve our
colostrum collection capabilities and logistics. We largely completed this investment during 2022 but have left the project open as we
are considering the need to purchase an additional farm truck.
PROJECT F included installation of freeze-dryer #4 for $957,000 to further increase the annual production capacity of the
First Defense® product line (in terms of annual sales dollars) from approximately $23 million to approximately $30 million or more.
We initiated PROJECT F during the third quarter of 2021. Due to supply disruptions affecting key components and equipment, this
investment was not completed until the end of 2022.
PROJECT G represents an increased budget estimate of $3,000,000 (from the previous budget estimate of $2,840,000). Of this
total, approximately $2,325,000 is for equipment and facility modifications to scale-up and upgrade our vaccine manufacturing
capacity, improve our quality laboratories and install new equipment for our gel filling operations and approximately $675,000 is to
build packing and shipping facilities for Re-Tain® at 14 Wedge Way. This investment includes automation of our gel filling
operations as part of our strategy to increase our annual production capacity for the First Defense® product line (in terms of annual
sales dollars) to approximately $30 million. This investment is running approximately $74,000 over its increased budget amount of
$3,000,000.
PROJECT H represents a new investment in building modifications and equipment to further increase our annual First
Defense® production capacity from approximately $30 million to approximately $40 million with options for further expansion. Given
the long lead time required for investments like this, during 2022 we initiated this project by entering into a lease during the third
quarter of 2022 covering a to-be-constructed 15,400 square foot building shell at 165 Industrial Way for approximately $250,000 per
year, which operating cost is not included in the capital expenditure table above. We anticipate a lease commencement date (after the
landlord completes construction of the building shell) during the second quarter of 2023. We made this lease commitment because of
the unique proximity of the land adjacent to our currently leased space at 175 Industrial Way and the high level of demand for
properties of this type in the Portland market. We did not want to risk losing this opportunity to others. The anticipated benefits to us
from this new lease include: i) space for the potential to install freeze-dryers #5, #6, #7 and #8 if justified by market demand in the
future, ii) improved space and quality for our powder milling operations by separating our upstream processes (liquid processing) at
56 Evergreen Drive from our clean downstream processes (milling, formulation, filling and packaging) and iii) much needed
additional warehouse space. Freeze-dryer #5 is the key piece of equipment required to allow us to increase our annual production
capacity to approximately $40 million. Based on past experience, we are planning for approximately 18 to 24 months of lead time for
fabrication, installation, qualification and implementation of freeze-dryer #5. We have been running our equipment and staff near to
100% of capacity over the last couple of years in order to fill the backlog of orders. One of the objectives of PROJECT H is to create
a more sustainable production schedule. Due to the loss in gross margin during the first quarter of 2023 caused by the slowdown in
production output necessary to remediate a product contamination event, we have decided to defer, for the time being, approximately
95% of this investment.
We have been investing (and continue to invest) significantly in equipment, infrastructure and operating expenses to increase
our annual production capacity from approximately $16.5 million to approximately $30 million. Increased labor and other upfront
costs were necessary to benefit from the scale-up of our production output going forward. These investments have been (and are
being) made to fulfill the current backlog and then materially reduce the risk of another order backlog. We have been operating at very
close to 100% of available capacity recently, which is not efficient or sustainable. Going forward, we will be in a position to operate at
the capacity level we choose to cover sales with adequate buffer stock. This allows more time for necessary preventative maintenance
and redundancy for when equipment failures occur. At the same time, we have been investing (and continue to invest) in capital
expenditures necessary to manufacture Re-Tain® at commercial scale and to cease our reliance on aseptic filling contractor services.
The table below summarizes the investment made and to be made under PROJECT A to PROJECT H by product (in thousands):
24
Product
First Defense®
Re-Tain®
Total
ImmuCell Corporation
Paid Through
December 31, 2022
Estimate to Complete
Total
$11,663
23,989
$35,652
$4,701 (1)
2,326
$7,027
$16,364
26,315
$42,679
(1) The investment of approximately $4,200,000 of these funds has been deferred for the time being.
In addition to the specific projects listed above, our budget for routine and miscellaneous capital expenditures for the year ended
December 31, 2022 was $825,000. We spent approximately $34,000 more than this budget amount during 2022, and we expect to
spend approximately $97,000 during 2023 to complete these miscellaneous expenditures from the 2022 budget. These routine and
miscellaneous capital expenditures amounted to $260,000, $554,000 and $574,000 during the years ended December 31, 2021, 2020
and 2019, respectively. The spend on this budget category during 2021 was lower than expected, and, as a result, the spend during
2022 was higher than the historical norm. The budget for these miscellaneous capital expenditures during 2023 is $1,000,000. Due to
the loss in gross margin during the first quarter of 2023 caused by the slowdown in production output necessary to remediate a product
contamination event, we have decided to reduce spending on these routine and miscellaneous capital expenditures by 50% for the time
being.
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 year 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 increases (decreases) in the assessment of the building for city real estate tax
purposes or the City’s tax rate. The following table discloses how much of the new taxes we have generated is being relieved by the TIF
and how much is being paid by ImmuCell:
Twelve-Month
Period Ended
Total New Taxes
Generated by the
Project
Less:
TIF Credit
Net Amount
Paid by
ImmuCell
June 30, 2018
June 30, 2019
June 30, 2020
June 30, 2021
June 30, 2022
June 30, 2023
$36,000
$90,000
$94,000
$94,000
$55,000
$58,000
$22,000
$58,000
$60,000
$60,000
$36,000
$37,000
$13,000
$32,000
$34,000
$34,000
$20,000
$21,000
Assessed Value
$1.7 million @ April 1, 2017
$4.0 million @ April 1, 2018
$4.0 million @ April 1, 2019
$4.0 million @ April 1, 2020
$4.3 million @ April 1, 2021
$4.3 million @ April 1, 2022
Results of Operations
Business Segments
As detailed in Note 17, “Segment Information”, to the accompanying audited financial statements, we operate in two business
segments. The Scours segment is dedicated to manufacturing and selling First Defense®, a product used to prevent scours in newborn
calves, which is regulated by the USDA. The Mastitis segment is focused on developing and commercializing Re-Tain®, a product to
treat subclinical mastitis in lactating dairy cows, which is regulated by the FDA.
Product Sales
Through continued growth in sales of the First Defense® product line, and as additional resources are dedicated to production,
sales, marketing and technical services, it is our objective to exceed our total product sales of approximately $19 million achieved
during the year ended December 31, 2022 as soon as possible. Our longer-term goal is to exceed $35 million of annual total product
sales as soon as possible during the five-year period after the market launch of Re-Tain®. We do not solely benchmark our sales
expectations off trailing twelve-month sales results. Instead, we look at the sales of competitive products to assess the size of the
addressable market and plan for growth when projecting our future production capacity needs.
Sales decreased by 4%, or $675,000, to $18.6 million during the year ended December 31, 2022, in comparison to $19.2 million
during the year ended December 31, 2021. Domestic sales during the year ended December 31, 2022 increased by 2%, and
international sales decreased by 41%, in comparison to the year ended December 31, 2021. International sales aggregated 8% and 14%
of total sales during the years ended December 31, 2022 and 2021, respectively. The annual sales results are summarized in the
following table (in thousands, except for percentages):
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ImmuCell Corporation
Total product sales
During the Years Ended December 31,
(Decrease)
2022
2021
Amount
%
$18,568
$19,243
($675)
(4%)
Sales of the First Defense® product line aggregated 99% and 98% of our total sales during the years ended December 31, 2022
and 2021, respectively. Our sales are seasonal with highest sales expected during the first quarter of each year. Most of our growth
(when not limited by backlog) is being realized through increased demand and a deliberate strategy to prioritize production capacity
towards Tri-Shield First Defense® (the trivalent format of our product delivered via a gel tube), which provides broader protection to
calves. The compound annual growth rate (CAGR) of our total product sales was 12.4%, 14.0% and 10.6% during the eleven-year,
four-year, and three-year periods ended December 31, 2022, respectively.
Valuation of the backlog is a non-GAAP estimate that is based on purchase orders on hand at the time that could not be met
because of a lack of available inventory. Quantification of the backlog during the current periods has become far less comparable to
prior periods. At times, customers have placed orders for more than a month’s worth of their demand, perhaps in reaction to our
ongoing backlog situation, whereas in the past they ordered more closely in line with their current demand. The backlog was reduced
from approximately $2.4 million as of December 31, 2021 to approximately $205,000 as of September 30, 2022. We had adequate
finished goods inventory to ship most of this backlog during the third quarter, but the product was held for cold shipping on the first
Monday of October. In part because of a first contamination event experienced around the end of the third quarter of 2022, our
backlog increased to approximately $2.5 million as of December 31, 2022. In part because of a second contamination event
experienced during the first quarter of 2023, the backlog increased further to approximately $8 million as of March 10, 2023. We are
reporting this figure because it does reflect the orders on our books presently that we cannot ship. However, we do not believe this
backlog is highly relevant anymore as it includes very old orders, redundancy in demand and orders that may be cancelled. We likely
lost some business during 2022 as a result of the backlog. Our inability to timely meet the needs of our customers could result in the
loss of some customers who seek alternative scours management products during this period of short supply and who may not resume
purchasing our product when we have eliminated the backlog. While we worked to allocate product directly to certain large customers
during this period of short supply, we likely lost some customers that could not access product. While backlog is a better problem to
have than seeing product expiring on our shelves, it is nonetheless a significant challenge when we do not get our customers
everything that they want. Our sales team is preparing to resume more normal sales growth initiatives with more inventory becoming
available later in 2023. We will work to regain customers that we may have lost while we were short on product and will aggressively
compete for new business. As we emerge from an extended period of time on backlog, we anticipate higher than normal sales
fluctuations quarter to quarter. What is most important to us at this time is that we achieve sales growth over the longer periods of
time, even if we experience some quarter-to-quarter fluctuations.
A supply disruption pertaining to needed plastic syringes used in our gel product format resulted in the drop in sales during the
second quarter of 2022. This supply disruption was resolved during the third quarter of 2022. The significant global supply-chain
disruptions that almost all industries are experiencing presently are a challenge to us and contribute to our order backlog. Prices for
raw materials and critical supplies are increasing significantly, and it is becoming increasingly more difficult to obtain timely delivery
of the orders that we place. Therefore, we have little choice but to pay the higher prices and try to take on more months of supply than
we would have held previously if we could get our orders fulfilled timely.
Effective January 1, 2023, we increased our selling price of the First Defense® product line by approximately 3% (range of 2%
to 4%) and CMT by approximately 5%. Effective January 1, 2022, we increased our selling price of the First Defense® product line
by approximately 5% and CMT by approximately 7%. Effective January 1, 2021, we increased our selling price of the First Defense®
product line in the domestic market by approximately 1.6% to 3%, depending on product format, and we increased our selling price of
CMT by almost 4%.
We acquired a private label product (our second leading source of product sales during 2021) in connection with our January
2016 acquisition of certain gel formulation technology. This product was discontinued during the first quarter of 2022 because it was
not a significant contributor to our total sales and it competed for valuable time and space in our production schedule. We sell our own
CMT (our third leading source of product sales during 2021), which is used to detect somatic cell counts in milk. Sales of these
products (other than the First Defense® product line) decreased by approximately 50%, or $154,000, to $156,000 during the year
ended December 31, 2022, in comparison to the year ended December 31, 2021. Sales of these other products aggregated
approximately 1% and 2% of our total product sales during the years ended December 31, 2022 and 2021, respectively.
Gross Margin
The change in our gross margin (product sales less costs of goods sold) and our gross margin as a percentage of product sales are
summarized in the following table (in thousands, except for percentages):
26
Gross margin
Percent of product sales
ImmuCell Corporation
During the Years Ended December 31,
(Decrease)
2022
2021
Amount
%
$7,649
41%
$8,656
45%
($1,007)
(4%)
(12%)
(8%)
The gross margin as a percentage of product sales was 41%, 45%, 45%, 49%, 47% and 50% during the years ended December
31, 2022, 2021, 2020, 2019, 2018 and 2017, respectively. The gross margin during the year ended December 31, 2022 was
significantly less than what we have experienced historically and significantly less than what we anticipate going forward. We
experienced several product contamination events that resulted in scrap during 2022. This resulted in a total charge to costs of goods
sold of approximately $588,000. Although these types of losses are expected to happen from time to time in the production of a
biological product such as ours, we believe we can mitigate the risk of reoccurrence of such losses through the implementation of
certain processes and facility improvements. Absent this contamination write-off, our gross margin as a percentage of product sales
would have been approximately 44% during the year ended December 31, 2022. While our biological and process yields can be
variable, we have seen a favorable improvement to our finished goods yield recently. The costs of our supplies, components, raw
materials, and services increased significantly during 2021 and that trend has continued. The Tri-Shield® product format is more
complex (i.e., three antibodies versus two antibodies for Dual-Force®) making it more costly to produce, and both the bivalent and
trivalent gel product formats are more expensive to produce than the bolus format. 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. A number of other factors contribute to the variability in our costs, resulting in some fluctuations in gross margin percentages
from quarter to quarter and from year to year. 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 Practices (cGMP) in our production
processes. Increasing production can be more expensive in the initial stages. To achieve our inventory production growth objectives,
we are acquiring more raw material (colostrum) from many more cows at many new farms. During this expansion phase, colostrum
quality can be more variable. Additionally, the biological yields from our raw material are always variable, which impacts our costs of
goods sold in a similar way. 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. As is the
case with any vaccine program, animals respond less effectively to their first exposure to a new vaccine, and thereafter the
effectiveness of their immune response improves in response to subsequent immunizations. While this variability impacts our costs of
producing inventory, the commercial 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 ensures that every calf is equally protected, which is something
that dam-level commercial scours vaccines cannot offer. We continue to work on processing and yield improvements and other
opportunities to reduce costs, while enhancing process knowledge and robustness. Over time, we have been able to reduce the impact
of cost increases by implementing yield improvements. We believe that gross margin results should be viewed over longer periods of
time than just one quarter. As we fully integrate and utilize our increased capacity and evaluate our product costs and selling price, one
of our goals is to achieve a gross margin (before related depreciation and amortization expenses) as a percentage of total sales
approaching 50%.
Product Development Expenses and Strategy
Overview: The majority of our product development expenses pertain to the development of Re-Tain®. During the year ended
December 31, 2022, product development expenses increased by approximately $325,000 to approximately $4.5 million in
comparison to the approximately $4.2 million during year ended December 31, 2021. Product development expenses aggregated 24%
and 22% of product sales during the years ended December 31, 2022 and 2021, respectively. Product development expenses included
approximately $1.4 million and $1.5 million of non-cash depreciation and stock-based compensation expenses during the years ended
December 31, 2022 and 2021, respectively. We expect our product development expenses to decrease after Re-Tain® is
commercialized and some of the costs incurred to maintain and run our Drug Substance production facility become part of our costs of
goods sold.
Development objective: As we work to revolutionize the way that mastitis is managed in the dairy industry, we aim to
demonstrate that our bacteriocin, Nisin A, which is designed specifically for subclinical mastitis, can provide producers the freedom to
change when and how mastitis is treated. Re-Tain® is not a broad-spectrum antibiotic used in human health. Rather, it consists of a
highly targeted active ingredient without a milk discard or meat withhold requirement. While milk prices vary, the cost of the milk
discard associated with traditional antibiotics ranges from approximately $46.12 (for 3.5 days of milk at 60 pounds per day at the
Class III milk price average of $21.96 per hundredweight during 2022) to $193.25 (for 11 days of milk at 80 pounds per day at the
Class III milk price average of $21.96 per hundredweight during 2022) per treated animal. These high milk discard costs associated
with traditional antibiotic treatments lead producers to only treat mastitis after clinical signs develop. We expect that Re-Tain® will be
a first-of-its-kind product that can be used to economically treat at the earliest stage of infection, giving producers the ability to get
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ImmuCell Corporation
ahead of mastitis before clinical signs develop so the best cows stay at their best performance level and in the herd longer. The final
and most critical development objective for Re-Tain® is to scale-up and achieve regulatory approval of our manufacturing operations.
Development status: 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 plus a sixty-day administrative review at the end. Each Technical Section can be reviewed and
approved separately. By statute, each Technical Section submission is generally subject to one or more six-month review cycles by the
FDA. 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. During the second quarter of 2021, we received further clarification through a new Environmental Impact
Technical Section Complete Letter covering the current dosage regimen and labeling.
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 anticipated product label (which remains subject to FDA approval) carries claims for the treatment of subclinical mastitis
associated with Streptococcus agalactiae, Streptococcus dysgalactiae, Streptococcus uberis, and coagulase-negative staphylococci in
lactating dairy cattle.
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. Achieving this critical differentiating feature for our product encouraged us to continue the significant
product development investment necessary to bring Re-Tain® to market. It would have been hard to justify an ongoing investment of
this nature in a product without this significant competitive advantage. During the second quarter of 2021, we updated this Technical
Section Complete Letter with FDA approval of the official analytical method to measure Nisin in milk.
5) Chemistry, Manufacturing and Controls (CMC): The CMC Technical Section is very complex and comprehensive. 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, or DS) production, which is a required 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 DS. 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.
As a result, 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®. However, the regulatory and marketing feedback 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 our DS at small-scale at our 56 Evergreen Drive facility. 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 DS production facility. Having raised equity during 2016
and 2017, we were able to move away from these earlier partnering 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 DS 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. With construction of the facility complete, we continue to work with outside parties to investigate
improvements to our DS production yields as well as potential efficacy enhancements.
Under the FDA’s phased submission process, we made a first-phased submission covering just the DS during the first quarter of
2019. The first-phased DS submission included data from the DS Registration Batches produced at commercial scale in our new DS
manufacturing facility. This first-phased submission was followed by a second-phased submission covering both the DS and the
formulated Drug Product (DP), during the first quarter of 2021. This two-phased submission process allowed us to respond to
identified queries and/or deficiencies from the first-phased DS submission at the time of the second-phased combined DS and DP
submission. The second-phased DS and DP submission responded to comments raised by the FDA regarding the first-phased DS
submission and included detailed information about the manufacturing process and controls for DP. One of the key components of the
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ImmuCell Corporation
second-phased DS and DP submission was also demonstrating stability of the product through expiry. During the third quarter of
2021, the FDA issued a Technical Section Incomplete Letter with regard to this second-phased DS and DP submission. This response
was not unexpected as it is common for the FDA to issue queries and comments, especially related to an aseptic DP submission with
associated sterilization validation information. We made a second submission of the DS and DP Technical Section during the first
quarter of 2022. During the third quarter of 2022, we received a Technical Section Incomplete Letter from the FDA with regards to
this second DS and DP submission of the CMC Technical Section. We have been working diligently to make this third submission
during the first quarter of 2023. As previously disclosed, the submission requires that external laboratories complete several critical
path items regarding our analytical testing. While we have made significant progress in addressing these issues, we are still reliant on
the work of others to finalize the submission. To that end, we are adding another month to our timeline to complete the analysis and,
in our view, optimize the submission rather than forcing the submission to achieve a self-imposed first quarter deadline. We intend to
make a brief public disclosure after this submission has been made. The principal issue remaining is a successful pre-approval re-
inspection of our manufacturing facility. We are completing preparations for such and intend to notify the FDA of our readiness for
the pre-approval re-inspection as part of our third submission. Continued focus on these preparations is critical to a successful pre-
approval re-inspection outcome. We expect a response from the FDA to this submission after the statutory six-month review period. If
the FDA issues a Technical Section Complete Letter in response to this third submission, we believe that we could commence
commercial sales around the end of 2023.
While being prudent with how much cash we invest into inventory that would have short expiry dating if market launch is
delayed, we have built and are building more DS inventory during 2022 and 2023 to bridge the transition between DP supply from our
contract manufacturer to our own in-house services. Our contract manufacturer has agreed to convert this DS to DP during the middle
of 2023 with associated product expirations during the middle of 2025. This inventory must support the market needs and have
sufficient dating to bridge the transition from our contract manufacturing agreement to when our in-house DP production is approved
by the FDA. We must consider short expiry dating in the event that our NADA approval is delayed as well as manage the number of
new customers we obtain at launch in order to minimize potential supply disruptions.
Our DS manufacturing facility and that of our DP contract manufacturer (and our future DP manufacturing facility) are subject
to ongoing FDA inspections. 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 as identified on 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. During the first quarter of 2022, the FDA conducted another
pre-approval inspection of our DS facility. This also resulted in the issuance of certain deficiencies as identified on the FDA’s Form
483. We have since responded to all of the queries and are preparing for a re-inspection, which will likely take place during the six-
month review period for our third submission of the CMC Technical Section. This inspection process has been managed without
significant cost.
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 DP manufacturer) (Norbrook), reducing our risk by benefiting from their
demonstrated expertise in aseptic filling. From 2010 to the present, we have worked with Norbrook under several amended contract
manufacturing agreements covering the DP formulation, aseptic filling and final packaging services. Under our current agreement,
Norbrook has agreed to provide the formulation, aseptic filling and final packaging services as required in order for us to submit the
CMC Technical Section to the FDA and to provide a supply of product during the second half of 2023 that we believe will enable us
to commence sales of Re-Tain® without delay upon receipt of the anticipated FDA approval and provide us with a supply bridge until
our own formulation and aseptic filling capacity is available, which is anticipated during 2025 (see discussion of PROJECT D
above). DP produced under this agreement during the second half of 2023 is expected to have expiry dating during the second half of
2025.
Our potential alternative third-party options for the formulation and aseptic filling services that are presently being performed by
Norbrook are narrowed considerably because our product cannot be formulated or filled in a facility that also processes traditional
antibiotics (i.e., beta lactams). Consequently, we have decided to perform these services internally (see discussion of PROJECT D
above). We are investing in the equipping and commencement of operations of our own DP formulation and aseptic filling facility.
We began initial equipment installation during the first quarter of 2022. Subject to the timing of our installation and validation work,
we anticipate FDA approval of this facility (which is a requirement for commercial manufacturing) during 2025, allowing for two six-
month review cycles. 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 DS facility, which is at least $10 million in annual sales. This
production capacity estimate is based on our assumptions as to product pricing and does not yet reflect inventory build strategies in
advance of product approval or ongoing yield improvement initiatives. Establishing our own DP formulation and aseptic filling
capability provides us with the longer-term advantage of controlling the manufacturing process for Re-Tain® in one facility, thereby
potentially reducing our manufacturing costs and eliminating international cold chain shipping logistics and costs. The DP formulation
and aseptic filling operation will be located in existing facility space that we had intended to utilize to double our DS production
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ImmuCell Corporation
capacity if warranted by sales volumes following market launch. As a result, we would need to explore alternative strategies (in
parallel with ongoing DS yield improvement initiatives) to expand our DS production capacity. 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 DP 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®.
Other product development initiatives: Our second most important product development initiative has been focused on other
improvements, extensions or additions to our First Defense® product line. We are currently working to establish USDA claims for our
bivalent bulk powder formulation of First Defense Technology®. 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, subject to the
availability of the needed funding.
Sales and Marketing Expenses and Selling Strategy
During the year ended December 31, 2022, sales and marketing expenses increased by approximately 27%, or $686,000, to $3.2
million in comparison to $2.5 million during the year ended December 31, 2021, amounting to 17% and 13% of product sales during
the years ended December 31, 2022 and 2021, respectively. Sales and marketing expenses included approximately $158,000 and
$70,000 of non-cash depreciation and stock-based compensation expenses during the years ended December 31, 2022 and 2021,
respectively. Our budgetary guideline for 2023 and after is to keep these expenses under 20% of total sales. We continue to leverage
the efforts of our small sales force by using animal health distributors.
We see ourselves as the “non-pharma” pharma company. Rather than offering variations of “copy-cat” technology like vaccines
and antibiotics, we have taken the path less traveled by developing first-of-their kind products fueled by novel active ingredients such
as polyclonal antibodies (for First Defense®) and bacteriocins (for Re-Tain®). While we expect that Re-Tain® could be a significant
market disrupter, we project the First Defense® market could be larger, especially during the first years of the commercial launch of
Re-Tain®. We anticipate that these category developing innovations will drive greater value for the livestock industry and, in turn, for
our stockholders.
The First Defense® product line serves dairy and beef producers by protecting their calf crop from scours, the leading cause of
pre-weaning mortality and morbidity. When calves are healthy during this crucial development period, they mature into more
productive milking cows and more efficient beef generators. Our primary competition in this category is vaccines that are also
regulated for effectiveness and safety by the USDA. However, vaccine results are inherently variable. COVID breakthrough infections
in humans have reminded us that a vaccine does not guarantee immunity. That is true for our competitors as well. In the most
controlled research settings, only 80% of animals respond to a vaccine. This leaves 20% of the calf crop unprotected when the scour
prevention program relies on scour vaccines. Those unprotected calves can be disease carriers. Not only are they more susceptible to
death or likely to require life-saving treatment (sometimes with antibiotics), but they also shed pathogens into the environment
creating a greater disease pressure for their herd mates. The First Defense® product line removes the inconsistency inherent with
vaccine protection. We sell the only USDA-licensed products in the scour prevention category that are therapeutic polyclonal
antibodies. This technology eliminates a producer’s reliance on a variable vaccine response to generate antibodies and, instead, can
protect every calf equally with a measured dose of antibody-driven immunity against both bacterial and viral scour pathogens.
In this space, we treat more calves than our competitors where products are primarily vaccines administered directly to the calf
at birth, and we are second in sales dollars to the market leader within the dam-level competitor category, which constitutes vaccines
given to the cow pre-calving. Despite these successes, there remains significant opportunity to displace more competition within North
America. There is also opportunity to grow our sales by expanding into international markets. We are being strategic in how we invest
in international market development in order not to divert our limited resources away from achieving domestic growth, which is often
more efficient to obtain.
Our expanded sales and marketing team has proven to be a worthy investment, validating that our message resonates well with
customers. Now that our increased production capacity is in place, we anticipate being able to escalate our growth curve after we
recover from the brand damage that can come with an extended duration of short supply. Unfortunately, just after we largely
eliminated the backlog of orders, we experienced several contamination events in our production process around the end of the third
quarter of 2022. This loss of inventory has returned us to a backlog situation until we fill the pipeline with new inventory from our
expanded production capacity in 2023.
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ImmuCell Corporation
We believe that Re-Tain® could revolutionize the way that mastitis is managed by making earlier treatment of subclinical
infections (while these cows are still producing saleable milk) economically feasible by not requiring a milk discard or a meat
withhold during, or for a period of time after, treatment. No other FDA-approved mastitis treatment product on the market can offer
this value proposition. We believe we can demonstrate 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, which are all sold subject to milk discard and meat withhold
requirements. By creating this value for our customers, we believe we can, in turn, create value for our stockholders.
Re-Tain® could increase the lifetime profitability of a cow and reduce disease transfer to herd mates. 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. While practices may vary farm-to-farm, there would be no requirement to move
cows treated with our product, allowing this costly drop in production to be avoided. 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, leaving most
subclinically infected cows untreated. Without a milk discard cost, we expect producers to be more motivated to identify and treat
cows at the subclinical stage. This creates a substantial animal welfare benefit. By treating mastitis early at the subclinical level,
producers could preserve optimal milk yields. We also know that animals infected with subclinical mastitis have higher abortion rates
and often progress to the clinical disease state requiring antibiotic treatment and milk discard. We believe that societal animal welfare
objectives will put more and more pressure on the industry to treat cows with subclinical infections.
The over-use of antibiotics that are medically important to human healthcare is a growing public health concern of our society
and an active issue with the FDA, largely because of the growing evidence that this over-use contributes to antibiotic resistance and
the rise of “super-bugs”. Sustainability objectives require that less antibiotics be used in food producing animals, yet a new FDA-
approved drug to treat mastitis has not been developed in years. Our product improves sustainability by utilizing a bacteriocin as an
alternative to traditional antibiotics that are used in human medicine. In the big picture, we are introducing an entirely new class of
antimicrobial as an animal drug, a bacteriocin, that does not promote resistance against antibiotics used in human medicine making it
more socially responsible. The industry could keep treating this very significant disease with traditional antibiotics, but it takes
innovation to bring a bacteriocin like Nisin to market. Re-Tain® would, when introduced, offer a needed alternative to these
traditional antibiotics, while at the same time improving milk quality and the quantity of milk produced by treated cows. We believe
our product fits very well with where the industry is going to be in the coming years. As the great NHL hockey player, Wayne
Gretzky, is known to have said, “I skate to where the puck is going to be, not where it has been.” This is motivational to us.
As with all new products, the market determines the value. Our objective is to gain market acceptance of this new product
concept as we develop a new product category. Despite our product’s exciting benefits, it will take time to change this longstanding
treatment paradigm and develop this new market. It will take time for the market to understand, evaluate, implement and adapt to the
use and benefits of Re-Tain®. Based on consultations with industry experts and key opinion leaders, we have opted to carefully
control the launch of this novel product over the first eighteen to twenty-four months after FDA approval, as we seek to transform the
way that mastitis is treated in the dairy industry over the long term. Our goal is to help early adopters select treatment candidates,
develop easy to use protocols, optimize treatment results and realize a positive return on their investment. We intend to limit initial
distribution of Re-Tain® to a level that enables our sales team to select the optimal dairy farms at which to introduce Re-Tain® and to
limit the initial numbers of participating farms so that the desired levels of support and guidance relating to effective usage of Re-
Tain® can be provided with our available resources. Our overarching objective is to minimize the risk of early stage unsatisfactory
outcomes that could harm the longer term prospects and market acceptance of Re-Tain®. This strategy also reduces the amount of
inventory that we would need to build at risk before regulatory approval is achieved, and it reduces the amount of cash we would need
to spend to purchase inventory from our contract manufacturer before our in-house aseptic filling services are approved by the FDA.
This strategic choice means that we have elected not to pursue an alternative strategy that might have maximized short-term, initial
sales quickly through a mass market approach where we provide product to distribution and let them sell it to as many farms as
possible. While we are dedicated to increasing our sales revenue, we must consider the damage a mass market strategy could cause to
the long-term value of the product. We have seen products sold by much larger companies that were substantially damaged by such
failed market launch strategies. We continue to develop detailed launch plans, focusing on the readiness of dairy operators to
successfully introduce Re-Tain® to their herds. We believe that these prudent steps, while potentially leading to lower initial Re-
Tain® revenues, may create a smooth and successful launch and could safeguard the longer term performance of our investment in
Re-Tain®. We also believe that the operational adjustments and accommodations that dairy farmers will need to make to effectively
use Re-Tain® and avoid the potential problems described under PART I: ITEM 1A – RISK FACTORS, “Product Risks”, to this
Annual Report will not be so burdensome as to deter its adoption and usage. Our overarching objective is to minimize the risk of
early-stage unsatisfactory outcomes that could harm the longer-term prospects and market acceptance of Re-Tain®.
It is difficult to accurately estimate the potential size of the subclinical mastitis market because presently this disease is largely
left untreated. We believe that approximately 20% to 40% of the U.S. dairy herd is infected with subclinical mastitis at any given time.
This compares to approximately 2% of the U.S. herd that is thought to be infected with clinical mastitis, where approximately $60
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ImmuCell Corporation
million per year is spent on drug treatments. Rarely is an industry revolutionized overnight. Getting producers to change protocols to
make subclinical mastitis treatment a standard and routine procedure is going to take initiative, but we believe producers are eager for
something new and better since the FDA has not approved an intramammary treatment within the last 20 years. Similar market
opportunities are likely to exist outside the United States. We believe the use of Re-Tain® could be expanded, with additional data and
regulatory approval, to support treatment late in lactation and possibly for clinical stage mastitis. We also believe there may be a
market for Re-Tain® in small ruminants, where the majority of mastitis cases are caused by strep-like organisms aligned with our
effectiveness data.
We expect the Drug Substance production facility that we constructed for approximately $20.8 million to have initial annual
production capacity sufficient to meet at least $10 million in sales of Re-Tain® at current production yields. This production capacity
estimate does not yet reflect any inventory build strategies or ongoing yield improvement initiatives. Expansion of the estimated
annual capacity of the Drug Substance facility beyond approximately $10 million (without factoring in potential yield improvements)
would 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 or adopting alternative manufacturing strategies.
In an effort to provide greater visibility into the launch of Re-Tain®, we have expanded Note 17, “Segment Information”, to the
accompanying audited financial statements to now display a break-out of our financial results among the following three components
of our business: i) Scours, ii) Mastitis and iii) Other. This will allow investors to see our progress with both products. We generally do
not provide financial projections, as we know such projections can prove to be materially inaccurate. However, in this case, we are
providing a high-level projection for Re-Tain® that under our controlled launch plan strategy, we estimate that we can achieve sales of
approximately $1 million in 2024 and then achieve approximately twice that in 2025. This assumes FDA approval is achieved and that
product launch is initiated around the end of 2023. If we are successful with this launch strategy, we would aim to grow this curve in
2026 and after. We believe this strategy lends itself to a more gradual adoption curve but higher and more sustainable sales over the
long-term. Actual sales results will vary from these projections up or down.
Administrative Expenses
During the year ended December 31, 2022, administrative expenses increased by 31%, or approximately $538,000, to $2.3 million
in comparison to $1.7 million during the year ended December 31, 2021. The increase in administrative expenses during the year ended
December 31, 2022 compared to the year ended December 31, 2021 was largely the result of the accrual of approximately $222,000 in
deferred compensation expense (consisting of earned and unused paid time off) during the first quarter of 2022. Administrative
expenses included approximately $148,000 and $122,000 of non-cash depreciation and stock-based compensation expenses during the
years ended December 31, 2022 and 2021, 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. Given the growth in our business, our administrative staff has increased to four talented individuals reporting to our CEO.
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. Given travel restrictions related to the COVID-19 pandemic, this initiative has
pivoted to a virtual meeting format, which is less expensive. Having experienced this efficiency, it is our intent to continue with the
same strategy, for the most part, even as travel restrictions continue to be reduced. 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. We believe these efforts have helped us
access the capital markets to fund our growth objectives. Considering inflation and all the necessary support services that fit into this
category, we believe that approximately $2 million to $2.5 million per year is an efficient budget goal to fund the administrative
expenses of a publicly-held company.
Net Operating (Loss) Income
During the year ended December 31, 2022, our net operating (loss) of ($2.3) million was in contrast to net operating income of
$257,000 during the year ended December 31, 2021. The $1.5 million increase in operating expenses and the $1 million decrease in
gross margin made up most of the $2.6 million increase in the net operating loss.
Other Expenses, net
During the year ended December 31, 2022 other expenses, net, aggregated $187,000 in comparison to other expenses, net, of
$327,000 during the year ended December 31, 2021. Interest expense increased to $349,000 during the year ended December 31, 2022
from $314,000 during the year ended December 31, 2021. Non-cash amortization of debt issuance costs (which is included as a
component of interest expense) was $8,000 during both of the years ended December 31, 2022 and 2021. We anticipate that our
interest expense will be approximately $352,000, $323,000 and $279,000 during the years ending December 31, 2023, 2024 and 2025,
respectively. Interest income was $153,000 and $19,000 during the years ended December 31, 2022 and 2021, respectively. More
32
ImmuCell Corporation
interest income was earned during 2022 largely because of a higher interest rate environment. The (gain) loss on disposal of property,
plant and equipment was approximately ($7,000) and $31,000 during the years ended December 31, 2022 and 2021, respectively.
Loss Before Income Taxes
During the year ended December 31, 2022, our loss before income taxes was $2.5 million in comparison to a loss before income
taxes of $69,000 during the year ended December 31, 2021.
Income Taxes and Net Loss
During the years ended December 31, 2022 and 2021, we recorded income tax expense of $8,000 and $9,000, respectively,
which is comprised of minimum state tax liabilities. Our net loss of $2.5 million, or $0.32 per basic share, during the year ended
December 31, 2022 was in comparison to a net loss of $78,000, or $0.01 per basic share, during the year ended December 31, 2021.
We have substantial net operating loss carryforwards that largely offset our income tax expense. For tax return purposes only,
our depreciation expense for the Nisin Drug Substance production facility and equipment was approximately $425,000, $492,000,
$464,000, $639,000, $9.2 million and $1.5 million for the years ended December 31, 2022, 2021, 2020, 2019, 2018 and 2017,
respectively. The significant increase during 2018 was largely related to accelerated depreciation allowed for tax purposes. As of
December 31, 2022, our federal net operating loss carryforward was approximately $15.5 million, which will be available to offset
future taxable income, subject to possible annual limitations based on ownership changes. 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 statutory tax rate primarily
because we are currently providing for a full valuation allowance against our deferred tax assets. While we are recording this full
valuation allowance, we are not recognizing the benefit of our tax losses.
In addition to the results discussed above from our Statements of Operations, we believe it is important to consider our
Statements of Cash Flows in the accompanying audited 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, 2022 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 the following: 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 associated 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 carrier 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
experienced 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 business, less reasonably predictable
costs of completion, disposal and transportation). Work-in-process and finished goods inventories include materials, labor and
manufacturing overhead. The assumptions used by management to determine the cost of inventory and costs of goods sold involve a
significant level of estimation and uncertainties that could have a material impact on our financial condition and results of operations
largely because of the variability of the costs per dose due to fluctuations in the biological yield from production batch to batch.
ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
33
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-25 at the end of this report. The index to these financial statements is as follows:
Report of Wipfli LLP, Independent Registered Public Accounting Firm (PCAOB ID#344)
Balance Sheets as of December 31, 2022 and 2021
Statements of Operations during the years ended December 31, 2022 and 2021
Statements of Stockholders’ Equity during the years ended December 31, 2021 and 2022
Statements of Cash Flows during the years ended December 31, 2022 and 2021
Notes to Audited Financial Statements
F-1 to F-2
F-3
F-4
F-5
F-6 to F-7
F-8 to F-25
ITEM 9 — CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
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,
2022. 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 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. 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 annual or
quarterly 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.
Material Weakness in Internal Controls over Financial Reporting: Management assesses the effectiveness of the Company’s
internal control over financial reporting at the end of each quarter. Based on this assessment, we concluded that our internal control
over financial reporting was not effective as of September 30, 2022, June 30, 2022 and March 31, 2022, because we identified one
material weakness in the operation (but not the design) of our internal controls over financial reporting during the first quarter of 2022
and a second one during the third quarter of 2022. First, we did not accrue $222,000 of deferred compensation expense (consisting of
earned and unused paid time off) during the first quarter of 2022, which impacted the amount of our administrative expenses, accrued
expenses and the related disclosures. Second, we did not properly account for the extension of our lease agreement at 175 Industrial
Way, which would have understated the value of our operating lease right-of-use asset and operating lease liability by approximately
$1,200,000 if the error had not been detected before we issued our Quarterly Report on Form 10-Q for the three-month and nine-
month periods ended September 30, 2022. These errors had no impact on our product sales or cash position. We do believe that the
design of our internal controls is effective, but the operating effectiveness was not. We have implemented some changes to our
internal controls over financial reporting, including documenting the accounting for all contractual obligations in excess of $50,000
with accounting complexities in written memorandums to be reviewed by a public accounting firm who is not our auditor or by
another relevant consultant when the issues are complex in nature. As a result, we have concluded that these material weaknesses over
internal controls have been remediated as of December 31, 2022. Based on management’s assessment, we believe that our internal
controls over financial reporting were effective as of December 31, 2022.
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ImmuCell Corporation
Changes in Internal Controls over Financial Reporting: Our principal executive and principal financial officer and our Director
of Finance and Administration periodically evaluate any change in internal control over financial reporting which has occurred during
the prior fiscal quarter. We have concluded that, with the exception of the enhanced internal control procedures discussed in the prior
paragraph, there was no change in our internal control over financial reporting that occurred during the three-month period or year
ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B — OTHER INFORMATION
None
ITEM 9C — DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None
PART III
ITEM 10 — DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Executive Officers of the Company
Our executive officers as of March 10, 2023 were as follows:
MICHAEL F. BRIGHAM (Age: 62, 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: 46, 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 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.
ELIZABETH L. WILLIAMS (Age: 67, 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 2023 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, 2022. 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.
35
ITEM 11 — EXECUTIVE COMPENSATION
ImmuCell Corporation
Information regarding compensation paid to our executive officers is incorporated herein by reference to the section of our 2023
Proxy Statement titled “Executive Officer Compensation”, which we intend to file with the Securities and Exchange Commission
within 120 days after December 31, 2022.
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 2023 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,
2022.
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 2023 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, 2022.
ITEM 14 — PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information regarding our principal accounting fees and services is incorporated by reference to the section of our 2023 Proxy
Statement titled “Principal Accounting Fees and Services”, which we intend to file with the Securities and Exchange Commission
within 120 days after December 31, 2022.
ITEM 15 — EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
3.1
3.2
3.3
3.4
3.5
3.6
3.7
4.1
4.1A
4.1B
4.1C
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 of the Company’s Current Report on Form 8-K filed on June 18,
2018).
Certificate of Amendment to the Company’s Certificate of Incorporation effective June 11, 2020
(incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on June 11,
2020).
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 of 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).
36
ImmuCell Corporation
4.1D
4.1E
4.1F
4.1G
4.2
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 of the Company’s Quarterly Report on Form 10-Q for the three-month period ended June 30, 2017).
Seventh Amendment to Rights Agreement dated as of August 10, 2022 (incorporated by reference to
Exhibit 4.1 of the Company’s Amended Quarterly Report on Form 10-Q/A filed on November 21, 2022).
Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934, as
amended (incorporated by reference to Exhibit 4.2 of the Company’s Annual Report on Form 10-K for
the year ended December 31, 2020).
10.1+ Form of Indemnification Agreement (updated) entered into with each of the Company’s Directors and
Officers (incorporated by reference to Exhibit 10.3A of the Company’s Annual Report on Form 10-KSB
for the year ended December 31, 2006).
10.2+ Amendment to Employment Agreement between the Company and Michael F. Brigham dated March 26,
10.3+
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).
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).
10.4+ Form of Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.7 of the Company’s
10.5+
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
Company’s Quarterly Report on Form 10-Q for the three-month period ended June 30, 2017).
10.6+ Form of Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.9 of the Company’s
Annual Report on Form 10-K for the year ended December 31, 2019).
10.7+* Amendment to the 2017 Stock Option and Incentive Plan of the Company.
10.8+ Second Amended and Restated Incentive Compensation Agreement between the Company and Elizabeth
L. Williams dated as of March 28, 2022 (incorporated by reference to Exhibit 10.8 of the Company’s
Annual Report on Form 10-K filed on March 30, 2022).
10.9+ Third Amended and Restated Incentive Compensation Agreement between the Company and Elizabeth
L. Williams dated as of November 11, 2022 (incorporated by reference to Exhibit 10 to the Company’s
Quarterly Report on Form 10-Q filed on November 21, 2022).
10.10+* Fourth Amended and Restated Incentive Compensation Agreement between the Company and Elizabeth
L. Williams dated as of March 28, 2023.
10.11+ Amended and Restated Separation and Deferred Compensation Agreement between the Company and
Michael F. Brigham dated as of March 28, 2022 (incorporated by reference to Exhibit 10.9 of the
Company’s Annual Report on Form 10-K filed on March 30, 2022).
10.12+ Incentive Compensation Agreement between the Company and Michael F. Brigham dated as of March
28, 2022 (incorporated by reference to Exhibit 10.10 of the Company’s Annual Report on Form 10-K
filed on March 30, 2022).
10.13+* Amended and Restated Incentive Compensation Agreement between the Company and Michael F.
Brigham dated as of March 28, 2023.
10.14+ Second Amended and Restated Incentive Compensation Agreement between the Company and Bobbi Jo
Brockmann dated as of March 28, 2022 (incorporated by reference to Exhibit 10.11 of the Company’s
Annual Report on Form 10-K filed on March 30, 2022).
10.15+* Third Amended and Restated Incentive Compensation Agreement between the Company and Bobbi Jo
Brockmann dated as of March 28, 2023.
10.16 Development Services and Commercial Supply Agreement between the Company and Norbrook
10.17
10.18
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).
Indenture of Lease for Premises Located in Portland, Maine between the Company and TVP, LLC
(incorporated by reference to Exhibit 99.2 of the Company’s Current Report on Form 8-K filed on
September 17, 2019).
Second Amendment of Indenture of Lease for Premises Located in Portland, Maine between the
Company and TVP, LLC dated as of August 15, 2022 (incorporated by reference to Exhibit 99.1 to the
Company’s Current Report on Form 8-K filed on August 17, 2022).
10.19 Term Note for $5,100,000 between the Company and Gorham Savings Bank dated March 11, 2020
(incorporated by reference to Exhibit 99.2 of the Company’s Current Report on Form 8-K filed on March
12, 2020).
37
ImmuCell Corporation
10.20 Loan Agreement for $5,100,000 between the Company and Gorham Savings Bank dated March 11, 2020
(incorporated by reference to Exhibit 99.4 of the Company’s Current Report on Form 8-K filed on March
12, 2020).
10.21 Term Note for $3,500,000 between the Company and Gorham Savings Bank dated March 11, 2020
(incorporated by reference to Exhibit 99.3 of the Company’s Current Report on Form 8-K filed on March
12, 2020).
10.22 Loan Agreement for $3,500,000 between the Company and Gorham Savings Bank dated March 11, 2020
(incorporated by reference to Exhibit 99.5 of the Company’s Current Report on Form 8-K filed on March
12, 2020).
10.23* Allonge to and Amendment of Line of Credit Loan for up to $1,000,000 between the Company and
Gorham Savings Bank dated March 23, 2022.
10.24 Note Purchase Agreement executed by the Company in favor of the Maine Technology Institute dated
10.25
June 12, 2020 (incorporated by reference to Exhibit 99.2 of the Company’s Current Report on Form 8-K
filed on June 16, 2020).
Subordinated Promissory Note for $500,000 executed by the Company in favor of the Maine Technology
Institute dated June 12, 2020 (incorporated by reference to Exhibit 99.3 of the Company’s Current Report
on Form 8-K filed on June 16, 2020).
10.26 Note Purchase Agreement executed by the Company in favor of the Maine Technology Institute dated
10.27
June 30, 2021 (incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K
filed on July 6, 2021).
Subordinated Promissory Note for $400,000 executed by the Company in favor of the Maine Technology
Institute dated June 30, 2022 (incorporated by reference to Exhibit 99.2 of the Company’s Current Report
on Form 8-K filed on July 6, 2021).
10.28 Term Note for $1,500,000 executed by the Company in favor of Gorham Savings Bank dated December
15, 2020 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed
on December 17, 2020).
10.29 Loan Agreement for $1,500,000 executed by the Company in favor of Gorham Savings Bank dated
December 15, 2020 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form
8-K filed on December 17, 2020).
10.30 Allonge to and Amendment of Term Note, dated March 23, 2022, between the Company and Gorham
Savings Bank (incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K
filed on March 24, 2022).
10.31 Mortgage Modification Agreement, dated March 23, 2022, between the Company and Gorham Savings
Bank (incorporated by reference to Exhibit 99.2 of the Company’s Current Report on Form 8-K filed on
March 24, 2022).
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).
14
23.1* Consent of Independent Registered Public Accounting Firm.
24.1
31*
32*
Power of Attorney (incorporated by reference to the signature page of this Form 10-K).
Certification Pursuant to 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-the instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL document.
101.SCH Inline XBRL Taxonomy Extension Schema Document.
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104
Cover Page Interactive Data File-the cover page interactive data file does not appear in the Interactive
Data File because its XBRL tags are embedded within the Inline XBRL document.
+
*
Management contract or compensatory plan or arrangement.
Filed herewith.
ITEM 16 – FORM 10-K SUMMARY
None
38
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 sheets of ImmuCell Corporation (the “Company”) as of December 31, 2022
and 2021, and the related statements of operations, stockholders’ equity, and cash flows for each of the two years in the period
ended December 31, 2022, and the related notes (collectively referred to as 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, 2022 and
2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, 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 audits. 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 the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits 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 audits, 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 audits 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 audits 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 audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements
that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole,
and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on
the accounts or disclosures to which it relates.
Valuation of Inventory
Description of the Matter
How We Addressed the
Matter In Our Audit
At December 31, 2022, the Company’s inventory was $6,038,539. As discussed in Note 2 of the
financial statements, inventory is recorded at the lower of cost, or net realizable value.
Auditing management’s valuation of inventory is complex and highly judgmental because of the
estimates and assumptions used by management to determine the cost accounting and because of
the variability of the cost per dose due to fluctuations in the biological yield achieved.
The primary procedures we performed to address this critical audit matter included the following.
We obtained an understanding of the cost accounting developed by management and the related
assumptions and estimates used. We tested the cost accounting by examining the underlying data
used by the Company to prepare the cost accounting. We evaluated the effect of the variability of
the cost per dose on the inventory value by comparing the biological yield to historical results and
by performing a sensitivity analysis of the potential range in inventory value within a corridor of
historical results based on minimum and maximum outcomes for the biological yield.
F-1
/s/ WIPFLI LLP
We have served as the Company’s auditor since 2019.
Minneapolis, Minnesota
March 29, 2023
F-2
ImmuCell Corporation
BALANCE SHEETS
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Trade accounts receivable, net
Inventory
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Operating lease right-of-use asset
Goodwill
Intangible assets, net
Other assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of debt obligations
Current portion of operating lease liability
Accounts payable and accrued expenses
Total current liabilities
LONG-TERM LIABILITIES:
Debt obligations, net of current portion
Operating lease liability, net of current portion
Total long-term liabilities
As of December 31,
2022
2021
$5,791,562
1,758,600
6,038,539
406,055
13,994,756
$10,185,468
2,694,229
3,089,974
295,197
16,264,868
28,441,726
2,194,670
95,557
57,312
76,628
$44,860,649
26,893,599
1,109,133
95,557
76,416
26,115
$44,465,688
$1,039,447
31,764
2,000,862
3,072,073
9,191,109
2,217,418
11,408,527
$812,207
108,012
1,614,250
2,534,469
8,327,122
1,027,157
9,354,279
TOTAL LIABILITIES
14,480,600
11,888,748
CONTINGENT LIABILITIES AND COMMITMENTS (See Note 11)
STOCKHOLDERS’ EQUITY:
Common stock, $0.10 par value per share, 15,000,000 shares authorized and
7,814,165 shares issued as of both December 31, 2022 and 2021 and
7,746,864 and 7,741,864 shares outstanding as of December 31, 2022 and
2021, respectively
Additional paid-in capital
Accumulated deficit
Treasury stock, at cost, 67,301 and 72,301 shares as of December 31, 2022
and 2021, respectively
Total stockholders’ equity
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
781,417
35,978,364
(6,232,499)
(147,233)
30,380,049
$44,860,649
781,417
35,692,388
(3,738,694)
(158,171)
32,576,940
$44,465,688
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
Product development expenses
Sales and marketing expenses
Administrative expenses
Operating expenses
NET OPERATING (LOSS) INCOME
Other expenses, net
LOSS BEFORE INCOME TAXES
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
During the Years Ended December 31,
2022
$18,567,962
10,919,183
7,648,779
4,493,872
3,190,033
2,263,817
9,947,722
(2,298,943)
187,190
2021
$19,242,969
10,587,040
8,655,929
4,168,518
2,503,926
1,726,100
8,398,544
257,385
326,512
(2,486,133)
(69,127)
7,672
9,165
($2,493,805)
($78,292)
7,745,122
($0.32)
7,745,122
($0.32)
7,592,290
($0.01)
7,592,290
($0.01)
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
Accumulated
Deficit
Shares
Amount
Total
Stockholders’
Equity
BALANCE,
December 31, 2020
Net loss
Public offering of common
stock, net of $17,011 of
offering costs
Exercise of stock options
Stock-based compensation
BALANCE,
7,299,009
—
515,156
—
—
$729,901 $31,372,093 ($3,660,402)
(78,292)
—
—
51,516
4,181,510
—
—
(5,528)
144,313
—
—
—
80,173
—
—
(7,872)
—
($175,392)
—
—
17,221
—
$28,266,200
(78,292)
4,233,026
11,693
144,313
December 31, 2021
7,814,165
$781,417
$35,692,388
($3,738,694)
72,301
($158,171)
$32,576,940
Net loss
Exercise of stock options
Stock-based compensation
BALANCE,
—
—
—
—
—
—
—
(2,493,805)
19,732
266,244
—
—
—
(5,000)
—
—
(2,493,805)
10,938
—
30,670
266,244
December 31, 2022
7,814,165
$781,417
$35,978,364
($6,232,499)
67,301
($147,233)
$30,380,049
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 (used for) provided by operating
During the Years Ended December 31,
2022
2021
($2,493,805)
($78,292)
activities:
Depreciation
Amortization of intangible assets
Amortization of debt issuance costs
Stock-based compensation
(Gain) loss on disposal of property, plant and equipment
Non-cash rent expense
Changes in:
Trade accounts receivable
Accrued interest income
Inventory
Prepaid expenses and other current assets
Other assets
Accounts payable and accrued expenses
Net cash (used for) provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment
Maturities of investment
Proceeds from sale of property, plant and equipment
Net cash used for investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from public offering, net
Proceeds from debt issuance
Debt principal repayments
(Payments) net adjustments of debt issuance costs
Proceeds from exercise of stock options
Net cash provided by financing activities
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
BEGINNING CASH AND CASH EQUIVALENTS
ENDING CASH AND CASH EQUIVALENTS
2,468,479
19,104
7,658
266,244
(7,334)
28,476
935,629
—
(2,948,565)
(110,858)
(50,513)
341,614
(1,543,871)
(3,975,274)
—
11,000
(3,964,274)
—
2,000,000
(897,125)
(19,306)
30,670
1,114,239
(4,393,906)
10,185,468
$5,791,562
2,442,036
19,104
7,841
144,313
30,963
10,716
(897,428)
495
(997,460)
26,064
58
245,760
954,170
(2,608,649)
996,000
15,290
(1,597,359)
4,233,026
400,000
(768,271)
2,272
11,693
3,878,720
3,235,531
6,949,937
$10,185,468
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,
2022
2021
$4,923
$338,516
$5,110
$308,682
NON-CASH ACTIVITIES:
Change in capital expenditures included in accounts payable and accrued
expenses
Surrender of shares to exercise stock options
Lease liability arising from obtaining right-of-use asset
($44,998)
$—
$1,184,727
($18,263)
$165,337
$—
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. As disclosed
in Note 17, “Segment Information”, one of our business segments is dedicated to Scours and the other is focused on Mastitis. We
manufacture and market the First Defense® product line, providing Immediate Immunity™ to prevent scours in newborn dairy and
beef calves. We have expanded this line into four different products with formulations targeting E. coli, coronavirus and rotavirus
pathogens. We are also in the late stages of developing Re-Tain®, a treatment for lactating dairy cows with subclinical mastitis.
Mastitis is 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 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 of new viable products with appropriate regulatory approvals, where applicable. A combination of the conditions, trends
and concerns related to or arising from the global COVID-19 pandemic, as well as inflation, rising interest rates and potential
recessionary conditions in the United States and/or internationally, could have a corresponding negative effect on our business and
operations. We are experiencing price increases and shortages in key components, supportive services, transportation and other supplies
that may cause production slowdowns that affect our ability to consistently deliver our products to market.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
We have prepared the accompanying audited financial statements reflecting all adjustments (which are of a normal recurring
nature) 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 accurately 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). We believe that the
disclosures are adequate to ensure that the information presented is not misleading.
(b) Cash and Cash Equivalents
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. There are no cash equivalents in
excess of Federal Deposit Insurance Corporation (FDIC) limits of $250,000 per financial institution per depositor. See Note 3.
(c) Trade Accounts Receivable, net
Accounts receivable are carried at the original invoice amount less an estimate made for doubtful collection when applicable.
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, 2022 and 2021,
we determined that no allowance for doubtful accounts was necessary. See Note 4.
(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 written down to estimated net realizable value. 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 feasible. See Note 5.
F-8
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
(e) Property, Plant and Equipment, net
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 at 33 Caddie Lane 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
87% of these assets are being depreciated over 10 years. We began depreciating the leasehold improvements to our new First
Defense® production facility at 175 Industrial Way over the remainder of the 10-year lease term beginning when a certificate of
occupancy was issued during the second quarter of 2020. During August of 2022, this lease term was extended to January of 2043 in
connection with a new lease covering space at 165 Industrial Way. As a result, the net book value of these leasehold improvements as
of August 31, 2022 is now being depreciated over the remainder of the extended lease term. Significant repairs to property, plant and
equipment 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) Leases
We account for our real estate leases using a right-of-use model, which recognizes that at the date of commencement, a lessee
has a financial obligation to make lease payments to the lessor for the right to use the underlying asset during the lease term and
recognizes a corresponding right-of-use (ROU) asset related to this right. ROU assets and lease liabilities are recognized at the lease
commencement date based on the present value of the future lease payments over the expected lease term. The ROU asset is also
adjusted for any lease prepayments made, lease incentives received and initial direct costs incurred. For operating leases with lease
payments that fluctuate over the lease term, the total lease costs are recognized on a straight-line basis over the lease term. Our leases,
at times, may include options to extend the term of the lease. When it is reasonably certain that we will exercise the option, we include
the impact of the option in the lease term for purposes of determining future lease payments. For all underlying classes of assets, we
made an accounting policy election to not recognize assets or liabilities for leases with a term of twelve months or less and to account
for all components in a lease arrangement as a single combined lease component. Short-term lease payments are recognized on a
straight-line basis. Certain of our lease agreements include variable rent payments, consisting primarily of amounts paid to the lessor
based on cost or consumption, such as maintenance and real estate taxes. These costs are recognized in the period in which the
obligation is incurred. Because our leases do not specify an implicit rate, we use an incremental borrowing rate based on information
available at the lease commencement date to determine the present value of the lease payments. We evaluate our right-of-use asset for
impairment when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. See Note 12.
(g) 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 the amounts paid in excess of fair value of the net assets (including tax attributes) as goodwill, which is accounted
for under the acquisition method of accounting. We assess the impairment of intangible assets and goodwill that have indefinite lives
(when applicable) 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, 2022 or 2021. See Notes 2(h) and 8 for additional disclosures.
(h) Valuation of Long-Lived Assets
We periodically evaluate our long-lived assets, consisting principally of property, plant and equipment, operating lease right-of-
use asset 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
F-9
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
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. No
impairment was recognized during the years ended December 31, 2022 or 2021.
(i) 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, 2022 and 2021, the carrying
amounts of cash and cash equivalents, accounts receivable, inventory, prepaid expenses and other current assets, other assets, accounts
payable and accrued expenses approximate fair value because of their short-term nature. The 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 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. We also hold money market accounts in our bank 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, 2022 and 2021, there were no transfers
between levels. As of December 31, 2022 and 2021, our Level 1 assets measured at fair value by quoted prices in active markets
consisted of bank savings accounts and money market accounts. There were no assets or liabilities measured at fair value on a
nonrecurring basis as of December 31, 2022 and 2021. The carrying values of our cash and money market accounts as of December
31, 2022 and 2021 and of our bank debt as of December 31, 2021 approximated their fair market values. Due to inflation and the
changing interest rate environment, the carrying value of our bank debt as of December 31, 2022 differed from its fair market value.
These values are reflected in the following tables:
As of December 31, 2022
Level 1
Level 2
Level 3
Total
Assets:
Cash and money market accounts
$5,791,562
$—
$—
$5,791,562
Liabilities:
Bank debt
$—
$8,897,197
$—
$8,897,197
F-10
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
As of December 31, 2021
Level 1
Level 2
Level 3
Total
Assets:
Cash and money market accounts
$10,185,468
$—
$—
$10,185,468
Liabilities:
Bank debt
(j) Concentration of Risk
$—
$9,139,329
$—
$9,139,329
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,
2022
40%
33%
2021
46%
28%
Trade accounts receivable due from significant customers amounted to the percentages of total trade accounts receivable as
detailed in the following table:
Company A
Company B
Company C
* Amount is less than 10%.
(k) Revenue Recognition
As of
December 31, 2022
41%
28%
12%
As of
December 31, 2021
38%
34%
*
We recognize revenue in accordance with Codification Topic 606, Revenue from Contracts with Customers (ASC 606). 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
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 sales 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 ships to a customer. Amounts due are typically paid approximately 30 days from
the time control is transferred. Shipping and handling costs associated with outbound freight are accounted for as a fulfillment cost in costs of
goods sold. 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 for additional disclosures.
F-11
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
(l) Expense Recognition
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. 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 or is deemed to be in excess or obsolete.
(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. We consider future taxable income and feasible
tax planning strategies in assessing the need for a valuation allowance against our deferred tax assets at the end of each quarter. If we
determine that it is more likely than not that we will 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 it is more likely than not that we will not 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 2019. We have evaluated the positions taken on our filed tax returns and have concluded that no
uncertain tax positions existed as of December 31, 2022 or 2021. Although we believe that our estimates are reasonable, actual results
could differ from these estimates. See Note 16.
(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 $266,244 and $144,313 during the years
ended December 31, 2022 and 2021, respectively. See Note 13.
(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 because their inclusion would be anti-dilutive. Outstanding stock options that were not included in this calculation
because the effect would be anti-dilutive amounted to 605,000 and 443,000 during the years ended December 31, 2022 and 2021,
respectively.
Net loss attributable to stockholders
Weighted average common shares outstanding - Basic
Dilutive impact of share-based compensation awards
Weighted average common shares outstanding - Diluted
Net loss per share:
Basic
Diluted
During the Years Ended December 31,
2022
2021
($2,493,805)
($78,292)
7,745,122
—
7,745,122
($0.32)
($0.32)
7,592,290
—
7,592,290
($0.01)
($0.01)
F-12
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
(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 and are subject to change in the near term. 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 Adopted
Effective January 1, 2021, we adopted ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.
The new guidance is intended to simplify the accounting for income taxes by removing certain exceptions and by updating accounting
requirements around goodwill recognized for tax purposes and the allocation of current and deferred tax expense among legal entities,
among other minor changes. The adoption of ASU 2019-12 did not have a material impact on our financial statements.
In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting.
ASU 2020-04 is intended to provide optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and
hedge accounting to ease the financial reporting burdens related to the discontinuation of the London Interbank Offered Rate (LIBOR)
or by another reference rate expected to be discontinued. The relief offered by this guidance, if adopted, was available to companies
during the period from March 12, 2020 through December 31, 2022. The discontinuation of LIBOR did not have a material impact on
our financial statements.
(r) New Accounting Pronouncement Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments, which is effective for us as of January 1, 2023, using the modified retrospective transition method. This ASU
amends the impairment model to utilize an expected loss methodology in place of the incurred loss methodology for financial
instruments, including trade receivables and leased equipment. The amendment requires entities to consider a broader range of
information to estimate expected credit losses, which may result in earlier recognition of losses. Historically, we have experienced a
very low level of bad debt expense, and most of our trade receivables are collected by the due date or within a few days of the due date.
Because of this experience, we do not expect the adoption of ASU 2016-13 to have a material impact on our financial statements.
3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents amounted to $5,791,562 and $10,185,468 as of December 31, 2022, and 2021, respectively.
4. TRADE ACCOUNTS RECEIVABLE, net
Trade accounts receivable amounted to $1,758,600, $2,694,229 and $1,796,801 as of December 31, 2022, 2021 and 2020,
respectively. No allowance for bad debt or product returns was recorded as of December 31, 2022, 2021 or 2020. The trade accounts
receivable balances include $46,426 and $55,490 due from a related party as of December 31, 2022 and 2021, respectively. See Note
18.
5. INVENTORY
Inventory consisted of the following:
Raw materials
Work-in-process
Finished goods
Total
As of
December 31, 2022
As of
December 31, 2021
$971,606
1,902,299
216,069
$3,089,974
$2,419,982
3,468,702
149,855
$6,038,539
These inventory figures are net of a $587,620 write-off of scrapped inventory that resulted principally from a contamination
F-13
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
event in our production process around the end of the third quarter of 2022.
6. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following:
As of
December 31, 2022
Prepaid expenses
Other receivables
Total
7. PROPERTY, PLANT AND EQUIPMENT, net
Property, plant and equipment consisted of the following:
Laboratory and manufacturing equipment
Buildings 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, 2021
$268,713
26,484
$295,197
$363,877
42,178
$406,055
As of
December 31, 2022
As of
December 31, 2021
$17,388,757
19,119,698
869,191
2,992,359
516,867
40,886,872
(13,993,273)
$26,893,599
$19,181,960
20,050,167
900,306
3,668,046
516,867
44,317,346
(15,875,620)
$28,441,726
As of December 31, 2022 and 2021, construction in progress consisted principally of payments toward the First Defense®
production capacity expansion project and equipment needed to bring the formulation and aseptic filling for Re-Tain® in-house.
Property, plant and equipment disposals were $127,127 and $160,366 during the years ended December 31, 2022 and 2021,
respectively. Depreciation expense was $2,468,479 and $2,442,036 during the years ended December 31, 2022 and 2021, respectively.
8. INTANGIBLE ASSETS
Intangible assets of $191,040 were valued using the relief from royalty method and 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, 2022 and 2021. The net value of these intangibles was $57,312 and $76,416 as of December 31, 2022 and 2021,
respectively. Intangible asset amortization expense is estimated to be $19,104 per year through December 31, 2025.
Intangible assets as of December 31, 2022 consisted of the following:
Developed technology
Customer relationships
Non-compete agreements
Total
Gross Carrying
Value
Accumulated
Amortization
Net Book
Value
$184,100
1,300
5,640
$191,040
($128,870)
(910)
(3,948)
($133,728)
$55,230
390
1,692
$57,312
Intangible assets as of December 31, 2021 consisted of the following:
Developed technology
Customer relationships
Non-compete agreements
Total
Gross Carrying
Value
Accumulated
Amortization
Net Book
Value
$184,100
1,300
5,640
$191,040
($110,460)
(780)
(3,384)
($114,624)
$73,640
520
2,256
$76,416
F-14
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
As of
December 31, 2022
Accounts payable – trade
Accounts payable – capital
Accrued payroll
Accrued professional fees
Accrued other
Income tax payable
Total
10. BANK DEBT
As of
December 31, 2021
$726,781
18,263
585,939
82,050
199,076
2,141
$1,614,250
$726,736
63,261
966,553
95,550
143,872
4,890
$2,000,862
During the first quarter of 2020, we closed on a debt financing with Gorham Savings Bank (GSB) aggregating $8,600,000 and a
$1,000,000 line of credit. The debt was comprised of a $5,100,000 mortgage note (Loan #1) that bears interest at a fixed rate of 3.50%
per annum (with a 10-year term and 25-year amortization schedule and a balloon principal payment of $3,145,888 due during the first
quarter of 2030) and a $3,500,000 note (Loan #2) that bears interest at a fixed rate of 3.50% per annum (with a 7-year term and
amortization schedule). The line of credit is available as needed through March 11, 2024. Interest on borrowings against the line of
credit is variable at the National Prime Rate per annum. There was no outstanding balance under this line of credit as of December 31,
2022 or 2021. The proceeds from the debt refinancing were used to repay all bank debt outstanding at the time of closing and to
provide some additional working capital. During the fourth quarter of 2020, we closed on a $1,500,000 note with GSB (Loan #4) that
bears interest at a fixed rate of 3.50% per annum (with a 7-year term and amortization schedule). Proceeds of $624,167 were used to
prepay a portion of the outstanding principal on our mortgage note (Loan #1), which reduced the outstanding balance to 80% of the
most recent appraised value of the property securing the debt, which allowed GSB to release the $1,400,000 that had been held in
escrow. This resulted in no change in the balloon principal payment of $3,145,888 due during the first quarter of 2030. The remaining
proceeds were available for general working capital purposes. During the first quarter of 2022, we closed on an additional $2,000,000
in mortgage debt, which bears interest at the fixed rate of 3.58% per annum. This was accomplished through an amendment of the
original mortgage note (Loan #1) that increased the then outstanding principal balance from $4,233,957 to $6,233,957 bearing interest
at the blended fixed rate of 3.53% per annum. This increased the balloon payment from $3,145,888 to $3,687,348 and extended the
due date of the balloon payment from the first quarter of 2030 to the first quarter of 2032. In connection with these credit facilities, we
incurred aggregate debt issuance costs of $70,170 ($19,306 of which was incurred during 2022). The amortization of these debt
issuance costs is being recorded as a component of interest expense, included in other expenses, net, and is being amortized over the
underlying terms of the notes. These three credit facilities are secured by liens on substantially all of our assets and are subject to
certain restrictions and financial covenants. Given the funds we raised through an equity issuance in April 2021, GSB waived the
minimum debt service coverage (DSC) ratio requirement of 1.35 for the year ended December 31, 2021. By negotiation with GSB in
connection with the mortgage debt financing during the first quarter of 2022, the required minimum DSC ratio was reduced to 1.0 for
the year ending December 31, 2022. By subsequent negotiation with GSB, compliance with the required minimum DSC ratio was
waived for the year ended December 31, 2022. During the first quarter of 2023, the DSC ratio covenant for the year ending December
31, 2023 was waived by GSB. Instead, we are required to meet a minimum DSC ratio requirement of 1.35 for the twelve-month
periods ending June 30, 2024, September 30, 2024 and December 31, 2024 and then again annually after that.
During the second quarter of 2020, we received a loan from the Maine Technology Institute (MTI) (Loan #3) in the aggregate
principal amount of $500,000. The first 2.25 years of this loan were interest-free with no interest accrual or required principal
payments. Beginning during the fourth quarter of 2022, Loan #3 became subject to quarterly principal and interest payments at a fixed
rate of 5% per annum over the final five years of the loan, through the third quarter of 2027 if not repaid before then. On June 30,
2021, we executed definitive agreements covering a second loan from the MTI (Loan #5) in the aggregate principal amount of
$400,000, proceeds from which were received in July 2021. The first two years of this loan are interest-free with no interest accrual or
required principal payments. Principal and interest payments at a fixed rate of 5% per annum are due quarterly over the final 5.5 years
of the loan, beginning during the third quarter of 2023 and continuing through the fourth quarter of 2028 if not repaid before then.
F-15
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
These credit facilities are unsecured and subordinated to our indebtedness to GSB. Failure to make timely payments of principal and
interest, or otherwise to comply with the terms of the agreements with the MTI, would entitle the MTI to accelerate the maturity of
such debt and demand repayment in full. These loans may be prepaid without penalty at any time.
Debt proceeds received and principal repayments made during the years ended December 31, 2022 and 2021 are reflected in the
following table by period and by loan:
Loan #1
Loan #2
Loan #3
Loan #4
Loan #5
Total
During the Year
Ended December 31, 2022
During the Year
Ended December 31, 2021
Proceeds from
Debt Issuance
Debt Principal
Repayments
Proceeds from
Debt Issuance
Debt Principal
Repayments
$2,000,000
—
—
—
—
$2,000,000
($199,013)
(477,237)
(22,160)
(198,715)
—
($897,125)
$—
—
—
—
400,000
$400,000
($115,860)
(460,637)
—
(191,774)
—
($768,271)
Principal payments (net of debt issuance costs) due under bank loans outstanding as of December 31, 2022 (excluding our
$1,000,000 line of credit) are reflected in the following table by the year that payments are due:
During the Years Ending December 31,
Loan #1
Loan #2
Loan #3
Loan #4
Loan #5
Subtotal
Debt issuance costs
Total
2023
$223,341
494,441
91,446
205,878
32,017
1,047,123
(7,676)
$1,039,447
2024
$230,891
512,102
96,104
213,217
66,470
1,118,784
(7,267)
$1,111,517
2027
2025
$239,876
530,738
101,001
220,994
69,856
1,162,465
(7,168)
2026
$248,604 $257,649
140,474
83,143
240,458
77,156
798,880
(5,420)
$1,155,297 $1,199,843 $793,460
549,881
106,146
228,965
73,415
1,207,011
(7,168)
Thereafter
$4,864,766
—
—
—
81,086
4,945,852
(14,860)
$4,930,992
Total
$6,065,127
2,227,636
477,840
1,109,512
400,000
10,280,115
(49,559)
$10,230,556
11. CONTINGENT LIABILITIES AND COMMITMENTS
Our bylaws, as amended, in effect provide that the Company will indemnify its officers and directors against any liability arising
from their responsibilities as officers and directors to the maximum extent permitted by Delaware law. In addition, we make similar
indemnity undertakings with each director 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,
2022. 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
believe 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, 2022.
We plan to purchase certain key parts (syringes) and services (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
F-16
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
contractors. We are investing in the necessary equipment to perform the Drug Product formulation and aseptic filling services in-
house.
Effective March 28, 2022, the Company entered into an Amended and Restated Separation and Deferred Compensation
Agreement (the “Deferred Compensation Agreement”) with Mr. Brigham, its President and CEO, that superseded and replaced in its
entirety a March 2020 severance agreement between the Company and Mr. Brigham. Upon separation from the Company for any
reason, Mr. Brigham’s Deferred Compensation Agreement allows Mr. Brigham to be paid, among other amounts, all earned and
unused paid time off (which amount totaling $222,000 was accrued during the first quarter of 2022 and included in accounts payable
and accrued expenses on the accompanying balance sheet as of December 31, 2022) and to receive up to an additional $300,000 in
deferred compensation (which amount is being accrued over the three-year period ending in January 2025). This deferred
compensation payment vested as to $100,000 on January 1, 2023, and will vest as to an additional $100,000 on each of January 1,
2024 and January 1, 2025, provided that Mr. Brigham is employed by the Company on these future vesting dates. The vested amounts
would be paid upon the earlier of January 31, 2025 or within thirty (30) days following his separation from the Company. This amount
is being accrued over the three-year period ending in January 2025. As of December 31, 2022, $100,000 was included as part of
accounts payable and accrued expenses on the accompanying balance sheet. In addition, upon termination of Mr. Brigham’s
employment (a) by the Company other than for cause, (b) due to death or disability or (c) by Mr. Brigham for good reason, in each
case as described and defined in the Deferred Compensation Agreement, the Company agrees to pay Mr. Brigham 100% of his then
current annual base salary and a lump sum payment equal to the employer portion of the costs of continued health benefits for Mr.
Brigham and his covered dependents for a twelve-month period following termination, and certain equity incentive awards granted to
Mr. Brigham would continue to vest following such termination in accordance with the terms of the Deferred Compensation
Agreement.
We generally enter into incentive compensation agreements with our three executive officers annually. These agreements,
which are publicly filed, with Mr. Brigham (our President and CEO), Ms. Brockmann (our Vice President of Sales and Marketing) and
Ms. Williams (our Vice President of Manufacturing Operations) allowed them to earn incentive compensation if certain regulatory and
financial objectives were met during the years ended December 31, 2022 and 2021, as specified in their agreements. Similar
agreements have been entered into and filed with these executive officers for the year ending December 31, 2023. Amounts related to
these incentive compensation agreements are accrued over the period they are earned (when it is probable that the amounts will be
earned) based on our best estimate of the amounts expected to be earned.
In addition to the commitments discussed above, we had committed $294,000 to increase our production capacity for the First
Defense® product line, $129,000 to construct and equip our own Drug Product formulation and aseptic filling facility for Re-Tain®,
$1,881,000 to the purchase of inventory, $134,000 to other capital expenditures and $401,000 to other obligations as of December 31,
2022.
12. OPERATING LEASE
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. The property is located at 175 Industrial Way
in Portland, which is a short distance from our headquarters and manufacturing facility at 56 Evergreen Drive. We renovated this
space to meet our needs in expanding our production capacity for the First Defense® product line. The original lease term was ten
years with a right to renew for a second 10-year term and a right of first offer to purchase. At the time we entered into this lease, we
were not reasonably assured that we would exercise this renewal option in place of other real estate options. For that reason, a 10-year
period was reflected in the right-of-use (ROU) asset and lease liability on our balance sheet. During the third quarter of 2022, we
committed to lease an additional 15,400 square feet of space at 165 Industrial Way, which is connected to the original space at 175
Industrial Way, over a 20-year term. The ROU asset and lease liability for the committed space to be leased at 165 Industrial Way will
be recorded upon the commencement date of the new lease, which is anticipated during the second quarter of 2023 after construction
of the building shell is completed. In connection with the lease commitment for space at 165 Industrial Way, the term of the original
lease for 175 Industrial Way was extended by approximately 13 years. The total lease liability over the amended term (including
inflationary adjustments) aggregates $2,247,978. Our lease includes variable non-lease components. Such payments primarily include
common area maintenance charges. The balance of the operating lease ROU asset was $2,194,670 and the operating lease liability was
$2,249,182 as of December 31, 2022. The calculated amount of the ROU asset and lease liability is impacted by the length of the lease
term and the discount rate used for the present value of the minimum lease payments. We elected not to separate lease and non-lease
components for all classes of underlying assets, and instead to account for them as a single lease component. Variable lease cost
primarily represents variable payments such as real estate taxes and common area maintenance. The following tables describe our
F-17
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
lease costs and other lease information:
Lease Cost
Operating lease cost
Variable lease cost
Total lease cost
Operating Lease
Cash paid for operating lease liabilities
Weighted average remaining lease term
(in years)
Weighted average discount rate
During the Years Ended December 31,
2022
2021
$149,176
36,404
$185,580
$117,996
41,400
$159,396
$148,302
$159,396
20.1
5.54%
8.1
4.77%
Future lease payments required under non-cancelable operating leases in effect as of December 31, 2022 were as follows:
During the years ending December 31,
2023
2024
2025
2026
2027
Thereafter
Total lease payments (undiscounted cash flows)
Less: imputed interest (discount effect of cash flows)
Total operating liabilities
13. STOCKHOLDERS’ EQUITY
Common Stock Issuances
Amount
$155,730
162,384
165,090
168,395
171,760
3,049,071
3,872,430
(1,623,248)
$2,249,182
From February 2016 to April 2021, we sold the aggregate of 4,553,017 shares of common stock in six different transactions
raising gross proceeds of approximately $26,714,000 at the weighted average price of $5.87 per share. These funds have been
essential to funding our business growth plans. The details of each transaction are discussed below.
1) During February of 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).
2) During October of 2016, we sold, in a private placement, 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).
3) During July of 2017, we sold 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).
4) During December of 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
F-18
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
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).
5) During March of 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).
6) During April of 2021, we sold 515,156 shares of our common stock at a price of $8.25 per share in a public, registered sale to
seven investors pursuant to our effective shelf registration statement on Form S-3, raising gross proceeds of approximately $4,250,000
and resulting in net proceeds of approximately $4,233,000 (after deducting expenses incurred in connection with the equity financing).
Stock Option Plans
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 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 10 years from the date of grant. The 2010 Plan expired 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. As of December 31, 2022, there were 202,500 options outstanding under the
2010 Plan.
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. An amendment to the 2017 Plan increasing the number of shares reserved for
issuance under the 2017 Plan from 300,000 shares to 650,000 shares was approved by a vote of stockholders at the Annual Meeting of
Stockholders in June 2022. 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 10 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. As of December 31, 2022, there were
402,500 options outstanding under the 2017 Plan.
Activity under the stock option plans described above was as follows:
Outstanding as of December 31, 2020
Grants
Terminations/forfeitures(2)
Exercises
Outstanding as of December 31, 2021
Grants
Terminations/forfeitures(2)
Exercises
Outstanding as of December 31, 2022
Vested as of December 31, 2022
Vested and expected to vest as of
December 31, 2022
Reserved for future grants
2010 Plan
2017 Plan
Weighted
Average
Exercise Price
Aggregate
Intrinsic
Value(1)
($180,038)
237,500
—
(12,000)
(7,000)
218,500
—
(11,000)
(5,000)
202,500
184,500
176,500
86,000
(20,000)
(18,000)
224,500
210,500
(32,500)
—
402,500
113,500
$6.38
$9.78
$7.26
$7.08
$6.94
$7.73
$7.34
$6.13
$7.19
$6.66
$468,425
($661,310)
($165,575)
202,500
—
402,500
229,500
$7.19
($661,310)
(1) Intrinsic value is the difference between the fair market value of the underlying common stock as of the date indicated and as of
F-19
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
the date of the option grant (which is equal to the option exercise price).
(2) Terminations and forfeitures are recognized when they occur.
The following table displays additional information about the stock option plans described above:
Non-vested stock options as of January 1, 2022
Non-vested stock options as of December 31, 2022
Stock options granted during the year ended
December 31, 2022
Stock options that vested during the year ended December 31, 2022
Stock options that were terminated or forfeited during the year ended
December 31, 2022
Weighted
Average
Fair Value at
Grant Date
Weighted
Average
Exercise
Price
Number of
Shares
160,000
307,000
210,500
31,000
$3.36
$3.80
$4.03
$2.79
43,500
$4.00
$7.23
$7.71
$7.73
$5.35
$7.34
During the year ended December 31, 2022, one former employee and two employees exercised stock options covering 5,000
shares with $30,670 in cash. During the year ended December 31, 2021, one director and three employees exercised stock options
covering 25,000 shares by the surrender of 17,128 shares of common stock with a fair market value of $165,337 at the time of exercise
and the payment of $11,693 in cash.
The weighted average remaining life of the options outstanding under the 2010 Plan and the 2017 Plan as of December 31, 2022
was approximately 5 years and 2 months. The weighted average remaining life of the options exercisable under these plans as of
December 31, 2022 was approximately 3 years and 7 months. The exercise prices of the options outstanding as of December 31, 2022
ranged from $4.00 to $10.04 per share. The 210,500 stock options granted during the year ended December 31, 2022 had exercise
prices between $6.52 and $9.39 per share. The 86,000 stock options granted during the year ended December 31, 2021 had exercise
prices between $6.10 and $10.04 per share. The aggregate intrinsic value of options exercised during the years ended December 31,
2022 and 2021 approximated $10,525 and $64,977, respectively. The weighted-average grant date fair values of options granted
during the years ended December 31, 2022 and 2021 were $4.03 and $4.51 per share, respectively. As of December 31, 2022, total
unrecognized stock-based compensation related to non-vested stock options aggregated $793,171, which will be recognized over a
weighted average remaining period of approximately 2 years. 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:
Risk-free interest rate(1)
Dividend yield(2)
Expected volatility(2)
Expected life(3)
During the Years Ended December 31,
2022
3.04%
0%
53%
5.9 years
2021
0.86%
0%
54%
5.0 years
(1) The risk-free interest rate is based on U.S. Treasury yields for a maturity approximating the expected option term.
(2) The dividend yield and expected volatility are derived from averages of our historical data.
(3) The expected life is calculated utilizing the simplified method, which uses the mid-point between the vesting period and the
contractual term as the expected life.
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
F-20
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
(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 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.
During the third quarter of 2011, our Board of Directors voted to authorize an amendment to the Rights Plan 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 Plan.
At various times over the years, our Board of Directors has voted to authorize amendments to the Rights Plan to extend the Final
Expiration Date. Our Board of Directors decided to seek an advisory vote by stockholders at the Annual Meeting of Stockholders held
in June 2022, as to whether to extend the Rights Plan by one year to September 19, 2023. Recognizing that there might be a
substantial number of broker non-votes, our Board of Directors, which has the authority to amend the Rights Plan, disclosed that it
would be guided by the votes actually cast on this proposal in deciding whether to extend the expiration date of such plan by one year.
Of the votes actually cast on this proposal, 65% voted in favor, 32% voted against and 3% abstained. On the basis of this vote, our
Board of Directors voted to extend the Rights Plan by one year to September 19, 2023.
Authorized Common Stock
At the June 14, 2018 Annual Meeting of Stockholders, our stockholders voted to approve an amendment to our Certificate of
Incorporation to increase the number of shares of common stock authorized for issuance from 8,000,000 to 11,000,000. At the June 10,
2020 Annual Meeting of Stockholders, our stockholders voted to approve an amendment to our Certificate of Incorporation to increase
the number of shares of common stock authorized for issuance from 11,000,000 to 15,000,000.
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 as well as 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,
2022 or 2021. We do not have any contract assets 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.
F-21
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
The following table presents our product sales disaggregated by geographic area:
United States
Other
Total Product Sales
During the Years Ended December 31,
2022
%
$17,020,797 92%
8%
$18,567,962 100%
1,547,165
2021
%
$16,620,363 86%
2,622,606 14%
$19,242,969 100%
The following table presents our product sales disaggregated by major product category:
First Defense® product line
Other animal health
Total Product Sales
15. OTHER EXPENSES, NET
Other expenses, net, consisted of the following:
During the Years Ended December 31,
2022
%
$18,411,949 99%
156,013
1%
$18,567,962 100%
2021
%
$18,933,092 98%
2%
$19,242,969 100%
309,877
Interest expense(1)
(Gain) loss on disposal of property, plant and
equipment
Interest income
Income - other
Other expenses, net
During the Years Ended December 31,
2022
2021
$348,536
(7,334)
(153,100)
(912)
$187,190
$314,359
30,963
(18,810)
—
$326,512
(1) Interest expense includes amortization of debt issuance costs of $7,658 and $7,841 during the years ended December 31,
2022 and 2021, respectively.
16. INCOME TAXES
Our income tax expense aggregated $7,672 and $9,165 (amounting to less than 1% and 13% of our loss before income taxes)
during the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, we had federal net operating loss
carryforwards of $15,516,167 of which $13,804,260 do not expire and of which $1,711,907 expire in 2034 through 2037 (if not
utilized before then) and state net operating loss carryforwards of $1,106,340 that expire in 2037 through 2038 (if not utilized before
then). Additionally, we had federal general business tax credit carryforwards of $673,233 that expire in 2027 through 2042 (if not
utilized before then) and state tax credit carryforwards of $791,397 that expire in 2023 through 2042 (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. Adjustments related to the termination of our interest rate swap agreements were recorded during the first quarter of 2020.
No subsequent adjustments were recorded.
F-22
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
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.
We file 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 audited financial statements.
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 Years Ended December 31,
2022
2021
$—
7,672
7,672
(576,780)
(88,533)
(665,313)
665,313
—
$7,672
$—
9,165
9,165
(63,097)
(14,990)
(78,087)
78,087
—
$9,165
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, 2022 and 2021 respectively, as follows:
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
During the Years Ended December 31,
2022
2021
$
%
$
%
($522,088)
(47,643)
36,652
(131,361)
665,313
6,799
$7,672
(21.00%)
(1.92)
1.48
(5.28)
26.76
0.27
0.31%
($14,517)
7,522
13,716
(79,901)
78,087
4,258
$9,165
(21.00%)
10.88
19.84
(115.58)
112.96
6.16
13.26%
The significant components of our deferred tax assets, net, consisted of the following:
Property, plant and equipment
Federal general business tax credits
Federal net operating loss carryforwards
State tax credits and net operating loss carryforwards
§174 R & D expenditures
Deferred compensation
Prepaid expenses and other
UNICAP
Incentive compensation
Valuation allowance
Deferred tax assets, net
F-23
As of December 31,
2022
($2,530,472)
673,233
3,258,395
817,617
341,683
23,370
15,587
32,787
76,554
(2,708,754)
$—
2021
($2,483,145)
557,795
3,094,283
809,618
—
—
(6,289)
14,178
57,001
(2,043,441)
$—
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
17. SEGMENT INFORMATION
Our business operations (being the development, acquisition, manufacture and sale of products that improve the health and
productivity of dairy and beef cattle) are described in Note 1. Pursuant to Codification Topic 280, Segment Reporting, we operate in
the following two reportable business segments: i) Scours and ii) Mastitis. The Scours segment consists of the First Defense® product
line. The core technology underlying the Scours segment is derived around polyclonal antibodies. The Mastitis segment includes our
products, CMT and Re-Tain®. Re-Tain® is projected to be the driver of this segment when approved for sale. The core technology
underlying the Mastitis segment is derived around a bacteriocin called Nisin. The category we define as “Other” includes unallocated
administrative and overhead expenses and other products. The significant accounting policies of these segments are described in Note
2. Product sales are the primary factor we use in determining our reportable segments. The governing regulatory authority (USDA for
First Defense® or FDA for Re-Tain®) is also a factor in determining our reportable segments. Management monitors and evaluates
segment performance from sales to net operating income (loss) closely. We are not organized by geographic region. No segments have
been aggregated. The revenues and expenses allocated to each segment are in some cases direct and in other cases involve reasonable
and consistent estimations by management. Each 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.
Product sales
Costs of goods sold
Gross margin
Product development expenses
Sales and marketing expenses
Administrative expenses
Operating expenses
During the Year Ended December 31, 2022
Scours
$18,411,949
10,754,189
7,657,760
66,346
1,871,926
—
1,938,272
Mastitis
Other
$154,558
136,347
18,211
4,317,921
1,318,107
—
5,636,028
$1,455
28,647
(27,192)
109,605
—
2,263,817
2,373,422
Total
$18,567,962
10,919,183
7,648,779
4,493,872
3,190,033
2,263,817
9,947,722
NET OPERATING INCOME (LOSS)
$5,719,488
($5,617,817)
($2,400,614)
($2,298,943)
Product sales
Costs of goods sold
Gross margin
Product development expenses
Sales and marketing expenses
Administrative expenses
Operating expenses
During the Year Ended December 31, 2021
Scours
$18,933,092
10,411,936
8,521,156
25,374
1,942,391
—
1,967,765
Mastitis
Other
$143,280
99,957
43,323
3,887,781
561,535
—
4,449,316
$166,597
75,147
91,450
255,363
—
1,726,100
1,981,463
Total
$19,242,969
10,587,040
8,655,929
4,168,518
2,503,926
1,726,100
8,398,544
NET OPERATING INCOME (LOSS)
$6,553,391
($4,405,993)
($1,890,013)
$257,385
Total Assets as of December 31, 2022
Total Assets as of December 31, 2021
Depreciation and amortization expense during the
Scours
$20,539,523
$14,860,769
Mastitis
$18,315,492
$19,122,265
Other
$6,005,634
$10,482,654
Total
$44,860,649
$44,465,688
year ended December 31, 2022
$1,169,011
$1,263,318
$62,912
$2,495,241
Depreciation and amortization expense during the
year ended December 31, 2021
Capital Expenditures during the year ended
December 31, 2022
Capital Expenditures during the year ended
December 31, 2021
$1,032,735
$1,374,171
$62,075
$2,468,981
$3,513,336
$414,486
$47,452
$3,975,274
$1,632,855
$975,794
$—
$2,608,649
F-24
ImmuCell Corporation
Notes to Audited Financial Statements (continued)
18. RELATED PARTY TRANSACTIONS
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 $587,677 and $651,424 of products from us during the years ended December 31, 2022 and 2021, respectively, all on terms
consistent with those offered to other distributors of similar status. Our accounts receivable (subject to standard and customary payment
terms) due from these affiliated companies aggregated $46,426 and $55,490 as of December 31, 2022 and 2021, respectively.
19. 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 $159,058 and $139,401 into the Plan for the years ended
December 31, 2022 and 2021, respectively.
20. SUBSEQUENT EVENTS
We have evaluated subsequent events through the time of filing on the date we have issued this Annual Report on Form 10-K.
Except for the contamination event and the bank debt covenant waiver discussed below, there were no material, reportable subsequent
events. Subsequent to year end, our standard in-process quality control testing detected a contamination event in our production
process. In response, we have temporarily slowed down production during the first quarter of 2023 to investigate the root cause and
remediate the problem. We anticipate this slowdown will reduce sales during the first quarter of 2023 to between approximately
$3,200,000 and $3,400,000. Due to the resulting loss in gross margin caused by the reduced sales level, we have decided to defer, for
the time being, certain capital expenditures. The related one-time charge to costs of goods sold during the first quarter of 2023 is
expected to be up to approximately $200,000, of which approximately $114,000 worth of product remains under evaluation. During
the first quarter of 2023, the Debt Service Coverage (DSC) ratio covenant for the year ending December 31, 2023 was waived by our
bank. Instead, we are required to meet a minimum DSC ratio requirement of 1.35 for the twelve-month periods ending June 30, 2024,
September 30, 2024 and December 31, 2024 and then again annually after that.
F-25
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 29, 2023
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.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Gloria J. Basse
Gloria J. Basse
Director
/s/ Michael F. Brigham
Michael F. Brigham
President, Chief Executive Officer
Principal Financial Officer and Director
March 22, 2023
March 22, 2023
/s/ Bobbi Jo Brockmann
Bobbi Jo Brockmann
/s/ David S. Cunningham
David S. Cunningham
/s/ Steven T. Rosgen
Steven T. Rosgen
/s/ David S. Tomsche
David S. Tomsche, DVM
/s/ Elizabeth S. Toothaker
Elizabeth S. Toothaker
/s/ Paul R. Wainman
Paul R. Wainman
Vice President of Sales and Marketing and Director
March 22, 2023
Director
Director
Director
Controller
Director
March 22, 2023
March 22, 2023
March 22, 2023
March 22, 2023
March 22, 2023