==============================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
0-15507
Commission file number
IMMUCELL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 01- 0382980
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
56 Evergreen Drive
Portland, ME 04103
(Address of principal executive office and zip code)
(207) 878-2770
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Class of Securities: Outstanding at August 12, 1996:
Common Stock, par value $.10 per share 2,329,564
==============================================
<PAGE>
IMMUCELL CORPORATION
INDEX TO FORM 10-Q
June 30, 1996
PART I: FINANCIAL INFORMATION
PAGE
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
Consolidated Balance Sheets-
June 30, 1996 and December 31, 1995 3-4
Consolidated Statements of Operations for the
three and six month periods ended June 30, 1996 and 1995 5
Consolidated Statement of Stockholders' Equity for the
six month period ended June 30, 1996 6
Consolidated Statements of Cash Flows for the
six month periods ended June 30, 1996 and 1995 7
Notes to Unaudited Consolidated Financial Statements 8-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 9-11
PART II: OTHER INFORMATION
Items 1 through 6 11
Signatures 12
<PAGE>
IMMUCELL CORPORATION
PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $1,030,869 $1,550,011
Accounts receivable, net 294,844 357,533
Inventories 670,789 636,203
Prepaid expenses and
accrued interest 173,041 26,600
Total current assets 2,169,543 2,570,347
EQUIPMENT, BUILDING AND
IMPROVEMENTS, at cost:
Laboratory equipment 851,999 844,254
Building and improvements 561,047 431,114
Office furniture and equipment 56,387 77,312
Land 50,000 50,000
1,519,433 1,402,680
Less - Accumulated depreciation (714,294) (740,751)
Net equipment, building and
improvements 805,139 661,929
OTHER ASSETS 840 2,150
TOTAL ASSETS $2,975,522 $3,234,426
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
IMMUCELL CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accrued expenses $ 289,908 $ 250,412
Accounts payable 193,640 236,471
Current portion of long term debt 177,167 168,884
Deferred income -- 65,000
Total current liabilities 660,715 720,767
LONG TERM DEBT:
Notes Payable 313,367 401,055
Mortgage loan 204,991 207,288
Total long term debt 518,358 608,343
STOCKHOLDERS' EQUITY:
Common stock, Par value--$.10 per share
Authorized--8,000,000 shares
Issued--2,719,162 and 2,681,579
shares at June 30,1996 and December
31, 1995, respectively 271,917 268,159
Capital in excess of par value 8,139,791 8,105,448
Accumulated deficit (6,028,524) (5,881,556)
Treasury stock, at cost --
389,598 shares (586,735) (586,735)
</TABLE>
Total stockholders' equity 1,796,449 1,905,316
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $2,975,522 $3,234,426
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
IMMUCELL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIODS ENDED
JUNE 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
REVENUES:
<S> <C> <C> <C> <C>
Product sales $ 768,159 $1,022,186 $2,034,159 $2,383,594
Collaborative research
and development revenue -- -- 65,000 --
Grant income 85,950 134,852 170,961 248,630
___________ __________ __________ __________
Total revenues 854,109 1,157,038 2,270,120 2,632,224
___________ __________ __________ __________
COSTS AND EXPENSES:
Product costs 350,432 448,806 895,487 1,067,630
Research and development
expenses 319,550 482,658 820,608 856,122
Sales and marketing
expenses 147,411 163,098 343,264 395,309
General and administrative
expenses 167,197 181,013 346,993 333,640
___________ __________ __________ __________
Total costs and expenses 984,590 1,275,575 2,406,352 2,652,701
___________ __________ __________ __________
Interest and other income 12,092 24,227 25,911 45,205
Interest expense 16,901 19,065 36,647 35,709
___________ __________ __________ __________
Net interest and other
(expense) income (4,809) 5,162 (10,736) 9,496
___________ __________ __________ __________
NET LOSS $ (135,290) $ (113,375) $ (146,968) $ (10,981)
NET LOSS PER SHARE $ (.06) $ (.05) $ (.06) $ --
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 2,321,617 2,291,981 2,306,799 2,291,981
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
IMMUCELL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
$.10 Par Value Capital in Treasury Stock Total
-------------------- Excess of Accumulated ------------------- Stockholders'
Shares Amount Par Value Deficit Shares Amount Equity
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1995 2,681,579 $268,159 $8,105,448 $(5,881,556) 389,598 $(586,735) $1,905,316
Net Loss -- -- -- (146,968) -- -- (146,968)
=========================================================================================
Exercise of Stock Options 37,583 3,758 34,343 -- -- --
38,101
BALANCE,
June 30, 1996 2,719,162 $271,917 $8,139,791 $(6,028,524) 389,598 $(586,735) $1,796,449
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
IMMUCELL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
SIX MONTH PERIODS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C>
Net loss $ (146,968) $ (10,981)
Adjustments to reconcile net loss to
net cash (used for) provided by
operating activities-
Depreciation and amortization 59,604 98,129
Changes in:
Accounts receivable 62,689 17,605
Inventories (34,586) 42,297
Prepaid expenses and accrued interest (146,441) (64,449)
Accounts payable (42,831) (21,187)
Accrued expenses 39,496 40,867
Deferred income (65,000) --
Net cash (used for) provided by
operating activities (274,037) 102,281
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in short-term investments -- (449,276)
Purchases of equipment, building
and improvements, net (202,814) (2,555)
Decrease (increase) in other assets 1,310 (114)
Net cash used for
investing activities (201,504) (451,945)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of debt obligations (81,702) (54,933)
Stock issuance costs -- (8,018)
Proceeds from exercise of stock options 38,101 --
Net cash used for
financing activities (43,601) (62,951)
NET DECREASE IN CASH AND
CASH EQUIVALENTS (519,142) (412,615)
BEGINNING CASH AND CASH EQUIVALENTS 1,550,011 1,295,246
ENDING CASH AND CASH EQUIVALENTS $1,030,869 $ 882,631
CASH PAID FOR INTEREST $ 37,311 $ 36,370
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
IMMUCELL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying statements have been prepared by ImmuCell Corporation
(the "Company") without audit, and reflect the adjustments, all of which are
of a normal recurring nature, that are, in the opinion of management, necessary
for a fair statement of the results for the interim periods presented. Certain
information and footnote disclosures normally included in the annual financial
statements which are prepared in accordance with generally accepted accounting
principles have been condensed or omitted. Accordingly, the Company believes
that although the disclosures are adequate to make the information presented
not misleading, these financial statements should be read in conjunction with
the financial statements and the notes to the financial statements as of
December 31, 1995, contained in the Company's Annual Report to shareholders on
Form 10-K as filed with the Securities and Exchange Commission.
The consolidated financial statements of the Company include the
accounts of the Company and its wholly-owned subsidiary, the Kamar Marketing
Group, Inc. All intercompany accounts and transactions have been eliminated in
consolidation.
(2) Net (Loss) Profit Per Common Share
The net loss per common share has been computed by dividing the net
loss by the weighted average number of common shares outstanding during the
period. Common stock equivalents outstanding have not been included in the
computation, as the effect would be antidilutive, thereby decreasing the net
loss per common share.
(3) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
<S> <C> <C> <C>
Raw materials $ 40,890 $ 69,297
Work-in-process 527,565 513,956
Finished goods 102,334 52,950
_________ _________
$670,789 $636,203
</TABLE>
<PAGE>
IMMUCELL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
(CONTINUED)
(4) Debt Obligations
The Company has long term debt obligations, net of current maturities,
as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
<S> <C> <C>
9.5% Bank mortgage, collateralized by first security
interest in building, due 1996 to 2000 $209,938 $212,044
10.27% Note payable to bank, collateralized by accounts
receivable, inventory and certain fixed assets,
due 1996 to 1998 317,288 375,420
9.62% Note payable to bank, collateralized by accounts
receivable, inventory and certain fixed assets,
due 1996 to 1999 168,299 189,763
695,525 7 77,227
Less current portion 177,167 168,884
Long term debt $518,358 $608,343
</TABLE>
Principal payments under the above debt obligations due subsequent to
June 30, 1996 areapproximately as follows: $88,000 - 1996; $187,000 - 1997;
$181,000 - 1998; $50,000 -1999 and $190,000 - 2000.
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE
30, 1996
Total revenues equalled $854,000 and $2,270,000 for the three and six
month periods ended June 30, 1996, respectively, as compared to $1,157,000 and
$2,632,000 in the comparable periods in 1995. Collaborative research and
development revenue and grant income decreased by $49,000 (36%) and by
$13,000 (5%) during the three and six month periods ended June 30, 1996,
respectively. Grant income was recognized under two federally sponsored
research grants that support one of the Company's passive antibody development
programs. This sponsored research is expected to be completed later this year.
The $65,000 in collaborative research and development revenue recognized during
the first quarter of 1996 supported a portion of the Company's effort to
develop a process to manufacture lactoferrin, a nutritional milk protein
derived from cheese whey.
Product sales decreased by $254,000 (25%) and by $349,000 (15%) to
$768,000 and $2,034,000 during the three and six month periods ended June 30,
1996, respectively, in comparison to the same periods in the prior year. Sales
of First Defense{R} and the Kamar Heatmount Detector aggregated 88% and 86% of
total product sales during the three and six month periods ended June 30, 1996,
respectively. Comparatively, sales of these two products aggregated 85% and
86% of total product sales during the three and six month periods ended June
30, 1995. Sales of these two products decreased by 22% and by 15% during the
three and six month periods ended June 30, 1996, respectively, as compared to
the same periods of the prior year.
<PAGE>
IMMUCELL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
The Company attributes the decline in sales primarily to a general weakness in
the beef market. When the price of beef declines, farmers are less likely to
invest in products like First Defense{R}, which prevents an infectious disease
in newborn calves.
The gross margin percentage on products sales was maintained between
54% to 56% of product sales for the three and six month periods ended June 30,
1996 and 1995. The gross margin decreased by $156,000 (27%) and by $177,000
(13%) during the three and six month periods ended June 30, 1996 as compared to
the respective periods in 1995. These declines are consistent with the related
decreases in product sales.
Research and development expenses declined by $163,000 (34%) during the
three months ended June 30, 1996 and by $36,000 (4%) during the six months
ended June 30, 1996 as compared to the respective periods in 1995. These
expenses were incurred primarily to develop specific antibodies to be used to
prevent and/or treat gastrointestinal infections in humans. Additionally,
funds have been invested in the development of a product to detect infectious
pathogens in water and in the development of a process to manufacture
lactoferrin, a nutritional milk protein derived from cheese whey. Research and
development expenses exceeded collaborative research and development revenue
and grant income by $234,000 and by $585,000 during the three and six month
periods ended June 30, 1996, respectively. These figures compare to $348,000
and $607,000 during the comparable periods in 1995. Management believes that
the losses incurred resulting from the investment in the research and
development of new products is necessary to foster growth for the Company
in the future. It has been, and continues to be, the Company's strategy to
demonstrate efficacy in Phase I/II clinical trials and then actively pursue
corporate partners to fund continued development in exchange for marketing
rights.
The research and development expenses, described above, principally
caused the net operating losses of $135,000 and $147,000 during the three and
six month periods ended June 30, 1996, respectively. These losses compare to
net operating losses of $113,000 and $11,000 during the three and six month
periods ended June 30, 1995, respectively. In order to aggressively develop
new products, the Company expects to incur further operating losses.
LIQUIDITY AND CAPITAL RESOURCES
Total assets decreased by approximately $259,000 to $2,976,000 at June
30, 1996 from $3,234,000 at December 31, 1995. Cash and cash equivalents
decreased by approximately $519,000 to $1,031,000 at June 30, 1996 from
$1,550,000 at December 31, 1995. Net working capital decreased by $341,000 to
$1,509,000 at June 30, 1996 from $1,850,000 at December 31, 1995. The Company
invested approximately an additional $305,000 in new equipment and building
improvements during the first six months of 1996. Additionally, similar
purchases aggregating approximately $75,000 were made in the fourth quarter of
1995. These investments are part of a planned investment aggregating
approximately $400,000 in new equipment and building improvements.
In April 1994, the Company obtained notice from the National Institute
of Allergy and Infectious Diseases ("NIAID") that it had been awarded a Phase
II Small Business Innovation Research ("SBIR") grant aggregating approximately
$446,000 over two years. This grant period has been extended through October
1996. These funds are being used to develop recombinant vaccines to
CRYPTOSPORIDIUM PARVUM. In July 1994,
the Company obtained notice from the NIAID that it had been awarded a second
Phase II SBIR grant aggregating approximately $507,000 over two years. This
grant period has been extended through December
1996. These funds are being used to develop a passive antibody product for the
prevention and/or treatment of cryptosporidiosis in AIDS patients. As of June
30, 1996, approximately $102,000 remained available to fund future grant
expenditures. Approximately 92% of this $102,000 will be used to fund internal
research
<PAGE>
IMMUCELL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
and development expenses, and the balance will fund development services
performed under contract by outside laboratories.
In July 1996, the Company and Agri-Mark, Inc., of Methuen, Massachusetts agreed
to form a joint venture to manufacture and sell lactoferrin, a nutritional milk
protein derived from cheese whey. As part of this agreement, the Company
invested $125,000 in fixed assets, and Agri-Mark agreed to invest approximately
$650,000 in additional fixed assets and to fund the necessary initial working
capital. While currently able to manufacture sample quantities of lactoferrin
for customer testing, the joint venture expects to begin commercial production
by the first quarter of 1997. Agri-Mark has the right to receive 90% of the
proceeds until it obtains the return of its original investment, after which
all proceeds will be shared equally.
The Company believes that it has sufficient capital resources to meet
its working capital requirements and to finance its ongoing business operations
during the next twelve months.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held on June 28, 1996, the
stockholders voted to elect the Board of Directors for the next
ensuing year.
Each of the six nominees recommended by management to the
stockholders was elected to the Board. The following list by
name of director shows how the votes were cast for each
director:
Anthony B. Cashen (for: 1,788,581; withhold: 13,857),
Thomas C. Hatch (for: 1,789,798; withhold: 12,640),
George W. Masters (for: 1,789,865; withhold:
12,573), William H. Maxwell (for: 1,789,694; withhold:
12,744), John R. McKernan, Jr. (for: 1,788,865;
withhold: 13,573) and Mitchel Sayare (for: 1,788,828;
withhold: 13,610).
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Letter of Intent to Form Joint Venture between the
Registrant and Agri-Mark, Inc., of Methuen,
Massachusetts dated July 9, 1996.
(b) Reports on Form 8-K
None
<PAGE>
IMMUCELL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ImmuCell Corporation
Registrant
Date: August 12, 1996 By: /s/ Thomas C. Hatch
Thomas C. Hatch
President and Chief
Executive Officer
Date: August 12, 1996 By: /s/ Michael F. Brigham
Michael F. Brigham
Chief Financial Officer,
Treasurer and Secretary
<PAGE>
IMMUCELL CORPORATION
EXHIBIT INDEX
Page
10.1 Letter of Intent to Form Join Venture between the Registrant and Agri-
Mark, Inc., of Methuen, Massachusetts dated July 9, 1996.
27.1 Financial Data Schedule (for electronically filed copies only).
<PAGE>
IMMUCELL CORPORATION
EXHIBIT 10.1
Letter of Intent to Form Joint Venture between the Registrant and VM
Agri-Mark, Inc., of Methuen, Massachusetts dated July 9, 1996.
<PAGE>
July 9, 1996
Agri-Mark, Inc.
P.O. Box 5800
Lawrence, MA 01842
Attn: Richard O. Langworthy
Dear Richard:
ImmuCell Corporation ("ImmuCell") and Agri-Mark, Inc. ("Agri-Mark") are
parties to a certain Option Agreement dated as of November 22, 1995, pursuant
to which Agri-Mark purchased an option to form a joint venture with ImmuCell in
the form of a limited liability company (the "Joint Venture") to use the
Lactoferrin Technology in the commercial production and sale of the Lactoferrin
Product. Capitalized terms not otherwise defined herein shall have the
meanings ascribed to such terms in the Agreement.
In connection with the contemplated formation of the Joint Venture,
ImmuCell and Agri-Mark hereby further agree as follows:
1. ImmuCell agrees to extend Agri-Mark's option to enter into the
Joint Venture from June 15, 1996 to August 30, 1996.
2. Agri-Mark agrees to submit a purchase order to AST for an ISEP
System, at a purchase price of $525,000, on or before July 10, 1996. Upon the
delivery of such purchase order to AST, ImmuCell agrees to pay to Agri-Mark the
sum of $125,000 toward the purchase of such ISEP System. In consideration for
such payment, Agri-Mark acknowledges that ImmuCell shall acquire a 23.81%
ownership interest in such ISEP System, and agrees to execute such further
documents as may be necessary to evidence the ownership by ImmuCell of such
ISEP System, including without limitation UCC-1 financing statements.
Agri-Mark further agrees to abide by the terms and conditions of the Agreement
for Exclusivity between AST and ImmuCell dated August 30, 1993 and all
subsequent amendments thereto up to and including the June 26, 1996 amendment.
3. Appendix A to the Option Agreement dated as of November 22, 1995
is deleted in its entirety and replaced by the attached Appendix A. The
provisions of the November 22, 1995 Option Agreement shall remain in full force
and effect except where superseded by the attached Appendix A. Where the terms
of the November 22, 1995 Option Agreement and the attached Appendix A conflict,
the terms of the attached Appendix A shall prevail.
<PAGE>
Agri-Mark, Inc.
Page 2
July 9, 1996
If the foregoing correctly reflects our understanding, please sign
below where indicated.
Sincerely,
IMMUCELL CORPORATION
By: /s/ Thomas C. Hatch
Its: President and CEO
Agreed:
AGRI-MARK, INC.
By: /s/ Paul P. Johnston
Its: President
copy to: Eileen Brogan
<PAGE>
July 1996
Appendix A
OUTLINE HEADS OF AGREEMENT
APPLYING TO THE FORMATION, OWNERSHIP
AND OPERATION OF AN INTENDED LLC BETWEEN
IMMUCELL AND AGRIMARK
1. GRANT OF LICENSE
Upon the formation of an LLC between ImmuCell and AgriMark, ImmuCell shall
grant the LLC the right to purchase ISEP Systems from AST and an exclusive,
non-terminable, royalty free license to use the Lactoferrin Technology
including an exclusive sublicense to use the ISEP System, as well as all
improvements conceived or reduced to practice or obtained at any time by
ImmuCell, to which ImmuCell has the right to license or sublicense, in order
for the LLC to manufacture Lactoferrin Product.
2. INVESTED CAPITAL BY AGRIMARK
AgriMark will capitalize the LLC with a maximum of $650,000 ("Invested
Capital"), $400,000 of this amount must be contributed upon formation of the
LLC and will be spent principally purchasing an ISEP System. The remaining
amount will be contributed as needed to equip the production plant.
3. ASSET CONTRIBUTION BY IMMUCELL
ImmuCell shall contribute $125,000 towards the purchase of the first ISEP
System. ImmuCell will contribute applicable equipment from the pilot plant to
the LLC ("the Contributed Assets"). This explicitly includes the pilot ISEP
System and associated pumps and hardware. However, prior to any dissolution of
the LLC, ImmuCell shall have the right to use the pilot ISEP System for WPI
development at other locations. If the LLC is dissolved, the pilot ISEP System
will belong to AgriMark.
4. ECONOMIC INTERESTS IN THE LLC
AgriMark and ImmuCell shall have equal economic interests in the LLC to be
formed except that 90% of the net income before taxes from the LLC shall go to
AgriMark until the amount of its Invested Capital is returned to AgriMark.
The other 10% of net income before taxes from the LLC shall go to ImmuCell
during the same period. After such time as the Invested Capital is returned to
AgriMark, all subsequent net income before taxes of the LLC shall be divided
between ImmuCell and AgriMark on the basis of their equal economic interests in
the LLC. All tax obligations will accrue to each party on the basis of
their interests in the income from the LLC.
5. FREEZE DRYING
ImmuCell shall freeze dry all Lactoferrin Product produced by the LLC at a 30%
discount to the next best quote from a commercial freeze dryer.
<PAGE>
6. WHEY SUPPLY
AgriMark will provide whey to the LLC at no cost. AgriMark's economic interest
in providing whey at no cost is to earn a return on its economic interest in
the LLC.
7. LIFE OF LLC AND RETURN OF CAPITAL
The LLC will have a thirty year life. Upon expiration or earlier termination
the Contributed Assets, except for the pilot ISEP System, and all documents
related to Lactoferrin Technology will be returned to ImmuCell. The pilot ISEP
System shall belong to AgriMark. The assets purchased with Invested Capital
will be returned to AgriMark. Other assets will be distributed according to
the parties' ownership shares in the LLC, which are expected to be equal,
except that AgriMark shall have the first priority claim on working capital up
to the amount of working capital contributed to the LLC directly by AgriMark.
Section 8 notwithstanding, upon expiration of the 30 year term, the license
granted by ImmuCell to use the Lactoferrin Technology will terminate and
AgriMark will at that time have no right to use the Lactoferrin Technology for
any purpose.
8. DISPOSITION AND USE OF ISEP SYSTEM
If the LLC is terminated, ImmuCell grants AgriMark the right to sell the ISEP
System described in Paragraph 2 to ImmuCell any time within one year of
installation of the ISEP System in the Middlebury plant for $200,000. AgriMark
will be under no obligation to make such a sale but ImmuCell will be obligated
to make such a purchase within ninety (90) days of notification by AgriMark of
its desire to make such a sale. AgriMark will provide seller financing for the
purchase price with terms of three years and twelve percent interest,
payments of principal and interest to be made monthly. Alternatively, AgriMark
may sell the machine to a third party in which case 76.19% of the proceeds
shall be kept by AgriMark and 23.81% of such proceeds shall go to ICCC.
ImmuCell shall have the right to match the purchase price proposed by any third
party. If ImmuCell terminates or causes the termination of the LLC, AgriMark
shall be permitted by ImmuCell to use the ISEP System and the Lactoferrin
Technology to manufacture Lactoferrin Product and will pay a royalty equal to
3% of sales. Upon termination of the LLC without cause by AgriMark,
AgriMark shall be prohibited from manufacturing Lactoferrin Product for a
period of five years, and all documents, material, information, procedures,
processes, patents and know-how related to Lactoferrin Technology will be
returned to ImmuCell within ninety days.
9. PATENTS AND IMPROVEMENTS
Once formed, the LLC shall be responsible for seeking patent protection for any
Improvements made in the manufacture or use of the Lactoferrin Product if
deemed patentable. Any such patent shall be licensed to ImmuCell and to
AgriMark, and to no others, on a royalty-free basis for the life of the patent
with no rights to sublicense. Improvements shall mean any and all inventions,
modifications, discoveries, ideas, developments and enhancements related to the
manufacture of the Lactoferrin Product.
<PAGE>
10. FORMATION COSTS AND WORKING CAPITAL REQUIREMENTS
AgriMark shall be solely and fully responsible for the legal costs of forming
the LLC and in providing necessary working capital to fund initial production
and sales of Lactoferrin Product. ImmuCell agrees to provide the services of
Thomas Piehl or equivalent employee to the LLC on a half-time basis (six months
equivalent) over any consecutive twelve month period.
11. AgriMark and ImmuCell agree to negotiate in good faith all
remaining terms needed to form the LLC if AgriMark exercises itS option to
proceed.
12. AgriMark will have 50% voting control in the management and
operation of the business of the LLC; ImmuCell will have 50%. In accordance
with Section 4 of this Appendix A, AgriMark will have the right to annual
distribution of the income to which it is entitled until it receives the
amount of its Invested Capital. Each party will then have rights to annual
distributions of income based on economic interests in the LLC.
13. ADDITIONAL LACTOFERRIN PRODUCTION
ImmuCell shall grant any rights it owns to manufacture Lactoferrin Product
using the ISEP System to the LLC on an exclusive, royalty free basis.
14. RIGHTS TO WPI PRODUCTION
ImmuCell grants AgriMark a license to purchase and use one (1) ISEP System for
the manufacture of WPI from its whey supply at the Middlebury cheese plant
provided AgriMark pays ImmuCell a royalty of 3% of the net sales of WPI.
15. INDEMNIFICATION
ImmuCell shall indemnify and hold harmless LLC and AgriMark from and against
all losses, liabilities and expenses including reasonable attorneys fees
arising out of any claim against LLC and AgriMark by any third party for
infringement of any patent, tradesecret, copyright or other intellectual
property right relating to LLC's use of the Lactoferrin Technology. In the
case of infringement, ImmuCell shall have the right to defend against any suit
and to obtain a license to use the Lactoferrin Technology. Any royalties or
license fees are to be paid only from sale of product and will be deducted
only from ImmuCell's portion of net income before taxes. AgriMark will
indemnify ImmuCell against any claims resulting from any improvement created
by AgriMark.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule
IMMUCELL CORPORATION
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS FOR THE QUARTERLY PERIOD ENDED JUNE
30, 1996 AS REPORTED ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,030,869
<SECURITIES> 0
<RECEIVABLES> 340,239
<ALLOWANCES> 45,395
<INVENTORY> 670,789
<CURRENT-ASSETS> 2,169,543
<PP&E> 1,519,433
<DEPRECIATION> 714,294
<TOTAL-ASSETS> 2,975,522
<CURRENT-LIABILITIES> 660,715
<BONDS> 518,358
0
0
<COMMON> 1,796,449
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,975,522
<SALES> 2,034,159
<TOTAL-REVENUES> 2,270,120
<CGS> 895,487
<TOTAL-COSTS> 2,406,352
<OTHER-EXPENSES> 10,737
<LOSS-PROVISION> 6,600
<INTEREST-EXPENSE> 25,910
<INCOME-PRETAX> (146,968)
<INCOME-TAX> 0
<INCOME-CONTINUING> (146,968)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (146,968)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
