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 September 30, 1997
[ ] 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 November 12, 1997:
Common Stock, par value $.10 per share 2,334,064
<PAGE>
IMMUCELL CORPORATION
INDEX TO FORM 10-Q
September 30, 1997
PART I: FINANCIAL INFORMATION Page
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
Consolidated Balance Sheets-
September 30, 1997 and December 31, 1996 3-4
Consolidated Statements of Operations for the
three and nine month periods ended September 30, 1997
and 1996 5
Consolidated Statement of Stockholders' Equity for the
nine month period ended September 30, 1997
6
Consolidated Statements of Cash Flows for the
nine month periods ended September 30, 1997 and 1996 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>
September 30, December 31,
1997 1996
---------- ----------
(unaudited)
<S> <C> <C>
Cash and cash equivalents $ 798,160 $1,044,441
Accounts receivable, net 346,986 370,798
Inventories 595,188 648,276
Prepaid expenses and
accrued interest 56,618 25,747
---------- ----------
Total current assets 1,796,952 2,089,262
EQUIPMENT, BUILDING AND
IMPROVEMENTS, at cost:
Laboratory and manufacturing 813,823 754,891
equipment
Building and improvements 580,747 580,747
Office furniture and equipment 59,026 54,977
Land 50,000 50,000
---------- ----------
1,503,596 1,440,615
Less - Accumulated depreciation 691,688 623,987
---------- ----------
Net equipment, building and
improvements 811,908 816,628
INVESTMENTS IN JOINT VENTURES 241,669 224,669
OTHER ASSETS 840 840
---------- ----------
TOTAL ASSETS $2,851,369 $3,131,399
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
IMMUCELL CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---------- ----------
(unaudited)
CURRENT LIABILITIES:
<S> <C> <C>
Accrued expenses s $ 176,988 $ 185,256
Accounts payable 217,574 269,585
Current portion of long term debt 247,470 229,322
---------- ----------
Total current liabilities 642,032 684,163
LONG TERM DEBT:
Notes payable 183,172 367,165
Mortgage loan 198,942 202,857
---------- ----------
Total long term debt 382,114 570,022
STOCKHOLDERS' EQUITY:
Common stock, Par value--$.10 per share
Authorized--8,000,000 shares
Issued--2,723,662 and 2,719,162
shares at September 30,1997 and
December 31, 1996, respectively 272,366 271,916
Capital in excess of par value 8,145,184 8,139,791
Accumulated deficit (6,003,592) (5,947,758)
Treasury stock, at cost --
389,598 shares (586,735) (586,735)
---------- ----------
Total stockholders' equity 1,827,223 1,877,214
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $2,851,369 $3,131,399
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
IMMUCELL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Product sales $ 958,770 $ 937,310 $3,004,644 $2,971,469
Collaborative research
and development revenue -- -- 75,000 65,000
Grant income 22,000 74,000 48,881 244,961
--------- --------- --------- ---------
Total revenues 980,770 1,011,310 3,128,525 3,281,430
--------- --------- --------- ---------
COSTS AND EXPENSES:
Product costs 429,664 481,683 1,343,524 1,377,171
Research and development
expenses 280,767 301,174 805,492 1,121,782
Sales and marketing
expenses 152,618 172,803 600,346 535,440
General and administrative
expenses 113,521 153,888 410,833 481,507
--------- --------- --------- ---------
Total costs and expenses 976,570 1,109,548 3,160,195 3,515,900
--------- --------- --------- ---------
Interest and other income 8,908 9,419 29,205 35,329
Interest expense (16,477) (17,761) (53,369) (54,408)
--------- --------- --------- ---------
Net interest and other
expense (7,569) (8,342) (24,164) (19,079)
--------- --------- --------- ---------
NET LOSS $ (3,369) $ (106,580) $ (55,834) $ (253,549)
========= ========= ========= =========
NET LOSS PER SHARE $ (.00) $ (.05) $ (.02) $ (.11)
========= ========= ========= =========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 2,334,064 2,329,564 2,332,564 2,314,443
========= ========= ========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
IMMUCELL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997
(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, 1996 2,719,162 $271,916 $8,139,791 $(5,947,758) 389,598 $(586,735) $1,877,214
Net Loss -- -- -- (55,834) -- -- (55,834)
Exercise of Stock Options 4,500 450 5,393 -- -- -- 5,843
--------- ------- --------- ---------- -------- -------- ---------
BALANCE,
September 30, 1997 2,723,662 $272,366 $8,145,184 $(6,003,592) 389,598 $(586,735) $1,827,223
========= ======= ========= ========== ======== ======== =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
FINANCIAL STATEMENTS.
<PAGE>
IMMUCELL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (55,834) $ (253,549)
Adjustments to reconcile net loss
to net cash provided by (used for)
operating activities-
Depreciation and amortization 72,901 88,718
Changes in:
Accounts receivable 23,812 (2,422)
Inventories 53,088 (56,573)
Prepaid expenses and accrued interest (30,871) (24,924)
Accounts payable (52,011) (56,331)
Accrued expenses and deferred income (8,268) (40,658)
--------- ---------
Net cash provided by (used for)
operating activities 2,817 (345,739)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment, building
and improvements, net (68,181) (361,355)
Investments in joint ventures (17,000) (134,127)
Decrease in other assets -- 1,310
--------- ---------
Net cash used for
investing activities (85,181) (494,172)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of debt obligations (169,760) (124,008)
Proceeds from exercise of stock options 5,843 38,102
Proceeds from debt obligation -- 200,000
--------- ---------
Net cash (used for) provided by
financing activities (163,917) 114,094
--------- ---------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (246,281) (725,817)
BEGINNING CASH AND CASH EQUIVALENTS 1,044,441 1,550,011
--------- ---------
ENDING CASH AND CASH EQUIVALENTS $ 798,160 $ 824,194
========= =========
CASH PAID FOR INTEREST $ 53,913 $ 54,505
========= =========
NON-CASH INVESTING ACTIVITIES:
TRANSFER OF NET FIXED ASSETS
TO JOINT VENTURE $ -- $ 94,669
========= =========
</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, 1996, contained in the Company's Annual Report 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) NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued STATEMENT OF FINANCIAL ACCOUNTING STANDARDS ("SFAS") NO. 128 - EARNINGS
PER SHARE. This Statement is effective for financial statements issued for
periods ending after December 15, 1997 with earlier application not permitted.
The Statement requires dual presentation of basic and diluted earnings per
share on the income statement. The Statement does not effect the weighted
average basis of reporting the net loss per share.
In June 1997, the FASB issued SFAS NO. 131 - DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION, which revises existing guidelines
about the level of financial disclosure of a Company's operations. The
Statement is effective for financial statements issued after December 15, 1997.
The Company has not determined the impact of the new standard, but does not
expect it to have a material impact to existing financial reporting.
(3) NET LOSS 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 net loss per
share computation, as the effect would be antidilutive, thereby decreasing the
net loss per common share.
(4) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Raw materials $ 37,161 $ 55,682
Work-in-process 446,620 548,083
Finished goods 111,407 44,511
-------- --------
$595,188 $648,276
======== ========
</TABLE>
<PAGE>
IMMUCELL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(5) DEBT OBLIGATIONS
The Company has long term debt obligations, net of current maturities,
as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
<S> <C> <C>
9.5% Bank mortgage, collateralized by first security
interest in building, due 1997 to 2000 $204,118 $207,728
10.27% Note payable to bank, collateralized by accounts
receivable, inventory and certain fixed assets,
due 1997 to 1998 157,894 256,054
10% Note payable to bank, collateralized by accounts
receivable, inventory and certain fixed assets, due 1997
to 2000 157,510 189,701
9.62% Note payable to bank, collateralized by accounts
receivable, inventory and certain fixed assets,
due 1997 to 1999 110,062 145,861
-------- --------
629,584 799,344
Less current portion 247,470 229,322
-------- --------
Long term debt $382,114 $570,022
======== ========
</TABLE>
Principal payments under the above debt obligations due subsequent to
September 30, 1997 are approximately as follows: $60,000 - 1997; $230,000 -
1998; $104,000 - 1999; and $236,000 - 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 NINE MONTH PERIODS ENDED SEPTEMBER 30,
1997
Total revenues equalled $981,000 and $3,129,000 for the three and nine
month periods ended September 30, 1997, respectively, as compared to $1,011,000
and $3,281,000 in the comparable periods in 1996. Collaborative research and
development revenue and grant income decreased by $52,000 (70%) and by $186,000
(60%) during the three and nine month periods ended September 30, 1997,
respectively. The 1997 grant income was recognized under a federally sponsored
research grant to support the development of the Company's water test. The
1996 grant income was recognized under two federally sponsored research grants
in support of the Company's passive antibody development programs, which
research funding was complete as of December 31, 1996. The $75,000 licensing
fee recognized during the first quarter of 1997 was received for an option
payment on a license to use the Company's milk processing technology for the
production of whey protein isolate and certain other proteins. The $65,000 in
collaborative research and
<PAGE>
IMMUCELL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
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 increased by $21,000 (2%) to $959,000 and by $33,000 (1%)
to $3,005,000 during the three and nine month periods ended September 30, 1997,
respectively, in comparison to the same periods in the prior year. Sales of
First Defense<reg-trade-mark> and the Kamar<reg-trade-mark> Heatmount{TM}
Detector aggregated 96% and 94% of total product sales during the three and
nine month periods ended September 30, 1997, respectively. Comparatively,
sales of these two products aggregated 96% and 89% of total product sales
during the three and nine month periods ended September 30, 1996. Sales of
these two products increased by 3% and 8% during the three and nine month
periods ended September 30, 1997, respectively, as compared to the same periods
of the prior year.
The gross margin percentage on products sales was 55% for the three and
nine month periods ended September 30, 1997 and was 49% and 54% for the three
and nine month periods ended September 30, 1996, respectively. The improved
gross margin percentage in 1997 reflects the benefit of improved manufacturing
efficiencies. The gross margin increased by $73,000 (16%) during the three
month period ended September 30, 1997 as compared to the respective period in
1996. The gross margin increased by $67,000 (4%) during the nine month period
ended September 30, 1997 as compared to the respective period in 1996.
Research and development expenses decreased by $20,000 (7%) during the
third quarter of 1997 as compared to the third quarter of 1996 and declined by
$316,000 (28%) during the nine months ended September 30, 1997 as compared to
the respective period in 1996. 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 $259,000
during the three month period ended September 30, 1997 and by $227,000 during
the comparable period in 1996. Research and development expenses exceeded
collaborative research and development revenue and grant income by $682,000
during the nine month period ended September 30, 1997 and by $812,000 during
the comparable period in 1996.
Sales and marketing expenses decreased by $20,000 (12%) during the three
month period ended September 30, 1997 compared to the same period in 1996,
aggregating 16% of product sales in the 1997 period compared to 18% in 1996.
Sales and marketing expenses increased by $65,000 (12%) during the nine month
period ended September 30, 1997 compared to the same period in 1996,
aggregating 20% of product sales in the 1997 period compared to 18% in 1996.
General and administrative expenses decreased by $40,000 (26%) during the three
month period ended September 30, 1997 and by $71,000 (15%) during the nine
month period ended September 30, 1997 compared to the same periods in 1996, as
the Company continues its efforts to control these expenses while incurring all
the necessary costs associated with being a publicly held company.
Management believes that the expenses 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, were the principal cause of the net losses of $3,000 and
$56,000 for the three and nine month periods ended September 30, 1997. In
order to aggressively develop new products, the Company expects to incur
operating losses in the future.
<PAGE>
IMMUCELL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
In the third quarter of 1996, the Company made investments in two joint
ventures, AgriCell Company, LLC ("AgriCell") and Clearwater Diagnostics
Company, LLC ("CDC"). The operating activity of these joint ventures for the
period from inception to September 30, 1997 was not material. AgriCell
recently completed the installation of a commercial production facility and
began manufacturing commercial quantities of bovine lactoferrin, a nutritional
milk protein derived from cheese whey. In June 1997, CDC entered into a
distribution agreement with an England-based company covering the sales of
Crypto-Scan{TM} water diagnostic test in the United Kingdom. This test method
is currently being evaluated by the U.S. Environmental Protection Agency. As
the production and sales efforts develop, the Company will begin recording its
equity share in the operating results of these joint ventures.
LIQUIDITY AND CAPITAL RESOURCES
Total assets decreased by approximately $280,000 to $2,851,000 at
September 30, 1997 from $3,131,000 at December 31, 1996. Cash and cash
equivalents decreased by approximately $246,000 to $798,000 at September 30,
1997 from $1,044,000 at December 31, 1996. Net working capital decreased by
$250,000 to $1,155,000 at September 30, 1997 from $1,405,000 at December 31,
1996. Stockholders' equity decreased by $50,000 to $1,827,000 at September 30,
1997 from $1,877,000 at December 31, 1996.
The Company obtained a $710,000 Phase II Small Business Innovation
Research grant from the National Institutes of Health in September 1997 to
partially fund further development of its product to prevent Travelers'
Diarrhea, TravelGAM{TM} bovine anti-E. COLI immunoglobulins, over the next two
years. No grant income under this award was recognized during the periods
ended September 30, 1997.
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
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule (for electronically filed
copies only).
(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: November 12, 1997 By: /S/ THOMAS C. HATCH
Thomas C. Hatch
President and Chief
Executive Officer
Date: November 12, 1997 By: /S/ MICHAEL F. BRIGHAM
Michael F. Brigham
Chief Financial Officer,
Treasurer and Secretary
<PAGE>
IMMUCELL CORPORATION
EXHIBIT INDEX
27.1 Financial Data Schedule (for electronically filed copies only).
<PAGE>
IMMUCELL CORPORATION
EXHIBIT 27.1
Financial Data Schedule
<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
SEPTEMBER 30, 1997 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-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 798,160
<SECURITIES> 0
<RECEIVABLES> 401,552
<ALLOWANCES> 54,566
<INVENTORY> 595,188
<CURRENT-ASSETS> 1,796,952
<PP&E> 1,503,596
<DEPRECIATION> 691,688
<TOTAL-ASSETS> 2,851,369
<CURRENT-LIABILITIES> 642,032
<BONDS> 382,114
0
0
<COMMON> 1,827,223
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,851,369
<SALES> 3,004,644
<TOTAL-REVENUES> 3,128,525
<CGS> 1,343,524
<TOTAL-COSTS> 3,160,195
<OTHER-EXPENSES> (29,205)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,369
<INCOME-PRETAX> (55,834)
<INCOME-TAX> 0
<INCOME-CONTINUING> (55,834)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (55,834)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
