ITEM 1. FINANCIAL
STATEMENTS
Notes to Unaudited Condensed
Financial Statements
ImmuCell Corporation (the
“Company”, “we”, “us”, “our”) was originally incorporated in Maine in 1982 and
reincorporated in Delaware in 1987, in conjunction with its initial public offering of common stock. We are an animal health company
whose purpose is to create scientifically-proven and practical products that improve the health and productivity of dairy and beef
cattle. We market products that provide
Immediate Immunity™
to newborn dairy and beef cattle. We are developing extensions
to the
First Defense
®
product line and are in the late stages of developing
Re-Tain™
, a treatment
for subclinical mastitis. These products help reduce the need to use traditional antibiotics in food producing animals. The Company
is subject to certain risks associated with its stage of development including dependence on key individuals and third-party providers
of critical goods and services, competition from other larger companies, the successful sale of existing products and the development
and acquisition of additional commercially viable products with appropriate regulatory approvals, where applicable. Based on our
best estimates and projections, we believe that we have sufficient capital resources to continue operations for at least twelve
months from the date of this filing.
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
|
(a)
|
Basis of Presentation
|
We have prepared the accompanying
unaudited financial statements reflecting all adjustments that are, in our opinion, necessary in order to ensure that the financial
statements are not misleading. We follow accounting standards set by the Financial Accounting Standards Board (FASB). The FASB
sets generally accepted accounting principles (GAAP) that we follow to ensure we consistently report our financial condition, results
of operations, earnings per share and cash flows. References to GAAP in these footnotes are to the FASB
Accounting Standards
Codification
™ (Codification). Accordingly, we believe that the disclosures are adequate to ensure that the information
presented is not misleading.
|
(b)
|
Cash, Cash Equivalents and Short-Term Investments
|
We consider all highly
liquid investment instruments that mature within three months of their purchase dates to be cash equivalents. Cash equivalents
are principally invested in securities backed by the U.S. government. Certain cash balances in excess of Federal Deposit Insurance
Corporation (FDIC) limits of $250,000 per financial institution per depositor are maintained in money market accounts at financial
institutions that are secured, in part, by the Securities Investor Protection Corporation. Amounts in excess of these FDIC limits
per bank that are not invested in securities backed by the U.S. government aggregated $1,024,083 and $2,268,737 as of June 30,
2019 and December 31, 2018, respectively. Short-term investments are classified as held to maturity and are comprised of certificates
of deposit that mature in more than three months from their purchase dates and not more than twelve months from the balance sheet
date. Short-term investments are held at different financial institutions that are insured by the FDIC, within the FDIC limits
per financial institution. We account for investments in marketable securities in accordance with Codification Topic 320,
Investments
— Debt and Equity Securities
. See Note 3.
Accounts receivable are
carried at the original invoice amount less an estimate made for doubtful collection. Management determines the allowance for doubtful
accounts on a monthly basis by identifying troubled accounts and by using historical experience applied to an aging of accounts.
Accounts receivable are considered to be past due if a portion of the receivable balance is outstanding for more than 30 days.
Past due accounts receivable are subject to an interest charge. Accounts receivable are written off when deemed uncollectible.
The amount of accounts receivable written off during all periods reported was immaterial. Recoveries of accounts receivable previously
written off are recorded as income when received. As of June 30, 2019 and December 31, 2018, we determined that no allowance for
bad debt was necessary. See Note 4.
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 monthly balance sheet date, we evaluate our ending inventories for excess quantities and
obsolescence. Inventories that we consider excess or obsolete are reserved. Once inventory is written down and a new cost
basis is established, it is not written back up if demand increases. We believe that supplies and raw materials for the
production of our products are available from more than one vendor. Our policy is to maintain more than one source of supply
for the components used in our products when practicable. See Note 5.
ImmuCell Corporation
Notes to Unaudited Condensed
Financial Statements (continued)
|
(e)
|
Property, Plant and Equipment
|
We depreciate property,
plant and equipment on the straight-line method by charges to operations and costs of goods sold in amounts estimated to expense
the cost of the assets from the date they are first put into service to the end of the estimated useful lives of the assets. The
facility we have constructed to produce the Nisin Drug Substance for
Re-Tain™
is being depreciated over 39 years from
when a certificate of occupancy was issued during the fourth quarter of 2017. We began depreciating the equipment for our Drug
Substance facility when it was placed in service during the third quarter of 2018. Approximately 89% of these assets are being
depreciated over ten years. Significant repairs to fixed assets that benefit more than a current period are capitalized and depreciated
over their useful lives. Insignificant repairs are expensed when incurred. See Note 7.
|
(f)
|
Intangible Assets and Goodwill
|
We amortize intangible
assets on the straight-line method by charges to costs of goods sold in amounts estimated to expense the cost of the assets from
the date they are first put into service to the end of the estimated useful lives of the assets. We have recorded intangible assets
related to customer relationships, non-compete agreements, and developed technology, each with defined useful lives. We have classified
as goodwill the amounts paid in excess of fair value of the net assets (including tax attributes) acquired in purchase transactions.
We assess the impairment
of intangible assets and goodwill that have indefinite lives at the reporting unit level on an annual basis (as of December 31
st
)
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 six-month periods ended June 30, 2019 or 2018. See Notes 2(h), 8 and 9 for additional disclosures.
|
(g)
|
Fair Value Measurements
|
In
determining fair value measurements, we follow the provisions of Codification Topic 820,
Fair Value Measurements and Disclosures
.
Codification Topic 820 defines fair value, establishes a framework for measuring fair value under GAAP and enhances disclosures
about fair value measurements. The topic provides a consistent definition of fair value which focuses on an exit price, which is
the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. The topic also prioritizes, within the measurement of fair value, the use of market-based information
over entity-specific information and establishes a three-level hierarchy for fair value measurements based on the nature of inputs
used in the valuation of an asset or liability as of the measurement date. As of June 30, 2019 and December 31, 2018, the carrying
amounts of cash and cash equivalents, short-term investments, accounts receivable, inventory, other assets, accounts payable, deferred
revenue and accrued liabilities approximate fair value because of their short-term nature. The amount outstanding under our bank
debt facilities is measured at carrying value in our accompanying balance sheets. Our bank debt facilities are valued using Level
2 inputs. The estimated fair value of our bank debt facilities approximates their carrying value based on similar instruments with
similar maturities. The three-level hierarchy is as follows:
|
Level 1 —
|
Pricing inputs are quoted prices available in active markets
for identical assets or liabilities as of the measurement date.
|
|
Level 2 —
|
Pricing inputs are quoted prices for similar assets or
liabilities, or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration
with observable market data.
|
|
Level 3 —
|
Pricing inputs are unobservable for the assets or liabilities,
that is, inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use
in pricing the asset or liability.
|
ImmuCell Corporation
Notes to Unaudited Condensed
Financial Statements (continued)
In certain cases, the inputs
used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level of an asset or
liability within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers
factors specific to the investment. From time to time, we also hold money market mutual funds in a brokerage account, which are
classified as cash equivalents and measured at fair value. The fair value of these investments is based on their closing published
net asset value.
We assess the levels of
the investments at each measurement date, and transfers between levels are recognized on the actual date of the event or change
in circumstances that caused the transfer in accordance with our accounting policy regarding the recognition of transfers between
levels of the fair value hierarchy. During the six-month periods ended June 30, 2019 and 2018, there were no transfers between
levels. As of June 30, 2019 and December 31, 2018, our Level 1 assets measured at fair value by quoted prices in active markets
consisted of bank savings accounts and money market funds. As of June 30, 2019 our bank certificates of deposit were classified
as Level 2 and were measured by significant other observable inputs. As of June 30, 2019 and December 31, 2018, our interest rate
swaps were classified as Level 2 and were measured by observable market data in combination with expected cash flows for each instrument.
There were no assets or liabilities measured at fair value on a nonrecurring basis as of June 30, 2019 or December 31, 2018.
|
|
As of June 30, 2019
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and money market accounts
|
|
$
|
1,296,016
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
1,296,016
|
|
Bank certificates of deposit
|
|
|
—
|
|
|
$
|
8,675,329
|
|
|
|
—
|
|
|
$
|
8,675,329
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
—
|
|
|
$
|
57,216
|
|
|
|
—
|
|
|
$
|
57,216
|
|
|
|
As of December 31, 2018
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and money market accounts
|
|
$
|
2,521,050
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
2,521,050
|
|
Interest rate swaps
|
|
|
—
|
|
|
$
|
40,209
|
|
|
|
—
|
|
|
$
|
40,209
|
|
|
(h)
|
Valuation of Long-Lived Assets
|
We periodically evaluate
our long-lived assets, consisting principally of fixed assets and amortizable intangible assets, for potential impairment. In accordance
with the applicable accounting guidance for the treatment of long-lived assets, we review the carrying value of our long-lived
assets or asset group that is held and used, including intangible assets subject to amortization, for impairment whenever events
and circumstances indicate that the carrying value of the assets may not be recoverable. Under the held for use approach, the asset
or asset group to be tested for impairment should represent the lowest level for which identifiable cash flows are largely independent
of the cash flows of other groups of assets and liabilities. We evaluate our long-lived assets whenever events or circumstances
suggest that the carrying amount of an asset or group of assets may not be recoverable. No impairment was recognized during the
six-month periods ended June 30, 2019 and 2018.
|
(i)
|
Concentration of Risk
|
Concentration of credit
risk with respect to accounts receivable is principally limited to certain customers to whom we make substantial sales. To reduce
risk, we routinely assess the financial strength of our customers and, as a consequence, believe that our accounts receivable credit
risk exposure is limited. We maintain an allowance for potential credit losses when deemed necessary, but historically we have
not experienced significant credit losses related to an individual customer or groups of customers in any particular industry or
geographic area. Sales to significant customers that amounted to 10% or more of total product sales are detailed in the following
table:
|
|
During the Three-Month
Periods Ended June 30,
|
|
|
During the Six-Month
Periods Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Company A
|
|
|
46
|
%
|
|
|
44
|
%
|
|
|
44
|
%
|
|
|
40
|
%
|
Company B
|
|
|
23
|
%
|
|
|
20
|
%
|
|
|
26
|
%
|
|
|
22
|
%
|
Company C
|
|
|
10
|
%
|
|
|
11
|
%
|
|
|
*
|
|
|
|
11
|
%
|
|
*
|
Amount is less than 10%
|
ImmuCell Corporation
Notes to Unaudited Condensed
Financial Statements (continued)
Trade accounts receivable
due from significant customers amounted to the percentages of total trade accounts receivable as detailed in the following table:
|
|
As of
June 30, 2019
|
|
|
As
of
December 31, 2018
|
|
Company A
|
|
|
48
|
%
|
|
|
35
|
%
|
Company B
|
|
|
28
|
%
|
|
|
36
|
%
|
Company C
|
|
|
12
|
%
|
|
|
15
|
%
|
|
(j)
|
Interest Rate Swap Agreements
|
All derivatives are recognized
on the balance sheet at their fair value. We entered into interest rate swap agreements in 2010 and 2015. On the dates the agreements
were entered into, we designated the derivatives as hedges of the variability of cash flows to be paid related to our long-term
debt. The agreements have been determined to be highly effective in hedging the variability of identified cash flows, so changes
in the fair market value of the interest rate swap agreements are recorded as comprehensive income (loss), until earnings are affected
by the variability of cash flows (e.g., when periodic settlements on a variable-rate asset or liability are recorded in earnings).
We formally documented the relationship between the interest rate swap agreements and the related hedged items. We also formally
assess, both at the interest rate swap agreements’ inception and on an ongoing basis, whether the agreements are highly effective
in offsetting changes in cash flow of hedged items. See Note 11.
For
periods beginning on or after January 1, 2018, we recognize revenue in accordance with Accounting Standards Codification (ASC)
606,
Revenue from Contracts with Customers
. ASC 606 is a single comprehensive model for companies to use in accounting for
revenue arising from contracts with customers. The core principle is that we recognize the amount of revenue to which we expect
to be entitled for the transfer of promised goods or services to customers when a customer obtains control of promised goods or
services in an amount that reflects the consideration we expect to receive in exchange for those goods or services. In addition,
the standard requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts
with customers. We conduct our business with customers through valid purchase orders or sales orders which are considered contracts
and are not interdependent on one another. A performance obligation is a promise in a contract to transfer a distinct product to
the customer. The transaction price is the amount of consideration we expect to receive under the arrangement. Revenue is measured
based on consideration specified in a contract with a customer. The transaction price of a contract is allocated to each distinct
performance obligation and recognized when or as the customer receives the benefit of the performance obligation. Product transaction
prices on a purchase or sale order are discrete and stand-alone. We recognize revenue when we satisfy a performance obligation
in a contract by transferring control over a product to a customer when product delivery occurs. Consideration is typically paid
approximately 30 days from the time control is transferred. Shipping and handling costs associated with outbound freight after
control over a product has transferred to a customer are accounted for as a fulfillment cost in costs of goods sold. We have enhanced
disclosures related to disaggregation of revenue sources and accounting policies prospectively as a result of adopting these standards.
We do not bill for or collect sales tax because our sales are generally made to distributors and thus our sales to them are not
subject to sales tax. We generally have experienced an immaterial amount of product returns. See Note 13.
In
2018, we adopted ASC 340-40,
Accounting for Other Assets and Deferred Costs
, which requires sales commissions and other
third-party acquisition costs resulting directly from securing contracts with customers to be recognized as an asset when incurred
and to be expensed over the associated contract term or estimated customer life depending on the nature of the underlying
contract. We do not incur costs in connection with product sales to customers that are eligible for capitalization. Advertising
costs are expensed when incurred, which is generally during the month in which the advertisement is published. Advertising expenses
amounted to $9,816 and $1,229 during the three-month periods ended June 30, 2019 and 2018, respectively, and $40,623 and $22,995
during six-month periods ended June 30, 2019 and 2018, respectively. All product development expenses are expensed as incurred,
as are all related patent costs. We capitalize costs to produce inventory during the production cycle, and these costs are charged
to costs of goods sold when the inventory is sold to a customer. Adoption of the amended provisions of ASC 340-40 did not have
a material impact on our financial statements.
ImmuCell Corporation
Notes to Unaudited Condensed
Financial Statements (continued)
We account for income taxes
in accordance with Codification Topic 740,
Income Taxes
, which requires that we recognize a current tax liability or asset
for current taxes payable or refundable and a deferred tax liability or asset for the estimated future tax effects of temporary
differences and carryforwards to the extent they are realizable.
During
the second quarter of 2018, we assessed our historical and near-term future profitability and decided to record $563,252 in non-cash
income tax expense to create a full valuation allowance against our net deferred tax assets (which consist largely of net operating
loss carryforwards and federal and state tax credits). At that time, we had incurred a net loss for six consecutive quarters, had
not been profitable on a year-to-date basis since the nine-month period ended September 30, 2017 and projected additional net losses
for some period going forward before returning to profitability.
We consider future taxable income and feasible tax planning
strategies in assessing the need for a valuation allowance at each quarter end. If we determine that we would be able to realize
our deferred tax assets in the future in excess of the net recorded amount over a reasonably short period of time, a reduction
of the valuation allowance would increase income in the period such determination was made. Likewise, if we determine that we would
not be able to realize all or part of our net deferred tax asset in the future, an increase to the valuation allowance would be
charged to income in the period such determination was made.
Codification Topic 740-10
clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position must meet before being
recognized in the financial statements. In the ordinary course of business, there are transactions and calculations where the ultimate
tax outcome is uncertain. In addition, we are subject to periodic audits and examinations by the Internal Revenue Service and other
taxing authorities. With few exceptions, we are no longer subject to income tax examinations by tax authorities for years before
2015. We have evaluated the positions taken on our filed tax returns. We have concluded that no uncertain tax positions exist as
of June 30, 2019 or December 31, 2018. 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 $70,081 and $96,943 during the three-month periods ended June 30, 2019 and 2018,
respectively, and $152,916 and $167,991 during the six-month periods ended June 30, 2019 and 2018, respectively.
|
(o)
|
Net Loss Per Common Share
|
Net loss per common share
has been computed in accordance with Codification Topic 260-10,
Earnings Per Share.
The net loss per share has been computed
by dividing the net loss by the weighted average number of common shares outstanding during the period. All stock options are excluded
from the denominator in the calculation of dilutive earnings per share when we are in a loss position, as the inclusion would be
anti-dilutive. During the three-month periods ended June 30, 2019 and 2018, the weighted average number of shares outstanding was
7,209,595 and 5,481,417, respectively, and there were 379,000 and 480,000 outstanding stock options, respectively, that were not
included in the calculations because the effect would have been anti-dilutive. During the six-month periods ended June 30, 2019
and 2018, the weighted average number of shares outstanding was 6,421,428 and 5,479,679, respectively, and there were 379,000 and
480,000 outstanding stock options, respectively, that were not included in the calculations because the effect would have been
anti-dilutive.
The preparation of financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the period. Although we regularly assess these estimates, actual amounts could differ from those
estimates. Changes in estimates are recorded during the period in which they become known. Significant estimates include our inventory
valuation, valuation of goodwill and long-lived assets, valuation of deferred tax assets, accrued expenses, costs of goods sold,
and useful lives of intangible assets.
ImmuCell Corporation
Notes to Unaudited Condensed
Financial Statements (continued)
|
(q)
|
New Accounting Pronouncements
|
In February 2016, the
FASB issued ASU 2016-02,
Leases (Topic 842)
. The guidance in this ASU supersedes the leasing guidance in Topic 840, Leases.
Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases
with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern
of expense recognition in the income statement. This ASU and its amendments are effective for fiscal years beginning after December
15, 2018, including interim periods within those fiscal years. Early adoption was permitted. We elected to adopt this ASU effective
January 1, 2019. In July 2018, the FASB issued ASU 2018-10,
Codification improvements to Topic 842, Leases.
The amendments
in ASU 2018-10 provide more clarification in regards to the application and requirements of
Topic 842
. In July 2018, the
FASB issued ASU 2018-11,
Topic 842, Leases - Targeted improvements.
The amendments in ASU 2018-11 provide for the option
to adopt the standard prospectively and recognize a cumulative-effect adjustment to the opening balance of retained earnings as
well as offer a new practical expedient that will allow the Company to elect, by class of underlying asset, to not separate non-lease
and lease components in certain circumstances and instead to account for those components as a single item. Based on our current
lease agreements and a review of all of our material vendor relationships for potential embedded lease obligations, we have concluded
that we are not subject to material lease obligations, and the adoption of
Topic 842
did not have a material impact on our
financial statements as of January 1, 2019.
In May 2017, the FASB issued
ASU 2017-09,
Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting
to provide clarity and reduce
both diversity in practice and cost complexity when applying the guidance in Topic 718 to a change to the terms and conditions
of a stock-based payment award.
Topic 718
also provides guidance about the types of changes to the terms or conditions of
a share-based payment award that require an entity to apply modification accounting in accordance with Topic 718. The standard
is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. We adopted
this guidance during the three-month period ended March 31, 2018. The adoption of this guidance did not have a material impact
on our financial statements.
In August 2017, the FASB
issued ASU 2017-12,
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
. The
new guidance is intended to more closely align hedge accounting with entities’ hedging strategies, simplify the application
of hedge accounting and increase the transparency of hedging programs.
Topic 815
is effective for fiscal years beginning
after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. For cash flow and
net investment hedges existing at the date of adoption,
Topic 815
must be applied through a cumulative-effect adjustment.
The amended presentation and disclosure guidance is required only prospectively. The adoption of
Topic 815
did not have
a material impact on our financial statements as of January 1, 2019.
In August 2018, the FASB
issued ASU 2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair
Value Measurement
, which modifies the disclosure requirements of fair value measurements. Topic 820 is effective for fiscal
years beginning after December 15, 2019, and early adoption is permitted. The adoption of this guidance is not expected to have
a material impact on our financial statements.
|
3.
|
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
|
Cash, cash equivalents
and short-term investments (at amortized cost plus accrued interest) consisted of the following:
|
|
As of
June
30, 2019
|
|
|
As
of
December 31, 2018
|
|
Cash and cash equivalents
|
|
$
|
1,296,016
|
|
|
$
|
2,521,050
|
|
Short-term investments
|
|
|
8,675,329
|
|
|
|
—
|
|
Total
|
|
$
|
9,971,345
|
|
|
$
|
2,521,050
|
|
Held to maturity securities
(certificates of deposit) are carried at amortized cost. We are required by a bank debt covenant to maintain at least $2,000,000
of otherwise unrestricted cash, cash equivalents and short-term investments.
|
4.
|
TRADE ACCOUNTS RECEIVABLE, net
|
Trade accounts receivable
amounted to $931,493 and $932,298 as of June 30, 2019 and December 31, 2018, respectively. No allowance for bad debt and product
returns was recorded as of June 30, 2019 or December 31, 2018.
ImmuCell Corporation
Notes to Unaudited Condensed
Financial Statements (continued)
Inventory consisted of the
following:
|
|
As of
June 30, 2019
|
|
|
As of
December 31, 2018
|
|
Raw materials
|
|
$
|
636,005
|
|
|
$
|
338,991
|
|
Work-in-process
|
|
|
1,361,111
|
|
|
|
1,337,035
|
|
Finished goods
|
|
|
495,278
|
|
|
|
655,645
|
|
Total
|
|
$
|
2,492,394
|
|
|
$
|
2,331,671
|
|
|
6.
|
PREPAID EXPENSES AND OTHER CURRENT ASSETS
|
Prepaid expenses and other
current assets consisted of the following:
|
|
As of
June 30, 2019
|
|
|
As of
December 31, 2018
|
|
Prepaid expenses
|
|
$
|
189,872
|
|
|
$
|
142,528
|
|
Other receivables
(1)
|
|
|
467,721
|
|
|
|
493,289
|
|
Total
|
|
$
|
657,593
|
|
|
$
|
635,817
|
|
|
(1)
|
This amount includes $450,000 due from a third party for
the sale of assets. See Note 14.
|
|
7.
|
PROPERTY, PLANT AND EQUIPMENT, net
|
Property, plant and equipment
consisted of the following:
|
|
Estimated Useful Lives
(in years)
|
|
As of
June 30, 2019
|
|
|
As of
December 31, 2018
|
|
Buildings and improvements
|
|
10-39
|
|
$
|
17,060,316
|
|
|
$
|
17,018,316
|
|
Laboratory and manufacturing equipment
|
|
3-10
|
|
|
15,205,256
|
|
|
|
15,092,252
|
|
Office furniture and equipment
|
|
3-10
|
|
|
729,941
|
|
|
|
731,510
|
|
Construction in progress
|
|
n/a
|
|
|
161,888
|
|
|
|
91,067
|
|
Land
|
|
n/a
|
|
|
516,867
|
|
|
|
516,867
|
|
Property, plant and equipment, gross
|
|
|
|
|
33,674,268
|
|
|
|
33,450,012
|
|
Accumulated depreciation
|
|
|
|
|
(8,544,396
|
)
|
|
|
(7,422,463
|
)
|
Property, plant and equipment, net
|
|
|
|
$
|
25,129,872
|
|
|
$
|
26,027,549
|
|
As of June 30, 2019 and
December 31, 2018, construction in progress consisted principally of down payments towards manufacturing equipment. During the
three-month periods ended June 30, 2019 and 2018, $4,564 and $3,300 of property, plant and equipment was disposed of, respectively.
During the six-month periods ended June 30, 2019 and 2018, $6,394 and $6,730 of property, plant and equipment was disposed of,
respectively. Depreciation expense was $564,522 and $280,692 during the three-month periods ended June 30, 2019 and 2018, respectively,
and $1,128,327 and $560,588 during the six-month periods ended June 30, 2019 and 2018, respectively.
ImmuCell Corporation
Notes to Unaudited Condensed
Financial Statements (continued)
On January 4, 2016, we acquired
certain business assets and processes from DAY 1™ Technology, LLC of Minnesota. The acquired rights and know-how are primarily
related to formulating our bovine antibodies into a gel solution (or paste) for an oral delivery option to newborn calves via a
syringe (or tube). This product format offers customers an alternative delivery option to the bolus (the standard delivery format
of the bivalent
First Defense
®
product since first approval by the U.S. Department of Agriculture (USDA)
and product launch in 1991). This gel formulation had been sold as a feed product without disease claims since 2012. During the
fourth quarter of 2018, we achieved USDA approval of an improved bivalent gel formulation and began marketing this product as
Dual-Force
First Defense
®
. We achieved Canadian approval of this product during the first quarter of 2019.
We
were also interested in a gel formulation in anticipation of the launch of
Tri-Shield First Defense
®
(which was approved by the USDA during the fourth quarter of 2017) because the additional rotavirus
antibodies in this new product would not fit in a bolus full of
E. coli
and coronavirus antibodies.
This purchase
also included certain other related private-label products. The total purchase price was approximately $532,000 (comprised of a
$368,000 up front payment, a $97,000 technology transfer payment and estimated royalties of $67,000). Actual royalties paid based
on sales from January 1, 2016 through December 31, 2018 were $36,000, and no further royalties are payable under this agreement.
The estimated fair values of the assets purchased in this transaction included inventory of approximately $113,000, machinery and
equipment of approximately $132,000, a developed technology intangible of approximately $191,000 (which includes an immaterial
amount of value associated with customer relationships and a non-compete agreement, and was valued using the relief from royalty
method) and goodwill of approximately $96,000. The goodwill arising from the acquisition consists largely of the estimated value
of anticipated growth opportunities arising from synergies and efficiencies. The measurement period for the transaction was closed
as of June 30, 2016, and we continue to assess any impairment of these assets acquired in accordance with our policies.
The intangible assets described
in Note 8 are being amortized to costs of goods sold over their useful lives, which are estimated to be 10 years. Intangible amortization
expense was $4,776 during both of the three-month periods ended June 30, 2019 and 2018 and $9,552 during both of the six-month
periods ended June 30, 2019, and 2018. The net value of these intangibles was $124,176 and $133,728 as of June 30, 2019 and December
31, 2018, respectively. A summary of intangible amortization expense estimated for the periods subsequent to June 30, 2019 is as
follows:
Period
|
|
Amount
|
|
Six-month period ending December 31, 2019
|
|
$
|
9,552
|
|
Year ending December 31, 2020
|
|
|
19,104
|
|
Year ending December 31, 2021
|
|
|
19,104
|
|
Year ending December 31, 2022
|
|
|
19,104
|
|
Year ending December 31, 2023
|
|
|
19,104
|
|
After December 31, 2023
|
|
|
38,208
|
|
Total
|
|
$
|
124,176
|
|
Intangible assets as of June 30, 2019
consisted of the following:
|
|
Gross Carrying
Value
|
|
|
Accumulated Amortization
|
|
|
Net Book
Value
|
|
Developed technology
|
|
$
|
184,100
|
|
|
$
|
(64,435
|
)
|
|
$
|
119,665
|
|
Customer relationships
|
|
|
1,300
|
|
|
|
(455
|
)
|
|
|
845
|
|
Non-compete agreements
|
|
|
5,640
|
|
|
|
(1,974
|
)
|
|
|
3,666
|
|
Total
|
|
$
|
191,040
|
|
|
$
|
(66,864
|
)
|
|
$
|
124,176
|
|
Intangible assets as of December 31,
2018 consisted of the following:
|
|
Gross Carrying
Value
|
|
|
Accumulated Amortization
|
|
|
Net Book
Value
|
|
Developed technology
|
|
$
|
184,100
|
|
|
$
|
(55,230
|
)
|
|
$
|
128,870
|
|
Customer relationships
|
|
|
1,300
|
|
|
|
(390
|
)
|
|
|
910
|
|
Non-compete agreements
|
|
|
5,640
|
|
|
|
(1,692
|
)
|
|
|
3,948
|
|
Total
|
|
$
|
191,040
|
|
|
$
|
(57,312
|
)
|
|
$
|
133,728
|
|
ImmuCell Corporation
Notes to Unaudited Condensed
Financial Statements (continued)
|
10.
|
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
|
Accounts payable and accrued
expenses consisted of the following:
|
|
As of
June 30, 2019
|
|
|
As of
December 31,
2018
|
|
Accounts payable – trade
|
|
$
|
436,017
|
|
|
$
|
531,048
|
|
Accounts payable – capital
|
|
|
3,209
|
|
|
|
72,695
|
|
Accrued payroll
|
|
|
230,626
|
|
|
|
358,451
|
|
Accrued professional fees
|
|
|
55,031
|
|
|
|
93,050
|
|
Accrued other
|
|
|
136,916
|
|
|
|
165,416
|
|
Total
|
|
$
|
861,799
|
|
|
$
|
1,220,660
|
|
We have in place five credit
facilities and a line of credit with TD Bank N.A. These five credit facilities are secured by substantially all of our assets and
are subject to certain restrictions and financial covenants.
Proceeds from a $1,000,000
first mortgage on our corporate headquarters and production and research facility at 56 Evergreen Drive in Portland (Loan #1) were
received during the third quarter of 2010 with monthly principal and interest payments due for ten years, calculated based on a
fifteen-year amortization schedule. A balloon principal payment of $451,885 will be due during the third quarter of 2020. As of
June 30, 2019, $528,842 was outstanding under Loan #1.
Proceeds from a $2,500,000
second mortgage on this corporate headquarters (Loan #2) were received during the third quarter of 2015 with monthly principal
and interest payments due for ten years, calculated based on a twenty-year amortization schedule. A balloon principal payment of
approximately $1,550,000 will be due during the third quarter of 2025. As of June 30, 2019, $2,189,248 was outstanding under Loan
#2.
During the first quarter
of 2016, we entered into two additional credit facilities (Loans #3 and #4) aggregating up to approximately $4,500,000. As a result
of loan amendments entered into during the first quarter of 2017, these two credit facilities were increased to up to $6,500,000.
Loan #3 is comprised of a construction loan of $3,940,000. As amended, interest only was payable at a variable rate equal to the
one-month LIBOR (adjusted at each monthly payment date) plus a margin of 2.25% through September 2018, at which time the loan converted
to a seven-year term loan facility at the same variable interest rate (which was equal to 4.69% as of June 30, 2019) with monthly
principal and interest payments due based on a seven-year amortization schedule. As of June 30, 2019, $3,517,857 was outstanding
under Loan #3. Loan #4 is comprised of a construction loan of $2,560,000. As amended, interest only was payable at a variable rate
equal to the one-month LIBOR (adjusted at each monthly payment date) plus a margin of 2.25% through March 2018, at which time the
loan converted to a term loan facility at the same variable interest rate (which was equal to 4.69% as of June 30, 2019) with monthly
principal and interest payments due for ten years, calculated based on a twenty-year amortization schedule. A balloon principal
payment of approximately $1,408,000 will be due during the first quarter of 2027. As of June 30, 2019, $2,400,000 was outstanding
under Loan #4.
Proceeds from a $340,000
first mortgage on our 4,114 square foot warehouse and cold storage facility near to our
Re-Tain™
production facility (Loan #5) were received during the first quarter of 2017. This note bears interest at a variable rate equal
to the one-month LIBOR (adjusted at each monthly payment date) plus a margin of 2.25% (which was equal to 4.69% as of June 30,
2019) with monthly principal and interest payments due for ten years, calculated based on a twenty-year amortization schedule.
A balloon principal payment of approximately $209,000 will be due during the first quarter of 2027. As of June 30, 2019, $315,517
was outstanding under Loan #5.
We hedged our interest rate
exposures on Loan #1 and Loan #2 with interest rate swap agreements that effectively converted floating interest rates based on
the one-month LIBOR plus a margin of 3.25% and 2.25% to the fixed rates of 6.04% and 4.38%, respectively. As of the debt principal
repayment date immediately preceding June 30, 2019, the variable rates on these two mortgage notes were 5.66% and 4.63%, respectively.
All derivatives are recognized on the balance sheet at their fair value. At the time of the closings and thereafter, the agreements
were determined to be highly effective in hedging the variability of the identified cash flows and have been designated as cash
flow hedges of the variability in the hedged interest payments. Changes in the fair value of the interest rate swap agreements
are recorded in other comprehensive income, net of taxes. The original notional amounts of the interest rate swap agreements of
$1,000,000 and $2,500,000 amortize in accordance with the amortization of the mortgage notes. The notional amount of the interest
rate swaps was $2,718,090 as of June 30, 2019. The fair values of the interest rate swaps have been determined using observable
market-based inputs or unobservable inputs that are corroborated by market data. Accordingly, the interest rate swaps are classified
as level 2 within the fair value hierarchy provided in Codification Topic 820,
Fair Value Measurements and Disclosures
.
|
|
During the Three-Month
Periods Ended June 30,
|
|
|
During the Six-Month
Periods Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
(Receipts) payments required by interest rate swaps
|
|
$
|
(1,491
|
)
|
|
$
|
2,824
|
|
|
$
|
(3,055
|
)
|
|
$
|
8,109
|
|
Other comprehensive (loss) income, net of taxes
|
|
$
|
(46,000
|
)
|
|
$
|
16,241
|
|
|
$
|
(73,069
|
)
|
|
$
|
60,100
|
|
ImmuCell Corporation
Notes to Unaudited Condensed
Financial Statements (continued)
In connection with Loan
#1 and Loan #2, we incurred debt issue costs of $26,489 and $34,125, respectively. In connection with Loan #3, Loan #4 and Loan
#5, we incurred debt issue costs of $46,734 and $68,072, respectively. The 2017 amendments to Loan #3 and Loan #4 were accounted
for as modifications. The amortization of debt issue costs is being recorded as a component of interest expense, included with
other expenses net, and is being amortized over the underlying terms of the respective credit facilities.
Debt proceeds received and
principal repayments made during the three-month periods ended June 30, 2019 and 2018 are reflected in the following table by year
and by loan:
|
|
During the Three-Month
Period Ended June 30, 2019
|
|
|
During the Three-Month
Period Ended June 30, 2018
|
|
|
|
Proceeds from
Debt Issue
|
|
|
Debt Principal
Repayments
|
|
|
Proceeds from
Debt Issue
|
|
|
Debt Principal
Repayments
|
|
Loan #1
|
|
$
|
—
|
|
|
$
|
(16,881
|
)
|
|
$
|
—
|
|
|
$
|
(15,888
|
)
|
Loan #2
|
|
|
—
|
|
|
|
(22,260
|
)
|
|
|
—
|
|
|
|
(21,279
|
)
|
Loan #3
|
|
|
—
|
|
|
|
(140,714
|
)
|
|
|
—
|
|
|
|
—
|
|
Loan #4
|
|
|
—
|
|
|
|
(32,000
|
)
|
|
|
—
|
|
|
|
(32,000
|
)
|
Loan #5
|
|
|
—
|
|
|
|
(2,805
|
)
|
|
|
—
|
|
|
|
(2,779
|
)
|
Total
|
|
$
|
—
|
|
|
$
|
(214,660
|
)
|
|
$
|
—
|
|
|
$
|
(71,946
|
)
|
Debt proceeds received and
principal repayments made during the six-month periods ended June 30, 2019 and 2018 are reflected in the following table by year
and by loan:
|
|
During the Six-Month
Period Ended June 30, 2019
|
|
|
During the Six-Month
Period Ended June 30, 2018
|
|
|
|
Proceeds from
Debt Issue
|
|
|
Debt Principal
Repayments
|
|
|
Proceeds from
Debt Issue
|
|
|
Debt Principal
Repayments
|
|
Loan #1
|
|
$
|
—
|
|
|
$
|
(33,762
|
)
|
|
$
|
—
|
|
|
$
|
(31,776
|
)
|
Loan #2
|
|
|
—
|
|
|
|
(44,520
|
)
|
|
|
—
|
|
|
|
(42,558
|
)
|
Loan #3
|
|
|
—
|
|
|
|
(281,429
|
)
|
|
|
—
|
|
|
|
—
|
|
Loan #4
|
|
|
—
|
|
|
|
(64,000
|
)
|
|
|
267,141
|
|
|
|
(32,000
|
)
|
Loan #5
|
|
|
—
|
|
|
|
(5,250
|
)
|
|
|
—
|
|
|
|
(5,415
|
)
|
Total
|
|
$
|
—
|
|
|
$
|
(428,961
|
)
|
|
$
|
267,141
|
|
|
$
|
(111,749
|
)
|
Principal payments (net
of debt issue costs) due under bank loans outstanding as of June 30, 2019 (excluding our $500,000 line of credit) are reflected
in the following table by the year that payments are due:
|
|
Six-Months ending 12/31/2019
|
|
|
Year
ending 12/31/2020
|
|
|
Year
ending 12/31/2021
|
|
|
Year
ending 12/31/2022
|
|
|
Year
Ending 12/31/2023
|
|
|
After 12/31/2023
|
|
|
Total
|
|
Loan #1
|
|
$
|
35,146
|
|
|
$
|
493,696
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
528,842
|
|
Loan #2
|
|
|
45,477
|
|
|
|
94,005
|
|
|
|
98,538
|
|
|
|
103,077
|
|
|
|
107,769
|
|
|
|
1,740,382
|
|
|
|
2,189,248
|
|
Loan #3
(1)
|
|
|
281,429
|
|
|
|
562,857
|
|
|
|
562,857
|
|
|
|
562,857
|
|
|
|
562,857
|
|
|
|
985,000
|
|
|
|
3,517,857
|
|
Loan #4
(1)
|
|
|
64,000
|
|
|
|
128,000
|
|
|
|
128,000
|
|
|
|
128,000
|
|
|
|
128,000
|
|
|
|
1,824,000
|
|
|
|
2,400,000
|
|
Loan #5
(2)
|
|
|
5,775
|
|
|
|
11,962
|
|
|
|
12,535
|
|
|
|
13,136
|
|
|
|
13,765
|
|
|
|
258,344
|
|
|
|
315,517
|
|
Subtotal
|
|
$
|
431,827
|
|
|
$
|
1,290,520
|
|
|
$
|
801,930
|
|
|
$
|
807,070
|
|
|
$
|
812,391
|
|
|
$
|
4,807,726
|
|
|
|
8,951,464
|
|
Debt Issue Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(106,100
|
)
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,845,364
|
|
|
(1)
|
These notes bear interest at a variable rate equal to the
one-month LIBOR plus a margin of 2.25%. Figures in this table are estimated using an interest rate of approximately 4.69%. The
actual interest rate and principal payments will be different.
|
|
(2)
|
This note bears interest at a variable rate equal to the
one-month LIBOR plus a margin of 2.25%. Figures in this table are estimated using an interest rate of approximately 4.69%. The
actual interest rate and principal payments will be different.
|
During the third quarter
of 2010, we entered into a $500,000 line of credit with TD Bank N.A., which is secured by substantially all of our assets and is
subject to certain restrictions and financial covenants. This line of credit has been renewed approximately annually since then,
is available as needed and has been extended through May 31, 2020. There was no outstanding balance under this line of credit as
of June 30, 2019. As of December 31, 2018, $500,000 was outstanding under this line of credit, which was repaid during the first
quarter of 2019. Interest on borrowings against the line of credit is variable at the higher of 4.25% per annum or the one-month
LIBOR plus 3.5% per annum.
ImmuCell Corporation
Notes to Unaudited Condensed
Financial Statements (continued)
On October 28, 2015,
we filed a registration statement on Form S-3 (File No. 333-207635) with the Securities and Exchange Commission (SEC) for the potential
issuance of up to $10,000,000 in equity securities (subject to certain limitations). This registration statement became effective
on November 10, 2015. Under this form of registration statement, we were limited within a twelve-month period to raising gross
proceeds of no more than one-third of the market capitalization of our common stock (as determined by the high price of our common
stock within the preceding 60 days leading up to a sale of securities) held by non-affiliates (non-insiders) of the Company. Having
raised $10,000,000 in gross proceeds under the February 2016, July 2017 and December 2017 equity transactions, described below,
no additional equity securities can be issued under this registration statement.
On February 3, 2016, we
sold 1,123,810 shares of common stock at a price to the public of $5.25 per share in an underwritten public offering pursuant to
our effective shelf registration statement on Form S-3, raising gross proceeds of approximately $5,900,000 and resulting in net
proceeds to the Company of approximately $5,313,000 (after deducting underwriting discounts and offering expenses incurred in connection
with the equity financing).
On October 21, 2016, we
closed on a private placement of 659,880 shares of common stock to nineteen institutional and accredited investors at $5.25 per
share, raising gross proceeds of approximately $3,464,000 and resulting in net proceeds to the Company of approximately $3,161,000
(after deducting placement agent fees and other expenses incurred in connection with the equity financing).
On July 27, 2017, we issued
200,000 shares of our common stock at a price of $5.25 per share to two related investors pursuant to our effective shelf registration
statement on Form S-3, raising gross proceeds of $1,050,000 and resulting in net proceeds of approximately $1,034,000 (after deducting
expenses incurred in connection with the equity financing).
On December 21, 2017, we
sold 417,807 shares of common stock at a price to the public of $7.30 per share in an underwritten public offering pursuant to
our effective shelf registration statement on Form S-3, raising gross proceeds of approximately $3,050,000 and resulting in net
proceeds to the Company of approximately $2,734,000 (after deducting underwriting discounts and offering expenses incurred in connection
with the equity financing).
On November 20, 2018, we
filed a registration statement on Form S-3 (File No. 333-228479) with the SEC for the potential issuance of up to $20,000,000 in
equity securities (subject to certain limitations). This registration statement became effective on November 29, 2018. Under this
form of registration statement, we are limited within a twelve-month period to raising gross proceeds of no more than one-third
of the market capitalization of our common stock (as determined by the high price of our common stock within the preceding 60 days
leading up to a sale of securities) held by non-affiliates (non-insiders) of the Company.
On March 29, 2019, we sold
1,636,364 shares of common stock at a price to the public of $5.50 per share in an underwritten public offering pursuant to our
effective shelf registration statement on Form S-3, raising gross proceeds of approximately $9,000,000 and resulting in net proceeds
to the Company of approximately $8,303,000 (after deducting underwriting discounts and offering expenses incurred in connection
with the equity financing).
At the June 15, 2016 Annual
Meeting of Stockholders, we reported that our stockholders voted to approve an amendment to the Company’s Certificate of
Incorporation to increase the number of shares of common stock authorized for issuance from 8,000,000 to 10,000,000. After careful
consideration, we determined that the method of voting instructions described in our Proxy Statement was not consistent with the
way the votes were actually recorded in accordance with stock exchange rules. Therefore, during the second quarter of 2017, we
elected to treat the amendment as ineffective, and there was no increase in our authorized common stock.
At
the June 14, 2018 Annual Meeting of Stockholders, our stockholders voted to approve an amendment to the Company’s Certificate
of Incorporation to increase the number of shares of common stock authorized for issuance from 8,000,000 to 11,000,000.
In June 2000, our stockholders
approved the 2000 Stock Option and Incentive Plan (the “2000 Plan”) pursuant to the provisions of the Internal Revenue
Code of 1986, under which employees and certain service providers may be granted options to purchase shares of the Company’s
common stock at i) no less than fair market value on the date of grant in the case of incentive stock options and ii) no less than
85% of fair market value on the date of grant in the case of non-qualified stock options. Vesting requirements are determined by
the Compensation and Stock Option Committee of the Board of Directors on a case by case basis. Originally, 250,000 shares of common
stock were reserved for issuance under the 2000 Plan. The stockholders of the Company approved an increase in this number to 500,000
shares in June 2001. All options granted under the 2000 Plan expire no later than ten years from the date of grant. The 2000 Plan
expired in February 2010, after which date no further options could be granted under the 2000 Plan. However, outstanding options
under the 2000 Plan may be exercised in accordance with their terms.
ImmuCell Corporation
Notes to Unaudited Condensed
Financial Statements (continued)
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 ten years from the date of grant. The 2010 Plan expires in June 2020, after which date
no further options could be granted under the 2010 Plan. However, options outstanding under the 2010 Plan at that time could be
exercised in accordance with their terms.
In June 2017, our stockholders
approved the 2017 Stock Option and Incentive Plan (the “2017 Plan”) pursuant to the provisions of the Internal Revenue
Code of 1986, under which employees and certain service providers may be granted options to purchase shares of the Company’s
common stock at no less than fair market value on the date of grant. At that time, 300,000 shares of common stock were reserved
for issuance under the 2017 Plan and subsequently no additional shares have been reserved for the 2017 Plan. Vesting requirements
are determined by the Compensation and Stock Option Committee of the Board of Directors on a case by case basis. All options granted
under the 2017 Plan expire no later than ten years from the date of grant. The 2017 Plan expires in March 2027, after which date
no further options could be granted under the 2017 Plan. However, options outstanding under the 2017 Plan at that time could be
exercised in accordance with their terms.
Activity under the stock
option plans described above was as follows:
|
|
2000 Plan
|
|
|
2010 Plan
|
|
|
2017 Plan
|
|
|
Weighted Average Exercise Price
|
|
|
Aggregate Intrinsic Value
(1)
|
|
Outstanding at December 31, 2017
|
|
|
117,500
|
|
|
|
242,500
|
|
|
|
—
|
|
|
$
|
4.58
|
|
|
$
|
1,513,980
|
|
Grants
|
|
|
—
|
|
|
|
48,500
|
|
|
|
122,500
|
|
|
$
|
7.38
|
|
|
|
|
|
Terminations
|
|
|
—
|
|
|
|
(19,000
|
)
|
|
|
(11,000
|
)
|
|
$
|
6.63
|
|
|
|
|
|
Exercises
|
|
|
(105,000
|
)
|
|
|
(2,000
|
)
|
|
|
—
|
|
|
$
|
1.89
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
|
12,500
|
|
|
|
270,000
|
|
|
|
111,500
|
|
|
$
|
6.37
|
|
|
$
|
266,020
|
|
Grants
|
|
|
—
|
|
|
|
10,000
|
|
|
|
10,000
|
|
|
$
|
7.03
|
|
|
|
|
|
Terminations
|
|
|
—
|
|
|
|
(20,000
|
)
|
|
|
—
|
|
|
$
|
5.65
|
|
|
|
|
|
Exercises
|
|
|
—
|
|
|
|
(15,000
|
)
|
|
|
—
|
|
|
$
|
4.80
|
|
|
|
|
|
Outstanding at June 30, 2019
|
|
|
12,500
|
|
|
|
245,000
|
|
|
|
121,500
|
|
|
$
|
6.51
|
|
|
$
|
(3,920
|
)
|
Vested at June 30, 2019
|
|
|
12,500
|
|
|
|
63,500
|
|
|
|
—
|
|
|
$
|
5.67
|
|
|
$
|
63,150
|
|
Vested and expected to vest at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
12,500
|
|
|
|
245,000
|
|
|
|
121,500
|
|
|
$
|
6.51
|
|
|
$
|
(3,920
|
)
|
Reserved for future grants
|
|
|
—
|
|
|
|
11,000
|
|
|
|
178,500
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Intrinsic value is the difference between the fair market
value as of the date indicated and as of the date of the option grant.
|
The following table displays
additional information about the stock option plans described above:
|
|
Number of Shares
|
|
|
Weighted Average
Fair Value at Grant Date
|
|
|
Weighted Average Exercise Price
|
|
Non-vested stock options as of January 1, 2019
|
|
|
334,000
|
|
|
$
|
3.63
|
|
|
$
|
6.64
|
|
Non-vested stock options as of June 30, 2019
|
|
|
303,000
|
|
|
$
|
3.60
|
|
|
$
|
7.25
|
|
Stock options granted during the six-month period ended June 30, 2019
|
|
|
20,000
|
|
|
$
|
3.31
|
|
|
$
|
7.03
|
|
Stock options that vested during the six-month period ended June 30, 2019
|
|
|
31,000
|
|
|
$
|
4.02
|
|
|
$
|
6.74
|
|
Stock options that were forfeited during the six-month period ended June 30, 2019
|
|
|
20,000
|
|
|
$
|
3.13
|
|
|
$
|
5.65
|
|
During the six-month
period ended June 30, 2019, one director exercised stock options covering 15,000 shares by the surrender of 10,731 shares of common
stock with a fair market value of $71,998 at the time of exercise and the payment of $2 in cash. During the six-month period ended
June 30, 2018, four employees exercised stock options covering 11,000 shares. Three thousand of these options were exercised for
cash, resulting in total proceeds of $10,850, and 8,000 of these options were exercised by the surrender of 3,469 shares of common
stock with a fair market value of $25,040 at the time of exercise and the payment of $10 in cash.
ImmuCell Corporation
Notes to Unaudited Condensed
Financial Statements (continued)
The weighted average remaining
life of the options outstanding under the 2000 Plan, the 2010 Plan and the 2017 plan as of June 30, 2019 was approximately 6 years
and 4 months. The weighted average remaining life of the options exercisable under these plans as of June 30, 2019 was approximately
4 years and 5 months. The exercise prices of the options outstanding as of June 30, 2019 ranged from $3.15 to $8.90 per share.
The 20,000 stock options granted during the six-month period ended June 30, 2019 had exercise prices between $6.50 and $7.50 per
share. The 145,000 stock options granted during the six-month period ended June 30, 2018 had exercise prices between $6.81 and
$7.80 per share. The aggregate intrinsic value of options exercised during the six-month periods ended June 30, 2019 and 2018 approximated
$28,641 and $43,260, respectively. The weighted-average grant date fair values of options granted during the six-month periods
ended June 30, 2019 and 2018 were $3.31 and $4.20 per share, respectively. As of June 30, 2019, total unrecognized stock-based
compensation related to non-vested stock options aggregated $495,824, which will be recognized over a weighted average period of
1 year and 5 months. The fair value of each stock option grant has been estimated on the date of grant using the Black-Scholes
option pricing model, for the purpose discussed in Note 2(n), with the following weighted-average assumptions for the three-month
and six-month periods ended June 30, 2019 and 2018:
|
|
During the Three-Month
Periods Ended June 30,
|
|
|
During the Six-Month
Periods Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Risk-free interest rate
|
|
|
1.81
|
%
|
|
|
2.81
|
%
|
|
|
2.20
|
%
|
|
|
2.51
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
52
|
%
|
|
|
55
|
%
|
|
|
52
|
%
|
|
|
57
|
%
|
Expected life
|
|
|
6.5 years
|
|
|
|
6.5 years
|
|
|
|
5.3 years
|
|
|
|
5.2 years
|
|
The risk-free interest rate
is based on U.S. Treasury yields for a maturity approximating the expected option term, while the other assumptions are derived
from averages of our historical data.
Common Stock Rights Plan
In September 1995, our Board
of Directors adopted a Common Stock Rights Plan (the “Rights Plan”) and declared a dividend of one common share purchase
right (a “Right”) for each of the then outstanding shares of the common stock of the Company. Each Right entitles the
registered holder to purchase from the Company one share of common stock at an initial purchase price of $70.00 per share, subject
to adjustment. The description and terms of the Rights are set forth in a Rights Agreement between the Company and American Stock
Transfer & Trust Co., as Rights Agent.
The Rights (as amended)
become exercisable and transferable apart from the common stock upon the earlier of i) 10 days following a public announcement
that a person or group (Acquiring Person) has, without the prior consent of the Continuing Directors (as such term is defined in
the Rights Agreement), acquired beneficial ownership of 20% or more of the outstanding common stock or ii) 10 days following commencement
of a tender offer or exchange offer the consummation of which would result in ownership by a person or group of 20% or more of
the outstanding common stock (the earlier of such dates being called the Distribution Date).
Upon the Distribution Date,
the holder of each Right not owned by the Acquiring Person would be entitled to purchase common stock at a discount to the initial
purchase price of $70.00 per share, effectively equal to one half of the market price of a share of common stock on the date the
Acquiring Person becomes an Acquiring Person. If, after the Distribution Date, the Company should consolidate or merge with any
other entity and the Company were not the surviving company, or, if the Company were the surviving company, all or part of the
Company’s common stock were changed or exchanged into the securities of any other entity, or if more than 50% of the Company’s
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.
ImmuCell Corporation
Notes to Unaudited Condensed
Financial Statements (continued)
At various times over the
years, our Board of Directors has voted to authorize amendments of the Rights Agreement to extend the Final Expiration Date, which
is currently September 19, 2022. Our Board of Directors also has voted to authorize amendments to increase the ownership threshold
for determining “Acquiring Person” status to 20%. During the second quarter of 2015, our Board of Directors also voted
to authorize an amendment to remove a provision that prevented a new group of directors elected following the emergence of an Acquiring
Person (an owner of more than 20% of our stock) from controlling the Rights Plan by maintaining exclusive authority over the Rights
Plan with pre-existing directors. We did this because such provisions have come to be viewed with disfavor by Delaware courts.
Each time that we made such amendments we entered into amendments to the Rights Agreement with the Rights Agent reflecting such
extensions, threshold increases or provision changes. No other changes have been made to the terms of the Rights or the Rights
Agreement.
Generally,
our products are promoted to veterinarians and dairy and beef producers by our sales team and then sold through distributors. Our
primary market is North America. We do sell into select international regions and may expand this international reach in the future.
There were no material changes between the allocation and timing of revenue recognition during the year ended December 31, 2018
or the six-month periods ended June 30, 2019 or 2018 (under ASC 606). We do not have any contract assets such as contracts for
which we have satisfied the performance obligations but do not yet have the right to bill for or contract liabilities such as customer
advances. All trade receivables on our balance sheet are from contracts with customers. We incur no material costs to obtain contracts.
As of March 31, 2018, we had a backlog of orders (representing purchase orders received from customers which were not fulfilled
or paid) worth approximately $1,245,000 for the
First Defense
®
product
line. Before June 30, 2018 we cleared all of this backlog (approximately $901,000) that was related to orders for our bivalent
formats of the
First Defense
®
product line
(which have been re-branded as
Dual-Force
First Defense
®
).
Demand for
Tri-Shield
First Defense
®
continues
to exceed our available inventory, but we are not accepting orders in excess of available inventory, which requires a careful allocation
of inventory as it becomes available to address the needs of specific customers. As we increase our production capacity, we anticipate
being able to sell
Tri-Shield®
through normal distribution channels during the second half of 2019. As of December 31,
2018, March 31, 2019 and June 30, 2019, we had received orders for
Dual-Force
®
representing
pending orders worth approximately $393,000, $67,000 and $13,000, respectively. We had sufficient inventory on hand to satisfy
these orders, but this product did not ship to customers until the beginning of the next quarter because of timing issues at the
end of the respective periods.
The following table presents
our product sales disaggregated by geographic area:
|
|
During the Three-Month
Periods Ended June 30,
|
|
|
During the Six-Month
Periods Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
United States
|
|
$
|
2,527,478
|
|
|
$
|
2,544,133
|
|
|
$
|
6,305,225
|
|
|
$
|
5,139,749
|
|
Other
|
|
|
182,442
|
|
|
|
470,413
|
|
|
|
815,256
|
|
|
|
755,982
|
|
Total product sales
|
|
$
|
2,709,920
|
|
|
$
|
3,014,546
|
|
|
$
|
7,120,481
|
|
|
$
|
5,895,731
|
|
The following table presents
our product sales disaggregated by major product category:
|
|
During the Three-Month
Periods Ended June 30,
|
|
|
During the Six-Month
Periods Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
First Defense
®
product line
|
|
$
|
2,672,531
|
|
|
$
|
2,883,482
|
|
|
$
|
6,813,448
|
|
|
$
|
5,664,351
|
|
Other animal health
|
|
|
37,389
|
|
|
|
131,064
|
|
|
|
173,432
|
|
|
|
231,380
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
133,601
|
|
|
|
—
|
|
Total product sales
|
|
$
|
2,709,920
|
|
|
$
|
3,014,546
|
|
|
$
|
7,120,481
|
|
|
$
|
5,895,731
|
|
|
14.
|
GAIN ON SALE OF ASSETS
|
During the third quarter
of 2018, we sold the assets underlying our water diagnostic product for $700,000. This sale of assets was recognized as an operating
activity at that time in accordance with ASC 610:
Other Income
and ASC 810:
Consolidation
. An upfront payment of
$250,000 was received upon closing, a second payment of $250,000 was received during the third quarter of 2019 and a third payment
of $200,000 is due during the fourth quarter of 2019 (both of these payments receivable were recorded in prepaid expenses and other
current assets as of June 30, 2019).
ImmuCell Corporation
Notes to Unaudited Condensed
Financial Statements (continued)
Other expenses, net,
consisted of the following:
|
|
During the Three-Month
Periods Ended June 30,
|
|
|
During the Six-Month
Periods Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Interest expense
|
|
$
|
111,990
|
|
|
$
|
106,268
|
|
|
$
|
226,031
|
|
|
$
|
202,284
|
|
Interest income
|
|
|
(47,099
|
)
|
|
|
(3,209
|
)
|
|
|
(49,414
|
)
|
|
|
(7,033
|
)
|
Other gains
|
|
|
—
|
|
|
|
75
|
|
|
|
—
|
|
|
|
—
|
|
Other expenses, net
|
|
$
|
64,891
|
|
|
$
|
103,134
|
|
|
$
|
176,617
|
|
|
$
|
195,251
|
|
Our income tax expense aggregated
$15,333 and $501,820 (amounting to 3% and 169% of our loss before income taxes, respectively) during the three-month periods ended
June 30, 2019 and 2018, respectively. Our income tax expense aggregated $24,356 and $452,672 (amounting to 5% and 80% of our loss
before income taxes, respectively) during the six-month periods ended June 30, 2019 and 2018, respectively. As of December 31,
2018, we had federal net operating loss carryforwards of $11,839,349, of which $10,127,442 do not expire, and $1,711,907 which
expire in 2034 through 2037 (if not utilized before then), and state net operating loss carryforwards of $3,485,949 that expire
in 2037 through 2038 (if not utilized before then). Additionally, we had federal general business tax credit carryforwards of $407,023
that expire in 2027 through 2038 (if not utilized before then) and state tax credit carryforwards of $763,350 that expire in 2023
through 2038 (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 approximately $563,000 in non-cash income tax expense to create a full valuation allowance against our
net deferred tax assets (which consist largely of net operating loss carryforwards and federal and state tax credits) based on
applicable accounting standards and practices. At that time, we had incurred a net loss for five consecutive quarters, had not
been profitable on a year-to-date basis since the nine-month period ended September 30, 2017 and projected additional net losses
for some period going forward before returning to profitability. Should future profitability be realized at an adequate level,
we would be able to release this valuation allowance (resulting in a non-cash income tax benefit) and realize these deferred tax
assets before they expire. We will continue to assess the need for the valuation allowance at each quarter and, in the event that
actual results differ from these estimates, or we adjust these estimates in future periods, we may need to adjust our valuation
allowance. No subsequent adjustments were recorded during the twelve months ended June 30, 2019.
Net operating loss carryforwards,
credits, and other tax attributes are subject to review and possible adjustment by the Internal Revenue Service. Section 382 of
the Internal Revenue Code contains provisions that could place annual limitations on the future utilization of net operating loss
carryforwards and credits in the event of a change in ownership of the Company, as defined.
The Company files income
tax returns in the U.S. federal jurisdiction and several state jurisdictions. We currently have no tax examinations in progress.
We also have not paid additional taxes, interest or penalties as a result of tax examinations nor do we have any unrecognized tax
benefits for any of the periods in the accompanying financial statements.
The Tax Cuts and Jobs Act
was enacted on December 22, 2017. This legislation made 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 the prior rate of 34% to 21%. As a result of the enacted law, we were required
to revalue deferred tax assets and liabilities at the rate enacted in 2017. This revaluation resulted in a benefit of $71,000 to
income tax expense in continuing operations and a corresponding increase in the deferred tax assets during 2017. On December 22,
2017, the SEC issued Staff Accounting Bulletin #118 that provides additional guidance and allows companies to apply a measurement
period of up to twelve months to account for the impacts of this legislation in their financial statements. The accounting for
the transitional impacts of this legislation is now complete.
ImmuCell Corporation
Notes to Unaudited Condensed
Financial Statements (continued)
|
17.
|
CONTINGENT LIABILITIES AND COMMITMENTS
|
Our bylaws, as amended,
in effect provide that the Company will indemnify its officers and directors to the maximum extent permitted by Delaware law. In
addition, we make similar indemnity undertakings to each director 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 June 30, 2019. Since our incorporation, we have had no occasion to make any indemnification payment to any
of our officers or directors for any reason.
The development, manufacturing
and marketing of animal health care products entails an inherent risk that liability claims will be asserted against us during
the normal course of business. We are aware of no such claims against us as of the date of this filing. We feel that we have reasonable
levels of liability insurance to support our operations.
We enter into agreements
with third parties in the ordinary course of business under which we are obligated to indemnify such third parties from and against
various risks and losses. The precise terms of such indemnities vary with the nature of the agreement. In many cases, we limit
the maximum amount of our indemnification obligations, but in some cases those obligations may be theoretically unlimited. We have
not incurred material expenses in discharging any of these indemnification obligations, and based on our analysis of the nature
of the risks involved, we believe that the fair value of the liabilities potentially arising under these agreements is minimal.
Accordingly, we have recorded no liabilities for such obligations as of June 30, 2019.
We are committed to purchasing
certain key parts (syringes) and services (formulation and aseptic filling of Drug Product) pertaining to
Re-Tain™
,
our Nisin-based intramammary treatment of subclinical mastitis in lactating dairy cows, exclusively from two contractors. Because
we will not achieve regulatory approval for the sale of
Re-Tain™
in the U.S. by December 17, 2019, the contract counter
party for formulation and aseptic filling of that product may have the right at that date to terminate the agreement, and we could
be liable for a $100,000 termination fee. We are negotiating with this party to amend and extend the contract term to allow us
to achieve regulatory approval and initiate commercial launch with the availability of this party’s services. At the same
time, we are initiating the capital investment required to perform these services for ourselves with a portion of the capital we
raised at the end of the first quarter of 2019, while also seeking an alternative contractor for these services.
During the second quarter
of 2009, we entered into an exclusive and perpetual (unless terminated for cause) license with the Baylor College of Medicine covering
the underlying rotavirus vaccine technology used to generate the specific antibodies for our product line extension,
Tri-Shield
First Defense
®
. A milestone payment of $150,000 due upon regulatory approval of the product was accrued at December
31, 2017 and paid in January 2018. The license is also subject to a royalty equal to 4% of the sales of the
First Defense
®
product line realized above the average of the sales of our bivalent product line for the years ended December 31, 2016 and 2015,
plus a growth assumption of 6%. Earned royalties due are subject to annual minimums of $5,000, $10,000, $15,000, $20,000 and $25,000
for the years ending December 31, 2017, 2018, 2019, 2020, and 2021 (and thereafter), respectively. Royalties of $10,396 were accrued
at December 31, 2018 and paid in January 2019. Royalties of $7,500 were accrued as of June 30, 2019. In addition to the commitments
discussed above, we had committed $884,000 to the purchase of inventory, $165,000 to capital expenditures and $227,000 to other
obligations as of June 30, 2019.
We principally operate in
the business segment described in Note 1. Pursuant to Codification Topic 280,
Segment Reporting
, we operate in one reportable
business segment, that being the development, acquisition, manufacture and sale of products that improve the health and productivity
of dairy and beef cattle. Almost all of our internally funded product development expenses are in support of such products. The
significant accounting policies of this segment are described in Note 2. Our single operating segment is defined as the component
of our business for which financial information is available and evaluated regularly by our chief operating decision-maker in deciding
how to allocate resources and in assessing performance. Our chief operating decision-maker is our President and CEO.
Sales of the
First Defense
®
product line aggregated 99% and 96% of our total product sales during the three-month periods ended June 30, 2019 and 2018, respectively.
Sales of the
First Defense
®
product line aggregated 96% of our total product sales during the six-month periods
ended June 30, 2019 and 2018. Our primary customers for the majority of our product sales (93% and 84% during the three-month periods
ended June 30, 2019 and 2018, respectively and 89% and 87% during the six-month periods ended June 30, 2019 and 2018, respectively)
are in the U.S. dairy and beef industries. Product sales to international customers, who are also in the dairy and beef industries,
aggregated 7% and 16% of our total product sales during the three-month periods ended June 30, 2019 and 2018, respectively, and
10% and 13% of our total product sales during the six-month periods ended June 30, 2019 and 2018, respectively.
ImmuCell Corporation
Notes to Unaudited Condensed
Financial Statements (continued)
|
19.
|
RELATED PARTY TRANSACTIONS
|
Dr. David S. Tomsche (Chair
of our Board of Directors) is a controlling owner of Leedstone Inc., a domestic distributor of ImmuCell products (the
First
Defense
®
product line and
CMT
) and of J-t Enterprises of Melrose, Inc., an exporter. His affiliated companies
purchased $290,581 and $337,065 of products from us during the six-month periods ended June 30, 2019 and 2018, respectively, on
terms consistent with those offered to other distributors of similar status. We made marketing-related payments of $975 and $11,358
to these affiliated companies during the six-month periods ended June 30, 2019 and 2018, respectively, which represent amounts
similar to those offered to other distributors of similar status. These payments were expensed as incurred. Our accounts receivable
(subject to standard and customary payment terms) due from these affiliated companies aggregated $3,120 and $16,283 as of June
30, 2019 and December 31, 2018, respectively.
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 $33,474 and $29,366 into the plan for the three-month periods ended June 30, 2019
and 2018, respectively, and $64,671 and $54,012 into the plan for the six-month periods ended June 30, 2019 and 2018, respectively.
We have evaluated subsequent
events through the time of filing on August 12, 2019, the date we have issued this Quarterly Report on Form 10-Q. As of such date,
there were no material, reportable subsequent events.
ImmuCell Corporation