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ImmuCell Corp. Reports Operating Results (10-Q)

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Aug 16, 2010
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ImmuCell Corp. (ICCC, Financial) filed Quarterly Report for the period ended 2010-06-30.

Immucell Corp. has a market cap of $9.12 million; its shares were traded at around $3.07 with and P/S ratio of 2.02.

Highlight of Business Operations:

Product sales increased by approximately 8%, or $77,000, to $1,078,000 during the three-month period ended June 30, 2010 in comparison to $1,001,000 during the same period in 2009. Product sales decreased by approximately 3%, or $71,000, to $2,389,000 during the six-month period ended June 30, 2010 in comparison to $2,461,000 during the same period in 2009. During the first six months of 2010, domestic sales increased by 8%, or $150,000, but foreign sales decreased by 33%, or $221,000, in comparison to the same period in 2009. We had no backlog of orders as of June 30, 2010. As of June 30, 2009, we had a backlog of orders aggregating approximately $287,000. If this backlog of orders had shipped prior to July 1, 2009, our product sales during the second quarter of 2010 would have been down by approximately 16%, or $210,000, and our product sales during the first six months of 2010 would have been down by 13%, or $358,000.

Our loss before income taxes of $(37,000) during the three-month period ended June 30, 2010 compares to our loss before income taxes of $(282,000) during the three-month period ended June 30, 2009. Our income tax benefit was 82% and 48% of our loss before income taxes during the three-month periods ended June 30, 2010 and 2009, respectively. Our net loss for the three-month period ended June 30, 2010 was $(6,000), or less than $(0.01) per share, in comparison to a net loss of $(148,000), or $(0.05) per share, during the three-month period ended June 30, 2009. Our loss before income taxes of $(102,000) during the six-month period ended June 30, 2010 compares to our loss before income taxes of $(319,000) during the six-month period ended June 30, 2009. Our income tax benefit was 41% and 43% of our loss before income taxes during the six-month periods ended June 30, 2010 and 2009, respectively. Our net loss for the six-month period ended June 30, 2010 was $(60,000), or $(0.02) per share, in comparison to a net loss of $(182,000), or $(0.06) per share, during the six-month period ended June 30, 2009.

The investment required for full commercial manufacture of Nisin API is expected to exceed our cash, cash equivalents and short-term investments balance as of June 30, 2010. We believe that in this market environment, the option to generate funds through the sale of equity securities at an acceptable level of stockholder dilution is very unlikely. In August 2010, we agreed to terms of certain credit facilities with TD Bank, N.A. aggregating up to approximately $2,100,000, which are secured by substantially all of our assets. These credit facilities are comprised of a ten-year mortgage loan of $1,000,000, a $600,000 five-year loan and a $500,000 line of credit, which is renewable annually. Proceeds from the $1,000,000 mortgage were received in August 2010. Proceeds from the $600,000 loan are expected in February 2011 and the $500,000 line of credit is available as needed. We believe that this debt financing (together with available cash and gross margin from ongoing product sales) provides us with sufficient funding to finance our working capital requirements while completing the development of Mast Out®. At this point, the most expensive and time-consuming initiative remaining to be completed is the scale-up and testing of the Nisin API manufacturing process. We have committed almost $550,000 to Lonza (our API manufacturer) to generate the data required for a first submission of the CMC Technical Section. This work is expected to be conducted during the second half of 2010. Subject to obtaining acceptable results from this work, we may choose to make additional and larger financial commitments to Lonza on a stage-by-stage basis to complete the manufacturing process development and to fund the production of validation batches for inventory that would be required for the second submission of the CMC Technical Section. We expect to have product produced for the validation batches under the CMC Technical Section to sell (subject to FDA approval) in a test market by the end of 2011. Additional financing (most likely through a partner) needs to be arranged to pay for commercial batches of product for full market launch in 2012. Upon completion of this product development effort, we expect to return to profitable operations with or without new sales of Mast Out®.

Cash, cash equivalents and short-term investments decreased by 8%, or $369,000, to $4,217,000 at June 30, 2010 from $4,585,000 at December 31, 2009. Net cash used for operating activities amounted to $(275,000) during the six-month period ended June 30, 2010 in comparison to net cash used for operating activities of $(233,000) during the six-month period ended June 30, 2009. Total assets decreased by less than 1%, or $80,000, to $9,905,000 at June 30, 2010 from $9,985,000 at December 31, 2009. We had no outstanding bank debt or open line of credit as of June 30, 2010. Net working capital increased by less than 1%, or $18,000, to $5,962,000 at June 30, 2010 from $5,944,000 at December 31, 2009. Stockholders equity decreased by less than 1%, or $45,000, to $9,577,000 at June 30, 2010 from $9,622,000 at December 31, 2009. We believe that we have sufficient capital resources to meet our working capital requirements and to finance our ongoing business operations during at least the next twelve months. Our current resources, together with the proceeds from the debt commitment we entered into during the third quarter of 2010, are expected to be sufficient to fund the completion of the Mast Out® product development effort. The production of commercial batches of inventory for a market launch of Mast Out® (if the product is approved by the FDA) would require additional funding. It is not necessary for this funding to occur within the next twelve months.

Projections of loss before income taxes and net loss: After nine consecutive years of reporting net income, we reported a loss before income taxes of $(961,000) and a net loss of $(469,000) for the year ended December 31, 2008, a loss before income taxes of $(429,000) and a net loss of $(216,000) for the year ended December 31, 2009 and a loss before income taxes of $(102,000) and a net loss of $(60,000) during the six-month period ended June 30, 2010, due in large part to our current product development strategy. Continued development of Mast Out® will likely result in a net loss during the second half of 2010 and during 2011 as well. We believe that our current balance of cash and short-term investments is more than sufficient to fund our projected loss in 2010. We believe that our remaining cash and short-term investments, together with gross margin generated from ongoing product sales and the debt financing arranged in August 2010, is sufficient to fund our projected loss in 2011. The market launch of Mast Out® will require additional capital. There is no assurance that we will have sufficient capital to fund our growth plans, but we do expect to return to profitable operations with or without new sales of Mast Out® in 2012. Generally speaking, our financial performance can differ significantly from management projections, due to numerous factors that are difficult to predict or that are beyond our control. Stronger than expected sales of First Defense®, for example, could diminish the overall loss. Conversely, weaker than expected sales of First Defense® could lead to larger losses. Another example of a factor that could increase our loss is if we experience unanticipated costs associated with developing and seeking regulatory approval of Mast Out®. Historically, we have not publicly disclosed our projections of future profitability. We did so in 2008 and 2009 and have done so again for 2010 and 2011 to make it clear to our stockholders that the decision to pursue internal development of Mast Out® entails an important change in our financial model and strategy that, we believe, is in the long-term interests of the Company and its stockholders.

Economics of the dairy industry: The U.S. dairy industry has been facing very difficult economic pressures, which are forcing many dairy producers out of business. The size (annual average) of the U.S. dairy herd ranged from approximately 9,011,000 to 9,199,000 cows from 1998 to 2007. This annual average jumped to 9,315,000 cows in 2008. A significant decrease in the herd size was expected in 2009, but the average only declined to 9,200,000. The herd size peaked at 9,334,000 in December 2008 and did decline to 9,082,000 in December 2009. As of June 2010, the herd size is estimated to be approximately 9,101,000 cows. The size of the milking herd affects the price of milk. The impact on the milk supply from this decrease in cows is offset, in part, by an increase in milk production per cow. Sales of our products may be influenced by the prices of milk, milking cows and calves. A common index used in the industry to measure the price of milk is known as the Class III milk price, which indicates the value of 100 pounds of milk sold into the cheese market. The average Class III milk price for 2008 was $17.44 per 100 pounds, which represented a 3% decrease from the 2007 average of $18.04. For 2009, this price level averaged $11.36, which represents a 35% decrease from 2008. The average price for 2009 was 36% lower than the average experienced during the two-year period ended December 31, 2008. During the first six months of 2010, this price level averaged $13.58 in comparison to $10.19 during the first six months of 2009. The Class III milk price (which is largely out of the direct control of individual dairy producers) is an important indicator because it defines our customers revenue level. While the number of cows in the U.S. herd and the production of milk per cow directly influence the supply of milk to the market, demand for milk has been largely influenced by Read the The complete Report

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