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ImmuCell Corp. Reports Operating Results (10-Q)

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Nov 08, 2010
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ImmuCell Corp. (ICCC, Financial) filed Quarterly Report for the period ended 2010-09-30.

Immucell Corp. has a market cap of $9.3 million; its shares were traded at around $3.13 with and P/S ratio of 2.06.

Highlight of Business Operations:

Product sales decreased by approximately 14%, or $137,000, to $874,000 during the three-month period ended September 30, 2010 in comparison to $1,011,000 during the same period in 2009. It is our production and customer service objective to ship orders within one day of receipt. We are operating in accordance with this objective currently, but some production problems did create a backlog of orders in 2009. We had no backlog of orders as of September 30, 2010, June 30, 2010 or September 30, 2009, but we did have a backlog of orders aggregating approximately $287,000 as of June 30, 2009 that shipped to customers during the third quarter of 2009. If this backlog of orders had shipped prior to July 1, 2009, our product sales during the third quarter of 2010 would have shown an increase of approximately 21%, or $150,000, in comparison to product sales ordered and recorded during the third quarter of 2009. Product sales decreased by approximately 6%, or $208,000, to $3,263,000 during the nine-month period ended September 30, 2010 in comparison to $3,472,000 during the same period in 2009. The volatility of the global economy, and its impact on the dairy industry, continues to affect our product sales both domestically and internationally. During the first nine months of 2010, domestic sales decreased by 3%, or $70,000, and foreign sales decreased by 19%, or $139,000, in comparison to the same period in 2009. Competition for resources that dairy producers allocate to their calf enterprises has been increased by the severe economic challenges that producers have been facing since the start of the current down cycle in 2008 and by the many new products that have been introduced to the calf market. This competitive pressure increases the importance for us to be successful with new development initiatives such as product line extensions and the addition of a new rotavirus claim for First Defense®. In an effort to counter these market dynamics, we are launching a communications campaign by year-end that will highlight how the unique features of First Defense® provide a dependable return on investment for producers. Because we believe that market opportunities for growth of First Defense® sales exist in foreign territories, we are working with in-country consultants in key markets to help us through the process of seeking foreign regulatory approvals. Regulatory authorities in some foreign territories may require that our manufacturing operations be compliant with cGMP regulations. Because of import restrictions, in-country production may be required to gain regulatory approval to sell First Defense® in Australia and New Zealand. In March 2008, we entered into a license agreement with Immuron, Ltd. of Australia (formerly known as Anadis). Under this agreement, we gained access to relevant production technology and capabilities of Immuron in Australia. We are obligated to pay Immuron a royalty on any sales of First Defense® manufactured in Australia in collaboration with Immuron. This regulatory effort is currently on hold pending our success achieving a rotavirus claim for First Defense® because we believe that such a claim would be essential to market success in that territory.

Product development expenses decreased by approximately 5%, or $16,000, to $312,000 during the three-month period ended September 30, 2010 in comparison to the same period in 2009. Product development expenses aggregated 36% and 32% of product sales during the three-month periods ended September 30, 2010 and 2009, respectively. Product development expenses decreased by approximately 16%, or $199,000, to $1,051,000 during the nine-month period ended September 30, 2010 in comparison to the same period in 2009. Product development expenses aggregated 32% and 36% of product sales during the nine-month periods ended September 30, 2010 and 2009, respectively. The product development expenses principally reflect the costs of funding the development of Mast Out® and to a lesser extent product line extensions to First Defense®. During 2009, we were funding the pivotal effectiveness study of Mast Out®, which was completed in September 2009. We expect a significant increase in product development expenses above historical levels as we increasingly fund costs related to the development of the commercial manufacturing process for Mast Out®. We have committed approximately $570,000 to Lonza (our API manufacturer) to generate data required for a first submission of the CMC Technical Section to the FDA. Most of this work is expected to be completed (and expensed) during the fourth quarter of 2010 with the balance being completed during the first quarter of 2011. Subject to obtaining acceptable results from this work, we may choose to make additional and larger financial commitments to Lonza during 2011 on a stage-by-stage basis to complete the manufacturing process development and scale-up and to fund the production of validation batches of inventory.

Our loss before income taxes of $(351,000) during the three-month period ended September 30, 2010 compares to our loss before income taxes of $(20,000) during the three-month period ended September 30, 2009. Our income tax benefit was 44% and 6% of our loss before income taxes during the three-month periods ended September 30, 2010 and 2009, respectively. Our net loss for the three-month period ended September 30, 2010 was $(197,000), or $(0.07) per share, in comparison to a net loss of $(19,000), or $(0.01) per share, during the three-month period ended September 30, 2009. Our loss before income taxes of $(452,000) during the nine-month period ended September 30, 2010 compares to our loss before income taxes of $(339,000) during the nine-month period ended September 30, 2009. Our income tax benefit was 43% and 41% of our loss before income taxes during the nine-month periods ended September 30, 2010 and 2009, respectively. Our net loss for the nine-month period ended September 30, 2010 was $(257,000), or $(0.09) per share, in comparison to a net loss of $(201,000), or $(0.07) per share, during the nine-month period ended September 30, 2009.

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 fifty-four month 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®. We chose debt financing because 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. At this point, the most expensive and time-consuming initiative remaining to be completed in the development of Mast Out® is the scale-up and testing of the Nisin API manufacturing process. We have committed approximately $570,000 to Lonza (our API manufacturer). Most of this work is expected to be completed during the fourth quarter of 2010, with the balance being completed during the first quarter of 2011. Subject to obtaining acceptable results from this work, we may choose to make additional and larger financial commitments to Lonza during 2011 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 to complete the CMC Technical Section. We expect to have product produced for the validation batches under the CMC Technical Section to sell in a test market subject to FDA approval, which is anticipated during the middle of 2012. 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 increased by 10%, or $473,000, to $5,058,000 at September 30, 2010 from $4,585,000 at December 31, 2009. Net cash used for operating activities amounted to $(387,000) during the nine-month period ended September 30, 2010 in contrast to net cash provided by operating activities of $108,000 during the nine-month period ended September 30, 2009. Net working capital increased by 12%, or $708,000, to $6,652,000 at September 30, 2010 from $5,944,000 at December 31, 2009. Proceeds from bank debt received during the third quarter of 2010 aggregated $970,000, net of debt issuance costs and repayments made prior to October 1, 2010. Total assets increased by 8%, or $786,000, to $10,771,000 at September 30, 2010 from $9,985,000 at December 31, 2009. Stockholders equity decreased by 3%, or $270,000, to $9,352,000 at September 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 Read the The complete Report

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