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ImmuCell Corp. Reports Operating Results (10-Q)

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May 05, 2009
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ImmuCell Corp. (ICCC, Financial) filed Quarterly Report for the period ended 2009-03-31.

ImmuCell Corp. is a biotechnology company striving to build shareholder value by commercializing proprietary technologies and helping dairy and beef producers and their veterinarians manage disease and reproduction in their herds. The company is also conducting an open label efficacy study of DiffGAM a human application of its milk-derived passive antibodytechnology for use as an alternative to antibiotics in the treatment and/or prevention of Clostridium difficile-associated diarrhea. ImmuCell Corp. has a market cap of $5.9 million; its shares were traded at around $1.98 with and P/S ratio of 1.3.

Highlight of Business Operations:

Product sales decreased by approximately 10%, or $171,000, to $1,460,000 during the three-month period ended March 31, 2009 in comparison to $1,631,000 during the same period in 2008. If we had shipped our backlog of orders aggregating approximately $48,000 as of March 31, 2009, our products sales would have been down by 8%, or $123,000. The backlog of orders as of March 31, 2009 was shipped to customers in April 2009. We are making significant investments to expand our production capacity in order to address this inventory shortage.

Our loss before income taxes of $(36,000) during the three-month period ended March 31, 2009 contrasts to income before income taxes of $129,000 during the three-month period ended March 31, 2008. Our income tax benefit was 5% of our loss before income taxes during the three-month period ended March 31, 2009 in contrast to income tax expense of 40% of our income before income taxes during the three-month period ended March 31, 2008. Our net loss for the three-month period ended March 31, 2009 was $(35,000) (or $(0.01) per share) in contrast to net income of $78,000 (or $0.03 per share) during the three-month period ended March 31, 2008.

Cash, cash equivalents and short-term investments increased by 2%, or $86,000, to $5,140,000 at March 31, 2009 from $5,054,000 at December 31, 2008. Net cash provided by operating activities amounted to $5,000 during the three-month period ended March 31, 2009 as compared to $558,000 during the three-month period ended March 31, 2008. Total assets increased by 1%, or $105,000, to $10,233,000 at March 31, 2009 from $10,128,000 at December 31, 2008. We have no outstanding bank debt. Net working capital increased by 2%, or $153,000, to $6,398,000 at March 31, 2009 from $6,245,000 at December 31, 2008. Stockholders equity increased by 1%, or $98,000, to $9,742,000 at March 31, 2009 from $9,644,000 at December 31, 2008, primarily as a result of the net loss being more than offset by an increase in equity from stock option exercises, during the first three months of 2009.

As we implement process improvements, we are investing in personnel, equipment and facility modifications to increase the efficiency and quality of our operations. In 2008, our Board of Directors authorized an investment of approximately $1,029,000 for facility modifications and production equipment. In December 2008, our Board of Directors increased the authorized spending limit by $285,000. We have been monitoring the status of the economy and our business as we make decisions pertaining to these investments. As of April 1, 2009, we have authorization from our Board of Directors to spend up to $848,000 on this project, net of payments made since January 1, 2008. Currently, we do not believe that we will need to invest this full amount to meet our objectives.

Economics of the dairy industry: The dairy industry in the United States has been facing very difficult economic pressures. The number of small dairy producers continues to decrease. The size of the U.S. dairy herd has remained consistently in the range of approximately 9,000,00 to 9,300,000 cows over the last ten years, but a significant decrease in the herd size is expected in 2009. Sales of our products may be influenced by the price 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. During the first three months of 2009, this average price level was $10.18, which represents a 44% decrease from the first

three months of 2008. For a point of reference, this price level was $10.42 in 2002, which approximates the price level experienced during the 1970s. In addition to the decline in the price of milk, the costs to produce milk have increased. One measure of this relationship is known as the milk-feed price ratio, which represents the amount of feed that one pound of milk can buy. For 2008, this ratio averaged 2.01. The monthly average during the first three months of 2009 dropped to 1.53, representing a 34% decrease compared to the first three months of 2008. A ratio of 1.53 means that a dairy producer can buy 1.53 pounds of feed for every pound of milk sold. Whenever the ratio meets or exceeds 3.0, it is considered profitable to buy feed and produce milk. The increase in feed costs also has a negative impact on the beef industry. Another indication of the economic condition of the dairy industry is the price received by producers for milking cows. In 2008, this average price is estimated to have increased to approximately $1,953, which is a 6% increase over 2007. During the first three months of 2009, this price averaged approximately $1,510, which represents a 23% decrease in comparison to the first three months of 2008. Another factor in the demand for our product is the value of bull calves. The recent decline in the price of bull calves has reduced the return on investment from a dose of First Defense® for bull calves. The financial insecurity of our primary customer base is a risk to our ability to maintain and grow sales at a profitable level. Further, the loss of farms that we buy raw material from could make it difficult for us to produce enough inventory until supply agreements are reached with replacement farms.

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