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ImmuCell Corp. Reports Operating Results (10-Q)

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Nov 04, 2009
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ImmuCell Corp. (ICCC, Financial) filed Quarterly Report for the period ended 2009-09-30.

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 $11.6 million; its shares were traded at around $3.9101 with and P/S ratio of 2.5.

Highlight of Business Operations:

Product sales increased by approximately 9%, or $87,000, to $1,011,000 during the three-month period ended September 30, 2009 in comparison to $924,000 during the same period in 2008. Sales during the third quarter of 2009 included the shipment of a backlog of orders as of June 30, 2009 aggregating approximately $287,000. There was no backlog of orders as of June 30, 2008. Product sales increased by 3%, or $91,000, to $3,472,000 during the nine-month period ended September 30, 2009 in comparison to $3,381,000 during the same period in 2008.

During the three-month period ended September 30, 2009, general and administrative expenses decreased by 9%, or $20,000, to $202,000 as compared to the same period in 2008. During the nine-month period ended September 30, 2009, general and administrative expenses decreased by 7%, or $49,000, to $667,000 as compared to the same period in 2008. While we implement efficiencies where possible, we continue to incur costs associated with complying with the Sarbanes-Oxley Act of 2002 and other costs associated with being a publicly-held company.

Our loss before income taxes of $(20,000) during the three-month period ended September 30, 2009 is significantly lower than our loss before income taxes of $(500,000) during the three-month period ended September 30, 2008. Our income tax benefit was 6% and 46% of our loss before income taxes during the three-month periods ended September 30, 2009 and 2008, respectively. Our net loss for the three-month period ended September 30, 2009 was $(19,000), or $(0.01) per share, in comparison to a net loss of $(268,000), or $(0.09) per share, during the three-month period ended September 30, 2008. The improved bottom line results during the three-month period ended September 30, 2009 largely reflect an improved gross margin and less product development spending.

Our loss before income taxes of $(339,000) during the nine-month period ended September 30, 2009 compares to a loss before income taxes of $(710,000) during the nine-month period ended September 30, 2008. Our income tax benefit was 41% and 40% of our loss before income taxes during the nine-month periods ended September 30, 2009 and 2008, respectively. Our net loss for the nine-month period ended September 30, 2009 of $(201,000), or $(0.07) per share, is significantly lower than the net loss of $(429,000), or $(0.15) per share, during the nine-month period ended September 30, 2008. The improved bottom line results during the nine-month period ended September 30, 2009 largely reflect an improved gross margin.

Cash, cash equivalents and short-term investments decreased by 2%, or $110,000, to $4,944,000 at September 30, 2009 from $5,054,000 at December 31, 2008. Net cash provided by operating activities amounted to $108,000 during the nine-month period ended September 30, 2009 in comparison to net cash provided by operating activities of $23,000 during the nine-month period ended September 30, 2008. Total assets decreased by 2%, or $234,000, to $9,894,000 at September 30, 2009 from $10,128,000 at December 31, 2008. We have no outstanding bank debt or open line of credit. Net working capital decreased by 2%, or $150,000, to $6,094,000 at September 30, 2009 from $6,245,000 at December 31, 2008. Stockholders equity decreased by less than 1%, or $25,000, to $9,619,000 at September 30, 2009 from $9,644,000 at December 31, 2008.

Economics of the dairy industry: The dairy industry in the United States 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 has been expected in 2009. As of September 2009, the herd size is estimated to be approximately 9,126,000 cows. 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. During the first nine months of 2009, this average price level plummeted to $10.49, which represents a 42% decrease from the first nine months of 2008. This price level is similar to the $10.42 average for 2002, and approximates the price levels 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. Whenever this ratio meets or exceeds 3.0, it is considered profitable to buy feed and produce milk. For 2008, this ratio averaged 2.01. The monthly average during the first nine months of 2009 dropped to 1.61, representing a 20% decrease compared to the first nine months of 2008. This means that a dairy producer can buy only 1.61 pounds of feed for every pound of milk sold. Before the milk-feed ratio dropped to these very low levels beginning in early 2008, the ratio had not been this low since the 1970s. 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. This price (reported as of January, April and July 2009) averaged approximately $1,433, which represents a 27% decrease in comparison to the same period in 2008. The dairy industry data referred to above is compiled from USDA databases. 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 from which we buy raw material for First Defense® could make it difficult for us to produce enough inventory until supply agreements are reached with replacement farms on suitable terms.

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