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ImmuCell Corp. Reports Operating Results (10-Q)

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May 06, 2010
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ImmuCell Corp. (ICCC, Financial) filed Quarterly Report for the period ended 2010-03-31.

Immucell Corp. has a market cap of $10.8 million; its shares were traded at around $3.65 with and P/S ratio of 2.5.

Highlight of Business Operations:

Product sales decreased by approximately 10%, or $149,000, to $1,312,000 during the three-month period ended March 31, 2010 in comparison to $1,460,000 during the same period in 2009. During the first quarter of 2010, domestic sales increased by 4%, or $45,000, but foreign sales decreased by 55%, or $194,000, in comparison to the same period in 2009. We continue to be affected by volatility in our foreign sales. Foreign sales during the three-month period ended March 31, 2009 were 10%, or $32,000, higher than foreign sales recorded during the same period in 2008. As of March 31, 2009, we had a backlog of orders aggregating approximately $48,000. If this backlog of orders had shipped prior to April 1, 2009, our sales during the first quarter of 2010 would have been down by approximately 13%, or $197,000, and our domestic sales would have been down by less than 1%, or $3,000, in comparison to the same period in 2009.

Our loss before income taxes of $(65,000) during the three-month period ended March 31, 2010 compares to our loss before income taxes of $(36,000) during the three-month period ended March 31, 2009. Our income tax benefit was 18% and 5% of our loss before income taxes during the three-month periods ended March 31, 2010 and 2009, respectively. Our net loss for the three-month period ended March 31, 2010 was $(53,000), or $(0.02) per share, in comparison to a net loss of $(35,000), or $(0.01) per share, during the three-month period ended March 31, 2009.

Cash, cash equivalents and short-term investments decreased by 5%, or $246,000, to $4,339,000 at March 31, 2010 from $4,585,000 at December 31, 2009. Net cash used for operating activities amounted to $(167,000) during the three-month period ended March 31, 2010 in comparison to net cash provided by operating activities of $5,000 during the three-month period ended March 31, 2009. Total assets decreased by less than 1%, or $30,000, to $9,955,000 at March 31, 2010 from $9,985,000 at December 31, 2009. We have no outstanding bank debt or open line of credit. Net working capital decreased by less than 1%, or $16,000, to $5,928,000 at March 31, 2010 from $5,944,000 at December 31, 2009. Stockholders equity decreased by less than 1%, or $39,000, to $9,583,000 at March 31, 2010 from $9,622,000 at December 31, 2009

The return of the Mast Out® product rights to us in 2007 has caused us to increase our spending on product development expenses that were previously funded by Pfizer. After the nine consecutive years of profitability that we recorded during the years ended December 31, 1999 to December 31, 2007, we incurred net losses of $(216,000) and $(469,000) during 2009 and 2008, respectively, and we are projecting another net loss for 2010. We believe that the commercial prospects for Mast Out® warrant this level of investment. As of March 31, 2010, we had approximately $4,339,000 in cash and short-term investments. 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. As described above, the market launch of Mast Out® (if the product is approved by the FDA) would require external funding. This funding need is not expected 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 and 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 $(65,000) and a net loss of $(53,000) for the quarter ended March 31, 2010, due in large part to our current product development strategy. Continued development of Mast Out® will likely result in a net loss in 2010 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. 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 in 2010 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 March 2010, the herd size is estimated to be approximately 9,090,000 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 quarter of 2010, this price level averaged $13.85 in comparison to $10.18 during the first quarter 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 very volatile foreign demand for milk products. However, the actual level of milk prices may be less important than their level relative to costs. Costs to produce milk are significant and to some extent can be managed by dairy producers. 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. For 2009, this ratio averaged 1.77, representing a 12% decrease compared to 2008. During the first quarter of 2010, this ratio averaged 2.31 in comparison to 1.56 during the first quarter of 2009. This means that a dairy producer can buy only 2.31 pounds of feed for every pound of milk sold. 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 average price for animals sold for dairy herd replacement. In 2008, this average price (reported as of January, April, July and October) is estimated to have increased to approximately $1,953, which was a 6% increase over 2007. This price averaged approximately $1,385 in 2009, which represented a 29% decrease in comparison to the same period in 2008. The average of this price as of January and April 2010 was $1,335 as compared to $1,510 as of January and April 2009. 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 decline in the price of bull calves has reduced the return on investment from a dose of First Defense® for bull calves. We are trying to maintain and grow our sales for use with heifer calves to offset what we assume is a significant loss in our sales for bull calves. Given our focus on the dairy and beef industries, 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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