Notes to Unaudited Condensed Financial Statements
ImmuCell
Corporation (the “Company”, “we”, “us”, “our”) is a growing animal health company
whose purpose is to create scientifically-proven and practical products that improve animal health and productivity in the dairy
and beef industries. The Company was originally incorporated in Maine in 1982 and reincorporated in Delaware in 1987, in conjunction
with its initial public offering of common stock. We market products that provide immediate immunity to newborn dairy and beef
cattle. We are developing product line extensions of our existing products and are in the late stages of developing a novel product
that addresses mastitis, the most significant cause of economic loss to the dairy industry. These products help reduce the need
to use traditional antibiotics in food producing animals. The Company is subject to certain risks associated with its stage of
development including dependence on key individuals, competition from other larger companies, the successful sale of existing
products and the development and acquisition of additional commercially viable products with appropriate regulatory approvals,
where applicable. These and other risks to our company are further detailed under
PART II-OTHER INFORMATION: ITEM 1A–
RISK FACTORS
.
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
(a)
|
Basis
of Presentation
|
We have prepared the accompanying unaudited
condensed financial statements reflecting all adjustments that are, in our opinion, necessary in order to ensure that the financial
statements are not misleading. We follow accounting standards set by the Financial Accounting Standards Board (FASB). The FASB
sets generally accepted accounting principles (GAAP) that we follow to ensure we consistently report our financial condition,
results of operations, earnings per share and cash flows. References to GAAP in these footnotes are to the FASB
Accounting
Standards Codification
™ (Codification). As described below, certain prior year accounts have been reclassified to conform
with the 2016 financial statement presentation. Certain information and footnote disclosures normally included in the annual financial
statements have been condensed or omitted. Accordingly, we believe that although the disclosures are adequate to ensure that the
information presented is not misleading, these unaudited condensed financial statements should be read in conjunction with the
financial statements for the year ended December 31, 2015 and the notes thereto, contained in our Annual Report on Form 10-K as
filed with the Securities and Exchange Commission (SEC).
(b)
|
Cash, Cash Equivalents, Short-Term Investments and
Long-Term Investments
|
We
consider all highly liquid investment instruments that mature within three months of their purchase dates to be cash equivalents.
Cash equivalents are principally invested in securities backed by the U.S. government. Certain cash balances in excess of Federal
Deposit Insurance Corporation (FDIC) limits of $250,000 per financial institution per depositor are maintained in money market
accounts at financial institutions that are secured, in part, by the Securities Investor Protection Corporation. Amounts in excess
of these FDIC limits per bank that are not invested in securities backed by the U.S. government aggregated $3,908,115 and $1,073,028
as of September 30, 2016 and December 31, 2015, respectively. We account for marketable securities in accordance with Codification
Topic 320,
Investments - Debt and Equity Securities
. Short-term investments are classified as held to maturity and are
comprised principally of certificates of deposit that mature in more than three months from their purchase dates and not more
than twelve months from the balance sheet date. Long-term investments are classified as held to maturity and are comprised principally
of certificates of deposit that mature in more than twelve months from the balance sheet date. Short-term and long-term investments
are held at different financial institutions that are insured by the FDIC, within the FDIC limits per financial institution. See
Note 3.
Inventory includes raw materials, work-in-process
and finished goods and is recorded at the lower of cost, on the first-in, first-out method, or net realizable value (determined
as the estimated selling price in the normal course of business, less reasonably predictable costs of completion, disposal and
transportation). Work-in-process and finished goods inventories include materials, labor and manufacturing overhead. See Note
4.
Accounts
receivable are carried at the original invoice amount less an estimate made for doubtful collection and product returns. Management
determines the allowance for doubtful accounts on a monthly basis by identifying troubled accounts and by using historical experience
applied to an aging of accounts. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivable
previously written off are recorded as income when received. Accounts receivable are considered to be past due if any portion
of the receivable balance is outstanding for more than 30 days. Interest is charged on past due accounts receivable.
ImmuCell Corporation
Notes to Unaudited Condensed Financial Statements (continued)
(e)
|
Property, Plant and Equipment
|
We
depreciate property, plant and equipment on the straight-line method by charges to operations in amounts estimated to expense
the cost of the assets from the date they are first put into service to the end of the estimated useful lives of the assets. The
facility we are constructing to produce the active ingredient, Nisin, for
Mast Out
®
will be depreciated over its useful life beginning when that
facility is placed into service, which could be before the Food and Drug Administration (FDA) approval of the product is achieved.
This facility is not yet placed in service. We are evaluating the estimated useful lives of the assets associated with this facility.
Repairs to fixed assets that benefit more than a current period are capitalized and depreciated over their useful lives. See Note
7.
(f)
|
Intangible Assets and Goodwill
|
We
amortize intangible assets on the straight-line method by charges to operations in amounts estimated to expense the cost of
the assets from the date they are first put into service to the end of the estimated useful lives of the assets. We have
recorded intangible assets related to customer contracts, customer relationships, non-compete agreements, and technology,
each with defined useful lives. We have classified as goodwill the amounts paid in excess of fair value of the net assets
(including tax attributes) of assets acquired in purchase transactions. We continually assess that these assets are
realizable in accordance with the impairment provisions of Codification Topic 360,
Accounting for the Impairment or
Disposal of Long-Lived Assets
. We assess the impairment of intangible assets and goodwill that have indefinite lives on
an annual basis (as of December 31
st
) and whenever events or changes in circumstances indicate that the carrying
value of the asset may not be recoverable. We would record an impairment charge if such an assessment were to indicate that
the fair value of such assets was less than their carrying values. Judgement is required in determining whether an event has
occurred that may impair the value of identifiable intangible assets or goodwill. Factors that could indicate that an
impairment may exist include significant under-performance relative to plan or long-term projections, significant changes in
business strategy, significant negative industry or economic trends. Although we believe intangible assets and goodwill are
appropriately stated in the accompanying financial statements, changes in strategy or market conditions could significantly
impact these judgements and require an adjustment to the recorded balance. See Notes 2(h), 8 and 9 for additional
disclosures.
(g)
|
Fair Value Measurements
|
In
determining fair value measurements, we follow the provisions of Codification Topic 820,
Fair Value Measurements and Disclosures
.
Codification Topic 820 defines fair value, establishes a framework for measuring fair value under GAAP and enhances disclosures
about fair value measurements. The topic provides a consistent definition of fair value which focuses on an exit price, which
is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The topic also prioritizes, within the measurement of fair value, the use of market-based
information over entity-specific information and establishes a three-level hierarchy for fair value measurements based on the
nature of inputs used in the valuation of an asset or liability as of the measurement date. At September 30, 2016 and December
31, 2015, the carrying amounts of cash and cash equivalents, accounts receivable, inventory, other assets, accounts payable and
accrued liabilities approximate fair value because of their short-term nature. The three-level hierarchy is as follows:
|
Level
1 -
|
Pricing
inputs are quoted prices available in active markets for identical assets or liabilities as of the measurement date.
|
|
|
|
|
Level 2 -
|
Pricing
inputs are quoted prices for similar assets or liabilities, or inputs that are observable, either directly or indirectly,
for substantially the full term through corroboration with observable market data.
|
|
|
|
|
Level 3 -
|
Pricing
inputs are unobservable for the assets or liabilities, that is, inputs that reflect the reporting entity’s own
assumptions about the assumptions market participants would use in pricing the asset or liability.
|
ImmuCell Corporation
Notes
to Unaudited Condensed Financial Statements (continued)
In
certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases,
an asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant
to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety
requires judgement, and considers factors specific to the investment.
Our
held to maturity securities are comprised of investments in bank certificates of deposit. The value of these securities is disclosed
in Note 3. We also hold money market mutual funds in a brokerage account, which are classified as cash equivalents and measured
at fair value. The fair value of these investments is based on their closing published net asset value.
We
assess the levels of the investments at each measurement date, and transfers between levels are recognized on the actual date
of the event or change in circumstances that caused the transfer in accordance with our accounting policy regarding the recognition
of transfers between levels of the fair value hierarchy. During the nine-month period ended September 30, 2016 and the year ended
December 31, 2015, there were no transfers between levels. As of September 30, 2016 and December 31, 2015, our interest rate swap
agreements and bank certificates of deposit were classified as Level 2. As of September 30, 2016 and December 31, 2015, the Level
1 assets measured at fair value consisted of bank savings accounts and money market funds valued at $4,408,415 and $1,573,328,
respectively, and our Level 2 assets measured at fair value consisted of bank certificates of deposit of $5,199,000 and $4,951,000,
respectively. There were no assets or liabilities measured at fair value on a nonrecurring basis as of September 30, 2016, or
December 31, 2015.
(h)
|
Valuation of Long-Lived Assets
|
We
periodically evaluate our long-lived assets, consisting principally of fixed assets and amortizable intangible assets for potential
impairment. In accordance with the applicable accounting guidance for the treatment of long-lived assets, we review the carrying
value of our long-lived assets or asset group that is held and used, including intangible assets subject to amortization, for
impairment whenever events and circumstances indicate that the carrying value of the assets may not be recoverable. Under the
held and used approach, the asset or asset group to be tested for impairment should represent the lowest level for which identifiable
cash flows are largely independent of the cash flows of other groups of assets and liabilities. We evaluate our long-lived assets
whenever events or circumstances suggest that the carrying amount of an asset or group of assets may not be recoverable from the
estimated undiscounted future cash flows. No impairment was recognized during the three-month or nine-month periods ended September
30, 2016 or 2015.
(i)
|
Concentration of Risk
|
Concentration of credit risk with respect
to accounts receivable is principally limited to certain customers to whom we make substantial sales. To reduce risk, we routinely
assess the financial strength of our customers and, as a consequence, believe that our accounts receivable credit risk exposure
is limited. We maintain an allowance for potential credit losses, but historically we have not experienced significant credit
losses related to an individual customer or groups of customers in any particular industry or geographic area. Sales to significant
customers that amounted to 10% or more of total product sales are detailed in the following table:
|
|
Three-Month Periods Ended September 30,
|
|
|
Nine-Month Periods Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Patterson Companies, Inc.
(1)
|
|
|
40
|
%
|
|
|
39
|
%
|
|
|
39
|
%
|
|
|
41
|
%
|
AmerisourceBergen Corporation
(2)
|
|
|
18
|
%
|
|
|
22
|
%
|
|
|
20
|
%
|
|
|
21
|
%
|
ANIMART LLC
(3)
|
|
|
11
|
%
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
ImmuCell Corporation
Notes to Unaudited Condensed Financial Statements (continued)
Accounts
receivable due from significant customers amounted to the percentages of total trade accounts receivable as detailed in the following
table:
|
|
As of September 30, 2016
|
|
|
As
of December 31, 2015
|
|
Patterson Companies, Inc.
(1)
|
|
|
42
|
%
|
|
|
26
|
%
|
ANIMART LLC
(3)
|
|
|
15
|
%
|
|
|
11
|
%
|
AmerisourceBergen Corporation
(2)
|
|
|
14
|
%
|
|
|
27
|
%
|
(1)
During June 2015, Patterson Companies, Inc. (NASDAQ: PDCO) acquired Animal Health International, Inc.
(2)
During
March 2015, AmerisourceBergen Corporation (NYSE: ABC) acquired MWI Animal Health.
(3)
Assumes
that the acquisition of Animal Medic by ANIMART LLC (which closed during the third quarter of 2016) had occurred as of the
beginning of the periods being reported.
*Amount
is less than 10%.
We
believe that supplies and raw materials for the production of our products are available from more than one vendor or farm. Our
policy is to maintain more than one source of supply for the components used in our products. However, there is a risk that we
could have difficulty in efficiently acquiring essential supplies.
(j)
|
Interest Rate Swap Agreements
|
All
derivatives are recognized on the balance sheet at their fair value. We entered into interest rate swap agreements in 2010 and
2015. On the dates the agreements were entered into, we designated the derivatives as hedges of the variability of cash flows
to be paid related to our long-term debt. The agreements have been determined to be highly effective in hedging the variability
of identified cash flows, so changes in the fair market value of the interest rate swap agreements are recorded as comprehensive
income (loss), until earnings are affected by the variability of cash flows (e.g. when periodic settlements on a variable-rate
asset or liability are recorded in earnings). We formally documented the relationship between the interest rate swap agreements
and the related hedged items. We also formally assess, both at the interest rate swap agreements’ inception and on an ongoing
basis, whether the agreements are highly effective in offsetting changes in cash flow of hedged items. See Note 11.
We
sell products that provide immediate immunity to newborn dairy and beef cattle. We recognize revenue in accordance with Staff
Accounting Bulletin (SAB) No. 104, “Revenue Recognition”. SAB No. 104 requires that four criteria are met before revenue
is recognized. These include i) persuasive evidence that an arrangement exists, ii) delivery has occurred or services have been
rendered, iii) the seller’s price is fixed and determinable and iv) collectability is reasonably assured. We recognize revenue
at the time of shipment (including to distributors) for substantially all products, as title and risk of loss pass to the customer
on delivery to the common carrier after concluding that collectability is reasonably assured. We offer a 50% credit on
First
Defense
®
product that is returned to us past its expiration date, which is generally two years past its date of manufacture.
We generally experience a minimal amount of product returns.
Advertising costs are expensed when incurred,
which is generally during the month in which the advertisement is published. Advertising expenses amounted to $50,079 and $27,545
during the three-month periods ended September 30, 2016 and 2015 and $88,017 and $72,539 during the nine-month periods ended September
30, 2016 and 2015, respectively. All product development expenses are expensed as incurred, as are all related patent costs. We
capitalize costs to produce inventory during the production cycle, and these costs are charged to costs of goods sold when the
inventory is sold to a customer.
ImmuCell Corporation
Notes to Unaudited Condensed Financial Statements (continued)
We
account for income taxes in accordance with Codification Topic 740,
Income Taxes
, which requires that we recognize a current
tax liability or asset for current taxes payable or refundable and a deferred tax liability or asset for the estimated future
tax effects of temporary differences and carryforwards to the extent they are realizable. We believe it is more likely than not
that the deferred tax assets will be realized through future taxable income and future tax effects of temporary differences between
book income and taxable income. Accordingly, we have not established a valuation allowance for the deferred tax assets. Codification
Topic 740-10 clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position must
meet before being recognized in the financial statements. In the ordinary course of business, there are transactions and calculations
where the ultimate tax outcome is uncertain. In addition, we are subject to periodic audits and examinations by the Internal Revenue
Service and other taxing authorities. Our tax returns for the years 2013 through 2015 are subject to audit. We have evaluated
the positions taken on our filed tax returns. We have concluded that no uncertain tax positions exist as of September 30, 2016.
Although we believe that our estimates are reasonable, actual results could differ from these estimates. See Note 14.
(n)
|
Stock-Based Compensation
|
We
account for stock-based compensation in accordance with Codification Topic 718,
Compensation-Stock Compensation
, which
generally requires us to recognize non-cash compensation expense for stock-based payments using the fair-value-based method. The
fair value of each stock option grant has been estimated on the date of grant using the Black-Scholes option pricing model. Accordingly,
we recorded compensation expense pertaining to stock-based compensation of $21,360 and $6,342 during the three-month periods ended
September 30, 2016 and 2015 and $50,312 and $17,825 during the nine-month periods ended September 30, 2016 and 2015, respectively,
which resulted in a decrease to income before income taxes of less than $0.01 per share during each of the periods reported.
(o)
|
Net Income Per Common Share
|
Net
income per common share has been computed in accordance with Codification Topic 260-10,
Earnings Per Share.
The basic net
income per share has been computed by dividing net income by the weighted average number of common shares outstanding during this
period. The diluted net income per share has been computed by dividing net income by the weighted average number of shares outstanding
during the period plus all outstanding stock options with an exercise price that is less than the average market price of the
common stock during the period less the number of shares that could have been repurchased at this average market price with the
proceeds from the hypothetical stock option exercises. The weighted average and diluted number of shares outstanding consisted
of the following:
|
|
Three-Month Periods Ended September 30,
|
|
|
Nine-Month Periods Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Weighted average number of shares outstanding
|
|
|
4,182,529
|
|
|
|
3,052,175
|
|
|
|
4,065,243
|
|
|
|
3,038,111
|
|
Effect of dilutive stock options
|
|
|
119,751
|
|
|
|
136,174
|
|
|
|
113,938
|
|
|
|
124,509
|
|
Diluted number of shares outstanding
|
|
|
4,302,280
|
|
|
|
3,188,349
|
|
|
|
4,179,181
|
|
|
|
3,162,620
|
|
Outstanding stock options not included in the calculation because the effect would be anti-dilutive
|
|
|
20,000
|
|
|
|
0
|
|
|
|
22,000
|
|
|
|
3,000
|
|
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the period. Although we regularly assess these
estimates, actual amounts could differ from those estimates. Changes in estimates are recorded during the period in which
they become known. Significant estimates include our inventory, goodwill, accrued expenses and costs of goods sold accounts
as well as amortization of our intangible assets.
(q)
|
New Accounting Pronouncements
|
In
May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09,
Revenue from Contracts with Customers
, which requires
an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services
to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. ASU
2014-09 was initially to become effective for the Company on January 1, 2017. Early application was not permitted. In July 2015,
the FASB approved a one-year deferral in the effective date to January 1, 2018, with the option of applying the standard on the
original effective date. ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. We are
evaluating the effect that ASU 2014-09 would have on our financial statements and related disclosures.
ImmuCell Corporation
Notes to Unaudited Condensed Financial Statements (continued)
In
April 2015, the FASB issued ASU No. 2015-03,
Interest-Imputation of Interest
, which requires that debt issuance costs related
to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability,
consistent with debt discounts. This update is effective for the annual reporting periods beginning after December 15, 2015. During
the first quarter of 2016, we adopted ASU 2015-03 and reclassified $40,792 of debt issuance costs (net) from other assets to a
reduction in our bank debt liability as of December 31, 2015. In August 2015, the FASB confirmed that ASU No. 2015-03 did not
address the presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. For line-of-credit
arrangements, borrowers have the option of presenting debt issuance costs as an asset which is subsequently amortized ratably
over the term of the line-of-credit arrangement, regardless of whether there are any related outstanding borrowings. ASU No. 2015-03
did not have a material impact on our financial statements.
In July 2015, the FASB issued ASU No. 2015-11,
Inventory
, which simplifies the existing guidance which requires entities to subsequently measure inventory at the lower
of cost or market value. Under ASU No. 2015-11, an entity should measure inventory valued using a first-in, first-out or average
cost method at the lower of cost or net realizable value, which is defined as the estimated selling price in the ordinary course
of business, less reasonably predictable costs of completion, disposal and transportation. This update is effective for public
business entities during fiscal years beginning after December 15, 2016. We adopted ASU 2015-11 during the third quarter of 2016,
and it did not have a material impact on our financial statements.
In
November 2015, the FASB issued ASU No. 2015-17,
Income Taxes
, which simplifies the existing guidance which requires an
entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of
financial position. Under ASU No. 2015-17, an entity should classify all deferred tax liabilities and assets as one noncurrent
deferred tax liability or asset (net) within the statement of financial position. The amendments apply to all entities that present
a classified statement of financial position and are effective for the public business entities for annual periods beginning after
December 15, 2016, including interim periods therein. Earlier application is permitted. During the first quarter of 2016, we adopted
ASU No. 2015-17 early and reclassified $19,588 of current deferred tax liabilities to long-term, which amount was netted against
our long-term deferred tax asset, as of December 31, 2015. ASU No. 2015-17 did not have a material impact on our financial statements.
In
February 2016, the FASB issued ASU No. 2016-02,
Leases
, which requires lessees to put most leases on their balance sheet
but recognize expenses on their income statements in a manner similar to today’s accounting. ASU 2016-02 is effective for
fiscal years beginning after December 15, 2018, including interim periods therein. Early adoption is permitted. We are not subject
to material lease obligations, and we do not expect ASU 2016-02 to have a material impact on our financial statements.
3.
|
CASH, CASH EQUIVALENTS, SHORT-TERM INVESTMENTS AND
LONG-TERM INVESTMENTS
|
Cash,
cash equivalents, short-term investments and long-term investments (at cost) consisted of the following:
|
|
As of
September 30, 2016
|
|
|
As of
December 31, 2015
|
|
|
Increase
(Decrease)
|
|
Cash and cash equivalents
|
|
$
|
4,408,415
|
|
|
$
|
1,573,328
|
|
|
$
|
2,835,087
|
|
Short-term investments
(1)
|
|
|
5,199,000
|
|
|
|
4,464,000
|
|
|
|
735,000
|
|
Subtotal
|
|
|
9,607,415
|
|
|
|
6,037,328
|
|
|
|
3,570,087
|
|
Long-term investments
(1)
|
|
|
0
|
|
|
|
487,000
|
|
|
|
(487,000
|
)
|
Total
|
|
$
|
9,607,415
|
|
|
$
|
6,524,328
|
|
|
$
|
3,083,087
|
|
(1)
We accrued $20,065 and $9,221 in interest income on these investments as of September 30, 2016 and December 31, 2015, respectively,
which was recorded in other receivables.
ImmuCell Corporation
Notes to Unaudited Condensed Financial Statements (continued)
Held
to maturity securities are carried at amortized cost. The cost of securities sold is determined based on the specific identification
method. Realized gains and losses, and declines in value judged to be other than temporary, are included in investment income.
As of September 30, 2016, held to maturity securities consisted of the following:
|
|
|
|
|
Gross Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
Certificates of deposit
|
|
$
|
5,199,000
|
|
|
$
|
5,642
|
|
|
$
|
0
|
|
|
$
|
5,204,642
|
|
Inventory
consisted of the following:
|
|
As of
September 30, 2016
|
|
|
As of
December 31, 2015
|
|
|
Increase
|
|
Raw materials
|
|
$
|
422,271
|
|
|
$
|
284,331
|
|
|
$
|
137,940
|
|
Work-in-process
|
|
|
749,033
|
|
|
|
452,024
|
|
|
|
297,009
|
|
Finished goods
|
|
|
595,092
|
|
|
|
133,852
|
|
|
|
461,240
|
|
Total
|
|
$
|
1,766,396
|
|
|
$
|
870,207
|
|
|
$
|
896,189
|
|
Accounts
receivable consisted of the following:
|
|
As of
September 30, 2016
|
|
|
As of
December 31, 2015
|
|
|
(Decrease)
|
|
Trade accounts receivable, gross
|
|
$
|
697,472
|
|
|
$
|
736,195
|
|
|
$
|
(38,723
|
)
|
Accumulated allowance for bad debt
|
|
|
(20,317
|
)
|
|
|
(18,092
|
)
|
|
|
(2,225
|
)
|
Trade accounts receivable, net
|
|
$
|
677,155
|
|
|
$
|
718,103
|
|
|
$
|
(40,948
|
)
|
6.
|
PREPAID EXPENSES AND OTHER CURRENT ASSETS
|
Prepaid
expenses and other current assets consisted of the following:
|
|
As of
September 30, 2016
|
|
|
As of
December 31, 2015
|
|
|
Increase
|
|
Prepaid expenses and other current assets
(1)
|
|
$
|
197,259
|
|
|
$
|
183,396
|
|
|
$
|
13,863
|
|
Other receivables
|
|
|
164,411
|
|
|
|
36,001
|
|
|
|
128,410
|
|
Security deposits
|
|
|
331,791
|
|
|
|
37,301
|
|
|
|
294,490
|
|
Total
|
|
$
|
693,461
|
|
|
$
|
256,698
|
|
|
$
|
436,763
|
|
(1)
During the first quarter of 2016, we paid $20,500 for an option to purchase additional land nearby to our Portland facility
that could be used to construct an additional facility should we decide to exercise the option before the end of 2016 for an additional
$184,500.
ImmuCell Corporation
Notes to Unaudited Condensed Financial Statements (continued)
7.
|
PROPERTY, PLANT AND EQUIPMENT
|
Property,
plant and equipment consisted of the following, at cost:
|
|
Estimated Useful Lives
|
|
As of
September 30, 2016
|
|
|
As of
December 31, 2015
|
|
|
Increase
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laboratory and manufacturing equipment
|
|
5-10
|
|
$
|
5,435,652
|
|
|
$
|
3,766,556
|
|
|
$
|
1,669,096
|
|
Building and improvements
|
|
10-25
|
|
|
5,027,812
|
|
|
|
4,716,204
|
|
|
|
311,608
|
|
Office furniture and equipment
|
|
5-10
|
|
|
652,100
|
|
|
|
568,188
|
|
|
|
83,912
|
|
Construction in progress
(1)
|
|
|
|
|
1,038,731
|
|
|
|
1,084,924
|
|
|
|
(46,193
|
)
|
Land
|
|
|
|
|
347,115
|
|
|
|
333,486
|
|
|
|
13,629
|
|
Property, plant and equipment, gross
|
|
|
|
|
12,501,410
|
|
|
|
10,469,358
|
|
|
|
2,032,052
|
|
Accumulated depreciation
|
|
|
|
|
(5,263,019
|
)
|
|
|
(4,750,544
|
)
|
|
|
(512,475
|
)
|
Property, plant and equipment, net
|
|
|
|
$
|
7,238,391
|
|
|
$
|
5,718,814
|
|
|
$
|
1,519,577
|
|
(1)
As of September 30, 2016, construction in progress included $650,733 in payments related to the construction of our commercial-scale
Nisin plant. As of December 31, 2015, construction in progress consisted principally of partial payments towards new manufacturing
equipment related to expanding our production capacity for
First Defense
®
.
On January 4, 2016, we acquired certain business
assets from DAY 1™ Technology, LLC of Minnesota. The acquired rights and know-how are primarily related to formulating our
bovine antibodies into a gel solution for an oral delivery option to newborn calves via a syringe (or tube). This product format
offers customers an alternative delivery option to the bolus (the standard delivery format of the bivalent
First Defense
®
product since first approval by the U.S. Department of Agriculture (USDA) and product launch in 1991) and could allow
more market penetration. The formulation was developed for us and has been sold as a feed product without disease claims since
2012. This purchase also includes certain other related private-label products. The total purchase price was approximately $532,000.
Approximately $368,000 of this amount was paid as of the closing date. A technology transfer payment of $97,000 was made during
the third quarter of 2016, and the remaining estimated balance of approximately $67,000 will be paid as a royalty on related product
sales through December 31, 2018. There is no limit on the amount of the royalty, but it is proportional to sales of related product.
That amount is reported in accounts payable and accrued expenses on the accompanying balance sheet. The estimated fair values
of the assets purchased in this transaction included inventory of $113,000, machinery and equipment of $132,000, a developed technology
intangible of $191,000 (which includes an immaterial amount of value associated with customer relationships and a non-compete
agreement, and was valued using the relief from royalty method) and goodwill of $96,000. The intangible assets and goodwill are
deductible for tax return purposes. The goodwill arising from the acquisition consists largely of the estimated value of anticipated
growth opportunities arising from synergies and efficiencies. The measurement period for the transaction was closed as of June
30, 2016, and we continue to assess any impairment of these acquired assets quarterly. The impact of the acquisition on our proforma
prior year operations is not significant.
ImmuCell Corporation
Notes to Unaudited Condensed Financial Statements (continued)
The intangible assets described in Note 8
are being amortized over their useful lives, which are estimated to be 10 years. Intangible amortization expense was ($133) and
$15,309 during the three-month and nine-month periods ended September 30, 2016, respectively. The immaterial credit to amortization
expense during the three-month period ended September 30, 2016 resulted from an adjustment to correct an immaterial over-recognition
of this expense during the six-month period ended June 30, 2016. The net value of these intangibles was $175,731 as of September
30, 2016. A summary of intangible amortization expense estimated for the five years beginning January 1, 2016 and thereafter is
as follows:
Period
|
|
Amount
|
|
Three months ending December 31, 2016
|
|
$
|
9,847
|
|
Year ending December 31, 2017
|
|
|
39,387
|
|
Year ending December 31, 2018
|
|
|
39,387
|
|
Year ending December 31, 2019
|
|
|
12,444
|
|
Year ending December 31, 2020
|
|
|
12,444
|
|
After December 31, 2020
|
|
|
62,222
|
|
Total
|
|
$
|
175,731
|
|
10.
|
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
|
Accounts
payable and accrued expenses consisted of the following:
|
|
As of
September 30, 2016
|
|
|
As of
December 31, 2015
|
|
|
Increase
(Decrease)
|
|
Accounts payable – capital
|
|
$
|
165,145
|
|
|
$
|
1,510
|
|
|
$
|
163,635
|
|
Accounts payable – trade
|
|
|
412,376
|
|
|
|
199,105
|
|
|
|
213,271
|
|
Accrued payroll
|
|
|
188,112
|
|
|
|
242,690
|
|
|
|
(54,578
|
)
|
Accrued clinical studies
|
|
|
0
|
|
|
|
68,428
|
|
|
|
(68,428
|
)
|
Accrued professional fees
|
|
|
94,250
|
|
|
|
56,450
|
|
|
|
37,800
|
|
Accrued other
|
|
|
28,974
|
|
|
|
93,982
|
|
|
|
(65,008
|
)
|
Total
|
|
$
|
888,857
|
|
|
$
|
662,165
|
|
|
$
|
226,692
|
|
During
the first quarter of 2016, we entered into a bank debt agreement covering certain additional credit facilities with TD Bank N.A.
aggregating approximately $4.5 million comprised of: (a) a $2.5 million construction loan, drawable over an 18-month period at
up to 80% of the cost of equipment installed in the to be constructed commercial-scale production facility for
Mast Out
®
,
during which interest only will be payable at a variable rate equal to the 30-day LIBOR plus 2.25%, which converts to a seven-year
term loan facility at the end of construction at the same interest rate with monthly principal and interest payments based on
a seven-year amortization schedule and (b) a $2.0 million construction loan, drawable over a 12-month period at up to 75% of the
appraised value of the to be constructed commercial-scale production facility for
Mast Out
®
, during which
interest only will be payable at a variable rate equal to the 30-day LIBOR plus 2.25%, which converts to a nine-year term loan
facility at the end of construction at the same interest rate with monthly principal and interest payments based on a twenty-year
amortization schedule. There were no amounts outstanding under these facilities as of September 30, 2016. These credit facilities are to be secured by substantially all of our assets and are subject to certain
financial covenants.
ImmuCell Corporation
Notes to Unaudited Condensed Financial Statements (continued)
Additionally,
we have in place certain credit facilities with TD Bank N.A., which are secured by substantially all of our assets and are subject
to certain financial covenants. Proceeds from the $1,000,000 mortgage note were received during the third quarter of 2010. Based
on a 15-year amortization schedule, a balloon principal payment of approximately $451,885 will be due during the third quarter
of 2020. Proceeds from the $2,500,000 mortgage note were received during the third quarter of 2015. Based on a 20-year amortization
schedule, a balloon principal payment of approximately $1,550,007 will be due during the third quarter of 2025. Principal payments
due under debt outstanding as of September 30, 2016 (excluding any debt proceeds to be drawn under the credit facilities entered
into during the first quarter of 2016) are reflected in the following table by the year that payments are due:
Period
|
|
$1,000,000 Mortgage Note
|
|
|
$2,500,000 Mortgage Note
|
|
|
Debt Issuance Costs
|
|
|
Total
|
|
Three months ending December 31, 2016
|
|
$
|
14,952
|
|
|
$
|
20,343
|
|
|
($
|
2,525
|
)
|
|
$
|
32,770
|
|
Year ending December 31, 2017
|
|
|
61,056
|
|
|
|
82,308
|
|
|
|
(10,095
|
)
|
|
|
133,269
|
|
Year ending December 31, 2018
|
|
|
64,876
|
|
|
|
86,097
|
|
|
|
(10,095
|
)
|
|
|
140,878
|
|
Year ending December 31, 2019
|
|
|
68,908
|
|
|
|
89,997
|
|
|
|
(10,095
|
)
|
|
|
148,810
|
|
Year ending December 31, 2020
|
|
|
493,696
|
|
|
|
94,005
|
|
|
|
(9,462
|
)
|
|
|
578,239
|
|
After December 31, 2020
|
|
|
0
|
|
|
|
2,049,766
|
|
|
|
(38,887
|
)
|
|
|
2,010,879
|
|
Total
|
|
$
|
703,488
|
|
|
$
|
2,422,516
|
|
|
($
|
81,159
|
)
|
|
$
|
3,044,845
|
|
We
hedged our interest rate exposure on these mortgage notes with interest rate swap agreements that effectively converted floating
interest rates based on the one-month LIBOR plus a bank profit margin of 3.25% and 2.25% to the fixed rates of 6.04% and 4.38%,
respectively. As of September 30, 2016, the variable rates on these two mortgage notes were 3.78% and 2.79%, respectively. All
derivatives are recognized on the balance sheet at their fair value. At the time of the closings and thereafter, the agreements
were determined to be highly effective in hedging the variability of the identified cash flows and have been designated as cash
flow hedges of the variability in the hedged interest payments. Changes in the fair value of the interest rate swap agreements
are recorded in other comprehensive income (loss), net of taxes. The original notional amounts of the interest rate swap agreements
of $1,000,000 and $2,500,000 amortize in accordance with the amortization of the mortgage notes. The notional amount of the interest
rate swaps was $3,126,004 as of September 30, 2016. Payments required by the interest rate swaps totaled $14,470 and $5,112 during
the three-month periods ended September 30, 2016 and 2015, and $44,653 and $15,549 during the nine-month periods ended September
30, 2016 and 2015, respectively. As the result of our decision to hedge this interest rate risk, we recorded other comprehensive
income (loss), net of taxes, in the amount of $15,523 and ($49,147) during the three-month periods ended September 30, 2016 and
2015, and ($79,767) and ($48,059) during the nine-month periods ended September 30, 2016 and 2015, respectively, which reflects
the change in the fair value of the interest rate swap (liabilities), net of taxes. The fair values of the interest rate swaps
have been determined using observable market-based inputs or unobservable inputs that are corroborated by market data. Accordingly,
the interest rate swaps are classified as level 2 within the fair value hierarchy provided in Codification Topic 820,
Fair
Value Measurements and Disclosures
.
In
connection with the credit facilities entered into during the third quarters of 2010 and 2015 and the first quarter of 2016, we
incurred debt issue costs of $26,489, $34,125 and $46,734, respectively, which costs are being recorded as a component of other
expenses over the terms of the credit facilities.
Proceeds
from a $600,000 note bearing interest at 4.25% were received during the first quarter of 2011. This note was repaid during the
third quarter of 2015.
The
$500,000 line of credit with TD Bank N.A. was first entered into during the third quarter of 2010 and has been renewed approximately
annually since then and is available as needed and has been extended through May 31, 2017 and is renewable annually thereafter.
The line of credit was unused as of September 30, 2016 and December 31, 2015. Interest on any borrowings against the line of credit
would be variable at the higher of 4.25% per annum or the one-month LIBOR plus 3.5% per annum.
On
October 28, 2015, we filed a registration statement on Form S-3 with the SEC for the potential issuance of up to $10,000,000 in
equity (subject to certain limitations). This registration statement became effective on November 10, 2015. Under this form of
registration statement, we were limited to raising gross proceeds of no more than one-third of the market capitalization of our
common stock (as determined by the high price within the preceding 60 days leading up to a sale of securities) held by non-affiliates
(non-insiders) of the Company within a twelve-month period. This limit was approximately $5,958,000, based on the closing price
of $8.08 per share as of January 6, 2016. On February 3, 2016, we sold 1,123,810 shares of common stock at a price to the public
of $5.25 per share in an underwritten public offering, raising gross proceeds of approximately $5,900,000, resulting in net proceeds
of approximately $5,313,000 (after deducting underwriting discounts and offering expenses) to the Company.
ImmuCell Corporation
Notes to Unaudited Condensed Financial Statements (continued)
At
the June 15, 2016 Annual Meeting of Stockholders, our stockholders voted to approve an amendment to the Company’s Certificate
of Incorporation to increase the number of shares of common stock authorized for issuance from 8,000,000 to 10,000,000.
In
June 2000, our stockholders approved the 2000 Stock Option and Incentive Plan (the “2000 Plan”) pursuant to the provisions
of the Internal Revenue Code of 1986, under which employees and certain service providers may be granted options to purchase shares
of the Company’s common stock at i) no less than fair market value on the date of grant in the case of incentive stock options
and ii) no less than 85% of fair market value on the date of grant in the case of non-qualified stock options. Vesting requirements
are determined by the Compensation and Stock Option Committee of the Board of Directors on a case by case basis. Originally, 250,000
shares of common stock were reserved for issuance under the 2000 Plan. The stockholders of the Company approved an increase in
this number to 500,000 shares in June 2001. All options granted under the 2000 Plan expire no later than ten years from the date
of grant. The 2000 Plan expired in February 2010, after which date no further options could be granted under the 2000 Plan. However,
outstanding options under the 2000 Plan may be exercised in accordance with their terms.
In
June 2010, our stockholders approved the 2010 Stock Option and Incentive Plan (the “2010 Plan”) pursuant to the provisions
of the Internal Revenue Code of 1986, under which employees and certain service providers may be granted options to purchase shares
of the Company’s common stock at i) no less than fair market value on the date of grant in the case of incentive stock options
and ii) no less than 85% of fair market value on the date of grant in the case of non-qualified stock options. At that time, 300,000
shares of common stock were reserved for issuance under the 2010 Plan and subsequently no additional shares have been reserved
for the 2010 Plan. Vesting requirements are determined by the Compensation and Stock Option Committee of the Board of Directors
on a case by case basis. All options granted under the 2010 Plan expire no later than ten years from the date of grant.
Activity
under the stock option plans described above was as follows:
|
|
2000 Plan
|
|
|
2010 Plan
|
|
|
Weighted
Average
Exercise
|
|
|
Aggregate Intrinsic Value
|
|
Outstanding at December 31, 2014
|
|
|
157,500
|
|
|
|
95,500
|
|
|
$
|
3.42
|
|
|
$
|
364,000
|
|
Grants
|
|
|
0
|
|
|
|
16,000
|
|
|
$
|
7.40
|
|
|
|
|
|
Terminations
|
|
|
0
|
|
|
|
(3,000
|
)
|
|
$
|
4.95
|
|
|
|
|
|
Exercises
|
|
|
(26,000
|
)
|
|
|
(2,000
|
)
|
|
$
|
4.29
|
|
|
|
|
|
Outstanding at December 31, 2015
|
|
|
131,500
|
|
|
|
106,500
|
|
|
$
|
3.57
|
|
|
$
|
945,000
|
|
Grants
|
|
|
0
|
|
|
|
44,000
|
|
|
$
|
6.98
|
|
|
|
|
|
Terminations
|
|
|
0
|
|
|
|
(5,000
|
)
|
|
$
|
6.19
|
|
|
|
|
|
Exercises
|
|
|
0
|
|
|
|
(16,000
|
)
|
|
$
|
5.59
|
|
|
|
|
|
Outstanding at September 30, 2016
|
|
|
131,500
|
|
|
|
129,500
|
|
|
$
|
3.97
|
|
|
$
|
981,000
|
|
Exercisable at September 30, 2016
|
|
|
131,500
|
|
|
|
25,500
|
|
|
$
|
2.62
|
|
|
$
|
802,000
|
|
Reserved for future grants
|
|
|
0
|
|
|
|
150,500
|
|
|
|
|
|
|
|
|
|
ImmuCell Corporation
Notes to Unaudited Condensed Financial Statements (continued)
During the nine-month period ended September
30, 2016, one employee and one director exercised stock options covering the aggregate of 16,000 shares, of which 15,000 were
exercised during the three-month period ended September 30, 2016. Six thousand of these options were exercised for cash, resulting
in total proceeds of $31,900, and 10,000 of these options were exercised by the surrender of 7,334 shares of common stock with
a fair market value of $57,425 at the time of exercise and $75 in cash. During the year ended December 31, 2015, eleven employees
exercised stock options covering the aggregate of 28,000 shares, of which 14,000 were exercised during the three-month period
ended September 30, 2015. These options were exercised for cash, resulting in total proceeds of $120,210. At September 30, 2016,
261,000 shares of common stock were reserved for future issuance under all outstanding stock options described above, and an additional
150,500 shares of common stock were reserved for the potential issuance of stock option grants in the future under the 2010 Plan.
The weighted average remaining life of the options outstanding under the 2000 Plan and the 2010 Plan as of September 30, 2016
was approximately four years and seven months. The weighted average remaining life of the options exercisable under these plans
as of September 30, 2016 was approximately two years and six months. The exercise prices of the options outstanding as of September
30, 2016 ranged from $1.70 to $8.21 per share. The 44,000 stock options granted during the first nine months of 2016 had exercise
prices between $6.70 and $8.21 per share. The 16,000 stock options granted during 2015 had exercise prices between $6.05 and $7.54
per share. The aggregate intrinsic value of options exercised during 2016 and 2015 approximated $32,000 and $110,000, respectively.
The weighted-average grant date fair values of options granted during 2016 and 2015 were $4.16 and $3.46 per share, respectively.
As of September 30, 2016, total unrecognized stock-based compensation related to non-vested stock options aggregated $238,047.
That cost is expected to be recognized at a declining rate through the second quarter of 2023 (the remaining vesting period of
the outstanding non-vested stock options), including $25,270 during remainder of 2016. The fair value of each stock option grant
has been estimated on the date of grant using the Black-Scholes option pricing model, for the purpose discussed in Note 2(n),
with the following weighted-average assumptions for the three-month and nine-month periods ended September 30, 2016 and for the
year ended December 31, 2015:
|
|
2016
|
|
|
2015
|
|
Risk-free interest rate
|
|
|
1.2
|
%
|
|
|
2.0
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
63
|
%
|
|
|
47
|
%
|
Expected life
|
|
|
6.5 years
|
|
|
|
6 years
|
|
The
risk-free interest rate is based on U.S. Treasury yields for a maturity approximating the expected option term, while the other
assumptions are derived from averages of our historical data.
Other
expenses, net, consisted of the following:
|
|
Three-Month Periods
Ended September 30,
|
|
|
Nine-Month Periods
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Interest expense
|
|
$
|
38,928
|
|
|
$
|
15,084
|
|
|
$
|
116,925
|
|
|
$
|
41,039
|
|
Interest income
|
|
|
(16,980
|
)
|
|
|
(4,461
|
)
|
|
|
(43,725
|
)
|
|
|
(10,634
|
)
|
Debt issuance amortization
|
|
|
2,524
|
|
|
|
636
|
|
|
|
6,367
|
|
|
|
2,074
|
|
Other gains
|
|
|
2,038
|
|
|
|
3,852
|
|
|
|
1,628
|
|
|
|
(5,420
|
)
|
Other expenses, net
|
|
$
|
26,510
|
|
|
$
|
15,111
|
|
|
$
|
81,195
|
|
|
$
|
27,059
|
|
Our
income tax (benefit) expense aggregated ($10,913) and $260,447 for the three-month periods ended September 30, 2016 and 2015,
respectively. Our income tax expense aggregated $211,537 and $709,394 for the nine-month periods ended September 30, 2016 and
2015, respectively. In 2015, we utilized approximately $1,700,000 of net operating loss carryforwards to offset otherwise taxable
income. As of December 31, 2015, we had federal net operating loss carryforwards of approximately $115,000 that we expect to utilize
against taxable income in 2016. Additionally, we have federal general business tax credit carryforwards of approximately $262,000
that expire in 2027 through 2034, if not utilized before then, as well as approximately $78,000 of state tax credits.
Deferred
tax assets are recognized only when it is probable that sufficient taxable income will be available in future periods against
which deductible temporary differences and credits may be utilized. However, the amount of the deferred tax asset could be reduced
if projected income is not achieved due to various factors, such as unfavorable business conditions. If projected income is not
expected to be achieved, we would decrease the deferred tax asset to the amount that we believe can be realized.
Net
operating loss carryforwards, credits, and other tax attributes are subject to review and possible adjustment by the Internal
Revenue Service. Section 382 of the Internal Revenue Code contains provisions that could place annual limitations on the future
utilization of net operating loss carryforwards and credits in the event of a change in ownership of the Company, as defined.
The
Company files income tax returns in the U.S. federal jurisdiction and several state jurisdictions. With few exceptions, the Company
is no longer subject to income tax examinations by tax authorities for years before 2012. We currently have no tax examinations
in progress. We also have not paid additional taxes, interest or penalties as a result of tax examinations nor do we have any
unrecognized tax benefits for any of the periods in the accompanying financial statements.
ImmuCell Corporation
Notes to Unaudited Condensed Financial Statements (continued)
15.
|
CONTINGENT LIABILITIES AND COMMITMENTS
|
Our
bylaws, as amended, in effect provide that the Company will indemnify its officers and directors to the maximum extent permitted
by Delaware law. In addition, we make similar indemnity undertakings to each director through a separate indemnification agreement
with that director. The maximum payment that we may be required to make under such provisions is theoretically unlimited and is
impossible to determine. We maintain directors’ and officers’ liability insurance, which may provide reimbursement
to the Company for payments made to, or on behalf of, officers and directors pursuant to the indemnification provisions. Our indemnification
obligations were grandfathered under the provisions of Codification Topic 460
, Guarantees
. Accordingly, we have recorded
no liability for such obligations as of September 30, 2016. Since our incorporation, we have had no occasion to make any indemnification
payment to any of our officers or directors for any reason.
The
development, manufacturing and marketing of animal health care products entails an inherent risk that liability claims will be
asserted against us during the normal course of business. We feel that we have reasonable levels of liability insurance to support
our operations. We are aware of no such claims against us as of the date of this filing.
We
enter into agreements with third parties in the ordinary course of business under which we are obligated to indemnify such third
parties from and against various risks and losses. The precise terms of such indemnities vary with the nature of the agreement.
In many cases, we limit the maximum amount of our indemnification obligations, but in some cases those obligations may be theoretically
unlimited. We have not incurred material expenses in discharging any of these indemnification obligations, and based on our analysis
of the nature of the risks involved, we believe that the fair value of the liabilities potentially arising under these agreements
is minimal. Accordingly, we have recorded no liabilities for such obligations as of September 30, 2016.
We
are committed to purchasing certain key parts (syringes) and services (formulation, filling and packaging of Drug Product) pertaining
to
Mast Out
®
exclusively from two contractors. If we do not commercialize the product by the end of
2019, we would be liable for a $100,000 termination fee
.
During
the second quarter of 2009, we entered into an exclusive license with the Baylor College of Medicine covering the underlying rotavirus
vaccine technology used to generate the specific antibodies for our product line extension that is under development. This perpetual
license (if not terminated for cause) is subject to a milestone payment of $150,000 upon regulatory approval and a royalty based
on sales related to this technology.
As
of September 30, 2016, we had committed approximately $417,000 to capital expenditures, $541,000 to the production of inventory
and an additional $159,000 to other obligations. Additionally, during the third quarter of 2016, we entered into a guaranteed
maximum price contract with our construction management firm in the amount of approximately $5,000,000 covering construction costs
for the new production facility for
Mast Out
®
. This contract includes provisions that could reduce the amount of the
commitment generally by the amount not expended or committed by the construction manager at the time of an unexpected and unlikely
early termination.
We
principally operate in the business segment described in Note 1. Pursuant to Codification Topic 280,
Segment Reporting
,
we operate in one reportable business segment, that being the development, acquisition, manufacture and sale of products that
improve the health and productivity of cows for the dairy and beef industries. Almost all of our internally funded product development
expenses are in support of such products. The significant accounting policies of this segment are described in Note 2. Sales of
the
First Defense
®
product line aggregated 93% and 88% or our total product sales during the three-month
periods ended September 30, 2016 and 2015 and 93% and 92% of our total product sales during the nine-month periods ended September
30, 2016 and 2015, respectively.
Our
primary customers for the majority of our product sales (83% and 85% for the three-month periods ended September 30, 2016 and
2015 and 85% and 83% for the nine-month periods ended September 30, 2016 and 2015, respectively) are in the U.S. dairy and beef
industries. Product sales to international customers, who are also in the dairy and beef industries, aggregated 17% and 6% of
our total product sales for the three-month periods ended September 30, 2016 and 2015 and 14% and 13% of our total product sales
for the nine-month periods ended September 30, 2016 and 2015, respectively.
17.
|
RELATED PARTY TRANSACTIONS
|
Dr.
David S. Tomsche (Chair of our Board of Directors) is a controlling owner of Leedstone Inc. (formerly Stearns Veterinary Outlet,
Inc.), a domestic distributor of ImmuCell products (
First Defense
®
,
Wipe Out
®
Dairy Wipes
,
and
CMT
) and of J-t Enterprises of Melrose, Inc., an exporter. His affiliated companies purchased $144,365 and $157,350
of products from ImmuCell during the three-month periods ended September 30, 2016 and 2015 and $476,311 and $452,207 of products
from ImmuCell during the nine-month periods ended September 30, 2016 and 2015, respectively, on terms consistent with those offered
to other distributors of similar status. We made marketing-related payments of $2,925 and $3,222 to these affiliated companies
during the nine-month periods ended September 30, 2016 and 2015, respectively. Our accounts receivable (subject to standard and
customary payment terms) due from these affiliated companies aggregated $65,484 and $36,528 as of September 30, 2016 and December
31, 2015, respectively.
ImmuCell Corporation
Notes to Unaudited Condensed Financial Statements (continued)
We
have a 401(k) savings plan (the Plan) in which all employees completing one month of service with the Company are eligible to
participate. Participants may contribute up to the maximum amount allowed by the Internal Revenue Service. Since August 2012,
we have matched 100% of the first 3% of each employee’s salary that is contributed to the Plan and 50% of the next 2% of
each employee’s salary that is contributed to the Plan. Under this matching plan, we paid $17,642 and $17,102 into the Plan
during the three-month periods ended September 30, 2016 and 2015, and $55,209 and $54,157 during the nine-month periods ended
September 30, 2016 and 2015, respectively.
We
have adopted the disclosure provisions of Codification Topic 855-10-50-1,
Subsequent Events
, which provides guidance to
establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial
statements are issued. Entities are required to disclose the date through which subsequent events were evaluated as well as the
rationale for why that date was selected. This disclosure should alert all users of financial statements that an entity has not
evaluated subsequent events after that date in the set of financial statements being presented. Codification Topic 855-10-50-1
requires additional disclosures only, and therefore did not have an impact on our financial condition, results of operations,
earnings per share or cash flows. Public entities must evaluate subsequent events through the date that financial statements are
issued. Accordingly, we have evaluated subsequent events through the time of filing on November 10, 2016, the date we have issued
this Quarterly Report on Form 10-Q. As of such date, except as described below, there were no material, reportable subsequent
events.
On
October 21, 2016, we closed on a private placement of 659,880 shares of common stock to nineteen institutional and accredited
investors at $5.25 per share, raising gross proceeds of $3,464,000. The net proceeds were approximately $3,164,000 after deducting
placement agent fees and other estimated expenses incurred in connection with the equity financing.
We
expect to close down the rented facility in Minnesota that has been used to produce the gel solution format of our product
and the certain other related private-label products by year end. This will result in the termination of employment of four
employees for us, as these production functions are consolidated into our Portland facility. Consolidation of this product
line in Portland enables us to leverage existing infrastructure and larger scale equipment to improve operating
efficiencies.
ImmuCell Corporation