UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

001-12934

(Commission file number)

ImmuCell Corporation

(Exact name of registrant as specified in its charter)

Delaware

01-0382980

(State of Incorporation)

(I.R.S. Employer

Identification No.)

56 Evergreen Drive, Portland, ME		04103
(Address of principal executive office)		(Zip Code)

(207) 878-2770

(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, $0.10 par value per share

ICCC

Nasdaq

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the Registrant’s common stock outstanding at October 28, 2021 was 7,741,864.

ImmuCell Corporation

TABLE OF CONTENTS

September 30, 2021

PART I: FINANCIAL INFORMATION

ITEM 1.	Unaudited Financial Statements

	Balance Sheets as of September 30, 2021 and December 31, 2020	1

	Statements of Operations during the three-month and nine-month periods ended September 30, 2021 and 2020	2

	Statements of Comprehensive Income (Loss) during the three-month and nine-month periods ended September 30, 2021 and 2020	3

	Statements of Stockholders’ Equity during the three-month and nine-month periods ended September 30, 2021 and 2020	4

	Statements of Cash Flows during the nine-month periods ended September 30, 2021 and 2020	5-6

	Notes to Unaudited Financial Statements	7-23

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24-37

ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	37

ITEM 4.	Controls and Procedures	37

PART II: OTHER INFORMATION

ITEM 1 THROUGH 6		38-45

	Signature	46

ImmuCell Corporation

PART 1. FINANCIAL INFORMATION

ITEM 1. UNAUDITED FINANCIAL STATEMENTS

BALANCE SHEETS

	(Unaudited) As of September 30, 2021			As of December 31, 2020
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	10,495,759		$	6,949,937
Short-term investments		—			996,495
Trade accounts receivable, net		2,422,255			1,796,801
Inventory		2,666,970			2,092,514
Prepaid expenses and other current assets		490,495			321,261
Total current assets		16,075,479			12,157,008

PROPERTY, PLANT AND EQUIPMENT, net		26,815,699			26,754,975
OPERATING LEASE RIGHT-OF-USE ASSET		1,136,940			1,220,361
GOODWILL		95,557			95,557
INTANGIBLE ASSETS, net		81,192			95,520
OTHER ASSETS		26,596			26,173
TOTAL ASSETS	$	44,231,463		$	40,349,594

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	1,277,018		$	1,350,227
Current portion of debt obligations		782,525			760,337
Current portion of operating lease liability		106,137			100,512
Total current liabilities		2,165,680			2,211,076

LONG-TERM LIABILITIES:
Debt obligations, net of current portion		8,549,748			8,737,149
Operating lease liability, net of current portion		1,054,160			1,135,169
Total long-term liabilities		9,603,908			9,872,318

TOTAL LIABILITIES		11,769,588			12,083,394

CONTINGENT LIABILITIES AND COMMITMENTS (See Note 11)

STOCKHOLDERS’ EQUITY:
Common stock, $0.10 par value per share, 15,000,000 and 15,000,000 shares authorized, 7,814,165 and 7,299,009 shares issued and 7,741,864 and 7,218,836 shares outstanding, as of September 30, 2021 and December 31, 2020, respectively		781,417			729,901
Additional paid-in capital		35,651,457			31,372,093
Accumulated deficit		(3,812,828	)		(3,660,402	)
Treasury stock, at cost, 72,301 and 80,173 shares as of September 30, 2021 and December 31, 2020, respectively		(158,171	)		(175,392	)
Total stockholders’ equity		32,461,875			28,266,200

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	44,231,463		$	40,349,594

The accompanying notes are an integral part of these unaudited financial statements.

ImmuCell Corporation

STATEMENTS OF OPERATIONS

(Unaudited)

	During the Three-Month Periods Ended September 30,					During the Nine-Month Periods Ended September 30,
	2021		2020			2021			2020

Product sales	$	5,150,173	$	3,722,517		$	13,799,129		$	11,598,858
Costs of goods sold		2,731,469		2,000,066			7,703,915			6,357,068
Gross margin		2,418,704		1,722,451			6,095,214			5,241,790

Product development expenses		1,047,498		1,123,144			3,078,670			3,184,198
Sales and marketing expenses		656,418		459,117			1,613,997			1,507,538
Administrative expenses		443,698		391,788			1,290,574			1,296,043

Operating expenses		2,147,614		1,974,049			5,983,241			5,987,779

NET OPERATING INCOME (LOSS)		271,090		(251,598	)		111,973			(745,989	)

Other expenses, net		115,283		71,290			256,356			479,590

INCOME (LOSS) BEFORE INCOME TAXES		155,807		(322,888	)		(144,383	)		(1,225,579	)

Income tax expense (benefit)		8,043		—			8,043			(14,632	)

NET INCOME (LOSS)	$	147,764	$	(322,888	)	$	(152,426	)	$	(1,210,947	)

Basic weighted average common shares outstanding		7,741,864		7,212,919			7,541,884			7,212,919
Basic net income (loss) per share	$	0.02	$	(0.04	)	$	(0.02	)	$	(0.17	)
Diluted weighted average common shares outstanding		7,820,294		7,212,919			7,541,884			7,212,919
Diluted net income (loss) per share	$	0.02	$	(0.04	)	$	(0.02	)	$	(0.17	)

STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

	During the Three-Month Periods Ended September 30,					During the Nine-Month Periods Ended September 30,
	2021		2020			2021			2020
Net income (loss)	$	147,764	$	(322,888	)	$	(152,426	)	$	(1,210,947	)
Other comprehensive income:
Interest rate swaps, before taxes		—		—			—			58,527
Income tax applicable to interest rate swaps		—		—			—			(14,632	)
Other comprehensive income, net of taxes		—		—			—			43,895
Total comprehensive income (loss)	$	147,764	$	(322,888	)	$	(152,426	)	$	(1,167,052	)

The accompanying notes are an integral part of these unaudited financial statements.

ImmuCell Corporation

STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

	Common Stock										Treasury Stock						Accumulated
	Shares		Amount		Additional paid-in capital			Accumulated Deficit			Shares			Amount			Other Comprehensive Income (Loss)			Total Stockholders’ Equity
During the Three-Month Period Ended September 30, 2021:
BALANCE, June 30, 2021		7,814,165	$	781,417	$	35,605,969		$	(3,960,592	)		72,301		$	(158,171	)	$	—		$	32,268,623
Net income		—		—		—			147,764			—			—			—			147,764
Stock-based compensation		—		—		45,488			—			—			—			—			45,488
BALANCE, September 30, 2021		7,814,165	$	781,417	$	35,651,457		$	(3,812,828	)		72,301		$	(158,171	)	$	—		$	32,461,875

During the Three-Month Period Ended September 30, 2020:
BALANCE June 30, 2020		7,299,009	$	729,901	$	31,265,931		$	(3,526,344	)		86,090		$	(188,336	)	$	—		$	28,281,152
Net loss		—		—		—			(322,888	)		—			—			—			(322,888	)
Stock-based compensation		—		—		62,397			—			—			—			—			62,397
BALANCE September 30, 2020		7,299,009	$	729,901	$	31,328,328		$	(3,849,232	)		86,090		$	(188,336	)	$	—		$	28,020,661

During the Nine-Month Period Ended September 30, 2021:
BALANCE December 31, 2020		7,299,009	$	729,901	$	31,372,093		$	(3,660,402	)		80,173		$	(175,392	)	$	—		$	28,266,200
Net loss		—		—		—			(152,426	)		—			—			—			(152,426	)
Public offering of common stock, net of $17,011 of offering costs		515,156		51,516		4,181,510			—			—			—			—			4,233,026
Exercise of stock options		—		—		(5,528	)		—			(7,872	)		17,221			—			11,693
Stock-based compensation		—		—		103,382			—			—			—			—			103,382
BALANCE September 30, 2021		7,814,165	$	781,417	$	35,651,457		$	(3,812,828	)		72,301		$	(158,171	)	$	—		$	32,461,875

During the Nine-Month Period Ended September 30, 2020:
BALANCE December 31, 2019		7,299,009	$	729,901	$	31,131,893		$	(2,638,285	)		86,090		$	(188,336	)	$	(43,895	)	$	28,991,278
Net loss		—		—		—			(1,210,947	)		—			—			—			(1,210,947	)
Other comprehensive income, net of taxes		—		—		—			—			—			—			43,895			43,895
Stock-based compensation		—		—		196,435			—			—			—			—			196,435
BALANCE September 30, 2020		7,299,009	$	729,901	$	31,328,328		$	(3,849,232	)		86,090		$	(188,336	)	$	—		$	28,020,661

The accompanying notes are an integral part of these unaudited financial statements.

ImmuCell Corporation

STATEMENTS OF CASH FLOWS

(Unaudited)

	During the Nine-Month Periods Ended September 30,
	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(152,426	)	$	(1,210,947	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		1,845,612			1,719,393
Amortization of intangible assets		14,328			14,328
Amortization and write-off of debt issuance costs		5,880			101,077
Deferred income taxes		—			(14,632	)
Stock-based compensation		103,382			196,435
Loss on disposal of fixed assets		32,278			3,266
Non-cash rent expense		8,037			10,889
Changes in:
Trade accounts receivable		(625,454	)		94,620
Accrued interest income		495			27,215
Inventory		(574,456	)		427,439
Prepaid expenses and other current assets		(169,234	)		(133,594	)
Other assets		(423	)		1,622
Accounts payable and accrued expenses		(121,742	)		(77,781	)
Net cash provided by operating activities		366,277			1,159,330

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment		(1,904,055	)		(3,787,860	)
Maturities of investments		996,000			2,453,000
Purchases of investments		—			(1,992,000	)
Proceeds from sale of fixed assets		13,975			600
Net cash used for investing activities		(894,080	)		(3,326,260	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from public offering, net		4,233,026			—
Proceeds from debt issuance		400,000			10,037,700
Debt principal repayments		(573,366	)		(8,804,147	)
Payments of debt issuance costs		2,272			(39,789	)
Proceeds from exercise of stock options		11,693			—
Net cash provided by financing activities		4,073,625			1,193,764

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		3,545,822			(973,166	)

BEGINNING CASH AND CASH EQUIVALENTS		6,949,937			6,293,293

ENDING CASH AND CASH EQUIVALENTS	$	10,495,759		$	5,320,127

The accompanying notes are an integral part of these unaudited financial statements.

ImmuCell Corporation

STATEMENTS OF CASH FLOWS

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

(Unaudited)

	During the Nine-Month Periods Ended September 30,
	2021			2020
CASH PAID FOR:
Income taxes	$	5,135		$	4,700
Interest expense	$	234,324		$	408,131
NON-CASH ACTIVITIES:
Change in capital expenditures included in accounts payable and accrued expenses	$	(48,533	)	$	(150,295	)
Net change in fair value of interest rate swaps, net of taxes	$	—		$	(43,895	)
Surrender of shares to exercise stock options	$	165,337		$	71,998

The accompanying notes are an integral part of these unaudited financial statements.

ImmuCell Corporation

Notes to Unaudited Financial Statements

1. BUSINESS OPERATIONS

ImmuCell Corporation (the “Company”, “we”, “us”, “our”) was originally incorporated in Maine in 1982 and reincorporated in Delaware in 1987, in conjunction with our initial public offering of common stock. We are an animal health company whose purpose is to create scientifically-proven and practical products that improve the health and productivity of dairy and beef cattle. We manufacture and market the First Defense^® product line for the prevention of scours in newborn dairy and beef calves. We have expanded this line into five different products with formulations targeting E. coli and coronavirus pathogens as well as E. coli, coronavirus and rotavirus pathogens. This product line provides Immediate Immunity™ to newborn calves, and we are in the late stages of developing Re-Tain^®, a treatment for lactating dairy cows with subclinical mastitis, mastitis being 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. We are subject to certain risks associated with this stage of development including dependence on key individuals and third-party providers of critical goods and services, 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.

The global COVID-19 pandemic has created, and continues to create, uncertainty for us. The full impact of this viral outbreak on the global economy, and the duration of such impact, is still uncertain at this time. A combination of the conditions, trends and concerns related to or arising from the pandemic could have a corresponding negative effect on our business and operations, including the supply of the colostrum we purchase to produce our First Defense^® product line, the demand for our products in the U.S. market and our ability to penetrate or maintain a profitable presence in international markets. We are experiencing price increases and shortages in key components, supportive services, transportation and other supplies that may cause production slowdowns that affect our ability to consistently deliver our products to market on time in accordance with customer demand. Despite some recent favorable trends and our diligent efforts and intentions, there is a risk that an employee could become infected and could infect others. This could lead to plant shutdowns and production interruptions and have other negative economic and health and safety impacts.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation

We have prepared the accompanying unaudited financial statements reflecting all adjustments (which are of a normal recurring nature) 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). We believe that the disclosures are adequate to ensure that the information presented is not misleading.

(b) Cash, Cash Equivalents and Short-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 $0 and $751,050 as of September 30, 2021 and December 31, 2020, respectively. Short-term investments are classified as held to maturity and are comprised 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. Short-term investments are held at different financial institutions that are insured by the FDIC, within the FDIC limits per financial institution. We account for investments in marketable securities in accordance with Codification Topic 320, Investments — Debt and Equity Securities. See Note 3.

(c) Trade Accounts Receivable, net

Accounts receivable are carried at the original invoice amount less an estimate made for doubtful collection when applicable. 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 considered to be past due if a portion of the receivable balance is outstanding for more than 30 days. Past due accounts receivable are subject to an interest charge. Accounts receivable are written off when deemed uncollectible. The amount of accounts receivable written off during all periods reported was immaterial. Recoveries of accounts receivable previously written off are recorded as income when received. As of September 30, 2021 and December 31, 2020, we determined that no allowance for doubtful accounts was necessary. See Note 4.

ImmuCell Corporation

Notes to Unaudited Financial Statements (continued)

(d) Inventory

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. At each balance sheet date, we evaluate our ending inventories for excess quantities and obsolescence. Inventories that we consider excess or obsolete are written down to estimated net realizable value. Once inventory is written down and a new cost basis is established, it is not written back up if demand increases. 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 when feasible. See Note 5.

(e) Property, Plant and Equipment, net

We depreciate property, plant and equipment on the straight-line method by charges to operations and costs of goods sold 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 have constructed at 33 Caddie Lane to produce the Nisin Drug Substance for Re-Tain^® is being depreciated over 39 years from when a certificate of occupancy was issued during the fourth quarter of 2017. We began depreciating the equipment for our Nisin Drug Substance facility when it was placed in service during the third quarter of 2018. Approximately 88% of these assets are being depreciated over 10 years. We began depreciating the leasehold improvements to our new First Defense^®production facility at 175 Industrial Way over the remainder of the 10-year lease term beginning when a certificate of occupancy was issued during the second quarter of 2020. Significant repairs to fixed assets that benefit more than a current period are capitalized and depreciated over their useful lives. Insignificant repairs are expensed when incurred. See Note 7.

(f) Intangible Assets and Goodwill

We amortize intangible assets on the straight-line method by charges to costs of goods sold 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 relationships, non-compete agreements and developed 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) acquired in purchase transactions. We assess the impairment of intangible assets and goodwill that have indefinite lives at the reporting unit level 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 the carrying value. Judgment is required in determining whether an event has occurred that may impair the value of goodwill or identifiable intangible assets. 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 and significant negative industry or economic trends. Although we believe intangible assets and goodwill are properly stated in the accompanying financial statements, changes in strategy or market conditions could significantly impact these judgments and require an adjustment to the recorded balance. No goodwill impairments were recorded during the nine-month period ended September 30, 2021 or the year ended December 31, 2020. See Notes 2(g) and 8 for additional disclosures.

(g) Valuation of Long-Lived Assets

We periodically evaluate our long-lived assets, consisting principally of fixed assets, operating lease right-of-use asset 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 for use 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. No impairment was recognized during the nine-month period ended September 30, 2021 or the year ended December 31, 2020.

ImmuCell Corporation

Notes to Unaudited Financial Statements (continued)

(h) 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. As of September 30, 2021 and December 31, 2020, the carrying amounts of cash and cash equivalents, short-term investments, accounts receivable, inventory, other assets, accounts payable and accrued liabilities approximate fair value because of their short-term nature. The amount outstanding under our bank debt facilities is measured at carrying value in our accompanying balance sheets. Our bank debt facilities are valued using Level 2 inputs. The estimated fair value of our bank debt facilities approximates their carrying value based on similar instruments with similar maturities. 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.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level of an asset or liability 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 judgment and considers factors specific to the investment. From time to time, 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, 2021 and the year ended December 31, 2020, there were no transfers between levels. As of September 30, 2021 and December 31, 2020, our Level 1 assets measured at fair value by quoted prices in active markets consisted of bank savings accounts and money market funds. As of December 31, 2020, our bank certificates of deposit were classified as Level 2 and were measured by other significant observable inputs. There were no assets or liabilities measured at fair value on a nonrecurring basis as of September 30, 2021 or December 31, 2020.

	As of September 30, 2021
	Level 1		Level 2			Level 3		Total
Assets:
Cash and money market accounts	$	10,495,759	$	—		$	—	$	10,495,759

Liabilities:
Bank debt	$	—	$	(9,332,273	)	$	—	$	(9,332,273	)

	As of December 31, 2020
	Level 1		Level 2			Level 3		Total
Assets:
Cash and money market accounts	$	6,949,937	$	—		$	—	$	6,949,937
Bank certificates of deposit		—		996,495			—		996,495
Total	$	6,949,937	$	996,495		$	—	$	7,946,432

Liabilities:
Bank debt	$	—	$	(9,497,486	)	$	—	$	(9,497,486	)

ImmuCell Corporation

Notes to Unaudited Financial Statements (continued)

(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 when deemed necessary, 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:

	During the Three-Month Periods Ended September 30,						During the Nine-Month Periods Ended September 30,
	2021			2020			2021			2020
Company A		47	%		44	%		46	%		40	%
Company B		26	%		27	%		28	%		30	%

Trade 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, 2021			As of December 31, 2020
Company A		52	%		48	%
Company B		23	%		27	%

(j) Revenue Recognition

We recognize revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. ASC 606 is a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers. The core principle is that we recognize the amount of revenue to which we expect to be entitled for the transfer of promised goods or services to customers when a customer obtains control of promised goods or services in an amount that reflects the consideration we expect to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. We conduct our business with customers through valid purchase orders or sales orders which are considered contracts and are not interdependent on one another. A performance obligation is a promise in a contract to transfer a distinct product to the customer. The transaction price is the amount of consideration we expect to receive under the arrangement. Revenue is measured based on consideration specified in a contract with a customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized when or as the customer receives the benefit of the performance obligation. Product transaction prices on a purchase or sales order are discrete and stand-alone. We recognize revenue when we satisfy a performance obligation in a contract by transferring control over a product to a customer when product delivery occurs. Amounts due are typically paid approximately 30 days from the time control is transferred. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost in costs of goods sold. We do not bill for or collect sales tax because our sales are generally made to distributors and thus our sales to them are not subject to sales tax. We generally have experienced an immaterial amount of product returns. We have enhanced disclosures related to disaggregation of revenue sources and accounting policies prospectively as a result of adopting this standard. See Note 14.

(k) Expense Recognition

We do not incur costs in connection with product sales to customers that are eligible for capitalization. Advertising costs are expensed when incurred, which is generally during the month in which the advertisement is published. Advertising expenses amounted to $9,482 and $499 during the three-month periods ended September 30, 2021 and 2020, respectively, and $28,408 and $24,986 during the nine-month periods ended September 30, 2021 and 2020, 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 Financial Statements (continued)

(l) Income Taxes

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. During the second quarter of 2018, we assessed our historical and near-term future profitability and decided to record $563,252 in non-cash income tax expense to create a full valuation allowance against our net deferred tax assets (which consist largely of net operating loss carryforwards and federal and state tax credits). At that time, we had incurred a net loss for six consecutive quarters, had not been profitable on a year-to-date basis since the nine-month period ended September 30, 2017 and projected additional net losses for some period going forward before returning to profitability. We consider future taxable income and feasible tax planning strategies in assessing the need for a valuation allowance at each quarter end. If we determine that we would be able to realize our deferred tax assets in the future in excess of the net recorded amount over a reasonably short period of time, a reduction of the valuation allowance would increase income in the period such determination was made. Likewise, if we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an increase to the valuation allowance would be charged to income in the period such determination was made.

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. With few exceptions, we are no longer subject to income tax examinations by tax authorities for years before 2018. We have evaluated the positions taken on our filed tax returns. We have concluded that no uncertain tax positions existed as of September 30, 2021 or December 31, 2020. Although we believe that our estimates are reasonable, actual results could differ from these estimates. See Note 16.

(m) 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 $45,488 and $62,397 during the three-month periods ended September 30, 2021 and 2020, respectively, and $103,382 and $196,435 during the nine-month periods ended September 30, 2021 and 2020, respectively.

(n) Net Income (Loss) Per Common Share

Net income (loss) 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 the 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 and less unrecognized compensation. The net (loss) per share has been computed by dividing the net (loss) by the weighted average number of common shares outstanding during the period. All stock options have been excluded from the denominator in the calculation of dilutive earnings per share when we are in a loss position because their inclusion would be anti-dilutive. Outstanding stock options that were not included in this calculation because the effect would be anti-dilutive amounted to 0 and 420,500 during the three-month periods ended September 30, 2021 and 2020, respectively, and 452,000 and 420,500 during the nine-month periods ended September 30, 2021 and 2020, respectively.

	During the Three-Month Periods Ended September 30,					During the Nine-Month Periods Ended September 30,
	2021		2020			2021			2020
Net income (loss) attributable to stockholders	$	147,764	$	(322,888	)	$	(152,426	)	$	(1,210,947	)

Weighted average common shares outstanding - Basic		7,741,864		7,212,919			7,541,884			7,212,919
Dilutive impact of share-based compensation awards		78,430		—			—			—
Weighted average common shares outstanding - Diluted		7,820,294		7,212,919			7,541,884			7,212,919

Income (loss) per share:
Basic	$	0.02	$	(0.04	)	$	(0.02	)	$	(0.17	)
Diluted	$	0.02	$	(0.04	)	$	(0.02	)	$	(0.17	)

ImmuCell Corporation

Notes to Unaudited Financial Statements (continued)

(o) Use of Estimates

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 and are subject to change in the near term. Changes in estimates are recorded during the period in which they become known. Significant estimates include our inventory valuation, valuation of goodwill and long-lived assets, valuation of deferred tax assets, accrued expenses, costs of goods sold and useful lives of intangible assets.

(p) Accounting Pronouncements Recently Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance in this ASU supersedes the leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This ASU and its amendments became effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption was permitted. We elected to adopt this ASU effective January 1, 2019. In July 2018, the FASB issued ASU 2018-10, Codification improvements to Topic 842, Leases. The amendments in ASU 2018-10 provide more clarification in regard to the application and requirements of Topic 842. In July 2018, the FASB issued ASU 2018-11, Topic 842, Leases - Targeted improvements. The amendments in ASU 2018-11 provide for the option to adopt the standard prospectively and recognize a cumulative-effect adjustment to the opening balance of retained earnings as well as offer a new practical expedient that allows us to elect, by class of underlying asset, to not separate non-lease and lease components in certain circumstances and instead to account for those components as a single item. Based on our current lease agreements and a review of all of our material vendor relationships for potential embedded lease obligations, we concluded that we were not subject to material lease obligations as of December 31, 2019, and the adoption of Topic 842 did not have a material impact on our financial statements as of January 1, 2019. The lease we entered into on September 12, 2019 to expand our production capacity for the First Defense^® product line with a Possession Date of November 15, 2019 and a Commencement Date of February 13, 2020 has been accounted for in accordance with Topic 842 since the first quarter of 2020. The only material lease pursuant to which we are the lessee relates to real estate property. All leases are classified as operating leases, and therefore, were previously not recognized on our balance sheets. With the adoption of Topic 842, operating lease agreements are required to be recognized on our balance sheets as a right-of-use (ROU) asset with a corresponding lease liability. If at a lease inception date or at some later date during the term of a lease, we consider the exercising of a renewal option to be reasonably certain, we would include the extended term in the calculation of the ROU asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, we utilize our incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. See Note 12. We elected the following practical expedients in conjunction with implementation of Topic 842:

●

Inclusion of both the lease and non-lease components for all classes of underlying assets as a single component.

●

Election to exclude short-term leases (i.e., leases with initial terms of twelve months or less) from capitalization on our balance sheets.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements of fair value measurements. Topic 820 is effective for fiscal years beginning after December 15, 2019, and early adoption was permitted. The adoption of Topic 820 did not have a material impact on our financial statements as of January 1, 2020.

We adopted ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” effective January 1, 2020, using the modified retrospective transition method. This ASU amends the impairment model to utilize an expected loss methodology in place of the incurred loss methodology for financial instruments, including trade receivables and leased equipment. The amendment requires entities to consider a broader range of information to estimate expected credit losses, which may result in earlier recognition of losses. The adoption of Topic 326 did not have a material impact on our financial statements as of January 1, 2020.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The new guidance is intended to simplify the accounting for income taxes by removing certain exceptions and by updating accounting requirements around goodwill recognized for tax purposes and the allocation of current and deferred tax expense among legal entities, among other minor changes. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption was permitted. The adoption of ASU 2019-12 did not have a material impact on our financial statements as of January 1, 2021.

In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 is intended to provide optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the discontinuation of the London Interbank Offered Rate (LIBOR) or by another reference rate expected to be discontinued. The relief offered by this guidance, if adopted, is available to companies for the period March 12, 2020 through December 31, 2022. The discontinuation of LIBOR did not have a material impact on our financial statements as of January 1, 2021.

ImmuCell Corporation

Notes to Unaudited Financial Statements (continued)

3. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

Cash, cash equivalents and short-term investments (at amortized cost plus accrued interest) consisted of the following:

	As of September 30, 2021		As of December 31, 2020
Cash and cash equivalents	$	10,495,759	$	6,949,937
Short-term investments⁽¹⁾		—		996,495
Total	$	10,495,759	$	7,946,432

⁽¹⁾

Certificates of deposit are carried at amortized cost.

4. TRADE ACCOUNTS RECEIVABLE, net

Trade accounts receivable amounted to $2,422,255 and $1,796,801 as of September 30, 2021 and December 31, 2020, respectively. No allowance for bad debt and product returns was recorded as of September 30, 2021 or December 31, 2020.

5. INVENTORY

Inventory consisted of the following:

	As of September 30, 2021		As of December 31, 2020
Raw materials	$	641,379	$	631,019
Work-in-process		1,978,096		1,438,482
Finished goods		47,495		23,013
Total	$	2,666,970	$	2,092,514

6. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following:

	As of September 30, 2021		As of December 31, 2020
Prepaid expenses	$	475,014	$	252,840
Other receivables		15,481		67,621
Security deposits		—		800
Total	$	490,495	$	321,261

7. PROPERTY, PLANT AND EQUIPMENT, net

Property, plant and equipment consisted of the following:

	Estimated Useful Lives (in years)	As of September 30, 2021			As of December 31, 2020
Laboratory and manufacturing equipment	3-10	$	17,168,453		$	15,786,620
Buildings and improvements	10-39		19,111,318			18,999,500
Office furniture and equipment	3-10		805,324			779,720
Construction in progress	n/a		2,614,163			2,337,620
Land	n/a		516,867			516,867
Property, plant and equipment, gross			40,216,125			38,420,327
Accumulated depreciation			(13,400,426	)		(11,665,352	)
Property, plant and equipment, net		$	26,815,699		$	26,754,975

ImmuCell Corporation

Notes to Unaudited Financial Statements (continued)

As of September 30, 2021 and December 31, 2020, construction in progress consisted principally of payments toward the First Defense^® production capacity expansion project and equipment needed to bring the formulation and aseptic filling for Re-Tain^® in-house. Property, plant and equipment disposals were $61,740 and $78,779 during the three-month periods ended September 30, 2021 and 2020, respectively, and $156,788 and $100,390 during the nine-month periods ended September 30, 2021 and 2020, respectively. Depreciation expense was $613,389 and $596,010 during the three-month periods ended September 30, 2021 and 2020, respectively, and $1,845,612 and $1,719,393 during the nine-month periods ended September 30, 2021 and 2020, respectively.

8. INTANGIBLE ASSETS

Intangible assets of $191,040 were valued using the relief from royalty method and are being amortized to costs of goods sold over their useful lives, which are estimated to be 10 years. Intangible amortization expense was $4,776 during both of the three-month periods ended September 30, 2021 and 2020 and $14,328 during both of the nine-month periods ended September 30, 2021 and 2020. The net value of these intangibles was $81,192 and $95,520 as of September 30, 2021 and December 31, 2020, respectively. Intangible asset amortization expense is estimated to be $19,104 per year through December 31, 2025.

Intangible assets as of September 30, 2021 consisted of the following:

	Gross Carrying Value		Accumulated Amortization			Net Book Value
Developed technology	$	184,100	$	(105,858	)	$	78,242
Customer relationships		1,300		(747	)		553
Non-compete agreements		5,640		(3,243	)		2,397
Total

SEC Form 10-Q filed by ImmuCell Corporation