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 June 30, 2023

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 Exchange 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 as of August 4, 2023 was 7,746,864.

ImmuCell Corporation

TABLE OF CONTENTS
June 30, 2023

PART I: FINANCIAL INFORMATION

ITEM 1.	Unaudited Financial Statements

	Balance Sheets as of June 30, 2023 and December 31, 2022	1

	Statements of Operations during the three-month and six-month periods ended June 30, 2023 and 2022	2

	Statements of Stockholders’ Equity during the three-month and six-month periods ended June 30, 2023 and 2022	3

	Statements of Cash Flows during the six-month periods ended June 30, 2023 and 2022	4-5

	Notes to Unaudited Financial Statements	6-24

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25-41

ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	42

ITEM 4.	Controls and Procedures	42

PART II: OTHER INFORMATION

ITEM 1 THROUGH 6.		43-53

	Signature	54

ImmuCell Corporation

Part 1. FINANCIAL INFORMATION

ITEM 1. UNAUDITED FINANCIAL STATEMENTS

BALANCE SHEETS

(Unaudited)

	As of June 30, 2023			As of December 31, 2022

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,454,311		$	5,791,562
Trade accounts receivable, net		1,498,848			1,758,600
Inventory		7,535,981			6,038,539
Prepaid expenses and other current assets		456,380			406,055
Total current assets		10,945,520			13,994,756

Property, plant and equipment, net		28,550,804			28,441,726
Operating lease right-of-use asset		4,284,968			2,194,670
Goodwill		95,557			95,557
Intangible assets, net		47,760			57,312
Other assets		82,459			76,628
TOTAL ASSETS	$	44,007,068		$	44,860,649

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of debt obligations	$	1,090,402		$	1,039,447
Line of credit		1,000,000			—
Current portion of operating lease liability		52,217			31,764
Accounts payable and accrued expenses		2,050,515			2,000,862
Total current liabilities		4,193,134			3,072,073

LONG-TERM LIABILITIES:
Debt obligations, net of current portion		8,640,715			9,191,109
Operating lease liability, net of current portion		4,316,164			2,217,418
Total long-term liabilities		12,956,879			11,408,527
TOTAL LIABILITIES		17,150,013			14,480,600

CONTINGENT LIABILITIES AND COMMITMENTS (See Note 11)

STOCKHOLDERS’ EQUITY:
Common stock, $0.10 par value per share, 15,000,000 shares authorized, 7,814,165 shares issued and 7,746,864 shares outstanding as of both June 30, 2023 and December 31, 2022		781,417			781,417
Additional paid-in capital		36,150,137			35,978,364
Accumulated deficit		(9,927,266	)		(6,232,499	)
Treasury stock, at cost, 67,301 shares as of both June 30, 2023 and December 31, 2022		(147,233	)		(147,233	)
Total stockholders’ equity		26,857,055			30,380,049
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	44,007,068		$	44,860,649

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

ImmuCell Corporation

STATEMENTS OF OPERATIONS

(Unaudited)

	During the Three-Month Periods Ended June 30,						During the Six-Month Periods Ended June 30,
	2023			2022			2023			2022

Product sales	$	3,532,681		$	3,861,372		$	6,979,207		$	9,861,056
Costs of goods sold		2,488,793			2,154,044			5,634,544			5,050,505
Gross margin		1,043,888			1,707,328			1,344,663			4,810,551

Product development expenses		1,099,538			1,138,767			2,209,907			2,174,702
Sales and marketing expenses		719,789			659,239			1,599,216			1,470,740
Administrative expenses		529,056			528,329			1,096,074			1,213,508
Operating expenses		2,348,383			2,326,335			4,905,197			4,858,950

NET OPERATING LOSS		(1,304,495	)		(619,007	)		(3,560,534	)		(48,399	)

Other expenses, net		73,694			63,993			131,183			120,167

LOSS BEFORE INCOME TAXES		(1,378,189	)		(683,000	)		(3,691,717	)		(168,566	)

Income tax expense		1,525			1,148			3,050			2,295

NET LOSS	$	(1,379,714	)	$	(684,148	)	$	(3,694,767	)	$	(170,861	)

Basic weighted average common shares outstanding		7,746,864			7,744,567			7,746,864			7,743,350
Basic net loss per share	$	(0.18	)	$	(0.09	)	$	(0.48	)	$	(0.02	)
Diluted weighted average common shares outstanding		7,746,864			7,744,567			7,746,864			7,743,350
Diluted net loss per share	$	(0.18	)	$	(0.09	)	$	(0.48	)	$	(0.02	)

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

ImmuCell Corporation

STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

	Common Stock									Treasury Stock
	Shares		Amount		Additional paid-in capital		Accumulated Deficit			Shares			Amount			Total Stockholders’ Equity

During the Three-Month Period Ended June 30, 2023:
BALANCE,
March 31, 2023		7,814,165	$	781,417	$	36,074,480	$	(8,547,552	)		67,301		$	(147,233	)	$	28,161,112
Net loss		—		—		—		(1,379,714	)		—			—			(1,379,714	)
Stock-based compensation		—		—		75,657		—			—			—			75,657
BALANCE,
June 30, 2023		7,814,165	$	781,417	$	36,150,137	$	(9,927,266	)		67,301		$	(147,233	)	$	26,857,055

During the Three-Month Period Ended June 30, 2022:
BALANCE,
March 31, 2022		7,814,165	$	781,417	$	35,750,133	$	(3,225,407	)		71,301		$	(155,983	)	$	33,150,160
Net loss		—		—		—		(684,148	)		—			—			(684,148	)
Exercise of stock options		—		—		16,080		—			(4,000	)		8,751			24,831
Stock-based compensation		—		—		61,635		—			—			—			61,635
BALANCE,
June 30, 2022		7,814,165	$	781,417	$	35,827,848	$	(3,909,555	)		67,301		$	(147,232	)	$	32,552,478

During the Six-Month Period Ended June 30, 2023:
BALANCE,
December 31, 2022		7,814,165	$	781,417	$	35,978,364	$	(6,232,499	)		67,301		$	(147,233	)	$	30,380,049
Net loss		—		—		—		(3,694,767	)		—			—			(3,694,767	)
Stock-based compensation		—		—		171,773		—			—			—			171,773
BALANCE,
June 30, 2023		7,814,165	$	781,417	$	36,150,137	$	(9,927,266	)		67,301		$	(147,233	)	$	26,857,055

During the Six-Month Period Ended June 30, 2022:
BALANCE,
December 31, 2021		7,814,165	$	781,417	$	35,692,388	$	(3,738,694	)		72,301		$	(158,171	)	$	32,576,940
Net loss		—		—		—		(170,861	)		—			—			(170,861	)
Exercise of stock options		—		—		19,733		—			(5,000	)		10,939			30,672
Stock-based compensation		—		—		115,727		—			—			—			115,727
BALANCE,
June 30, 2022		7,814,165	$	781,417	$	35,827,848	$	(3,909,555	)		67,301		$	(147,232	)	$	32,552,478

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

ImmuCell Corporation

STATEMENTS OF CASH FLOWS

(Unaudited)

	During the Six-Month Periods Ended June 30,
	2023			2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(3,694,767	)	$	(170,861	)
Adjustments to reconcile net loss to net cash (used for) provided by operating activities:
Depreciation		1,332,153			1,241,455
Amortization of intangible assets		9,552			9,552
Amortization of debt issuance costs		3,838			3,820
Stock-based compensation		171,773			115,727
Loss (gain) on disposal of property, plant and equipment		8,167			(11,000	)
Non-cash rent expense		28,901			4,006
Changes in:
Trade accounts receivable		259,752			1,280,525
Inventory		(1,497,442	)		(1,513,135	)
Prepaid expenses and other current assets		(50,325	)		26,847
Other assets		(5,831	)		2,332
Accounts payable and accrued expenses		(9,182	)		22,725
Net cash (used for) provided by operating activities		(3,443,411	)		1,011,993

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment		(1,390,654	)		(1,750,786	)
Proceeds from sale of property, plant and equipment		91			11,000
Net cash used for investing activities		(1,390,563	)		(1,739,786	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt issuance		—			2,000,000
Proceeds from line of credit		1,000,000			—
Debt principal repayments		(503,277	)		(425,816	)
Payments of debt issuance costs		—			(19,306	)
Proceeds from exercise of stock options		—			30,672
Net cash provided by financing activities		496,723			1,585,550

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(4,337,251	)		857,757

BEGINNING CASH AND CASH EQUIVALENTS		5,791,562			10,185,468

ENDING CASH AND CASH EQUIVALENTS	$	1,454,311		$	11,043,225

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 Six-Month Periods Ended June 30,
	2023			2022
CASH PAID FOR:
Income taxes	$	7,205		$	4,575
Interest expense	$	176,451		$	159,396
NON-CASH ACTIVITIES:
Change in capital expenditures included in accounts payable and accrued expenses	$	(58,835	)	$	(15,200	)
Operating lease right-of-use asset and operating lease liability	$	2,090,298		$	—

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. As disclosed in Note 17, “Segment Information”, one of our business segments is dedicated to Scours and the other is focused on Mastitis. We manufacture and market the First Defense^® product line, providing Immediate Immunity™ to prevent scours in newborn dairy and beef calves. We have expanded this line into four different products with formulations targeting E. coli, coronavirus and rotavirus pathogens. We are also in the late stages of developing Re-Tain^®, a treatment for lactating dairy cows with subclinical mastitis. Mastitis is 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 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 of new viable products with appropriate regulatory approvals, where applicable. A combination of the conditions, trends and concerns related to or arising from the global COVID-19 pandemic, as well as inflation, rising interest rates and potential recessionary conditions in the United States and/or internationally, could have a corresponding negative effect on our business and operations. 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. As discussed in more detail previously and elsewhere in this Quarterly Report, we have experienced some contamination events in our production process over the last nine months. We implemented a production slowdown during the first half of 2023 to remediate this problem, which led to the recognition of less sales and gross margin during the current periods. Current quality control data suggests that this is largely behind us now, and we are resuming full production.

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 accurately 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 and Cash Equivalents

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. We hold no cash or cash equivalents in excess of Federal Deposit Insurance Corporation (FDIC) limits of $250,000 per financial institution per depositor. 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 and other relevant factors. 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 June 30, 2023 and December 31, 2022, we determined that no allowance for doubtful accounts was necessary. See Note 4.

(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.

ImmuCell Corporation

Notes to Unaudited Financial Statements (continued)

(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 87% 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. During August of 2022, this lease term was extended to January of 2043 in connection with a new lease covering space at 165 Industrial Way. As a result, the net book value of these leasehold improvements as of August 31, 2022 is now being depreciated over the remainder of the extended lease term. Significant repairs to property, plant and equipment 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) Leases

We account for our real estate leases using a right-of-use model, which recognizes that at the date of commencement, a lessee has a financial obligation to make lease payments to the lessor for the right to use the underlying asset during the lease term and recognizes a corresponding right-of-use (ROU) asset related to this right. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of the future lease payments over the expected lease term. The ROU asset is also adjusted for any lease prepayments made, lease incentives received and initial direct costs incurred. For operating leases with lease payments that fluctuate over the lease term, the total lease costs are recognized on a straight-line basis over the lease term. Our leases, at times, may include options to extend the term of the lease. When it is reasonably certain that we will exercise the option, we include the impact of the option in the lease term for purposes of determining future lease payments. For all underlying classes of assets, we made an accounting policy election to not recognize assets or liabilities for leases with a term of twelve months or less and to account for all components in a lease arrangement as a single combined lease component. Short-term lease payments are recognized on a straight-line basis. Certain of our lease agreements include variable rent payments, consisting primarily of amounts paid to the lessor based on cost or consumption, such as maintenance and real estate taxes. These costs are recognized in the period in which the obligation is incurred. Because our leases do not specify an implicit rate, we use an incremental borrowing rate based on information available at the lease commencement date to determine the present value of the lease payments. We evaluate our ROU asset for impairment when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. See Note 12.

(g) 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 the amounts paid in excess of fair value of the net assets (including tax attributes) as goodwill, which is accounted for under the acquisition method of accounting. We assess the impairment of intangible assets and goodwill that have indefinite lives (when applicable) 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 six-month periods ended June 30, 2023 or 2022. See Notes 2(h) and 8 for additional disclosures.

(h) Valuation of Long-Lived Assets

We periodically evaluate our long-lived assets, consisting principally of property, plant and equipment, 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. No impairment was recognized during the six-month periods ended June 30, 2023 or 2022.

ImmuCell Corporation

Notes to Unaudited Financial Statements (continued)

(i) 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 June 30, 2023 and December 31, 2022, the carrying amounts of cash and cash equivalents, accounts receivable, inventory, prepaid expenses and other current assets, other assets, accounts payable and accrued expenses 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 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. We also hold money market accounts in our bank 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 six-month period ended June 30, 2023 and the year ended December 31, 2022, there were no transfers between levels. As of June 30, 2023 and December 31, 2022, our Level 1 assets measured at fair value by quoted prices in active markets consisted of bank savings accounts and money market accounts. There were no assets or liabilities measured at fair value on a nonrecurring basis as of June 30, 2023 or December 31, 2022. The carrying values of our cash and money market accounts as of June 30, 2023 and December 31, 2022 approximated their fair market values. Due to inflation and the changing interest rate environment, the carrying value of our bank debt as of June 30, 2023 (excluding our line of credit) and December 31, 2022 differed from its fair market value. The carrying value of our line of credit approximated its fair market value because it bears interest at a variable rate that approximates the current market rate. These values are reflected in the following tables:

	As of June 30, 2023
	Level 1		Level 2		Level 3		Total
Assets:
Cash and money market accounts	$	1,454,311	$	—	$	—	$	1,454,311
Liabilities:
Bank debt	$	—	$	8,257,281	$	—	$	8,257,281
Line of credit		—		1,000,000		—		1,000,000
Total	$	—	$	9,257,281	$	—	$	9,257,281

ImmuCell Corporation

Notes to Unaudited Financial Statements (continued)

	As of December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Cash and money market accounts	$	5,791,562	$	—	$	—	$	5,791,562

Liabilities:
Bank debt	$	—	$	8,897,197	$	—	$	8,897,197

(j) 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 June 30,						During the Six-Month Periods Ended June 30,
	2023			2022			2023			2022
Company A		47	%		34	%		47	%		37	%
Company B		33	%		35	%		32	%		35	%
Company C		*			12	%		*			*

This amount is less than 10%.

Trade accounts receivable due from significant customers that amounted to 10% or more of our total trade accounts receivable are detailed in the following table:

	As of June 30, 2023			As of December 31, 2022
Company B		40	%		28	%
Company A		35	%		41	%
Company C		*			12	%

This amount is less than 10%.

(k) Revenue Recognition

We recognize revenue in accordance with Codification Topic 606, Revenue from Contracts with Customers (ASC 606). 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 ships to a customer. Amounts due are typically paid approximately 30 days from the time control is transferred. Shipping and handling costs associated with outbound freight 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. See Note 14 for additional disclosures.

ImmuCell Corporation

Notes to Unaudited Financial Statements (continued)

(l) 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. 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 or is deemed to be in excess or obsolete.

(m) 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. We consider future taxable income and feasible tax planning strategies in assessing the need for a valuation allowance against our deferred tax assets at the end of each quarter. If we determine that it is more likely than not that we will 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 it is more likely than not that we will not 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 2020. We have evaluated the positions taken on our filed tax returns and have concluded that no uncertain tax positions existed as of June 30, 2023 or December 31, 2022. Although we believe that our estimates are reasonable, actual results could differ from these estimates. See Note 16.

(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 $75,657 and $61,635 during the three-month periods ended June 30, 2023 and 2022, respectively, and $171,773 and $115,727 during the six-month periods ended June 30, 2023 and 2022, respectively. See Note 13.

(o) Net Loss Per Common Share

Net loss per common share has been computed in accordance with Codification Topic 260-10, Earnings Per Share. 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 624,000 and 548,000 during the three-month periods ended June 30, 2023 and 2022, respectively, and 624,000 and 548,000 during the six-month periods ended June 30, 2023 and 2022, respectively.

	During the Three-Month Periods Ended June 30,						During the Six-Month Periods Ended June 30,
	2023			2022			2023			2022
Net loss attributable to stockholders	$	(1,379,714	)	$	(684,148	)	$	(3,694,767	)	$	(170,861	)

Weighted average common shares outstanding - Basic		7,746,864			7,744,567			7,746,864			7,743,350
Dilutive impact of share-based compensation awards		—			—			—			—
Weighted average common shares outstanding - Diluted		7,746,864			7,744,567			7,746,864			7,743,350

Net loss per share:
Basic	$	(0.18	)	$	(0.09	)	$	(0.48	)	$	(0.02	)
Diluted	$	(0.18	)	$	(0.09	)	$	(0.48	)	$	(0.02	)

ImmuCell Corporation

Notes to Unaudited Financial Statements (continued)

(p) 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.

(q) New Accounting Pronouncements Adopted

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, was available to companies during the period from 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.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which is effective for us as of January 1, 2023, 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. Historically, we have experienced a very low level of bad debt expense, and most of our trade receivables are collected by the due date or within a few days of the due date. Because of this experience, the adoption of ASU 2016-13 did not have a material impact on our financial statements.

3. CASH AND CASH EQUIVALENTS

Cash and cash equivalents amounted to $1,454,311 and $5,791,562 as of June 30, 2023 and December 31, 2022, respectively.

4. TRADE ACCOUNTS RECEIVABLE, net

Trade accounts receivable amounted to $1,498,848 and $1,758,600 as of June 30, 2023 and December 31, 2022, respectively. No allowance for bad debt or product returns was recorded as of June 30, 2023 or December 31, 2022. The trade accounts receivable balances included $6,101 and $46,426 due from a related party as of June 30, 2023 and December 31, 2022, respectively. We anticipate no future events or conditions that would impact our ability to collect our accounts receivable. See Note 18.

5. INVENTORY

Inventory consisted of the following:

	As of June 30, 2023		As of December 31, 2022
Raw materials	$	2,243,090	$	2,419,982
Work-in-process		4,826,822		3,468,702
Finished goods		466,069		149,855
Total	$	7,535,981	$	6,038,539

These inventory figures are net of a $305,334 write-off of scrapped inventory during the six-month period ended June 30, 2023 and a $587,620 write-off of scrapped inventory during the year ended December 31, 2022, that resulted principally from contamination events in our production process during the first quarter of 2023 and around the end of the third quarter of 2022, respectively.

6. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following:

	As of June 30, 2023		As of December 31, 2022
Prepaid expenses	$	433,237	$	363,877
Other receivables		23,143		42,178
Total	$	456,380	$	406,055

ImmuCell Corporation

Notes to Unaudited Financial Statements (continued)

7. PROPERTY, PLANT AND EQUIPMENT, net

Property, plant and equipment consisted of the following:

	Estimated Useful Lives (in years)	As of June 30, 2023			As of December 31, 2022
Laboratory and manufacturing equipment	3-10	$	20,558,068		$	19,181,960
Buildings and improvements	10-39		20,722,501			20,050,167
Office furniture and equipment	3-10		1,020,259			900,306
Construction in progress	n/a		2,892,501			3,668,046
Land	n/a		516,867			516,867
Property, plant and equipment, gross			45,710,196			44,317,346
Accumulated depreciation			(17,159,392	)		(15,875,620	)
Property, plant and equipment, net		$	28,550,804		$	28,441,726

As of June 30, 2023 and December 31, 2022, 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 $14,380 and $3,894 during the three-month periods ended June 30, 2023 and 2022, respectively, and $56,639 and $43,305 during the six-month periods ended June 30, 2023 and 2022, respectively. Depreciation expense was $680,019 and $624,609 during the three-month periods ended June 30, 2023 and 2022, respectively, and $1,332,153 and $1,241,455 during the six-month periods ended June 30, 2023 and 2022, 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 June 30, 2023 and 2022 and $9,552 during both of the six-month periods ended June 30, 2023 and 2022. The net value of these intangibles was $47,760 and $57,312 as of June 30, 2023 and December 31, 2022, respectively. Intangible asset amortization expense is estimated to be $19,104 per year through December 31, 2025.

Intangible assets as of June 30, 2023 consisted of the following:

	Gross Carrying Value		Accumulated Amortization			Net Book Value
Developed technology	$	184,100	$	(138,075	)	$	46,025
Customer relationships		1,300		(975	)		325
Non-compete agreements		5,640		(4,230	)		1,410
Total	$	191,040	$	(143,280	)	$	47,760

Intangible assets as of December 31, 2022 consisted of the following:

	Gross Carrying Value		Accumulated Amortization			Net Book Value
Developed technology	$	184,100	$	(128,870	)	$	55,230
Customer relationships		1,300		(910	)		390
Non-compete agreements		5,640		(3,948	)		1,692
Total	$	191,040	$	(133,728	)	$	57,312

ImmuCell Corporation

Notes to Unaudited Financial Statements (continued)

9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following:

	As of June 30, 2023		As of December 31, 2022
Accounts payable – trade	$	796,303	$	726,736
Accounts payable – capital		122,096		63,261
Accrued payroll		963,765		966,553
Accrued professional fees		76,850		95,550
Accrued other		90,766		143,872
Income tax payable		735		4,890
Total	$	2,050,515	$	2,000,862

10. BANK DEBT

During the first quarter of 2020, we closed on a debt financing with Gorham Savings Bank (GSB) aggregating $8,600,000 and a $1,000,000 line of credit. The debt was comprised of a $5,100,000 mortgage note (Loan #1) that bears interest at a fixed rate of 3.50% per annum (with a 10-year term and 25-year amortization schedule and a balloon principal payment of $3,145,888 due during the first quarter of 2030) and a $3,500,000 note (Loan #2) that bears interest at a fixed rate of 3.50% per annum (with a 7-year term and amortization schedule). The line of credit is available as needed through March 11, 2024. Interest on borrowings against the line of credit is variable at the National Prime Rate per annum. There was a $1,000,000 outstanding balance under this line of credit as of June 30, 2023, which was repaid at the beginning of the third quarter of 2023. There was no outstanding balance under this line of credit as of December 31, 2022. The proceeds from the 2020 debt refinancing were used to repay all bank debt outstanding at the time of closing and to provide some additional working capital. During the fourth quarter of 2020, we closed on a $1,500,000 note with GSB (Loan #4) that bears interest at a fixed rate of 3.50% per annum (with a 7-year term and amortization schedule). Proceeds of $624,167 were used to prepay a portion of the outstanding principal on our mortgage note (Loan #1), which reduced the outstanding balance to 80% of the most recent appraised value of the property securing the debt, which allowed GSB to release the $1,400,000 that had been held in escrow. This resulted in no change in the balloon principal payment of $3,145,888 due during the first quarter of 2030. The remaining proceeds were available for general working capital purposes. During the first quarter of 2022, we closed on an additional $2,000,000 in mortgage debt, which bears interest at the fixed rate of 3.58% per annum. This was accomplished through an amendment of the original mortgage note (Loan #1) that increased the then outstanding principal balance from $4,233,957 to $6,233,957 bearing interest at the blended fixed rate of 3.53% per annum. This increased the balloon payment from $3,145,888 to $3,687,411 and extended the due date of the balloon payment from the first quarter of 2030 to the first quarter of 2032. In connection with these credit facilities, we incurred aggregate debt issuance costs of $70,170 ($19,306 of which was incurred during 2022). The amortization of these debt issuance costs is being recorded as a component of interest expense, included in other expenses, net, and is being amortized over the underlying terms of the notes. These three credit facilities are secured by liens on substantially all of our assets and are subject to certain restrictions and financial covenants. Given the funds we raised through an equity issuance in April 2021, GSB waived the minimum debt service coverage (DSC) ratio requirement of 1.35 for the year ended December 31, 2021. By negotiation with GSB in connection with the mortgage debt financing during the first quarter of 2022, the required minimum DSC ratio was reduced to 1.0 for the year ending December 31, 2022. By subsequent negotiation with GSB, compliance with the required minimum DSC ratio was waived for the year ended December 31, 2022. During the first quarter of 2023, the DSC ratio covenant for the year ending December 31, 2023 was waived by GSB. Instead, we are required to meet a minimum DSC ratio requirement of 1.35 for the twelve-month periods ending June 30, 2024, September 30, 2024 and December 31, 2024 and then again annually after that.

During the second quarter of 2020, we received a loan from the Maine Technology Institute (MTI) (Loan #3) in the aggregate principal amount of $500,000. The first 2.25 years of this loan were interest-free with no interest accrual or required principal payments. Beginning during the fourth quarter of 2022, Loan #3 became subject to quarterly principal and interest payments at a fixed rate of 5% per annum over the final five years of the loan, through the third quarter of 2027 if not repaid before then. On June 30, 2021, we executed definitive agreements covering a second loan from the MTI (Loan #5) in the aggregate principal amount of $400,000, proceeds from which were received in July 2021. The first two years of this loan are interest-free with no interest accrual or required principal payments. Principal and interest payments at a fixed rate of 5% per annum are due quarterly over the final 5.5 years of the loan, beginning during the third quarter of 2023 and continuing through the fourth quarter of 2028 if not repaid before then. These credit facilities are unsecured and subordinated to our indebtedness to GSB. Failure to make timely payments of principal and interest, or otherwise to comply with the terms of the agreements with the MTI, would entitle the MTI to accelerate the maturity of such debt and demand repayment in full. These loans may be prepaid without penalty at any time.

Debt proceeds received and principal repayments made (excluding our $1,000,000 line of credit) during the three-month periods ended June 30, 2023 and 2022 are reflected in the following table by period and by loan:

	During the Three-Month Period Ended June 30, 2023					During the Three-Month Period Ended June 30, 2022
	Proceeds from Debt Issuance		Debt Principal Repayments			Proceeds from Debt Issuance		Debt Principal Repayments
Loan #1	$	—	$	(55,114	)	$	—	$	(60,477	)
Loan #2		—		(122,905	)		—		(118,586	)
Loan #3		—		(22,717	)		—		—
Loan #4		—		(51,165	)		—		(49,368	)
Total	$	—	$	(251,901	)	$	—	$	(228,431	)

ImmuCell Corporation

Notes to Unaudited Financial Statements (continued)

Debt proceeds received and principal repayments made (excluding our $1,000,000 line of credit) during the six-month periods ended June 30, 2023 and 2022 are reflected in the following table by period and by loan:

	During the Six-Month Period Ended June 30, 2023					During the Six-Month Period Ended June 30, 2022
	Proceeds from Debt Issuance		Debt Principal Repayments			Proceeds from Debt Issuance		Debt Principal Repayments
Loan #1	$	—	$	(110,907	)	$	2,000,000	$	(90,659	)
Loan #2		—		(245,134	)		—		(236,619	)
Loan #3		—		(45,155	)		—		—
Loan #4		—		(102,081	)		—		(98,538	)
Total	$	—	$	(503,277	)	$	2,000,000	$	(425,816	)

Principal payments (net of debt issuance costs) due under bank loans outstanding as of June 30, 2023 (excluding our $1,000,000 line of credit) are reflected in the following table by the year that payments are due:

	During the Six-Month Period Ending December 31,			During the Years Ending December 31,
	2023			2024			2025			2026			2027			Thereafter			Total
Loan #1	$	112,372		$	230,891		$	239,876		$	248,604		$	257,648		$	4,864,829		$	5,954,220
Loan #2		249,316			512,102			530,738			549,881			140,465			—			1,982,502
Loan #3		46,291			96,104			101,001			106,146			83,143			—			432,685
Loan #4		103,801			213,217			220,994			228,965			240,454			—			1,007,431
Loan #5		32,017			66,470			69,856			73,415			77,156			81,086			400,000
Subtotal		543,797			1,118,784			1,162,465			1,207,011			798,866			4,945,915			9,776,838
Debt issuance costs		(3,838	)		(7,267	)		(7,168	)		(7,168	)		(5,420	)		(14,860	)		(45,721	)
Total	$	539,959		$	1,111,517		$	1,155,297		$	1,199,843		$	793,446		$	4,931,055		$	9,731,117

11. CONTINGENT LIABILITIES AND COMMITMENTS

Our bylaws, as amended, in effect provide that the Company will indemnify its officers and directors against any liability arising from their responsibilities as officers and directors to the maximum extent permitted by Delaware law. In addition, we make similar indemnity undertakings with 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 June 30, 2023 or December 31, 2022. 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 are aware of no such claims against us as of the date of this filing. We believe that we have reasonable levels of liability insurance to support our operations.

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 recorded no liabilities for such obligations as of June 30, 2023 or December 31, 2022.

We plan to purchase certain key parts (syringes) and services (formulation, aseptic filling and final packaging of Drug Product) pertaining to Re-Tain^®, our Nisin-based intramammary treatment of subclinical mastitis in lactating dairy cows, exclusively from contractors. We are investing in the necessary equipment to perform the Drug Product formulation and aseptic filling services in-house.

ImmuCell Corporation

Notes to Unaudited Financial Statements (continued)

Effective March 28, 2022, the Company entered into an Amended and Restated Separation and Deferred Compensation Agreement (the “Deferred Compensation Agreement”) with Mr. Brigham, its President and CEO, that superseded and replaced in its entirety a March 2020 severance agreement between the Company and Mr. Brigham. Upon separation from the Company for any reason, Mr. Brigham’s Deferred Compensation Agreement allows Mr. Brigham to be paid, among other amounts, all earned and unused paid time off (which amount totaling $222,379 was accrued during the first quarter of 2022 and $230,162 and $222,379 was included in accounts payable and accrued expenses on the accompanying balance sheets as of June 30, 2023 and December 31, 2022, respectively) and to receive up to an additional $300,000 in deferred compensation (which amount is being accrued over the three-year period ending in January 2025). This deferred compensation payment vested as to $100,000 on January 1, 2023, and will vest as to an additional $100,000 on each of January 1, 2024 and January 1, 2025, provided that Mr. Brigham is employed by the Company on these future vesting dates. The vested amounts would be paid upon the earlier of January 31, 2025 or within thirty (30) days following his separation from the Company. As of June 30, 2023 and December 31, 2022, $150,000 and $

SEC Form 10-Q filed by ImmuCell Corporation