ImmuCell(ICCC) - 2021 Q1 - Quarterly Report

PART I: FINANCIAL INFORMATION Unaudited Financial Statements ImmuCell Corporation reported a decrease in total assets to $39.6 million and an increased net loss to ($0.44 million) in Q1 2021, driven by a 16% drop in product sales and a negative shift in operating cash flow Balance Sheets Balance Sheet Summary (in thousands) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $11,810 | $12,157 | | Total Assets | $39,621 | $40,350 | | Total Current Liabilities | $2,098 | $2,211 | | Total Liabilities | $11,750 | $12,083 | | Total Stockholders' Equity | $27,871 | $28,266 | - Total assets decreased slightly from $40.3 million at year-end 2020 to $39.6 million as of March 31, 2021, primarily due to a decrease in cash and short-term investments[8] Statements of Operations Statements of Operations Summary (Q1 2021 vs Q1 2020, in USD) | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Product Sales | $4,107,146 | $4,910,388 | | Gross Margin | $1,602,188 | $2,236,103 | | Net Operating (Loss) Income | ($374,625) | $196,877 | | Net Loss | ($441,303) | ($122,267) | | Diluted Net Loss Per Share | ($0.06) | ($0.02) | - Product sales decreased by 16% year-over-year, leading to a 28% decline in gross margin, with the company swinging from a net operating income of $0.20 million in Q1 2020 to a net operating loss of ($0.38 million) in Q1 2021[10] Statements of Cash Flows Cash Flow Summary (Q1 2021 vs Q1 2020, in USD) | Activity | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net cash (used for) provided by operating activities | ($623,546) | $857,453 | | Net cash provided by investing activities | $656,684 | $713,453 | | Net cash (used for) provided by financing activities | ($176,425) | $41,133 | | Net (Decrease) Increase in Cash | ($143,287) | $1,612,039 | - Cash from operating activities saw a significant negative swing, primarily due to the net loss, an increase in trade accounts receivable, and changes in inventory[19] Notes to Unaudited Financial Statements The notes detail the company's animal health business, First Defense, and Re-Tain™ development, highlighting customer concentration, debt structure, and capital commitments for capacity expansion - The company's primary business is creating products to improve the health of dairy and beef cattle, with the First Defense product line being its main revenue source, and it is in the late stages of developing Re-Tain™, a treatment for subclinical mastitis[24] - The company faces significant customer concentration risk, with Company A accounting for 45% of sales and Company B for 33% in Q1 2021, and these two customers representing 48% and 31% of total trade accounts receivable as of March 31, 2021[42][43] - As of March 31, 2021, the company had significant commitments, including $0.18 million for First Defense capacity expansion, $0.76 million for the Re-Tain™ filling facility, and $1.10 million for inventory purchases[85] Revenue by Geography (Q1 2021 vs Q1 2020, in USD) | Region | Q1 2021 Sales | % of Total | Q1 2020 Sales | % of Total | | :--- | :--- | :--- | :--- | :--- | | United States | $3,580,516 | 87% | $4,357,682 | 89% | | Other | $526,630 | 13% | $552,706 | 11% | | Total | $4,107,146 | 100% | $4,910,388 | 100% | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 16% decrease in Q1 2021 product sales to capacity constraints, leading to a $3.1 million order backlog and a gross margin decline to 39%, while securing a debt covenant waiver after a $4 million equity raise - Q1 2021 product sales decreased 16% to $4.1 million, primarily due to production capacity limitations, leading to an order backlog of approximately $3.1 million as of March 31, 2021[154] - Gross margin as a percentage of sales declined to 39% in Q1 2021 from 46% in Q1 2020, attributed to increased costs, a more expensive product mix, and upfront costs related to a production capacity expansion not yet fully online[165] - The company is undertaking seven major capital projects to expand production, including increasing First Defense annual capacity from $16.5 million to $23 million (Project C) and eventually to $30 million (Project G), and a $4 million investment to bring Re-Tain™ drug product formulation and filling in-house (Project D)[142][146][147][149] - The company does not expect to meet its 1.35 debt service coverage ratio covenant for 2021 due to high product development expenses for Re-Tain™, but its bank (GSB) agreed to waive this requirement following a successful equity raise of over $4 million in Q2 2021[137] - The company submitted the final major technical section (Chemistry, Manufacturing, and Controls - CMC) for its Re-Tain™ drug to the FDA in Q1 2021, with a response anticipated in Q3 2021 and potential product approval ranging from Q4 2021 to Q2 2022, assuming two review cycles[168][173][174] Quantitative and Qualitative Disclosures about Market Risk The company assesses its market risk as low, with its $8.9 million bank debt bearing a fixed 3.50% interest rate, and no significant historical effect from inflation or currency rates - The company's market risk from interest rates is considered low, as its outstanding bank debt of approximately $8.9 million bears a fixed rate of 3.50%[193] Controls and Procedures Management concluded that the company's disclosure controls and internal controls over financial reporting were effective as of March 31, 2021, with no material changes - Management concluded that the company's disclosure controls and procedures, as well as internal controls over financial reporting, were effective as of March 31, 2021[194][195] PART II: OTHER INFORMATION Legal Proceedings The company is not currently subject to any pending or threatened legal proceedings that would materially affect its business or financial condition - As of the filing date, the company is not involved in any material legal proceedings[199] Risk Factors The company faces key risks including financial targets, debt covenants, reliance on First Defense, customer concentration, production constraints, Re-Tain™ regulatory hurdles, and global economic impacts - Financial Risk: The company may not achieve its gross margin goals (target near 50%) or meet its debt service coverage ratio covenant in future years without a waiver[200][202] - Product & Concentration Risk: The company is highly reliant on the First Defense product line, which constituted 98% of sales in Q1 2021, with sales concentrated with two large distributors accounting for 78% of sales[209][210] - Production Risk: The inability to meet market demand due to production capacity constraints is a major risk, evidenced by a $3.1 million order backlog as of March 31, 2021, which could lead to customer loss[212] - Regulatory Risk: The commercial launch of Re-Tain™ is entirely dependent on obtaining FDA approval, and there is a risk that the required approvals for the product and manufacturing facilities could be delayed or not obtained[215] - Global Risk: The COVID-19 pandemic continues to create uncertainty, affecting the supply of raw materials, demand for products, and the economic health of customers in the dairy and beef industries[226] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported for the period Defaults Upon Senior Securities No defaults upon senior securities were reported for the period Mine Safety Disclosures No mine safety disclosures were reported for the period Other Information No other material information was reported for the period Exhibits The report includes various exhibits, such as officer certifications and XBRL data files - The report includes certifications required by Rule 13a-14(a) and Section 906 of the Sarbanes-Oxley Act, along with XBRL Instance Documents[241]