IMMUCELL CORP /DE/ 10-Q

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 20 20 2 Statements of Comprehensive Income (Loss) during the three-month and nine-month periods ended September 30, 2021 and 20 20 3 Statements of Stockholders’ Equity during the three-month and nine-month periods ended September 30, 2021 and 20 20 4 Statements of Cash Flows during the nine-month periods ended September 30, 2021 and 20 20 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 i 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. 1 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 ) 2 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 . 3 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 ) $ — $ 28,020,66 1 The accompanying notes are an integral part of these unaudited financial statements . 4 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 . 5 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 . 6 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. 7 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. 8 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 ) 9 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. 10 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 ) 11 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. 12 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 13 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 $ 191,040 $ ( 109,848 ) $ 81,192 Intangible assets as of December 31, 2020 consisted of the following: Gross Carrying Value Accumulated Amortization Net Book Value Developed technology $ 184,100 $ ( 92,050 ) $ 92,050 Customer relationships 1,300 ( 650 ) 650 Non-compete agreements 5,640 ( 2,820 ) 2,820 Total $ 191,040 $ ( 95,520 ) $ 95,520 9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consisted of the following: As of September 30, 2021 As of December 31, 2020 Accounts payable – trade $ 654,851 $ 602,347 Accounts payable – capital 48,533 — Accrued payroll 293,762 525,499 Accrued professional fees 81,738 84,900 Accrued other 197,140 137,481 Income tax payable 994 — Total $ 1,277,018 $ 1,350,227 14 ImmuCell Corporation Notes to Unaudited Financial Statements (continued) 10. BANK DEBT Prior to a refinancing with Gorham Savings Bank (GSB) during the first quarter of 2020, we had in place five different credit facilities and a line of credit with TD Bank N.A. (Loans #1 to #5). During the first quarter of 2020, we closed on a debt financing with 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 #6) 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 #7) 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 10, 2022. Interest on borrowings against the line of credit is variable at the rate of the one-month LIBOR plus 2.15% per annum. There was no outstanding balance under this line of credit as of September 30, 2021 or December 31, 2020. In connection with these three credit facilities, we incurred debt issuance costs of $ 39,789 . The amortization of debt issuance costs is being recorded as a component of interest expense, included with other expenses, net, and is being amortized over the underlying terms of the two notes and the line of credit. The proceeds from the debt refinancing were used to repay all bank debt outstanding at the time of closing (Loans #1 to #5) and to provide some additional working capital. We were required by bank debt covenant to maintain $ 1,400,000 in escrow (a non-current asset). During the fourth quarter of 2020, we closed on a $ 1,500,000 note with GSB (Loan #10) that bears interest at a fixed rate of 3.50 % per annum (with a 7 -year term and amortization schedule). In connection with this note, we incurred debt issuance costs of $ 11,075 . The amortization of these debt issuance costs is also being recorded as a component of interest expense, included with other expenses, net, and is being amortized over the underlying term of the note. Proceeds of $ 624,167 were used to prepay a portion of the outstanding principal on our mortgage note (Loan #6), 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. These three new 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 ratio requirement of 1.35 for the year ending December 31, 2021. During the second quarter of 2020, we received $ 937,700 in support from the federal government under the Paycheck Protection Program (PPP) (Loan #8). We used the proceeds only for eligible payroll costs incurred and paid during the 24-week period beginning April 13, 2020. Our obligation to repay the principal was forgiven, and we recognized this amount as part of other (income) expenses, net, during the fourth quarter of 2020. This forgiveness of indebtedness, in accordance with the CARES Act, does not give rise to federal or State of Maine taxable income, and the expenses incurred using PPP proceeds are fully deductible for federal and Maine income tax purposes. During the second quarter of 2020, we received a loan from the Maine Technology Institute (MTI) (Loan #9) in the aggregate principal amount of $ 500,000 . The first 27 months 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 five years of the loan, beginning during the fourth quarter of 2022 and continuing through the third quarter of 2027. On June 30, 2021, we executed definitive agreements covering a second loan from the MTI (Loan #11) in the aggregate principal amount of $400,000, which proceeds were received in July 2021. The first 24 months of this loan are interest-free with no interest accrual or required principal payments. Beginning in July 2023, principal and interest payments are due quarterly at a fixed rate of 5% per annum based on a 5.5-year amortization schedule until December 2028.These credit facilities are unsecured and subordinated to our indebtedness to Gorham Savings Bank, which senior indebtedness is secured by mortgages and security interests with respect to substantially all of our assets. Failure to make timely payments of principal and interest, or otherwise to comply with the terms of the agreements with MTI, would entitle 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 during the years ended December 31, 2020 and 2019 are reflected in the following table by period and by loan: During the Year Ended December 31, 2020 During the Year Ended December 31, 2019 Proceeds from Debt Issuance Debt Principal Repayments Proceeds from Debt Issuance Debt Principal Repayments Loan #1 $ — $ ( 493,696 ) $ — $ ( 68,908 ) Loan #2 — ( 2,143,771 ) — ( 89,997 ) Loan #3 — ( 3,236,429 ) — ( 562,857 ) Loan #4 — ( 2,336,000 ) — ( 128,000 ) Loan #5 — ( 309,182 ) — ( 11,585 ) Loan #6 5,100,000 ( 720,001 ) — — Loan #7 3,500,000 ( 334,489 ) — — Loan #8 (1) 937,700 ( 937,700 ) — — Loan #9 500,000 — — — Loan #10 1,500,000 — — — Loan #11 — — — — Total $ 11,537,700 $ ( 10,511,268 ) $ — $ ( 861,347 ) (1) Loan #8 was forgiven by the federal government during the fourth quarter of 2020. 15 ImmuCell Corporation Notes to Unaudited Financial Statements (continued) Debt proceeds received and principal repayments made during the three-month periods ended September 30, 2021 and 2020 are reflected in the following table by period and by loan: During the Three-Month Period Ended September 30, 2021 During the Three-Month Period Ended September 30, 2020 Proceeds from Debt Issuance Debt Principal Repayments Proceeds from Debt Issuance Debt Principal Repayments Loan #6 $ — $ ( 28,840 ) $ — $ ( 31,782 ) Loan #7 — ( 115,456 ) — ( 111,392 ) Loan #8 (1) — — — — Loan #9 — — — — Loan #10 — ( 48,061 ) — — Loan #11 400,000 — — — Total $ 400,000 $ ( 192,357 ) $ — $ ( 143,174 ) (1) Loan #8 was forgiven by the federal government during the fourth quarter of 2020. Debt proceeds received and principal repayments made during the nine-month periods ended September 30, 2021 and 2020 are reflected in the following table by period and by loan: During the Nine-Month Period Ended September 30, 2021 During the Nine-Month Period Ended September 30, 2020 Proceeds from Debt Issuance Debt Principal Repayments Proceeds from Debt Issuance Debt Principal Repayments Loan #1 $ — $ — $ — $ ( 493,696 ) Loan #2 — — — ( 2,143,771 ) Loan #3 — — — ( 3,236,429 ) Loan #4 — — — ( 2,336,000 ) Loan #5 — — — ( 309,182 ) Loan #6 — ( 86,342 ) 5,100,000 ( 63,279 ) Loan #7 — ( 343,868 ) 3,500,000 ( 221,790 ) Loan #8 (1) — — 937,700 — Loan #9 — — 500,000 — Loan #10 — ( 143,156 ) — — Loan #11 400,000 — — — Total $ 400,000 $ ( 573,366 ) $ 10,037,700 $ ( 8,804,147 ) (1) Loan #8 was forgiven by the federal government during the fourth quarter of 2020. Principal payments (net of debt issue costs) due under bank loans outstanding as of September 30, 2021 (excluding our $ 1,000,000 line of credit) are reflected in the following table by the year that payments are due: During the Three-Month Period Ending December 31, During the Years Ending December 31, 2021 2022 2023 2024 2025 2026 Thereafter Total Loan #6 $ 29,515 $ 120,291 $ 124,629 $ 128,725 $ 133,768 $ 138,592 $ 3,618,137 $ 4,293,657 Loan #7 116,755 477,220 494,433 512,102 530,738 549,881 140,514 2,821,643 Loan #9 — 22,160 91,446 96,104 101,001 106,146 83,143 500,000 Loan #10 48,618 198,710 205,877 213,217 220,994 228,965 240,463 1,356,844 Loan #11 — — 32,017 66,470 69,856 73,415 158,242 400,000 Subtotal 194,888 818,381 948,402 1,016,618 1,056,357 1,096,999 4,240,499 9,372,144 Debt issuance costs ( 1,960 ) ( 6,175 ) ( 5,768 ) ( 5,768 ) ( 5,769 ) ( 5,768 ) ( 8,663 ) ( 39,871 ) Total $ 192,928 $ 812,206 $ 942,634 $ 1,010,850 $ 1,050,588 $ 1,091,231 $ 4,231,836 $ 9,332,273 16 ImmuCell Corporation Notes to Unaudited Financial Statements (continued) 11. CONTINGENT LIABILITIES AND COMMITMENTS Our bylaws, as amended, in effect provide that the Company will indemnify its officers and directors to the maximum extent permitted by Delaware law. In addition, we make similar indemnity undertakings to each director through a separate indemnification agreement with that director. The maximum payment that we may be required to make under such provisions is theoretically unlimited and is impossible to determine. We maintain directors’ and officers’ liability insurance, which may provide reimbursement to the Company for payments made to, or on behalf of, officers and directors pursuant to the indemnification provisions. Our indemnification obligations were grandfathered under the provisions of Codification Topic 460 , Guarantees . Accordingly, we have recorded no liability for such obligations as of September 30, 2021. 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 feel 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 have recorded no liabilities for such obligations as of September 30, 2021. We are committed to purchasing 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. During the first quarter of 2020, we entered into a Severance Agreement with our President and CEO. Under the terms of this agreement, we agree to pay this executive (or his estate) nine months of his then current salary plus any accrued and unused paid time off in the event of the involuntary termination of his employment by the Company (except for cause) or in the event of termination by him for good reason. In addition to the commitments discussed above, we had committed $ 758,000 to increase our production capacity for the First Defense ® product line, $ 465,000 to construct and equip our own Drug Product formulation and aseptic filling facility for Re-Tain ® , $ 2,009,000 to the purchase of inventory, $ 58,000 to other capital expenditures and $ 533,000 to other obligations as of September 30, 2021. 12. OPERATING LEASE On September 12, 2019, we entered into a lease covering approximately 14,300 square feet of office and warehouse space with a Possession Date of November 15, 2019 and a Commencement Date of February 13, 2020. The property is located at 175 Industrial Way in Portland, which is a short distance from our headquarters and manufacturing facility at 56 Evergreen Drive. We renovated this space to meet our needs in expanding our production capacity for the First Defense ® product line. The lease term is 10 years with a right to renew for a second 10-year term and a right of first offer to purchase. At this time, we are not reasonably assured that we would exercise this renewal option in place of other real estate options. A 10-year period is reflected in the right-of-use (ROU) asset and lease liability on our balance sheet. The total lease liability over the initial 10-year term (including inflationary adjustments) aggregates approximately $1,313,698 and includes real estate and personal property taxes, utilities, insurance, maintenance and related building and operating expenses. Our lease includes variable lease and non-lease components that are included in the ROU asset and lease liability. Such payments primarily include common area maintenance charges and increases in rent payments that are driven by factors such as future changes in an index, such as the Consumer Price Index. As of September 30, 2021, the balance of the operating lease ROU asset was $ 1,136,940 and the operating lease liability was $ 1,160,297 . The calculated amount of the ROU asset and lease liability is impacted by the length of the lease term and the discount rate used for the present value of the minimum lease payments. The following table represents lease costs and other lease information. As we elected not to separate lease and non-lease components for all classes of underlying assets, and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as real estate taxes and common area maintenance. 17 ImmuCell Corporation Notes to Unaudited Financial Statements (continued) During the Three-Month Periods Ended September 30, During the Nine-Month Periods Ended September 30, 2021 2020 2021 2020 Lease Cost Operating lease cost $ 29,499 $ 29,499 $ 88,497 $ 74,595 Variable lease cost 10,350 10,350 31,050 26,172 Total lease cost $ 39,849 $ 39,849 $ 119,547 $ 100,767 Operating Lease Weighted average remaining lease term (in years) 8.3 9.3 8.3 9.3 Weighted average discount rate 4.77 % 4.77 % 4.77 % 4.77 % Future lease payments required under non-cancelable operating leases in effect as of September 30, 2021 were as follows: Amount During the Three-Month Period Ending December 31, 2021 $ 39,849 During the Years Ending December 31, 2022 162,102 2023 165,120 2024 168,210 2025 171,383 2026 174,640 Thereafter 559,664 Total lease payments (undiscounted cash flows) 1,440,968 Less: imputed interest (discount effect of cash flows) ( 280,671 ) Total operating lease liabilities $ 1,160,297 13. STOCKHOLDERS’ EQUITY Common Stock Issuances From February 2016 to April 2021, we issued the aggregate of 4,553,017 shares of common stock in six different transactions raising gross proceeds of approximately $ 26,714,000 . These funds are essential to funding our business growth plans. The details of each transaction are discussed below. On October 28, 2015, we filed a registration statement on Form S-3 (File No. 333-207635) with the Securities and Exchange Commission (SEC) for the potential issuance of up to $ 10,000,000 in equity securities (subject to certain limitations). This registration statement became effective on November 10, 2015. Under this form of registration statement, we were limited within a twelve-month period to raising gross proceeds of no more than one-third of the market capitalization of our common stock (as determined by the high price of our common stock within the preceding 60 days leading up to a sale of securities) held by non-affiliates (non-insiders) of the Company. Having raised $10,000,000 in gross proceeds under the February 2016, July 2017 and December 2017 equity transactions described below, no additional equity securities can be issued under this registration statement. On February 3, 2016, we sold 1,123,810 shares of common stock at a price to the public of $ 5.25 per share in an underwritten public offering pursuant to our effective shelf registration statement on Form S-3, raising gross proceeds of approximately $ 5,900,000 and resulting in net proceeds to the Company of approximately $ 5,313,000 (after deducting underwriting discounts and offering expenses incurred in connection with the equity financing). On October 21, 2016, we closed on a private placement of 659,880 shares of common stock to nineteen institutional and accredited investors at $ 5.25 per share, raising gross proceeds of approximately $ 3,464,000 and resulting in net proceeds to the Company of approximately $ 3,161,000 (after deducting placement agent fees and other expenses incurred in connection with the equity financing). 18 ImmuCell Corporation Notes to Unaudited Financial Statements (continued) On July 27, 2017, we issued 200,000 shares of our common stock at a price of $ 5.25 per share in a public, registered sale to two related investors pursuant to our effective shelf registration statement on Form S-3, raising gross proceeds of $ 1,050,000 and resulting in net proceeds of approximately $ 1,034,000 (after deducting expenses incurred in connection with the equity financing). On December 21, 2017, we sold 417,807 shares of common stock at a price to the public of $ 7.30 per share in an underwritten public offering pursuant to our effective shelf registration statement on Form S-3, raising gross proceeds of approximately $ 3,050,000 and resulting in net proceeds to the Company of approximately $ 2,734,000 (after deducting underwriting discounts and offering expenses incurred in connection with the equity financing). On November 20, 2018, we filed a registration statement on Form S-3 (File No. 333-228479) with the Securities and Exchange Commission (SEC) for the potential issuance of up to $ 20,000,000 in equity securities (subject to certain limitations). This registration statement became effective on November 29, 2018. Under this form of registration statement, we are limited within a twelve-month period to raising gross proceeds of no more than one-third of the market capitalization of our common stock (as determined by the high price of our common stock within the preceding 60 days leading up to a sale of securities) held by non-affiliates (non-insiders) of the Company. On March 29, 2019, we sold 1,636,364 shares of common stock at a price to the public of $ 5.50 per share in an underwritten public offering pursuant to our effective shelf registration statement on Form S-3, raising gross proceeds of approximately $ 9,000,000 and resulting in net proceeds to the Company of approximately $ 8,303,000 (after deducting underwriting discounts and offering expenses incurred in connection with the equity financing). On April 14, 2021, we issued 515,156 shares of our common stock at a price of $ 8.25 per share in a public, registered sale to seven investors pursuant to our effective shelf registration statement on Form S-3, raising gross proceeds of approximately $ 4,250,000 and resulting in net proceeds of approximately $ 4,233,000 (after deducting expenses incurred in connection with the equity financing). Stock Option Plans In June 2010, our stockholders approved the 2010 Stock Option and Incentive Plan (the “2010 Plan”) pursuant to the provisions of the Internal Revenue Code of 1986, under which employees and certain service providers may be granted options to purchase shares of the Company’s common stock at no less than fair market value on the date of grant. At that time, 300,000 shares of common stock were reserved for issuance under the 2010 Plan and subsequently no additional shares have been reserved for the 2010 Plan. Vesting requirements are determined by the Compensation and Stock Option Committee of the Board of Directors on a case-by-case basis. All options granted under the 2010 Plan expire no later than 10 years from the date of grant. The 2010 Plan expired in June 2020, after which date no further options can be granted under the 2010 Plan. However, options outstanding under the 2010 Plan at that time can be exercised in accordance with their terms. As of September 30, 2021, there were 223,500 options outstanding under the 2010 Plan. In June 2017, our stockholders approved the 2017 Stock Option and Incentive Plan (the “2017 Plan”) pursuant to the provisions of the Internal Revenue Code of 1986, under which employees and certain service providers may be granted options to purchase shares of the Company’s common stock at no less than fair market value on the date of grant. At that time, 300,000 shares of common stock were reserved for issuance under the 2017 Plan and subsequently no additional shares have been reserved for the 2017 Plan. Vesting requirements are determined by the Compensation and Stock Option Committee of the Board of Directors on a case-by-case basis. All options granted under the 2017 Plan expire no later than 10 years from the date of grant. The 2017 Plan expires in March 2027, after which date no further options can be granted under the 2017 Plan. However, options outstanding under the 2017 Plan at that time can be exercised in accordance with their terms. As of September 30, 2021, there were 228,500 options outstanding under the 2017 Plan. 19 ImmuCell Corporation Notes to Unaudited Financial Statements (continued) Activity under the stock option plans described above was as follows: 2010 Plan 2017 Plan Weighted Average Exercise Price Aggregate Intrinsic Value (1) Outstanding as of December 31, 2019 255,000 133,500 $ 6.48 $ ( 516,475 ) Grants 7,000 93,000 $ 5.03 Terminations/forfeitures ( 12,000 ) ( 50,000 ) $ 5.45 Exercises ( 12,500 ) — $ 3.15 Outstanding as of December 31, 2020 237,500 176,500 $ 6.38 $ ( 180,038 ) Grants — 84,000 $ 9.82 Terminations/forfeitures ( 7,000 ) ( 14,000 ) $ 6.83 Exercises ( 7,000 ) ( 18,000 ) $ 7.08 Outstanding as of September 30, 2021 223,500 228,500 $ 6.96 $ 1,082,915 Vested as of September 30, 2021 187,500 98,500 $ 6.76 $ 743,840 Vested and expected to vest as of September 30, 2021 223,500 228,500 $ 6.96 $ 1,082,915 Reserved for future grants — 53,500 (1) Intrinsic value is the difference between the fair market value of the underlying common stock as of the date indicated and as of the date of the option grant (which is equal to the option exercise price). The following table displays additional information about the stock option plans described above: Number of Shares Weighted Average Fair Value at Grant Date Weighted Average Exercise Price Non-vested stock options as of January 1, 2021 248,000 $ 3.25 $ 6.44 Non-vested stock options as of September 30, 2021 166,000 $ 3.42 $ 10.34 Stock options granted during the nine-month period ended September 30, 2021 84,000 $ 4.52 $ 9.82 Stock options that vested during the nine-month period ended September 30, 2021 145,000 $ 3.74 $ 7.33 Stock options that were forfeited during the nine-month period ended September 30, 2021 21,000 $ 3.59 $ 6.83 During the nine-month period ended September 30, 2021, one director and three employees exercised stock options covering 25,000 shares by the surrender of 17,128 shares of common stock with a fair market value of $165,337 at the time of exercise and the payment of $11,693 in cash. During the year ended December 31, 2020, two employees exercised stock options covering 12,500 shares by the surrender of 6,583 stock options with a fair market value of the underlying common stock equal to $39,366 at the time of exercise and the payment of $9 in cash. The weighted average remaining life of the options outstanding under the 2010 Plan and the 2017 Plan as of September 30, 2021 was approximately 5 years and 3 months. The weighted average remaining life of the options exercisable under these plans as of September 30, 2021 was approximately 4 years and 5 months. The exercise prices of the options outstanding as of September 30, 2021 ranged from $ 4.00 to $ 10.04 per share. The 84,000 stock options granted during the nine-month period ended September 30, 2021 had exercise prices between $ 6.10 and $ 10.04 per share. The 100,000 stock options granted during the year ended December 31, 2020 had exercise prices between $ 4.00 and $ 6.37 per share. The aggregate intrinsic value of options exercised during the nine-month period ended September 30, 2021 and the year ended December 31, 2020 approximated $ 64,977 and $ 35,375 , respectively. The weighted-average grant date fair values of options granted during the nine-month period ended September 30, 2021 and the year ended December 31, 2020 were $ 4.52 and $ 2.47 per share, respectively. As of September 30, 2021, total unrecognized stock-based compensation related to non-vested stock options aggregated $413,328, which will be recognized over a weighted average remaining period of 2 years and 1 month. The fair value of each stock option grant has been estimated on the date of grant using the Black-Scholes option pricing model, for the purpose discussed in Note 2(m), with the following weighted-average assumptions: During the Three-Month Periods Ended September 30, During the Nine-Month Periods Ended September 30, 2021 2020 2021 2020 Risk-free interest rate 0.79 % 0.30 % 0.85 % 0.41 % Dividend yield 0 % 0 % 0 % 0 % Expected volatility 54 % 54 % 54 % 53 % Expected life 6.5 years 6.5 years 5.0 years 6.1 years 20 ImmuCell Corporation Notes to Unaudited Financial Statements (continued) The risk-free interest rate is based on U.S. Treasury yields for a maturity approximating the expected option term, while the other assumptions are derived from averages of our historical data. Common Stock Rights Plan In September 1995, our Board of Directors adopted a Common Stock Rights Plan (the “Rights Plan”) and declared a dividend of one common share purchase right (a “Right”) for each of the then outstanding shares of the common stock of the Company. Each Right entitles the registered holder to purchase from the Company one share of common stock at an initial purchase price of $ 70.00 per share, subject to adjustment. The description and terms of the Rights are set forth in a Rights Agreement between the Company and American Stock Transfer & Trust Co., as Rights Agent. The Rights (as amended) become exercisable and transferable apart from the common stock upon the earlier of i) 10 days following a public announcement that a person or group (Acquiring Person) has, without the prior consent of the Continuing Directors (as such term is defined in the Rights Agreement), acquired beneficial ownership of 20% or more of the outstanding common stock or ii) 10 days following commencement of a tender offer or exchange offer the consummation of which would result in ownership by a person or group of 20% or more of the outstanding common stock (the earlier of such dates being called the Distribution Date). Upon the Distribution Date, the holder of each Right not owned by the Acquiring Person would be entitled to purchase common stock at a discount to the initial purchase price of $70.00 per share, effectively equal to one half of the market price of a share of common stock on the date the Acquiring Person becomes an Acquiring Person. If, after the Distribution Date, the Company should consolidate or merge with any other entity and the Company were not the surviving company, or, if the Company were the surviving company, all or part of the Company’s common stock were changed or exchanged into the securities of any other entity, or if more than 50% of the Company’s assets or earning power were sold, each Right would entitle its holder to purchase, at the Rights’ then-current purchase price, a number of shares of the acquiring company’s common stock having a market value at that time equal to twice the Right’s exercise price. At any time after a person or group becomes an Acquiring Person and prior to the acquisition by such person or group of 50% or more of the outstanding common stock, the Board of Directors of the Company may exchange the Rights (other than Rights owned by such person or group which have become void), in whole or in part, at an exchange ratio of one share of common stock per Right (subject to adjustment). At any time prior to 14 days following the date that any person or group becomes an Acquiring Person (subject to extension by the Board of Directors), the Board of Directors of the Company may redeem the then outstanding Rights in whole, but not in part, at a price of $0.005 per Right, subject to adjustment. At various times over the years, our Board of Directors has voted to authorize amendments of the Rights Agreement to extend the Final Expiration Date, which is currently September 19, 2022. Our Board of Directors also has voted to authorize amendments to increase the ownership threshold for determining “Acquiring Person” status to 20%. During the second quarter of 2015, our Board of Directors also voted to authorize an amendment to remove a provision that prevented a new group of directors elected following the emergence of an Acquiring Person (an owner of more than 20% of our stock) from controlling the Rights Plan by maintaining exclusive authority over the Rights Plan with pre-existing directors. We did this because such provisions have come to be viewed with disfavor by Delaware courts. Each time that we made such amendments we entered into amendments to the Rights Agreement with the Rights Agent reflecting such extensions, threshold increases or provision changes. No other changes have been made to the terms of the Rights or the Rights Agreement. Authorized Common Stock At the June 14, 2018 Annual Meeting of Stockholders, our stockholders voted to approve an amendment to our Certificate of Incorporation to increase the number of shares of common stock authorized for issuance from 8,000,000 to 11,000,000 . At the June 10, 2020 Annual Meeting of Stockholders, our stockholders voted to approve an amendment to our Certificate of Incorporation to increase the number of shares of common stock authorized for issuance from 11,000,000 to 15,000,000 . 21 ImmuCell Corporation Notes to Unaudited Financial Statements (continued) 14. REVENUE We primarily offer the First Defense Ò product line to dairy and beef producers to prevent scours in newborn calves. Generally, our products are promoted to veterinarians as well as dairy and beef producers by our sales team and then sold through distributors. Our primary market is North America. We do sell into select international regions and may expand this international reach in the future. There were no material changes between the allocation and timing of revenue recognition during the three-month periods ended September 30, 2021 or 2020 or during the nine-month periods ended September 30, 2021 or 2020. We do not have any contract assets for which we have satisfied the performance obligations but do not yet have the right to bill for or contract liabilities such as customer advances. All trade receivables on our balance sheets are from contracts with customers. We incur no material costs to obtain contracts. The following table presents our product sales disaggregated by geographic area: During the Three-Month Periods Ended September 30, During the Nine-Month Periods Ended September 30, 2021 % 2020 % 2021 % 2020 % United States $ 4,550,343 88 % $ 3,361,820 90 % $ 12,161,097 88 % $ 10,319,232 89 % Other 599,830 12 % 360,697 10 % 1,638,032 12 % 1,279,626 11 % Total Product Sales $ 5,150,173 100 % $ 3,722,517 100 % $ 13,799,129 100 % $ 11,598,858 100 % The following table presents our product sales disaggregated by major product category: During the Three-Month Periods Ended September 30, During the Nine-Month Periods Ended September 30, 2021 % 2020 % 2021 % 2020 % First Defense ® product line $ 5,033,428 98 % $ 3,656,709 98 % $ 13,529,847 98 % $ 11,406,481 98 % Other animal health 116,745 2 % 65,808 2 % 269,282 2 % 192,377 2 % Total Product Sales $ 5,150,173 100 % $ 3,722,517 100 % $ 13,799,129 100 % $ 11,598,858 100 % 15. OTHER EXPENSES, NET Other expenses, net, consisted of the following: During the Three-Month Periods Ended September 30, During the Nine-Month Periods Ended September 30, 2021 2020 2021 2020 Interest expense (1) $ 78,526 $ 75,941 $ 237,578 $ 334,890 Interest rate swap termination fee — — — 165,050 Loss on disposal of fixed assets 42,278 — 32,278 3,266 Interest income ( 5,521 ) ( 4,651 ) ( 13,500 ) ( 23,616 ) Other (income) expenses, net $ 115,283 $ 71,290 $ 256,356 $ 479,590 (1) Interest expense during the nine-month period ended September 30, 2020 included a $ 94,782 write-off of debt issuance costs associated with debt that we repaid during the first quarter of 2020. Interest expense included amortization of debt issuance costs of $ 1,960 and $ 1,564 during the three-month periods ended September 30, 2021 and 2020, respectively, and $ 5,880 and $ 6,295 during the nine-month periods ended September 30, 2021 and 2020, respectively. 16. INCOME TAXES Our income tax expense (benefit) aggregated $ 8,043 and $ 0 (amounting to 5 % and 0 % of our income (loss) before income taxes) during the three-month periods ended September 30, 2021 and 2020, respectively. Our income tax expense (benefit) aggregated $ 8,043 and $( 14,632 ) (amounting to 6 % and ( 1 %) of our loss before income taxes, respectively) during the nine-month periods ended September 30, 2021 and 2020, respectively. As of December 31, 2020, we had federal net operating loss carryforwards of $14,642,294 of which $12,930,387 do not expire and of which $1,711,907 expire in 2038 (if not utilized before then) and state net operating loss carryforwards of $2,647,292 that expire in 2038 through 2039 (if not utilized before then). Additionally, we had federal general business tax credit carryforwards of $490,018 that expire in 2027 through 2042 (if not utilized before then) and state tax credit carryforwards of $763,350 that expire in 2023 through 2042 (if not utilized before then). 22 ImmuCell Corporation Notes to Unaudited Financial Statements (continued) The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the estimated future tax effects of temporary differences between book and tax treatment of assets and liabilities and carryforwards to the extent they are realizable. During the second quarter of 2018, we assessed our historical and near-term future profitability and recorded $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 credits) based on applicable accounting standards and practices. 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. Should future profitability be realized at an adequate level, we would be able to release this valuation allowance (resulting in a non-cash income tax benefit) and realize these deferred tax assets before they expire. We will continue to assess the need for the valuation allowance at each quarter and, in the event that actual results differ from these estimates, or we adjust these estimates in future periods, we may need to adjust our valuation allowance. Adjustments related to the termination of our interest rate swap agreements were recorded during the first quarter of 2020. No subsequent adjustments were recorded. Net operating loss carryforwards, credits, and other tax attributes are subject to review and possible adjustment by the Internal Revenue Service. Section 382 of the Internal Revenue Code contains provisions that could place annual limitations on the future utilization of net operating loss carryforwards and credits in the event of a change in ownership of the Company, as defined. We file income tax returns in the U.S. federal jurisdiction and several state jurisdictions. We currently have no tax examinations in progress. We also have not paid additional taxes, interest or penalties as a result of tax examinations nor do we have any unrecognized tax benefits for any of the periods in the accompanying unaudited financial statements. 17. SEGMENT INFORMATION We principally operate in the business segment described in Note 1. Pursuant to Codification Topic 280, Segment Reporting , we operate in one reportable business segment, that being the development, acquisition, manufacture and sale of products that improve the health and productivity of dairy and beef cattle. Almost all of our internally funded product development expenses are in support of such products. The significant accounting policies of this segment are described in Note 2. Our single operating segment is defined as the component of our business for which financial information is available and evaluated regularly by our chief operating decision-maker in deciding how to allocate resources and in assessing performance. Our chief operating decision-maker is our President and CEO. Sales of the First Defense ® product line aggregated 98 % of our total product sales during both of the three-month periods ended September 30, 2021 and 2020 and 98 % of our total product sales during both of the nine-month periods ended September 30, 2021 and 2020. Our primary customers for the majority of our product sales ( 88 % and 90 % during the three-month periods ended September 30, 2021 and 2020, respectively and 88 % and 89 % during the nine-month periods ended September 30, 2021 and 2020, respectively) are in the U.S. dairy and beef industries. Product sales to international customers, who are also in the dairy and beef industries, aggregated 12 % and 10 % of our total product sales during the three-month periods ended September 30, 2021 and 2020, respectively, and 12 % and 11 % of our total product sales during the nine-month periods ended September 30, 2021 and 2020, respectively. 18. RELATED PARTY TRANSACTIONS Dr. David S. Tomsche (Chair of our Board of Directors) is a controlling owner of Leedstone Inc., a domestic distributor of ImmuCell products (the First Defense Ò product line and CMT ), and of J-t Enterprises of Melrose, Inc., an exporter. His affiliated companies purchased $ 419,754 and $ 535,457 of products from us during the nine-month periods ended September 30, 2021 and 2020, respectively, on terms consistent with those offered to other distributors of similar status. We made marketing-related payments of $ 0 and $ 975 to these affiliated companies during the nine-month periods ended September 30, 2021 and 2020, respectively, which represent amounts similar to those offered to other distributors of similar status. Our accounts receivable (subject to standard and customary payment terms) due from these affiliated companies aggregated $ 3,566 and $ 51,286 as of September 30, 2021 and December 31, 2020, respectively. 19. EMPLOYEE BENEFITS We have a 401(k) savings plan (the Plan) in which all employees completing one month of service with the Company are eligible to participate. Participants may contribute up to the maximum amount allowed by the Internal Revenue Service. We currently match 100% of the first 3% of each employee’s salary that is contributed to the Plan and 50% of the next 2% of each employee’s salary that is contributed to the Plan. Under this matching plan, we paid $ 37,767 and $ 30,823 into the Plan for the three-month periods ended September 30, 2021 and 2020, respectively, and $ 108,886 and $ 95,896 into the Plan for the nine-month periods ended September 30, 2021 and 2020, respectively. 20. SUBSEQUENT EVENTS We have evaluated subsequent events through the time of filing on November 15, 2021, the date we have issued this Quarterly Report on Form 10-Q. As of the time of filing on November 15, 2021, there were no material, reportable subsequent events. 23 ImmuCell Corporation ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited financial statements and the related notes and other financial information included in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. One should review the Cautionary Note below for a discussion of some of the important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Cautionary Note Regarding Forward-Looking Statements (Safe Harbor Statement): This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements include, but are not limited to, any statements relating to: our plans and strategies for our business; projections of future financial or operational performance; the timing and outcome of pending or anticipated applications for regulatory approvals; factors that may affect the dairy and beef industries and future demand for our products; the extent, nature and duration of the COVID-19 pandemic and its consequences, and their direct and indirect impacts on our production activities, operating results and financial condition and on the customers and markets that we serve; the impact of the global supply-chain disruptions on our ability to obtain, in a timely and cost-effective fashion, all the supplies and components we need to produce our products; the scope and timing of ongoing and future product development work and commercialization of our products; future costs of product development efforts; the estimated prevalence rate of subclinical mastitis and producers’ level of interest in treating subclinical mastitis given the current economic and market conditions; the expected efficacy of new products; estimates about the market size for our products; future market share of and revenue generated by current products and products still in development; our ability to increase production output and reduce costs of goods sold per unit; the future adequacy of our own manufacturing facilities or those of third parties with which we have contractual relationships to meet demand for our products on a timely basis; the impacts of backlogs on customer relationships; the anticipated costs of (or time to complete) planned expansions of our manufacturing facilities and the adequacy of our funds available for these projects; the continuing availability to us on reasonable terms of third-party providers of critical products or services; the robustness of our manufacturing processes and related technical issues; estimates about our production capacity, efficiency and yield, which are highly subject to biological variability and the product format mix of our sales; the future adequacy of our working capital and the availability and cost of third-party financing; future regulatory requirements relating to our products; future expense ratios and margins; future compliance with bank debt covenants; costs associated with sustaining compliance with current Good Manufacturing Practice (cGMP) regulations in our current operations and attaining such compliance for our facilities to produce the Nisin Drug Substance and Drug Product; our effectiveness in competing against competitors within both our existing and our anticipated product markets; the cost-effectiveness of additional sales and marketing expenditures and resources; anticipated changes in our manufacturing capabilities and efficiencies; the value of our net deferred tax assets; projections about depreciation expense and its impact on income for book and tax return purposes; and any other statements that are not historical facts. Forward-looking statements can be identified by the use of words such as “expects”, “may”, “anticipates”, “aims”, “intends”, “would”, “could”, “should”, “will”, “plans”, “believes”, “estimates”, “targets”, “projects”, “forecasts”, “seeks” and similar words and expressions. In addition, there can be no assurance that future developments affecting us will be those that we anticipate. Such statements involve risks and uncertainties, including, but not limited to, those risks and uncertainties relating to: difficulties or delays in development, testing, regulatory approval, production and marketing of our products (including the First Defense ® product line and Re-Tain ® ), competition within our anticipated product markets, customer acceptance of our new and existing products, product performance, alignment between our manufacturing resources and product demand (including the consequences of backlogs or excess inventory buildup), uncertainty associated with the timing and volume of customer orders as we come out of a prolonged backlog, adverse impacts of supply chain disruptions on our operations and customer relationships, our reliance upon third parties for financial support, products and services, our small size and dependence on key personnel, changes in laws and regulations, decision making and delays by regulatory authorities, a recurrence of inflation and its impact on our customers’ order patterns, currency values and fluctuations and other risks detailed from time to time in filings we make with the Securities and Exchange Commission (SEC), including our Quarterly Reports on Form 10-Q, our Annual Reports on Form 10-K and our Current Reports on Form 8-K. Such statements involve risks and uncertainties and are based on our current expectations, but actual results may differ materially due to various factors, including the risk factors summarized under PART II: ITEM 1A – RISK FACTORS and uncertainties otherwise referred to in this Quarterly Report on Form 10-Q. 24 ImmuCell Corporation Liquidity and Capital Resources Net cash provided by operating activities was $366,000 during the nine-month period ended September 30, 2021 in comparison to net cash provided by operating activities of $1.2 million during the nine-month period ended September 30, 2020. The decrease in cash provided by operating activities from period to period was largely the result of a $1 million increase (changing from a source of cash to a use of cash) in cash used for inventory and a $720,000 increase (changing from a source of cash to a use of cash) in cash used for accounts receivable, which were partially offset by a $1.1 million reduction in our net loss. As we increase our production capacity to fill the backlog of orders, our inventory balance increased by $574,000 from December 31, 2020 to September 30, 2021. Approximately 94% of this increase was work-in-process inventory. Our total depreciation expense was approximately $1.8 million and $1.7 million during the nine-month periods ended September 30, 2021 and 2020, respectively. We anticipate that depreciation expense, while not affecting our cash flows from operations, will result in net operating losses until and unless product sales increase sufficiently to offset these non-cash expenses. Cash used for investing activities was $894,000 and $3.3 million during the nine-month periods ended September 30, 2021 and 2020, respectively. Cash paid for capital expenditures was $1.9 million and $3.8 million during the nine-month periods ended September 30, 2021 and 2020, respectively, which were largely related to our ongoing investments to expand our manufacturing facilities. Cash provided by financing activities increased to $4.1 million during the nine-month period ended September 30, 2021 in comparison to $1.2 million during the nine-month period ended September 30, 2020. The $4.2 million equity raise we completed during the second quarter of 2021 was the largest cause of this change. Going forward, repayments of the indebtedness incurred to fund these capital expenditures and acquire these assets will reduce our cash flows. Debt principal payments (exclusive of the $8.3 million used to repay our refinanced bank debt during the first quarter of 2020) were $573,000 and $488,000 during the nine-month periods ended September 30, 2021 and 2020, respectively. We are obligated to make debt principal repayments of approximately $768,000, $818,000 and $916,000 under these loans during the years ending December 31, 2021, 2022 and 2023, respectively. We anticipate that our interest expense will be approximately $317,000, $287,000 and $258,000 during the years ending December 31, 2021, 2022 and 2023, respectively. We have funded most of our business operations principally from the gross margin on our product sales and equity and debt financings. Based on our best estimates and projections, we believe that our cash and cash equivalents, together with gross margin anticipated to be earned from ongoing product sales, will be sufficient to meet our currently planned working capital and capital expenditure requirements and to finance our ongoing business operations for at least 12 months (which is the period of time required to be addressed for such purposes by accounting disclosure standards) from the date of this filing. The table below summarizes the changes in selected, key accounts (in thousands, except for percentages): As of As of Increase September 30, 2021 December 31, 2020 Amount % Cash, cash equivalents and short-term investments $ 10,496 $ 7,946 $ 2,549 32 % Net working capital $ 13,910 $ 9,946 $ 3,964 40 % Total assets $ 44,231 $ 40,350 $ 3,882 10 % Stockholders’ equity $ 32,462 $ 28,266 $ 4,196 15 % Common shares outstanding (1) 7,742 7,219 523 7 % (1) There were approximately 452,000 and 414,000 shares of common stock reserved for issuance for stock options that were outstanding as of September 30, 2021 and December 31, 2020, respectively. 25 ImmuCell Corporation During the first quarter of 2020, we closed on a debt refinancing aggregating $8.6 million plus a line of credit in the amount of $1.0 million with Gorham Savings Bank (GSB). This new debt was comprised of a $5.1 million mortgage note that bears interest at a fixed rate of 3.50% per annum (with a 10-year term and 25-year amortization schedule, resulting in a balloon principal payment of $3.1 million due during the first quarter of 2030) and a $3.5 million note that bears interest at a fixed rate of 3.50% per annum (with a 7-year term and amortization schedule). The refinancing proceeds were used to provide some additional working capital, but mostly to refinance $8.3 million of then outstanding bank debt and pay off an interest rate swap termination liability of $165,000. This debt refinancing improved our liquidity by lowering our interest expense, spreading our principal payments out over a longer time period and eliminating pending balloon principal payments that existed under some of the repaid debt. Under this GSB debt, we were required to hold $1.4 million in escrow (a non-current asset), which reduced the effective availability of our liquid assets for operational needs by that amount. During the fourth quarter of 2020, we closed on a $1.5 million note with GSB that bears interest at a fixed rate of 3.50% per annum (with a 7-year term and amortization schedule). We used $624,000 of the proceeds to prepay a portion of the then outstanding principal on our mortgage note, which reduced the then outstanding balance to 80% of the most recent appraised value of the property securing the debt, which allowed GSB to release the $1.4 million of funds held in escrow. These credit facilities are secured by substantially all of our assets, including our facility at 56 Evergreen Drive in Portland (which was independently appraised at $4.2 million in connection with a 2015 financing and at $3 million in connection with the 2020 refinancing) and our facility at 33 Caddie Lane in Portland (which was independently appraised at $3.2 million in connection with a 2017 financing and at $2.5 million in connection with the 2020 refinancing). These credit facilities are subject to certain restrictions and financial covenants. We are required to meet a minimum debt service coverage ratio set by GSB of 1.35. Our actual debt service coverage ratio was equal to 2.03 and 1.57 during the years ended December 31, 2020 and 2019, respectively. However, based on current projections of our future financial performance, which includes a high level of ongoing product development expenses to support Re-Tain ® , we may not satisfy this annual requirement for the year ending December 31, 2021. As a result, in part, of raising approximately $4.3 million in equity during the second quarter of 2021, GSB agreed to waive this annual requirement for the year ending December 31, 2021. During June 2020, we received a $500,000 loan from the Maine Technology Institute (MTI). The first 2.25 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 years of the loan, beginning during the fourth quarter of 2022 and continuing through the third quarter of 2027. During July 2021, we received an additional $400,000 loan from MTI. The first 2 years of this second 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. Both loans are unsecured and subordinated to all other bank debt and may be prepaid without penalty at any time. The proceeds from these loans are to be used to support, in part, our investments to increase our production capacity for the First Defense ® product line, to complete the development of Re-Tain ® and to bring the formulation and aseptic filling services for Re-Tain ® in-house. This support from the State of Maine through MTI helps us move forward aggressively with our investments while increasing our total employee count. From the first quarter of 2016 through the second quarter of 2021, we raised gross proceeds of approximately $26.7 million (net proceeds were approximately $24.8 million) from six different common equity transactions priced between $5.25 and $8.25 per share. No warrants were issued in connection with any of these transactions, and no convertible or preferred securities were issued. During 2016 and 2017, we raised approximately $13.5 million from four different transactions, which was used primarily to build our commercial production facility for the Re-Tain ® Drug Substance (PROJECT B below ) . Then in 2019, we raised an additional $9 million, of which approximately $3.5 million is being used to increase our First Defense ® production capacity to approximately $23 million in annual sales value (PROJECT C below ) and approximately $4 million is being used to bring the Drug Product formulation and aseptic fill capability for Re-Tain ® in-house (PROJECT D below ) . The $4.3 million raised during the second quarter of 2021 is being used to accelerate several growth initiatives by investing approximately $700,000 in pre-launch marketing expenses for Re-Tain ® (principally certain commercial studies and the hiring of a DVM) and in the expenditures described under PROJECT E to PROJECT G in the tables and footnotes below as well as to provide additional working capital. Additionally, we are using a portion of this new equity funding to pay for our routine and miscellaneous capital expenditures that generally range from approximately $500,000 to $600,000 per year. Our approved budget for the year ending December 31, 2021 is $560,000. These expenditures amounted to $182,000, $554,000 and $574,000 during the nine-month period ended September 30, 2021 and the years ended December 31, 2020 and 2019, respectively. From 2014 to 2019, we initiated four capital expenditure investments, as described in the following table (in thousands): Cash Paid on Projects Initiated before 2021 During the A B C D Total Year Ended December 31, 2014 $ 1,041 $ — $ — $ — $ 1,041 Year Ended December 31, 2015 1,991 265 — — 2,256 Year Ended December 31, 2016 1,173 2,093 — — 3,266 Year Ended December 31, 2017 — 17,686 — — 17,686 Year Ended December 31, 2018 — 1,596 — — 1,596 Year Ended December 31, 2019 — — 279 538 817 Year Ended December 31, 2020 — — 2,938 581 3,519 Nine Months Ended September 30, 2021 — — 313 775 1,088 Total Paid through September 30, 2021 4,205 21,640 3,530 1,894 31,269 Estimate to Complete — — 125 2,106 2,231 Total Project Cost $ 4,205 $ 21,640 $ 3,655 $ 4,000 $ 33,500 26 ImmuCell Corporation PROJECT A included a 7,100 square foot facility addition at 56 Evergreen Drive and related equipment and cold storage capacity to increase the production capacity for the First Defense ® product line. During the first quarter of 2016, we completed this investment, increasing our freeze drying capacity by 100% and making other improvements to our liquid processing capacity, which increased our annual production capacity (in terms of annual sales dollars) to approximately $16.5 million. The actual value of our production output varies based on production yields, selling price, product format mix and other factors. This investment also included the construction and equipping of a pilot plant for small-scale Drug Substance production for Re-Tain ® within our First Defense ® production facility at 56 Evergreen Drive. After PROJECT B was completed, this space was converted for use in the production of the gel tube formats of the First Defense ® product line. One of the objectives of PROJECT C was a relocation of these gel tube operations to 175 Industrial Way, vacating production space at 56 Evergreen Drive for use in doubling our liquid processing capacity. PROJECT B was related to the Drug Substance production facility for Re-Tain ® at 33 Caddie Lane. During the fourth quarter of 2017, we completed construction of the Drug Substance production facility. We began equipment installation during the third quarter of 2017, and we completed this installation during the third quarter of 2018. The total cost of this investment for the Drug Substance production facility and related processing equipment was $20.8 million plus $331,000 for the land and $472,000 for the acquisition of an adjacent 4,100 square foot warehouse facility, which will be used for cold storage of Re-Tain ® inventory and other warehousing needs. PROJECT C consists of significant renovations to a 14,300 square foot leased facility at 175 Industrial Way, some facility modifications at 56 Evergreen Drive and the necessary production equipment to increase the annual production capacity of the First Defense ® product line (in terms of annual sales dollars) from approximately $16.5 million to approximately $23 million. The actual value of our production output varies based on production yields, selling price, product format mix and other factors. This project is nearing completion at approximately 4% over its original budget of $3.5 million. This expansion involves a 50% increase in our freeze drying capacity and a 100% increase in our liquid processing capacity. Renovations to our leased facility at 175 Industrial Way to enable this expansion were completed during the second quarter of 2020. By moving our powder filling and assembly services from 56 Evergreen Drive into this new space at 175 Industrial Way, we created space at 56 Evergreen Drive for the installation of the expanded freeze drying capacity. The new facilities are built to contemporary cGMP standards with good material and people flows. A site license approval for this new facility at 175 Industrial Way was issued by the USDA during the third quarter of 2020. During the second quarter of 2021, we completed the relocation of our gel formulation equipment from 56 Evergreen Drive to 175 Industrial Way, creating space for the doubling of our liquid processing capacity at 56 Evergreen Drive. As part of this investment, we also have made the facility modifications at 56 Evergreen Drive necessary for a future expansion of our freeze drying capacity by an additional 33%, which would increase our annual production capacity from approximately $23 million to approximately $30 million or more (see PROJECT G below). We obtained site license approval of the expanded freeze drying capacity at 56 Evergreen Drive from the USDA during the third quarter of 2021, and we anticipate obtaining site license approval of the expanded liquid processing capacity at 56 Evergreen Drive from the USDA during the fourth quarter of 2021. PROJECT D is a $4 million budgeted investment to bring the formulation and aseptic filling capabilities for Re-Tain ® Drug Product in-house to end our reliance on third-party Drug Product manufacturing services. We expect to begin equipment installation at the beginning of 2022 and to have our facility operational during the middle of 2022. We anticipate FDA approval of this facility (which is a requirement for commercial manufacturing) during the second half of 2023, subject to the timing of our installation and validation work and whether the FDA requires more than one six-month review cycle. With the additional equity funding of approximately $4.3 million that we raised during the second quarter of 2021, we initiated three more capital expenditure investments, as described in the following table (in thousands): Cash Paid on Projects Initiated in 2021 During the E F G Total Nine Months Ended September 30, 2021 $ 141 $ 351 $ 142 $ 634 Estimate to Complete 859 199 783 1,841 Total Project Cost $ 1,000 $ 550 $ 925 $ 2,475 PROJECT E represents a preliminary estimate of $1 million for equipment and facility modifications costs to scale-up and upgrade our vaccine manufacturing capacity. During the third quarter of 2021, the scope of this project was changed to cover less money for vaccine equipment and more money for pack and ship facilities for Re-Tain ® and for improvements to our quality offices and laboratories. 27 ImmuCell Corporation PROJECT F represents an original budget of $500,000 for equipment and vehicle investments necessary to expand and improve our colostrum collection capabilities and logistics. During the second quarter of 2021, this budget was increased from $500,000 to $550,000. PROJECT G represents an original budget estimate of $800,000 for equipment to expand on PROJECT C to further increase the annual production capacity of the First Defense ® product line (in terms of annual sales dollars) from approximately $23 million to approximately $30 million or more by increasing our freeze drying capacity by an additional 33%. The actual value of our production output varies based on production yields, selling price, product format mix and other factors. During the third quarter of 2021, this budget was increased from $800,000 to $925,000. We initiated PROJECT G during the third quarter of 2021, and we anticipate completing this investment by the third quarter of 2022. We have set aside approximately $4.45 million of the $10.5 million of the cash we had on hand as of September 30, 2021 to complete PROJECT C to PROJECT G as well as to pay for our other routine and miscellaneous capital expenditures during 2021, leaving the remaining cash balance of approximately $6 million available for general working capital purposes including anticipated inventory builds for both First Defense ® and Re-Tain ® . During the third quarter of 2016, the City of Portland approved a Tax Increment Financing (TIF) credit enhancement package that reduces the real estate taxes on our Drug Substance production facility for Re-Tain ® by 65% over the eleven-year period beginning on July 1, 2017 and ending June 30, 2028 and by 30% during the year ending June 30, 2029, at which time the rebate expires. During the second quarter of 2017, the TIF was approved by the Maine Department of Economic and Community Development. The value of the tax savings will increase (decrease) in proportion to any increases (decreases) in the assessment of the building for city real estate tax purposes or the City’s tax rate. The following table discloses how much of the new taxes we have generated is being relieved by the TIF and how much is being paid by ImmuCell: Assessed Value Twelve-Month Period Ended Total New Taxes Generated by the Project Less: TIF Credit Net Amount Paid by ImmuCell $1.7 million @ April 1, 2017 June 30, 2018 $ 36,000 $ 22,000 $ 13,000 $4.0 million @ April 1, 2018 June 30, 2019 $ 90,000 $ 58,000 $ 32,000 $4.0 million @ April 1, 2019 June 30, 2020 $ 94,000 $ 60,000 $ 34,000 $4.0 million @ April 1, 2020 June 30, 2021 $ 94,000 $ 60,000 $ 34,000 $4.3 million @ April 1, 2021 June 30, 2022 $ 55,000 $ 36,000 $ 20,000 Results of Operations Product Sales Sales of the First Defense ® product line aggregated 98% of our total sales during each of the six reporting periods described below, and we set records for high sales for each of the three reporting periods during 2021 described below. Most of our growth (when not limited by the backlog) is being realized through increased demand and a deliberate strategy to prioritize production capacity towards Tri-Shield ® (the trivalent format of our product delivered via a gel tube), which provides broader protection to calves. The compound annual growth rate of our total product sales during the ten years ended December 31, 2020 was approximately 13%. The compound annual growth rate of our total product sales during the three years ended December 31, 2020 was approximately 18%. Assuming we produce and sell to plan during the fourth quarter of 2021, we expect sales for the year ending December 31, 2021 to be greater than sales recorded during the year ended December 31, 2020, recovering from the decrease in sales we experienced during the first quarter of 2021 due to supply limitations. During the Three-Month Periods Ended September 30, Increase (In thousands, except for percentages) 2021 2020 Amount % Total product sales $ 5,150 $ 3,723 $ 1,428 38 % Sales increased by 38%, or $1.4 million, during the three-month period ended September 30, 2021, in comparison to the three-month period ended September 30, 2020. Domestic sales increased by 35%, and international sales increased by 66%, in comparison to the three-month period ended September 30, 2020. International sales aggregated 12% and 10% of total sales during the three-month periods ended September 30, 2021 and 2020, respectively. During the Nine-Month Periods Ended September 30, Increase (In thousands, except for percentages) 2021 2020 Amount % Total product sales $ 13,799 $ 11,599 $ 2,200 19 % 28 ImmuCell Corporation Sales increased by 19%, or $2.2 million, during the nine-month period ended September 30, 2021, in comparison to the nine-month period ended September 30, 2020. Domestic sales increased by 18%, and international sales increased by 28%, in comparison to the nine-month period ended September 30, 2020. International sales aggregated 12% and 11% of total sales during the nine-month periods ended September 30, 2021 and 2020, respectively. During the Trailing Twelve-Month Periods Ended September 30, Increase (In thousands, except for percentages) 2021 2020 Amount % Total product sales $ 17,542 $ 15,231 $ 2,312 15 % Sales increased by 15%, or $2.3 million, during the trailing twelve-month period ended September 30, 2021, in comparison to the trailing twelve-month period ended September 30, 2020. Domestic sales increased by 15%, and international sales increased by 17%, in comparison to the trailing twelve-month period ended September 30, 2020. International sales aggregated 12% of total sales during both of the trailing twelve-month periods ended September 30, 2021 and 2020. Starting in the third quarter of 2016 and through most of 2017, we had sufficient available inventory and were shipping in accordance with the demand of our distributors. However, we quickly sold out of our initial launch quantities of Tri-Shield First Defense ® (which added a valuable rotavirus claim to our legacy E. coli and coronavirus product) soon after regulatory approval was obtained during the fourth quarter of 2017. Tri-Shield ® has changed our capacity models significantly because it requires almost twice as much production capacity to produce each finished dose and demand for this product format has increased each year. During most of 2018 and into the first half of 2019, we could only accept purchase orders from customers for Tri-Shield ® to match available inventory, which required a careful allocation of product supply directly to certain end-users and veterinary clinics. Initially, production of this new product format did not keep pace with demand primarily because of our inability to produce enough of the new, complex rotavirus vaccine that is used to immunize our source cows. Work on production improvements in our vaccine laboratory throughout 2018 led to significant improvements in vaccine yield and process repeatability. Allowing for the five to six month production cycle from the manufacture of our proprietary vaccine to the production of a finished dose, we were able to return to a mass market selling approach through distribution for Tri-Shield ® during the second half of 2019, and we ended the year with no backlog as of December 31, 2019. Sales of the First Defense ® product line during the year ended December 31, 2020 increased to approximately $15.1 million, but we depleted our available finished goods inventory and had a backlog of orders worth approximately $1.8 million as of December 31, 2020. As we have increased our production output, we reduced the amount of the backlog from $3.1 million as of March 31, 2021 to $1.9 million as of June 30, 2021, and we further reduced it to just over $1 million as of September 30, 2021. Valuation of the backlog is a non-GAAP estimate that is based on purchase orders on hand at the time that could not be met because of lack of available inventory. Quantification of the backlog has become more difficult and less comparable to prior periods. We believe that looking at the growth in sales is a good indication of our growing production capacity because sales closely approximates production output when we have very little finished goods inventory on hand at the beginning or end of the respective periods. The growth in our sales (which are seasonal) and the expansion of our production capacity (which is generally delivered approximately evenly across the four quarters of the year) are described in the following table: Quarterly Estimated production capacity before current expansion $ 4,125,000 (1) Sales of the First Defense ® product line during 2Q 2021 $ 4,473,000 Sales of the First Defense ® product line during 3Q 2021 $ 5,033,000 Estimated production capacity by 4Q 2021 $ 5,750,000 (2) Estimated production capacity by 3Q 2022 $ 7,500,000 (or more) (3) (1) When annualized, this quarterly production capacity figure amounts to approximately $16.5 million per year. (2) When annualized, this quarterly production capacity figure amounts to approximately $23 million per year. (3) When annualized, this quarterly production capacity figure amounts to $30 million or more per year. 29 ImmuCell Corporation We have largely completed the critical objectives of our investment to increase our First Defense ® production capacity from approximately $16.5 million to approximately $23 million in terms of annual sales value. These capacity estimates are subject to biological yield variance, product format mix, selling price and other factors. Equipment modifications and relocations of this nature require a shutdown of operations for weeks to months to install and validate the modified equipment and achieve USDA approval for its use in its new location. The qualification and implementation of the final two pieces of equipment required to complete this project were delayed past our June 30, 2021 target. We have worked around this setback to meet our increased production requirements by utilizing our expanded manufacturing staff to extend shifts and temporarily produce more product from the existing equipment. We obtained site license approval of our expanded freeze drying capacity from the USDA during the third quarter of 2021, and we anticipate obtaining site license approval of our expanded liquid processing capacity from the USDA during the fourth quarter of 2021. During the third quarter of this year, we initiated an additional investment of approximately $925,000 to increase our annual production capacity for the First Defense ® product line further from approximately $23 million to approximately $30 million or more per year by the third quarter of 2022. The significant global supply-chain disruptions that almost all industries are experiencing presently are a challenge to us and contribute to our order backlog. Most prices for certain essential raw materials and critical supplies are increasing significantly, and it is more and more difficult to obtain timely delivery of the orders that we place. Therefore, we have little choice but to pay the higher prices and try to take on more months of supply than we would have held previously if we can get our orders fulfilled. Consequently, we believe that our distributors are reacting to this global economic challenge by ordering in more product for their inventory, which is a very different cash management strategy from the recent past. Previously, they were much more likely to invest less money in their inventory and order from us more often to meet just current demand (“just-in-time” cash management). While our backlog is a very positive indication about the strong demand for our First Defense ® product line, we missed some business during 2021 as a result of the backlog. Not being able to timely meet the needs of our customers could result in the loss of some customers who seek alternative scours management products during this period of short supply and who may not resume purchasing our product when we have eliminated the backlog. While backlog is a better problem to have than seeing product expiring on our shelves, it is nonetheless a significant challenge when we do not get our customers everything that they want. Our sales team is resuming more normal sales growth initiatives with more available inventory on hand during the fourth quarter of 2021 and into peak season during first quarter of 2022. We are working to regain customers that we may have lost while we were short on product. As we emerge from an extended period of time on backlog, we anticipate higher than normal sales fluctuations quarter to quarter. We believe that distributors may place orders for the first quarter of 2022 earlier than they did in years past to de-risk potential supply interruptions during peak season. If enough orders are advanced to the fourth quarter of 2021, we could see a decrease in sales during the first quarter of 2022 in comparison the first quarter of 2021 and in comparison to the fourth quarter of 2021. As we emerge from the backlog, what is most important to us is that we achieve sales growth over the longer periods of time, if not quarter to quarter. Based on market share information that we purchase from the leading source of this data for the animal health sector, we are gaining market share in the United States year after year with our Beyond Vaccination ® strategy. Our share of the market (on a unit volume basis) of scour preventative products administered at the calf-level increased to approximately 41% during 2020 (from 36% during 2019, 34% during 2018 and 32% during 2017). Our share of the market of calves treated with products administered to calves and those administered to the dam prior to calving (adjusting for two doses of dam-level scour vaccines required for primary vaccination of first-calf-heifers) increased to approximately 13% during 2020 (from 11% during 2019, 10.3% during 2018 and 9.7% during 2017). We aim to continue these market share gains in both the dairy and beef segments. Effective January 1, 2019, we implemented a 2% price increase for Dual-Force ® . Effective February 1, 2020, we implemented a price increase of approximately 2% on the First Defense ® product line (except for Tri-Shield ® and the 90-dose bulk powder format) and CMT . Effective January 1, 2021, we increased our selling price of the First Defense ® product line in the domestic market by approximately 1.6% to 3%, depending on product format, and we increased our selling price of CMT by almost 4%. Sales of products other than the First Defense ® product line increased by 77%, or $51,000, to $117,000 during the three-month period ended September 30, 2021 in comparison to the three-month period ended September 30, 2020. Sales of these other products aggregated approximately 2% of our total product sales during both of the three-month periods ended September 30, 2021 and 2020. Sales of products other than the First Defense ® product line increased by 40%, or $77,000, to $269,000 during the nine-month period ended September 30, 2021 in comparison to the nine-month period ended September 30, 2020. Sales of these other products aggregated approximately 2% of our total product sales during both of the nine-month periods ended September 30, 2021 and 2020. We sell our own CMT (our second leading source of product sales during 2020), which is used to detect somatic cell counts in milk. We acquired a private label product (our third leading source of product sales during 2020) in connection with our January 2016 acquisition of certain gel formulation technology. 30 ImmuCell Corporation Impact of Global COVID-19 Pandemic The extent of the negative impact of the COVID-19 pandemic on the economics of our customers and on the demand for our products going forward is very difficult to assess. The Class III milk price has been extremely volatile during the pandemic. Initially, stay at home orders disrupted the food service supply system as schools closed and restaurants were shut down. In response, producers were forced to reduce the supply of milk to the market by drying off cows early, culling cows from the herd and dumping milk, among other tactics. Market conditions are better now, but this volatility remains a concern. Additionally, like most input costs, the cost of feed is rising, which puts a strain on the profitability of our customers. The $938,000 in funding that we received from the federal government through the Paycheck Protection Program (PPP) under the CARES Act (which loan was forgiven by the federal government during 2020) helped us maintain full employment without furloughs or layoffs and continue executing our growth plans, even though we may see a future decline in sales and gross margin as a result of the pandemic. The PPP funding created some needed financial liquidity, allowing us to move forward with our investments even though we did not achieve the level of sales anticipated in our 2020 budget. Gross Margin Changes in our gross margin (product sales less costs of goods sold) are summarized in the following table for the respective periods (in thousands, except for percentages): During the Three-Month Periods Ended September 30, Increase 2021 2020 Amount % Gross margin $ 2,419 $ 1,722 $ 696 40 % Percent of product sales 47 % 46 % 1 % 1 % During the Nine-Month Periods Ended September 30, Increase (Decrease) 2021 2020 Amount % Gross margin $ 6,095 $ 5,242 $ 853 16 % Percent of product sales 44 % 45 % (1 )% (2 )% During the Trailing Twelve-Month Periods Ended September 30, Increase (Decrease) 2021 2020 Amount % Gross margin $ 7,716 $ 7,080 $ 636 9 % Percent of product sales 44 % 46 % (2 )% (5 )% The gross margin as a percentage of product sales was 45%, 49%, 47% and 50% during the years ended December 31, 2020, 2019, 2018 and 2017, respectively. The gross margin as a percentage of sales during the year ended December 31, 2020 of 45% and during the first quarter of 2021 of 39% was lower than what we normally expect. The gross margin as a percentage of sales improved from 39% during the first quarter of 2021 to 46% during the second quarter of 2021 and further to 47% during the third quarter of 2021, as we began to spread these fixed costs over increasing production output during the second quarter of 2021. As we fully integrate and utilize our increased capacity, we expect to be able to achieve an annual gross margin in excess of 46%. The costs of most of our supplies, components, raw materials and services increased significantly during the first nine months of 2021. The Tri-Shield ® product format is more complex (i.e. three antibodies versus two antibodies for Dual-Force ® ) making it more costly to produce, and both the bivalent and trivalent gel product formats are more expensive to produce than the bolus format. These new formats are creating sales growth for us, and we are focused on increasing total gross margin dollars (after we fulfill the backlog) even if that is accomplished with a lower gross margin as a percentage of sales. Throughout 2020 and into the first quarter of 2021, we invested significantly in equipment, infrastructure and operating expenses to increase our annual production capacity from approximately $16.5 million to approximately $23 million. Increased labor and other upfront costs were necessary to benefit from the scale-up of our production output going forward. A number of other factors contribute to the variability in our costs, resulting in some fluctuations in gross margin percentages from quarter to quarter and from year to year. Like most U.S. manufacturers, we have also been experiencing increases in the cost of labor and raw materials. We also invest to sustain compliance with current Good Manufacturing Practices (cGMP) in our production processes. Increasing production can be more expensive in the initial stages. To achieve our inventory production growth objectives, we are acquiring more raw material (colostrum) from many more cows at many new farms. As is the case with any vaccine program, animals respond less effectively to their first exposure to a new vaccine, and thereafter the effectiveness of their immune response improves in response to subsequent immunizations. During this expansion phase, colostrum quality can be more variable. Additionally, the biological yields from our raw material are always variable, which impacts our costs of goods sold in a similar way. Just as our customers’ cows respond differently to commercial dam-level vaccines, depending on time of year and immune competency, our source cows have similar biological variances in response to our proprietary vaccines. The value of our First Defense ® product line is that we compensate for the variability in a cow’s immune response by standardizing each dose of finished product. This ensures that every calf is equally protected, which is something that dam-level commercial scours vaccines cannot offer. We continue to work on processing and yield improvements and other opportunities to reduce costs, while enhancing process knowledge and robustness. Over time, we have been able to reduce the impact of cost increases by implementing yield improvements. As we evaluate our product costs and selling price, one of our goals is to achieve a gross margin (before related depreciation and amortization expenses) as a percentage of total sales approaching 50%. 31 ImmuCell Corporation Product Development Expenses Overview: During the three-month period ended September 30, 2021, product development expenses decreased by 7%, or $76,000, to $1 million in comparison to $1.1 million during the three-month period ended September 30, 2020. Product development expenses aggregated 20% and 30% of product sales during the three-month periods ended September 30, 2021 and 2020, respectively. Product development expenses included approximately $379,000 and $401,000 of non-cash depreciation and stock-based compensation expenses during the three-month periods ended September 30, 2021 and 2020, respectively. During the nine-month period ended September 30, 2021, product development expenses decreased by 3%, or $106,000, to $3.1 million in comparison to $3.2 million during the nine-month period ended September 30, 2020. Product development expenses aggregated 22% and 27% of product sales during the nine-month periods ended September 30, 2021 and 2020, respectively. Product development expenses included approximately $1.15 million and $1.21 million of non-cash depreciation and stock-based compensation expenses during the nine-month periods ended September 30, 2021 and 2020, respectively. We do expect our product development expenses to decrease further after Re-Tain ® is commercialized and most of the costs incurred to maintain and run our Drug Substance production facility become part of our costs of goods sold. Development objective: We aim to demonstrate that our bacteriocin, Nisin A, can play a productive role in the treatment of subclinical mastitis in today’s dairy industry by providing a novel alternative to traditional antibiotics. Because label requirements of all intramammary drugs on the market require that milk be discarded and that meat be withheld during treatment and for a period of time thereafter, it is common practice in the dairy industry today to not treat sick cows that are still producing saleable milk. Re-Tain ® provides an animal welfare benefit by removing this economic disincentive to treating subclinical mastitis and allows sick cows to be treated without the milk discard and meat withhold penalties. In addition to improved animal welfare, Re-Tain ® enhances food safety and sustainability by utilizing a bacteriocin that is not used in human medicine. The overuse of traditional antibiotics is thought to create antibiotic resistance, which is a growing public health concern. By treating mastitis early at the subclinical level, producers could preserve peak milk yields and reduce the number of infections that develop into clinical cases requiring antibiotic treatment and milk discard. Re-Tain ® could increase the lifetime profitability of a cow and reduce disease transfer to herd mates. As with all new products, the market determines the value. Our objective is to gain market acceptance of this new product concept as we develop a new product category. Despite those exciting benefits, it will take time to change this longstanding treatment paradigm and develop this new market. It will take time for the market to understand, evaluate, implement and adapt to the benefits of Re-Tain ® . As we prepare for market launch after we receive the anticipated and required FDA approval of this product, we are carefully considering our best go-to-market strategy in consultation with industry-leading consultants, veterinarians, dairy producers and others. We believe that the primary market for Re-Tain ® (at least initially) may be limited to the approximately half of farms that have somatic cell count data at the cow or quarter level, since that is the most common and efficient way to identify subclinical infections. We are making plans for a controlled launch where our sales team can work directly with first adopters to help ensure that the best candidate cows are selected and that the product is properly administered in accordance with its label. We believe that developing a solid foundation of in-the-field successes early on will give our product the best opportunity for success. Development status of Re-Tain ® : The majority of our product development spending has been focused on the development of Re-Tain ® , our purified Nisin treatment for subclinical mastitis in lactating dairy cows. Approval by the Center for Veterinary Medicine, U.S. Food and Drug Administration (FDA) of the New Animal Drug Application (NADA) for Re-Tain ® is required before any sales of the product can be initiated. The NADA is comprised of five principal Technical Sections that are generally subject to one or more six-month review cycle(s) by the FDA and a sixty-day administrative review at the end. By statute, each Technical Section submission is generally subject to a six-month review cycle by the FDA. Each Technical Section can be reviewed and approved separately. Upon review and assessment by the FDA that all requirements for a Technical Section have been met, the FDA may issue a Technical Section Complete Letter. The current status of our work on these submissions to the FDA is as follows: 1) Environmental Impact: During the third quarter of 2008, we received the Environmental Impact Technical Section Complete Letter from the FDA. During the second quarter of 2021, we received further clarification through a new Environmental Impact Technical Section Complete Letter covering the current dosage regimen and labeling. 32 ImmuCell Corporation 2) Target Animal Safety: During the second quarter of 2012, we received the Target Animal Safety Technical Section Complete Letter from the FDA. 3) Effectiveness: During the third quarter of 2012, we received the Effectiveness Technical Section Complete Letter from the FDA. The anticipated product label (which remains subject to FDA approval) carries claims for the treatment of subclinical mastitis associated with Streptococcus agalactiae , Streptococcus dysgalactiae , Streptococcus uberis , and coagulase-negative staphylococci in lactating dairy cattle. 4) Human Food Safety: During the third quarter of 2018, we received the Human Food Safety Technical Section Complete Letter from the FDA confirming, among other things, a zero milk discard period and a zero meat withhold period during and after treatment with our product. During the second quarter of 2021, we updated this Technical Section Complete Letter with FDA approval of the official analytical method to measure Nisin in milk. 5) Chemistry, Manufacturing and Controls (CMC): The CMC Technical Section is very complex and comprehensive. Having previously achieved the four different Technical Section Complete Letters from the FDA discussed above, approval of the CMC Technical Section is the fifth and final significant step required before Re-Tain ® product sales can be initiated in the United States. Implementing Nisin Drug Substance (the active pharmaceutical ingredient) production, which is a required component of the CMC Technical Section, has been the most expensive and lengthy part of this project. We previously entered into an agreement with a multi-national pharmaceutical ingredient manufacturer for our commercial-scale supplies of Nisin. However, we determined during 2014 that the agreement did not offer us the most advantageous supply arrangement in terms of either cost or long-term dependability. We presented this product development opportunity to a variety of large and small animal health companies. While such a corporate partnership could have provided access to a much larger sales and marketing team and allowed us to avoid the large investment in a commercial-scale production facility, we concluded that a partner would have taken an unduly large share of the gross margin from all future product sales of Re-Tain ® , but the regulatory and marketing feedback that we received from prospective partners, following their due diligence, was positive. During the third quarter of 2014, we completed an investment in facility modifications and processing equipment necessary to produce the Nisin Drug Substance at small-scale at our 56 Evergreen Drive facility. This small-scale facility was used to: i) expand our process knowledge and controls, ii) establish operating ranges for critical process parameters, iii) conduct product stability studies, iv) optimize process yields and v) verify the cost of production. We believe these efforts have reduced the risks associated with our investment in the commercial-scale Drug Substance production facility, discussed below. Having raised equity during 2016 and 2017, we were able to move away from these earlier strategies and assume control over the commercial-scale manufacturing process in our own facility. During the fourth quarter of 2015, we acquired land near our existing Portland facility for the construction of a new commercial-scale Drug Substance production facility. We commenced construction of this facility during the third quarter of 2016 and completed construction during the fourth quarter of 2017. Equipment installation and qualification was initiated during the third quarter of 2017 and completed during the third quarter of 2018. Total construction and equipment costs aggregated approximately $20.8 million. Under the FDA’s phased submission process, we made a first-phased submission covering just the Nisin Drug Substance (DS) during the first quarter of 2019, which was followed by a second-phased submission covering both the DS and the formulated DS filled in a syringe, or Re-Tain ® Drug Product (DP) during the first quarter of 2021. This process allowed us to respond to identified queries and/or deficiencies from the first-phased DS submission at the time of the second-phased combined DS and DP submission. The first-phased DS submission included data from the DS Registration Batches produced at commercial scale in our new DS manufacturing facility. The second-phased DS and DP submission responded to comments raised by the FDA regarding the first-phased DS submission and included detailed information about the manufacturing process and controls for DP. One of the key components of the second-phased DS and DP submission was also demonstrating stability of the product through expiration dating. During the third quarter of 2021, the FDA issued a Technical Section Incomplete Letter with regard to this second-phased DS and DP submission. This response was not unexpected as it is common for the FDA to issue queries and comments, especially related to an aseptic DP submission with associated sterilization validation information. We anticipate being able to make a second submission of the DS and DP Technical Section during the fourth quarter of 2021 without incurring significant costs or delays. Allowing time for the six-month review by the FDA and for the final sixty-day administrative review at the end of the process, we could achieve market launch during the third quarter of 2022 if the FDA approves our second DS and DP submission. It is up to the FDA to determine if it will issue a Technical Section Complete or Incomplete Letter. We do not know if the FDA will approve this second DS and DP submission. Because we cannot predict the FDA’s responses, we cannot project the probability of success with this submission. If the FDA issues a Technical Section Complete Letter, we will, of course, disclose that. If the FDA responds with a Technical Section Incomplete Letter, we intend to disclose the requirements for our path forward from there. While being prudent with how much cash we invest into inventory that would have short expiry dating if market launch is not achieved by the third quarter of 2022, we plan to continue to build more inventory during 2022 to bridge the transition between DP supply from our contract manufacturer to our own in-house services, as discussed further below. 33 ImmuCell Corporation We have always believed that the fastest route to FDA approval and market launch is with the services of Norbrook Laboratories Limited of Newry, Northern Ireland (an FDA-approved DP manufacturer) (Norbrook), reducing our risk by benefiting from their demonstrated expertise in aseptic filling. From 2010 to 2015, we were a party to an exclusive product development and contract manufacturing agreement with Norbrook covering the DP formulation, aseptic filling and final packaging services. Norbrook provided services to us under this contract throughout the FDA process for use in all of our pivotal studies. During the fourth quarter of 2015, this agreement was amended and restated to create a Product Development and Contract Manufacture Agreement (the 2015 Agreement) to, among other things, extend the term of the agreement to January 1, 2024 provided that FDA approval for commercial sales of Re-Tain ® in the United States was obtained by December 19, 2019. It had been our expectation that we would have these services available through both the remainder of the development process to FDA approval and for approximately the first four years of commercial sales of Re-Tain ® . Due to unexpected difficulties and delays encountered by Norbrook and the statutory FDA timeline for processing CMC Technical Sections, this December 2019 product approval target date was not achieved. During the third quarter of 2019, we entered into a Development Services and Commercial Supply Agreement (the 2019 Agreement) with Norbrook. The 2019 Agreement replaced and superseded the 2015 Agreement in its entirety. Under the 2019 Agreement, Norbrook provided the formulation, aseptic filling and final packaging services as required in order for us to submit the CMC Technical Section to the FDA. The 2019 Agreement also provides for Norbrook to perform formulation, aseptic filling and final packaging services in accordance with purchase orders that we submit from time to time for inventory build and subsequent product sales worth up to approximately $7 million for orders placed through December 31, 2021 with deliveries extending into the first half of 2022. We believe that the 2019 Agreement will enable us to commence sales of Re-Tain ® without delay upon receipt of the anticipated FDA approval. We intend to use the supply provided under the 2019 Agreement to bridge until our own formulation and aseptic filling capacity is available. We are in discussions with Norbrook about amending the 2019 agreement to cover some level of orders placed during 2022 in order to reduce potential interruptions in the supply of Re-Tain ® following receipt of FDA approval and commencement of commercial sales. Our potential alternative third-party options for the formulation and aseptic filling services that are presently being performed by Norbrook are narrowed considerably because our product cannot be formulated or filled in a facility that also processes traditional antibiotics (i.e., beta lactams). Consequently, we have decided to perform these services internally. Through a public offering of our common stock in March of 2019, we received net proceeds of approximately $8.3 million, of which approximately $4 million has been allocated to the equipping and commencement of operations of our own DP formulation and aseptic filling facility. We expect to begin equipment installation at the beginning of 2022 and to have our facility operational during the middle of 2022. We anticipate FDA approval of this facility (which is a requirement for commercial manufacturing) during the second half of 2023, subject to the timing of our installation and validation work and whether the FDA requires more than one six-month review cycle. This new facility will be subject to FDA inspection and approval and will have enough formulation and aseptic filling capacity to exceed the expected production capacity of our DS facility, which is at least $10 million in annual sales. This production capacity estimate is based on our assumptions as to product pricing and does not yet reflect inventory build strategies in advance of product approval or ongoing yield improvement initiatives. Establishing our own DP formulation and aseptic filling capability provides us with the longer-term advantage of controlling the manufacturing process for Re-Tain ® in one facility, thereby potentially reducing our manufacturing costs and eliminating international cold chain shipping logistics and costs. The DP formulation and aseptic filling operation will be located in existing facility space that we had intended to utilize to double our DS production capacity if warranted by sales volumes following market launch. As a result, we would need to explore alternative strategies (in parallel with ongoing DS yield improvement initiatives) to expand our DS production capacity. This integrated manufacturing capability for Re-Tain ® will substantially reduce our dependence on third parties. Upon completion of our formulation and aseptic filling facility, the only significant third-party input for Re-Tain ® will be the DP syringes. It is anticipated that Hubert De Backer of Belgium (HDB) will supply these syringes in accordance with purchase orders that we submit. HDB is a syringe supplier for many of the largest participants in the human and veterinary medical industries, and with whom Norbrook presently works. Based on HDB’s performance history and reputation in the industry, we are confident that HDB will be a dependable supplier of syringes in the quantity and of the quality needed for Re-Tain ® . Our DS manufacturing facility and that of our DP contract manufacturer are subject to ongoing FDA inspections. During the third quarter of 2019, the FDA conducted a pre-approval inspection of our DS facility. This resulted in the issuance of certain deficiencies as identified on the FDA’s Form 483. We submitted responses and data summaries in a phased manner over the fourth quarter of 2019 and first quarter of 2020. We anticipate a reinspection by the FDA prior to approval. This inspection process has been managed without significant cost. Other product development initiatives: Our second most important product development initiative has been focused on other improvements, extensions or additions to our First Defense ® product line. We are currently working to establish USDA claims for our bivalent bulk powder formulation of First Defense Technology ® . At the same time, we are working with outside parties to investigate improvements to our Nisin DS production yields as well as potential efficacy enhancements. Subject to the availability of resources, we intend to begin new development projects that are aligned with our core competencies and market focus. We also remain interested in acquiring, on suitable terms, other new products and technologies that fit with our sales focus on the dairy and beef industries, subject to the availability of the needed funding. 34 ImmuCell Corporation Sales and Marketing Expenses During the three-month period ended September 30, 2021, sales and marketing expenses increased by approximately 43%, or $197,000, to $656,000 in comparison to $459,000 during the three-month period ended September 30, 2020, amounting to 13% and 12% of product sales during the three-month periods ended September 30, 2021 and 2020, respectively. Sales and marketing expenses included approximately $20,000 and $22,000 of non-cash depreciation and stock-based compensation expenses during the three-month periods ended September 30, 2021 and 2020, respectively. During the nine-month period ended September 30, 2021, sales and marketing expenses increased by approximately 7%, or $106,000, to $1.6 million in comparison to $1.5 million during the nine-month period ended September 30, 2020, amounting to 12% and 13% of product sales during the nine-month periods ended September 30, 2021 and 2020, respectively. Sales and marketing expenses included approximately $50,000 and $75,000 of non-cash depreciation and stock-based compensation expenses during the nine-month periods ended September 30, 2021 and 2020, respectively. We do expect these expenses to increase to approximately 20% of total product sales during 2021 as we begin to invest in the anticipated market launch of Re-Tain ® before any new sales are realized and as in-person marketing opportunities, such as industry events, return with the lifting of COVID restrictions. Our budgetary guideline for 2022 and after is to keep these expenses under 20% of total sales. We continue to leverage the efforts of our small sales force by using animal health distributors. Administrative Expenses During the three-month period ended September 30, 2021, administrative expenses increased by approximately 13%, or $52,000, to $444,000 in comparison to $392,000 during the three-month period ended September 30, 2020. Administrative expenses included approximately $35,000 of non-cash depreciation and stock-based compensation expenses during both of the three-month periods ended September 30, 2021 and 2020. During the nine-month period ended September 30, 2021, administrative expenses decreased by less than 1%, or approximately $5,000, to $1.291 million in comparison to $1.296 million during the nine-month period ended September 30, 2020. Administrative expenses included approximately $90,000 and $115,000 of non-cash depreciation and stock-based compensation expenses during the nine-month periods ended September 30, 2021 and 2020, respectively. We strive to be efficient with these expenses while funding costs associated with complying with the Sarbanes-Oxley Act of 2002 and all the legal, audit and other costs associated with being a publicly-held company. Prior to 2014, we had limited our investment in investor relations spending. Beginning in the second quarter of 2014, we initiated an investment in a more active investor relations program. Given travel restrictions related to the COVID-19 pandemic, this initiative has pivoted to a virtual meeting format, which is less expensive. At the same time, we continue to provide full disclosure of the status of our business and financial condition in three quarterly reports and one annual report each year, as well as in Current Reports on Form 8-K when legally required or deemed appropriate by management. These efforts may have helped us access the capital markets to fund our growth objectives. Additional information about us is available in our annual Proxy Statement. All of these reports are filed with the SEC and are available on-line or upon request to the Company. Net Operating Income (Loss) During the three-month period ended September 30, 2021, our net operating income was $271,000 in contrast to a net operating (loss) of $(252,000) during the three-month period ended September 30, 2020. The $696,000 increase in gross margin during the third quarter of 2021 compared to the third quarter of 2020 was the largest contributor to this swing from loss to income. During the nine-month period ended September 30, 2021, our net operating income of $112,000 was in contrast to a net operating (loss) of $(746,000) during the nine-month period ended September 30, 2020. The $853,000 increase in gross margin during the first nine months of 2021 compared to the first nine months of 2020 was the largest contributor to this swing from loss to income. Other Expenses, net During the three-month period ended September 30, 2021 other expenses, net, aggregated $115,000 in comparison to other expenses, net, of $71,000 during the three-month period ended September 30, 2020. Interest expense increased to $79,000 during the three-month period ended September 30, 2021 from $76,000 during the three-month period ended September 30, 2020. Non-cash amortization of debt issuance costs (which is included as a component of interest expense) was $2,000 during both of the three-month periods ended September 30, 2021 and 2020. The results included a loss of $42,000 related to the non-cash write-off of fixed assets during the third quarter of 2021. Interest income was $6,000 and $5,000 during the three-month periods ended September 30, 2021 and 2020, respectively. 35 ImmuCell Corporation During the nine-month period ended September 30, 2021 other expenses, net, aggregated $256,000 in comparison to other expenses, net, of $480,000 during the nine-month period ended September 30, 2020. Interest expense decreased to $238,000 during the nine-month period ended September 30, 2021 from $335,000 during the nine-month period ended September 30, 2020. Non-cash amortization of debt issuance costs (which is included as a component of interest expense) was $6,000 and $101,000 during the nine-month periods ended September 30, 2021 and 2020, respectively. During the nine-month period ended September 30, 2020, interest expense also included the non-cash write-off of $95,000 in debt issuance costs associated with our bank debt refinancing during the first quarter of 2020. Excluding the amortization and write-off of debt issuance costs, cash-based interest expense decreased slightly to $232,000 during the nine-month period ended September 30, 2021 from $234,000 during the nine-month period ended September 30, 2020. Other expenses, net, during the nine-month period ended September 30, 2020 included an expense of $165,000 to terminate our interest rate swap agreements associated with our bank debt refinancing during the first quarter of 2020. Given the debt refinancing to fixed rate loans during the first quarter of 2020 and the refinancing we closed during the fourth quarter of 2020, we anticipate that our interest expense will be approximately $317,000, $287,000 and $258,000 during the years ending December 31, 2021, 2022 and 2023, respectively. Interest income was $14,000 and $24,000 during the nine-month periods ended September 30, 2021 and 2020, respectively. Less interest income was earned during 2021 largely because we had less cash and short-term investments on hand and a lower interest rate environment. The nine-month results included a net loss of $32,000 and $3,000 related to the non-cash write-offs of fixed assets during the nine-month periods ended September 30, 2021 and 2020, respectively. Income (Loss) Before Income Taxes During the three-month period ended September 30, 2021, our income before income taxes of $156,000 was a $479,000 improvement from our (loss) before income taxes of $(323,000) during the three-month period ended September 30, 2020. During the nine-month period ended September 30, 2021, our (loss) before income taxes decreased by 88%, or $1.1 million, to $(144,000) in comparison to a (loss) before income taxes of $(1.2 million) during the nine-month period ended September 30, 2020. Income Taxes and Net Income (Loss) During the three-month period ended September 30, 2021, we recorded an income tax expense of $8,000 (related to state income or franchise taxes) in contrast to no income tax expense or benefit during the three-month period ended September 30, 2020. Largely as a result of the increased gross margin earned from sales of First Defense ® , we reported net income of $148,000, or $0.02 per diluted share, during the three-month period ended September 30, 2021, which was in contrast to a net (loss) of ($323,000), or ($0.04) per basic share, during the three-month period ended September 30, 2020. During the nine-month periods ended September 30, 2021 and 2020, we recorded income tax expense (benefit) of $8,000 and ($15,000), respectively. Our net (loss) of ($152,000), or ($0.02) per basic share, during the nine-month period ended September 30, 2021 was in comparison to a net (loss) of ($1.2 million), or ($0.17) per basic share, during the nine-month period ended September 30, 2020. For tax return purposes only, our depreciation expense for the Nisin Drug Substance production facility and equipment was approximately $464,000, $639,000, $9.2 million and $1.5 million for the years ended December 31, 2020, 2019, 2018 and 2017, respectively. The significant increase during 2018 was largely related to accelerated depreciation allowed for tax purposes. As of December 31, 2020, our federal net operating loss carryforward was approximately $14.6 million, which will be available to offset future taxable income. On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. This legislation makes significant changes in the U.S. tax laws, including a reduction in the corporate tax rates, changes to net operating loss carryforwards and carrybacks, and a repeal of the corporate alternative minimum tax. The legislation reduced the U.S. corporate tax rate from 34% to 21%. Our income tax rate differs from this standard tax rate primarily because we are currently providing for a full valuation allowance against our deferred tax assets. While we are recording this full valuation allowance, we are not recognizing the benefit of our tax losses. In addition to the above results from our Statements of Operations, we believe it is important to consider our Statements of Cash Flows in the accompanying unaudited financial statements to assess the cash generating ability of our operations. Critical Accounting Policies The financial statements are presented on the basis of accounting principles that are generally accepted in the United States. All professional accounting standards that were effective and applicable to us as of September 30, 2021 have been taken into consideration in preparing the financial statements. The preparation of financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, income taxes, contingencies and the useful lives and carrying values of intangible and long-lived assets. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We have chosen to highlight certain policies that we consider critical to the operations of our business and understanding our financial statements. 36 ImmuCell Corporation We sell products that provide Immediate Immunity™ to newborn dairy and beef cattle. We recognize revenue in accordance with the five step model in ASC 606. These include the following: i) identification of the contract with the customer, ii) identification of the performance obligations in the contract, iii) determination of the transaction price, iv) allocation of the transaction price to the separate performance obligations in the contract and v) recognition of revenue associated with performance obligations as they are satisfied. We recognize revenue at the time of shipment (including to distributors) for substantially all products, as title and risk of loss pass to the customer on delivery to the common carrier after concluding that collectability is reasonably assured. We 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. 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. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We do not believe that inflation, interest rates or currency exchange rates have had a significant effect on our revenues and expenses. However, future increases in inflation or interest rates could affect our customers and the demand for our products. We hope to increase the level of our future sales of products outside the United States. The cost of our products to international customers could be affected by currency fluctuations. The decline of the U.S. dollar against other currencies could make our products less expensive to international customers. Conversely, a stronger U.S. dollar could make our products more costly for international customers. The current devaluation of the dollar makes Euro-based purchases more expensive for us. We had outstanding bank debt totaling approximately $8.4 million as of September 30, 2021 that bears interest at the fixed rate of 3.50% per annum. Also, as of September 30, 2021, we had two subordinated loans from the State of Maine outstanding aggregating $900,000. The first loan bears no interest until the fourth quarter of 2022, at which time it bears interest at a fixed rate of 5% per annum, unless it is repaid. The second loan bears no interest until the third quarter of 2023, at which time it bears interest at a fixed rate of 5% per annum, unless it is repaid. See Note 10 to the accompanying unaudited financial statements for more details about our debt. ITEM 4 - CONTROLS AND PROCEDURES Disclosure Controls and Procedures. Our management, with the participation of the individual who serves as our principal executive and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2021. Based on this evaluation, that officer concluded that our disclosure controls and procedures were effective as of that date. Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosures. Management’s Quarterly Report on Internal Control Over Financial Reporting. The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. We conducted an evaluation of the effectiveness of the internal controls over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included a review of the documentation of controls, evaluation of the design effectiveness of controls, testing the operating effectiveness of the controls and a conclusion on this evaluation. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assesses the effectiveness of the Company’s internal control over financial reporting at the end of each quarter. Based on management’s assessment, we believe that our internal control over financial reporting was effective as of September 30, 2021. This Quarterly Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s internal control report was not subject to annual or quarterly attestation by the Company’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report. Changes in Internal Controls over Financial Reporting. The individual who serves as our principal executive and principal financial officer periodically evaluates any change in internal control over financial reporting which has occurred during the prior fiscal quarter. We have concluded that there was no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 37 ImmuCell Corporation PART II: OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS In the ordinary course of business, we may become subject to lawsuits, investigations and claims. Although we cannot predict with certainty the ultimate resolution of any such lawsuits, investigations and claims against us, we do not believe that any pending or threatened legal proceedings to which we are or could become a party will have a material adverse effect on our business, results of operations, or financial condition. ITEM 1A - RISK FACTORS Financial Risks Gross margin on product sales: One of our goals is to achieve a gross margin (before related depreciation expenses) as a percentage of total sales of approximately 50% after the initial launch of new products. Depreciation expense will be a larger component of costs of goods sold for Re-Tain ® than it is for the First Defense ® product line. Gross margins generally improve over time, but this anticipated improvement may not be realized for Re-Tain ® . Many factors discussed in this report (including the COVID-related cost increases and supply-chain disruptions) impact our costs of goods sold. There is a risk that we are not able to achieve our gross margin goals, which would adversely affect our operating results and could impact our future operating plans. This concern was realized during the first quarter of 2021 when our gross margin as a percentage of sales dropped to 39%. There is a risk that our plans to recover from this decrease may not be realized due to cost increases, inability to raise our selling prices, or both. Exposure to interest rates and debt service obligations: Rising interest rates could negatively affect the operating costs of dairy and beef producers and thus put further financial pressure on an already stressed business sector, which could indirectly affect our business. We removed the direct aspect of this particular exposure to our business by refinancing our bank debt to fixed rate notes at 3.50% per annum during the first quarter of 2020. However, the additional debt we incurred to fund the development of Re-Tain ® has significantly increased our debt service costs. We are obligated to make principal and interest payments aggregating approximately $1.1 million, $1.1 million and $1.2 million during the years ending December 31, 2021, 2022 and 2023, respectively. See Note 10 to the accompanying unaudited financial statements for more information. A decline in sales or gross margin, coupled with this debt service burden, could impair our ability to fund our capital and operating needs and objectives. Debt covenants: Our bank debt is subject to certain financial covenants. We are required to meet a minimum debt service coverage ratio of 1.35, which is measured annually. Our actual debt service coverage ratio was 2.03 and 1.57 for the years ended December 31, 2020 and 2019, respectively. However, based on current projections of our future financial performance, which includes a high level of ongoing product development expenses to support Re-Tain ® , we may not satisfy this annual requirement for the year ending December 31, 2021. As a result of raising in excess of $4 million in equity during the second quarter of 2021, our bank agreed to waive this annual requirement for the year ending December 31, 2021. There can be no assurance that we can exceed that required level in subsequent years or that we would be able to obtain another waiver from the bank. Projection of net income (loss): Generally speaking, our financial performance can differ significantly from management projections, due to numerous factors that are difficult to predict or that are beyond our control. Weaker than expected sales of the First Defense ® product line could lead to less profits or deeper operating losses. The timing of FDA approval of Re-Tain ® will have a material impact on our net (loss) income until commercial sales are initiated. Additionally, this complexity and uncertainty is magnified by the risks relating to and arising out of the duration, extent and nature of adverse effects from the COVID-19 pandemic. Risks associated with our funding strategy for Re-Tain ® : The inability to maintain adequate cash and liquidity to support the commercialization of Re-Tain ® is a risk to our business. Achieving FDA approval of our pharmaceutical-grade Nisin produced at commercial-scale is the most critical action remaining in front of us on our path to U.S. regulatory approval of Re-Tain ® . Having completed the construction and equipping of the Drug Substance production facility described elsewhere in this report at a cost of approximately $20.8 million, we will continue to incur product development expenses to operate and maintain this facility until commercialization. Absent sufficient sales of Re-Tain ® at a profitable gross margin, we would be required to fund all debt service costs from sales of the First Defense ® product line, which would reduce, and could eliminate, our expected profitability going forward and significantly reduce our cash flows. 38 ImmuCell Corporation Uncertainty of market size and product sales estimates: Estimating the size of the total addressable market and future sales growth potential for our First Defense ® product line is based on our experience and understanding of market dynamics but is inherently subjective. Estimating the size of the market for any new product, such as Re-Tain ® , involves more uncertainties than do projections for established products. We do not know whether, or to what extent, our products will achieve, maintain or increase market acceptance and profitability. Some of the uncertainties surrounding Re-Tain ® include the product’s effectiveness against prevalent pathogens, market acceptance, the effect of a premium selling price on market penetration, cost of manufacture and competition from new and existing products sold by substantially larger competitors with greater market reach and promotional resources. Since Re-Tain ® is a novel approach to treating mastitis, there are many uncertainties with regards to how quickly and to what extent we can develop the subclinical mastitis treatment market. Producers’ current practice generally is to treat only clinical mastitis, which has the visual indicator of abnormal milk. In order to gain market penetration for Re-Tain ® , we will need to change that practice and increase awareness of the importance of treating subclinical disease. This will require the producers’ ability and willingness to diagnose without visual indicators. There is a risk that dairy producers and processors will not accept this new technology because of the risk that it may negatively affect cheese making if present in a high enough concentration in any cheese batch that utilizes a starter culture that is susceptible to Nisin. Our belief that bacteriocin technology will be viewed positively (relative to traditional antibiotics), if realized, may result in better overall market acceptance. Net deferred tax assets: The realizability of our net deferred tax assets is a subjective estimate that is contingent upon many variables. During the second quarter of 2018, we recorded a full valuation allowance against our net deferred tax assets that significantly increased our net loss in comparison to other periods. This non-cash expense could be reversed, and this valuation allowance could be reduced or eliminated, if warranted by our actual and projected profitability in the future. We will continue to assess the need for the valuation allowance at each quarter. Product Risks Product risks generally: The sale of our products is subject to production, financial, efficacy, regulatory, competitive and other market risks. Elevated standards to achieve and maintain regulatory compliance required to sell our products continue to evolve. Failure to achieve acceptable biological yields from our production processes can materially increase our costs of goods sold and reduce our production output, leading to lower margins and an order backlog that could adversely affect our customer relationships and operating results. First Defense ® is sold and we expect to sell Re-Tain ® at significant price premiums to competitive products. There is no assurance that we will continue to achieve market acceptance of the First Defense ® product line at a profitable price level or that we can continue to manufacture our products at a low enough cost to result in a sufficient gross margin to justify their continued manufacture and sale. Similar concerns exist with Re-Tain ® as we bring that product to market, which could be heightened by the additional uncertainties associated with introducing a new product requiring a shift in customer behavior. Reliance on sales of the First Defense ® product line: We are reliant on the market acceptance of the First Defense ® product line to generate product sales and fund our operations. Our business would not have been profitable during the nine consecutive years in the period ended December 31, 2007, during the years ended December 31, 2012, 2013, 2015 and 2016, during the nine-month period ended September 30, 2017 or during the three-month periods ended March 31, 2019, December 31, 2020, June 30, 2021 and September 30, 2021 without the gross margin that we earned on sales of the First Defense ® product line. Concentration of sales: Sales of the First Defense ® product line aggregated 98% and 97% of our total product sales during the years ended December 31, 2020 and 2019, respectively, and 98% of our total product sales during both of the nine-month periods ended September 30, 2021 and 2020. Our primary customers for the majority of our product sales (89% during both of the years ended December 31, 2020 and 2019, and 88% and 89% during the nine-month periods ended September 30, 2021 and 2020, respectively) are in the U.S. dairy and beef industries. Product sales to international customers, who are also in the dairy and beef industries, aggregated 11% and 10% of our total product sales during the years ended December 31, 2020 and 2019, respectively, and 12% and 11% of our total product sales during the nine-month periods ended September 30, 2021 and 2020, respectively. The concentration of our sales from one product into one market is a risk to our business. The animal health distribution segment has been aggressively consolidating over the last few years with larger distributors acquiring smaller distributors. A large portion of our product sales (71% and 69% during the years ended December 31, 2020 and 2019, respectively, and 74% and 70% during the nine-month periods ended September 30, 2021 and 2020, respectively) was made to two large distributors. A large portion of our trade accounts receivable (75% as of September 30, 2021 and December 31, 2020) was due from these two distributors. We have a good history with these distributors, but the concentration of sales and accounts receivable with a small number of customers does present a risk to us, including risks related to such customers experiencing financial difficulties or altering the basis on which they do business with us in a manner unfavorable to us. 39 ImmuCell Corporation Production capacity constraints: As of the end of the third quarter of 2021, we had substantially completed and during the fourth quarter of 2021, we expect to fully complete, an investment of approximately $3.5 million to increase our production capacity (in terms of annual sales dollars) for the First Defense ® product line from approximately $16.5 million to approximately $23 million based on current selling prices and estimated production yields. While this capacity expansion investment has proceeded very close to budget, there is a risk of cost overruns in any future production expansions that we may undertake, and a risk that we will not be able to achieve our production capacity growth objectives on a timely basis, resulting in a continuing or increasing shortfall in supply to the market. The inability to meet market demand for our products is a risk to our business. The large backlog of orders aggregating approximately $1 million, $1.9 million, $3.1 million and $1.8 million as of September 30, 2021, June 30, 2021, March 31, 2021 and December 31, 2020, respectively, as well as any ongoing order backlog, presents a risk that we could lose customers during this period that are not easily regained thereafter, when our production capacity is expected to meet or exceed sales demand. Our plan to continue to expand the First Defense ® product line requires ongoing review of equipment capacity and utilization across the manufacturing value stream at the 56 Evergreen Drive facility and our leased facility at 175 Industrial Way, as well as assessment of functional obsolescence and reliability of equipment. This review and assessment could identify a need to fund unexpected equipment maintenance or replacement costs. Product liability: The manufacture and sale of our products entails a risk of product liability. Our exposure to product liability is mitigated to some extent by the fact that our products are directed towards the animal health market. We have maintained product liability insurance in an amount which we believe is reasonable in relation to our potential exposure in this area. We have no history of claims of this nature being made. Regulatory Risks Regulatory requirements for the First Defense ® product line: First Defense ® is sold in the United States subject to a product license from the Center for Veterinary Biologics, USDA, which was first obtained in 1991, with subsequent approvals of line extensions in 2017 and 2018. As a result, our operations are subject to periodic inspection by the USDA. The potency of serial lots is directly traceable to the original serial used to obtain the product performance claims (the Reference Standard). Due to the unique nature of the label claims, host animal re-testing is not required as long as periodic laboratory analyses continue to support the stability of stored Reference Standard. To date, these analyses have demonstrated strong stability. However, if the USDA were not to approve requalification of the Reference Standard, additional clinical studies could be required to meet regulatory requirements and allow for continued sales of the product, which could interrupt sales and adversely affect our operating results. Territories outside of the United States may require additional regulatory oversight that we may not be able to meet with our current facilities, processes and resources. Regulatory requirements for Re-Tain ® : The commercial introduction of this product in the United States requires us to obtain FDA approval. We have disclosed a timeline of events that could lead to product approval during the third quarter of 2022. Completing the development through to approval of the NADA by the FDA involves risk. While four of the five required Technical Sections have been approved, the regulatory development process timeline has been extensive (approximately 13 years from the first FDA submission) and has involved multiple commercial production strategies. The first-phased Chemistry, Manufacturing and Controls Technical Section was submitted for the Nisin Drug Substance during the first quarter of 2019, and the FDA response was received during the third quarter of 2019. We filed the second-phased Drug Substance and Drug Product submission during the first quarter of 2021 and received a Technical Section Incomplete Letter from the FDA during the third quarter of 2021. We expect to make a new submission during the fourth quarter of 2021 and to have the FDA’s response six months later. To reduce the risk associated with this process, we are working with Norbrook for alignment of the required validations and Drug Product manufacture and have met with the FDA to align on filing strategy and requirements. Our efforts are subject to inspection and approval by the FDA. There remains a risk that the required FDA approvals of our product and facilities could be delayed or not obtained. International regulatory approvals would be required for sales of Re-Tain ® outside of the United States. Economic Risks Pertaining to the Dairy and Beef Industries The industry data referred to below is compiled from USDA databases. Cattle count: The January count of all cattle and calves in the United States had steadily declined from 97,000,000 as of January 1, 2007 to 88,500,000 as of January 1, 2014. Then this figure increased each year to reach 94,800,000 as of January 1, 2019 before declining to 93,800,000 as of January 1, 2020 and decreasing a little further to 93,600,000 as of January 1, 2021. Reflecting seasonal trends, this figure was equal to 101,000,000 and 102,000,000 as of July 1, 2021 and 2020, respectively. Herd size: Prior to 1957, there were over 20,000,000 cows in the U.S. dairy herd. Prior to 1986, there were over 10,000,000 cows in the U.S. dairy herd. From 1998 through 2020, the size (annual average) of the U.S. dairy herd ranged from approximately the low of 9,011,000 in 2004 to the high of 9,399,000 in 2018. This annual average dropped to 9,336,000 during 2019 and then increased to 9,388,000 during the year ended December 31, 2020. The average for the first nine months of 2021 increased to 9,471,000. 40 ImmuCell Corporation Milk price and feed costs: The dairy market, similar to many others, has been unstable as a result of the pandemic. The price paid to producers for milk has been very volatile. Milk was dumped on farms during the first half of 2020 largely because of the loss of demand for dairy products from closed restaurants and school lunch programs and other negative impacts of the pandemic, but conditions have improved since then. The Class III milk price (an industry benchmark that reflects the value of product used to make cheese) is an important indicator because it defines our customers’ revenue level. This annual average milk price level (measured in dollars per hundred pounds of milk) reached its highest point (since these prices were first reported in 1980) during 2014 at $22.34 (peaking at $24.60 in September 2014), which price level has never been repeated. During 2019, this milk price average increased by 16% over 2018 to $16.96. The low price level during 2018 and into the beginning of 2019 was very challenging to the profitability of our customers. During the year ended December 31, 2020, this average milk price was equal to $18.16, but it was extremely volatile during the year due largely to disruption in demand related to the COVID-19 pandemic. The one-month fluctuation of 73% from a low of $12.14 in May 2020 to $21.04 in June 2020 set an all-time record for variability. This milk price increased significantly to $24.54 for July 2020, which is very close to the all-time record high of $24.60 set in September 2014. The average price for the first ten months of 2021 decreased by 7% to $16.86. The annual fluctuations in this milk price level are demonstrated in the following table: Average Class III Milk Price During the Years Ended December 31, (Decrease) Increase 2014 $ 22.34 2015 $ 15.80 (29)% 2016 $ 14.87 (6)% 2017 $ 16.17 9% 2018 $ 14.61 (10)% 2019 $ 16.96 16% 2020 $ 18.16 7% The actual level of milk prices may be less important than its level relative to feed costs. One measure of this relationship is known as the milk-to-feed price ratio, which represents the amount of feed that one pound of milk can buy. This ratio varies farm-to-farm based on individual operating parameters. The highest annual average this ratio has reached since this ratio was first reported in 1985 was 3.64 in 1987. The annual average for this ratio of 1.52 in 2012 was the lowest recorded since it was first reported in 1985. Since this ratio reached 3.24 in 2005, it has not exceeded 3.00. The annual average of 2.54 for 2014 was the highest this ratio has been since it was 2.81 in 2007. This ratio averaged 2.05 during 2018 and increased to 2.25 during 2019. This ratio increased to 2.31 during the year ended December 31, 2020. This ratio averaged 1.70 for the first nine months of 2021, amounting to a 27% decline from the 2020 average. This average has not been lower since 2013. An increase in feed costs also has a negative impact on the beef industry. The following table demonstrates the annual volatility and the low values of this ratio recently: Average Milk-To-Feed Price Ratio During the Years Ended December 31, (Decrease) Increase 2014 2.54 2015 2.14 (16)% 2016 2.26 6% 2017 2.42 7% 2018 2.05 (15)% 2019 2.25 10% 2020 2.31 3% Milk cow price: The all-time high value (annual average) for a milk cow was $1,993 during 2015. Since then, this annual average value steadily declined to $1,205 during 2019 before increasing to $1,300 during 2020. This average price for January, April and July of 2021 increased slightly to an average of $1,350. Market volatility : While the number of cows in the U.S. herd and the production of milk per cow directly influence the supply of milk, the price for milk is also influenced by very volatile international demand for milk products. Given our focus on the dairy and beef industries, the volatile market conditions and the resulting financial insecurities of our primary end users are risks to our ability to maintain and grow sales at a profitable level. These factors also heighten the challenge of selling premium-priced animal health products (such as Tri-Shield First Defense ® and Re-Tain ® ) into the dairy market. 41 ImmuCell Corporation Small Size of Company Dependence on key personnel: We are a small company with 65 employees (including 6 part-time employees). As such, we rely on certain key employees to support multiple operational functions, with limited redundancy in capacity. The loss of any of these key employees could adversely affect our operations until a qualified replacement is hired and trained, which could be even more challenging in the present very difficult labor market. Our competitive position will be highly influenced by our ability to attract, retain and motivate key scientific, manufacturing, managerial and sales and marketing personnel. With increased manufacturing staffing required to operate our expanded First Defense ® production capacity and with one addition to our sales team, we anticipate that our employment level could grow to approximately 72 employees during the fourth quarter of this year. Reliance on outside party to provide certain services under contract for us: We are exposed to additional regulatory compliance risks through the subcontractors that we choose to work with to produce Re-Tain ® , who also need to satisfy certain regulatory requirements in order to provide us with the products and services we need. One example of this outside reliance is Norbrook, our DP contract manufacturer. We are investing approximately $4 million of the additional capital we raised during the first quarter of 2019 to construct and equip our own Drug Product formulation and aseptic filling capability for Re-Tain ® inside our existing Drug Substance facility. The objective of this investment is to end our reliance on an outside party to perform these services for us. Actual project costs could exceed our current estimates, and we could fail to access adequate funding to complete this investment if costs were to increase. Completion of this project could be delayed due to a number of factors outside our control, including delays in equipment fabrication, equipment delivery or facility construction. In addition, there is a risk that we fail to achieve regulatory approval of the new facility. We face the risk of potential supply interruption and adverse effects on the market launch of Re-Tain ® if we do not effectively manage the end of the DP supply provided from our contract manufacturer for orders placed by December 31, 2021 for delivery during 2022 (or secure a satisfactory extension of that arrangement) to align with the new supply from our own formulation and aseptic filling facility, which we currently expect to be operational during the second half of 2023. Competition from others: Many of our competitors are significantly larger and more diversified in the relevant markets than we are and have substantially greater financial, marketing, manufacturing and human resources and more extensive product development and sales/distribution capabilities than we do, including greater ability to withstand adverse economic or market conditions and declining revenues and/or profitability. Merck and Zoetis, among other companies, sell products that compete directly with the First Defense ® product line in preventing scours in newborn calves. The scours product sold by Zoetis sells for approximately half the price of our product, although it does not have an E. coli claim (which ours does). With Tri-Shield First Defense ® , we can now compete more effectively against vaccines that are given to the mother cow (dam) to improve the quality of the colostrum that she produces for the newborn calf. Elanco, Merck and Zoetis provide these dam vaccine products to the market. There are many companies competing in the mastitis treatment market, most notably Boehringer Ingelheim, Merck and Zoetis. The subclinical mastitis products sold by these large companies are well established in the market and are priced lower than what we expect for Re-Tain ® , but all of them involve traditional antibiotics and are sold subject to a requirement to discard milk during and for a period of time after treatment (unlike our product that carries zero milk discard and zero milk withhold claims). There is no assurance that our products will compete successfully in these markets. We may not be aware of other companies that compete with us or intend to compete with us in the future. Global Risks Global COVID-19 pandemic (novel coronavirus, technically known as SARS-CoV-2): The global COVID-19 pandemic has created, and continues to create, uncertainty and challenges for us. The emergence of the Delta variant and the rising number of positive cases is a more recent concern. The COVID-19 pandemic has created or contributed to global supply-chain disruptions and has affected international trade, while creating a worldwide health and economic crisis. The full impact of this viral outbreak on the global economy, and the duration of such impact, is very uncertain at this time. Stock market valuations have declined and recovered and remain volatile. Inflation has begun to increase, and tax rates may increase. There is a risk of a period of economic downturn, the severity and duration of which are difficult to know. Prior to the pandemic and the responsive federal economic stimulus programs, many feared the United States had taken on too much national debt. Now the debt load is significantly higher. The dairy market, similar to many others, has been unstable as a result of the pandemic. The price paid to producers for milk has been very volatile. Milk was dumped on farms during 2020 largely because of the loss of demand for dairy products from closed restaurants and school lunch programs and other negative impacts of the pandemic, but conditions have improved since then. There is also economic uncertainty for beef producers, as the supply chain is interrupted or otherwise adversely affected due to closures of processing plants and reduced throughput caused by, among other things, restaurants closing or curtailing their operations. This is a very unusual situation for farmers that work so hard to improve production quality and efficiency in order to help feed a growing population with high-quality and cost-effective proteins. A combination of the conditions, trends and concerns summarized above 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 shortages in key components and needed products, backlogs and production slowdowns due to difficulties accessing needed supplies and labor and other restrictions which increase our costs and affect our ability to consistently deliver our products to market in a timely manner. Our exposure to this risk is mitigated to some extent by the fact that our supply chain is not heavily dependent on foreign manufacturers, by our on-going cross-training of our employees, by our implementation of remote work practices (where feasible) and by our early and continued compliance with recommended hygiene and social distancing practices. Despite our best 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. 42 ImmuCell Corporation Bovine diseases: The potential for epidemics of bovine diseases such as Foot and Mouth Disease, Bovine Tuberculosis, Brucellosis and Bovine Spongiform Encephalopathy (BSE) presents a risk to us and our customers. Documented cases of BSE in the United States have led to an overall tightening of regulations pertaining to ingredients of animal origin, especially bovine. The First Defense ® product line is manufactured from bovine milk (colostrum), which is not considered a BSE risk material. Future regulatory action to increase protection of the human food supply could affect the First Defense ® product line, although presently we do not anticipate that this will be the case. Risks Pertaining to Common Stock Stock market valuation and liquidity: Our common stock trades on The Nasdaq Stock Market (Nasdaq: ICCC). Our average daily trading volume is lower, our bid/ask stock price spread can be larger and our share price can be more volatile than what other companies experience, which could result in investors facing difficulty selling their stock for proceeds that they may expect or desire. Our share price as of October 28, 2021 was $8.90. Most companies in the animal health sector have market capitalization values that greatly exceed our current market capitalization of approximately $69 million as of October 28, 2021. Our product sales during the year ended December 31, 2020 were $15.3 million. This means that our market valuation as of October 28, 2021 was equal to approximately 4.5 times our sales during the year ended December 31, 2020. Before gross margin from the sale of new products is achieved, our market capitalization may be heavily dependent on the perceived potential for growth from our product under development and may therefore be negatively affected by the related uncertainties and risks. Certain provisions might discourage, delay or prevent a change in control of our Company or changes in our management: Provisions of our certificate of incorporation, our bylaws, our Common Stock Rights Plan or Delaware law may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares of our common stock. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. These provisions include: ● limitations on the removal of directors; ● advance notice requirements for stockholder proposals and nominations; ● the ability of our Board of Directors to alter or repeal our bylaws; ● the ability of our Board of Directors to refuse to redeem rights issued under our Common Stock Rights Plan or otherwise to limit or suspend its operation that would work to dilute the stock ownership of a potential hostile acquirer, potentially preventing acquisitions that have not been approved by our Board of Directors; and ● Section 203 of the Delaware General Corporation Law, which prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder (generally defined as a person which together with its affiliates owns, or within the last three years has owned, 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder) unless the business combination is approved in a prescribed manner. The existence of the foregoing provisions and anti-takeover measures could depress the trading price of our common stock or limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our Company, thereby reducing the likelihood of obtaining a premium for our common stock in an acquisition. No expectation to pay any dividends or repurchase stock for the foreseeable future: We do not anticipate paying any dividends to, or repurchasing stock from, our stockholders for the foreseeable future. Instead, we expect to use cash to fund product development costs and investments in our facilities and production equipment, and to increase our working capital and to reduce debt. Stockholders must be prepared to rely on market sales of their common stock after price appreciation to earn an investment return, which may never occur. Any determination to pay dividends in the future will be made at the discretion of our Board of Directors and will depend on our financial condition, results of operations, contractual restrictions, restrictions imposed by applicable laws, current and anticipated needs for liquidity and other factors our Board of Directors deems relevant. Possible dilution: We may need to access the capital markets again and issue additional common stock in order to fund our growth objectives, as described elsewhere in this report. Such issuances could have a dilutive effect on our existing stockholders. 43 ImmuCell Corporation Other Risks Access to raw materials and contract manufacturing services: Our objective is to maintain more than one source of supply for the components used to manufacture and test our products that we obtain from third parties. However, we are experiencing difficulty in efficiently acquiring essential supplies. We have significantly increased the number of farms from which we purchase colostrum for the First Defense ® product line. A significant reduction in farm capacity could make it difficult for us to produce enough inventory to meet customer demand. The specific antibodies that we purify from colostrum for the First Defense ® product line are not readily available from other sources. We are and will be dependent on our manufacturing facilities and operations in Portland for the production of the First Defense ® product line and Re-Tain ® . We are currently dependent on one manufacturer for the supply of the syringes used for our gel tube formats of Dual-Force First Defense ® and Tri-Shield First Defense ® , and will be dependent on one other manufacturer for the supply of syringes for Re-Tain ® . We are dependent on a contract with Norbrook for the Drug Product formulation and aseptic filling of our Nisin Drug Substance for orders placed through December 31, 2021 with deliveries extending into the first half of 2022. We expect to complete the investment to perform these services in-house during 2022 and achieve the required regulatory approval for use by the fourth quarter of 2022 or the second quarter of 2023. The facility we are constructing to perform these services in-house will be subject to FDA inspection and approval, the outcome and timing of which are not within our control. The potential alternative options for these services are narrowed considerably because our product cannot be formulated or filled in a facility that also processes traditional antibiotics (i.e., beta lactams). Any significant damage to or other disruption in the services at any of these third-party facilities or our own facilities (including due to regulatory issues or non-compliance) would adversely affect the production of inventory and result in significant added expenses and potential loss of future sales. Failure to protect intellectual property: In some cases, we have chosen (and may choose in the future) not to seek patent protection for certain products or processes. Instead, we have sought (and may seek in the future) to maintain the confidentiality of any relevant proprietary technology through trade secrets, operational safeguards and contractual agreements. Reliance upon trade secret, rather than patent, protection may cause us to be vulnerable to competitors who successfully replicate (knock off) our manufacturing techniques and processes. Additionally, there can be no assurance that others may not independently develop similar trade secrets or technology or obtain access to our unpatented trade secrets or proprietary technology. Other companies may have filed patent applications and may have been issued patents involving products or technologies potentially useful to us or necessary for us to commercialize our products or achieve our business goals. If that were to be the case, there can be no assurance that we will be able to obtain licenses to such patents on terms that are acceptable to us. There is also a risk that competitors could challenge the claims in patents that have been issued to us. Increasing dependence on the continuous and reliable operation of our information technology systems: We rely on information systems throughout our company. Any disruption of these systems or significant security breaches could adversely affect our business. Although we maintain information security policies and employ system backup measures and engage in information system redundancy planning and processes, such policies, measures, planning and processes, as well as our current disaster recovery plan may be ineffective or inadequate to address all eventualities. As information systems and the use of software and related applications by us, our business partners, suppliers, and customers become more cloud-based, we become inherently more susceptible to cyberattacks. There has been an increase in global cybersecurity vulnerabilities and threats, including more sophisticated and targeted cyber-related attacks that pose a risk to the security of our information systems and networks and the confidentiality, availability and integrity of data and information. There are reports of increased activity by hackers and scammers during the COVID-19 pandemic. Any such attack or breach could compromise our networks and the information stored thereon could be accessed, publicly disclosed, lost, or stolen. While we have invested in our data and information technology infrastructure (including working with an information security technology consultant to assess and enhance our security systems and procedures, and periodically training our employees in such systems and procedures), there can be no assurance that these efforts will prevent a system disruption, attack, or security breach and, as such, the risk of system disruptions and security breaches from a cyberattack remains. We have not experienced any material adverse effect on our business or operations as a consequence of any such attack or breach but may incur increasing costs in performing the tasks described above. Given the unpredictability of the timing, nature and scope of such disruptions and the evolving nature of cybersecurity threats, which vary in technique and sources, if we or our business partners or suppliers were to experience a system disruption, attack or security breach that impacts any of our critical functions, or our customers were to experience a system disruption, attack or security breach via any of our connected products and services, we could potentially be subject to production downtimes, operational delays or other detrimental impacts on our operations. Furthermore, any access to, public disclosure of, or other loss of data or information, including any of our (or our customers’ or suppliers’) confidential or proprietary information or personal data or information, as a result of an attack or security breach could result in governmental actions or private claims or proceedings, which could damage our reputation, cause a loss of confidence in our products and services, damage our ability to develop (and protect our rights to) our proprietary technologies and have a material adverse effect on our business, financial condition, results of operations or prospects. While this exposure is common to all companies, larger companies with greater resources may be better able to mitigate this risk than we can. 44 ImmuCell Corporation ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None ITEM 3 - DEFAULTS UPON SENIOR SECURITIES None ITEM 4 - MINE SAFETY DISCLOSURES None ITEM 5 - OTHER INFORMATION None ITEM 6 – EXHIBITS Exhibit 31 Certifications required by Rule 13a-14(a). Exhibit 32 Certification pursuant to Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS XBRL Instance Document-the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH Inline XBRL Taxonomy Extension Schema Document. 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File-the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 45 ImmuCell Corporation SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ImmuCell Corporation Registrant Date: November 15, 2021 By: /s/ Michael F. Brigham Michael F. Brigham President, Chief Executive Officer and Principal Financial Officer 46