What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-29 compared with 2022-03-30 · 813 added, 664 removed, 149 unchanged (91% of the section changed)

12 unchanged sentences

and analysis.

ImmuCell Corporation

Liquidity and Capital Resources

cash provided by operating activities was $954,000 during the year ended December 31, 2021 in comparison to net cash provided by operating

activities of $1.3 million during the year ended December 31, 2020.

The $361,000 decrease in cash provided by operating activities from

period to period was largely the result of a $944,000 decrease in our net loss, no debt forgiveness in 2021, a $1.4 million increase (changing

from a source of cash to a use of cash) in cash used for inventory and a $738,000 increase in cash used for accounts receivable.

increase our production capacity to fill the backlog of orders, our inventory balance increased by $997,000 from December 31, 2020 to

December 31, 2021.

Approximately 46% of this increase was work-in-process inventory.

Our total depreciation expense was approximately

$2.4 million and $2.3 million during the years ended December 31, 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 $1.6 million and $2.6 million during the years ended December

Net cash (used for) operating activities was

($1.5) million during the year ended December 31, 2022 in contrast to net cash provided by operating activities of $954,000 during the

year ended December 31, 2021.

The $2.5 million decrease in net cash provided by operating activities from period to period was largely

the net result of a $2.4 million increase in the net loss with $2 million more cash being used to build inventory being net against $1.8

million more cash being generated by the collection of accounts receivable.

As we increased our production capacity to eliminate the backlog

of orders, our inventory balance increased to $6 million as of December 31, 2022 from $3.1 million as of December 31, 2021.

depreciation and amortization expense was approximately $2.5 million during both of the years ended December 31, 2022 and 2021.

We anticipate

that depreciation expense, while not affecting our cash flows from operations, will be a significant factor in creating annual net operating

losses until and unless product sales increase sufficiently to offset these non-cash expenses.

Net cash (used for) investing activities

was ($4) million during the year ended December 31, 2022 in comparison to net cash (used for) investing activities of ($1.6) million during

the year ended December 31, 2021.

Approximately $4 million and $2.6 million of cash was used to acquire property, plant and equipment

during the years ended December 31, 2022 and 2021, respectively, which payments were largely related to our ongoing investments to expand

our manufacturing facilities.

Net cash provided by financing activities decreased to $1.1 million during the year ended December 31, 2022

in comparison to net cash provided by financing activities of $3.9 million during the year ended December 31, 2021.

During 2022, we received

$2 million in debt proceeds compared to $400,000 in debt proceeds received during 2021.

We raised no new equity during 2022, but during

2021, we raised $4.2 million from a public offering of common stock.

Debt principal repayments will continue to reduce our cash flows.

ImmuCell Corporation

We entered into several bank debt refinancings

and amendments with Gorham Savings Bank (GSB) from the first quarter of 2020 to the first quarter of 2022 that have improved our liquidity

by spreading our principal payments out over a longer period of time and pushing out balloon principal payment obligations that existed

under some of the repaid debt.

Also, because all of this debt bears interest at fixed rates, we are avoiding the adverse effects of rising

interest rates on our debt service costs.

The blended interest rate on this debt, including the State of Maine debt from the Maine Technology

Institute (MTI) described below, is 3.65% per annum (3.52% per annum excluding the MTI debt).

As of December 31, 2022, we had total bank

debt outstanding (including the MTI debt) of approximately $10.2 million as compared to approximately $9.1 million as of December 31,

Debt principal repayments aggregated approximately $897,000 and $768,000 during the years ended December 31, 2022 and 2021, respectively.

We anticipate that debt principal repayments will aggregate approximately $1 million during the year ending December 31, 2023.

expense (excluding amortization of debt issuance costs) was approximately $341,000 and $307,000 during the years ended December 31, 2022

and 2021, respectively.

Cash paid for capital expenditures was $2.6 million and $4.1 million during the years ended December

31, 2021 and 2020, respectively, which payments were largely related to our ongoing investments to expand our manufacturing facilities.

Cash provided by financing activities increased to $3.9 million during the year ended December 31, 2021 in comparison to $1.9 million

during the year ended December 31, 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 and the $624,000 used to pay down our mortgage debt during the fourth quarter of 2020) were $768,000 and $633,000 during

the years ended December 31, 2021 and 2020, respectively.

Reflecting the mortgage debt financing we completed during the first quarter

of 2022, we are obligated to make debt principal repayments of approximately $875,000 and $925,000 under these loans during the years

ending December 31, 2022 and 2023, respectively, and we anticipate that our interest expense will be approximately $325,000 and

$317,000 during the years ending December 31, 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.

We anticipate that interest expense will be approximately $352,000 during the year ending December 31, 2023.

the first quarter of 2022, the availability of our $1.0 million line of credit, which bears interest at the National Prime Rate per annum,

was extended until March 11, 2024.

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 $6.3 million in connection with the 2022 financing) 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 a 2020 refinancing).

These credit facilities are subject to certain restrictions and financial covenants.

We are required

to meet a minimum debt service coverage (DSC) ratio set by GSB of 1.35.

Our actual DSC ratio was equal to 2.68, 2.03 and 1.57 during the

years ended December 31, 2021, 2020 and 2019, respectively.

By negotiation with GSB in connection with the 2022 financing, the required

minimum DSC ratio was reduced to 1.0 for the year ending December 31, 2022.

The actual DSC ratio during the year ended December 31, 2022

The compliance requirement with the DSC ratio was waived by GSB for 2022.

During the first quarter of 2023, the DSC ratio covenant

for the year ending December 31, 2023 was waived by GSB.

Instead, we are required to meet a minimum DSC ratio requirement of 1.35 for

the twelve-month periods ending June 30, 2024, September 30, 2024 and December 31, 2024 and then again annually after that.

During June 2020, we received a $500,000 loan

from the Maine Technology Institute (MTI).

The first 2.25 years of this loan were interest-free with no interest accrual or required principal

Principal and interest payments at a fixed rate of 5% per annum are due quarterly over the final 5 years of the loan, which

began during the fourth quarter of 2022 and continues through the third quarter of 2027.

During July 2021, we received an additional $400,000

loan from the MTI.

The first 2 years of this second loan are interest-free with no interest accrual or required principal payments.

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 from

GSB and may be prepaid without penalty at any time.

This support from the State of Maine through the 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 with a weighted average price of approximately $5.87 per share.

warrants were issued in connection with any of these transactions, and no convertible or preferred securities were issued.

This capital,

together with our bank debt and gross margin from product sales, has allowed us to transform the Company.

We are (and have been) investing

significantly to increase our capacity to produce the First Defense ® product line from approximately $16.5 million

to approximately $40 million in annual sales volume per year.

The actual value of our production capacity varies based on biological and

process yields, product format mix, selling price and other factors.

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

The table below summarizes the changes in selected, key accounts (in thousands, except for percentages):

(Decrease) Increase

December 31, 2022

December 31, 2021

Cash, cash equivalents and short-term investments

Cash and cash equivalents

Net working capital

3 unchanged sentences

stock reserved for issuance for stock options that were outstanding as of December 31, 2022 and 2021, respectively.

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).

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).

$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.

During the first quarter of 2022, we closed on a mortgage debt financing that added $2 million in new funds to

the $4.2 million of mortgage debt outstanding at the time of closing.

The amended mortgage principal of $6.2 million bears interest at

the weighted-average blended fixed rate of 3.53% per annum (with a 10-year term and 20-year amortization schedule, resulting in a balloon

principal payment of $3.68 million due during the first quarter of 2032).

Also during the first quarter of 2022, the availability of

our $1.0 million line of credit, which bears interest at the National Prime Rate plus 0.00% per annum, was extended until March 11, 2024.

We may use some of these proceeds to repay two loans from the Maine Technology Institute (MTI) aggregating $900,000 (described below)

when they become interest bearing at the fixed rate of 5% per annum during the fourth quarter of 2022 and the third quarter of 2023.

These GSB credit facilities are secured by substantially all of our assets, including our facility at 56 Evergreen Drive in Portland

(which was independently appraised at $6.3 million in connection with the 2022 financing, at $3 million in connection with the 2020 refinancing

and at $4.2 million in connection with the 2015 financing) 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

Our actual debt service coverage (DSC) ratio was equal to 2.68, 2.03 and 1.57 during the years ended December 31, 2021, 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, 2022.

By negotiation with the bank in connection with a mortgage debt financing during the first quarter of 2022, the required

minimum DSC ratio was reduced to 1.0 for the year ending December 31, 2022.

ImmuCell Corporation

During June 2020, we received a $500,000 loan

from the 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 the MTI.

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.

This support from the State of Maine through the 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.

The net proceeds have been and are being used to fund the expenditures described

under PROJECT B 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.

Our approved capital

expenditure budget for the year ending December 31, 2022 is $550,000.

These expenditures amounted to $260,000, $554,000 and $574,000 during

the years ended December 31, 2021, 2020 and 2019, respectively.

From 2014 to 2019, we initiated four capital expenditure

investments, as described in the following table (in thousands):

We have invested and continue to invest in eight

different capital expenditure projects to increase our production capacity for the First

Defense ® product line and complete the development of Re-Tain ® .

When we describe the production capacity for the First Defense ®

product line in this report, it should be noted that the actual value of this capacity varies based on biological and process yields,

product format mix, selling price and other factors.

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

7 unchanged sentences

Year Ended December 31, 2021

Year Ended December 31, 2022

Total Paid through December 31, 2022

2 unchanged sentences

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.

ImmuCell Corporation

facility addition at 56 Evergreen Drive and related equipment (including freeze-dryer #2) 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.

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 at 56 Evergreen Drive.

After PROJECT C was completed,

this space was converted to double our liquid processing capacity at 56 Evergreen Drive.

PROJECT B was related to the Drug Substance

6 unchanged sentences

equipment was $20.8 million plus $331,000 for the land and $472,000 for the acquisition of an adjacent 4,080 square foot warehouse facility

which will be used for cold storage of Re-Tain ® inventory and other warehousing needs.

PROJECT C (Phase I of our investments

to increase our production capacity for the First Defense ® product line) 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 was completed at the end of 2021 at approximately 4%, or $153,000,

over its budget of $3.5 million.

This expansion involves a 40% 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 35%, which would increase our annual production capacity from approximately $23 million to approximately

$30 million or more (see PROJECT F 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 obtained temporary (subject to final USDA review and approval) site license

approval of the expanded liquid processing capacity at 56 Evergreen Drive from the USDA during the first quarter of 2022.

at 14 Wedge Way, which will be used for packing, shipping and cold storage of Re-Tain ® and other warehousing needs.

(See PROJECT G , below).

PROJECT C consisted 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 (including freeze-dryer #3) 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.

This expansion involved a 50% increase

in our freeze-drying equipment 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 and gel 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.

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, which created

the space necessary to double our liquid processing capacity at 56 Evergreen Drive.

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 obtained site license approval of

the expanded liquid processing capacity at 56 Evergreen Drive from the USDA during the third quarter of 2022.

As part of this investment,

we also made the facility modifications at 56 Evergreen Drive to create the space necessary to expand our freeze-drying equipment (including

freeze-dryer #4) by an additional 33%, which would increase our annual production capacity from approximately $23 million to approximately

$30 million or more (together with the work involved in PROJECT F discussed below).

ImmuCell Corporation

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 began equipment installation during the first quarter of 2022, and we expect to

have our facility qualified by the end of 2022.

We anticipate FDA approval of this facility (which is a requirement for commercial manufacturing)

during the fourth quarter of 2023 or the second quarter of 2024.

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 Year Ended December 31, 2021

to bring the formulation and aseptic filling capabilities for Re-Tain ® Drug Product into available space in our

Drug Substance facility to end our reliance on third-party Drug Product manufacturing services.

We began initial equipment installation

during the first quarter of 2022.

We have presently paused this installation work pending concurrence with the FDA pertaining to our third

submission of the CMC Technical Section, which is discussed in greater detail below.

Due to the loss in gross margin during the first

quarter of 2023 caused by the slowdown in production output necessary to remediate a product contamination event, we have decided to defer

spending of approximately 42% of these funds for the time being.

We anticipate FDA approval of this facility (which is a requirement for

commercial manufacturing) during 2025 if we resume spending on this project in the coming months.

During 2021, we initiated three more capital

expenditure investments, and during the second quarter of 2022, we initiated one additional capital expenditure investment, as described

in the following table (in thousands):

Cash Paid on Projects Initiated During 2021 or After During the

Year Ended December 31, 2021

Year Ended December 31, 2022

Total Paid through December 31, 2022

Estimate to Complete

Total Project Cost

PROJECT E 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 E represents a $750,000 budget

for equipment and vehicle investments necessary to expand and improve our colostrum collection capabilities and logistics.

completed this investment during 2022 but have left the project open as we are considering the need to purchase an additional farm truck.

PROJECT F included installation of freeze-dryer

#4 for $957,000 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.

We initiated PROJECT F during the

third quarter of 2021.

Due to supply disruptions affecting key components and equipment, this investment was not completed until the end

G represents an increased budget estimate of $3,000,000 (from the previous budget estimate of $2,840,000).

Of this total, approximately

$2,325,000 is for equipment and facility modifications to scale-up and upgrade our vaccine manufacturing capacity, improve our quality

laboratories and install new equipment for our gel filling operations and approximately $675,000 is to build packing and shipping facilities

for Re-Tain ® at 14 Wedge Way.

This investment includes automation of our gel filling operations as part of our strategy

to increase our annual production capacity for the First Defense ®

product line (in terms of annual sales dollars) to approximately $30 million.

This investment is running approximately $74,000 over its

increased budget amount of $3,000,000.

PROJECT H represents a new investment

in building modifications and equipment to further increase our annual First Defense ® production capacity from approximately

$30 million to approximately $40 million with options for further expansion.

Given the long lead time required for investments like this,

during 2022 we initiated this project by entering into a lease during the third quarter of 2022 covering a to-be-constructed 15,400 square

foot building shell at 165 Industrial Way for approximately $250,000 per year, which operating cost is not included in the capital expenditure

We anticipate a lease commencement date (after the landlord completes construction of the building shell) during the second

quarter of 2023.

We made this lease commitment because of the unique proximity of the land adjacent to our currently leased space at 175

Industrial Way and the high level of demand for properties of this type in the Portland market.

We did not want to risk losing this opportunity

The anticipated benefits to us from this new lease include:

i) space for the potential to install freeze-dryers #5, #6, #7

and #8 if justified by market demand in the future, ii) improved space and quality for our powder milling operations by separating our

upstream processes (liquid processing) at 56 Evergreen Drive from our clean downstream processes (milling, formulation, filling and packaging)

and iii) much needed additional warehouse space.

Freeze-dryer #5 is the key piece of equipment required to allow us to increase our annual

production capacity to approximately $40 million.

Based on past experience, we are planning for approximately 18 to 24 months of lead

time for fabrication, installation, qualification and implementation of freeze-dryer #5.

We have been running our equipment and staff

near to 100% of capacity over the last couple of years in order to fill the backlog of orders.

One of the objectives of PROJECT H

is to create a more sustainable production schedule.

Due to the loss in gross margin during the first quarter of 2023 caused by the slowdown

in production output necessary to remediate a product contamination event, we have decided to defer, for the time being, approximately

95% of this investment.

ImmuCell Corporation

PROJECT F (Phase II of our investments

to increase our production capacity for the First Defense ® product line) represents a budget estimate of $925,000

for freeze drying 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.

We initiated PROJECT F during the third quarter of 2021, and we anticipate completing this

investment during the third quarter of 2022.

G first represented an initial 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 & ship facilities for Re-Tain ® , improvements to our quality offices and laboratories

and new equipment for our gel filling operations.

We estimate the additional investments in our gel filling equipment will increase our

annual production capacity for the First Defense ®

product line (in terms of annual sales dollars) further from approximately $30 million to approximately $35 million.

actual value of our production output varies based on production yields, selling price, product format mix and other factors.

of these scope changes, the preliminary project budget was increased to $2.52 million.

We have set aside approximately $5.5 million

of the $10.2 million of the cash we had on hand as of December 31, 2021 to complete PROJECT D to PROJECT G as well as to

pay for our other routine and miscellaneous capital expenditures during 2022, leaving the remaining cash balance of approximately $4.7

million available for general working capital purposes including anticipated inventory builds for both First Defense ®

and Re-Tain ® .

We have been investing (and continue to invest)

significantly in equipment, infrastructure and operating expenses to increase our annual production capacity from approximately $16.5

million to approximately $30 million.

Increased labor and other upfront costs were necessary to benefit from the scale-up of our production

output going forward.

These investments have been (and are being) made to fulfill the current backlog and then materially reduce the risk

of another order backlog.

We have been operating at very close to 100% of available capacity recently, which is not efficient or sustainable.

Going forward, we will be in a position to operate at the capacity level we choose to cover sales with adequate buffer stock.

more time for necessary preventative maintenance and redundancy for when equipment failures occur.

At the same time, we have been investing

(and continue to invest) in capital expenditures necessary to manufacture Re-Tain ® at commercial scale and to cease

our reliance on aseptic filling contractor services.

The table below summarizes the investment made and to be made under PROJECT A

to PROJECT H by product (in thousands):

December 31, 2022

First Defense ®

investment of approximately $4,200,000 of these funds has been deferred for the time being.

In addition to the specific projects listed above,

our budget for routine and miscellaneous capital expenditures for the year ended December 31, 2022 was $825,000.

We spent approximately

$34,000 more than this budget amount during 2022, and we expect to spend approximately $97,000 during 2023 to complete these miscellaneous

expenditures from the 2022 budget.

These routine and miscellaneous capital expenditures amounted to $260,000, $554,000 and $574,000 during

the years ended December 31, 2021, 2020 and 2019, respectively.

The spend on this budget category during 2021 was lower than expected,

and, as a result, the spend during 2022 was higher than the historical norm.

The budget for these miscellaneous capital expenditures during

2023 is $1,000,000.

Due to the loss in gross margin during the first quarter of 2023 caused by the slowdown in production output necessary

to remediate a product contamination event, we have decided to reduce spending on these routine and miscellaneous capital expenditures

by 50% for the time being.

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:

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

9 unchanged sentences

June 30, 2022

$4.3 million @ April 1, 2022

June 30, 2023

Results of Operations

1 unchanged sentence

in Note 17, “Segment Information”, to the accompanying audited financial statements, we operate in two business segments.

The First Defense ® segment

is dedicated to manufacturing and selling First Defense ® ,

a product used to prevent scours in newborn calves, which is regulated by the USDA.

The Re-Tain ®

segment is focused on developing and commercializing Re-Tain ® ,

The Scours segment is dedicated to manufacturing and selling First

Defense ® , a product used to prevent scours in newborn calves, which is regulated

The Mastitis segment is focused on developing and commercializing Re-Tain ® ,

a product to treat subclinical mastitis in lactating dairy cows, which is regulated by the FDA.

Product Sales

Sales of the First Defense ®

product line aggregated 98% of our total sales during both of the years ended December 31, 2021 and 2020, and we set records for high

sales during the second, third and fourth quarters of 2021 in comparison to the same quarters of the prior year.

Sales of the First

Defense ® product line increased from approximately $4,473,000 during the quarter ended June 30, 2021 to $5,033,000

during the quarter ended September 30, 2021 to $5,403,000 during the quarter ended December 31, 2021.

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

The compound annual growth rate of our total product sales during the ten years ended December 31, 2021 was approximately 15%.

The compound annual growth rate of our total product sales during the three years ended December 31, 2021 was approximately 18%.

ImmuCell Corporation

During the Three-Month Periods

Ended December 31,

(In thousands, except for percentages)

Total product sales

Sales increased by 45%, or $1.7 million, during

the three-month period ended December 31, 2021, in comparison to the three-month period ended December 31, 2020.

Domestic sales increased

by 34%, and international sales increased by 136%, in comparison to the three-month period ended December 31, 2020.

International sales

aggregated 18% and 11% of total sales during the three-month periods ended December 31, 2021 and 2020, respectively.

During the Years

Ended December 31,

(In thousands, except for percentages)

Product Sales

Through continued growth in sales of the First

Defense ® product line, and as additional resources are dedicated to production, sales, marketing and technical services,

it is our objective to exceed our total product sales of approximately $19 million achieved during the year ended December 31, 2022 as

soon as possible.

Our longer-term goal is to exceed $35 million of annual total product sales as soon as possible during the five-year

period after the market launch of Re-Tain ® .

do not solely benchmark our sales expectations off trailing twelve-month sales results.

Instead, we look at the sales of competitive products

to assess the size of the addressable market and plan for growth when projecting our future production capacity needs.

Sales decreased by 4%, or $675,000, to $18.6

million during the year ended December 31, 2022, in comparison to $19.2 million during the year ended December 31, 2021.

Domestic sales

during the year ended December 31, 2022 increased by 2%, and international sales decreased by 41%, in comparison to the year ended December

International sales aggregated 8% and 14% of total sales during the years ended December 31, 2022 and 2021, respectively.

annual sales results are summarized in the following table (in thousands, except for percentages):

During the Years Ended

Total product sales

Sales increased by 25%, or $3.9 million, during

the year ended December 31, 2021, in comparison to the year ended December 31, 2020.

Domestic sales increased by 22%, and international

sales increased by 55%, in comparison to the year ended December 31, 2020.

International sales aggregated 14% and 11% of total sales during

the years ende December 31, 2021 and 2020, respectively.

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.

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 years ended December 31, 2021 and 2020

have continued to increase, creating a backlog of orders at the end of each quarter during this two-year period.

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 a lack of available

The backlog was worth approximately $2.4 million as of December 31, 2021 and approximately $2.8 million as of March 18, 2022.

However, quantification of the backlog during the current periods has become far less comparable to prior periods.

We believe our customers

are now placing orders for more than a month’s worth of their demand, perhaps in reaction to our ongoing backlog situation, whereas

in the past they ordered more closely in line with their more current demand.

Additionally ,

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, when 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).

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:

Estimated production capacity before current expansion

Estimated production capacity as of December 31, 2021

$ 23,000,000 (1)

Estimated production capacity by September 30, 2022

Estimated production capacity by December 31, 2022

factoring in changes in beginning and ending inventory balances, the fourth quarter of 2021 annualized manufacturing output of $22.9

million almost reached the $23 million target.

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 first quarter of 2022.

During the third quarter of 2021, 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.

Then, during the fourth quarter of 2021, we initiated an additional

investment to further increase our annual production capacity to approximately $35 million.

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 could get our orders fulfilled.

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

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

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 the first quarter of 2022.

We are working to regain customers that we may have lost while we were short on product.

from an extended period of time on backlog, we anticipate higher than normal sales fluctuations quarter to quarter.

As we emerge from

the backlog, what is most important to us is that we achieve sales growth over the longer periods of time, even if we experience some

quarter-to-quarter fluctuations.

Sales of the First Defense ®

product line aggregated 99% and 98% of our total sales during the years ended December 31, 2022 and 2021, respectively.

Our sales are

seasonal with highest sales expected during the first quarter of each year.

Most of our growth (when not limited by backlog) is being

realized through increased demand and a deliberate strategy to prioritize production capacity towards Tri-Shield First Defense ®

(the trivalent format of our product delivered via a gel tube), which provides broader protection to calves.

The compound annual growth

rate (CAGR) of our total product sales was 12.4%, 14.0% and 10.6% during the eleven-year, four-year, and three-year periods ended December

31, 2022, respectively.

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 a lack of available inventory.

Quantification of

the backlog during the current periods has become far less comparable to prior periods.

At times, customers have placed orders for more

than a month’s worth of their demand, perhaps in reaction to our ongoing backlog situation, whereas in the past they ordered more

closely in line with their current demand.

The backlog was reduced from approximately $2.4 million as of December 31, 2021 to approximately

$205,000 as of September 30, 2022.

We had adequate finished goods inventory to ship most of this backlog during the third quarter, but

the product was held for cold shipping on the first Monday of October.

In part because of a first contamination event experienced around

the end of the third quarter of 2022, our backlog increased to approximately $2.5 million as of December 31, 2022.

In part because of

a second contamination event experienced during the first quarter of 2023, the backlog increased further to approximately $8 million as

of March 10, 2023.

We are reporting this figure because it does reflect the orders on our books presently that we cannot ship.

we do not believe this backlog is highly relevant anymore as it includes very old orders, redundancy in demand and orders that may be

We likely lost some business during 2022 as a result of the backlog.

Our inability 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.

we worked to allocate product directly to certain large customers during this period of short supply, we likely lost some customers that

could not access product.

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 preparing to resume more normal sales growth initiatives

with more inventory becoming available later in 2023.

We will work to regain customers that we may have lost while we were short on product

and will aggressively compete for new business.

As we emerge from an extended period of time on backlog, we anticipate higher than normal

sales fluctuations quarter to quarter.

What is most important to us at this time is that we achieve sales growth over the longer periods

of time, even if we experience some quarter-to-quarter fluctuations.

A supply disruption pertaining to needed plastic

syringes used in our gel product format resulted in the drop in sales during the second quarter of 2022.

This supply disruption was resolved

during 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.

Prices for raw materials and critical supplies are increasing significantly,

and it is becoming increasingly 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 could get our orders fulfilled

Effective January 1, 2023, we increased our selling

price of the First Defense ® product line by approximately

3% (range of 2% to 4%) and CMT by approximately 5%.

Effective January 1, 2022, 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%.

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, 2019,

we implemented a 2% price increase for Dual-Force ® .

Sales of products other than the First Defense ®

product line increased by 15%, or $40,000, to $310,000 during the year ended December 31, 2021 in comparison to the year ended December

Sales of these other products aggregated approximately 2% of our total product sales during both of the years ended December

31, 2021 and 2020.

We acquired a private label product (our second leading source of product sales during 2021) in connection with our

January 2016 acquisition of certain gel formulation technology.

We sell our own CMT (our third leading source of product sales

during 2021), which is used to detect somatic cell counts in milk.

product line by approximately 5% and CMT by approximately 7%.

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%.

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.

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.

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 December 31,

Percent of product sales

During the Years

Ended December 31,

We acquired a private label product (our second

leading source of product sales during 2021) in connection with our January 2016 acquisition of certain gel formulation technology.

product was discontinued during the first quarter of 2022 because it was not a significant contributor to our total sales and it competed

for valuable time and space in our production schedule.

We sell our own CMT (our third leading source of product sales during 2021),

which is used to detect somatic cell counts in milk.

Sales of these products (other than the First Defense ® product

line) decreased by approximately 50%, or $154,000, to $156,000 during the year ended December 31, 2022, in comparison to the year ended

December 31, 2021.

Sales of these other products aggregated approximately 1% and 2% of our total product sales during the years ended

December 31, 2022 and 2021, respectively.

The change in our gross margin (product sales

less costs of goods sold) and our gross margin as a percentage of product sales are summarized in the following table (in thousands, except

for percentages):

During the Years Ended

Percent of product sales

1 unchanged sentence

was 41%, 45%, 45%, 49%, 47% and 50% during the years ended December 31, 2022, 2021, 2020, 2019, 2018 and 2017, respectively.

During the first quarter

of 2021, the gross margin of 39% was lower than what we normally expect.

This gross margin improved to 46% during the second quarter of

2021 and further to 47% during both the third and fourth quarters of 2021, as we began to spread these fixed costs over increasing production

As we fully integrate and utilize our increased capacity, we expect to be able to achieve an annual gross margin in excess of

The costs of most of our supplies, components, raw materials and services increased significantly during 2021.

margin during the year ended December 31, 2022 was significantly less than what we have experienced historically and significantly less

than what we anticipate going forward.

We experienced several product contamination events that resulted in scrap during 2022.

This resulted

in a total charge to costs of goods sold of approximately $588,000.

Although these types of losses are expected to happen from time to

time in the production of a biological product such as ours, we believe we can mitigate the risk of reoccurrence of such losses through

the implementation of certain processes and facility improvements.

Absent this contamination write-off, our gross margin as a percentage

of product sales would have been approximately 44% during the year ended December 31, 2022.

While our biological and process yields can

be variable, we have seen a favorable improvement to our finished goods yield recently.

The costs of our supplies, components, raw materials,

and services increased significantly during 2021 and that trend has continued.

The Tri-Shield ®

1 unchanged sentence

making it more costly to produce, and both the bivalent and trivalent gel product formats are more expensive to produce than the bolus

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.

We are investing significantly in equipment,

infrastructure and operating expenses to increase our annual production capacity from approximately $16.5 million to approximately $35

Increased labor and other upfront costs were necessary to benefit from the scale-up of our production output going forward.

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.

These new formats are creating sales growth for us, and we are focused on increasing total gross margin dollars, even if that

is accomplished with a lower gross margin as a percentage of sales.

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

We also invest to sustain compliance with current Good Manufacturing Practices (cGMP) in our production processes.

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

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.

our inventory production growth objectives, we are acquiring more raw material (colostrum) from many more cows at many new farms.

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

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.

While this variability impacts our costs

of producing inventory, the commercial 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.

5 unchanged sentences

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%.

ImmuCell Corporation

Product Development Expenses

the year ended December 31, 2021, product development expenses decreased by 4%, or $186,000, to $4.2 million in comparison to $4.4 million

during the year ended December 31, 2020.

Product development expenses aggregated 22% and 28% of product sales during the years ended December

31, 2021 and 2020, respectively.

Product development expenses included approximately $1,495,000 and $1,608,000 of non-cash depreciation

and stock-based compensation expenses during the years ended December 31, 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.

We believe that gross margin results should be viewed over longer periods of time than

just one quarter.

As we fully integrate and utilize our increased capacity and 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

Product Development Expenses and Strategy

The majority of our product development expenses pertain to the development of Re-Tain ® .

During the year ended

December 31, 2022, product development expenses increased by approximately $325,000 to approximately $4.5 million in comparison to

the approximately $4.2 million during year ended December 31, 2021.

Product development expenses aggregated 24% and 22% of product

sales during the years ended December 31, 2022 and 2021, respectively.

Product development expenses included approximately $1.4

million and $1.5 million of non-cash depreciation and stock-based compensation expenses during the years ended December 31, 2022 and

2021, respectively.

We expect our product development expenses to decrease after Re-Tain ® is commercialized

and some of the costs incurred to maintain and run our Drug Substance production facility become part of our costs of goods

Development objective :

aim to demonstrate that our peptide antimicrobial, 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 peptide antimicrobial 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

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.

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

and to assess the effectiveness of treatment.

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

We believe that developing a solid foundation of in-the-field successes early on will give our product the best opportunity

ImmuCell Corporation

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.

we work to revolutionize the way that mastitis is managed in the dairy industry, we aim to demonstrate that our bacteriocin, Nisin A,

which is designed specifically for subclinical mastitis, can provide producers the freedom to change when and how mastitis is treated.

Re-Tain ® is not a broad-spectrum antibiotic used in human health.

Rather, it consists of a highly targeted active

ingredient without a milk discard or meat withhold requirement.

While milk prices vary, the cost of the milk discard associated with

traditional antibiotics ranges from approximately $46.12 (for 3.5 days of milk at 60 pounds per day at the Class III milk price average

of $21.96 per hundredweight during 2022) to $193.25 (for 11 days of milk at 80 pounds per day at the Class III milk price average of

$21.96 per hundredweight during 2022) per treated animal.

These high milk discard costs associated with traditional antibiotic treatments

lead producers to only treat mastitis after clinical signs develop.

We expect that Re-Tain ® will be a first-of-its-kind

product that can be used to economically treat at the earliest stage of infection, giving producers the ability to get ahead of mastitis

before clinical signs develop so the best cows stay at their best performance level and in the herd longer.

The final and most critical

development objective for Re-Tain ® is to scale-up and achieve regulatory approval of our manufacturing operations.

Development status :

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

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.

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 plus a sixty-day administrative review at the end.

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:

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.

2) Target Animal Safety:

the second quarter of 2012, we received the Target Animal Safety Technical Section Complete Letter from the FDA.

By statute, each Technical Section submission is generally subject to one or more six-month review cycles by the FDA.

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

During the third quarter of 2008, we received the Environmental Impact Technical Section Complete Letter from the FDA.

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.

Animal Safety:

During the second quarter of 2012, we received the Target Animal Safety Technical Section Complete Letter from the FDA.

3) Effectiveness:

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:

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):

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.

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.

this critical differentiating feature for our product encouraged us to continue the significant product development investment necessary

to bring Re-Tain ® to market.

It would have been hard to justify an

ongoing investment of this nature in a product without this significant competitive advantage.

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.

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.

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, or DS) 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 DS.

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 ® .

However, 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 our DS 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.

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 DS production facility.

Having raised equity during

2016 and 2017, we were able to move away from these earlier partnering 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 DS 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.

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 made a second submission

of the DS and DP Technical Section during the first quarter of 2022.

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

Because we cannot predict the FDA’s responses, we cannot project the probability of success with this DS and DP submission.

We intend to be completely transparent about the FDA’s response (positive or negative) around August 2022.

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 Norbrook, our contract manufacturer,

to our own in-house services, as discussed further below.

ImmuCell Corporation

With construction

of the facility complete, we continue to work with outside parties to investigate improvements to our DS production yields as well as

potential efficacy enhancements.

the FDA’s phased submission process, we made a first-phased submission covering just the DS during the first quarter of 2019.

first-phased DS submission included data from the DS Registration Batches produced at commercial scale in our new DS manufacturing facility.

This first-phased submission was followed by a second-phased submission covering both the DS and the formulated Drug Product (DP), during

the first quarter of 2021.

This two-phased submission 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 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 expiry.

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 made a second submission of the DS and DP Technical

Section during the first quarter of 2022.

During the third quarter of 2022, we received a Technical Section Incomplete Letter from the

FDA with regards to this second DS and DP submission of the CMC Technical Section.

We have been working diligently to make this third

submission during the first quarter of 2023.

As previously disclosed, the submission requires that external laboratories complete several

critical path items regarding our analytical testing.

While we have made significant progress in addressing these issues, we are still

reliant on the work of others to finalize the submission.

To that end, we are adding another month to our timeline to complete the analysis

and, in our view, optimize the submission rather than forcing the submission to achieve a self-imposed first quarter deadline.

to make a brief public disclosure after this submission has been made.

The principal issue remaining is a successful pre-approval re-inspection

of our manufacturing facility.

We are completing preparations for such and intend to notify the FDA of our readiness for the pre-approval

re-inspection as part of our third submission.

Continued focus on these preparations is critical to a successful pre-approval re-inspection

We expect a response from the FDA to this submission after the statutory six-month review period.

If the FDA issues a Technical

Section Complete Letter in response to this third submission, we believe that we could commence commercial sales around the end of 2023.

being prudent with how much cash we invest into inventory that would have short expiry dating if market launch is delayed, we have built

and are building more DS inventory during 2022 and 2023 to bridge the transition between DP supply from our contract manufacturer to our

own in-house services.

Our contract manufacturer has agreed to convert this DS to DP during the middle of 2023 with associated product

expirations during the middle of 2025.

This inventory must support the market needs and have sufficient dating to bridge the transition

from our contract manufacturing agreement to when our in-house DP production is approved by the FDA.

We must consider short expiry dating

in the event that our NADA approval is delayed as well as manage the number of new customers we obtain at launch in order to minimize

potential supply disruptions.

manufacturing facility and that of our DP contract manufacturer (and our future DP manufacturing facility) are subject to ongoing FDA

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.

During the first quarter of 2022, the FDA conducted another pre-approval inspection

of our DS facility.

This also resulted in the issuance of certain deficiencies as identified on the FDA’s Form 483.

We have since

responded to all of the queries and are preparing for a re-inspection, which will likely take place during the six-month review period

for our third submission of the CMC Technical Section.

This inspection process has been managed without significant cost.

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

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 ® .

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

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

Under an amendment to this agreement, Norbrook has agreed to provide a supply of product during 2022 that we believe will enable

us to commence sales of Re-Tain ® without delay upon receipt of the

anticipated FDA approval and provide us with a supply bridge until our own formulation and aseptic filling capacity is available.

From 2010 to the present, we have worked with Norbrook under several amended contract manufacturing agreements covering the DP

formulation, aseptic filling and final packaging services.

Under our current agreement, Norbrook has agreed to provide the formulation,

aseptic filling and final packaging services as required in order for us to submit the CMC Technical Section to the FDA and to provide

a supply of product during the second half of 2023 that we believe will enable us to commence sales of Re-Tain ®

without delay upon receipt of the anticipated FDA approval and provide us with a supply bridge until

our own formulation and aseptic filling capacity is available, which is anticipated during 2025 (see discussion of PROJECT D above).

DP produced under this agreement during the second half of 2023 is expected to have expiry dating during the second half of 2025.

Our potential

1 unchanged sentence

considerably because our product cannot be formulated or filled in a facility that also processes traditional antibiotics (i.e., beta

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 began equipment installation at the beginning of

2022, and we expect 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.

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 ® .

ImmuCell Corporation

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

We anticipate a reinspection by the FDA prior to approval.

This inspection process has been managed without significant cost.

Consequently, we have decided to perform these services internally (see discussion of PROJECT D above).

We are investing

in the equipping and commencement of operations of our own DP formulation and aseptic filling facility.

We began initial equipment installation

during the first quarter of 2022.

Subject to the timing of our installation and validation work, we anticipate FDA approval of this facility

(which is a requirement for commercial manufacturing) during 2025, allowing for two six-month review cycles.

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

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 ® .

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.

Sales and Marketing Expenses

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 ® .

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.

Sales and Marketing Expenses and Selling Strategy

During the year ended December 31, 2022, sales

3 unchanged sentences

years ended December 31, 2022 and 2021, respectively.

We do expect these expenses to increase to approximately 20% of total product sales

during 2022 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.

Our budgetary guideline for 2023 and after is to keep these expenses under 20% of

We continue to leverage the efforts of our small sales force by using animal health distributors.

see ourselves as the “non-pharma” pharma company.

Rather than offering variations of “copy-cat” technology like

vaccines and antibiotics, we have taken the path less traveled by developing first-of-their kind products fueled by novel active ingredients

such as polyclonal antibodies (for First Defense ® ) and bacteriocins (for Re-Tain ® ).

While we expect that Re-Tain ®

could be a significant market disrupter, we project the First Defense ® market could be larger, especially during

the first years of the commercial launch of Re-Tain ® .

We anticipate that these category developing innovations will drive greater value for the livestock industry and, in turn, for our stockholders.

The First Defense ® product

line serves dairy and beef producers by protecting their calf crop from scours, the leading cause of pre-weaning mortality and morbidity.

When calves are healthy during this crucial development period, they mature into more productive milking cows and more efficient beef

Our primary competition in this category is vaccines that are also regulated for effectiveness and safety by the USDA.

vaccine results are inherently variable.

COVID breakthrough infections in humans have reminded us that a vaccine does not guarantee immunity.

That is true for our competitors as well.

In the most controlled research settings, only 80% of animals respond to a vaccine.

20% of the calf crop unprotected when the scour prevention program relies on scour vaccines.

Those unprotected calves can be disease carriers.

Not only are they more susceptible to death or likely to require life-saving treatment (sometimes with antibiotics), but they also shed

pathogens into the environment creating a greater disease pressure for their herd mates.

The First Defense ® product

line removes the inconsistency inherent with vaccine protection.

We sell the only USDA-licensed products in the scour prevention category

that are therapeutic polyclonal antibodies.

This technology eliminates a producer’s reliance on a variable vaccine response to generate

antibodies and, instead, can protect every calf equally with a measured dose of antibody-driven immunity against both bacterial and viral

scour pathogens.

In this space, we treat more calves than our

competitors where products are primarily vaccines administered directly to the calf at birth, and we are second in sales dollars to the

market leader within the dam-level competitor category, which constitutes vaccines given to the cow pre-calving.

Despite these successes,

there remains significant opportunity to displace more competition within North America.

There is also opportunity to grow our sales by

expanding into international markets.

We are being strategic in how we invest in international market development in order not to divert

our limited resources away from achieving domestic growth, which is often more efficient to obtain.

Our expanded sales and marketing team has proven

to be a worthy investment, validating that our message resonates well with customers.

Now that our increased production capacity is in

place, we anticipate being able to escalate our growth curve after we recover from the brand damage that can come with an extended duration

of short supply.

Unfortunately, just after we largely eliminated the backlog of orders, we experienced several contamination events in

our production process around the end of the third quarter of 2022.

This loss of inventory has returned us to a backlog situation until

we fill the pipeline with new inventory from our expanded production capacity in 2023.

We believe that Re-Tain ® could

revolutionize the way that mastitis is managed by making earlier treatment of subclinical infections (while these cows are still producing

saleable milk) economically feasible by not requiring a milk discard or a meat withhold during, or for a period of time after, treatment.

No other FDA-approved mastitis treatment product on the market can offer this value proposition.

We believe we can demonstrate a return

on investment to the dairy producer and the milk processor that will justify a premium over other mastitis treatments on the market today,

which are all sold subject to milk discard and meat withhold requirements.

By creating this value for our customers, we believe we can,

in turn, create value for our stockholders.

Re-Tain ® could increase the

lifetime profitability of a cow and reduce disease transfer to herd mates.

It is common practice to move sick cows from their regular

herd group to a sick cow group for treatment and the related milk discard.

This movement causes stress on the cow and a reduction in milk

While practices may vary farm-to-farm, there would be no requirement to move cows treated with our product, allowing this

costly drop in production to be avoided.

It is generally current practice to treat mastitis only when the disease has progressed to the

clinical stage where the milk from an infected cow cannot be sold, leaving most subclinically infected cows untreated.

Without a milk

discard cost, we expect producers to be more motivated to identify and treat cows at the subclinical stage.

This creates a substantial

animal welfare benefit.

By treating mastitis early at the subclinical level, producers could preserve optimal milk yields.

that animals infected with subclinical mastitis have higher abortion rates and often progress to the clinical disease state requiring

antibiotic treatment and milk discard.

We believe that societal animal welfare objectives will put more and more pressure on the industry

to treat cows with subclinical infections.

The over-use of antibiotics that are medically

important to human healthcare is a growing public health concern of our society and an active issue with the FDA, largely because of the

growing evidence that this over-use contributes to antibiotic resistance and the rise of “super-bugs”.

Sustainability objectives

require that less antibiotics be used in food producing animals, yet a new FDA-approved drug to treat mastitis has not been developed

Our product improves sustainability by utilizing a bacteriocin as an alternative to traditional antibiotics that are used in

human medicine.

In the big picture, we are introducing an entirely new class of antimicrobial as an animal drug, a bacteriocin, that does

not promote resistance against antibiotics used in human medicine making it more socially responsible.

The industry could keep treating

this very significant disease with traditional antibiotics, but it takes innovation to bring a bacteriocin like Nisin to market.

would, when introduced, offer a needed alternative to these traditional antibiotics, while at the same time improving milk quality and

the quantity of milk produced by treated cows.

We believe our product fits very well with where the industry is going to be in the coming

As the great NHL hockey player, Wayne Gretzky, is known to have said, “I skate to where the puck is going to be, not where

it has been.” This is motivational to us.

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 our product’s 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 use and benefits

of Re-Tain ® .

on consultations with industry experts and key opinion leaders, we have opted to carefully control the launch of this novel product over

the first eighteen to twenty-four months after FDA approval, as we seek to transform the way that mastitis is treated in the dairy industry

over the long term.

Our goal is to help early adopters select treatment candidates, develop easy to use protocols, optimize treatment

results and realize a positive return on their investment.

We intend to limit initial distribution of Re-Tain ® to

a level that enables our sales team to select the optimal dairy farms at which to introduce Re-Tain ® and to limit

the initial numbers of participating farms so that the desired levels of support and guidance relating to effective usage of Re-Tain ®

can be provided with our available resources.

Our overarching objective is to minimize the risk of early stage unsatisfactory

outcomes that could harm the longer term prospects and market acceptance of Re-Tain ® .

This strategy also reduces

the amount of inventory that we would need to build at risk before regulatory approval is achieved, and it reduces the amount of cash

we would need to spend to purchase inventory from our contract manufacturer before our in-house aseptic filling services are approved

This strategic choice means that we have elected not to pursue an alternative strategy that might have maximized short-term,

initial sales quickly through a mass market approach where we provide product to distribution and let them sell it to as many farms as

While we are dedicated to increasing our sales revenue, we must consider the damage a mass market strategy could cause to the

long-term value of the product.

We have seen products sold by much larger companies that were substantially damaged by such failed market

launch strategies.

We continue to develop detailed launch plans, focusing on the readiness of dairy operators to successfully introduce

Re-Tain ® to their herds.

We believe that these prudent steps, while potentially leading to lower initial Re-Tain ®

revenues, may create a smooth and successful launch and could safeguard the longer term performance of our investment in Re-Tain ® .

We also believe that the operational adjustments and accommodations that dairy farmers will need to make to effectively use Re-Tain ®

and avoid the potential problems described under PART I:

ITEM 1A – RISK FACTORS , “Product Risks”, to this Annual

Report will not be so burdensome as to deter its adoption and usage.

Our overarching objective is to minimize the risk of early-stage

unsatisfactory outcomes that could harm the longer-term prospects and market acceptance of Re-Tain ® .

is difficult to accurately estimate the potential size of the subclinical mastitis market because presently this disease is largely left

We believe that approximately 20% to 40% of the U.S.

dairy herd is infected with subclinical mastitis at any given time.

compares to approximately 2% of the U.S.

herd that is thought to be infected with clinical mastitis, where approximately $60 million per

year is spent on drug treatments.

Rarely is an industry revolutionized overnight.

Getting producers to change protocols to make subclinical

mastitis treatment a standard and routine procedure is going to take initiative, but we believe producers are eager for something new

and better since the FDA has not approved an intramammary treatment within the last 20 years.

Similar market opportunities are

likely to exist outside the United States.

We believe the use of Re-Tain ® could be expanded, with additional data

and regulatory approval, to support treatment late in lactation and possibly for clinical stage mastitis.

We also believe there may be

a market for Re-Tain ® in small ruminants, where

the majority of mastitis cases are caused by strep-like organisms aligned with our effectiveness data.

We expect the Drug Substance production facility

that we constructed for approximately $20.8 million to have initial annual production capacity sufficient to meet at least $10 million

in sales of Re-Tain ® at current production yields.

This production capacity estimate does not yet reflect any inventory

build strategies or ongoing yield improvement initiatives.

Expansion of the estimated annual capacity of the Drug Substance facility beyond

approximately $10 million (without factoring in potential yield improvements) would require relocation of the Drug Product formulation

and aseptic filling module to another facility, or the acquisition and equipping of other Drug Substance production facilities or adopting

alternative manufacturing strategies.

In an effort to provide greater visibility into

the launch of Re-Tain ® , we have expanded Note 17, “Segment Information”, to the accompanying audited

financial statements to now display a break-out of our financial results among the following three components of our business:

ii) Mastitis and iii) Other.

This will allow investors to see our progress with both products.

We generally do not provide financial projections,

as we know such projections can prove to be materially inaccurate.

However, in this case, we are providing a high-level projection for

Re-Tain ® that under our controlled launch plan strategy, we estimate that we can achieve sales of approximately

$1 million in 2024 and then achieve approximately twice that in 2025.

This assumes FDA approval is achieved and that product launch is

initiated around the end of 2023.

If we are successful with this launch strategy, we would aim to grow this curve in 2026 and after.

believe this strategy lends itself to a more gradual adoption curve but higher and more sustainable sales over the long-term.

results will vary from these projections up or down.

Administrative Expenses

During the year ended December 31, 2022, administrative

expenses increased by less than 1%, or approximately $5,000, to $1.726 million in comparison to $1.721 million during the year ended December

Administrative expenses included approximately $122,000 and $156,000 of non-cash depreciation and stock-based compensation expenses

during the years ended December 31, 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.

expenses increased by 31%, or approximately $538,000, to $2.3 million in comparison to $1.7 million during the year ended December 31,

The increase in administrative expenses during the year ended December 31, 2022 compared to the year ended December 31, 2021 was

largely the result of the accrual of approximately $222,000 in deferred compensation expense (consisting of earned and unused paid time

off) during the first quarter of 2022.

Administrative expenses included approximately $148,000 and $122,000 of non-cash depreciation and

stock-based compensation expenses during the years ended December 31, 2022 and 2021, 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.

Given the growth in our business, our administrative staff has increased to four talented individuals

reporting to our CEO.

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.

Net Operating Income (Loss)

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.

Having experienced this efficiency, it is our intent

to continue with the same strategy, for the most part, even as travel restrictions continue to be reduced.

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.

We believe these efforts have

helped us access the capital markets to fund our growth objectives.

Considering inflation and all the necessary support services that

fit into this category, we believe that approximately $2 million to $2.5 million per year is an efficient budget goal to fund the administrative

expenses of a publicly-held company.

Net Operating (Loss) Income

During the year ended December 31, 2022, our

net operating income of $257,000 was in contrast to a net operating (loss) of ($1.4 million) during the year ended December 31, 2020.

The $1.8 million increase in gross margin during the year ended December 31, 2021 compared to the year ended December 31, 2020 was the

largest contributor to this swing from loss to income.

ImmuCell Corporation

Other Expenses (Income),

net operating (loss) of ($2.3) million was in contrast to net operating income of $257,000 during the year ended December 31, 2021.

$1.5 million increase in operating expenses and the $1 million decrease in gross margin made up most of the $2.6 million increase in the

net operating loss.

Other Expenses, net

During the year ended December 31, 2022 other

expenses, net, aggregated $327,000 in contrast to other income, net, of $348,000 during the year ended December 31, 2020.

The 2020 results

benefited from a $938,000 debt forgiveness from the federal government.

expense decreased to $314,000 during the year ended December 31, 2021 from $413,000 during the year ended December 31, 2020.

expenses, net, aggregated $187,000 in comparison to other expenses, net, of $327,000 during the year ended December 31, 2021.

expense increased to $349,000 during the year ended December 31, 2022 from $314,000 during the year ended December 31, 2021.

amortization of debt issuance costs (which is included as a component of interest expense) was $8,000 during both of the years ended December

31, 2022 and 2021.

During the year ended December 31, 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 $307,000 during the year ended December 31, 2021 from $310,000 during the year

ended December 31, 2020.

Other expenses, net, during the year ended December 31, 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.

Reflecting the mortgage

debt financing we completed during the first quarter of 2022, we anticipate that our interest expense will be approximately $325,000,

$317,000 and $285,000 during the years ending December 31, 2022, 2023, and 2024, respectively.

income was $19,000 and $27,000 during the years ended December 31, 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.

annual results included a net loss of $31,000 and $39,000 related to the non-cash write-offs of fixed assets during the years ended December

31, 2021 and 2020, respectively.

We anticipate that our interest expense will be approximately $352,000, $323,000 and $279,000 during the years

ending December 31, 2023, 2024 and 2025, respectively.

Interest income was $153,000

and $19,000 during the years ended December 31, 2022 and 2021, respectively.

More interest income was earned during 2022 largely

because of a higher interest rate environment.

The (gain) loss on disposal of property,

plant and equipment was approximately ($7,000) and $31,000 during the years ended December 31, 2022 and 2021, respectively.

Loss Before Income Taxes

the year ended December 31, 2021, our loss before income taxes decreased by 93%, or $963,000, to ($69,000) in comparison to a loss before

income taxes of ($1 million) during the year ended December 31, 2020.

During the year ended December 31, 2022, our

loss before income taxes was $2.5 million in comparison to a loss before income taxes of $69,000 during the year ended December 31, 2021.

Income Taxes and Net Loss

During the years ended December 31, 2022 and

2020, we recorded income tax expense (benefit) of $9,000 and ($10,000), respectively.

Our net loss of ($78,000), or ($0.01) per basic

share, during the year ended December 31, 2021 was in comparison to a net loss of ($1 million), or ($0.14) per basic share, during the

year ended December 31, 2020.

For tax return purposes only, our depreciation

expense for the Nisin Drug Substance production facility and equipment was approximately $492,000, $464,000, $639,000, $9.2 million and

$1.5 million for the years ended December 31, 2021, 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, 2021, our federal net operating loss carryforward

was approximately $14.7 million, which will be available to offset future taxable income.

On December 22, 2017, the Tax Cuts and Jobs

Act was signed into law.

2021, we recorded income tax expense of $8,000 and $9,000, respectively, which is comprised of minimum state tax liabilities.

loss of $2.5 million, or $0.32 per basic share, during the year ended December 31, 2022 was in comparison to a net loss of $78,000, or

$0.01 per basic share, during the year ended December 31, 2021.

We have substantial net operating loss carryforwards

that largely offset our income tax expense.

For tax return purposes only, our depreciation expense for the Nisin Drug Substance production

facility and equipment was approximately $425,000, $492,000, $464,000, $639,000, $9.2 million and $1.5 million for the years ended December

31, 2022, 2021, 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, 2022, our federal net operating loss carryforward was approximately $15.5 million, which

will be available to offset future taxable income, subject to possible annual limitations based on ownership changes.

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

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

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 audited financial statements to

assess the cash generating ability of our operations.

Our income tax rate differs from this statutory 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 results discussed above from

our Statements of Operations, we believe it is important to consider our Statements of Cash Flows in the accompanying audited financial

statements to assess the cash generating ability of our operations.

Critical Accounting Policies

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certain policies that we consider critical to the operations of our business and understanding our financial statements.

ImmuCell Corporation

We sell products that provide Immediate Immunity™

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Work-in-process and finished goods inventories include materials, labor and manufacturing overhead.

The assumptions used by management

to determine the cost of inventory and costs of goods sold involve a significant level of estimation and uncertainties that could have

a material impact on our financial condition and results of operations largely because of the variability of the costs per dose due to

fluctuations in the biological yield from production batch to batch.

ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT

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What changed 10-K

Item 7. Management’s Discussion and Analysis