What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-04-01 compared with 2023-03-29 · 793 added, 722 removed, 240 unchanged (86% of the section changed)

3 unchanged sentences

financial condition and results of operations should be read together with our audited financial statements and the related notes and

other financial information included in Part II, Item 8, “Financial

Statements and Supplementary Data” of this Annual Report on Form 10-K.

Some of the information contained in this discussion and

analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business,

other financial information included in Part II:

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA of this Annual Report.

Some of the information contained in this discussion

and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business,

includes forward-looking statements that involve risks and uncertainties.

One should review Part I , Item 1A — “Risk

Factors” of this Annual Report for a discussion of some of the important factors that could cause actual results to differ materially

from the results, objectives or expectations described in or implied by the forward-looking statements contained in the following discussion

One should review Part I:

ITEM 1A — RISK FACTORS

of this Annual Report for a discussion of some of the important factors that could cause actual results to differ materially from

the results, objectives or expectations described in or implied by the forward-looking statements contained in the following discussion

and analysis.

OUTLINE TO ITEM 7 – MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND RESULTES OF OPERATIONS

- Liquidity and Capital Resources

- Results of Operations

- Critical Accounting Policies

Liquidity and Capital Resources

Net cash used for operating activities was $4.7

($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

million during the year ended December 31, 2023 in comparison to net cash used for operating activities of $1.5 million during the year

ended December 31, 2022.

The $3.1 million increase in cash used for operating activities during the year ended December 31, 2023 compared

to the year ended December 31, 2022 was largely caused by the $3.3 million increase in the net loss which was, in turn, largely the result

of $3.8 million less gross margin being earned during 2023, due to the production contamination events discussed below.

Approximately

$1.4 million less cash was received from the collection of accounts receivable, which was largely offset by $1.2 million less cash being

invested in inventory during the year ended December 31, 2023 compared to the prior year.

Our inventory balance increased by $1.8 million

to $7.8 million as of December 31, 2023 from $6 million as of December 31, 2022.

Our total depreciation and amortization expense was approximately

$2.7 million and $2.5 million during the years December 31, 2023 and 2022, respectively.

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 $1.9 million during the year

ended December 31, 2023 in comparison to net cash used for investing activities of $4 million during the year ended December 31, 2022

consisting primarily of cash spent to fund the purchase of property, plant and equipment.

Net cash provided by financing activities increased

to $1.8 million during the year ended December 31, 2023 in comparison to net cash provided by financing activities of $1.1 million during

the year ended December 31, 2022.

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

We received gross debt proceeds of $3 million and $2 million during the years ended December 31, 2023

and 2022, respectively.

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.

We had aggregate debt outstanding (net of debt issuance and debt discount costs) of approximately $12 million

and $10.2 million as of December 31, 2023 and 2022, respectively.

This debt bears interest at fixed rates.

The blended interest rate on

the debt outstanding as of December 31, 2023 and 2022 is 4.51% and 3.65% per annum, respectively.

Debt principal repayments aggregated

$1.2 million and $897,000 during the years ended December 31, 2023 and 2022, respectively.

We anticipate that debt principal repayments

will aggregate approximately $1.5 million during both of the years ending December 31, 2024 and 2025.

Interest expense (including amortization

of debt issuance and debt discount costs) was $476,000 and $349,000 during the years ended December 31, 2023 and 2022, respectively.

anticipate that interest expense (including amortization of debt issuance and debt discount costs) will be $563,000 and $492,000 during

the years ending December 31, 2024 and 2025, respectively.

During the first quarter of 2024, the availability of our $1.0 million line

of credit, which bears interest at the National Prime Rate per annum, was extended until September 11, 2025.

There was no outstanding

balance under this line of credit as of December 31, 2023 or 2022.

See Note 10 to the accompanying audited financial statements for more

information about our bank debt.

ImmuCell Corporation

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):

quarter of 2021, we raised gross proceeds of $26.7 million (net proceeds were $24.8 million) from six different common equity transactions

priced between $5.25 and $8.25 per share with a weighted average price of $5.87 per share.

No 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.

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.

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

(Decrease) Increase

December 31, 2022

December 31, 2021

Cash and cash equivalents

2 unchanged sentences

Common shares outstanding (1)

(1) There were approximately 605,000 and 443,000 shares of common

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

ImmuCell Corporation

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

Year Ended December 31, 2014

Year Ended December 31, 2015

Year Ended December 31, 2016

Year Ended December 31, 2017

( 1) There were 618,500 and

605,000 shares of common stock reserved for issuance for stock options that were outstanding as of December 31, 2023, and 2022, respectively.

We have invested and continue to invest in several different capital

expenditure projects to increase our estimated annual full production capacity for the First Defense ® product line

from approximately $16.5 million to approximately $40 million and to complete the development of Re-Tain ® .

we describe the production capacity for the First Defense ® product line in this Annual 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.

During the three-year period ended December 31,

2016, we invested the aggregate of $4.2 million to construct a 7,100 square foot facility addition at 56 Evergreen Drive and related equipment

(primarily Freeze-Dryer #2) and cold storage capacity 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.

During the first quarter of 2016, we completed this investment, which also included the construction and equipping of a pilot plant for

small-scale DS production for Re-Tain ® within our First Defense ® production facility at 56

Evergreen Drive.

After construction of the DS production facility for Re-Tain ® at 33 Caddie Lane (described in the

next paragraph) was completed, this space was converted for use in the production of the gel tube formats of the First Defense ®

product line.

After construction of Building 175A (described below) was completed, this space was converted to double our liquid

processing capacity.

During the four-year period ended December 31,

2018, we invested the aggregate of $21.6 million to construct a DS production facility for Re-Tain ® at 33 Caddie

During the fourth quarter of 2017, we completed construction of the DS production facility.

We began equipment installation during

the third quarter of 2017, and we completed this installation during the third quarter of 2018.

The total cost of this investment for

the DS production facility and related processing equipment was $20.8 million plus $331,000 for the land and $472,000 for the acquisition

of an adjacent 4,080 square foot warehouse facility at 14 Wedge Way, which will be used for packing, shipping and cold storage of Re-Tain ®

and other warehousing needs.

During 2019, we initiated several additional

capital expenditure investments in First Defense ® and Re-Tain ® as detailed in the following

table (in thousands):

First Defense ®

Year Ended December 31, 2019

6 unchanged sentences

Total Project Cost

PROJECT A included a 7,100 square foot

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

production facility for Re-Tain ® at 33 Caddie Lane.

During the fourth quarter of 2017, we completed construction

of the Drug Substance production facility.

We began equipment installation during the third quarter of 2017, and we completed this installation

investment of approximately $5.5 million of these funds for First Defense ® and Re-Tain ® projects

has been deferred for the time being.

These figures are rough estimates for the work to be completed that have not been put out to bid

for firm cost quotations or contracts at this time.

ImmuCell Corporation

The primary purpose of the additional investment

in First Defense ® is to fulfill the current backlog and materially reduce the risk of another order backlog.

at very close to 100% of available capacity is not efficient or sustainable.

Our objective is to be in position to operate without significant

contaminations at the capacity level we choose to cover sales with adequate buffer stock, which would allow more time for necessary preventative

maintenance, and to have redundancy in place for when equipment failures occur.

In addition to running without significant product contaminations

or equipment failures, we need to meet or exceed our production yield assumptions to succeed.

The first phase of the additional investments

in First Defense ® included significant renovations to a 14,300 square foot leased facility at 175 Industrial Way

( Building 175A ), some facility modifications at 56 Evergreen Drive and the necessary production equipment (including Freeze-Dryer

#3) to increase our freeze-drying capacity by 50% and our liquid processing capacity by 100%.

This resulted in increasing 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.

Renovations of Building 175A to enable this expansion were completed during the second quarter of

By moving our powder and gel filling and assembly services from 56 Evergreen Drive into this new space, we created space at 56 Evergreen

Drive for the installation of the expanded freeze-drying capacity.

The new facilities are built to contemporary current Good Manufacturing

Practices (cGMP) standards with efficient material and people flows.

A site license approval for this new facility was issued by the USDA

during the third quarter of 2020.

The total cost of this investment for the Drug Substance production facility and related processing

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

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).

During the second quarter of 2021, we completed the relocation of our gel formulation equipment from

56 Evergreen Drive to Building 175A , which created the space necessary to double our liquid processing capacity at 56 Evergreen

We obtained site license approval of the expanded freeze-drying capacity (Freeze-Dryer #3) 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.

This investment also included equipment and vehicle investments necessary to expand and

improve our colostrum collection capabilities and logistics.

second phase of the additional investments in First Defense ® included the installation of Freeze-Dryer #4 to further

increase the estimated annual production capacity of the First Defense ® product line (in terms of annual sales dollars)

by an additional 33% from approximately $23 million to approximately $30 million.

Due to supply disruptions affecting key components and

equipment, this investment was not completed until the end of 2022.

This investment also includes 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 for First Defense ®

at 56 Evergreen Drive and Building 175A .

This phase included the automation of our gel filling operations.

The third phase of the additional investments

in First Defense ® involves the initiation of a new

investment in building modifications and equipment to further increase our estimated 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, we initiated this project by entering into a lease amendment during the third quarter of 2022 covering a to-be-constructed

15,400 square foot building shell connected to Building 175A for approximately $250,000 per year.

Construction of the building

shell by our landlord was substantially complete as of April 1, 2023, and rent payments commenced as of August 1, 2023.

We made this lease

commitment because of the unique proximity of the land adjacent to our currently leased space and the high level of demand for properties

of this type in the Portland market.

We did not want to risk losing this opportunity to others.

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 estimated annual production capacity to above $30 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 close to 100% of capacity in order to fill the backlog

One of our objectives is to create a more sustainable production schedule.

However, due to the loss in gross margin during

2023 caused by the slowdown in production output necessary to remediate the product contamination events discussed below, we have decided

to defer most of this investment, for the time being.

During the third quarter of 2023, we initiated the initial steps of this project

with a budget of approximately $700,000.

We completed this work during the first quarter of 2024, which will provide additional warehousing

space and allow us to move all shipping and receiving functions out of 56 Evergreen Drive to create more space for liquid processing.

In consideration for our landlord agreeing to pay for the cost of those certain tenant improvements, we are obligated to make additional

rent payments of $20,000 per month from November 2023 through June 2024 and a one-time additional rent payment of $488,743 in July 2024.

ImmuCell Corporation

PROJECT D is a $4 million budgeted investment

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

The purpose of the additional investments in

Re-Tain ® is to bring the formulation and aseptic filling capabilities for Re-Tain ® DP into

available space in our DS facility to end our reliance on third-party DP manufacturing services as well as to build out warehouse space

at 14 Wedge Way for packing and shipping facilities for Re-Tain ® .

We began initial installation of the filling equipment

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 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

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.

Then we paused this installation work pending concurrence with the FDA pertaining to our third submission

of the Chemistry, Manufacturing and Controls (CMC) Technical Section, which is discussed in greater detail below.

Due to the loss in gross

margin during 2023 caused by the slowdown in production output necessary to remediate the product contamination events discussed below,

we have decided to defer the spending of approximately $2 million of these funds, for the time being.

At the same time, we are investigating

other potential relationships with contract manufacturers that might do this work for us so that we can avoid this use of funds.

decide to resume the in-house strategy, we would anticipate FDA approval of this facility (which is a requirement for commercial manufacturing)

at least two years after we resume spending on this project.

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:

Portland approved a Tax Increment Financing (TIF) credit enhancement package that reduces the real estate taxes on our DS 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 we are paying:

Assessed Value

Total New Taxes

$1.7 million @ April 1, 2017

10 unchanged sentences

June 30, 2023

$4.3 million @ April 1, 2023

June 30, 2024

Results of Operations

1 unchanged sentence

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

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.

The Scours segment is dedicated to manufacturing and selling First Defense ® , a

product used to prevent scours in newborn calves, which is regulated by the United States Department of Agriculture (USDA).

segment is focused on developing and commercializing Re-Tain ® , a product to treat

subclinical mastitis in lactating dairy cows, which is regulated by the United States Food and Drug Administration (FDA).

Production Capacity Increase, Product Contamination and Related

During 2018, it became clear that demand for

Tri-Shield First Defense ® was outpacing production.

In response to this increasing demand, we began a series of

investments during 2019 to increase our production capacity for the First Defense ® product line to an estimate of

approximately $30 million per year.

Over recent years, we have invested more than $12.4 million to increase our production capacity to

meet the still-growing demand.

This investment in equipment and facilities represents approximately 50% of our stockholders’ equity

as of December 31, 2023.

Although we have not yet been able to achieve our production output goals, we remain deeply committed to continuing

to supply First Defense ® to the market over the long term, despite the current short supply.

Our production process

is a very complicated one, which makes it difficult to scale-up quickly.

We can’t just flip a switch and pump out more widgets.

ImmuCell Corporation

The past year or so has been considerably challenging

As of July 2022, we had completed almost all of the facility expansion work and new equipment installations needed to significantly

increase our production capacity.

However, the most critical piece of new equipment (being Freeze-Dryer #4) was delivered six months late

by the fabricator.

As this increased production capacity was coming online, a product contamination event was detected by standard in-process

quality control testing around the end of the third quarter of 2022.

Scrapped product from contamination events and other production process

losses during 2022 (largely due to the contamination event around the end of the third quarter) resulted in a total charge to costs of

goods sold of $589,000 during 2022.

We took immediate steps to address the contamination, and production ran without issue during the

balance of the fourth quarter of 2022.

By the end of 2022, we had Freeze-Dryer #4 approved for use by the USDA.

Just as we began to operate

at this higher level of capacity at the beginning of 2023, we were forced to slow down production to remediate a second contamination

event related to our incoming raw material.

In response to this contamination event, we slowed down our production output as we took the

necessary steps to assess and remediate the issues to ensure that any product that is released to market continues to meet all quality

At the same time, Freeze-Dryer #2 stopped operating requiring a six-month repair, netting us back to three operating freeze

As of early July 2023, we were back to four operating freeze dryers, and we believed that the contamination events were largely

We subsequently experienced a third contamination event in September 2023 impacting two lots of work-in-progress inventory.

Although all of the incoming material utilized in this production phase had passed quality control testing, the product failed the quality

control tests later in the production process.

The production pause necessary to remediate the problem reduced our production output during

September and October of 2023.

Scrapped product from contamination events and other production process losses during 2023 resulted in

a total charge to costs of goods sold of $527,000 during 2023.

The production slowdown during the first ten

months of 2023, has, in part, caused an increase in the amount of our order backlog from approximately $2.5 million as of December 31,

2022 to approximately $9.4 million as of December 31, 2023.

This backlog increased further to $10.3 million as of March 8, 2024.

be certain that this backlog will be converted to sales because it includes orders that were placed months ago, redundancy in demand and

orders that may be cancelled.

We believe that the ongoing implementation of our capacity expansion plans and the corrective actions being

taken in response to these contamination events should allow us to operate without further significant contaminations going forward with

estimated annual production capacity of approximately $30 million during the latter part of the fourth quarter of 2023 and into 2024.

While we produced far less than we needed during 2023, we believe that our remediation efforts are allowing us to steadily ramp back up

to full production capacity.

With the positive trend in our quality control test results described above, we are building back production.

As we resume full production, our goal is to be able to produce at least $6 million or more worth of product per quarter, which would

annualize to about 80% or more of our estimated $30 million annual production capacity.

Finished goods produced increased steadily from

approximately $3.3 million to $4 million and further to $5.3 million during the first, second and third quarters of 2023, respectively,

before dropping modestly to $5.1 million during the fourth quarter of 2023.

The output levels achieved during the months of November and

December of 2023 annualize to approximately $26.8 million, which equates to an average quarterly production of approximately $6.7 million.

Since February of 2023, we have been pursuing

an insurance claim under our business interruption policy to offset a small portion of the losses that we have incurred related to at

least three different product contamination events.

While our financial losses are far larger, we are seeking a $750,000 insurance benefit.

To date, we have received $250,000.

The balance of this claim is under review by our underwriter.

We cannot estimate the likelihood of

our success with this claim.

The increase in sales demand for First Defense ®

is both exciting and challenging for us.

The learnings from the remediation of the contamination events have improved our production processes

going forward.

We have implemented several important improvements at the source farm level including more product and environmental testing,

more training of farm staff and better enforcement of our protocols.

While we never release product to the market that does not pass our

final quality control release tests, we had allowed product to advance in the production process at risk, while the in-process quality

control tests were being performed.

We no longer advance product to the next stage before the complete quality control test results are

While this does add time to the production cycle, we believe that it has helped us reduce further contaminations.

Notwithstanding

the challenges that contamination events have posed for us, we are excited to be approaching both our estimated full capacity of approximately

$30 million per year for First Defense ® (with a flex option to increase our estimated full capacity to approximately

$40 million per year in the future) while, at the same time, advancing to the final stages of a very significant FDA product development

initiative with Re-Tain ® .

ImmuCell Corporation

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 ® .

Our near-term goal is to increase and stabilize

supply, regain lost business and re-establish our growth curve.

However, the 2023 production shortage caused largely by certain contamination

events may prove to be more detrimental to our growth curve than any prior production shortage because it impacted more customers for

a longer period of time.

Through continued growth in sales of the First Defense ® product line, and the dedication

of additional resources to production, sales, marketing and technical services, it is our objective to exceed our total product sales

of approximately $17.5 million and $18.6 million achieved during the years ended December 31, 2023 and 2022, respectively, as soon as

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

after the market launch of Re-Tain ® .

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

1 unchanged sentence

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

The production slowdown necessary to remediate the

contamination events described above resulted in significantly reduced sales during the first ten months of 2023.

During this period of

short supply when we have been selling product as soon as it is produced, our sales are less impacted by the historically high seasonality

during the first quarter of each year.

Sales during the three-month period ended March 31, 2023 were $3.45 million, representing a 12%,

or $464,000, decrease from sales of $3.9 million during the fourth quarter of 2022.

Sales during the three-month period ended June 30,

2023 were $3.53 million, representing a 2%, or $86,000, increase over sales during the first quarter of 2023.

Sales during the three-month

period ended September 30, 2023 were $5.4 million, representing a 53%, or $1.9 million, increase over sales during the second quarter

Sales during the three-month period ended December 31, 2023 were $5.1 million, representing a 6%, or $301,000, decrease from

sales during the third quarter of 2023.

Sales during the second half of the year were stronger as we were able to increase production.

Sales during the six-month period ended December 31, 2023 were $10.5 million, representing a 50%, or $3.5 million, increase over sales

of $7 million during the six-month period ended June 30, 2023.

Quarter to quarter sales over the past two years are displayed in the following

ImmuCell Corporation

Sales increased by 30%, or $1.2 million, to $5.1

million during the three-month period ended December 31, 2023, in comparison to $3.9 million during the three-month period ended December

Domestic sales during the three-month period ended December 31, 2023 increased by 29%, and international sales increased by

46%, in comparison to the three-month period ended December 31, 2022.

International sales aggregated 6% of total sales during both of

the three-month periods ended December 31, 2023 and 2022.

The quarterly sales results are summarized in the following table (in thousands,

except for percentages):

During the Three-Month

Periods Ended December 31,

Total product sales

Our lack of product supply drove a sales decrease

of 6%, or $1.1 million, to $17.5 million during the year ended December 31, 2023, in comparison to $18.6 million during the year ended

December 31, 2022.

Domestic sales during the year ended December 31, 2023 decreased by 6%, and international sales decreased by 2%, in

comparison to the year ended December 31, 2022.

International sales aggregated 9% and 8% of total sales during the years ended December

31, 2023 and 2022, respectively.

The sales results for the annual periods are summarized in the following table (in thousands, except

for percentages):

During the Years

Ended December 31,

Total product sales

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 ®

product line aggregated 99% of our total sales during both of the years ended December 31, 2023 and 2022.

Our sales are generally seasonal

with highest demand expected during the first quarter of each year.

However, as we fulfill our large backlog of orders, we do not expect

to see as much of this seasonal demand swing in our product sales.

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

rate (CAGR) of our total product sales was 10.8%, 9.7% and 6.2% during the twelve-year, five-year, and four-year periods ended December

31, 2023, 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.

We likely lost some business during 2022 and

2023 as a result of the backlog.

During the first half of 2023, the impact of tight supplies hit even harder leaving our customers without

product during their busiest calving season.

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 some of these customers may not resume

purchasing our product when we have eliminated the backlog.

While 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

1 unchanged sentence

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

as we expect inventory to become available.

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

and will aggressively compete for new business.

3 unchanged sentences

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

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.

We are reporting this figure because it reflects the orders on our books presently that we

We are concerned that this backlog amount may not be highly relevant at this time as it includes very old orders, redundancy

in demand and orders that may be cancelled given the time that has passed since they were originally placed.

However, when we required

all distributors to replace their orders around November 15, 2023 to reflect an 8% price increase, the amount of the backlog, in fact,

increased rather than decreased.

We believe this reflects strong demand for our product.

ImmuCell Corporation

The backlog was reduced from approximately $2.4

million as of December 31, 2021 to approximately $205,000 as of September 30, 2022.

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 $7.5 million

as of March 31, 2023 and increased to approximately $8 million as of June 30, 2023 and increased to approximately $8.9 million as of September

30, 2023 and increased to approximately $9.4 million as of December 31, 2023 (as demonstrated in the table below).

As of March 8, 2024,

the backlog of orders was approximately $10.3 million.

As sales demand increased

while our production output was reduced, the value of our order backlog has fluctuated as demonstrated in the following table:

We believe that we are on the right track to

increase production output, but we still have more work to do to catch up to product demand.

We anticipate that we are in good position

to move past the contamination events that materially affected our output during late 2022 and through the first ten months of 2023 and

are positioned to execute on our plan to resume sales growth in 2024.

Finished goods produced increased steadily from approximately $3.3

million to $4 million and further to $5.3 million during the first, second and third quarters of 2023, respectively, but then dropped

off slightly to $5.1 million during the fourth quarter of 2023.

Our objective is to produce finished goods with an approximate sales value

of $6 million or more per quarter, as we implement and optimize recent investments to increase its production capacity.

Fourth quarter

2023 production was limited by lower output during the month of October, which was caused by a contamination event in September 2023.

After remediating this event, we achieved full production during the balance of the quarter.

The output levels achieved during the months

of November and December 2023 annualize to approximately $26.8 million, which equates to an average quarterly production of approximately

$6.7 million.

We implemented an average price increase of approximately

8% on the First Defense ® product line effective November 15, 2023.

The backlog of orders was worth approximately

$9 million just before this price change.

We had some concern that the value of the backlog might decrease materially if customers chose

not to replace all orders at the new price given that many of those orders were dated.

However, we did not see a decrease in the backlog

after the price increase which validated the strength of the order demand.

We acquired a private label product in connection

with our January 2016 acquisition of certain gel formulation technology.

This 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 , which is used to detect somatic cell counts in milk.

Sales of these products (other than the First Defense ®

product line) increased by 53%, or $19,000, to $56,000 during the three-month period ended December 31, 2023, in comparison

to the three-month period ended December 31, 2022.

Sales of these other products aggregated 1% of our total product sales during both

of the three-month periods ended December 31, 2023 and 2022.

Sales of these products increased by 14%, or $22,000, to $178,000 during

the year ended December 31, 2023, in comparison to the year ended December 31, 2022.

Sales of these other products aggregated 1% of our

total product sales during both of the years ended December 31, 2023 and 2022.

Effective January 1, 2022, we increased our selling

price of the First Defense ® product line by approximately

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

5% and CMT by approximately 7%.

Effective January 1, 2023, we increased our selling price of the First Defense ®

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

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.

product line by approximately 4% (range of 2% to 8%) and CMT by approximately 5%.

Effective November 15, 2023,

we increased our selling price for the First Defense ®

product line by an average of 8% and for CMT by approximately 12%.

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

less costs of goods sold) and our gross margin as a percentage of product sales during the three-month periods and years ended December

31, 2023 and 2022 are summarized in the following tables (in thousands, except for percentages):

During the Three-Month

Periods Ended December 31,

Percent of product sales

The gross margin as a percentage of product sales

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

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.

During the Years

Ended December 31,

Percent of product sales

The very significantly reduced gross margin (on

both a dollar and percentage of sales basis) during the year ended December 31, 2023 was largely the result of the significant decrease

in sales during the first ten months of 2023, which was caused by a reduction in production output, not by a reduction in demand.

reduction in production output was, in turn, the result of our decision to slow down our production rate while remediating the production

contamination events, while not yet operating at our anticipated increased production output level.

During 2023, we did not benefit from

spreading our fixed costs over higher volumes as we normally do.

Further, we did not furlough any labor during this production slowdown.

The gross margin as a percentage of product sales was 41%, 45%, 45%, 49%, 47% and 50% during the years ended December 31, 2022, 2021,

2020, 2019, 2018 and 2017, respectively.

The gross margin during the year ended December 31, 2023 was significantly less than what we

have experienced historically and significantly less than what we anticipate going forward.

The product contamination events and other

production process losses experienced during 2023 and 2022 resulted in scrapped inventory valued at approximately $527,000 and $589,000,

respectively.

Absent these write-offs, our gross margin as a percentage of product sales would have been approximately 25% and 44% during

the years ended December 31, 2023 and 2022, respectively.

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 have mitigated the risk of reoccurrence of such losses through the implementation

of certain new quality control steps and manufacturing processes and facility improvements.

significant global supply-chain disruptions that almost all industries are experiencing presently are a challenge to us.

of our supplies, components, raw materials, and services increased significantly during 2021 and that trend continued during 2022 and

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

While our biological and process yields can be

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

The Tri-Shield ®

5 unchanged sentences

resulting in some fluctuations in gross margin percentages from quarter to quarter and from year to year.

Like most U.S.

manufacturers,

we have also been experiencing increases in the cost of labor and raw materials.

We also invest to sustain compliance with current Good

Manufacturing Practices (cGMP) in our production processes.

Increasing production can be more expensive in the initial stages.

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.

This ensures that every calf is equally protected, which

is something that dam-level commercial scours vaccines cannot offer.

We continue to work on processing and yield improvements and other

opportunities to reduce costs, while enhancing process knowledge and robustness.

Over time, we have been able to reduce the impact of

cost increases by implementing yield improvements.

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

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

To achieve our inventory production growth objectives, we continue to acquire more raw material (colostrum) from many more cows

at several new farms.

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 the time of year and immune competency, our source cows have similar biological variances

in response to our proprietary vaccines.

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.

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.

This ensures that

every calf is equally protected, which is something that dam-level commercial scours vaccines cannot offer.

We continue to work on processing

and yield improvements and other opportunities to reduce costs, while enhancing process knowledge and robustness.

Over time, we have been

able to reduce the impact of cost increases by implementing yield improvements.

We believe that gross margin results going forward 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 48%.

ImmuCell Corporation

Product Development Expenses

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

During the year ended December

31, 2023, product development expenses decreased by 2%, or $99,000, to $4.4 million in comparison to $4.5 million during the year ended

December 31, 2022.

Product development expenses aggregated 25% and 24% of product sales during the years ended December 31, 2023 and 2022,

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

Product development expenses included non-cash depreciation and stock-based compensation expenses of $1.5 million and $1.4

million during the years ended December 31, 2023 and 2022, respectively.

Approximately $1.3 million of these non-cash expenses were comprised

of depreciation expenses pertaining to our DS facility for Re-Tain ® during both of the years ended December 31,

2023 and 2022.

We began depreciating this asset when the Certificate of Occupancy for the new construction was issued during the fourth

quarter of 2017, but sales of our new product cannot be realized until we achieve FDA approval.

We expect our product development expenses

to decrease modestly during 2024 as we produce less product for commercial launch and somewhat further after Re-Tain ®

is commercialized and some of the costs incurred to maintain and run our DS production facility become part of our costs of goods sold.

Development objective:

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.

we work to change 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.

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

Rather, it consists of a highly targeted active ingredient without

an FDA-required milk discard or meat withhold.

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

ranges from approximately $36.00 (for 3.5 days of milk at 60 pounds per day at the Class III milk price average of $17.02 per hundredweight

during 2023) to approximately $150.00 (for 11 days of milk at 80 pounds per day at the Class III milk price average of $17.02 per hundredweight

during 2023) 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 achieve regulatory approval of our manufacturing operations.

Development status :

2 unchanged sentences

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.

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.

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:

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.

status of our work on these submissions to the FDA is as follows:

1) Environmental

8 unchanged sentences

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.

agalactiae , Streptococcus dysgalactiae , Streptococcus

uberis , and coagulase-negative staphylococci in lactating dairy cattle.

mastitis, and the study required to achieve an effectiveness claim for it, is defined under the FDA/Center for Veterinary Medicine Guidance

Target Animal Safety and Drug Effectiveness Studies for Anti-Microbial Bovine Mastitis Products (Lactating and Non-Lactating Cow

Trial eligibility requires both pretreatment samples to be positive for the mastitis pathogen (except for Staphylococcus

aureus and Streptococcus agalactiae , where a single pretreatment

sample qualifies a cow for enrollment).

For all pathogens, both samples taken between 14 and 28 days post treatment (and at least

5 days apart) must be negative to be judged a cure.

These conservative criteria generally result in enrolling cows with chronic subclinical

disease, which rarely self-resolves .

ImmuCell Corporation

During the third quarter of 2018, we received the Human Food Safety Technical Section Complete Letter from the FDA confirming,

13 unchanged sentences

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.

Implementing Nisin DS (the active pharmaceutical ingredient) production, which is a required component of the CMC Technical

Section, has been the most 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.

As a result, 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 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.

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.

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) determine 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.

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.

This first-phased submission was followed by a second-phased submission covering both DS and DP, during the first quarter of 2021.

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.

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.

The submission required that internal and external laboratories re-develop

and qualify several analytical tests and associated controls.

We made this third DS and DP submission of the CMC Technical Section during

the third quarter of 2023.

In late October of 2023, the FDA notified us that it was refusing to review our submission because Norbrook

was identified as the DP manufacturer in our submission, but the FDA was expecting that we would identify our own in-house services as

the DP manufacturer (instead of Norbrook).

This miscommunication was due to a statement in our April 2022 response to an FDA 483 inspectional

observation in which we noted that Norbrook was expected to exit the DP manufacturing agreement with us at the end of 2022, which would

have required us to procure and install some long lead time equipment (filler and labeler) in our DS suite in late 2022.

Instead, we were

able to extend the agreement with Norbrook to complete the manufacture of DP inventory for the initial commercial sales under our Controlled

Launch strategy.

As a result, we continued to identify Norbrook as our DP manufacturer.

In fact, Norbrook has recently initiated production

of the launch goods, and this work has been extended into 2024 with labeling and final packaging occurring post-approval.

of this miscommunication, we were required to re-submit the CMC Technical Section.

If the FDA issues a Technical Section Complete Letter

in response to this re-submission, we believe that we could commence commercial sales approximately ten months from the November of 2023

re-submission date, allowing for the re-setting of the six-month CMC review period by the FDA followed by a two-month administrative review

period and approximately two additional months for labeling, packaging and shipping.

ImmuCell Corporation

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

and are building more DS inventory during 2022 and 2023 to support the initial commercial sales of Re-Tain ® .

As discussed above, our contract manufacturer has agreed to convert this DS to DP during the fourth quarter of 2023 and into 2024 with

associated product expirations of 18 to 24 months from the date of manufacture.

We anticipate a pause in the supply of product to market

after the initial launch goods are sold and before the product is re-launched with DP produced by our in-house aseptic filling operations

(if that investment is re-funded) or by an alternative contractor that we have not identified to date.

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

FDA inspections.

During the third quarter of 2019, the FDA conducted a pre-approval inspection of our DS facility.

This resulted in the issuance

of certain deficiencies as identified on the FDA’s Form 483.

We submitted responses and data summaries in a phased manner over the

fourth quarter of 2019 and first quarter of 2020.

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

1 unchanged sentence

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 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.

We have responded

to all of the queries.

Early during the first quarter of 2024, the FDA conducted another pre-approval inspection of our DS facility.

resulted in the issuance of one deficiency as identified on the FDA’s Form 483.

Since then, we have fully responded to this inspectional

The facility of our DP contract manufacturer is subject to similar inspectional compliance obligations.

always believed that the fastest route to FDA approval and market launch is with the services of Norbrook (an FDA-approved DP manufacturer),

reducing our risk by benefiting from their demonstrated expertise in aseptic filling.

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.

our current agreement, Norbrook will provide DP for the Controlled Launch with production in the fourth quarter of 2023 and into 2024.

We believe this will enable us to commence sales of Re-Tain ® without

delay upon receipt of the anticipated FDA approval.

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 (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.

During the first quarter of 2022, we initiated an investment in the installation of equipment to produce DP at our own facility

at 33 Caddie Lane.

Given the loss in gross margin during the first ten months of 2023 caused by the slowdown in production output that

was necessary to remediate the production contamination events, we have decided to defer the completion of this investment for the time

Subject to the timing of our installation and validation work, we anticipate FDA approval of this facility (which is a requirement

for commercial manufacturing) at least two years from when this project is restarted allowing for two six-month review cycles.

be a post-approval submission.

If we decide to complete our potential future DP manufacturing facility, such facility will, upon completion,

be subject to FDA inspection and approval.

We anticipate it would have enough formulation and aseptic filling capacity to exceed the expected

production capacity of our DS facility, which is approximately $7 million to $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, if completed, 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, if we decide to complete this

DP facility (rather than utilizing a third party for these services), 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.

would 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

filling facility, the only significant third-party input for Re-Tain ® would

be the DP syringes.

6 unchanged sentences

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 ® .

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

and marketing expenses increased by approximately 27%, or $686,000, to $3.2 million in comparison to $2.5 million during the year ended

December 31, 2021, amounting to 17% and 13% of product sales during the years ended December 31, 2022 and 2021, respectively.

marketing expenses included approximately $158,000 and $70,000 of non-cash depreciation and stock-based compensation expenses during the

years ended December 31, 2022 and 2021, respectively.

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.

most important product development initiative has been focused on other improvements, line 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

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

6 unchanged sentences

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

During the year ended December 31, 2023, sales

and marketing expenses decreased by 3%, or $102,000, to $3.1 million in comparison to $3.2 million during the year ended December 31,

2022, amounting to 18% and 17% of product sales during the years ended December 31, 2023 and 2022, respectively.

Sales and marketing expenses

included non-cash depreciation and stock-based compensation expenses of $182,000 and $158,000 during the years ended December 31, 2023

and 2022, respectively.

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

By decreasing sales

and marketing expenses by $321,000 during the fourth quarter of 2023 in comparison to the fourth quarter of 2022, we were able to reduce

sales and marketing expenses by $102,000 for the year ended December 31, 2023.

We continue to leverage the efforts of our small sales

force by using animal health distributors.

The First Defense ® product

13 unchanged sentences

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.

that are therapeutic multi-valent 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.

During the twelve-month period ended December

31, 2023, we treated more calves than our next largest calf-level competitive product, which is a vaccine administered to the newborn

Compared to the dam-level competitive products (which are vaccines given to the cow pre-calving), we are second in sales dollars

to the market leader.

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

We believe that Re-Tain ® could

25 unchanged sentences

to treat cows with subclinical infections.

ImmuCell Corporation

The over-use of antibiotics that are medically

12 unchanged sentences

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.

6 unchanged sentences

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 ® .

the first 18 to 24 months after FDA approval, as we seek to transform the way that mastitis is treated in the dairy industry over the

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

number 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.

We recognize that it will be important to manage expectations from the producer to the

milk processor because it is possible that processors may express reservations with regards to the zero milk discard claim.

Our Controlled

Launch strategy reduces the amount of inventory that we would need to build at risk before regulatory approval is achieved.

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 possible.

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.

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.

ITEM 1A – RISK FACTORS , 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 ® .

Administrative Expenses

During the year ended December 31, 2023, administrative

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.

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 (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

expenses decreased by 6%, or $130,000, to $2.1 million in comparison to $2.3 million during the year ended December 31, 2022.

Administrative

expenses included the accrual of $222,000 in deferred compensation expense (consisting of earned and unused paid time off) during the

first quarter of 2022.

This accrual was increased by $8,000 during 2023 reflecting current wage rates.

Administrative expenses amounted

to 12% of product sales during both of the years ended December 31, 2023 and 2022.

Administrative expenses included non-cash depreciation

and stock-based compensation expenses of $210,000 and $148,000 during the years ended December 31, 2023 and 2022, respectively.

to be efficient with these expenses while funding 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 employees 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.

Having experienced this efficiency, it is our intent to continue with the same strategy, for the most

part, even as travel restrictions have been largely eliminated.

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.

ImmuCell Corporation

Net Operating Loss

During the year ended December 31, 2023, our

net operating loss of $5.7 million was significantly larger than our net operating loss of $2.3 million during the year ended December

The $3.4 million increase in our net operating loss during the year ended December 31, 2023 was caused by the $3.8 million decrease

in gross margin, offset, in part, by a $330,000 reduction in operating expenses.

Other Expenses, net

1 unchanged sentence

expenses, net, aggregated $22,000 in comparison to other expenses, net, of $187,000 during the year ended December 31, 2022.

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.

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.

the year ended December 31, 2023, other income included insurance recovery income of $365,000 paid under our business interruption policy

related to the product contamination losses previously described and a recovery from a vendor’s insurance policy related to an equipment

malfunction that were received during the third quarter of 2023.

No such insurance recoveries were received during 2022.

Interest expense

increased to $476,000 during the year ended December 31, 2023 from $349,000 during the year ended December 31, 2022.

Non-cash amortization

of debt issuance and debt discount costs (which is included as a component of interest expense) was $23,000 and $8,000 during the years

ended December 31, 2023 and 2022, respectively.

We anticipate that our interest expense will be $563,000 and $492,000 during the

years ending December 31, 2024 and 2025, respectively.

Interest income was $97,000

and $153,000 during the years ended December 31, 2023 and 2022, 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.

The loss (gain) on disposal of property,

plant and equipment was $8,000 and ($7,000) during the years ended December 31, 2023 and 2022, respectively.

Loss Before Income Taxes

During the year ended December 31, 2023, 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.

loss before income taxes was $5.8 million in comparison to our loss before income taxes of $2.5 million during the year ended December

Income Taxes and Net Loss

1 unchanged sentence

2022, we recorded income tax expense of $5,000 and $8,000, 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.

loss of $5.8 million, or $0.75 per basic share, during the year ended December 31, 2023 was in comparison to net loss of $2.5 million,

or $0.32 per basic share, during the year ended December 31, 2022.

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

The legislation reduced the U.S.

that largely offset future income tax expense.

As of December 31, 2023, our federal net operating loss carryforward was $17.8 million.

As of December 31, 2023, our state net operating loss carryforward was $4.7 million.

On December 22, 2017, the Tax Cuts and Jobs Act was

signed into law.

This legislation made significant changes in the U.S.

tax laws, including a reduction in the corporate tax rates, changes

to net operating loss carryforwards and carrybacks, and a repeal of the corporate alternative minimum tax.

The legislation reduced the

corporate tax rate from 34% to 21%.

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.

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

1 unchanged sentence

statements to assess the cash generating ability of our operations.

Critical Accounting Policies

The financial statements are presented on the

basis of accounting principles that are generally accepted in the United States.

All professional accounting standards that were effective

and applicable to us as of December 31, 2022 have been taken into consideration in preparing the financial statements.

Critical Accounting Policies and Estimates

The audited financial statements are presented

on the basis of accounting principles that are generally accepted in the United States.

All professional accounting standards that were

effective and applicable to us as of December 31, 2023 have been taken into consideration in preparing the financial statements.

The preparation

1 unchanged sentence

and expenses, and related disclosure of contingent assets and liabilities.

On an on-going basis, we evaluate our estimates, including

those related to revenue recognition, income taxes, contingencies and the useful lives and carrying values of intangible and long-lived

We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances,

the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent

from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

We have chosen to highlight

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

On an on-going basis, we evaluate our estimates.

estimates include our valuation of inventory, long-lived assets, deferred tax assets and costs of goods sold.

We base our estimates on

historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form

the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

results may differ from these estimates under different assumptions or conditions.

We have chosen to highlight certain policies that we

consider critical to the operations of our business and understanding of our financial statements.

These critical accounting estimates

have been consistently applied.

ImmuCell Corporation

We sell products that provide Immediate Immunity™

15 unchanged sentences

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.

Inventory is a critical accounting

policy because of the estimates and assumptions used by management to determine its cost accounting and because of the variability of

the cost per dose due to fluctuations in the biological yield.

ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis