The following discussion and analysis of our 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, 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 and analysis.



                                       22





                              ImmuCell Corporation

Liquidity and Capital Resources





Net cash provided by operating activities was $954,000 during the year ended
December 31, 2021 in comparison to net cash provided by operating activities of
$1.3 million during the year ended December 31, 2020. The $361,000 decrease in
cash provided by operating activities from period to period was largely the
result of a $944,000 decrease in our net loss, no debt forgiveness in 2021, a
$1.4 million increase (changing from a source of cash to a use of cash) in cash
used for inventory and a $738,000 increase in cash used for accounts receivable.
As we increase our production capacity to fill the backlog of orders, our
inventory balance increased by $997,000 from December 31, 2020 to December 31,
2021. Approximately 46% of this increase was work-in-process inventory. Our
total depreciation expense was approximately $2.4 million and $2.3 million
during the years ended December 31, 2021 and 2020, respectively. We anticipate
that depreciation expense, while not affecting our cash flows from operations,
will result in net operating losses until and unless product sales increase
sufficiently to offset these non-cash expenses. Cash used for investing
activities was $1.6 million and $2.6 million during the years ended December 31,
2021 and 2020, respectively. Cash paid for capital expenditures was $2.6 million
and $4.1 million during the years ended December 31, 2021 and 2020,
respectively, which payments were largely related to our ongoing investments to
expand our manufacturing facilities. Cash provided by financing activities
increased to $3.9 million during the year ended December 31, 2021 in comparison
to $1.9 million during the year ended December 31, 2020. The $4.2 million equity
raise we completed during the second quarter of 2021 was the largest cause of
this change. Going forward, repayments of the indebtedness incurred to fund
these capital expenditures and acquire these assets will reduce our cash flows.
Debt principal payments (exclusive of the $8.3 million used to repay our
refinanced bank debt during the first quarter of 2020 and the $624,000 used to
pay down our mortgage debt during the fourth quarter of 2020) were $768,000 and
$633,000 during the years ended December 31, 2021 and 2020, respectively.
Reflecting the mortgage debt financing we completed during the first quarter of
2022, we are obligated to make debt principal repayments of approximately
$875,000 and $925,000 under these loans during the years ending December 31,
2022 and 2023, respectively, and we anticipate that our interest expense will be
approximately $325,000 and $317,000 during the years ending December 31, 2022
and 2023, respectively.



We have funded most of our business operations principally from the gross margin
on our product sales and equity and debt financings. Based on our best estimates
and projections, we believe that our cash and cash equivalents, together with
gross margin anticipated to be earned from ongoing product sales, will be
sufficient to meet our currently planned working capital and capital expenditure
requirements and to finance our ongoing business operations for at least 12
months (which is the period of time required to be addressed for such purposes
by accounting disclosure standards) from the date of this filing. The table
below summarizes the changes in selected, key accounts (in thousands, except for
percentages):



                                                  As of                   As of                   Increase
                                            December 31, 2021       December 31, 2020       Amount           %
Cash, cash equivalents and short-term
investments                                $            10,185     $             7,946     $   2,239            28 %
Net working capital                        $            13,730     $             9,946     $   3,784            38 %
Total assets                               $            44,466     $            40,350     $   4,116            10 %
Stockholders' equity                       $            32,577     $            28,266     $   4,311            15 %
Common shares outstanding(1)                             7,742                   7,219           523             7 %

(1) There were approximately 443,000 and 414,000 shares of common stock reserved

for issuance for stock options that were outstanding as of December 31, 2021


    and 2020, respectively.




During the first quarter of 2020, we closed on a debt refinancing aggregating
$8.6 million plus a line of credit in the amount of $1.0 million with Gorham
Savings Bank (GSB). This new debt was comprised of a $5.1 million mortgage note
that bears interest at a fixed rate of 3.50% per annum (with a 10-year term and
25-year amortization schedule, resulting in a balloon principal payment of $3.1
million due during the first quarter of 2030) and a $3.5 million note that bears
interest at a fixed rate of 3.50% per annum (with a 7-year term and amortization
schedule). The refinancing proceeds were used to provide some additional working
capital, but mostly to refinance $8.3 million of then outstanding bank debt and
pay off an interest rate swap termination liability of $165,000. This debt
refinancing improved our liquidity by lowering our interest expense, spreading
our principal payments out over a longer time period and eliminating pending
balloon principal payments that existed under some of the repaid debt. Under
this GSB debt, we were required to hold $1.4 million in escrow (a non-current
asset), which reduced the effective availability of our liquid assets for
operational needs by that amount. During the fourth quarter of 2020, we closed
on a $1.5 million note with GSB that bears interest at a fixed rate of 3.50% per
annum (with a 7-year term and amortization schedule). We used $624,000 of the
proceeds to prepay a portion of the then outstanding principal on our mortgage
note, which reduced the then outstanding balance to 80% of the most recent
appraised value of the property securing the debt, which allowed GSB to release
the $1.4 million of funds held in escrow. During the first quarter of 2022, we
closed on a mortgage debt financing that added $2 million in new funds to the
$4.2 million of mortgage debt outstanding at the time of closing. The amended
mortgage principal of $6.2 million bears interest at the weighted-average
blended fixed rate of 3.53% per annum (with a 10-year term and 20-year
amortization schedule, resulting in a balloon principal payment of $3.68 million
due during the first quarter of 2032). Also during the first quarter of 2022,
the availability of our $1.0 million line of credit, which bears interest at the
National Prime Rate plus 0.00% per annum, was extended until March 11, 2024. We
may use some of these proceeds to repay two loans from the Maine Technology
Institute (MTI) aggregating $900,000 (described below) when they become interest
bearing at the fixed rate of 5% per annum during the fourth quarter of 2022 and
the third quarter of 2023. These GSB credit facilities are secured by
substantially all of our assets, including our facility at 56 Evergreen Drive in
Portland (which was independently appraised at $6.3 million in connection with
the 2022 financing, at $3 million in connection with the 2020 refinancing and at
$4.2 million in connection with the 2015 financing) and our facility at 33
Caddie Lane in Portland (which was independently appraised at $3.2 million in
connection with a 2017 financing and at $2.5 million in connection with the 2020
refinancing). These credit facilities are subject to certain restrictions and
financial covenants. We are required to meet a minimum debt service coverage
ratio set by GSB of 1.35. Our actual debt service coverage (DSC) ratio was equal
to 2.68, 2.03 and 1.57 during the years ended December 31, 2021, 2020 and 2019,
respectively. However, based on current projections of our future financial
performance, which includes a high level of ongoing product development expenses
to support Re-Tain®, we may not satisfy this annual requirement for the year
ending December 31, 2022. By negotiation with the bank in connection with a
mortgage debt financing during the first quarter of 2022, the required minimum
DSC ratio was reduced to 1.0 for the year ending December 31, 2022.

                                       23





                              ImmuCell Corporation
During June 2020, we received a $500,000 loan from the MTI. The first 2.25 years
of this loan are interest-free with no interest accrual or required principal
payments. Principal and interest payments at a fixed rate of 5% per annum are
due quarterly over the final 5 years of the loan, beginning during the fourth
quarter of 2022 and continuing through the third quarter of 2027. During July
2021, we received an additional $400,000 loan from the MTI. The first 2 years of
this second loan are interest-free with no interest accrual or required
principal payments. Principal and interest payments at a fixed rate of 5% per
annum are due quarterly over the final 5.5 years of the loan, beginning during
the third quarter of 2023 and continuing through the fourth quarter of 2028.
Both loans are unsecured and subordinated to all other bank debt and may be
prepaid without penalty at any time. This support from the State of Maine
through the MTI helps us move forward aggressively with our investments while
increasing our total employee count.



From the first quarter of 2016 through the second quarter of 2021, we raised
gross proceeds of approximately $26.7 million (net proceeds were approximately
$24.8 million) from six different common equity transactions priced between
$5.25 and $8.25 per share. No warrants were issued in connection with any of
these transactions, and no convertible or preferred securities were issued. The
net proceeds have been and are being used to fund the expenditures described
under PROJECT B to PROJECT G in the tables and footnotes below as well as to
provide additional working capital. Additionally, we are using a portion of this
new equity funding to pay for our routine and miscellaneous capital
expenditures. Our approved capital expenditure budget for the year ending
December 31, 2022 is $550,000. These expenditures amounted to $260,000, $554,000
and $574,000 during the years ended December 31, 2021, 2020 and 2019,
respectively.

From 2014 to 2019, we initiated four capital expenditure investments, as described in the following table (in thousands):





                                                 Cash Paid on Projects

Initiated before 2021 During the


                                           A                 B                 C              D           Total
Year Ended December 31, 2014           $    1,041       $          -       $        -     $       -     $   1,041
Year Ended December 31, 2015                1,991                265                -             -         2,256
Year Ended December 31, 2016                1,173              2,093                -             -         3,266
Year Ended December 31, 2017                    -             17,686                -             -        17,686
Year Ended December 31, 2018                    -              1,596                -             -         1,596
Year Ended December 31, 2019                    -                  -              279           538           817
Year Ended December 31, 2020                    -                  -            2,938           581         3,519
Year Ended December 31, 2021                    -                  -              432           886         1,318
Total Paid through December 31, 2021        4,205             21,640       

    3,649         2,005        31,499
Estimate to Complete                            -                  -                4         1,995         1,999
Total Project Cost                     $    4,205       $     21,640       $    3,653     $   4,000     $  33,498




PROJECT A included a 7,100 square foot facility addition at 56 Evergreen Drive
and related equipment and cold storage capacity to increase the production
capacity for the First Defense® product line. During the first quarter of 2016,
we completed this investment, increasing our freeze drying capacity by 100% and
making other improvements to our liquid processing capacity, which increased our
annual production capacity (in terms of annual sales dollars) to approximately
$16.5 million. The actual value of our production output varies based on
production yields, selling price, product format mix and other factors. This
investment also included the construction and equipping of a pilot plant for
small-scale Drug Substance production for Re-Tain® within our First Defense®
production facility at 56 Evergreen Drive. After PROJECT B was completed, this
space was converted for use in the production of the gel tube formats of the
First Defense® product line. One of the objectives of PROJECT C was a relocation
of these gel tube operations to 175 Industrial Way, vacating production space at
56 Evergreen Drive for use in doubling our liquid processing capacity.



                                       24





                              ImmuCell Corporation



PROJECT B was related to the Drug Substance production facility for Re-Tain® at
33 Caddie Lane. During the fourth quarter of 2017, we completed construction of
the Drug Substance production facility. We began equipment installation during
the third quarter of 2017, and we completed this installation during the third
quarter of 2018. The total cost of this investment for the Drug Substance
production facility and related processing equipment was $20.8 million plus
$331,000 for the land and $472,000 for the acquisition of an adjacent 4,080
square foot warehouse facility, which will be used for cold storage of Re-Tain®
inventory and other warehousing needs.



PROJECT C (Phase I of our investments to increase our production capacity for
the First Defense® product line) consists of significant renovations to a 14,300
square foot leased facility at 175 Industrial Way, some facility modifications
at 56 Evergreen Drive and the necessary production equipment to increase the
annual production capacity of the First Defense® product line (in terms of
annual sales dollars) from approximately $16.5 million to approximately $23
million. The actual value of our production output varies based on production
yields, selling price, product format mix and other factors. This project was
completed at the end of 2021 at approximately 4%, or $153,000, over its budget
of $3.5 million. This expansion involves a 40% increase in our freeze drying
capacity and a 100% increase in our liquid processing capacity. Renovations to
our leased facility at 175 Industrial Way to enable this expansion were
completed during the second quarter of 2020. By moving our powder filling and
assembly services from 56 Evergreen Drive into this new space at 175 Industrial
Way, we created space at 56 Evergreen Drive for the installation of the expanded
freeze drying capacity. The new facilities are built to contemporary cGMP
standards with good material and people flows. A site license approval for this
new facility at 175 Industrial Way was issued by the USDA during the third
quarter of 2020. During the second quarter of 2021, we completed the relocation
of our gel formulation equipment from 56 Evergreen Drive to 175 Industrial Way,
creating space for the doubling of our liquid processing capacity at 56
Evergreen Drive. As part of this investment, we also have made the facility
modifications at 56 Evergreen Drive necessary for a future expansion of our
freeze drying capacity by an additional 35%, which would increase our annual
production capacity from approximately $23 million to approximately $30 million
or more (see PROJECT F below). We obtained site license approval of the expanded
freeze drying capacity at 56 Evergreen Drive from the USDA during the third
quarter of 2021, and we obtained temporary (subject to final USDA review and
approval) site license approval of the expanded liquid processing capacity at 56
Evergreen Drive from the USDA during the first quarter of 2022.



PROJECT D is a $4 million budgeted investment to bring the formulation and
aseptic filling capabilities for Re-Tain® Drug Product in-house to end our
reliance on third-party Drug Product manufacturing services. We began equipment
installation during the first quarter of 2022, and we expect to have our
facility qualified by the end of 2022. We anticipate FDA approval of this
facility (which is a requirement for commercial manufacturing) during the fourth
quarter of 2023 or the second quarter of 2024.



With the additional equity funding of approximately $4.3 million that we raised
during the second quarter of 2021, we initiated three more capital expenditure
investments, as described in the following table (in thousands):



                                                     Cash Paid on Projects Initiated in 2021
                                               E                F                 G            Total

During the Year Ended December 31, 2021    $      452       $      296
 $       282     $   1,030
Estimate to Complete                               98              629             2,238         2,965
Total Project Cost                         $      550       $      925       $     2,520     $   3,995




PROJECT E represents an original budget of $500,000 for equipment and vehicle
investments necessary to expand and improve our colostrum collection
capabilities and logistics. During the second quarter of 2021, this budget was
increased from $500,000 to $550,000.



                                       25





                              ImmuCell Corporation




PROJECT F (Phase II of our investments to increase our production capacity for
the First Defense® product line) represents a budget estimate of $925,000 for
freeze drying equipment to expand on PROJECT C to further increase the annual
production capacity of the First Defense®product line (in terms of annual sales
dollars) from approximately $23 million to approximately $30 million or more by
increasing our freeze drying capacity by an additional 33%. The actual value of
our production output varies based on production yields, selling price, product
format mix and other factors. We initiated PROJECT F during the third quarter of
2021, and we anticipate completing this investment during the third quarter

of
2022.




PROJECT G first represented an initial estimate of $1 million for equipment and
facility modifications costs to scale-up and upgrade our vaccine manufacturing
capacity. During the third quarter of 2021, the scope of this project was
changed to cover less money for vaccine equipment and more money for pack & ship
facilities for Re-Tain®, improvements to our quality offices and laboratories
and new equipment for our gel filling operations. We estimate the additional
investments in our gel filling equipment will increase our annual production
capacity for the First Defense®product line (in terms of annual sales dollars)
further from approximately $30 million to approximately $35 million. The actual
value of our production output varies based on production yields, selling price,
product format mix and other factors. As a result of these scope changes, the
preliminary project budget was increased to $2.52 million.



We have set aside approximately $5.5 million of the $10.2 million of the cash we
had on hand as of December 31, 2021 to complete PROJECT D to PROJECT G as well
as to pay for our other routine and miscellaneous capital expenditures during
2022, leaving the remaining cash balance of approximately $4.7 million available
for general working capital purposes including anticipated inventory builds for
both First Defense®and Re-Tain®.



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:



                                                                 Total New
                                                                   Taxes
                                                                 Generated                        Net Amount
                                            Twelve-Month          by the           Less:           Paid by
Assessed Value                              Period Ended          Project        TIF Credit        ImmuCell
$1.7 million @ April 1, 2017                  June 30, 2018     $    36,000     $     22,000     $     13,000
$4.0 million @ April 1, 2018                  June 30, 2019     $    90,000     $     58,000     $     32,000
$4.0 million @ April 1, 2019                  June 30, 2020     $    94,000     $     60,000     $     34,000
$4.0 million @ April 1, 2020                  June 30, 2021     $    94,000     $     60,000     $     34,000
$4.3 million @ April 1, 2021                  June 30, 2022     $    55,000
$     36,000     $     20,000




Results of Operations



Business Segments




As detailed in Note 17, "Segment Information", to the accompanying audited
financial statements, we operate in two business segments. The First Defense®
segment is dedicated to manufacturing and selling First Defense®, a product used
to prevent scours in newborn calves, which is regulated by the USDA. The
Re-Tain® segment is focused on developing and commercializing Re-Tain®, a
product to treat subclinical mastitis in lactating dairy cows, which is
regulated by the FDA.



Product Sales




Sales of the First Defense®product line aggregated 98% of our total sales during
both of the years ended December 31, 2021 and 2020, and we set records for high
sales during the second, third and fourth quarters of 2021 in comparison to the
same quarters of the prior year. Sales of the First Defense® product line
increased from approximately $4,473,000 during the quarter ended June 30, 2021
to $5,033,000 during the quarter ended September 30, 2021 to $5,403,000 during
the quarter ended December 31, 2021. Most of our growth (when not limited by the
backlog) is being realized through increased demand and a deliberate strategy to
prioritize production capacity towards Tri-Shield® (the trivalent format of our
product delivered via a gel tube), which provides broader protection to calves.
The compound annual growth rate of our total product sales during the ten years
ended December 31, 2021 was approximately 15%. The compound annual growth rate
of our total product sales during the three years ended December 31, 2021 was
approximately 18%.



                                       26





                              ImmuCell Corporation



                                             During the Three-Month Periods
                                                   Ended December 31,                        Increase

(In thousands, except for percentages)        2021                    2020 

           Amount           %
Total product sales                      $         5,444         $         3,743     $    1,700             45 %




Sales increased by 45%, or $1.7 million, during the three-month period ended
December 31, 2021, in comparison to the three-month period ended December 31,
2020. Domestic sales increased by 34%, and international sales increased by
136%, in comparison to the three-month period ended December 31, 2020.
International sales aggregated 18% and 11% of total sales during the three-month
periods ended December 31, 2021 and 2020, respectively.



                                            During the Years
                                           Ended December 31,            Increase

(In thousands, except for percentages) 2021 2020 Amount


      %
Total product sales                      $   19,243     $ 15,342     $ 3,901       25 %

Sales increased by 25%, or $3.9 million, during the year ended December 31, 2021, in comparison to the year ended December 31, 2020. Domestic sales increased by 22%, and international sales increased by 55%, in comparison to the year ended December 31, 2020. International sales aggregated 14% and 11% of total sales during the years ende December 31, 2021 and 2020, respectively.





Starting in the third quarter of 2016 and through most of 2017, we had
sufficient available inventory and were shipping in accordance with the demand
of our distributors. However, we quickly sold out of our initial launch
quantities of Tri-Shield First Defense®(which added a valuable rotavirus claim
to our legacy E. coli and coronavirus product) soon after regulatory approval
was obtained during the fourth quarter of 2017. Tri-Shield® has changed our
capacity models significantly because it requires almost twice as much
production capacity to produce each finished dose and demand for this product
format has increased each year. During most of 2018 and into the first half of
2019, we could only accept purchase orders from customers for Tri-Shield®to
match available inventory, which required a careful allocation of product supply
directly to certain end-users and veterinary clinics. Initially, production of
this new product format did not keep pace with demand primarily because of our
inability to produce enough of the new, complex rotavirus vaccine that is used
to immunize our source cows. Work on production improvements in our vaccine
laboratory throughout 2018 led to significant improvements in vaccine yield and
process repeatability. Allowing for the five to six month production cycle from
the manufacture of our proprietary vaccine to the production of a finished dose,
we were able to return to a mass market selling approach through distribution
for Tri-Shield® during the second half of 2019, and we ended the year with no
backlog as of December 31, 2019. Sales of the First Defense® product line during
the years ended December 31, 2021 and 2020 have continued to increase, creating
a backlog of orders at the end of each quarter during this two-year period.
Valuation of the backlog is a non-GAAP estimate that is based on purchase orders
on hand at the time that could not be met because of a lack of available
inventory. The backlog was worth approximately $2.4 million as of December 31,
2021 and approximately $2.8 million as of March 18, 2022. However,
quantification of the backlog during the current periods has become far less
comparable to prior periods. We believe our customers are now placing orders for
more than a month's worth of their demand, perhaps in reaction to our ongoing
backlog situation, whereas in the past they ordered more closely in line with
their more current demand. Additionally, we believe that our distributors are
reacting to this global economic challenge by ordering in more product for their
inventory, which is a very different cash management strategy from the recent
past, when they were much more likely to invest less money in their inventory
and order from us more often to meet just current demand ("just-in-time" cash
management). The growth in our sales (which are seasonal) and the expansion of
our production capacity (which is generally delivered approximately evenly
across the four quarters of the year) are described in the following table:



                                                                Quarterly

Annualized

Estimated production capacity before current expansion $ 4,125,000

$ 16,500,000

Estimated production capacity as of December 31, 2021 $ 5,750,000

$ 23,000,000 (1)


Estimated production capacity by September 30, 2022            $ 7,500,000

$ 30,000,000


Estimated production capacity by December 31, 2022             $ 8,750,000
   $ 35,000,000

(1) When factoring in changes in beginning and ending inventory balances, the

fourth quarter of 2021 annualized manufacturing output of $22.9 million


     almost reached the $23 million target.




                                       27





                              ImmuCell Corporation



We have largely completed the critical objectives of our investment to increase
our First Defense® production capacity from approximately $16.5 million to
approximately $23 million in terms of annual sales value. These capacity
estimates are subject to biological yield variance, product format mix, selling
price and other factors. Equipment modifications and relocations of this nature
require a shutdown of operations for weeks to months to install and validate the
modified equipment and achieve USDA approval for its use in its new location.
The qualification and implementation of the final two pieces of equipment
required to complete this project were delayed past our June 30, 2021 target. We
have worked around this setback to meet our increased production requirements by
utilizing our expanded manufacturing staff to extend shifts and temporarily
produce more product from the existing equipment. We obtained site license
approval of our expanded freeze drying capacity from the USDA during the third
quarter of 2021, and we anticipate obtaining site license approval of our
expanded liquid processing capacity from the USDA during the first quarter of
2022. During the third quarter of 2021, we initiated an additional investment of
approximately $925,000 to increase our annual production capacity for the First
Defense® product line further from approximately $23 million to approximately
$30 million or more per year by the third quarter of 2022. Then, during the
fourth quarter of 2021, we initiated an additional investment to further
increase our annual production capacity to approximately $35 million.



The significant global supply-chain disruptions that almost all industries are
experiencing presently are a challenge to us and contribute to our order
backlog. Most prices for certain essential raw materials and critical supplies
are increasing significantly, and it is more and more difficult to obtain timely
delivery of the orders that we place. Therefore, we have little choice but to
pay the higher prices and try to take on more months of supply than we would
have held previously if we could get our orders fulfilled.



While our backlog is a very positive indication about the strong demand for our
First Defense® product line, we missed some business during 2021 as a result of
the backlog. Not being able to timely meet the needs of our customers could
result in the loss of some customers who seek alternative scours management
products during this period of short supply and who may not resume purchasing
our product when we have eliminated the backlog. While backlog is a better
problem to have than seeing product expiring on our shelves, it is nonetheless a
significant challenge when we do not get our customers everything that they
want. Our sales team is resuming more normal sales growth initiatives with more
available inventory on hand during the fourth quarter of 2021 and into peak
season during the first quarter of 2022. We are working to regain customers that
we may have lost while we were short on product. As we emerge from an extended
period of time on backlog, we anticipate higher than normal sales fluctuations
quarter to quarter. As we emerge from the backlog, what is most important to us
is that we achieve sales growth over the longer periods of time, even if we
experience some quarter-to-quarter fluctuations.



Effective January 1, 2022, we increased our selling price of the First Defense®
product line by approximately 5%. 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%. Effective February 1, 2020, we implemented a
price increase of approximately 2% on the First Defense®product line (except for
Tri-Shield® and the 90-dose bulk powder format) and CMT. Effective January 1,
2019, we implemented a 2% price increase for Dual-Force®.



Sales of products other than the First Defense®product line increased by 15%, or
$40,000, to $310,000 during the year ended December 31, 2021 in comparison to
the year ended December 31, 2020. Sales of these other products aggregated
approximately 2% of our total product sales during both of the years ended
December 31, 2021 and 2020. We acquired a private label product (our second
leading source of product sales during 2021) in connection with our January 2016
acquisition of certain gel formulation technology. We sell our own CMT (our
third leading source of product sales during 2021), which is used to detect

somatic cell counts in milk.



                                       28





                              ImmuCell Corporation

Impact of Global COVID-19 Pandemic


The extent of the negative impact of the COVID-19 pandemic on the economics of
our customers and on the demand for our products going forward is very difficult
to assess. The Class III milk price has been extremely volatile during the
pandemic. Initially, stay at home orders disrupted the food service supply
system as schools closed and restaurants were shut down. In response, producers
were forced to reduce the supply of milk to the market by drying off cows early,
culling cows from the herd and dumping milk, among other tactics. Market
conditions are better now, but this volatility remains a concern. Additionally,
like most input costs, the cost of feed is rising, which puts a strain on the
profitability of our customers. The $938,000 in funding that we received from
the federal government through the Paycheck Protection Program (PPP) under the
CARES Act (which loan was forgiven by the federal government during 2020) helped
us maintain full employment without furloughs or layoffs and continue executing
our growth plans. The PPP funding created some needed financial liquidity,
allowing us to move forward with our investments even though we did not achieve
the level of sales anticipated in our 2020 budget.



Gross Margin



Changes in our gross margin (product sales less costs of goods sold) are
summarized in the following table for the respective periods (in thousands,
except for percentages):



                               During the Three-Month Periods
                                     Ended December 31,                    Increase
                                2021                    2020            Amount       %
Gross margin               $         2,561         $         1,621     $    940       58 %
Percent of product sales                47 %                    43 %          4 %      9 %




                              During the Years
                             Ended December 31,            Increase
                              2021          2020       Amount       %
Gross margin               $    8,656      $ 6,863     $ 1,793       26 %
Percent of product sales           45 %         45 %         -        1 %




The gross margin as a percentage of product sales was 45%, 45%, 49%, 47% and 50%
during the years ended December 31, 2021, 2020, 2019, 2018 and 2017,
respectively. During the first quarter of 2021, the gross margin of 39% was
lower than what we normally expect. This gross margin improved to 46% during the
second quarter of 2021 and further to 47% during both the third and fourth
quarters of 2021, as we began to spread these fixed costs over increasing
production output. As we fully integrate and utilize our increased capacity, we
expect to be able to achieve an annual gross margin in excess of 46%. The costs
of most of our supplies, components, raw materials and services increased
significantly during 2021. The Tri-Shield®product format is more complex (i.e.,
three antibodies versus two antibodies for Dual-Force®) making it more costly to
produce, and both the bivalent and trivalent gel product formats are more
expensive to produce than the bolus format. These new formats are creating sales
growth for us, and we are focused on increasing total gross margin dollars
(after we fulfill the backlog) even if that is accomplished with a lower gross
margin as a percentage of sales. We are investing significantly in equipment,
infrastructure and operating expenses to increase our annual production capacity
from approximately $16.5 million to approximately $35 million. Increased labor
and other upfront costs were necessary to benefit from the scale-up of our
production output going forward. A number of other factors contribute to the
variability in our costs, resulting in some fluctuations in gross margin
percentages from quarter to quarter and from year to year. Like most U.S.
manufacturers, we have also been experiencing increases in the cost of labor and
raw materials. We also invest to sustain compliance with current Good
Manufacturing Practices (cGMP) in our production processes. Increasing
production can be more expensive in the initial stages. To achieve our inventory
production growth objectives, we are acquiring more raw material (colostrum)
from many more cows at many new farms. As is the case with any vaccine program,
animals respond less effectively to their first exposure to a new vaccine, and
thereafter the effectiveness of their immune response improves in response to
subsequent immunizations. During this expansion phase, colostrum quality can be
more variable. Additionally, the biological yields from our raw material are
always variable, which impacts our costs of goods sold in a similar way. Just as
our customers' cows respond differently to commercial dam-level vaccines,
depending on time of year and immune competency, our source cows have similar
biological variances in response to our proprietary vaccines. The value of our
First Defense® product line is that we compensate for the variability in a cow's
immune response by standardizing each dose of finished product. This ensures
that every calf is equally protected, which is something that dam-level
commercial scours vaccines cannot offer. We continue to work on processing and
yield improvements and other opportunities to reduce costs, while enhancing
process knowledge and robustness. Over time, we have been able to reduce the
impact of cost increases by implementing yield improvements. As we evaluate our
product costs and selling price, one of our goals is to achieve a gross margin
(before related depreciation and amortization expenses) as a percentage of

total
sales approaching 50%.



                                       29





                              ImmuCell Corporation

Product Development Expenses





Overview: During the year ended December 31, 2021, product development expenses
decreased by 4%, or $186,000, to $4.2 million in comparison to $4.4 million
during the year ended December 31, 2020. Product development expenses aggregated
22% and 28% of product sales during the years ended December 31, 2021 and 2020,
respectively. Product development expenses included approximately $1,495,000 and
$1,608,000 of non-cash depreciation and stock-based compensation expenses during
the years ended December 31, 2021 and 2020, respectively. We do expect our
product development expenses to decrease further after Re-Tain® is
commercialized and most of the costs incurred to maintain and run our Drug
Substance production facility become part of our costs of goods sold.



Development objective: We aim to demonstrate that our peptide antimicrobial,
Nisin A, can play a productive role in the treatment of subclinical mastitis in
today's dairy industry by providing a novel alternative to traditional
antibiotics. Because label requirements of all intramammary drugs on the market
require that milk be discarded and that meat be withheld during treatment and
for a period of time thereafter, it is common practice in the dairy industry
today to not treat sick cows that are still producing saleable milk. Re-Tain®
provides an animal welfare benefit by removing this economic disincentive to
treating subclinical mastitis and allows sick cows to be treated without the
milk discard and meat withhold penalties. In addition to improved animal
welfare, Re-Tain® enhances food safety and sustainability by utilizing a peptide
antimicrobial that is not used in human medicine. The overuse of traditional
antibiotics is thought to create antibiotic resistance, which is a growing
public health concern. By treating mastitis early at the subclinical level,
producers could preserve peak milk yields and reduce the number of infections
that develop into clinical cases requiring antibiotic treatment and milk
discard. Re-Tain® could increase the lifetime profitability of a cow and reduce
disease transfer to herd mates. As with all new products, the market determines
the value. Our objective is to gain market acceptance of this new product
concept as we develop a new product category. Despite those exciting benefits,
it will take time to change this longstanding treatment paradigm and develop
this new market. It will take time for the market to understand, evaluate,
implement and adapt to the benefits of Re-Tain®. As we prepare for market launch
after we receive the anticipated and required FDA approval of this product, we
are carefully considering our best go-to-market strategy in consultation with
industry-leading consultants, veterinarians, dairy producers and others. We
believe that the primary market for Re-Tain® (at least initially) may be limited
to the approximately half of farms that have somatic cell count data at the cow
or quarter level, since that is the most common and efficient way to identify
subclinical infections and to assess the effectiveness of treatment. We are
making plans for a controlled launch where our sales team can work directly with
first adopters to help ensure that the best candidate cows are selected and that
the product is properly administered in accordance with its label. We believe
that developing a solid foundation of in-the-field successes early on will give
our product the best opportunity for success.



                                       30





                              ImmuCell Corporation



Development status of Re-Tain®: The majority of our product development spending
has been focused on the development of Re-Tain®, our purified Nisin treatment
for subclinical mastitis in lactating dairy cows. Approval by the Center for
Veterinary Medicine, U.S. Food and Drug Administration (FDA) of the New Animal
Drug Application (NADA) for Re-Tain® is required before any sales of the product
can be initiated. The NADA is comprised of five principal Technical Sections
that are generally subject to one or more six-month review cycle(s) by the FDA
and a sixty-day administrative review at the end. By statute, each Technical
Section submission is generally subject to a six-month review cycle by the FDA.
Each Technical Section can be reviewed and approved separately. Upon review and
assessment by the FDA that all requirements for a Technical Section have been
met, the FDA may issue a Technical Section Complete Letter. The current status
of our work on these submissions to the FDA is as follows:

1) Environmental Impact: During the third quarter of 2008, we received the Environmental Impact Technical Section Complete Letter from the FDA. During the second quarter of 2021, we received further clarification through a new Environmental Impact Technical Section Complete Letter covering the current dosage regimen and labeling.

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





3) Effectiveness: During the third quarter of 2012, we received the
Effectiveness Technical Section Complete Letter from the FDA. The anticipated
product label (which remains subject to FDA approval) carries claims for the
treatment of subclinical mastitis associated with Streptococcus agalactiae,
Streptococcus dysgalactiae, Streptococcus uberis, and coagulase-negative
staphylococci in lactating dairy cattle.



4) Human Food Safety: During the third quarter of 2018, we received the Human
Food Safety Technical Section Complete Letter from the FDA confirming, among
other things, a zero milk discard period and a zero meat withhold period during
and after treatment with our product. During the second quarter of 2021, we
updated this Technical Section Complete Letter with FDA approval of the official
analytical method to measure Nisin in milk.



5) Chemistry, Manufacturing and Controls (CMC): The CMC Technical Section is
very complex and comprehensive. Having previously achieved the four different
Technical Section Complete Letters from the FDA discussed above, approval of the
CMC Technical Section is the fifth and final significant step required before
Re-Tain® product sales can be initiated in the United States. Implementing Nisin
Drug Substance (the active pharmaceutical ingredient) production, which is a
required component of the CMC Technical Section, has been the most expensive and
lengthy part of this project. We previously entered into an agreement with a
multi-national pharmaceutical ingredient manufacturer for our commercial-scale
supplies of Nisin. However, we determined during 2014 that the agreement did not
offer us the most advantageous supply arrangement in terms of either cost or
long-term dependability. We presented this product development opportunity to a
variety of large and small animal health companies. While such a corporate
partnership could have provided access to a much larger sales and marketing team
and allowed us to avoid the large investment in a commercial-scale production
facility, we concluded that a partner would have taken an unduly large share of
the gross margin from all future product sales of Re-Tain®, but the regulatory
and marketing feedback that we received from prospective partners, following
their due diligence, was positive. During the third quarter of 2014, we
completed an investment in facility modifications and processing equipment
necessary to produce the Nisin Drug Substance at small-scale at our 56 Evergreen
Drive facility. This small-scale facility was used to: i) expand our process
knowledge and controls, ii) establish operating ranges for critical process
parameters, iii) conduct product stability studies, iv) optimize process yields
and v) verify the cost of production. We believe these efforts have reduced the
risks associated with our investment in the commercial-scale Drug Substance
production facility, discussed below. Having raised equity during 2016 and 2017,
we were able to move away from these earlier strategies and assume control over
the commercial-scale manufacturing process in our own facility. During the
fourth quarter of 2015, we acquired land near our existing Portland facility for
the construction of a new commercial-scale Drug Substance production facility.
We commenced construction of this facility during the third quarter of 2016 and
completed construction during the fourth quarter of 2017. Equipment installation
and qualification was initiated during the third quarter of 2017 and completed
during the third quarter of 2018. Total construction and equipment costs
aggregated approximately $20.8 million.



Under the FDA's phased submission process, we made a first-phased submission
covering just the Nisin Drug Substance (DS) during the first quarter of 2019,
which was followed by a second-phased submission covering both the DS and the
formulated DS filled in a syringe, or Re-Tain®Drug Product (DP) during the first
quarter of 2021. This process allowed us to respond to identified queries and/or
deficiencies from the first-phased DS submission at the time of the
second-phased combined DS and DP submission. The first-phased DS submission
included data from the DS Registration Batches produced at commercial scale in
our new DS manufacturing facility. The second-phased DS and DP submission
responded to comments raised by the FDA regarding the first-phased DS submission
and included detailed information about the manufacturing process and controls
for DP. One of the key components of the second-phased DS and DP submission was
also demonstrating stability of the product through expiration dating. During
the third quarter of 2021, the FDA issued a Technical Section Incomplete Letter
with regard to this second-phased DS and DP submission. This response was not
unexpected as it is common for the FDA to issue queries and comments, especially
related to an aseptic DP submission with associated sterilization validation
information. We made a second submission of the DS and DP Technical Section
during the first quarter of 2022. Allowing time for the six-month review by the
FDA and for the final sixty-day administrative review at the end of the process,
we could achieve market launch during the third quarter of 2022 if the FDA
approves our second DS and DP submission. It is up to the FDA to determine if it
will issue a Technical Section Complete or Incomplete Letter. Because we cannot
predict the FDA's responses, we cannot project the probability of success with
this DS and DP submission. We intend to be completely transparent about the
FDA's response (positive or negative) around August 2022. While being prudent
with how much cash we invest into inventory that would have short expiry dating
if market launch is not achieved by the third quarter of 2022, we plan to
continue to build more inventory during 2022 to bridge the transition between DP
supply from Norbrook, our contract manufacturer, to our own in-house services,
as discussed further below.



                                       31





                              ImmuCell Corporation



We have always believed that the fastest route to FDA approval and market launch
is with the services of Norbrook Laboratories Limited of Newry, Northern Ireland
(an FDA-approved DP manufacturer) (Norbrook), reducing our risk by benefiting
from their demonstrated expertise in aseptic filling. From 2010 to 2015, we were
a party to an exclusive product development and contract manufacturing agreement
with Norbrook covering the DP formulation, aseptic filling and final packaging
services. Norbrook provided services to us under this contract throughout the
FDA process for use in all of our pivotal studies. During the fourth quarter of
2015, this agreement was amended and restated to create a Product Development
and Contract Manufacture Agreement (the 2015 Agreement) to, among other things,
extend the term of the agreement to January 1, 2024 provided that FDA approval
for commercial sales of Re-Tain® in the United States was obtained by December
19, 2019. It had been our expectation that we would have these services
available through both the remainder of the development process to FDA approval
and for approximately the first four years of commercial sales of Re-Tain®. Due
to unexpected difficulties and delays encountered by Norbrook and the statutory
FDA timeline for processing CMC Technical Sections, this December 2019 product
approval target date was not achieved. During the third quarter of 2019, we
entered into a Development Services and Commercial Supply Agreement (the 2019
Agreement) with Norbrook. The 2019 Agreement replaced and superseded the 2015
Agreement in its entirety. Under the 2019 Agreement, Norbrook provided the
formulation, aseptic filling and final packaging services as required in order
for us to submit the CMC Technical Section to the FDA. The 2019 Agreement also
provides for Norbrook to perform formulation, aseptic filling and final
packaging services in accordance with purchase orders that we submit from time
to time for inventory build and subsequent product sales worth up to
approximately $7 million for orders placed through December 31, 2021 with
deliveries extending into the first half of 2022. Under an amendment to this
agreement, Norbrook has agreed to provide a supply of product during 2022 that
we believe will enable us to commence sales of Re-Tain® without delay upon
receipt of the anticipated FDA approval and provide us with a supply bridge
until our own formulation and aseptic filling capacity is available.



Our potential alternative third-party options for the formulation and aseptic
filling services that are presently being performed by Norbrook are narrowed
considerably because our product cannot be formulated or filled in a facility
that also processes traditional antibiotics (i.e., beta lactams). Consequently,
we have decided to perform these services internally. Through a public offering
of our common stock in March of 2019, we received net proceeds of approximately
$8.3 million, of which approximately $4 million has been allocated to the
equipping and commencement of operations of our own DP formulation and aseptic
filling facility. We began equipment installation at the beginning of 2022, and
we expect to have our facility operational during the middle of 2022. We
anticipate FDA approval of this facility (which is a requirement for commercial
manufacturing) during the second half of 2023, subject to the timing of our
installation and validation work and whether the FDA requires more than one
six-month review cycle. This new facility will be subject to FDA inspection and
approval and will have enough formulation and aseptic filling capacity to exceed
the expected production capacity of our DS facility, which is at least $10
million in annual sales. This production capacity estimate is based on our
assumptions as to product pricing and does not yet reflect inventory build
strategies in advance of product approval or ongoing yield improvement
initiatives. Establishing our own DP formulation and aseptic filling capability
provides us with the longer-term advantage of controlling the manufacturing
process for Re-Tain®in one facility, thereby potentially reducing our
manufacturing costs and eliminating international cold chain shipping logistics
and costs. The DP formulation and aseptic filling operation will be located in
existing facility space that we had intended to utilize to double our DS
production capacity if warranted by sales volumes following market launch. As a
result, we would need to explore alternative strategies (in parallel with
ongoing DS yield improvement initiatives) to expand our DS production capacity.
This integrated manufacturing capability for Re-Tain® will substantially reduce
our dependence on third parties. Upon completion of our formulation and aseptic
filling facility, the only significant third-party input for Re-Tain® will be
the DP syringes. It is anticipated that Hubert De Backer of Belgium (HDB) will
supply these syringes in accordance with purchase orders that we submit. HDB is
a syringe supplier for many of the largest participants in the human and
veterinary medical industries, and with whom Norbrook presently works. Based on
HDB's performance history and reputation in the industry, we are confident that
HDB will be a dependable supplier of syringes in the quantity and of the quality
needed for Re-Tain®.



                                       32





                              ImmuCell Corporation
Our DS manufacturing facility and that of our DP contract manufacturer are
subject to ongoing FDA inspections. During the third quarter of 2019, the FDA
conducted a pre-approval inspection of our DS facility. This resulted in the
issuance of certain deficiencies as identified on the FDA's Form 483. We
submitted responses and data summaries in a phased manner over the fourth
quarter of 2019 and first quarter of 2020. We anticipate a reinspection by the
FDA prior to approval. This inspection process has been managed without
significant cost.



Other product development initiatives: Our second most important product
development initiative has been focused on other improvements, extensions or
additions to our First Defense® product line. We are currently working to
establish USDA claims for our bivalent bulk powder formulation of First Defense
Technology®. At the same time, we are working with outside parties to
investigate improvements to our Nisin DS production yields as well as potential
efficacy enhancements. Subject to the availability of resources, we intend to
begin new development projects that are aligned with our core competencies and
market focus. We also remain interested in acquiring, on suitable terms, other
new products and technologies that fit with our sales focus on the dairy and
beef industries, subject to the availability of the needed funding.



Sales and Marketing Expenses



During the year ended December 31, 2021, sales and marketing expenses increased
by approximately 16%, or $336,000, to $2.5 million in comparison to $2.2 million
during the year ended December 31, 2020, amounting to 13% and 14% of product
sales during the years ended December 31, 2021 and 2020, respectively. Sales and
marketing expenses included approximately $70,000 and $91,000 of non-cash
depreciation and stock-based compensation expenses during the years ended
December 31, 2021 and 2020, respectively. We do expect these expenses to
increase to approximately 20% of total product sales during 2022 as we begin to
invest in the anticipated market launch of Re-Tain®before any new sales are
realized and as in-person marketing opportunities, such as industry events,
return with the lifting of COVID restrictions. Our budgetary guideline for 2022
and after is to keep these expenses under 20% of total sales. We continue to
leverage the efforts of our small sales force by using animal health
distributors.



Administrative Expenses




During the year ended December 31, 2021, administrative expenses increased by
less than 1%, or approximately $5,000, to $1.726 million in comparison to $1.721
million during the year ended December 31, 2020. Administrative expenses
included approximately $122,000 and $156,000 of non-cash depreciation and
stock-based compensation expenses during the years ended December 31, 2021 and
2020, respectively. We strive to be efficient with these expenses while funding
costs associated with complying with the Sarbanes-Oxley Act of 2002 and all the
legal, audit and other costs associated with being a publicly-held company.
Prior to 2014, we had limited our investment in investor relations spending.
Beginning in the second quarter of 2014, we initiated an investment in a more
active investor relations program. Given travel restrictions related to the
COVID-19 pandemic, this initiative has pivoted to a virtual meeting format,
which is less expensive. At the same time, we continue to provide full
disclosure of the status of our business and financial condition in three
quarterly reports and one annual report each year, as well as in Current Reports
on Form 8-K when legally required or deemed appropriate by management. These
efforts may have helped us access the capital markets to fund our growth
objectives.



Net Operating Income (Loss)



During the year ended December 31, 2021, our net operating income of $257,000
was in contrast to a net operating (loss) of ($1.4 million) during the year
ended December 31, 2020. The $1.8 million increase in gross margin during the
year ended December 31, 2021 compared to the year ended December 31, 2020 was
the largest contributor to this swing from loss to income.



                                       33





                              ImmuCell Corporation



Other Expenses (Income), net



During the year ended December 31, 2021 other expenses, net, aggregated $327,000
in contrast to other income, net, of $348,000 during the year ended December 31,
2020. The 2020 results benefited from a $938,000 debt forgiveness from the
federal government. Interest expense decreased to $314,000 during the year ended
December 31, 2021 from $413,000 during the year ended December 31, 2020.
Non-cash 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, 2021
and 2020. During the year ended December 31, 2020, interest expense also
included the non-cash write-off of $95,000 in debt issuance costs associated
with our bank debt refinancing during the first quarter of 2020. Excluding the
amortization and write-off of debt issuance costs, cash-based interest expense
decreased slightly to $307,000 during the year ended December 31, 2021 from
$310,000 during the year ended December 31, 2020. Other expenses, net, during
the year ended December 31, 2020 included an expense of $165,000 to terminate
our interest rate swap agreements associated with our bank debt refinancing
during the first quarter of 2020. Reflecting the mortgage debt financing we
completed during the first quarter of 2022, we anticipate that our interest
expense will be approximately $325,000, $317,000 and $285,000 during the years
ending December 31, 2022, 2023, and 2024, respectively. Interest income was
$19,000 and $27,000 during the years ended December 31, 2021 and 2020,
respectively. Less interest income was earned during 2021 largely because we had
less cash and short-term investments on hand and a lower interest rate
environment. The annual results included a net loss of $31,000 and $39,000
related to the non-cash write-offs of fixed assets during the years ended
December 31, 2021 and 2020, respectively.



Loss Before Income Taxes



During the year ended December 31, 2021, our loss before income taxes decreased
by 93%, or $963,000, to ($69,000) in comparison to a loss before income taxes of
($1 million) during the year ended December 31, 2020.



Income Taxes and Net Loss



During the years ended December 31, 2021 and 2020, we recorded income tax
expense (benefit) of $9,000 and ($10,000), respectively. Our net loss of
($78,000), or ($0.01) per basic share, during the year ended December 31, 2021
was in comparison to a net loss of ($1 million), or ($0.14) per basic share,
during the year ended December 31, 2020.



For tax return purposes only, our depreciation expense for the Nisin Drug
Substance production facility and equipment was approximately $492,000,
$464,000, $639,000, $9.2 million and $1.5 million for the years ended December
31, 2021, 2020, 2019, 2018 and 2017, respectively. The significant increase
during 2018 was largely related to accelerated depreciation allowed for tax
purposes. As of December 31, 2021, our federal net operating loss carryforward
was approximately $14.7 million, which will be available to offset future
taxable income. On December 22, 2017, the Tax Cuts and Jobs Act was signed into
law. This legislation makes significant changes in the U.S. tax laws, including
a reduction in the corporate tax rates, changes to net operating loss
carryforwards and carrybacks, and a repeal of the corporate alternative minimum
tax. The legislation reduced the U.S. corporate tax rate from 34% to 21%. Our
income tax rate differs from this standard tax rate primarily because we are
currently providing for a full valuation allowance against our deferred tax
assets. While we are recording this full valuation allowance, we are not
recognizing the benefit of our tax losses.



In addition to the above results from our Statements of Operations, we believe
it is important to consider our Statements of Cash Flows in the accompanying
audited financial statements to assess the cash generating ability of our
operations.



Critical Accounting Policies



The financial statements are presented on the basis of accounting principles
that are generally accepted in the United States. All professional accounting
standards that were effective and applicable to us as of December 31, 2021 have
been taken into consideration in preparing the financial statements. The
preparation of financial statements requires that we make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, we evaluate our estimates, including those related to revenue
recognition, income taxes, contingencies and the useful lives and carrying
values of intangible and long-lived assets. We base our estimates on historical
experience and on various other assumptions that we believe are reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions. We have chosen to highlight certain
policies that we consider critical to the operations of our business and
understanding our financial statements.



                                       34





                              ImmuCell Corporation



We sell products that provide Immediate Immunity™to newborn dairy and beef
cattle. We recognize revenue in accordance with the five step model in ASC 606.
These include the following: i) identification of the contract with the
customer, ii) identification of the performance obligations in the contract,
iii) determination of the transaction price, iv) allocation of the transaction
price to the separate performance obligations in the contract and v) recognition
of revenue associated with performance obligations as they are satisfied. We
recognize revenue at the time of shipment (including to distributors) for
substantially all products, as title and risk of loss pass to the customer on
delivery to the common carrier after concluding that collectability is
reasonably assured. We do not bill for or collect sales tax because our sales
are generally made to distributors and thus our sales to them are not subject to
sales tax. We generally have experienced an immaterial amount of product
returns.

Inventory includes raw materials, work-in-process and finished goods and is recorded at the lower of cost, on the first-in, first-out method, or net realizable value (determined as the estimated selling price in the normal course of business, less reasonably predictable costs of completion, disposal and transportation). Work-in-process and finished goods inventories include materials, labor and manufacturing overhead.

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