IMMUCELL CORP /DE/

Current report

ITEM 1A - RISK FACTORS

Current report

There have been no material changes to the risk factors identified in our Annual Report on Form 10-K for the year ended December 31, 2025, in response to Item 1A., “Risk Factors,” of Part I of the Annual Report.

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OUTLINE TO ITEM 1A - RISK FACTORS

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Financial Risks

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Gross margin on product sales: One of our goals is to achieve a gross margin as a percentage of total sales of approximately 45% or more (including depreciation expense) after the initial launch of new products. Depreciation expense will be a larger component of costs of goods sold forRe-Tain® than it is for theFirst Defense® product line. The estimated gross margin forRe-Tain® is still to be determined and will be heavily influenced by production and sales volume in the early years after commercial launch. This may materially influence the achievement of our gross margin goals, at least for some period of time. Many factors discussed in this Quarterly Report (including contaminations, process yields, inflation, cost increases, supply-chain disruptions and the rising price of commodities and supplies) impact our costs of goods sold. There is a risk that we are not able to achieve our gross margin goal, which would adversely affect our operating results and could impact our future operating plans. We missed our gross margin goal during the years ended December 31, 2024 and 2023 with realized gross margins equal to 30% and 22% of product sales, respectively. We achieved a gross margin of 43% of product sales during the nine-month period ended September 30, 2025. There is a risk that our plans to maintain or improve our gross margin may not be realized due to cost increases, production yield losses, future manufacturing contamination events, production equipment failures, price inelasticity or any combination of these factors. In addition, such negative events, depending on their severity, could deplete our cash and thus reduce our ability to fund our business.

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Exposure to interest rates and debt service obligations: Future rises in interest rates could negatively affect the operating costs of dairy and beef producers and thus put further financial pressure on an already stressed business sector, which could indirectly, but materially and adversely, affect our business. Increases in interest rates since 2020 have had only limited effect on our direct cost of borrowing. Our mortgage debt outstanding as of September 30, 2025 was $5.4 million bearing interest at the fixed rate of 3.53% per annum. Our equipment loans outstanding as of September 30, 2025 were $1.4 million bearing interest at the fixed rate of 3.50% per annum. The outstanding balance on our two State of Maine loans as of September 30, 2025 was approximately $464,000 bearing interest at the fixed rate of 5% per annum. The $2.3 million in debt that we borrowed during the third quarter of 2025 (which had an outstanding balance of approximately $2.3 million as of September 30, 2025) bears interest at the fixed rate of 6.5% per annum (down from a blended rate of approximately 7.3% per annum on two 2023 loans refinanced through this new borrowing). Our outstanding debt as of September 30, 2025 aggregating $9.5 million (gross of debt issuance and debt discount costs) bears interest at the blended fixed rate of 4.31% per annum as of September 30, 2025. Increasing interest rates would negatively impact the cost of any future borrowings. We are obligated to make principal and interest payments aggregating approximately $4.2 million and $2.0 million during the years ending December 31, 2025 and 2026, respectively. See Note 9 to the accompanying unaudited financial statements for more details about our debt outstanding at September 30, 2025. A decline in sales or gross margin, coupled with this debt outstanding at September 30, 2025 service burden, could impair our ability to fund our capital and operating needs and objectives.

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Debt covenants: Our debt with Maine Community Bank (formerly Gorham Savings Bank) is subject to certain financial covenants. We are required to meet a minimum debt service coverage (DSC) ratio of 1.35. Our actual DSC ratios were 0.73, (1.10), 0.44, 2.68 and 2.03 for the years ended December 31, 2024, 2023, 2022, 2021 and 2020, respectively. After being allowed several compliance waivers, our next compliance obligation is for the year ending December 31, 2025. For the trailing twelve-month period ended September 30, 2025, our DSC ratio was 2.96. There is no assurance that we will be able to achieve the required DSC ratio in the future. If not, then we would be in violation of that covenant, which could result in acceleration of our bank debt or have other adverse impacts on our business and results of operations.

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*Currency exchange fluctuation:*We do not believe that currency exchange rates have had a significant effect on our revenues and expenses. However, future increases in the value of the U.S. dollar could affect our customers and the demand for our products. We hope to increase the level of our future sales of products outside the United States. The cost of our products to international customers could be affected by currency fluctuations. The decline of the U.S. dollar against other currencies could make our products less expensive to international customers. Conversely, a stronger U.S. dollar could make our products more costly for international customers. A weaker U.S. dollar makes international purchases more expensive for us.

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Inflation, supply disruptions, tax rates and economic downturns: Inflation is having a material and adverse impact on almost all supplies we purchase and labor we hire and retain. Continuing or increasing inflationary trends could materially reduce our gross margin on product sales if we are unable or unwilling to impose offsetting price increases on our customers. The extent and duration of the negative impact on the economics of our customers and on the demand for our products going forward are very difficult to assess. The Class III milk price has been volatile since the onset of the pandemic. Market conditions have improved somewhat, but this volatility remains a concern. Additionally, like most input costs, the cost of grain and other feed is rising, which puts a strain on the profitability of our customers. There is also economic uncertainty for beef producers, as the supply chain is interrupted or otherwise adversely affected due to closures of processing plants and reduced throughput. This is a very unusual situation for farmers who work so hard to improve production quality and efficiency in order to help feed a growing population with high-quality and cost-effective proteins. Global supply-chain disruptions have affected international trade. Stock market valuations remain very volatile. Inflation has increased significantly, and tax rates may increase. There is a risk of a period of economic downturn, the severity and duration of which are difficult to know. Prior to the pandemic and the responsive federal economic stimulus programs, many feared the United States had taken on too much national debt. Now the debt load is significantly higher. A combination of the conditions, trends and concerns summarized above could have a corresponding negative effect on our business and operations, including the supply of the colostrum we purchase to produce our** First Defense**® product line, the demand for our products in the U.S. market and our ability to penetrate or maintain a profitable presence in international markets.

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Projection of net income (loss): Generally speaking, our financial performance can differ significantly from management projections, due to numerous factors that are difficult to predict or that are beyond our control. Weaker than expected sales of theFirst Defense®** product line could lead to operating losses or less profits. The timing of FDA approval ofRe-Tain**® will continue to have a material impact on our net income (loss). This is why we have been reducing product development expenses, while seeking a potential partner to fund some or all of these expenses, and evaluating alternative uses ofRe-Tain® related assets.

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Risks associated with our funding strategy forRe-Tain®: Constraints on cash and liquidity to support the commercialization ofRe-Tain® pose a risk to our business. Having completed the construction and equipping of the DS production facility at a cost of approximately $20.8 million, we will continue to incur product development expenses to operate and maintain this facility until commercialization, or achieve some other strategy. We have reduced these expenses now that production of inventory for Investigational Product use is complete. Although our agreement to have DP filled by our current contract manufacturer expired in November of 2024, that agreement continued to provide for ongoing product labeling and packaging through the first quarter of 2026. To fill more inventory after that, we will need to secure a new DP manufacturing agreement, or bring the process in-house, which would require significant capital expenditures. Continued investment inRe-Tain® could distract resources fromFirst Defense®growth.

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Uncertainty of market size and product sales estimates: Estimating the size of the total addressable market and future sales growth potential for ourFirst Defense® product line is based on our experience and understanding of market dynamics but is inherently subjective. Estimating the size of the market for any new product, such asRe-Tain®, involves more uncertainties than do projections for established products. We do not know whether, or to what extent, our products will achieve, maintain or increase market acceptance and profitability. Some of the uncertainties surroundingRe-Tain®** include its impact on cheese starter cultures, the product’s effectiveness against currently prevalent pathogens, market acceptance, the effect of a premium selling price on market penetration, cost of manufacture, competition from new and existing products sold by substantially larger competitors with greater market reach and promotional resources and other risks described under “Product Risks” – “Sales risks pertaining toRe-Tain**®” below. SinceRe-Tain®** **is a novel approach to treating mastitis, there are many uncertainties with regards to how quickly and to what extent we can develop the subclinical mastitis treatment market. We believe that polypeptide antimicrobial technology may be viewed positively (relative to traditional antibiotics). If realized, this may offset some of these risks and result in better overall market acceptance.

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Net deferred tax assets: The realizability of our net deferred tax assets is a subjective estimate that is contingent upon many variables. During the second quarter of 2018, we recorded a full valuation allowance against our net deferred tax assets that significantly increased our net loss in comparison to other periods. This non-cash expense could be reversed, and this valuation allowance could be reduced or eliminated, if warranted by our actual and projected profitability in the future. We will continue to assess the need for the valuation allowance each quarter.

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Product Risks

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Product risks generally: We set objectives for our products that we believe we can achieve, but the achievement of such goals is not a certainty. The sale of our products is subject to production, financial, efficacy, regulatory, competitive and other market risks. Elevated standards to achieve and maintain regulatory compliance required to sell our products continue to evolve. Failure to achieve acceptable biological yields from our production processes can materially increase our costs of goods sold and reduce our production output, leading to lower margins and/or an order backlog that could adversely affect our customer relationships and operating results.First Defense® is sold at a premium to competitive products, and we expect thatRe-Tain® would require a significant price premium relative to competitive products. There is no assurance that we will continue to achieve market acceptance of theFirst Defense® product line, or achieve and sustain market acceptance ofRe-Tain®, at a profitable price level or that we can continue to manufacture our products at a low enough cost to result in a sufficient gross margin to justify their continued manufacture and sale.

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Contamination events, equipment failures and gross margin from our production process: As described in this Quarterly Report, we experienced certain contamination events and equipment failures in our production process that resulted in scrapped inventory and a slowdown of our production process, which had a significant negative impact on our operating results. We are at risk of further such production contaminations or equipment failures resulting in more scrapped inventory. Additional contamination events or equipment failures causing significantly less production output, depending on their severity, could deplete our cash resulting in an inability to fund our business operations.

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Sales risks pertaining toRe-Tain®*:Actual or prospectiveRe-Tain®* customers may decide to discontinue, reduce or avoid usage ofRe-Tain**®** *due to the following risks: *

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A rejection of a tank of milk, when tested randomly for inhibitors by a milk hauler, because too much of the milk in a bulk tank is comprised of milk from cows being treated withRe-Tain®.

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A failed or stalled cheese tank could occur when a Nisin susceptible cheese starter culture is exposed to Nisin residues in milk from treated cows.

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Producers’ current practice generally is to treat for clinical mastitis only, once the milk shows visible indicators of being abnormal. In order to gain market penetration forRe-Tain®, we will need to change that practice and increase awareness of the importance of treating subclinical disease. This will require the producers’ ability and willingness to diagnose without visual indicators. These diagnoses can be done with somatic cell testing or usingCMT. Users ofRe-Tain® could have unsatisfactory treatment outcomes if they lack the equipment needed to measure and monitor somatic cell counts (SCC) of the herd or individual cows (for which data is needed). This risk limits our access to treatment cows because about 40% of farms do not presently have access to this kind of testing at the cow level and thus may not be good candidates for the use ofRe-Tain®.

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Perceived benefits fromRe-Tain® could be undercut if the product is administered to cows that we would not identify as the best treatment candidates based on SCC data or if the product is administered to cows that are infected with pathogens outside of our label claims. Also, if currently pending investigational trials ofRe-Tain®were to yield lower than anticipated cure rates, this could makeRe-Tain® less attractive for dairy producers.

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Future off-label use of our product in cows infected with clinical mastitis before we have run the required studies and achieved a label claim extension for this more advanced disease state, could result in negative treatment outcomes and potential legal liability.

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Producers might not choose to use it or might use it improperly, rather than follow our label instructions to administer one dose after each of three consecutive milkings, or they might limit use within the herd in an abundance of caution to avoid the negative outcomes described above.

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Reliance on sales of theFirst Defense®* product line: We presently are reliant on the market acceptance of theFirst Defense*®** product line to generate product sales and fund our operations. Our business cannot cover expenses without sufficient gross margin earned on sales of theFirst Defense**® product line. Future profitability is thus largely contingent upon the gross margin we earn from** First Defense**®, together with prudent management of product development expenses.

Previous report

Concentration of sales: Sales of theFirst Defense® product line aggregated 99% of our total product sales during both of the years ended December 31, 2024 and 2023, and 99% of total product sales during both of the nine-month periods ended September 30, 2025 and 2024. Our primary customers for the majority of our product sales (86% and 91% during the years ended December 31, 2024 and 2023, respectively, and 87% and 88% during the nine-month periods ended September 30, 2025 and 2024, respectively), are in the U.S. dairy and beef industries. The concentration of our sales from one product into just two markets (the dairy and beef markets) is a risk to our business. The animal health distribution segment has been aggressively consolidating over the last few years, with larger distributors acquiring smaller distributors. A large portion of our product sales (77% and 79% during the years ended December 31, 2024 and 2023, respectively, and 73% and 77% during the nine-month periods ended September 30, 2025 and 2024, respectively), was made to two large distributors. A large portion of our trade accounts receivable (68% and 78% as of September 30, 2025 and December 31, 2024, respectively) was due from these two distributors. We have a good history with these distributors, but the concentration of sales and accounts receivable with a small number of customers does present a risk to us, including risks related to such customers experiencing financial difficulties or altering the basis on which they do business with us in a manner unfavorable to us.

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Production capacity constraints: We invested $9.9 million from 2019 to December 31, 2024 to increase our annual production capacity (in terms of annual sales dollars) for theFirst Defense® product line from approximately $16.5 million to approximately $30 million or more based on current selling prices and estimated production yields. We are evaluating plans to further increase our production capacity. While previous capacity expansion investments have proceeded very close to budget, there is a risk of cost overruns in our ongoing projects and any future production expansions that we may undertake, and a risk that we will not be able to achieve our production capacity growth objectives on a timely basis, resulting in a continuing or increasing shortfall in supply to the market. The inability to meet market demand for our products is a risk to our business. The prior extended period of product supply shortages may have caused us to lose customers who are not easily regained now that production output is meeting or exceeding sales demand. Our long-term capital plan to continue to expand theFirst Defense® product line requires ongoing review of equipment capacity and utilization across the manufacturing value stream atBuilding 56 and our leased facilities atBuilding 175A and175B, as well as assessment of costs, functional obsolescence and reliability of equipment. This review and assessment could identify a need to fund unexpected equipment maintenance or replacement costs.

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Product liability: The manufacture and sale of our products entails a risk of product liability. Our exposure to product liability is mitigated to some extent by the fact that our products are directed towards the animal health market. We have maintained product liability insurance in an amount which we believe is reasonable in relation to our potential exposure in this area. We have no history of claims of this nature being made.

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Regulatory Risks

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Regulatory requirements for theFirst Defense®* product line:* The USDA-approved formats of our** First Defense**®** **product line are sold in the United States subject to a product license from the Center for Veterinary Biologics, USDA, which was first obtained in 1991, with subsequent approvals of line extensions in 2017 and 2018. As a result, our operations are subject to periodic inspection by the USDA, and we are at risk of an unfavorable outcome from such inspections. The potency of serial lots is directly traceable to the original serial used to obtain the product performance claims (the Reference Standard). Due to the unique nature of the label claims, host animal re-testing is not required as long as periodic laboratory analyses continue to support the stability of the stored Reference Standard. To date, these analyses have demonstrated strong stability. However, if the USDA were not to approve requalification of the Reference Standard, additional clinical studies could be required to meet regulatory requirements and allow for continued sales of the product, which could interrupt sales and adversely affect our operating results. Territories outside of the United States may require additional regulatory oversight that we may not be able to meet with our current facilities, processes and resources. There is a risk that we will become subject to regulatory actions in the future, including actions that result in our inability to ship product. In these cases, the resulting interruption in sales could have a material and adverse effect on our operating results.

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Regulatory requirements forRe-Tain®*:*Commercial introduction of this product in the United States requires us to obtain FDA approval. Completing the process of obtaining FDA approval of the pending NADA involves risk. The regulatory development process timeline has been extensive (approximately 18 years from when the product rights were returned to us by a former partner in 2007) and has involved multiple commercial production strategies and multiple submissions of the CMC Technical Section. We are working with a qualified contract manufacturer for alignment of the required validations and DP manufacture and have met with the FDA to clarify filing strategy and requirements. Early during the first quarter of 2024, the FDA conducted another pre-approval inspection of our DS facility. This resulted in the issuance of one deficiency as identified on the FDA’s Form 483. Since then, we have cleared the inspectional observation with the FDA. However, our efforts continue to be subject to inspection and approval by the FDA and other factors outside of our control, and there remains a risk that the required FDA approvals of our product and facilities could be further delayed or not obtained. The facility of our contract manufacturer is subject to similar inspectional obligations and is currently working to resolve certain inspectional observations at their facility. International regulatory approvals would be required for sales ofRe-Tain® outside of the United States, and there is a risk that these approvals would be or become too costly to pursue or be delayed or not obtained.

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Regulatory requirements limiting access to suppliers and customer base: Maine, where our principal executive office and manufacturing facilities are located, has adopted product reporting and phase-out requirements for per- and polyfluoroalkyl substances (PFAS). Maine’s statute establishes a phased ban for products that contain intentionally added PFAS, with all products (subject to certain exceptions) other than cooling, heating, ventilation, air conditioning or refrigeration equipment being banned by 2032 unless the Maine Department of Environmental Protection (DEP) has determined that the use of PFAS within the product is a “currently unavoidable use.” Beginning January 1, 2032, the sale of products containing intentionally added but “currently unavoidable” PFAS also is banned if the manufacturer of such products has failed to report to the DEP information concerning the presence of PFAS in those products. The phased bans may limit our ability to use or access supplies and may limit those customers to whom we may sell our products. The U.S. Environmental Protection Agency also has adopted a PFAS reporting law, which requires that importers of articles that contain PFAS report the presence of such substances to the extent such information is known or reasonably ascertainable. This reporting requirement may limit our ability to import supplies.

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Economic Risks Pertaining to the Dairy and Beef Industries

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Immigration: In 2025, the U.S. government began stepping up immigration enforcement and deportation efforts, resulting in a rising rate of deportations of people who are in our country illegally. Many farms in the U.S. employ migrants as a significant portion of their workforce. Significant deportations of these individuals could have a negative impact on the operations of our customers and of our source farms.

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The industry data referred to below is compiled from USDA databases.

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Cattle count: The January count of all cattle and calves in the United States had steadily declined from 97,000,000 as of January 1, 2007 to 88,500,000 as of January 1, 2014. Then this figure increased each year, reaching 94,800,000 as of January 1, 2019 before declining to 93,800,000 as of both January 1, 2020 and January 1, 2021. This count continued to decline to 92,100,000 as of January 1, 2022, to 88,800,000 as of January 1, 2023 and to 87,200,000 as of January 1, 2024. This count dropped to 86,700,000 as of January 1, 2025. The cattle count has not been this low since it was 82,100,000 in 1951. Reflecting seasonal trends, this figure was equal to 102,000,000, 101,000,000, 98,600,000, 95,400,000 and 94,200,000 as of July 1, 2020, 2021, 2022, 2023 and 2025, respectively (the USDA did not publish this data point for 2024). A significant decline in the cattle count could negatively affect the size of our addressable market.

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Herd size: Prior to 1957, there were over 20,000,000 cows in the U.S. dairy herd. Prior to 1986, there were over 10,000,000 cows in the U.S. dairy herd. From 1998 through 2021, the size (annual average) of the U.S. dairy herd ranged from the low of 9,011,000 in 2004 to the high of 9,448,000 in 2021. This average declined to 9,402,000 during the year ended December 31, 2022 and then declined to 9,386,000 during the year ended December 31, 2023. This average declined slightly to 9,342,000 during the year ended December 31, 2024, and then it increased to 9,451,000 during the first eight-months of 2025. A significant decline in the herd size could negatively affect the size of our addressable market.

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Milk cow price: In 2015, the annual average price for a milk cow hit $1,993, which was an all-time high. Since then, this annual average value steadily declined to $1,205 during 2019 before increasing to $1,300 during 2020 and to $1,363 during 2021. This price for 2022 increased significantly to an average of $1,598, which is a 17% increase over 2021. The 2023 average price of $1,763 represents a 10% increase over prior year. This price for 2024 increased to an average of $2,243, which is a 27% increase over 2023. In July of 2025, this year-to-date average price increased by 27% over the 2024 average to $2,847. A significant decline in the milk cow price could negatively affect the size of our addressable market.

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Newborn calf price: Currently, prices for newborn calves are near all-time highs. A significant decline in the price of a newborn calf could negatively affect the size of our addressable market.

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Milk price: The price paid to producers for milk is volatile. This market volatility, and the resulting impact on our primary end users, could negatively impact our ability to maintain and grow sales at a profitable level. The Class III milk price (an industry benchmark that reflects the value of product used to make cheese) is an important indicator because it defines our customers’ revenue level. This annual average milk price level (measured in dollars per hundred pounds of milk) reached its highest point (since these prices were first reported in 1980) during 2014 at $22.34 (peaking at $24.60 in September of 2014), which price level has never been repeated. During the year ended December 31, 2020, this average milk price was equal to $18.16, but it was extremely volatile during the year due largely to disruption in demand related to the COVID-19 pandemic. The one-month fluctuation of 73% from a low of $12.14 in May of 2020 to $21.04 in June of 2020 set an all-time record for variability. The average price for 2021 decreased by 6% to $17.08. This price average increased by 29% to $21.96 during the year ended December 31, 2022. The average price decreased by 22% to $17.02 during the year ended December 31, 2023. This average price increased by 11% to $18.89 during the year ended December 31, 2024. This average price decreased by 2% to $18.57 during the eight months ended August 31, 2025. The annual fluctuations in this milk price level are demonstrated in the following table:

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Feed Costs: The actual level of milk prices may be less important than its level relative to feed costs. One measure of this relationship is known as the milk-to-feed price ratio, which represents the amount of feed that one pound of milk can buy. An increase in feed costs also has a negative impact on the beef industry and therefore could have a resulting negative impact on our business and results of operations. This ratio varies farm-to-farm based on individual operating parameters. Since this ratio reached 3.24 in 2005, it has not exceeded 3.00. This ratio averaged 1.74 for 2021, amounting to a significant decline of 25% from the 2020 average of 2.32. This average has not been lower since 2012. During 2022, this ratio improved by 9% to 1.90. This ratio dropped by 12% to 1.67 during the year ended December 31, 2023. This ratio increased to 2.48 during the year ended December 31, 2024, representing an increase of 49% over the average for 2023. This ratio decreased slightly to 2.46 during the eight months ended August 31, 2025, representing a decrease of 1% over 2024. The following table demonstrates the annual volatility:

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Volatility of the dairy market: While the number of cows in the U.S. herd and the production of milk per cow directly influence the supply of milk, the price for milk is also influenced by very volatile international demand for milk products. Given our focus on the dairy and beef industries, the volatile market conditions and the resulting financial insecurities of our primary end users are risks to our ability to maintain and grow sales at a profitable level. These factors also heighten the challenge of selling premium-priced animal health products (such asTri-Shield®** andRe-Tain**®) into the dairy market. Additionally, some important trading partners of the United States impose tariff and non-tariff barriers to their importation of U.S. dairy products. It presently is unclear whether or to what extent ongoing trade negotiations will result in changes in U.S. exports of dairy products, or otherwise affect international demand for milk.

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Small Size of the Company