Good day and welcome to the ImmuCell Corporation Reports Second Quarter Fiscal Year 2018 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Joe Diaz. Please go ahead.

Thank you, Andrea, and thank all of you for joining us today to review the unaudited financial results of ImmuCell Corporation for the second quarter of 2018, which ended on June 30, 2018. My name is Joe Diaz, with Lytham Partners. We are the investor relations consultant firm for ImmuCell. Before we get started, let me say that statements made by management during the course of this call include forward-looking statements. Actual results could differ materially from what is discussed in those forward-looking statements. Additional information on factors that could cause such differences is available on the company's most recent filings with the SEC on Forms 10-Q and 10-K, as well as with last night’s press release. I should also note that the full details to the company's second quarter financial results are available in its quarterly report on Form 10-Q and a summary press release they were both filed last night. With that, let me turn the call over to Michael Brigham, President and CEO of ImmuCell Corporation, after which we will open the call for your questions. Michael?

Thank you all for taking the time to join today's call. I’d like to highlight some key financial points and then review the current state of our business. So, customer demand for our products is up, product sales were up 72% during the second quarter in comparison to the second quarter of 2017. These quarterly results do include the shipment of approximately $900,000 of our bivalent formats of First Defense that was on backlog as of March 31, 2018. During the first six-months of the year, product sales increased by 602,000 or 11% to 5.9 million in comparison to the first six-months of 2017. During the rolling 12-months ended June 30, 2018, product sales increased by 1.6 million or 16% to 11 million in comparison to the same period ended June 30, 2017. Gross margin as a percentage of product sales decreased from 58% during the first six-months of 2017 to 48% during the first six-months of 2018. This decrease has been largely driven by lower biological yield from our milk and higher cost form the initial batches of our new product Tri-Shield First Defense. We expect to improve this percentage going forward. The markets response for our newly introduced Tri-Shield First Defense has been very strong, which is a good indication that dairy and beef producers value the ability to protect newborn calves with immediate immunity from the three most common scours-causing pathogens; the E. coli, coronavirus and rotavirus, in one preventative treatment at birth. Additionally, in the short time that the product has been on the market, we have gained substantial traction with our Beyond Vaccination message that positions the product as a viable substitute for traditional dam-level scours vaccine programs. This is a large new market opportunity for us. The calf level market is worth something like…

Thank you. [Operator Instructions] And our first question comes from Kevin Ellich of Craig-Hallum. Please go ahead.

Good morning, Michael. Thanks for taking the questions, sorry for the background noise. Just wanted to ask a couple of questions. First, can you talk about the potential impact of the soft dairy market, clearly dairy prices are still weak, I don’t know if you have any expectations that supply could change down the road, just wanted to see how you think that might impact the business?

Yes. It is a rough time. It is a very rough time, but it is also normal [indiscernible] used to these cycles. We are hitting a low one right. Milk price is down under $15 per 100 [ph] weight, that’s not good for our customer. That’s not good for us, but it does cycle, it will come around. These first six months results we are pretty pleased with – yes, we can do this level of growth, this level of sales, with a tough milk price, especially hitting small producers that are continuing to go out of business. We will run through it. Our customer runs through it, and we’re ready for the upswing as that cycle turns.

Great. And then can you talk about Tri-Shield, it sounds like you are getting some traction there, and do you think you're gaining share in that market, and I guess what’s your future outlook there?

Yes, it’s a very exciting product. The initial reaction to this product has been stronger than we anticipated. The challenge is we don't have enough inventory. So, this production cycle for this product is six months long. The fixes we’re making now will be available and doses of inventory to the market in the beginning of 2019. So, as I mentioned, I think you do the best you can with the circumstances that are put in front of you. Great to have the customer demand. Great to have people really interested in hearing our story about not just using our calf level product against instead of another calf level product, but really a complete shift in considering using our product instead of a dam-level vaccine. We’ll continue to work with these big customers that we are able to supply. We want to be a reliable supplier to those customers that are getting our product rather than broad-based approach where we couldn't get to everyone. So, that initial feedback is good. Those relationship buildings are good and we are just working over the next six months to build inventory to initiate a broader-based sort of relaunch of this product coming into 2019.

That sounds good. And then lastly, recently I noticed you guys made some additions to the management team or the company, could you talk about that and who you hired and also anyone else or any other positions you think you need to fill? Thank you.

Yes. So, some people said, why did you put out a press release about hiring a Senior Director of Quality. So, maybe that’s an internal matter, but we felt like it was a bit newsworthy just to show the continuing progress of the Nisin plant. It’s the step-up from our 25 plus years of USDA operation to becoming an FDA operation as well. So, Gustavo Scaffa joined us just this week. Just a week ago, Monday. He brings depth of experience from running quality operations at Pfizer and Zoetis Animal Health. He is working closely with Betsy Williams, who is our VP of Manufacturing Operations. She joined us just over two years ago. And we were just signaling to our investors or communicating to our investors that as this facility comes online we’re staffing up and these were the kind of people with the experience they have that can work with our team of, I mean, we’ve got our entire product development team dedicated to these initial batches and leading the staff up at that manufacturing operations level. So, progress both in making these registration batches and hiring the people that we need to run that operation, again moving from the USDA world to the FDA world.

Sounds good. Thank you.

Thanks Kevin. That’s great.

[Operator Instructions] And our next question comes from Sam Rebotsky of SER Asset Management. Please go ahead.

Good morning, Michael. Let’s see, the dealing with the Tri-Shield, I believe it is part of the Q, you spoke of being able to sell 650,000, was that in the fourth quarter of 2018?

Yes. We were trying to give some indication, you know very forward-looking projection is going to be a little bit off, a little high, a little low, but directionally accurate. Sort of this $0.25 million level with where we’ve been since launch $0.25 million per quarter in sales, but we see that ramping up significantly into the fourth quarter as we turn the corner into 2019. So, that sort of double, it was steady, steady, steady for the first three quarters and then the production ramps up and we anticipate that more or less a doubling of that volume of that inventory level available for sale in the fourth quarter and as we turn into 2019.

So, I believe you started out talking about the market of $34 million, which I assume is both Tri-Shield and First Defense and in the Q, I think you talked about the ability to manufacture 17 million, which is a combination of Tri-Shield and First Defense and what sales expectation say, do you feel you could do of Tri-Shield, and will Gustavo help you achieve getting the product that you need and guide you in getting the product you need that you could increase your sales?

Yes, great. Thanks Sam. So, two thoughts. One, just sort of clarifying where we put out as market projections. So, we have long felt the market we compete and at the calf level, against two or three big companies is around 17 million in total sales, and that’s where 90% of our sales today are. So, then with Tri-Shield, we get into this dam vaccine market. There is about double that. There is about 34 million of these dam vaccines sold. So, a much bigger market that we access with Tri-Shield. So, that production capacity being able to take 10 today is 10 million or trailing 12 months, 11 million, up to that 16 million, 17 million capacity will be the result of Tri-Shield, but it will be a net. So, Tri-Shield will get some new customers and just brand-new business, someone that’s never tried a calf level product before, maybe someone that’s never even tried a dam-level product before or somebody that is using a dam-level product and switches or somebody that uses a calf-level product and switches. So, it’s going to be a net growth factor to some cannibalization of the – what we call Dual-Force, the bivalent First Defense. Again, some new market. I don't really care, where it comes from, as long as we’re growing and that’s kind of our reporting plan going forward is not to focus on how much of each product line, but just the entire First Defense product line bivalent and trivalent. And as to Gustavo, I think really the answer is no. And we cannot afford to have him distracted by the USDA business. He is really focused on the FDA side, working through the remaining objectives with the CMC in getting the plan, the batches made and all the quality documentations. So, he’ll be focused on Nisin and really, indirectly I mean we’re all one team, indirectly there’s benefit to having his thinking on the team, but his day-to-day focus is Nisin and the FDA operation.

So, one further thing. So, in order to get above the 650,000 a quarter, we need to improve the ability to produce, is it based on getting all the parts to manufacture and we had the product for the First Defense, which I believe we solved, so in other words, are we able to get much larger production now, if we could have larger sales? We could produce, if we get the sales?

Yes. So, these production challenges, gross margin challenges, available supply challenges, really were twofold. One was as I referred to, in the gross margin decrease, a loss and yield from the milk. So that really impacted the bivalent, the Dual-Force, the first quarter backlog. We simply weren’t getting enough doses out of each batch. So that problem has been fixed. That problem would also affect the Tri-Shield because they are both sourced from the milk, different cows, but same production challenge, biological yield from our milk. So, I feel like with the second quarter here, we’ve fixed – we’ve shown fixed to that problem. The trailing or nagging problem on Tri-Shield is really that as number one, and number two lack of supply of the vaccine. That’s the problem we’re addressing now. As we address that problem, the vaccine we use in our donor cows that’s being fixed now, and then lags out, so you see that ramp in the fourth quarter, but it will ramp higher going into 2019. So that fix is underway and we’re seeing that six-month lag and that fix being evidenced fourth quarter going into 2019.

Sounds good Michael, good luck. You’ve made a lot of accomplishments, and hopefully we could get more of First Defense and Tri-Shield to sell. The market seems to want it.

We all appreciate that Sam. I think you are right, and that is definitely – I don't want to say objective number one, because we got two number one objectives Nisin and continual growth on the First Defense side.

Thank you.

[Operator Instructions] And our next question comes from Irwin Goldberg of Irwin Investments. Please go ahead.

Good morning. What kind of R&D expenses do you expect from the [last sales]?

Yes. The run rate on the first six months is going to stay in that neighborhood. These expenses are pretty recurring, as far as what’s necessary to run that plant. Regular product development expenses, but the big sort of new expenses are running that plant at the time where it’s going through a product development expense because we don't have sales, you know it’s not yet going into gross margins. So, I don't – I would love to be able to drop that expense quicker, but it’s not going to happen in the second half of 2018.

And your inventory, once Tri-Shield starts ramping, what kind of inventory do you expect eventually show, compared to what you have now?

Yes. In most of these, being a six-month production cycle, we tend to go longer than a lot other companies would like to do. We look out six months on some critical supplies. So, that inventory counts got to build up. We have got to get to the point where we can avoid another backlog by just pulling product of the shelf. So, really the answer is about six-month supply and most of the critical lease early stage like processed milk and processed milk’s about six months. We can be a little more flexible at the other end, as far as what gets diverted into, say capsule versus a tube, shorter supply there, but we need to – we want to avoid what happened in the first quarter, we don’t want to repeat that.

Thank you very much.

Thanks for your question. Yes, sure.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Joe Diaz, for any closing remarks.

Thank you, Andrea. And again, thanks to all of you for participating on today's call. We look forward to talking with you again at the conclusion of the third quarter, sometime around mid-November. So, we wish you a great day, and a great balance of the week. Thanks again.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.