** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.20549**

 

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**Form 10-Q/A**

**(Amendment No. 1)**

 

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**(MarkOne)**

 
| **ý******                                   | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|--------------------------------------------------|----------------------------------------------------------------------------------------------------|
|                                             |
| **For the Quarter ended March 31, 2004 or** |
|                                             |
| **o**                                            | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**Forthe transition period from                  to                  .**

 

**Commission File Number: 000-50677**

 

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**IMMUNICON CORPORATION**

(Exact name of registrant as specified in itscharter)

 

| **Delaware**                                                    |   | **23-2269490**                     |
|-----------------------------------------------------------------|--------|------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |   | (IRS Employer  Identification No.) |

 

**3401 Masons Mill Road, Suite 100**

**Huntingdon Valley, Pennsylvania 19006**

(Address of principal executive offices and zip code)

 

**(215) 830-0777**

(Registrant’s telephone number including area code)

 

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Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports) and (2) has been subject to such filingrequirements for the past 90 days.

Yes o  No  ý*

 

Indicate by check mark whetherthe registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act).

Yes o  No  ý

 

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* The registrant has not been subject to the filing requirements for thepast 90 days as it commenced trading following its initial public offeringon April 16, 2004, but has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 since suchtime.

 

Include the number of sharesoutstanding of each of the issuer’s classes of common stock, as of the latestpossible date.

As of May 12, 2004, there were22,007,181 shares of Common Stock, $0.001 par value, outstanding.

 

 

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**EXPLANATORYNOTE**

 

This Amendment No. 1 to thequarterly report on Form 10-Q/A (this “Amendment”) is being filed to amend thequarterly report on Form 10-Q for the fiscal quarter ended March 31, 2004previously filed with the Commission by Immunicon Corporation on May 21, 2004(the “Prior Report”) solely for the purpose of correcting an inadvertent errorcontained in the Condensed Consolidated Statement of Operations (Unaudited)included in Item 1 of the Prior Report. Specifically, the amounts for Revenue:Instrument revenue from related party for the three months ended March 31,2003 and for the period from August 25, 1983 (date of inception) toMarch 31, 2004 were transposed during the final process of preparing theForm 10-Q for submission. As reflected in this Amendment, the correct amountfor Revenue: Instrument revenue from related party for the three months endedMarch 31, 2003 is zero and for the period from August 25, 1983 (dateof inception) to March 31, 2004 is $103,000.

 

IMMUNICON CORPORATION

 

INDEX

 
| **PART I.** | **FINANCIAL INFORMATION**                                                                                                                                |   |
|-------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|        |                                                                                                                                                     |   |
| Item 1.     | Condensed Consolidated Financial Statements  (Unaudited):                                                                                                |   |
|        |                                                                                                                                                     |   |
|        | Condensed Consolidated Balance Sheets:                                                                                                                   |   |
|        | March 31, 2004 and  December 31, 2003                                                                                                          |   |
|        |                                                                                                                                                     |   |
|        | Condensed  Consolidated Statements of Operations:                                                                                                        |   |
|        | Three Months Ended  March 31, 2004 and March 31, 2003 and for the period from  August 25, 1983 (date of inception) to March 31, 2004 |   |
|        |                                                                                                                                                     |   |
|        | Condensed  Consolidated Statements of Cash Flows:                                                                                                        |   |
|        | Three Months Ended  March 31, 2004 and March 31, 2003 and for the period from  August 25, 1983 (date of inception) to March 31, 2004 |   |
|        |                                                                                                                                                     |   |
|        | Notes to Condensed Consolidated  Financial Statements                                                                                                    |   |

 

Immunicon is a registeredtrademark of Immunicon Corporation. The Immunicon logo is a registered stylizedtrademark of Immunicon Corporation. CellTracks EasyCount, EasyCount, CellTracksMagNest, CellPrep, CellSave, CellSpotter, CellTracks, AutoPrep and IMMC aretrademarks of Immunivest Corporation, a wholly owned subsidiary of ImmuniconCorporation. The CellTracks Analyzer logo, CellTracks AutoPrep logo, CellTracksMagNest logo, CellSave Preservative Tube logo, CellSave Tube Cap logo, andCellSpotter Analyzer logo are stylized trademarks of Immunivest Corporation.CellSearch is a registered trademark of Johnson & Johnson. All othertrademarks appearing in this filing are the property of their respectiveholders.

 

 

1

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**PART I****.****                                                    FINANCIALINFORMATION**

**Item 1****.****                                                        CondensedConsolidated Financial Statements**

 

**CondensedConsolidated Balance Sheets (Unaudited)**(in thousands,except for share and per share amounts)

 
|                                                                                                                                                                                                                       |   | **March 31,********2004** |   | **December 31,********2003** |   | **Pro  forma********stockholders’********equity at********March 31, 2004********(See note 4)** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------|--------|-----------------------------------|--------|----------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                       |   |                           |   |                              |   |                                                                                                     |   |
| ASSETS                                                                                                                                                                                                                     |   |                           |   |                              |   |                                                                                                     |   |
| Current Assets:                                                                                                                                                                                                            |   |                           |   |                              |   |                                                                                                     |   |
| Cash and cash equivalents                                                                                                                                                                                                  |   | $                              | 24,607 |                              | $      | 30,601                                                                                                   |   |   |   |
| Accounts receivable (See note 9)                                                                                                                                                                                           |   | 158                            |   | 30                                |   |                                                                                                     |   |
| Prepaid assets                                                                                                                                                                                                             |   | 201                            |   | 319                               |   |                                                                                                     |   |
| Loans from employees                                                                                                                                                                                                       |   | 1                              |   | 1                                 |   |                                                                                                     |   |
| Security deposit with Lender (See note 7)                                                                                                                                                                                  |   | 479                            |   | —                            |   |                                                                                                     |   |
| Other current assets (See note 9)                                                                                                                                                                                          |   | 241                            |   | 136                               |   |                                                                                                     |   |
| Total current assets                                                                                                                                                                                                       |   | 25,687                         |   | 31,087                            |   |                                                                                                     |   |
|                                                                                                                                                                                                                       |   |                           |   |                              |   |                                                                                                     |   |
| Property and equipment, net                                                                                                                                                                                                |   | 3,982                          |   | 3,561                             |   |                                                                                                     |   |
| Assets related to financing activities                                                                                                                                                                                     |   | 1,708                          |   | 674                               |   |                                                                                                     |   |
| Other assets                                                                                                                                                                                                               |   | 217                            |   | 412                               |   |                                                                                                     |   |
| Total assets                                                                                                                                                                                                               |   | $                              | 31,594 |                              | $      | 35,734                                                                                                   |   |   |   |
|                                                                                                                                                                                                                       |   |                           |   |                              |   |                                                                                                     |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                                                                                                  |   |                           |   |                              |   |                                                                                                     |   |
| Current Liabilities:                                                                                                                                                                                                       |   |                           |   |                              |   |                                                                                                     |   |
| Current portion of long-term debt                                                                                                                                                                                          |   | $                              | 3,670  |                              | $      | 3,360                                                                                                    |   |   |   |
| Accounts payable                                                                                                                                                                                                           |   | 1,770                          |   | 1,008                             |   |                                                                                                     |   |
| Accrued expenses                                                                                                                                                                                                           |   | 3,143                          |   | 2,787                             |   |                                                                                                     |   |
| Current portion of deferred revenue                                                                                                                                                                                        |   | 222                            |   | 97                                |   |                                                                                                     |   |
| Total current liabilities                                                                                                                                                                                                  |   | 8,805                          |   | 7,252                             |   |                                                                                                     |   |
|                                                                                                                                                                                                                       |   |                           |   |                              |   |                                                                                                     |   |
| Long-term debt                                                                                                                                                                                                             |   | 3,469                          |   | 3,792                             |   |                                                                                                     |   |
| Deferred revenue                                                                                                                                                                                                           |   | 359                            |   | 25                                |   |                                                                                                     |   |
|                                                                                                                                                                                                                       |   |                           |   |                              |   |                                                                                                     |   |
| Commitments and contingencies                                                                                                                                                                                              |   |                           |   |                              |   |                                                                                                     |   |
|                                                                                                                                                                                                                       |   |                           |   |                              |   |                                                                                                     |   |
| Shareholders’ equity:                                                                                                                                                                                                 |   |                           |   |                              |   |                                                                                                     |   |
| Convertible preferred stock (liquidation  value of $87,987,521  as of  March 31, 2004 and $87,755,822   as of December 31, 2003)                                                                       |   | 85,347                         |   | 85,115                            |   | $                                                                                                        | — |   |
| Common stock, $0.001 par value – 25,000,000  authorized, 498,702 and 485,820 shares issued and outstanding as of  March 31, 2004 and December 31, 2003, respectively, and 15,994,517  pro forma (unaudited) |   | 1                              |   | 1                                 |   | 16                                                                                                       |   |
| Additional paid in capital                                                                                                                                                                                                 |   | 7,258                          |   | 7,032                             |   | 92,590                                                                                                   |   |
| Deferred stock-based compensation                                                                                                                                                                                          |   | (3,652                         | )      | (3,858                            | )      | (3,652                                                                                                   | )      |
| Loan for stock options                                                                                                                                                                                                     |   | (19                            | )      | (19                               | )      | (19                                                                                                      | )      |
| Deficit accumulated during the development  stage                                                                                                                                                                          |   | (69,974                        | )      | (63,606                           | )      | (69,974                                                                                                  | )      |
| Total shareholders’ equity                                                                                                                                                                                            |   | 18,961                         |   | 24,665                            |   | $                                                                                                        | 18,961 |   |
| Total liabilities and shareholders’ equity                                                                                                                                                                            |   | $                              | 31,594 |                              | $      | 35,734                                                                                                   |   |   |   |

 

See notes to condensed consolidated unaudited financial statements.

 

2

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**CondensedConsolidated Statements of Operations(Unaudited)**

Three months endedMarch 31, 2004 and 2003, and for the period from August 25, 1983(date of inception) to March 31, 2004(in thousands, except for share and per share amounts)

 
|                                                                                                         |   | **Three Months Ended March 31,** |   | **Period  from  August 25,  1983 (date of  inception) to  March 31,  2004** |   |
|--------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|---------------------------------------------------------------------------------------|--------|
|                                                                                                         |   | **2004**                              |   | **2003**                                                                              |   |   |
|                                                                                                         |   |                                  |   |                                                                                  |   |   |   |
| Revenue:                                                                                                     |   |                                  |   |                                                                                  |   |   |   |
| License revenue from related party (See  note 9)                                                             |   | $                                     | 41     |                                                                                  | $      | 280 |   | $ | 4,046 |   |
| Instrument revenue from related party  (See note 9)                                                     |   | 103                                   |   | —                                                                                |   | 103 |   |
| Other revenue                                                                                                |   | 13                                    |   | 159                                                                                   |   | 3,922 |   |
| Total revenue                                                                                                |   | 157                                   |   | 439                                                                                   |   | 8,071 |   |
|                                                                                                         |   |                                  |   |                                                                                  |   |   |   |
| Expenses:                                                                                                    |   |                                  |   |                                                                                  |   |   |   |
| Research and development                                                                                     |   | 4,979                                 |   | 3,946                                                                                 |   | 59,519 |   |
| General and administrative                                                                                   |   | 1,445                                 |   | 1,003                                                                                 |   | 19,885 |   |
| Total operating expenses                                                                                     |   | 6,424                                 |   | 4,949                                                                                 |   | 79,404 |   |
| Operating loss                                                                                               |   | (6,267                                | )      | (4,510                                                                                | )      | (71,333 | ) |
| Other income from related party                                                                              |   |                                  |   |                                                                                  |   | 250 |   |
|                                                                                                         |   |                                  |   |                                                                                  |   |   |   |
| Interest income                                                                                              |   | 62                                    |   | 86                                                                                    |   |   |   |
| Interest expense                                                                                             |   | (163                                  | )      | (114                                                                                  | )      |   |   |
| Interest income (expense), net                                                                               |   | (101                                  | )      | (28                                                                                   | )      | 1,109 |   |
| Net loss attributable to common  stockholders                                                                |   | $                                     | (6,368 | )                                                                                     | $      | (4,538 | ) | $ | (69,974 | ) |
|                                                                                                         |   |                                  |   |                                                                                  |   |   |   |
| Net loss per common share-basic and diluted                                                                  |   | $                                     | (13.10 | )                                                                                     | $      | (10.29 | ) |   |   |
|                                                                                                         |   |                                  |   |                                                                                  |   |   |   |
| Weighted average common shares  outstanding-basic and diluted                                                |   | 486,240                               |   | 441,111                                                                               |   |   |   |
|                                                                                                         |   |                                  |   |                                                                                  |   |   |   |
| Pro forma net loss per common share-basic  and diluted (unaudited) (See notes 3 and 4)                       |   | $                                     | (0.40  | )                                                                                     |   |   |   |   |
|                                                                                                         |   |                                  |   |                                                                                  |   |   |   |
| Pro forma weighted average common shares  outstanding-basic and diluted (unaudited) (See notes 3 and 4) |   | 15,934,063                            |   |                                                                                  |   |   |   |

 

See notes to condensed consolidated unaudited financial statements.

 

3

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**Condensed Consolidated Statements of Cash Flows (Unaudited)**

Three months endedMarch 31, 2004 and 2003, and for the period fromAugust 25, 1983 (date of inception) to March 31, 2004(in thousands)

 
|                                                                             |   | **Three Months Ended March 31,** |   | **Period  from  August 25, 1983  (date of inception)  to March 31,  2004** |   |
|----------------------------------------------------------------------------------|--------|---------------------------------------|--------|--------------------------------------------------------------------------------------|--------|
|                                                                             |   | **2004**                              |   | **2003**                                                                             |   |   |
| Operating activities:                                                            |   |                                  |   |                                                                                 |   |   |   |
| Net loss                                                                         |   | $(6,368                               | )      | $(4,538                                                                              | )      | $(69,974 | ) |
| Adjustment to reconcile net loss to net cash used in operating  activities:      |   |                                  |   |                                                                                 |   |   |   |
| Depreciation and amortization                                                    |   | 332                                   |   | 240                                                                                  |   | 4,951 |   |
| Interest expense on warrants                                                     |   | 9                                     |   | 5                                                                                    |   | 81 |   |
| Loss on disposal of property and equipment                                       |   | —                                |   | —                                                                               |   | 4 |   |
| Compensation expense related to the issuance of stock,stock options and warrants |   | 401                                   |   | 84                                                                                   |   | 1,430 |   |
| Change in:                                                                       |   |                                  |   |                                                                                 |   |   |   |
| Accounts receivable                                                              |   | (128                                  | )      | —                                                                               |   | (127 | ) |
| Prepaid expenses and other                                                       |   | 118                                   |   | (63                                                                                  | )      | (369 | ) |
| Other assets                                                                     |   | (401                                  | )      | —                                                                               |   | (1,381 | ) |
| Accounts payable                                                                 |   | 1,134                                 |   | 204                                                                                  |   | 1,567 |   |
| Accrued expenses                                                                 |   | (476                                  | )      | (7                                                                                   | )      | 2,322 |   |
| Deferred revenue                                                                 |   | 459                                   |   | 213                                                                                  |   | 569 |   |
| Net cash used in operating activities                                            |   | (4,920                                | )      | (3,862                                                                               | )      | (60,927 | ) |
|                                                                             |   |                                  |   |                                                                                 |   |   |   |
| Investing activities:                                                            |   |                                  |   |                                                                                 |   |   |   |
| Purchase of investments                                                          |   | —                                |   | —                                                                               |   | (54,920 | ) |
| Proceeds from maturities of investments                                          |   | —                                |   | —                                                                               |   | 54,503 |   |
| Cash proceeds from disposals of property and equipment                           |   | —                                |   | —                                                                               |   | 1 |   |
| Purchases of property and equipment                                              |   | (749                                  | )      | (495                                                                                 | )      | (8,510 | ) |
| Net cash used in investing activities                                            |   | (749                                  | )      | (495                                                                                 | )      | (8,926 | ) |
|                                                                             |   |                                  |   |                                                                                 |   |   |   |
| Financing activities:                                                            |   |                                  |   |                                                                                 |   |   |   |
| Proceeds from term debt                                                          |   | 795                                   |   | —                                                                               |   | 16,393 |   |
| Proceeds from sale of preferred stock                                            |   | —                                |   | —                                                                               |   | 84,115 |   |
| Proceeds from sale of common stock                                               |   | —                                |   | —                                                                               |   | 1,666 |   |
| Proceeds from exercise of stock options                                          |   | 6                                     |   | —                                                                               |   | 338 |   |
| Proceeds from exercise of stock warrants                                         |   | 257                                   |   | —                                                                               |   | 257 |   |
| Loan issue fees                                                                  |   | —                                |   | —                                                                               |   | (55 | ) |
| Payments of IPO fees                                                             |   | (575                                  | )      | —                                                                               |   | — |   |
| Payments on term debt                                                            |   | (808                                  | )      | (714                                                                                 | )      | (8,254 | ) |
| Net cash provided by (used in) financing activities                              |   | (325                                  | )      | (714                                                                                 | )      | 94,460 |   |
| Net increase (decrease) in cash and cash equivalents                             |   | (5,994                                | )      | (5,071                                                                               | )      | 24,607 |   |
| Cash and cash equivalents, beginning of period                                   |   | 30,601                                |   | 18,470                                                                               |   | — |   |
| Cash and cash equivalents, end of period                                         |   | $24,607                               |   | $13,399                                                                              |   | $24,607 |   |
|                                                                             |   |                                  |   |                                                                                 |   |   |   |
| Supplemental cash flow information:                                              |   |                                  |   |                                                                                 |   |   |   |
| Cash paid for interest                                                           |   | $140                                  |   | $127                                                                                 |   |   |   |

 

See notes to condensed consolidated unaudited financial statements.

 

4

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**NOTES TO CONDE****NSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS**

**Three months ended March 31, 2004 and2003, and for the period from August 25, 1983 (date of inception) toMarch 31, 2004.**

 

**(1)  Background andbasis of presentation**

 

The accompanying unauditedconsolidated financial statements of Immunicon Corporation and Subsidiaries(the “Company”) have been prepared in accordance with accounting principlesgenerally accepted in the United States of America for interim financialinformation and with the instructions to Form 10-Q and Article 10 ofRegulation S-X of the Securities and Exchange Commission (“SEC”).  Accordingly, they do not include all of theinformation and footnotes required by accounting principles generally acceptedin the United States of America for complete financial statements. In theopinion of our management, the accompanying consolidated financial statementsreflect all adjustments (consisting only of normal recurring accruals) necessaryto present fairly our financial position at March 31, 2004 and results ofoperations and cash flows for the three month periods ended March 31, 2004and 2003.  Certain items have beenreclassified to conform to current period presentation.

 

Certain footnote informationhas been condensed or omitted from these financial statements.  Therefore, these financial statements shouldbe read in conjunction with the consolidated financial statements and relatednotes on pages F-1 to F-33 included in the Company’s Registration Statementdated April 16, 2004 filed with the SEC (“Registration Statement”).  Results of operations for the three monthsended March 31, 2004 are not necessarily indicative of results to beexpected for the full year.

 

The preparation of financialstatements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of financial statements, and thereported amounts of expenses during the reporting period.  Actual results could differ from thoseestimates or assumptions.  The moresignificant estimates reflected in these financial statements includejudgmentally accrued expenses and the valuation of stock-based compensation.

 

The Company has generatedlimited revenues from product sales and has incurred substantial losses sinceits inception. The Company anticipates incurring additional losses over atleast the next several years and such losses may increase as the Companyexpands its research and development activities. Accordingly, the Company isconsidered to be in the development stage as of March 31, 2004 as definedin Statement of Financial Accounting Standards (“SFAS”) No. 7, *Accountingand Reporting by Development Stage Enterprises*.

 

On April 21, 2004, theCompany completed its initial public offering (“IPO”) of 6,000,000 shares ofcommon stock at $8.00 per share. The Company raised an aggregate of $48 millionbefore underwriters’ discounts and offering expenses. Net proceeds to theCompany were approximately $43 million. All of the shares were sold by theCompany.  The Company had granted theunderwriters a 30-day option to purchase up to an additional 900,000 shares ofcommon stock from the Company to cover over-allotments, if any. This option wasexercised in full on May 12, 2004 and closing occurred on May 17, 2004 with netproceeds to the Company of approximately $6.7 million. On March 9, 2004,the Company completed a 2-for-3 reverse stock split of its common stock.  All share and per share amounts included inthese unaudited consolidated financial statements have been retroactively adjustedfor all periods presented to give effect to the reverse stock split.

 

Substantial financing will beneeded by the Company to fund its operations and to commercially develop itsproduct candidates. There is no assurance that such financing will be availablewhen needed. Operations of the Company are subject to certain additional risksand uncertainties including, among others, dependence on Veridex, LLC(“Veridex”), a Johnson & Johnson company, to market the Company’scancer diagnostic product candidates, the uncertainty of product development (includingclinical trial results), regulatory clearance and approval, supplier andmanufacturing dependence, competition, reimbursement availability, dependenceon exclusive licenses and other relationships, uncertainties regarding patentsand proprietary rights, dependence on key personnel and other risks related togovernmental regulations and approvals. Management believes, however, thatcash, cash equivalents and borrowing available under its line of credit atMarch 31, 2004 will be sufficient to maintain operations through at leastMarch 31, 2005.

 

In accordance withthe SEC’s Release No. 33-8040, *Cautionary Advice Regarding Disclosure about CriticalAccounting Policies,* we have determined the critical accountingprinciples by considering accounting policies that involve the most complex orsubjective decisions or assessments. We state these accounting policies inManagement’s Discussion and Analysis of Financial Condition and Results ofOperations and in the notes to the consolidated financial statements containedin our Registration Statement. There were no significant changes to ourcritical accounting policies during the three months ended March 31, 2004.

 

5

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**(2)****          Accounting for stock-based compensation**

 

The Company accounts forstock-based compensation based on the provisions of Accounting Principles BoardOpinion No. 25, *Accounting for StockIssued to Employees* (“APB No. 25”), which states that, forfixed plans, no compensation expense is recorded for stock options or otherstock-based awards to employees that are granted with an exercise price equalto or above the estimated fair value per share of the Company’s common stock onthe grant date. In the event that stock options are granted with an exerciseprice below the estimated fair value of the Company’s common stock at the grantdate, the difference between the fair value of the Company’s common stock andthe exercise price of the stock option is recorded as deferred compensation.Deferred compensation is amortized to compensation expense on a straight-linebasis over the vesting period of the stock option. The Company has adopted thedisclosure requirements of SFAS No. 123, *Accountingfor Stock-Based Compensation* (“SFAS No. 123”) and SFASNo. 148, *Accounting for Stock BasedCompensation-Transition and Disclosure-an Amendment of FASB StatementNo. 123* (“SFAS No. 148”), which requires compensationexpense to be disclosed based on the fair value of the options granted at thedate of the grant.

 

Had compensation cost for theCompany’s stock option plan been determined based on the fair value at thegrant dates for awards under the plan consistent with the method required bySFAS No. 123, the Company would have reported the pro forma net lossamounts indicated below.

 
|                                                                                              |   | **Three  Months Ended March 31,** |   |
|---------------------------------------------------------------------------------------------------|--------|----------------------------------------|--------|
| **(in thousands, except per share data)**                                                         |   | **2004**                               |   | **2003** |   |
|                                                                                              |   |                                   |   |   |   |
| Net loss, as reported                                                                             |   | $                                      | (6,368 | ) | $ | (4,538 | ) |
| Add: Stock-based compensation expense  included in reported net loss                              |   | 401                                    |   | 84 |   |
| Deduct: Total stock-based compensation  expense determined under fair value method for all awards |   | (441                                   | )      | (135 | ) |
| Pro forma net loss                                                                                |   | $                                      | (6,408 | ) | $ | (4,589 | ) |
|                                                                                              |   |                                   |   |   |   |
| Net loss per share (basic and diluted) as  reported                                               |   | $                                      | (13.10 | ) | $ | (10.29 | ) |
|                                                                                              |   |                                   |   |   |   |
| Pro forma net loss per share (basic and  diluted)                                                 |   | $                                      | (13.18 | ) | $ | (10.40 | ) |

 

The fair value of each optionis estimated on the date of grant using the Black Scholes model with thefollowing weighted average assumptions: volatility rate of 45.96% and 0% forthe periods ended March 31, 2004 and 2003, respectively; risk-freeinterest rate of 3.1% for both periods ended March 31, 2004 and 2003; anexpected life of five years; and a dividend yield of zero.

 

Stock compensation arrangementswith non-employees are accounted for in accordance with SFAS No. 123, asamended by SFAS No. 148, and EITF No. 96-18, *Accountingfor Equity Instruments That Are Issued to Other than Employees for Acquiring,or in Conjunction with Selling, Goods or Services,* using a fairvalue approach.

 

**(3)****          Net loss per share and pro forma net loss per share**

 

Basic and diluted net loss percommon share is calculated in accordance with SFAS No. 128, *Earnings Per Share* (“SFAS No. 128”)and SEC Staff Accounting Bulletin No. 98 (“SAB No. 98”). Under theprovisions of SFAS No. 128 and SAB No. 98, basic net loss per commonshare is calculated by dividing the net loss applicable to common stockholdersby the weighted-average number of unrestricted common shares outstanding duringthe period. Diluted net loss per common share is the same as basic net loss percommon share, since the effects of potentially dilutive securities areantidilutive for all periods presented. Fully diluted shares outstanding for the periods ended March 31,2004 and 2003, would have been 16,672,341 and 12,114,283, respectively.

 

6

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Thefollowing table sets forth the computation of net income (numerator) and shares(denominator) for earnings per share:

 
|                                                                                               |   | **Three  Months Ended March 31,** |   |
|----------------------------------------------------------------------------------------------------|--------|----------------------------------------|--------|
| **(in thousands)**                                                                                 |   | **2004**                               |   | **2003** |   | **2004** |   |
|                                                                                               |   |                                   |   |   |   | **Pro Forma** |   |
| **Numerator:**                                                                                     |   |                                   |   |   |   |   |   |
| Net income                                                                                         |   | $                                      | (6,368 | ) | $ | (4,538 | ) | $ | (6,368 | ) |
|                                                                                               |   |                                   |   |   |   |   |   |
| **Denominator:**                                                                                   |   |                                   |   |   |   |   |   |
| Weighted average shares outstanding used  for basic income per share                               |   | 486                                    |   | 441 |   | 486 |   |
| Pro forma adjustments to reflect assumed  weighted average effect of conversion of preferred stock |   | —                                 |   | — |   | 15,448 |   |
|                                                                                               |   |                                   |   |   |   |   |   |
| Weighted average shares outstanding used  for basic income per share                               |   | 486                                    |   | 441 |   | 15,934 |   |
| Common Stock Equivalents                                                                           |   | —                                 |   | — |   | — |   |
|                                                                                               |   |                                   |   |   |   |   |   |
| Weighted average shares outstanding used  for diluted income per share                             |   | 486                                    |   | 441 |   | 15,934 |   |
|                                                                                                    |        |                                        |        |  |  |  |  |  |  |  |

 

The unaudited pro forma shares used to compute basic and diluted netloss per share includes the weighted average number of common sharesoutstanding and conversion of all outstanding shares of preferred stock intocommon shares.

 

**(4)****          Pro forma stockholders’ equity**

 

On April 21,2004, the Company completed its IPO of 6,000,000 shares of common stock at$8.00 per share. The Company raised an aggregate of $48 million beforeunderwriters’ discounts and offering expenses. Net proceeds to the Company wereapproximately $43 million (See Note 12). The Company had granted the underwriters a 30-day option to purchase upto an additional 900,000 shares of common stock from the Company to cover over-allotments,if any. This option was exercised in full on May 12, 2004 and the closingoccurred on May 17, 2004 with net proceeds to the Company of approximately $6.7million.  Upon completion of theCompany’s IPO, all shares of the convertible preferred stock outstanding atMarch 31, 2004 were automatically converted into 15,495,815 shares ofcommon stock.  The pro formastockholders’ equity at March 31, 2004 reflects the conversion of allpreferred stock into common stock.

 

**(5)****          Property and equipment**

 

Property and equipment consisted of the following:

 
| **(in thousands)**             |   | **March 31,  2004** |   | **December 31,  2003** |   |
|--------------------------------|--------|--------------------------|--------|-----------------------------|--------|
|                           |   |                     |   |                        |   |
| Laboratory equipment           |   | $                        | 1,419  |                        | $      | 1,387 |   |
| Office furniture and equipment |   | 825                      |   | 611                         |   |
| Leasehold improvements         |   | 3,606                    |   | 3,195                       |   |
| Manufacturing equipment        |   | 650                      |   | 632                         |   |
| Computer equipment             |   | 1,244                    |   | 1,170                       |   |
| Property and equipment, gross  |   | 7,744                    |   | 6,995                       |   |
| Less Accumulated depreciation  |   | (3,762                   | )      | (3,434                      | )      |
| Property and equipment, net    |   | $                        | 3,982  |                        | $      | 3,561 |   |

 

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**(6)****          Accrued expenses**

 

Accrued expenses consisted ofthe following:

 
| **(in thousands)**                |   | **March 31,  2004** |   | **December 31,  2003** |   |
|-----------------------------------|--------|--------------------------|--------|-----------------------------|--------|
|                              |   |                     |   |                        |   |
| Salary related expense            |   | $                        | 577    |                        | $      | 546 |   |
| Clinical research and trial costs |   | 627                      |   | 607                         |   |
| Contracted research costs         |   | 133                      |   | 165                         |   |
| Deferral loan premium             |   | 160                      |   | 139                         |   |
| Accounting and legal fees         |   | 887                      |   | 664                         |   |
| Leasehold improvements            |   | 141                      |   | 40                          |   |
| Other                             |   | 618                      |   | 626                         |   |
|                              |   |                     |   |                        |   |
| Accrued expenses                  |   | $                        | 3,143  |                        | $      | 2,787 |   |

 

**(7)****         ****Debt**

 

As of March 31, 2004, theCompany had an aggregate of $7.1 million of debt outstanding under $12.0million of credit facilities with two lending institutions.

 

The carrying value of long-termdebt is as follows:

 
| **(in thousands)**                                  |   | **March 31,  2004** |   | **December 31,  2003** |   |
|-----------------------------------------------------|--------|--------------------------|--------|-----------------------------|--------|
|                                                |   |                     |   |                        |   |
| The $7.0 million credit facility                    |   | $                        | 3,364  |                        | $      | 3,939 |   |
| The $5.0 million equipment line of credit  facility |   | 3,775                    |   | 3,213                       |   |
|                                                |   | 7,139                    |   | 7,152                       |   |
| Less:   current portion of long term debt      |   | (3,670                   | )      | (3,360                      | )      |
|                                                |   |                     |   |                        |   |
| Long term debt                                      |   | $                        | 3,469  |                        | $      | 3,792 |   |

 

As of March 31, 2004 and2003, interest rates in effect for outstanding obligations under the creditfacilities ranged from 6.75% to 9.74% and 6.75% to 9.25%, respectively.

 

All the credit facilities aresubject to certain covenants, including maintaining a minimum level of earningsbefore interest, taxes, depreciation and amortization, as defined in the loanagreements, maintaining a minimum percentage of our cash available forinvesting with the lending institution and providing audited financialstatements within 120 days after the close of the fiscal year.  The Company was in compliance with itscovenants for the three months ended March 31, 2004.

 

As of March 31, 2004, thesecurity deposit balance with one of our lenders was $479,000. The full amountof the deposit was returned to the Company in May 2004 after completion of itsIPO, and as such, the balance was recorded as a current asset in the balancesheet.

 

**(8)****          Commitments and contingencies**

 

In the ordinary course of itsbusiness, the Company makes certain indemnities, commitments and guaranteesunder which it may be required to make payments in relation to certaintransactions. These include indemnities of clinical investigators, consultantsand contract research organizations involved in the development of theCompany’s clinical stage products. The duration of these indemnities,commitments and guarantees varies, and in certain cases, is indefinite. Themajority of these indemnities, commitments and guarantees do not provide forany limitation of the maximum potential future payments the Company could be obligatedto make.

 

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The Company has not recordedany liability for these indemnities, commitments and guarantees in theaccompanying consolidated balance sheets. However, the Company accrues forlosses for any known contingent liability, including those that may arise fromindemnification provisions, when future payment is probable. No such losseshave been recorded to date.

 

In August 2000, theCompany entered into a development, license and supply agreement with OrthoClinical Diagnostics, Inc. (“Ortho”), a subsidiary of Johnson andJohnson, Inc., whereby the Company licensed certain rights to itstechnology and assumed certain development obligations for its cancerdiagnostic product candidates. In exchange Ortho agreed to market anddistribute the Company’s cancer diagnostic product candidates. OnNovember 10, 2003, the Company executed an amendment to this agreementwhereby all of the rights and responsibilities of Ortho were transferred toVeridex. In addition, the Company and Veridex re-negotiated certain clinicaldevelopment and regulatory milestones. The agreement has a term of20 years and may be terminated earlier by either party under certainconditions. The Company is not aware of any intentions by Veridex to terminatethe agreement.

 

In connection with thedevelopment, license and supply agreement, Veridex made a $1.5 millionup-front, non-refundable license fee payment to the Company.  Under this agreement, Veridex is obligatedto pay us approximately 30% of their net sales from the sale of reagents, testkits, and certain other consumable products and disposable items. In addition,the Company will receive additional payments from Veridex if the Companyachieves certain development and sales milestones as defined in the DevelopmentAgreement. In March 2001, January 2003 and May 2003, Veridexmade payments of $500,000, $500,000 and $1.5 million, respectively.  These were nonrefundable payment to theCompany for the completion of certain of these milestones. The up-front licensefee and the milestone payments have been deferred and were being amortized on astraight-line basis over the estimated development period from date of receiptthrough December 31, 2003. Under the terms of the development, license andsupply agreement, the Company is required to invest in related research basedon a percentage of sales as defined in the development, license and supplyagreement.  In addition, Johnson &Johnson Development Corporation, also a wholly-owned subsidiary of Johnson andJohnson (“J&J Sub”) purchased $5 million of the Company’sSeries E Preferred Stock in 2000. In December 2001 and July 2003, J&J Sub purchased$3 million and $3.3 million of Series F Preferred Stock,respectively.

 

**(9)****         ****Related parties**

 

As of March 31, 2004,J&J Sub beneficially owned 11% of the Company’s capital stock (See note8).  During the period fromAugust 2000 until December 31, 2003, the Company received$4.0 million in license and milestone payments from Veridex, and werecognized the entire amount as license revenue from related party during thatperiod. We received an additional $500,000 in milestone receipts related toproduct development during the three month period ended March 31, 2004. Wewill recognize this receipt as revenue over the estimated life of the relatedproduct which we estimate will end on December 31, 2007. We recognized$31,000 as revenue in the three months ended March 31, 2004 and $280,000for the three months ended March 31, 2003 under this agreement.  In addition, the Company sold an instrumentsystem to Veridex in January 2004 and recognized revenue of $103,000 asinstrument revenue from related party. The Company recorded these revenues as “License revenue from relatedparty” in the consolidated statement of operations. As of March 31, 2004and 2003, the Company had a receivable from Veridex of $212,000 and $0,respectively.  These receivables arerecorded in “Accounts receivables” and “Other assets” in the consolidatedbalance sheet.

 

In August 2003, theCompany sold Series F Preferred Stock and entered into a License andSupply Agreement (“License and Supply Agreement”) with a corporation. TheCompany received $400,000 in proceeds for the combined transaction. Becauseshares of the Company’s Series F Preferred Stock were valued at $4.00 pershare in a similar transaction, the same value was applied to the shares inthis transaction. The amount above the $4.00 per share value of the shares ofthe Company’s Series F Preferred Stock was deemed attributable to theLicense and Supply Agreement and recorded as deferred license revenue. TheCompany recorded this $80,000 premium as deferred license revenue and amortizesit into income over the period of the exclusive supply arrangement with thecorporation, which is two years. As of March 31, 2004, the unamortizeddeferred license revenue related to this arrangement amounted to $55,000, andthe Company recognized revenue of $10,000 related to the arrangement andrecorded it as “License revenue from related party” in the consolidatedstatement of operations for the first quarter of 2004.

 

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**(10)****   Supplemental expense information**

 

The supplemental expenseinformation below provides additional information about the amounts recorded asresearch and development expenses and general and administrative expenses inthe accompanying statements of operations:

 

**Researchand development expenses**

 

Research and developmentexpenses consisted of the following: 

 
|                             |   | **Three  months ended March 31,** |   |
|----------------------------------|--------|----------------------------------------|--------|
| **(in thousands)**               |   | **2004**                               |   | **2003** |   |
|                             |   |                                   |   |   |   |
| Salaries, benefits and taxes     |   | $                                      | 2,349  |   | $ | 1,730 |   |
| Laboratory supplies and expenses |   | 1,131                                  |   | 255 |   |
| Instrument development costs     |   | 192                                    |   | 883 |   |
| Clinical trial expenses          |   | 399                                    |   | 219 |   |
| Contracted research costs        |   | 312                                    |   | 496 |   |
| All others                       |   | 596                                    |   | 363 |   |
|                             |   |                                   |   |   |   |
|                             |   | $                                      | 4,979  |   | $ | 3,946 |   |

 

**Generaland administrative expenses**

 

General and administrativeexpenses consisted of the following: 

 
|                         |   | **Three  months ended March 31,** |   |
|------------------------------|--------|----------------------------------------|--------|
| **(in thousands)**           |   | **2004**                               |   | **2003** |   |
|                         |   |                                   |   |   |   |
| Salaries, benefits and taxes |   | $                                      | 658    |   | $ | 378 |   |
| Depreciation expense         |   | 327                                    |   | 240 |   |
| Legal and professional fees  |   | 294                                    |   | 184 |   |
| All other expenses           |   | 166                                    |   | 201 |   |
|                         |   |                                   |   |   |   |
|                         |   | $                                      | 1,445  |   | $ | 1,003 |   |

 

**(11)****   Intellectual property**

 

Protection of the Company’sintellectual property is a strategic priority for the Company’s business, andthe Company relies on a combination of patent, trademark, copyright and tradesecret laws to protect its interests. The Company’s ability to protect and useits intellectual property rights in the continued development andcommercialization of its technologies and products, to operate withoutinfringing the proprietary rights of others and to prevent others frominfringing its proprietary rights is crucial to the Company’s continuedsuccess. The Company will be able to protect its products and technologies fromunauthorized use by third parties only to the extent that its products andtechnologies are covered by valid and enforceable patents, trademarks orcopyrights, or are effectively maintained as trade secrets, know-how or otherproprietary information.

 

In connection with thecommercial distribution of its products, the Company also have obtainedtrademark registrations in the US for “Immunicon” and the Immunicon logo. TheCompany has filed a number of trademark registration applications inpreparation for commercial distribution activities with respect to futureproducts. Much of the proprietary software and related information utilized inthe Company’s instrument systems is protected by the Company’s copyright rightsor by such rights that the Company has licensed.

 

The Company devotes significantresources to obtaining, enforcing and defending patents and other intellectualproperty and protecting its other proprietary information.

 

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The Company has a portfolio ofissued patents and patent applications, which we believe provides patentcoverage for our proprietary technologies and products.  As of April 30, 2004, the Company’sintellectual property estate consisted of 51 issued patents, 115 pending patentapplications, six issued trademarks and 22 pending trademarks registrations.

 

**(12)****   Subsequent events**

 

On April 21, 2004, theCompany completed its IPO of 6,000,000 shares of its common stock at $8.00 pershare, for an aggregate price of $48 million. All of the shares were sold by the Company.  The Company had granted the underwriters a 30-day option topurchase up to an additional 900,000 shares of common stock from the Company tocover over-allotments, if any. This option was exercised in full on May 12,2004 and closing occurred on May 17, 2004 with net proceeds to the Company ofapproximately $6.7 million.

 

The net proceeds to the Companyof approximately $49.6 million, including the exercise of the over-allotment,will be used for product commercialization, including manufacturing, and forclinical trials, research and development, capital expenditures, workingcapital and other general corporate purposes. The Company’s shares trades on The Nasdaq National Market System underthe symbol “IMMC.” In connection with the IPO, the Company incurred coststotaling $1.7 million to date, and has included these costs on theMarch 31, 2004 consolidated balance sheet as “Assets Related to FinancingActivities.”

 

Upon the effectiveness of theregistration statement filed with the Securities and Exchange Commission onApril 15, 2004, the Company granted options to all non-officer employeesto purchase a combined total of 19,900 shares of common stock.  On this same day, the Company hired its VicePresident and Chief Counsel who was granted options to purchase 34,000 sharesof common stock.  These options wereissued with an exercise price of $8.00 per share, the fair market value on thatdate, and vest over a four year period.

 

On April 16, 2004, uponcompletion of the Company’s IPO, all shares of the convertible preferred stockoutstanding on that date were automatically converted into 15,495,815 shares ofcommon stock. 

 

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**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this Amendment No. 1 to the quarterly report onForm 10-Q/A to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|   |          | IMMUNICON CORPORATION                              |
|--------|---------------|----------------------------------------------------|
|   |          |                                               |   |
|   |          |                                               |   |
| Date:  | June 16, 2004 | By:                                                |   /s/ Edward L. Erickson |   |
|   |          | Edward L. Erickson                                 |
|   |          | Chairman of the Board, President and               |
|   |          | Chief Executive Officer                            |
|   |          |                                               |   |
|   |          |                                               |   |
| Date:  | June 16, 2004 | By:                                                |   /s/ James G. Murphy |   |
|   |          | James G. Murphy                                    |
|   |          | Senior Vice President, Finance and Administration, |
|   |          | Chief Financial Officer                            |
|   |          | (Principal financial and accounting officer)       |
|        |               |                                                    |  |  |  |

 

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EXHIBIT INDEX

 
| **Number** |   | **Description**                                                                                                                                           |
|------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1       |   | Certification of Chief Executive Officer pursuant to Section 302  of the Sarbanes-Oxley Act of 2002.                                                 |
| 31.2       |   | Certification of Chief Financial Officer pursuant to Section 302  of the Sarbanes-Oxley Act of 2002.                                                 |
| 32.1       |   | Certification of Edward L. Erickson pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |
| 32.2       |   | Certification of James G. Murphy pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.    |

 

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