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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

              [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2002

                                       OR

            [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                For the transition period from _______ to _______

                                     0-15507
                            ------------------------
                            (Commission file number)


                              IMMUCELL CORPORATION
             ------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

         Delaware                                              01-0382980
         --------                                              ----------
(State or other jurisdiction of                             (I.R.S. Employer
 incorporation or organization)                            Identification No.)

56 Evergreen Drive, Portland, Maine                              04103
-----------------------------------                              -----
(Address of principal executive offices)                       (Zip Code)

Registrant's telephone number, including area code:  (207) 878-2770
                                                     --------------


Securities registered pursuant to Section 12(b) of the Act:  None


Securities registered pursuant to
Section 12(g) of the Act:           Common Stock, par value $0.10 per share
                                    ---------------------------------------
                                                  (Title of class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X]   No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate by a check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).   Yes [_]   No [X]

The aggregate market value of the Common Stock held by non-affiliates of the
Registrant at June 30, 2002 was approximately $6,140,000.

The number of shares of the Registrant's Common Stock outstanding at March 18,
2003 was 2,735,984.

Documents incorporated by reference: Portions of the Registrant's 2003 Proxy
Statement to be filed in connection with the Annual Meeting of shareholders are
incorporated by reference to Part III hereof.
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<PAGE>
                                TABLE OF CONTENTS
                                -----------------



PART I

ITEM 1.     Business .......................................................  1

ITEM 2.     Properties .....................................................  8

ITEM 3.     Legal Proceedings ..............................................  8

ITEM 4.     Submission of Matters to a Vote of Security Holders ............  8




PART II

ITEM 5.     Market for Registrant's Common Equity and Related
            Stockholder Matters ............................................  8

ITEM 6.     Selected Financial Data ........................................  9

ITEM 7.     Management's Discussion and Analysis of Financial
            Condition and Results of Operations ............................  9

ITEM 7A.    Quantitative and Qualitative Disclosures About Market Risk ..... 16

ITEM 8.     Financial Statements and Supplementary Data .................... 16

ITEM 9.     Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure ....................................... 16



PART III

ITEM 10.    Directors and Executive Officers of the Registrant ............. 16

ITEM 11.    Executive Compensation ......................................... 17

ITEM 12.    Security Ownership of Certain Beneficial Owners and
            Management and Related Stockholder Matters ..................... 17

ITEM 13.    Certain Relationships and Related Transactions ................. 17

ITEM 14.    Controls and Procedures ........................................ 17




PART IV

ITEM 15.    Exhibits, Financial Statement Schedules and Reports
            on Form 8-K .................................................... 18


SIGNATURES


CERTIFICATIONS
<PAGE>
PART I

ITEM 1 - BUSINESS

GENERAL

         ImmuCell Corporation (the "Company") is a biotechnology company serving
veterinarians and producers in the dairy and beef industry with innovative and
proprietary products that improve animal health and productivity. From its
inception in 1982, the Company has engaged in the research and development of
infectious disease diagnostic tests and products for therapeutic and preventive
use against certain infectious diseases in animals and humans. Prior to 1999,
the Company invested significant funds in the development of products utilizing
its core technologies for human health product applications. Since 1999, the
Company has focused the majority of its product development efforts on animal
health products for the dairy and beef industry.

         One result of this shift in strategic focus to animal health products,
which are generally less expensive to develop than human health products, is
that the Company was able to record consecutive net income for each of the four
years ended December 31, 2002. This profitability has strengthened the Company's
balance sheet, ending the year with cash and short-term investments of
$3,143,000, total assets of $7,513,000 and stockholders' equity of $6,955,000 as
of December 31, 2002.

         Research and development expenses amounted to 13% and 17% of total
revenues in 2001 and 2002, respectively. The Company has partially offset the
cost of its research and development efforts through government grants.
Internally funded research and development expenses (those expenses not
supported by grant income) amounted to 11% and 14% of product sales in 2001 and
2002, respectively. Initiated in 2000, the Company's primary research and
development program is the application of Nisin as an alternative to antibiotics
in the treatment of mastitis in dairy cows. The Company has made initial
contacts with larger animal health companies that may have an interest in
marketing this product, especially outside of North America. The Company intends
to further consider collaboration opportunities that may enhance the Company's
development and commercialization efforts if positive results from the testing
of the product are achieved.

         While working to minimize deviations from its animal health objectives,
the Company has realized value, and will continue to seek further value, from
its research and development efforts made principally prior to 1999 in four
ways: 1) earning royalty income from the application of its milk protein
purification technology to the production of whey protein isolate, 2) licensing
rights to DIFFGAM to partners, 3) selling its ownership interest in its joint
venture that utilizes its milk protein purification technology to produce
lactoferrin and 4) seeking a return on its investment in CRYPTO-SCAN(R).

ANIMAL HEALTH PRODUCTS FOR THE DAIRY AND BEEF INDUSTRY

         1) Scours Prevention:

         In 1991, the Company obtained approval from the USDA to sell FIRST
DEFENSE(R), which is manufactured by the Company from cows' colostrum using the
Company's proprietary vaccine and milk protein purification technologies.
Currently, FIRST DEFENSE is the only USDA-licensed, bivalent (effective in
combating two different infectious agents) scours preventive product for calves
on the market. The target disease, "calf scours", causes diarrhea and
dehydration in newborn calves and often leads to serious sickness and even
death. Calf scours is seasonal, with the highest incidence in the winter calving
months. The Company is a leader in the scours prevention market with this
product.

         2) Intelligent Mastitis Management(TM) Program:

         The Company is marketing and developing several products designed to
aid in the management of mastitis (inflammation of the mammary gland), a disease
that is estimated to cost dairy producers approximately $1.7 to $2 billion
dollars per year. This line of products is being marketed under the trademark
Intelligent Mastitis Management ("IMM"). Under the IMM program, the Company
intends to add value to dairy producers by offering a range of useful products.

         The first step in the IMM program is a product that prepares and
sanitizes cows' udders before milking to help prevent the infection. In 1999,
the Company acquired rights to the product WIPE OUT(R) DAIRY WIPES and certain
other related rights from Nutrition 21, Inc. (formerly AMBI Inc.) of Purchase,
New York. The transaction included the purchase of certain equipment, trademarks
and a license of intellectual property. The WIPE OUT product consists of
pre-moistened towelettes that are impregnated with Nisin to clean, sanitize and
dry the teat area of a cow in advance of milking. Nisin is a natural
antibacterial peptide that has been demonstrated in clinical studies to be an
effective aid in the reduction of disease-causing organisms in dairy cows. The
use of Nisin for such applications is covered by five issued patents that were
licensed by Nutrition 21 to the Company.

                                        1
<PAGE>
         The second product in the IMM program is used in the diagnosis of the
disease. In 2001, the Company initiated commercial sales of its internally
developed CALIFORNIA MASTITIS TEST ("CMT"). This test can be performed cow-side
for early detection of mastitis. CMT was developed for bulk tank and individual
cow somatic cell monitoring and can be used to determine which quarter of the
udder is infected with mastitis.

         Once the disease is detected, the producer has different treatment
options. In 2000, the Company acquired the product MASTIK(R), MASTITIS
ANTIBIOTIC SUSCEPTIBILITY TEST KIT, from Lotek, Inc. of Pomfret Center,
Connecticut. MASTIK helps veterinarians and dairy producers quickly select the
antibiotic most likely to be effective in the treatment of individual cases of
mastitis. MASTIK can usually provide this answer in less than one day, which is
dramatically faster than the other commonly used antibiotic susceptibility
tests.

         Lastly, the Company is in the process of developing MAST OUT(TM), a
Nisin-based treatment for mastitis, as an alternative to antibiotics. Nisin is
the same antibacterial peptide that is the active ingredient in WIPE OUT(R)
DAIRY WIPES. The commercial introduction of this product is subject to approval
by the U.S. Food and Drug Administration ("FDA"). The Company hopes that the
history of food usage and the safety profile of Nisin will allow for the milk
discard period after treatment to be eliminated or significantly reduced. Such a
product claim could be a significant competitive advantage in comparison to the
antibiotic products currently on the market, which require a milk discard of
approximately 36 to 96 hours after treatment due to antibiotic residues
remaining in the milk. The Company intends to initiate pivotal safety and
efficacy trials during the summer of 2003. These trials are expected to take six
to nine months to complete. Concurrently, the Company is working to meet several
additional regulatory requirements necessary before a new animal drug
application can be submitted to the FDA for review. Arrangements for the
manufacture of commercial quantities of product in accordance with current Good
Manufacturing Practices, as defined by Federal regulations ("cGMP"), will not be
initiated unless positive results from the clinical trial are obtained.
Additionally, there may be a market for a dry cow application of this
technology, which would be the subject of a separate product application to be
undertaken by the Company at a later stage.

         3) Infectious Disease Diagnosis:

         In 1987, The Company obtained approval from the U.S. Department of
Agriculture ("USDA") to sell RJT(TM) (Rapid Johne's Test). This test can rapidly
identify cattle with symptomatic Johne's Disease, a chronic intestinal infection
caused by MYCOBACTERIUM AVIUM subspecies PARATUBERCULOSIS, in a herd with 100%
specificity and greater than 85% sensitivity. Before sales can be initiated in
any state, the USDA approval is subject to the further approval of each state
veterinarian. Sales of this product have been limited since its commercial
introduction.

         In 1999, the Company obtained approval from the USDA to sell
TIP-TEST(R): JOHNE'S, which is a rapiD immunodiagnostic test for the detection
of Johne's Disease. Before sales can be initiated in any state, the USDA
approval is subject to the further approval of each state veterinarian. This
sensitive product delivers on-site results from a blood or serum sample in about
twenty minutes, which is a significant advantage to dairy and beef producers in
comparison to the existing diagnostic technology that is performed only in
veterinary diagnostic laboratories. Sales of this product have been limited, in
part, due to widespread adoption of serology testing in veterinary diagnostic
laboratories. Despite drawbacks associated with the longer turn-around time
required for these results, the veterinary diagnostic laboratory testing of
samples is attractive to producers and practitioners because it is heavily
subsidized by state and Federal programs. Participation in these programs can
potentially lead to reimbursement for sick animals in certain circumstances.
This product has not been and is not expected to be a significant commercial
success, despite the Company's belief that frequent, rapid, on-site testing
could play a useful role in reducing the rate of incidence of this costly
disease.

         In 2001, the Company obtained approval from the USDA to sell TIP-TEST:
BLV, which is a rapid, on-site immunodiagnostic test for the detection of Bovine
Leukemia Virus ("BLV") infections. BLV is a highly prevalent disease in U.S.
dairy and beef herds and can cause Leukosis, a severe and often fatal
complication in a small percentage of cattle infected with BLV. This highly
sensitive and specific product delivers on-site results from a blood or serum
sample in about twenty minutes, which is a significant advantage to dairy and
beef producers in comparison to the existing diagnostic technology that is
performed in veterinary diagnostic laboratories. This product has not been and
is not expected to be a significant commercial success.

         4) Other Animal Health Products:

         The Company also markets RPT(TM) and ACCUFIRM(TM), trade names for a
milk progesterone test used by dairy prodUcers to monitor the reproductive
status of their cows. Sales of this product have been limited since its
commercial introduction. The sales and sales growth potential for this product
in the future are not expected to be significant.

                                        2
<PAGE>
         In 1988, the Company entered into an exclusive world-wide license to
purchase from Kamar, Inc. of Steamboat Springs, Colorado and to market and sell
an animal health care product known as the Kamar(R) Heatmount(R) Detector. THis
product is used to detect the physical mounting of bovines for the determination
of standing heat, and is sold primarily to dairy producers. This license, as
amended, was set to expire on December 31, 2004, but on October 1, 2002, the
Company agreed to accept $930,000 from Kamar in consideration of the early
termination of a product license. The $930,000 approximates the net present
value of the expected net contribution from the product over the final
twenty-seven months of the license term, had it not been terminated. As this
license had no book value, the full amount of the proceeds represents a pre-tax
gain of $930,000 that was recorded as other income in the fourth quarter of
2002. As a result of the termination of this license, the Company's product
sales, product costs and sales and marketing expenses were reduced beginning
October 1, 2002. Sales of this product aggregated 39% and 42% of total product
sales during the years ended December 31, 2001 and 2002, respectively.

         The Company's Nisin rights include all animal health applications.
There may by additional disease indications for Nisin which can be pursued by
the Company using the pharmaceutical-grade Nisin that has been developed for
MAST Out(TM). While the Company continues its efforts with internally and
externally funded product development programs, tHe Company is also actively
seeking to acquire new products and technologies that fit with the Company's
marketing focus on the dairy and beef industry.

SALES AND MARKETING

         The manner in which the Company's products are marketed and distributed
depends in large measure upon the nature of the particular product, its intended
users and the country where it is sold. The distribution channel selected is
intended to address the particular characteristics of the marketplace for a
given product. FIRST DEFENSE(R) is sold primarily through major veterinarian
distributors to leverage the efforts of the Company's three employees engaged
directly in the selling of its products. The Company sells WIPE OUT(R) DAIRY
WIPES directly to the dairY producer. The two TIP-TEST(R) products, MASTIK(R)
and CMT are sold principally to bovine veterinarians. RJT(TM) iS sold
principally to state veterinary laboratories.

         The Company spent 18%, 21% and 23% of product sales on sales and
marketing expenses in the years ended December 31, 2000, 2001 and 2002,
respectively. Going forward, the Company expects to invest less than 20% of
product sales in selling expenses.

FOREIGN SALES

         Foreign product sales represented approximately 22%, 22% and 29% of the
Company's total product sales for the years ended December 31, 2000, 2001 and
2002, respectively. The majority of these foreign sales were to Canada,
Australia and New Zealand. Given the October 1, 2002 termination of the license
to market the Kamar Heatmount Detector, a product that had comprised a
significant portion of these foreign sales, the ratio of foreign sales is
expected to decline significantly in future periods.

         The Company currently prices its products in U.S. dollars. An increase
in the value of the dollar in any foreign country in which the Company's
products are sold may have the effect of increasing the local price of such
products, thereby leading to a reduction in demand. Price adjustments have been
made on occasion to mitigate these effects. Conversely, to the extent that the
value of the dollar may decline with respect to a foreign currency, the
Company's competitive position may be enhanced.

RESEARCH AND DEVELOPMENT

         Beginning in 1999, the Company shifted the primary focus of its
research and development efforts to products for the dairy and beef industry.
This focus continued through 2002 and is expected to continue in 2003 and
beyond. To expand its commercialized line of products for use by dairy and beef
producers, the Company continues to invest in the development of new infectious
disease diagnostic, treatment and preventive products.

         In April 2000, the Company acquired an exclusive license to develop and
market Nisin-based products for animal health applications from Nutrition 21,
Inc. Nisin is a bacteriocin with activity against most gram positive and some
gram negative bacteria. The lead application of this technology being developed
by the Company, MAST OUT, is an intramammary infusion product to treat mastitis.
If regulatory approval from the FDA is obtained, this product could prove to be
an attractive alternative to the current use of antibiotics in the treatment of
mastitis. Antibiotic use forces producers to discard milk during the course of
and following antibiotic treatment and contributes to the growing concern about
overuse of antibiotics in food animals. This opportunity is the primary focus of
the Company's research and development efforts.

                                        3
<PAGE>
         Additionally, the Company is working on the development of a new tool
that could be used in the detection of Johne's disease. The Company is also
investing in the early stage evaluation of certain technology that could lead to
improved product claims for FIRST DEFENSE(R).

         The Company maintains relationships with several scientific advisors
that have particular expertise in the areas targeted by the Company. The
Company's research and development activities are conducted internally and
through contracts with third parties depending upon the availability of staff,
the technical skills required, the nature of the particular project and other
considerations. As additional opportunities to commercialize the Company's
technology become apparent, the Company may begin new research and development
projects. The Company spent approximately $922,000, $849,000 and $1,053,000 on
research and development activities during the years ended December 31, 2000,
2001 and 2002, respectively. These expenditures were in part supported by grant
income totaling approximately $96,000, $133,000 and $303,000 during the years
ended December 31, 2000, 2001 and 2002, respectively.

COMPETITION

         The Company's competition in the animal health market includes other
biotechnology companies and major animal health companies. Many of these
competitors have substantially greater financial, marketing, manufacturing and
human resources and more extensive research and development capabilities than
the Company. All of the Company's employees are required to execute
non-disclosure, non-compete and invention assignment agreements designed to
protect the Company's rights in its proprietary products. Many of the Company's
competitors may develop technologies and/or products which are superior to those
of the Company, or may be more successful in developing production capability or
in obtaining required regulatory approvals.

         The Company believes that FIRST DEFENSE offers two significant
competitive advantages over other products in the market: 1) its capsule form,
which does not require refrigeration and provides ease of administration and 2)
competitive products currently on the market provide protection only against one
leading cause of calf scours (E. COLI), while FIRST DEFENSE provides this
protection and additional protection against another leading cause of the
disease (coronavirus). This product competes for market share against vaccine
products that are given to the mother cow.

         The Company believes that its competitive position will be highly
influenced by its ability to attract and retain key scientific and managerial
personnel, to develop proprietary technologies and products, to obtain USDA or
FDA approval for new products and to continue to profitably sell its current
products. The Company currently competes on the basis of product performance,
price and distribution capability. The Company continues to monitor its network
of independent distributors to maintain its competitive position.

         The Company believes that Novatreat, DMV International Nutritionals and
Mucovax have interests in developing immune milk products for use in the
treatment or prevention of diseases in humans including CLOSTRIDIUM
difficile-associated diarrhea. IDEXX Laboratories, Inc. and Dynal Inc. provide
very significant competition for the Company's water testing product. See
PRODUCT OPPORTUNITIES OUTSIDE OF THE DAIRY AND BEEF INDUSTRY, below. The Company
may not be aware of competition that it faces from other companies.

PATENTS AND PROPRIETARY INFORMATION

         In connection with the December 1999 acquisition of WIPE OUT(R) DAIRY
WIPES, the Company acquired a license tO several patents covering the use of
Nisin in antimicrobial wipes as well as certain proprietary know-how used in the
production of Nisin from Nutrition 21, Inc. In April 2000, the Company acquired
an additional license to several patents covering the use of Nisin in specific
antimicrobial formulations in the veterinary field of use from Nutrition 21. The
Company also has exclusive license rights, in the field of animal vaccines, to
certain cloned antigens of CRYPTOSPORIDIUM PARVUM from the Regents of the
University of California, for which two U.S. patents have been issued to the
Regents. This license covers vaccine product applications for animals and was
sublicensed by the Company exclusively to AgriVax Inc. in 1999. These rights
were subsequently sublicensed to Agri-Laboratories, Ltd in 2001 in return for a
royalty on any related product sales. In conjunction with the December 2000
acquisition of MASTIK(R), thE Company acquired the related U.S. Patent No.
5,026,638 entitled "Antibiotic Sensitivity Test for Pathogenic Organisms Present
in Mastitic Milk" covering the test procedure. In October 2002, the Company
filed a patent application covering a key purification process used in the
manufacture of Nisin.

         In 1998, the Company was issued U.S. Patent No. 5,747,031 entitled
"Process for Isolating Immunoglobulins in Whey" covering certain aspects of the
Company's proprietary manufacturing process to separate antibodies from cows'
milk used in the production of DIFFGAM (see PRODUCT OPPORTUNITIES OUTSIDE OF THE
DAIRY AND BEEF INDUSTRY - Milk Antibody Product Under Development for Humans,
below). In 2000, the Company was issued U.S. Patent No. 6,074,689 entitled

                                        4
<PAGE>
"Colonic Delivery of Protein or Peptide Compositions" covering the method of
formulation responsible for colonic delivery used in DIFFGAM and for other
proteins. In 1999, the Company obtained an exclusive license for pharmaceutical
applications to U.S. Patent No. 5,773,000 entitled "Therapeutic Treatment of
CLOSTRIDIUM DIFFICILE Associated Diseases" from GalaGen, Inc. In October 2002,
the Company acquired ownership of this patent from the court administering the
bankruptcy proceedings of GalaGen for approximately $30,000.

         Going forward, the Company may file additional patent applications for
certain products under development. There can be no assurance that patents will
be issued with respect to any pending or future applications.

         In some cases, the Company has chosen and may choose in the future not
to seek patent protection for certain products or processes. Instead, the
Company has sought and may seek in the future to maintain the confidentiality of
any relevant proprietary technology through contractual agreements. Reliance
upon trade secret, rather than patent protection, may cause the Company to be
vulnerable to competitors who successfully replicate the Company's manufacturing
techniques and processes. Additionally, there can be no assurance that others
may not independently develop similar trade secrets or technology or obtain
access to the Company's unpatented trade secrets or proprietary technology.

         Other companies may have filed patent applications and may have been
issued patents involving products or technologies potentially useful to the
Company or necessary for the Company to commercialize its products or achieve
its business goals. There can be no assurance that the Company will be able to
obtain licenses to such patents on terms acceptable to the Company.

PRODUCT TRADEMARKS

         The Company has registered certain trademarks with the U.S. Patent and
Trademark Office in connection with the marketing of its products. The Company
owns federal trademark registrations of the following trademarks: FIRST
Defense(R), for its calf scours preventive product, WIPE OUT(R) DAIRY WIPES and
the related design and the trademark "One Step Cow Prep(R)", for its
pre-milking, sanitizing wipe product, TIP-TEST(R), for its on-site diagnostic
product liNe, MASTIK(R), for its antibiotic susceptibility test, and
CRYPTO-SCAN(R), for its water diagnostic test. In November 2001, The Company
received a notice of allowance for the trademark MAST OUT(TM). In addition, the
Company markets two animal healTh products under the following trademarks:
RPT(TM), ACCUFIRM(TM) and RJT(TM).

GOVERNMENT REGULATION

         The manufacture and sale of some of the Company's animal health
products within the United States is regulated by the USDA. The manufacture and
sale of disease treatment and prevention products for human health applications
and for certain animal health products within the United States is subject to
regulation by the FDA. Comparable agencies exist in foreign countries and
foreign sales of the Company's products will be subject to regulation by such
agencies. Many states (including Maine where the Company's facilities are
located) have laws regulating the production, sale, distribution or use of
biological products, and the Company may have to obtain approvals from
regulatory authorities in states in which it proposes to sell its products.
Depending upon the product and its applications, obtaining regulatory approvals
may be a relatively brief and inexpensive procedure or it may involve extensive
clinical tests, incurring significant expenses and an approval process of
several years' duration.

         The Company has received USDA approval for FIRST DEFENSE (its scours
preventive product), RJT (its Johne's Disease diagnostic test), TIP-TEST: BLV
(its on-site Bovine Leukemia Virus diagnostic test) and TIP-TEST: JOHNE'S (its
on-site Johne's Disease diagnostic test). The Company completed an FDA Phase
I/II clinical trial of DIFFGAM (to prevent CLOSTRIDIUM DIFFICILE-associated
diarrhea) under an approved Investigational New Drug application. Regulatory
approval of CRYPTO-SCAN from the Drinking Water Inspectorate in the United
Kingdom was obtained in November 2000. The Company believes that it is in
compliance with current regulatory requirements relating to the Company's
business and products.

PRODUCT LIABILITY

         The manufacture and sale of certain of the Company's products entails a
risk of product liability. The Company's exposure to product liability is
mitigated to some extent by the fact that the Company's products have heretofore
been principally directed towards the animal health market. The Company has
maintained product liability insurance in an amount which it believes is
adequate to cover its potential exposure in this area.

                                        5
<PAGE>
EMPLOYEES

         The Company currently employs approximately twenty-six employees,
including one part-time employee. Approximately eleven employees are engaged in
manufacturing operations, eight in research and development activities, four in
finance and administration and three in sales and marketing. The manufacturing
personnel are also utilized, as needed, in the production of clinical material
for use in research and development. The Company is not a party to any
collective bargaining agreement and considers its employee relations to be
excellent.

PRODUCT OPPORTUNITIES OUTSIDE OF THE DAIRY AND BEEF INDUSTRY

         1) Milk Antibody Product Under Development for Humans:

         During the 1990's, the Company conducted several trials investigating
the use of milk antibodies to prevent gastrointestinal infections caused by
enterotoxigenic E. COLI and CRYPTOSPORIDIUM PARVUM. This work contributed to the
development of DIFFGAM, a milk antibody product to combat CLOSTRIDIUM
DIFFICILE-associated diarrhea ("CDAD"). The Company has developed a proprietary
formulation to deliver active antibodies to the lower gastrointestinal tract,
the site of CLOSTRIDIUM DIFFICILE infections. The Company believes that this
formulation is central to the effectiveness of DIFFGAM. The Company's
proprietary milk protein purification technology is used to manufacture DIFFGAM
and the Company's commercialized animal health product, FIRST DEFENSE(R).

         DIFFGAM may be a safe and effective alternative to antibiotics in the
treatment and/or prevention of CDAD in humans. DIFFGAM bovine anti-CLOSTRIDIUM
DIFFICILE immunoglobulins is a bovine milk-derived specific polyclonal antibody
product, which is subject to approval by the FDA before sales could be
initiated. CDAD is caused by toxin-producing CLOSTRIDIUM DIFFICILE. DIFFGAM is
intended to neutralize the toxins produced by CLOSTRIDIUM DIFFICILE in the
colons of affected patients. CDAD is caused most frequently by the use of broad
spectrum oral antibiotics, which kill bacteria in the colon that normally
inhibit the proliferation of CLOSTRIDIUM DIFFICILE. When CLOSTRIDIUM DIFFICILE
then proliferates, producing toxins that cause disease, the standard treatment
is to use oral antibiotics specific for CLOSTRIDIUM DIFFICILE. This
multi-antibiotic treatment approach can lead to high rates of relapse and the
development of antibiotic resistance.

         Under an Investigational New Drug application filed with the FDA in
March 1997, a clinical trial was conducted in mid-1997 demonstrating the safety
of DIFFGAM and the colonic bioavailability of the patented oral formulation of
the product. The Company completed a multi-site, open label Phase I/II clinical
trial of this product in 2000. The results of this trial demonstrated the
preliminary safety and efficacy of DIFFGAM in the treatment of established CDAD.
The Company does not intend to further fund this product development internally.

         In March 2001, the Company licensed certain rights for nutritional,
risk reduction applications of the DIFFGAM technology outside of North America
to Novatreat Ltd of Turku, Finland. The license agreement did not cover the
pharmaceutical applications of the Company's colonic delivery or milk processing
intellectual property. The Company received $100,000 during 2001 in connection
with the initial supply of clinical material to Novatreat under the license and
supply agreement. The revenue from this sale of technology rights was recognized
over the twenty-two month period ending in December 2002. In December 2002,
Novatreat exercised its right to terminate this license by paying the Company
$400,000. The revenue from this sale of technology rights was recognized in the
fourth quarter of 2002.

         In August 2002, the Company licensed the North American nutritional
rights and the pharmaceutical rights on a worldwide basis (except for in Europe)
to the DIFFGAM technology to CURx Pharmaceuticals Inc. of Evanston, Illinois.
CURx has paid the Company $30,000 to date to maintain its license rights. Three
additional payments of $5,000 each are due before May 1, June 1, and July 1,
2003 to keep the license in force. Before the end of July 2003, an additional
$80,000 is due, which would extend the license until July 31, 2003. Going
forward from that point, quarterly license maintenance fees of $25,000 each
would be due to keep the license in force, and the Company would be eligible to
earn certain product development milestone payments. CURx is responsible for all
related patent maintenance and prosecution fees. If CURx is able to obtain
funding and achieve regulatory success, the Company expects to earn a
manufacturing gross margin and royalties on product sales under the long-term
supply component of the license.

         From 1990 to 2000, the Company has received four Phase I and three
Phase II Small Business Innovation Research grants from the National Institutes
of Health to support the development of milk antibody products to prevent
gastrointestinal infections in humans. The value of these grants aggregated
approximately $1,891,000.

                                        6
<PAGE>
         2) Commercialization of Milk Protein Purification Technology for
Nutritional Applications:

         Underlying the Company's milk antibody products for animal and human
health applications is a certain expertise developed by the Company to process
and purify milk proteins. The Company is realizing a return on two non-animal
health applications of this technology in two different ways with companies that
are strategically focused on selling products to the applicable human markets.

         In 1996 the Company formed a joint venture with Agri-Mark Inc. of
Methuen, Massachusetts known as AgriCell Company, LLC to produce and sell a
nutritional protein derived from cheese whey, known as lactoferrin. Lactoferrin
is an iron-binding protein that, among several applications, can be used in
infant formula, nutritional applications and certain cosmetics. The Company
licensed certain rights to a patented purification system to AgriCell for use in
the production of lactoferrin. In 1997, AgriCell commissioned a 6,800 square
foot production facility at Agri-Mark's cheese plant in Middlebury, Vermont
which was subsequently approved by the USDA and the Public Health Service,
allowing the commercial production of lactoferrin to be initiated. Initial sales
of lactoferrin have been limited, and the operations of the joint venture have
not been profitable. Agri-Mark funded a capital investment by AgriCell in excess
of $1,000,000 principally in working capital, fixed assets and production
facility modifications. Additionally, Agri-Mark has the right to utilize the
Company's technology to produce and sell whey protein isolate from Agri-Mark's
Vermont cheese whey source. The Company is entitled to a royalty on any such
sales.

         In August 2001, the Company entered into an option agreement under
which DMV International Nutritionals of the Netherlands paid the Company
$100,000 for an option to buy the Company's interest in this joint venture. The
$100,000 in revenue from the sale of this option is being recognized over the
twenty month period ending in March 2003. DMV principally funded the operations
of the joint venture during the option period. In March 2003, DMV exercised this
option by paying the Company $1,100,000 for its interest in the joint venture.
This joint venture and the related technology had no corresponding book value.
The $1,100,000 in proceeds from the sale is to be recorded as other income in
the first quarter of 2003. The Company has no ongoing interest in or obligation
to this operation.

         In 1997, the Company licensed certain rights to the same patented
protein purification system described above to Murray Goulburn Co-operative Co.,
Limited of Australia for the production of whey protein isolate and certain
other milk proteins (excluding high purity lactoferrin). In consideration for
the license, the Company received a $250,000 payment in 1997 and is entitled to
a royalty on the sales of whey protein isolate and any other milk proteins
manufactured under this license. In early 2000, Murray Goulburn launched
commercial sales of whey protein isolate. Approximately $79,000 and $41,000 in
royalty income was earned by the Company in 2001 and 2002, respectively.

         3) Skin and Environment Sanitizing Products:

         In connection with the December 1999 acquisition of WIPE OUT(R) DAIRY
WIPES, the Company acquired certain exclusive rights to develop Nisin as a skin
and environment sanitizer. These rights do not cover drug claims for specific
indications or food preservation. While these potential products are not
directly related to the Company's animal health marketing focus, the Company
intends to attempt to benefit from the expertise being developed in the
manufacture of Nisin for its animal health products, WIPE OUT and MAST OUT(TM).
While there is significant published scientific literature that evidences the
broad-spectrum, antimicrobial activity of Nisin, the Company has no intention or
right to pursue drug claims for any human skin sanitizing products.

         In February 2002, the Company was awarded a one-year grant aggregating
$191,000 from the National Institutes of Health to fund certain applications of
this technology. Under this grant and in collaboration with Clemson University,
the Company intends to investigate the effectiveness of Nisin alone and in
combination with another bacteriocin as a topical skin sanitizer. The principal
aims of the grant are focused on manufacturing issues pertaining to both
bacteriocins. The participation of a marketing partner would be required to
further develop and commercialize this potential product opportunity.

         During 2002, the Company collaborated with the U.S. Army's Edgewood
Chemical Biological Center to investigate the effectiveness of Nisin against
BACILLUS ANTHRACIS. The major conclusions of this work were that: 1) Nisin
formulations containing excipients selected from certain classes of detergents
and chelators, kill vegetative cells and germinating spores of B. ANTHRACIS,
MEGATERIUM and CEREUS, 2) Nisin alone has potent killing activity against B.
CEREUS and MEGATERIUM, but not B. ANTHRACIS and 3) Nisin in any formulation
tested does not kill spores of any species of BACILLUS. This work was accepted
and presented at the Biodefense Research Meeting of the American Society for
Microbiology in March 2003. The participation of a marketing partner would be
required to further develop and commercialize this potential product
opportunity.
                                        7
<PAGE>
         4) Product to Detect Cryptosporidium in Drinking Water:

         Capitalizing on certain scientific knowledge gained while working on a
milk antibody product to prevent CRYPTOSPORIDIUM PARVUM infections in humans
during the early 1990's, the Company developed CRYPTO-SCAN(R) water diagnostic
test. This non-animal health product utilizes the Company's immunomagnetic
separation ("IMS") technology. During 1997, the Company entered into a
distribution agreement with Adreck Marketing Limited covering sales in the
United Kingdom, which the Company allowed to expire as of December 31, 2001. The
Company is currently seeking a buyer for this product and the related
technology. Initial sales in the U.K. were limited as the Company worked to gain
access to the market through the applicable U.K. regulatory authorities.
CRYPTO-SCAN was approved by the U.K. regulatory authority in November 2000.
Subsequent to the regulatory approval of this product, sales have been very
limited due, in part, to the additional regulatory requirements imposed by the
U.K regulatory authorities that require that each user of a new product be
individually validated by such authorities before using a new product in
regulated testing procedures. Sales in the U.S. commercial market are not
readily anticipated and would be influenced significantly by the policies of the
U.S. Environmental Protection Agency.

ITEM 2 - PROPERTIES

         The Company owns a 15,300 square foot building at 56 Evergreen Drive in
Portland, Maine. The Company currently uses this space for substantially all of
its office, laboratory and manufacturing needs. A construction project that
added approximately 5,300 square feet of new manufacturing space to the original
10,000 square foot building to increase the production capacity of FIRST
DEFENSE(R) and to provide in-house production capability for WIPE OUT(R) DAIRY
WIPES was completed in May 2001. The facility addition also provides a storage
mezzanine of approximately 2,000 square feet. In addition, the building has
5,000 square feet of unfinished space available for potential future expansion
on the second floor.

         The Company also maintains access to certain animals, primarily cows,
through contractual relationships with several farms.

ITEM 3 - LEGAL PROCEEDINGS

         None

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None



PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The Company's common stock trades on The Nasdaq SmallCap Market tier of
The Nasdaq Stock Market under the symbol: ICCC. No dividends have been declared
or paid on the common stock since its inception, and the Company does not
contemplate the payment of cash dividends in the foreseeable future.

         The following table sets forth the high and low sales price information
for the Company's common stock as reported by The Nasdaq Stock Market during the
period January 1, 2001 through December 31, 2002:

<TABLE><CAPTION>
                            2001                                                        2002
         -----------------------------------------------           -----------------------------------------------
                      Three Months Ended                                        Three Months Ended
         -----------------------------------------------           -----------------------------------------------
         March 31   June 30   September 30   December 31           March 31   June 30   September 30   December 31
         --------   -------   ------------   -----------           --------   -------   ------------   -----------
<S>      <C>        <C>       <C>            <C>                   <C>        <C>       <C>            <C>
High      $3.13      $3.00        $3.00         $5.75                $3.65     $3.20        $2.70          $2.50
Low       $1.58      $2.40        $2.25         $2.75                $3.00     $2.60        $1.70          $1.60
</TABLE>

         As of March 18, 2003, the Company had 8,000,000 common shares
authorized and 2,735,984 common shares outstanding, and there were approximately
1,300 shareholders of record. The last sales price of the Company's common stock
on March 18, 2003 was $1.96 as quoted on The Nasdaq Stock Market.

                                        8
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA

         The selected financial data set forth below has been derived from the
audited financial statements of the Company. The information should be read in
conjunction with the audited financial statements and related notes appearing
elsewhere in this Form 10-K.
<TABLE><CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                  ------------------------------------------------------------------------------------
                                      1998              1999              2000              2001              2002
                                  ------------      ------------      ------------      ------------      ------------
<S>                               <C>               <C>               <C>               <C>               <C>
Statement of Operations Data:
  Product sales                   $  4,199,851      $  4,722,374      $  5,485,003      $  6,395,140      $  5,301,313
  Total revenues                     4,481,867         4,909,245         5,635,985         6,676,766         6,184,704
  Research & development
   expenses                          1,012,813           812,892           922,347           849,174         1,052,783
 (Loss) income before taxes           (102,518)          550,843           475,888           697,040         1,481,384
  Net (loss) income                   (102,518)          550,843         2,222,046           420,435           886,237

Per Common Share:
  Basic net (loss) income                (0.04)             0.23              0.84              0.15              0.32
  Diluted net (loss) income              (0.04)             0.22              0.79              0.15              0.32
  Cash dividend                             --                --                --                --                --

Statement of Cash Flows Data:
  Net cash provided by
   operating activities                639,821           679,699            81,505           914,347         1,898,385

Balance Sheet Data:
  Cash, cash equivalents and
   short-term investments            1,538,905         1,823,689         1,895,149         1,883,090         3,143,016
  Total assets                       3,144,847         3,855,979         6,443,916         7,117,217         7,513,393
  Current liabilities                  443,902           605,923           490,745           564,432           258,784
  Net working capital                1,866,222         2,219,386         2,894,249         2,942,658         4,227,642
  Long-term liabilities                453,349           434,658           414,178           507,131           300,000
  Stockholders' equity            $  2,247,596      $  2,815,398      $  5,538,993      $  6,045,654      $  6,954,609
</TABLE>

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

Results of Operations

FISCAL 2002 COMPARED TO FISCAL 2001

         Total revenues for the year ended December 31, 2002 decreased by
$492,000 (7%) to $6,185,000 from $6,677,000 in 2001. Product sales for the year
ended December 31, 2002 decreased by $1,094,000 (17%) to $5,301,000 from
$6,395,000 in 2001, primarily due to a decrease in the sales of FIRST DEFENSE(R)
and the termination of the license to market the Kamar Heatmount Detector.
Product selling prices have generally been held without increase in
consideration of the difficult economic times being experienced by the Company's
core end-users, dairy producers. Grant income increased by $171,000 (129%) to
$303,000 in 2002. Royalty income decreased by $38,000 (48%) to $41,000 in 2002.
In 2002, revenue from the sale of technology rights included $400,000 earned
upon the termination of a license covering certain of the DIFFGAM technology
rights, $55,000 earned under this license before it was cancelled, $60,000 from
an option to the lactoferrin technology and $25,000 from a different license to
the DIFFGAM technology. In 2001, revenue from the sale of technology rights
included $45,000 earned from a license to the DIFFGAM technology and $25,000
earned from an option to the lactoferrin technology. Grant income increased to
$303,000 (5% of total revenues) in 2002 as compared to $133,000 (2% of total
revenues) in 2001. Most of the grant income supported work on the development of
MAST OUT(TM) and new approaches to the diagnosis of Johne's Disease.

         Sales of FIRST DEFENSE decreased by 26% during the year ended December
31, 2002 in comparison to the same period in 2001. Sales have benefited from the
withdrawal of a competitive product from the market and from a significant
increase in the value of calves. However, this positive affect was more than
offset by negative pressures relating to a decline in milk prices and a backlog
of orders. Milk prices are currently at levels last experienced in the 1970's,
resulting in difficult economic pressures for dairy producers. Sales of FIRST
DEFENSE have been negatively affected by this significant decline in milk
prices. The sales of FIRST DEFENSE are normally seasonal with highest sales
expected in the winter months. A sudden increase in sales

                                        9
<PAGE>
volume resulted in an unexpected reduction in product inventory levels creating
a backlog of orders worth approximately $250,000 as of March 31, 2000. The
backlog of orders was filled as of June 30, 2000, and then the backlog of orders
increased to approximately $750,000 as of December 31, 2000 and to $1,100,000 as
of September 30, 2001. The Company completed a facility addition in May 2001 to
increase its production capacity and eliminated the backlog of orders as of
December 31, 2001. Distributor order patterns may have been influenced by the
backlog of orders in 2001. Sales of WIPE OUT(R) DAIRY WIPES increased by 23%
during the twelve month period ended December 31, 2002 in comparison to the same
period in 2001. Sales of WIPE OUT were first recorded in 2000 following the
December 1999 acquisition of the product.

         On October 1, 2002, the Company agreed to accept $930,000 from Kamar,
Inc. of Steamboat Springs, Colorado in consideration of the early termination of
the license to market the Kamar Heatmount Detector. Since 1988, the Company had
marketed Kamar's product that is used to detect standing heat in cows, under an
exclusive license that was set to expire on December 31, 2004. The $930,000
approximates the net present value of the expected net contribution from the
product over the final twenty-seven months of the license term, had it not been
terminated. As this license had no book value, the full amount of the proceeds
was recorded as a pre-tax gain of $930,000. The $930,000 was recorded as other
income in the fourth quarter of 2002. As a result of the termination of this
license, the Company's product sales, product costs and sales and marketing
expenses were reduced beginning October 1, 2002.

         The following unaudited, pro forma, condensed financial information
gives effect to this transaction as if it had occurred as of the beginning of
the twelve month periods ended December 31, 2001 and 2002:

<TABLE><CAPTION>
                          Year Ended                          Pro forma       Year Ended                          Pro forma
                      December 31, 2001    Adjustments        Adjusted    December 31, 2002    Adjustments        Adjusted
                      -----------------   ------------      ------------  -----------------   ------------      ------------
<S>                   <C>                 <C>               <C>           <C>                 <C>
Product sales            $  6,395,140     $ (2,468,235)     $  3,926,905     $  5,301,313     $ (2,204,077)     $  3,097,236
Product costs               3,214,984       (1,539,616)        1,675,368        2,799,429       (1,347,861)        1,451,568
Sales and marketing
   expenses                 1,358,563         (673,961)          684,602        1,227,598         (566,922)          660,676
Net operating income          670,884         (254,658)          416,226          533,141         (289,294)          243,847
Net interest and
   other income                26,156               --            26,156          948,243         (930,000)           18,243
Income before taxes           697,040         (254,658)          442,382        1,481,384       (1,219,294)          262,090
Tax expense                   276,605         (101,055)          175,550          595,147         (489,865)          105,282
Net income                    420,435         (153,603)          266,832          886,237         (729,429)          156,808
Diluted net income
   per common share      $       0.15     $      (0.06)     $       0.09     $       0.32     $      (0.26)     $       0.06
</TABLE>

         Product costs amounted to 53% of product sales in 2002 as compared to
50% in 2001. Internally developed products tend to have higher gross margin
percentages than licensed-in products. A moderately lower gross margin
percentage is anticipated as new products initially are developed and acquired.
Over time, as these products are fully integrated into the Company's
manufacturing and marketing operations, the Company expects to be able to
improve the gross margin percentage. This is the case, for example, with WIPE
OUT DAIRY WIPES, a product that was acquired by the Company in December 1999. In
2001, the Company invested in the necessary facility addition and production
equipment required to process the wipe stock and perform the filling operations
for this product internally, which has caused an improvement in the gross
margin. At this stage in the Company's development, management is focusing on
growing the absolute dollar value of the gross margin from the products that the
Company continues to sell.

         The Company increased its expenditures for research and development by
approximately $204,000 (24%) to $1,053,000 in 2002 as compared to $849,000 in
2001. Research and development expenses aggregated 17% and 13% of total revenues
in 2002 and 2001, respectively. Research and development expenses exceeded grant
income by approximately $750,000 in 2002 and by $717,000 in 2001. These "net"
research and development expenses increased to 14% of product sales in 2002 from
11% of product sales in 2001. Since 1999, the Company has shifted the primary
focus of its research and development efforts to products for the animal health
industry. The majority of the Company's research and development budget is
focused on the development of a product utilizing Nisin as an intramammary
infusion intended to treat bovine mastitis. To expand its commercialized line of
products for use by dairy and beef producers, the Company has also invested in
the development of new diagnostic products leveraging the Company's experience
with infectious diseases.

                                       10
<PAGE>
         Sales and marketing expenses decreased by approximately $131,000 (10%)
to $1,228,000 in 2002, aggregating 23% of product sales in 2002, compared to 21%
in 2001. The Company anticipated the decrease in the aggregate dollar amount of
these expenses following the October 1, 2002 termination of the license to
market the Kamar Heatmount Detector, a product that had comprised a significant
percentage of total sales. The Company continues to leverage the efforts of its
small sales force through veterinary distribution channels. General and
administrative expenses decreased by approximately $11,000 (2%) to $572,000 in
2002 as compared to $583,000 in 2001. The Company continues its efforts to
control its general and administrative expenses while incurring all the
necessary expenses associated with being a publicly held company.

         Interest income exceeded interest expense by approximately $22,000 and
$13,000 in 2001 and 2002, respectively. Interest expense was incurred in both
years on the Company's outstanding bank debt before it was repaid in May 2002.
Other income in 2002 included a one-time payment of $930,000 accepted by the
Company in consideration of the October 1, 2002 termination of the license to
market the Kamar Heatmount Detector.

         The income before taxes of $1,481,000 for the year ended December 31,
2002 compares to $697,000 for the year ended December 31, 2001. In 2001 and
2002, the Company recorded tax expense at an effective tax rate of 39.7% and
40.2%, respectively, resulting in net income of $420,000 and $886,000 for the
years ended December 31, 2001 and 2002, respectively. The Company utilized
deferred tax benefits associated with certain net operating loss carryforwards
of $234,000 and $589,000 as of December 31, 2001 and 2002, respectively, that
would offset future tax liabilities.

FISCAL 2001 COMPARED TO FISCAL 2000

         Total revenues for the year ended December 31, 2001 increased by
$1,041,000 (18%) to $6,677,000 from $5,636,000 in 2000. Product sales for the
year ended December 31, 2001 increased by $910,000 (17%) to $6,395,000 from
$5,485,000 in 2000. Product selling prices have generally increased in line with
inflation. Grant income increased by $36,000 (38%) to $133,000 in 2001. Royalty
income increased by $24,000 (44%) to $79,000 in 2001. Revenue from the sale of
technology rights was first recorded in 2001.

         Aggregate sales of the two leading revenue generating products, FIRST
DEFENSE(R) and the Kamar(R) Heatmount(R) Detector, totaled approximately
$5,692,000 (89% of total product sales) for the year ended December 31, 2001 as
compared to approximately $4,742,000 (86% of total product sales) for the year
ended December 31, 2000. Aggregate sales of the three leading revenue generating
products, FIRST DEFENSE, the Kamar Heatmount Detector and WIPE OUT(R) DAIRY
WIPES totaled approximately $6,095,000 (95% of total product sales) for the year
ended December 31, 2001 as compared to approximately $5,194,000 (95% of total
product sales) for the year ended December 31, 2000. In 2001, for the first
time, annual sales of FIRST DEFENSE exceeded annual sales of the Kamar Heatmount
Detector. Sales of FIRST DEFENSE have benefited from the withdrawal of a
competitive product from the market and from a significant increase in the value
of calves. The sales of FIRST DEFENSE are seasonal with highest sales expected
in the winter months. A sudden increase in sales volume resulted in an
unexpected reduction in product inventory levels creating a backlog of orders
worth approximately $250,000 as of March 31, 2000. The backlog of orders was
filled as of June 30, 2000 and then increased to approximately $750,000 as of
December 31, 2000. There was no backlog of orders as of December 31, 2001.
Effective October 1, 2002, the Company accepted $930,000 in consideration of the
early termination of the license covering sales of the Kamar Heatmount Detector.
Sales of WIPE OUT were first recorded in 2000 following the December 1999
acquisition of the product.

         Grant income increased to approximately $133,000 (2% of total revenues)
in 2001 as compared to $96,000 (2% of total revenues) in 2000. Most of the grant
income in 2001 supported work on the development of MAST OUT(TM) and new
approaches to the diagnosis of Johne's Disease. In October 1997, the Company was
awarded approximately $710,000 under a federal research grant to partially fund
the Company's efforts to develop a product to prevent Travelers' Diarrhea. In
1998, the remaining funding then available under this grant was reallocated to
the development of DIFFGAM. Approximately $66,000 in grant income was recognized
under this grant in 2000.

         Product costs amounted to 50% of product sales in 2001 as compared to
51% in 2000. Internally developed products tend to have higher gross margin
percentages than licensed-in products. Some deterioration of the gross margin
percentage is anticipated as new products initially are developed and acquired.
Over time, as these products are fully integrated into the Company's
manufacturing and marketing operations, the Company expects to be able to
improve the gross margin percentage. This is the case, for example, with WIPE
OUT DAIRY WIPES, a product that was acquired by the Company in December 1999. In
2001, the Company invested in the necessary facility addition and production
equipment to eliminate the need for a subcontractor and be able to manufacture
this product internally, which, the Company believes, should improve the gross
margin. At this stage in the Company's development, management is focusing on
growing the absolute dollar value of the gross margin on product sales. The
gross margin on product sales earned in 2001 increased by $497,000 (19%) to
$3,180,000 as compared to the gross margin earned in 2000.

                                       11
<PAGE>
         The Company decreased its expenditures for research and development by
approximately $73,000 (8%) to $849,000 in 2001 as compared to $922,000 in 2000.
Research and development expenses aggregated 13% and 16% of total revenues in
2001 and 2000, respectively. Research and development expenses exceeded grant
and technology licensing income by approximately $671,000 in 2001 and by
$826,000 in 2000. These "net" research and development expenses decreased to 10%
of product sales in 2001 from 15% of product sales in 2000. Since 1999, the
Company has shifted the primary focus of its research and development efforts to
products for the animal health industry. To expand its commercialized line of
products for use by dairy and beef producers, the Company has invested in the
development of new diagnostic products leveraging the Company's experience with
infectious diseases. The Company has also initiated development programs for
certain disease preventive products. Before funding of DIFFGAM development was
stopped in 2000, the Company demonstrated preliminary efficacy in a phase I/II
clinical trial to prevent and treat CLOSTRIDIUM DIFFICILE-associated diarrhea.
For clinical development to proceed into more expensive Phase II and III trials,
a partner would be required.

         Sales and marketing expenses increased by approximately $356,000 (35%)
to $1,359,000 in 2001, aggregating 21% of product sales in 2001, compared to 18%
in 2000. The Company anticipated the modest increase in the ratio of these
expenses to product sales as the Company initiated sales of new products in
2001. The Company continues to leverage its small sales force through veterinary
distribution channels. General and administrative expenses increased by
approximately $87,000 (18%) to $583,000 in 2001 as compared to $496,000 in 2000.
While the Company continues its efforts to control its general and
administrative expenses while incurring all the necessary expenses associated
with being a publicly held company, the increase is in proportion to the growth
of the Company.

         Interest and other income exceeded interest expense by approximately
$58,000 and $22,000 in 2000 and 2001, respectively. Interest expense was
incurred in both years on the Company's outstanding bank debt.

         The income before taxes of $697,000 for the year ended December 31,
2001 compares to $476,000 for the year ended December 31, 2000. In 2001, the
Company recorded tax expense at a relatively typical corporate effective tax
rate resulting in net income of $420,000 for the year ended December 31, 2001.
During 1999, the taxable income was fully offset by available net operating loss
carryforwards resulting in no tax expense being recorded. Given the two
consecutive years of profitable results in 1999 and 2000 and the expectation of
continued profitability, the Company recorded approximately $1,746,000 in
non-cash tax benefits in 2000 relating to the partial release of valuation
allowances previously established against deferred tax benefits associated with
certain net operating loss carryforwards that would offset future tax
liabilities, in accordance with Financial Accounting Standards Board Statement
No. 109. As a result of this accounting for income taxes, the Company recorded
net income of $2,222,000 for the year ended December 31, 2000.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

         The Company's total assets increased 6%, or by $396,000, to $7,513,000
at December 31, 2002 from $7,117,000 at December 31, 2001. The Company's cash
and short-term investment balance as of December 31, 2002 increased 67%, or by
$1,260,000, to $3,143,000 from $1,883,000 at December 31, 2001. Net working
capital increased 44%, or by $1,285,000, to $4,228,000 at December 31, 2002 from
$2,943,000 at December 31, 2001. Stockholders' equity increased 15%, or by
$909,000, to $6,955,000 at December 31, 2002 from $6,046,000 at December 31,
2001.

         During 2002, approximately $1,898,000 in cash was provided by operating
activities. A significant portion of this cash was generated from two
non-recurring transactions, the $930,000 license termination payment and the
$400,000 sale of technology rights, discussed above. The net income of $886,000
was net of $237,000 in non-cash depreciation and amortization expense, and tax
expense includes approximately $589,000 of non-cash items relating to deferred
taxes. As of December 31, 2002, the Company had $1,106,000 in deferred tax
assets available to reduce future tax liabilities. The accounts receivable
balance was reduced by approximately $550,000 due, in large part, to the
termination of a license to a product effective October 1, 2002, and deferred
revenue increased by $90,000. The inventory balance increased by $256,000 and
accounts payable and accrued expenses were reduced by $189,000. The Company
anticipates being able to maintain positive cash flow from operating activities
during the next twelve months. Investing activities were comprised of a $250,000
net investment in fixed assets and a net investment of $787,000 in short-term
investments. Financing activities included payments of $414,000 in debt
principal that fully repaid all of the Company's previously outstanding bank
debt and approximately $23,000 in proceeds from the issuance of common stock
upon the exercise of stock options.

         The Company funded its 2002 research and development expenses from
product sales, grant income, and revenue from the sale of technology rights. The
Company's fourth consecutive year of profitability has provided positive cash
flow to fund all operating expenses as well as new product acquisitions while
reporting a net operating income. During the year ended December 31, 2002, the
$2,502,000 gross margin from product sales almost funded the aggregate of
$2,549,000 in research and development expenses net of grant income ("net R&D")
and selling, general and administrative ("S,G&A")

                                       12
<PAGE>
expenses. In 2001, the $3,180,000 gross margin more than funded the aggregate of
$2,658,000 in net R&D and S,G&A expenses. In 2000, the $2,684,000 gross margin
more than funded the aggregate of $2,325,000 in net R&D and S,G&A expenses. In
1999, the $2,569,000 gross margin more than funded the aggregate of $1,954,000
net R&D and S,G&A expenses. Since 1999, it has been the Company's strategy to
focus its research and development efforts on animal health product
opportunities, which are generally less expensive than human health product
opportunities.

         In March 2001, the Company received a two year grant award aggregating
up to $400,000 from the Maine Technology Institute, a non-profit corporation
created by the General Assembly of the State of Maine. The grant augments the
Company's development of its Nisin-based mastitis treatment, MAST OUT(TM), by
funding significant portions of the costs related to conducting the clinical
trials and developing the proprietary manufacturing process required to obtain
FDA approval of the product. The grant award carries a contingent payback
obligation of, at the Company's option, either: 1) the amount of the paid award
within two years of first commercial sale of a product developed with the
funding or 2) a 2% royalty on any sales of a product developed with the funding
until the royalty aggregates two times the amount of the paid award. Because of
this contingent payback obligation, the funding is being recorded as deferred
revenue as the cash is received by the Company, and no income is being
recognized to match the development expenses as they are incurred. There is no
payback obligation in the event that a product is not commercialized. In such
case, the deferred revenue would be recognized at the time the product
development effort is discontinued. The Company received $100,000 under this
grant in 2001 and another $200,000 in 2002 and expects to receive the final
$100,000 in 2003.

         Since 1990, the Company has been awarded seven Phase I and three Phase
II Small Business Innovation Research ("SBIR") grants from the National
Institutes of Health. In addition, the Company has been awarded two Phase I SBIR
grants from the USDA and three grants from the State of Maine and one grant from
the American Water Works Association Research Foundation. These grants aggregate
approximately $3,013,000 in funding for the Company's research and development
programs. Approximately $2,378,000 of this grant funding was awarded by the
National Institutes of Health and $455,000 by the State of Maine and $140,000 by
the USDA. In addition to the $1,891,000 that supported the development of the
Company's milk antibody products for humans, approximately $666,000 has been
awarded in support of the MAST OUT development program, $191,000 has been
awarded in support of skin sanitizing applications of Nisin, $140,000 was
awarded in support of CRYPTO-SCAN(R) and $70,000 has been awarded in support of
new approaches to the diagnosis of Johne's Disease. Approximately $2,199,000 of
this grant income was recognized prior to 2002, approximately $303,000 was
recognized in 2002 and approximately $112,000 is expected to be recognized in
2003 (not including the $400,000 award from the Maine Technology Institute,
described above). The Company may, on occasion, seek additional research grant
support as a means of leveraging the funds that it is able to spend developing
new products.

         In May 2002, the Company utilized approximately $405,000 in available
cash to repay the outstanding balance of its bank debt obligations. As a result,
there was no outstanding bank debt as of December 31, 2002 in comparison to
$414,000 as of December 31, 2001.

FORWARD-LOOKING STATEMENTS

         The statements contained in this report which are not historical fact
are "forward-looking statements" that involve various important assumptions,
risks, uncertainties and other factors. Such forward-looking statements include,
but are not limited to, projections about future financial results, estimates of
potential market sizes and product sales, and the timing of product development
efforts. There can be no assurance that actual results will not differ
materially from those projected or suggested in such forward-looking statements
as a result of various factors including, but not limited to, the risk factors
discussed below. The Company is heavily dependent on the successful development
of new products for its future growth. These new products have the potential to
increase the Company's profitability.

         It is the Company's objective to fund all selling, general and
administrative expenses as well as all research and development expenditures
that are not funded by grant income with the gross margin earned from product
sales and with other income. Continuation of the Company's profitability in the
near term will, in large part, be determined by the ongoing successful marketing
of FIRST DEFENSE(R). Growth in the Company's profitability will, in large part,
be determined by the success of the Company's efforts to effectively develop,
acquire and market new animal health products.

         To advance the development of MAST OUT toward FDA licensure, the
Company would be required to incur significant outside laboratory expenses to
fund the required toxicology, safety and efficacy trials. The Company paid
approximately $100,000 towards these expenses in the fourth quarter of 2002 and
anticipates that these expenses could aggregate approximately an additional
$600,000 in 2003. It is the Company's intention to initiate a pivotal clinical
trial of this product during the summer of 2003. Depending on the enrollment
rate of cows, completion of this trial is expected in the fourth quarter of 2003
or first quarter of 2004. Subject to the pace and success of the regulatory
process, it is the Company's objective to

                                       13
<PAGE>
begin marketing this product in 2005. Given the potential sales of this product
that could be achieved if it is successfully developed and approved by the FDA
with the product claims being pursued by the Company, management believes the
significant investment is warranted. The Company estimates that the North
American market for products in this category in lactating cows is approximately
$20,000,000 per year and that an additional, but smaller, market opportunity
exists for a potential dry cow application of the product, which would be
subject to a separate new animal drug application and product license approval.
The Company estimates that North American sales of what could be the first
non-antibiotic treatment for mastitis in lactating cows without a milk discard
requirement could approximate $5,000,000 per year. Management believes that an
additional, but smaller, sales potential exists for the potential dry cow
application of the product and for both product indications in markets outside
of North America.

         Given the $1,100,000 in other income from the sale of a joint venture
that is to be recorded in the first quarter of 2003 together with normal
business operations, the Company expects a profitable first quarter of 2003. The
significant outside laboratory expenses, discussed above, may result in net
losses for any of the last three quarters of the year, while the Company expects
to be able to maintain its annual profitability for a fifth consecutive year.

         Given the receipt of the $1,100,000, described above, together with
normal business operations, the Company expects to have in excess of $4,000,000
in available cash and short-term investments as of March 31, 2003. The Company
is considering its investment options for this cash that include, but are not
limited to, the following: i) funding product development, ii) investing in the
manufacturing of its commercialized products, iii) acquiring new products and
iv) repurchasing a limited amount of its outstanding common stock.

RISK FACTORS

         The development of these new products is subject to financial,
efficacy, regulatory and market risks. There can be no assurance that the
Company will be able to finance the development of these new product
opportunities nor that, if financed, the new products will be found to be
efficacious and gain the appropriate regulatory approval. Furthermore, if
regulatory approval is obtained, there can be no assurance that the market
estimates will prove to be accurate or that market acceptance at a profitable
price level can be achieved or that the products can be profitably manufactured.

         The Company believes that supplies and raw materials for the production
of its products are readily available from more than one vendor or farm. It is
the Company's policy to maintain more than one source of supply for the
components used in the Company's products. However, there is a risk that the
Company could have difficulty in efficiently acquiring essential supplies.

         FIRST DEFENSE(R) is sold in the United States subject to a product
license approval from the USDA first obtained in 1991. 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
FIRST DEFENSE label claims, host animal re-testing is not required as long as
periodic laboratory analyses continue to support the stability of stored
Reference Standard. To date, these analyses have demonstrated strong stability.
However, if, at any time, the USDA does not approve the requalification of the
Reference Standard, additional clinical studies could be required to meet
regulatory requirements and allow for continued sales of the product.

         The dairy industry is facing very difficult economic pressures at
present. Many small farmers are being forced out of business. Milk prices are
currently at levels last experienced in the 1970's. The financial insecurity of
the Company's primary customer base is a risk to the Company's ability to
maintain and grow sales at a profitable level. Additionally, the potential for
epidemics of bovine diseases such as Foot and Mouth Disease, Bovine
Tuberculosis, Brucellosis and Bovine Spongiform Encephalopathy present a risk to
the Company and its customers.

         The threat of biological terrorism is a risk to both the Company's
ability to economically acquire and collect good quality raw material from the
Company's contract farms as well as to the economical health of its customers.
Any act of widespread bioterrorism against the dairy industry could have a
negative impact on the Company's operations.

EFFECTS OF INFLATION AND INTEREST RATES

         The Company believes that neither inflation nor interest rates have had
a significant effect on revenues and expenses.

                                       14
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS

         In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 145, "Rescission of
FASB Nos. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" ("SFAS No. 145"). SFAS No. 145 rescinds FASB SFAS No. 4, "Reporting
Gains and Losses from Extinguishment of Debt", and an amendment of SFAS No. 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements". SFAS No.
145 also rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor
Carriers", SFAS No. 145 amends SFAS No. 13, "Accounting for Leases", to
eliminate an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. SFAS No.
145 also amends other existing authoritative pronouncements to make various
technical corrections, clarify meanings, or describe their applicability under
changed conditions. Adoption of certain provisions of SFAS No. 145 was required
after May 15, 2002, while other provisions must be adopted with financial
statements issued after May 15, 2002 or the year beginning after May 15, 2002.
The Company does not expect adoption of SFAS No. 145 to have a material impact
on its operations.

         In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS No. 146"). This Statement
addresses financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)". Adoption of SFAS No. 146 is required for exit or disposal
activities initiated after December 31, 2002. The Company does not expect
adoption of SFAS No. 146 to have material impact on its operations.

         In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation" ("SFAS No. 148"). This Statement provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. Additionally, SFAS No. 148
amends the disclosure requirements of Statement 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The Company adopted the additional disclosure
provisions of this statement required for the year ended December 31, 2002 and
will include the prescribed additional disclosures in the Company's future
filings on Form 10-Q.

         In November 2002, the FASB's Emerging Issues Task Force reached
consensus on EITF No. 00-21, "Accounting for Revenue Arrangements with Multiple
Deliverables" ("EITF No. 00-21"). EITF No. 00-21 addresses the accounting
treatment for arrangements that provide for the delivery or performance of
multiple products or services where the delivery of a product, system or
performance of services may occur at different points in time or over different
periods of time. EITF No. 00-21 requires the separation of the multiple
deliverables that meet certain requirements into individual units of accounting
that are accounted for separately under the appropriate authoritative accounting
literature. EITF No. 00-21 is applicable to revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. The Company does not expect the
provisions of EITF No. 00-21 to have a material impact on its results of
operations or financial position.

CRITICAL ACCOUNTING POLICIES

         The consolidated financial statements are presented on the basis of
accounting principles that are generally accepted in the U.S. All professional
accounting standards that are effective as of December 31, 2002 have been taken
into consideration in preparing the consolidated financial statements. The
preparation of consolidated financial statements requires that the Company make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, the Company evaluates its estimates,
including those related to revenue recognition, investments, intangible and long
lived assets, income taxes and contingencies. The Company bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. The Company has chosen to
highlight certain policies that it considers critical to the operations of the
business and understanding its consolidated financial statements.

         Revenues related to the sale of manufactured products are recorded when
title and risk of loss has passed to the customer, which is at the time of
shipment and when collectibility is reasonably assured. Non-refundable grant
income is recognized as reimbursable expenses are incurred. Indirect costs which
are billed to the government are subject to their review. All research and
development costs are expensed as incurred, as are all related patent costs.
Royalty income is recorded on the accrual basis based on sales as reported to
the Company by its licensee pursuant to the terms of the agreement. The Company
recognizes revenue in accordance with Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in

                                       15
<PAGE>
Financial Statements" ("SAB No. 101"). SAB No. 101 requires that four criteria
are met before revenue is recognized. These include i) persuasive evidence that
an arrangement exists, ii) delivery has occurred or services have been rendered,
iii) the seller's price is fixed and determinable and iv) collectibility is
reasonably assured. The Company recognizes revenue at the time of shipment
(including to distributors) for substantially all products, as title and risk of
loss pass to the customer on delivery to the common carrier. The Company
recognizes service revenue at the time the service is performed.

         The Company records estimated reductions to revenue in connection with
customer programs and incentive offerings, which may give customers future
rights such as free or discounted goods or services or trade-in rights. The
Company estimates these reductions based on its experience with similar customer
programs in prior years. The Company's distributors of FIRST DEFENSE(R) have the
right to return expired product for a 50% credit on future orders. As the
product has a two year shelf life, the Company has not experienced significant
product returns historically.

         Inventories include raw materials, work-in-process and finished goods
and are recorded at the lower of standard cost which approximates cost on the
first-in, first-out method or market (net realizable value). Work-in-process and
finished goods inventories include materials, labor and manufacturing overhead.

         The Company utilized approximately $1,550,000 and $1,386,000 of net
operating loss carryforwards to offset taxable income in fiscal years 2001 and
2002, respectively. As a result of the Company's two consecutive years of
profitable results in 1999 and 2000 and the expectation of continued
profitability, the Company recorded a tax benefit of approximately $1,967,000 in
fiscal 2000 as a result of the release of the valuation allowance on the
deferred tax asset related to net operating loss carryforwards. The remaining
valuation allowance related to the general business credit carryforward of
approximately $139,000 and $112,000 as of December 31, 2001 and 2002,
respectively, has not been released due to the uncertainty of its use before
expiration. This credit expires in the years 2003 through 2010. For federal and
state income tax purposes, the Company has remaining net operating loss
carryforwards of approximately $913,000, expiring from 2006 to 2017, that are
available to offset future taxable income.

         Accounts receivable are recorded net of a valuation allowance for
doubtful accounts of approximately $38,000 and $19,000 at December 31, 2001 and
2002, respectively.


ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

None


ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The financial statements and financial statement schedule of the
Company, together with the notes thereto and the report of the independent
accountants thereon, are set forth on Pages F-1 through F-18 at the end of this
report.


ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None


PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(A) Information with respect to the Company's directors is incorporated herein
by reference to the section of the Company's 2003 Proxy Statement titled
"Election of the Board of Directors", which is intended to be filed with the
Securities and Exchange Commission within 120 days after the end of the
Company's fiscal year.

(B) The Company's executive officers are as follows:

MICHAEL F. BRIGHAM (Age: 42, Officer Since: October 1991, Director Since: March
1999) was appointed to serve as President and Chief Executive Officer in
February 2000, while maintaining the titles of Treasurer and Secretary, and was
appointed to serve as a Director of the Company in March 1999. He previously had
been elected Vice President of the Company in December 1998 and served as Chief
Financial Officer since October 1991. He has served as Secretary since December
1995 and as Treasurer since October 1991. Prior to that, he served as Director
of Finance and Administration since originally joining the Company in September
1989. Mr. Brigham serves on the Board of Directors of the Biotechnology

                                       16
<PAGE>
Association of Maine. Prior to joining the Company, he was employed as an audit
manager for the public accounting firm of Ernst & Young. Mr. Brigham earned his
Masters in Business Administration from New York University in 1989.

JOSEPH H. CRABB, PH.D. (Age: 48, Officer Since: March 1996, Director Since:
March 2001) was appointed to serve as a Director of the Company in March 2001,
having previously served in that capacity during the period from March 1999
until February 2000, and was elected Vice President of the Company in December
1998, while maintaining the title of Chief Scientific Officer. He has served as
Chief Scientific Officer since September 1998. Prior to that, he served as Vice
President of Research and Development since March 1996. Prior to that, he served
as Director of Research and Development and Senior Scientist since originally
joining the Company in November 1988. Dr. Crabb currently holds a Clinical
Assistant Professorship at Tufts University School of Veterinary Medicine and
serves on National Institutes of Health and American Water Works Association
advisory committees. Prior to joining the Company in 1988, Dr. Crabb earned his
Ph.D. in Biochemistry from Dartmouth Medical School and completed postdoctoral
studies in microbial pathogenesis at Harvard Medical School, where he also
served on the faculty.

         There is no family relationship between any director, executive
officer, or person nominated or chosen by the Company to become a director or
executive officer.


ITEM 11 - EXECUTIVE COMPENSATION

         Information regarding cash compensation paid to executive officers of
the Company is incorporated herein by reference to the section of the Company's
2003 Proxy Statement titled "Executive Compensation", which is intended to be
filed with the Securities and Exchange Commission within 120 days after the end
of the Company's fiscal year.


ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS

         Information regarding ownership of the Company's common stock by
certain owners and management is incorporated herein by reference to the section
of the Company's 2003 Proxy Statement titled "Security Ownership of Certain
Beneficial Owners and Management", which is intended to be filed with the
Securities and Exchange Commission within 120 days after the end of the
Company's fiscal year.


ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information regarding certain relationships and related transactions is
incorporated herein by reference to the section of the Company's 2003 Proxy
Statement titled "Certain Relationships and Related Transactions", which is
intended to be filed with the Securities and Exchange Commission within 120 days
after the end of the Company's fiscal year.


ITEM 14 - CONTROLS AND PROCEDURES

         Under the supervision and with the participation of our management,
including the individual serving as the principal executive and principal
financial officer, we have evaluated the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Exchange Act
Rule 13a-14 within 90 days of the filing date of this annual report. Based on
this evaluation, our chief executive officer and principal financial officer has
concluded that these controls and procedures are effective. There were no
significant changes in our internal controls or in other factors that could
significantly affect these controls subsequent to the date of the evaluation.

         Disclosure controls and procedures are designed to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the Securities and Exchange Commission's rules and
forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by
us in the reports that we file under the Exchange Act is accumulated and
communicated to our management, including our principal executive and principal
financial officer, as appropriate to allow timely decisions regarding required
disclosures.

                                       17
<PAGE>
PART IV

ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A)  EXHIBITS

2.1      Termination of Distribution and Licensing Agreement dated October 1,
         2002 between the Registrant and Kamar, Inc. (incorporated by reference
         to Exhibit 2 to the Registrant's Current Report on Form 8-K dated as of
         October 1, 2002).
3.1      Certificate of Incorporation of the Registrant (incorporated by
         reference to Exhibit 3.1 of the Registrant's 1987 Registration
         Statement Number 33-12722 on Form S-1 as filed with the Commission).
3.2      Certificate of Amendment to the Company's Certificate of Incorporation
         (incorporated by reference to Exhibit 4.1 to the Registrant's Quarterly
         Report on Form 10-Q for the three month period ended June 30, 1990).
3.3      Certificate of Amendment to the Company's Certificate of Incorporation
         effective August 24, 1992 (incorporated by reference to Exhibit 3.4 of
         the Registrant's Annual Report on Form 10-K for the fiscal year ended
         December 31, 1992).
3.4      Bylaws of the Registrant as amended (incorporated by reference to
         Exhibit 3.3 to the Registrant's Annual Report on Form 10-K for the
         fiscal year ended December 31, 1995).
4.1      Rights Agreement dated as of September 5, 1995, between the Registrant
         and American Stock Transfer and Trust Co., as Rights Agent, which
         includes as Exhibit A thereto the form of Right Certificate and as
         Exhibit B thereto the Summary of Rights to Purchase Common Stock
         (incorporated by reference to Exhibit 4.1 to the Registrant's Current
         Report on Form 8-K dated September 5, 1995).
4.2      Common Stock Purchase Warrant issued by the Registrant to Nutrition 21,
         Inc. dated April 12, 2000 (incorporated by reference to Exhibit 4.1 to
         the Registrant's Quarterly Report on Form 10-Q for the three month
         period ended June 30, 2000).
10.1+    1989 Stock Option and Incentive Plan of the Registrant (incorporated by
         reference to Exhibit 10.27 to the Registrant's Annual Report on Form
         10-K for the fiscal year ended December 31, 1989).
10.2+    Form of Incentive Stock Option Agreement (incorporated by reference to
         Exhibit 10.28 to the Registrant's Annual Report on Form 10-K for the
         fiscal year ended December 31, 1989).
10.3+    Form of Indemnification Agreement entered into with each of the
         Company's directors and officers (incorporated by reference to Exhibit
         10.32 to the Registrant's Annual Report on Form 10-K for the fiscal
         year ended December 31, 1989).
10.4+    Amendment, dated April 1992, to Employment Agreement dated November
         1991, between the Registrant and Michael F. Brigham (incorporated by
         reference to Exhibit 10.26 to the Registrant's Annual Report on Form
         10-K for the fiscal year ended December 31, 1992).
10.5+    Amendment, dated April 1992, to Employment Agreement dated November
         1991, between the Registrant and Joseph H. Crabb (incorporated by
         reference to Exhibit 10.32 to the Registrant's Annual Report on Form
         10-K for the fiscal year ended December 31, 1995).
10.6     License and Supply Agreement between Bio-Vac, Inc. and the Registrant
         dated June 15, 1993 (incorporated by reference to Exhibit 10.25 to the
         Registrant's Annual Report on Form 10-K for the fiscal year ended
         December 31, 1993).
10.7+    1995 Stock Option Plan for Outside Directors (incorporated by reference
         to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for
         the three months ended June 30, 1995).
10.8+    Form of Stock Option Agreement (incorporated by reference to Exhibit
         10.2 to the Registrant's Quarterly Report on Form 10-Q for the three
         months ended June 30, 1995).
10.9(1)  License Agreement between the Registrant and Murray Goulburn
         Co-operative Co., Limited, dated November 14, 1997 (incorporated by
         reference to Exhibit 10.26 to the Registrant's Annual Report on Form
         10-K for the fiscal year ended December 31, 1997).
10.10+   Employment Agreement dated April 29, 1999 between the Registrant and
         Michael F. Brigham (incorporated by reference to Exhibit 10.22 to the
         Registrant's Annual Report on Form 10-K for the fiscal year ended
         December 31, 1999).
10.11+   Employment Agreement dated April 29, 1999 between the Registrant and
         Joseph H. Crabb (incorporated by reference to Exhibit 10.23 to the
         Registrant's Annual Report on Form 10-K for the fiscal year ended
         December 31, 1999).
10.12    Asset Purchase Agreement between the Registrant and Nutrition 21, Inc.
         dated December 30, 1999 (incorporated by reference to Exhibit 2 to the
         Registrant's Current Report on Form 8-K dated as of December 30, 1999).
10.13+   2000 Stock  Option and  Incentive Plan of the Registrant (incorporated
         by reference to Exhibit 10.1 to the Registrant's Quarterly Report on
         Form 10-Q for the three month period ended June 30, 2000).
10.14+   Form of Incentive Stock Agreement (incorporated by reference to Exhibit
         10.2 to the Registrant's Quarterly Report on Form 10-Q for the three
         month period ended June 30, 2000).

                                       18
<PAGE>
10.15+   2000 Stock Option Plan for Outside Directors of the Registrant
         (incorporated by reference to Exhibit 10.3 to the Registrant's
         Quarterly Report on Form 10-Q for the three month period ended June 30,
         2000).
10.16+   Form of Stock Option Agreement (incorporated by reference to Exhibit
         10.4 to the Registrant's Quarterly Report on Form 10-Q for the three
         month period ended June 30, 2000).
21.1     Subsidiaries of the Registrant (incorporated by reference to Exhibit
         21.1 to the Registrant's Annual Report on Form 10-K for the fiscal year
         ended December 31, 1996).
23.1     Consent of PricewaterhouseCoopers LLP.
99       Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
         to Section 906 of the Sarbanes-Oxley Act of 2002.

         (1) Confidential Treatment as to certain portions obtained effective
until November 14, 2012. The copy filed as an exhibit omits the information
subject to the Confidential Treatment.

+ Management contract or compensatory plan or arrangement.







(B)  INDEX TO FINANCIAL STATEMENTS

Report of PricewaterhouseCoopers LLP, Independent Accountants        F-1

Consolidated Balance Sheets - December 31, 2001 and 2002             F-2 to F-3

Consolidated Statements of Operations for the years ended
  December 31, 2000, 2001 and 2002                                   F-4

Consolidated Statements of Stockholders' Equity for the years
  ended December 31, 2000, 2001 and 2002                             F-5

Consolidated Statements of Cash Flows for the years ended
  December 31, 2000, 2001 and 2002                                   F-6

Notes to Consolidated Financial Statements                           F-7 to F-17




(C)  SCHEDULE 2-SUPPLEMENTAL VALUATION AND QUALIFYING ACCOUNTS       F-18

(D)  REPORTS ON FORM 8-K


         The Company filed a Current Report on Form 8-K dated October 1, 2002
with the Commission reporting under Item 2, "Acquisition or Disposition of
Assets", the acceptance of $930,000 in consideration of the early termination of
a product license.





                                       19
<PAGE>



                        REPORT OF INDEPENDENT ACCOUNTANTS


Board of Directors and Shareholders of
ImmuCell Corporation:

In our opinion, the consolidated financial statements listed in the accompanying
index appearing under Item 15(b) present fairly, in all material respects, the
financial position of ImmuCell Corporation and Subsidiary at December 31, 2001
and 2002, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2002 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 15(c) presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and the financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and the
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.



/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
January 24, 2003, except for Note 12,
for which the date is March 19, 2003






                                       F-1
<PAGE>
                       IMMUCELL CORPORATION AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2001 AND 2002

                                     ASSETS



<TABLE><CAPTION>
                                                              2001           2002
                                                           ----------     ----------
<S>                                                        <C>            <C>
CURRENT ASSETS:
Cash and cash equivalents                                  $1,883,090     $2,355,970
Short-term investments                                             --        787,046
Accounts receivable, net of allowance for
  doubtful accounts of $38,000 and $19,000
  at December 31, 2001 and 2002, respectively                 974,383        424,743
Inventories                                                   533,864        790,194
Current portion of deferred tax asset                          78,650         93,488
Prepaid expenses                                               37,103         34,985
                                                           -------------------------
         Total current assets                               3,507,090      4,486,426

PROPERTY, PLANT AND EQUIPMENT, at cost:
Laboratory and manufacturing equipment                      1,326,111      1,387,015
Building and improvements                                   1,270,551      1,309,557
Construction in progress                                           --         26,389
Office furniture and equipment                                105,116         92,421
Land                                                           50,000         50,000
                                                           -------------------------
                                                            2,751,778      2,865,382

Less-accumulated depreciation                               1,067,538      1,125,602
                                                           -------------------------
         Net property, plant and equipment                  1,684,240      1,739,780

DEFERRED TAX ASSET                                          1,616,416      1,012,098

PRODUCT RIGHTS AND OTHER ASSETS,
  net of amortization of $61,000 and
  $101,000 at December 31, 2001 and 2002,
  respectively                                                309,471        275,089
                                                           -------------------------
TOTAL ASSETS                                               $7,117,217     $7,513,393
                                                           =========================
</TABLE>





   The accompanying notes are an integral part of these financial statements.

                                       F-2
<PAGE>
                       IMMUCELL CORPORATION AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2001 AND 2002

                      LIABILITIES AND STOCKHOLDERS' EQUITY





<TABLE><CAPTION>
                                                       2001            2002
                                                   ------------    ------------
<S>                                                <C>             <C>
CURRENT LIABILITIES:
Accrued expenses                                   $    256,575    $    151,974
Accounts payable                                        171,260          86,800
Deferred revenue                                        114,280          20,010
Current portion of long-term debt                        22,317              --
                                                   ----------------------------
         Total current liabilities                      564,432         258,784

LONG-TERM LIABILITIES:
Long-term bank debt                                     391,861              --
Long-term portion of deferred revenue                   115,270         300,000
                                                   ----------------------------
         Total long-term liabilities                    507,131         300,000


COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 7)

STOCKHOLDERS' EQUITY:
Common stock, Par value-$0.10 per share
  Authorized-8,000,000 shares Issued-3,115,082
  and 3,125,582 shares at December 31, 2001 and
  2002, respectively                                    311,508         312,558
Capital in excess of par value                        8,913,981       8,935,649
Accumulated deficit                                  (2,593,100)     (1,706,863)
Treasury stock, at cost-389,598 shares                 (586,735)       (586,735)
                                                   ----------------------------
         Total stockholders' equity                   6,045,654       6,954,609
                                                   ----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY         $  7,117,217    $  7,513,393
                                                   ============================
</TABLE>



   The accompanying notes are an integral part of these financial statements.

                                       F-3
<PAGE>
                       IMMUCELL CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        FOR THE YEARS ENDED DECEMBER 31,


<TABLE><CAPTION>
                                     2000              2001              2002
                                 ------------      ------------      ------------
<S>                              <C>               <C>               <C>
REVENUES:
Product sales                    $  5,485,003      $  6,395,140      $  5,301,313
Grant income                           96,266           132,581           303,207
Royalty income                         54,716            78,595            40,644
Sale of technology rights                  --            70,450           539,540
                                 ------------------------------------------------
Total revenues                      5,635,985         6,676,766         6,184,704

COSTS AND EXPENSES:
Product costs                       2,801,392         3,214,984         2,799,429
Research and development
  expenses                            922,347           849,174         1,052,783
Sales and marketing
  expenses                          1,002,910         1,358,563         1,227,598
General and administrative
  expenses                            495,962           583,161           571,753
                                 ------------------------------------------------
Total costs and expenses            5,222,611         6,005,882         5,651,563

Net operating income                  413,374           670,884           533,141

Interest income                        96,079            58,502            32,227
Interest expense                      (38,302)          (36,515)          (19,708)
Other income                            4,737             4,169           935,724
                                 ------------------------------------------------
Net interest and other
  income                               62,514            26,156           948,243
                                 ------------------------------------------------
INCOME BEFORE TAXES                   475,888           697,040         1,481,384

TAX (BENEFIT) EXPENSE              (1,746,158)          276,605           595,147
                                 ------------------------------------------------

NET INCOME                       $  2,222,046      $    420,435      $    886,237
                                 ================================================
NET INCOME PER COMMON SHARE:
   Basic                         $       0.84      $       0.15      $       0.32
   Diluted                       $       0.79      $       0.15      $       0.32
                                 ================================================
WEIGHTED AVERAGE COMMON
  SHARES OUTSTANDING:
   Basic                            2,632,038         2,717,857         2,735,495
   Diluted                          2,822,964         2,836,309         2,797,660
                                 ================================================
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                       F-4
<PAGE>
                       IMMUCELL CORPORATION AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002


<TABLE><CAPTION>
                                Common Stock
                               $.10 Par Value           Capital in                            Treasury Stock             Total
                        ---------------------------     Excess of      Accumulated     ---------------------------    Stockholders'
                           Shares         Amount        Par Value        Deficit          Shares         Amount          Equity
                        ------------   ------------    ------------    ------------    ------------   ------------    ------------
<S>                     <C>            <C>             <C>             <C>             <C>            <C>             <C>
BALANCE,
December 31, 1999          2,834,682   $    283,468    $  8,354,246    $ (5,235,581)        389,598   $   (586,735)   $  2,815,398

Net income                        --             --              --       2,222,046              --             --       2,222,046

Tax benefits related
 to stock options                 --             --         183,177              --              --             --         183,177

Exercise of stock
 options                     220,100         22,010         296,362              --              --             --         318,372
                        ----------------------------------------------------------------------------------------------------------
BALANCE,
December 31, 2000          3,054,782        305,478       8,833,785      (3,013,535)        389,598       (586,735)      5,538,993

Net income                        --             --              --         420,435              --             --         420,435

Tax benefits related
 to stock options                 --             --          20,363              --              --             --          20,363

Exercise of stock
 options                      60,300          6,030          59,833              --              --             --          65,863
                        ----------------------------------------------------------------------------------------------------------
BALANCE,
December 31, 2001          3,115,082        311,508       8,913,981      (2,593,100)        389,598       (586,735)      6,045,654

Net income                        --             --              --         886,237              --             --         886,237

Exercise of stock
 options                      10,500          1,050          21,668              --              --             --          22,718
                        ----------------------------------------------------------------------------------------------------------
BALANCE,
December 31, 2002          3,125,582   $    312,558    $  8,935,649    $ (1,706,863)        389,598   $   (586,735)   $  6,954,609
                        ==========================================================================================================
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                       F-5
<PAGE>
                       IMMUCELL CORPORATION AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        FOR THE YEARS ENDED DECEMBER 31,



<TABLE><CAPTION>
                                                 2000             2001             2002
                                             ------------     ------------     ------------
<S>                                          <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                   $  2,222,046     $    420,435     $    886,237
Adjustments to reconcile net income to
  net cash provided by operating
  activities-
Depreciation and amortization                     133,158          176,725          236,771
Deferred income taxes                          (1,746,158)         254,632          589,480
Loss (gain) on disposal of fixed assets                --            8,590           (4,786)
Changes in:
  Accounts receivable                            (421,927)         (99,317)         549,640
  Inventories                                      18,208          (31,416)        (256,330)
  Prepaid expenses and other assets                (6,854)          (2,423)          (4,026)
  Accounts payable                                (82,987)         (67,994)         (84,460)
  Accrued expenses                                (33,981)          30,565         (104,601)
  Deferred revenue                                     --          224,550           90,460
                                             ----------------------------------------------
Net cash provided by operating activities          81,505          914,347        1,898,385
                                             ----------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment        (274,726)        (895,504)        (250,004)
Proceeds from disposal of fixed assets                 --            8,300            3,005
Maturities of short-term investments                   --               --          392,145
Purchases of short-term investments                    --               --       (1,179,191)
Acquisition of product rights                     (35,000)         (84,584)              --
                                             ----------------------------------------------
Net cash used for investing activities           (309,726)        (971,788)      (1,034,045)
                                             ----------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of debt obligations                      (18,690)         (20,481)        (414,178)
Proceeds from exercise of stock options           318,372           65,863           22,718
                                             ----------------------------------------------
Net cash provided by (used for)
  financing activities                            299,682           45,382         (391,460)
                                             ----------------------------------------------

NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                 71,461          (12,059)         472,880

BEGINNING CASH AND CASH EQUIVALENTS             1,823,688        1,895,149        1,883,090
                                             ----------------------------------------------

ENDING CASH AND CASH EQUIVALENTS             $  1,895,149     $  1,883,090     $  2,355,970
                                             ==============================================
CASH PAID FOR INTEREST                       $     38,438     $     36,664     $     22,739
                                             ==============================================
CASH PAID FOR TAXES                          $      6,212     $     17,743     $      8,617
                                             ==============================================
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                       F-6
<PAGE>
                       IMMUCELL CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1    BUSINESS OPERATIONS

     ImmuCell Corporation (the "Company") is a biotechnology company primarily
engaged in the marketing and development of animal health products to expand its
commercialized line of products for use by dairy and beef producers. The Company
was originally incorporated in Maine in 1982 and reincorporated in Delaware in
1987, in conjunction with its initial public offering of common stock.

     The Company is subject to certain risks associated with its stage of
development including dependence on key individuals, competition from other
larger companies, the successful marketing of existing products and the
development and acquisition of additional commercially viable products with
appropriate regulatory approvals, where applicable.


2    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A)  CONSOLIDATION PRINCIPLES

     The consolidated financial statements of the Company include the accounts
of the Company and its wholly-owned subsidiary, the Kamar Marketing Group, Inc.
All intercompany accounts and transactions have been eliminated in
consolidation. In connection with the termination of a license to a product that
had been marketed by this subsidiary, the subsidiary was merged into the Company
at December 31, 2002.

(B)  CASH AND CASH EQUIVALENTS

     The Company considers all highly liquid investment instruments purchased
with an original maturity of three months or less to be cash equivalents. Cash
equivalents are principally invested in U.S. government securities. Certain cash
balances in excess of Federal Deposit Insurance Corporation ("FDIC") limits of
$100,000 per financial institution are maintained in money market accounts at
financial institutions that are secured, in part, by the Securities Investor
Protection Corporation. Amounts in excess of the FDIC limit of $100,000 per bank
that are not invested in U.S. government securities aggregated $1,303,000 and
$1,763,000 at December 31, 2001 and 2002, respectively.

(C)  SHORT-TERM INVESTMENTS

     Short-term investments are classified as held to maturity and comprised
principally of certificates of deposits with maturities of not more than twelve
months from the balance sheet date and are held at different financial
institutions that are insured by the FDIC within FDIC limits of $100,000 each.

(D)  INVENTORIES

     Inventories include raw materials, work-in-process and finished goods and
are recorded at the lower of cost, on the first-in, first-out method, or market
(net realizable value). Work-in-process and finished goods inventories include
materials, labor and manufacturing overhead.

     Inventories consist of the following:

                                            As of December 31,
                                          ----------------------
                                            2001          2002
                                          --------      --------
     Raw materials                        $223,826      $148,005
     Work-in-process                       245,943       465,997
     Finished goods                         64,095       176,192
                                          --------      --------
                                          $533,864      $790,194
                                          ========      ========

(E)  PROPERTY, PLANT AND EQUIPMENT

     The Company provides for depreciation on the straight-line method by
charges to operations in amounts estimated to expense the cost of the assets
from the date they are first put into use to the end of the estimated useful
lives of the assets. The cost of the building and the addition thereto is being
depreciated over the thirty year period ending in 2023, and related

                                       F-7
<PAGE>
building improvements are depreciated over ten year periods. Large and durable
fixed assets are depreciated over their useful lives that are generally
estimated to be ten years. Other fixed assets and computer equipment are
depreciated over their useful lives that are generally estimated to be five and
three years, respectively.

(F)  INTANGIBLE ASSETS

     The Company provides amortization on the straight-line method by charges to
operations in amounts estimated to expense the cost of the assets from the date
they are first put into use to the end of the estimated useful lives of the
assets. The $250,000 acquisition of certain product rights in December 1999 is
being amortized to cost of sales over the ten year period ending in December
2009, and the related manufacturing rights acquired in 2001 for $45,000 are
being amortized through December 2009. The $75,000 acquisition of certain other
product rights that was paid for in two installments in December 2000 and July
2001 and is being amortized to cost of sales through June 2008. Amortization
expense relating to these intangible assets is expected to amount to
approximately $41,000 per year in each of the years from 2003 to 2007, $35,000
in 2008 and the remaining $30,000 in 2009. No material changes are anticipated
in the remaining useful lives of intangible assets.

     The Company continually assesses the realizability of these assets in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets". If an
impairment review is triggered, the Company evaluates the carrying value of
long-lived assets by determining if impairment exists based on estimated
undiscounted future cash flows over the remaining useful life of the assets and
comparing that value to the carrying value of the assets. If the carrying value
of the asset is greater than the estimated future cash flows, the asset is
written down to its estimated fair value. The cash flow estimates that are used
contain management's best estimates, using appropriate and customary assumptions
and projections at the time.

(G)  DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF RISK

     Financial instruments consist mainly of cash and cash equivalents,
investments, accounts receivable and accounts payable. Financial instruments
that potentially subject the Company to concentrations of credit risk are
principally cash, cash equivalents, short-term investments and accounts
receivable. The Company places its investments in highly rated financial
institutions. Concentration of credit risk with respect to accounts receivable
is principally limited to certain customers to whom the Company makes
substantial sales. To reduce risk, the Company routinely assesses the financial
strength of its customers and, as a consequence, believes that its accounts
receivable credit risk exposure is limited. The Company maintains an allowance
for potential credit losses but historically has not experienced any significant
credit losses related to an individual customer or groups of customers in any
particular industry or geographic area. The carrying amounts of the Company's
financial instruments approximate fair market value.

     The Company believes that supplies and raw materials for the production of
its products are readily available from more than one vendor or farm. It is the
Company's policy to maintain more than one source of supply for the components
used in the Company's products. However, there is a risk that the Company could
have difficulty in efficiently acquiring essential supplies.

(H)  REVENUE RECOGNITION

     Revenues related to the sale of manufactured products are recorded when
title and risk of loss has passed to the customer, which is at the time of
shipment and when collectibility is reasonably assured. Non-refundable grant
income is recognized as reimbursable expenses are incurred. Indirect costs which
are billed to the government are subject to their review. All research and
development costs are expensed as incurred, as are all related patent costs.
Royalty income is recorded on the accrual basis based on sales as reported to
the Company by its licensee pursuant to the terms of the agreement. Revenues
from non-refundable upfront payments are deferred and recognized ratably over
the period during which the earning process is completed.

     A grant awarded to the Company in 2001 for up to $400,000 carries a
contingent payback obligation of, at the Company's option, either 1) the amount
of the paid award within two years of first commercial sale of a product
developed with the funding or 2) a 2% royalty on any sales of a product
developed with the funding until the royalty aggregates two times the amount of
the paid award. Because of this contingent payback obligation, the funding is
being recorded as deferred revenue as the cash is received by the Company, and
no income is being recognized to match the development expenses as they are
incurred. There is no payback obligation in the event that a product is not
commercialized. In such case, the deferred revenue would be recognized at the
time the product development effort is discontinued. As of December 31, 2002,
the Company had recorded $300,000 in deferred revenue relating to this grant.

                                       F-8
<PAGE>
(I)  ADVERTISING EXPENSES

     Advertising expenses are expensed when incurred, which is generally during
the month in which the advertisement is published. Advertising expenses amounted
to $241,000 and $242,000 during the years ended December 31, 2001 and 2002,
respectively.

(J)  INCOME TAXES

     The Company accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes". This statement requires that the Company recognize a current tax
liability or asset for current taxes payable or refundable and a deferred tax
liability or asset for the estimated future tax effects of temporary differences
and carryforwards to the extent they are realizable. See Note 5.

(K)  NET INCOME PER COMMON SHARE

     The basic net income per common share has been computed in accordance with
Financial Accounting Standards Board ("FASB") Statement No. 128 by dividing the
net income by the weighted average number of common shares outstanding during
the year. The diluted net income per share reflects the potential dilution from
existing stock options as shown below:

                                                   Year Ended December 31,
                                             ----------------------------------
                                                2000        2001        2002
                                             ----------  ----------  ----------
Weighted average number of shares
outstanding during the period                 2,632,038   2,717,857   2,735,495

Dilutive stock options                          597,738     350,938     210,201

Shares that could have been repurchased with
the proceeds from the dilutive stock options   (406,812)   (232,486)   (148,036)
                                             ----------  ----------  ----------
Diluted number of shares outstanding during
the period                                    2,822,964   2,836,309   2,797,660
                                             ==========  ==========  ==========

Outstanding stock options not included in
the calculation because the effect was
anti-dilutive                                    24,000     330,000     346,000
                                             ==========  ==========  ==========


Dilutive stock options are not considered in the calculation during periods with
a net loss because the effect would be antidilutive. For additional disclosures
regarding the outstanding common stock options see Note 6(b) and (c).

(L)  USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual amounts could differ from those estimates.

(M)  EMPLOYEE STOCK-BASED COMPENSATION

     The Company measures compensation related to employee stock-based
compensation plans in accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and elects to disclose the pro
forma impact of accounting for stock-based compensation plans under the
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123"). Accordingly, no SFAS No. 123 based employee compensation cost has been
recognized for these plans. Had compensation cost for the Company's stock plans
been determined consistent with the provisions of SFAS No. 123, the Company's
net income and basic net income per share would have been reduced to the pro
forma amounts indicated below:


                                       F-9
<PAGE>
                                              Year Ended December 31,
                                    --------------------------------------------
                                        2000            2001            2002
                                    ------------    ------------    ------------
     Net income:
     As reported .................. $  2,222,046    $    420,435    $    886,237
     Pro forma stock-based employee
     compensation, net of tax .....      222,189          41,128          12,865
                                    ------------    ------------    ------------
     Pro forma net income ......... $  1,999,857    $    379,307    $    873,372
     Net income per share:
     Basic: as reported ........... $       0.84    $       0.15$           0.32
     Basic: pro forma .............         0.76            0.14            0.32
     Diluted: as reported .........         0.79            0.15            0.32
     Diluted: pro forma ........... $       0.71    $       0.13$           0.31

     See Note 6(c) for discussion of the Company's stock-based compensation
plans and assumptions used in determining the pro forma stock-based employee
compensation above.

(N)  NEW ACCOUNTING PRONOUNCEMENTS
     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Nos. 4, 44
and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS
No. 145"). SFAS No. 145 rescinds FASB SFAS No. 4, "Reporting Gains and Losses
from Extinguishment of Debt", and an amendment of SFAS No. 64, "Extinguishments
of Debt Made to Satisfy Sinking-Fund Requirements". SFAS No. 145 also rescinds
SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers", SFAS No. 145
amends SFAS No. 13, "Accounting for Leases", to eliminate an inconsistency
between the required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. SFAS No. 145 also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. Adoption of
certain provisions of SFAS No. 145 was required after May 15, 2002, while other
provisions must be adopted with financial statements issued after May 15, 2002
or the year beginning after May 15, 2002. The Company does not expect adoption
of SFAS No. 145 to have a material impact on its operations.

     In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS No. 146"). This Statement
addresses financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)". Adoption of SFAS No. 146 is required for exit or disposal
activities initiated after December 31, 2002. The Company does not expect
adoption of SFAS No. 146 to have material impact on its operations.

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation" ("SFAS No. 148"). This Statement provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. Additionally, SFAS No. 148 amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The Company adopted the additional disclosure provisions of this
statement required for the year ended December 31, 2002 and will include the
prescribed additional disclosures in the Company's future filings on Form 10-Q.

     In November 2002, the FASB's Emerging Issues Task Force reached consensus
on EITF No. 00-21, "Accounting for Revenue Arrangements with Multiple
Deliverables" ("EITF No. 00-21"). EITF No. 00-21 addresses the accounting
treatment for arrangements that provide for the delivery or performance of
multiple products or services where the delivery of a product, system or
performance of services may occur at different points in time or over different
periods of time. EITF No. 00-21 requires the separation of the multiple
deliverables that meet certain requirements into individual units of accounting
that are accounted for separately under the appropriate authoritative accounting
literature. EITF No. 00-21 is applicable to revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. The Company does not expect the
provisions of EITF No. 00-21 to have a material impact on its results of
operations or financial position.
                                      F-10
<PAGE>
3    ACCRUED EXPENSES

     Accrued expenses consisted of the following:
                                                           As of December 31,
                                                       ------------------------
                                                          2001          2002
                                                       ----------    ----------
     Accrued royalties ..............................  $   56,450    $    8,186
     Accrued professional fees.......................      36,977        56,421
     Accrued payroll ................................      88,188        45,382
     Accrued other ..................................      74,960        41,985
                                                       ----------    ----------
                                                       $  256,575    $  151,974
                                                       ----------    ----------

4    DEBT OBLIGATIONS

     The Company had long-term debt obligations, net of current maturities, as
follows:
                                                           As of December 31,
                                                       ------------------------
                                                          2001          2002
                                                       ----------    ----------
8.62% Bank mortgage, collateralized by first
security interest in building, due 2002 to 2003        $  414,178    $       --

Less current portion                                       22,317            --
                                                       ----------    ----------
Long-term debt                                         $  391,861    $       --
                                                       ==========    ==========

     The Company's building mortgage, which was entered into in May 1998, had a
15 year amortization schedule with interest payable at the fixed rate of 8.62%
per year for the first five years. In May 2002, approximately one year in
advance of the scheduled maturity of this loan, the Company paid $405,000 to
settle the then outstanding balance.

5    INCOME TAXES

     The significant components of the Company's deferred tax assets and
liabilities are as follows:
                                                          As of December 31,
                                                       ------------------------
                                                          2001          2002
                                                       ----------    ----------
     Deferred tax assets:
       Net operating loss carryforward                 $1,323,962    $  363,859
       Deferred revenue and other reserves                 78,650       212,880
       Depreciation                                         5,265        12,478
       Capitalized research and experimentation           287,189       516,369
       General business credit carryforward               139,233       111,811
                                                       ----------    ----------
       Deferred tax assets before valuation allowance   1,834,299     1,217,397
       Valuation allowance                               (139,233)     (111,811)
                                                       ----------    ----------
          Net deferred tax assets                      $1,695,066    $1,105,586
                                                       ==========    ==========


     The income tax (benefit) provision consists of the following:

                                             Year Ended December 31,
                                  ---------------------------------------------
                                      2000             2001            2002
                                  ------------     ------------    ------------
     Current
         Federal                  $    142,174     $     15,805    $         --
         State                          41,003           18,671           1,603
         Foreign                            --            7,860           4,064
                                  ------------     ------------    ------------
                                       183,177           42,336           5,667
     Deferred
         Federal                    (1,497,464)         181,805         457,528
         State                        (431,871)          52,464         131,952
                                  ------------     ------------    ------------
                                    (1,929,335)         234,269         589,480
                                  ------------     ------------    ------------
     Total                        $ (1,746,158)    $    276,605    $    595,147
                                  ============     ============    ============


                                      F-11
<PAGE>
     The actual income tax benefit differs from the expected tax computed by
applying the U.S. Federal corporate tax rate of 34% to income before income tax
as follows:
                                                Year Ended December 31,
                                     -------------------------------------------
                                         2000            2001           2002
                                     ------------    ------------   ------------
     Computed expected tax expense   $    161,821    $    236,992   $    503,671
     State income taxes, net of
       federal benefit                     28,303          41,056         87,310
     Foreign tax on royalty income             --           7,860          4,064
     Other                                  1,469          (9,303)           102
                                     ------------    ------------   ------------
     Total income tax expense             191,593         276,605        595,147
     Valuation allowance               (1,937,751)             --             --
                                     ------------    ------------   ------------
     Total tax (benefit) expense     $ (1,746,158)   $    276,605   $    595,147
                                     ============    ============   ============


     The Company utilized approximately $1,550,000 and $1,386,000 of net
operating loss carryforwards to offset taxable income in fiscal years 2001 and
2002, respectively. As a result of the Company's two consecutive years of
profitable results in 1999 and 2000 and the expectation of continued
profitability, the Company recorded a tax benefit of approximately $1,967,000 in
fiscal 2000 as a result of the release of the valuation allowance on the
deferred tax asset related to net operating loss carryforwards. The valuation
allowance related to the general business credit carryforward of approximately
$139,000 and $112,000 as of December 31, 2001 and 2002, respectively, is due to
the uncertainty of its use before expiration. This credit expires in the years
2003 through 2010. For federal and state income tax purposes, the Company has
remaining net operating loss carryforwards of approximately $912,000, expiring
from 2006 to 2017, that are available to offset future taxable income.

     In order to accelerate the utilization of available net operating loss
carryforwards in advance of their expiration dates, the Company elected to
increase income for federal tax purposes by capitalizing research and
experimentation expenditures aggregating $900,000 and $831,000 for the years
ended December 31, 2000 and 2001, respectively, for tax return purposes only in
accordance with the Internal Revenue Code. The Company does not intend to
capitalize additional research and experimentation expenditures. Accordingly,
the Company recorded amortization of these capitalized expenditures aggregating
$90,000 and $173,000 for the years ended December 31, 2000 and 2001,
respectively, for tax return purposes only. The Company expects to amortize an
additional $173,000 of these capitalized expenditures for each of the eight
years ended December 31, 2002 to December 31, 2009 as well as $83,000 for the
year ended December 31, 2010 for tax return purposes only.

6    STOCKHOLDERS' EQUITY

(A)  COMMON STOCK PURCHASE WARRANT

     In connection with a license and sublicense agreement entered into in April
2000 between the Company and Nutrition 21, Inc. covering proprietary technology
relating to Nisin (the active ingredient in WIPE OUT(R) DAIRY WIPES and MAST
OUT(TM)), the Company granted to Nutrition 21 a warrant to purchase 50,000
shares of the Company's common stock at an exercise price of $5.29 per share.
This warrant will not become exercisable because the vesting criteria requiring
governmental approval of a product that incorporates the technology covered by
the license and sublicense agreement on or before the latest possible vesting
date of April 12, 2003 will not be achieved.

(B)  NON-QUALIFIED STOCK OPTIONS

     In April 1999, a total of 93,300 non-qualified stock options were issued to
the three then-serving executive officers of the Company at an exercise price of
$1.31 per share, the then current market price of the Company's common stock.
These options were granted outside of the stock option plans described below. In
March 2000, 31,098 of these options became exercisable. In 2000, 20,734 of these
options terminated when one of the officers separated from the Company. In
September 2001, that former officer exercised 10,300 of these options and 66 of
these options expired without being exercised. An additional 20,734 options
became exercisable in March 2001, and the remaining 20,734 options became
exercisable in March 2002. If not exercised, the 62,200 remaining outstanding
options expire in April 2009.

(C)  STOCK OPTION PLANS

     In May 1989, the stockholders approved the 1989 Stock Option and Incentive
Plan (the "1989 Employee Plan") pursuant to the provisions of the Internal
Revenue Code of 1986, under which employees may be granted options to purchase
shares of the Company's common stock at i) no less than fair market value on the
date of grant in the case of incentive stock options and ii) no less than 85% of
fair market value on the date of grant in the case of non-qualified stock
options. Vesting

                                      F-12
<PAGE>
requirements are determined by the Compensation and Stock Option Committee of
the Board of Directors on a case by case basis. All options granted under the
1989 Employee Plan expire no later than ten years from the date of grant. The
1989 Employee Plan expired in March 1999, and no further options may be granted
under the 1989 Employee Plan; however, outstanding options under the 1989
Employee Plan may be exercised in accordance with their terms.

     In June 2000, the stockholders approved the 2000 Stock Option and Incentive
Plan (the "2000 Employee Plan") pursuant to the provisions of the Internal
Revenue Code of 1986, under which employees may be granted options to purchase
shares of the Company's common stock at i) no less than fair market value on the
date of grant in the case of incentive stock options and ii) no less than 85% of
fair market value on the date of grant in the case of non-qualified stock
options. Vesting requirements are determined by the Compensation and Stock
Option Committee of the Board of Directors on a case by case basis. Originally,
250,000 shares of common stock were reserved for issuance under the 2000
Employee Plan. The shareholders of the Company approved an increase in this
number to 500,000 shares at the June 2001 Annual Meeting. All options granted
under the 2000 Employee Plan expire no later than ten years from the date of
grant. The 2000 Employee Plan expires in June 2010, after which date no further
options may be granted under the 2000 Employee Plan; however, any outstanding
options under the 2000 Employee Plan may be exercised in accordance with their
terms.

     In June 2000, the stockholders approved the 2000 Stock Option Plan for
Outside Directors (the "2000 Outside Director Plan") pursuant to the provisions
of the Internal Revenue Code of 1986. Under the 2000 Outside Director Plan, each
of the five, then-serving outside directors of the Company was automatically
granted a non-qualified stock option to purchase 15,000 shares of common stock
at its fair market value on the date the 2000 Outside Director Plan was approved
by the stockholders. Directors who are newly elected to the Board subsequent to
June 2000 receive an automatic grant of an option to purchase 15,000 shares, at
the fair market value on the date when such directors are first elected to the
Board by the stockholders. One-third of the options subject to the grant vest on
the date that the director is first re-elected to the Board by the stockholders;
an additional 5,000 options vest on the second date that the director is
re-elected to the Board by the stockholders; and the remaining 5,000 options
vest on the third date that the director is re-elected to the Board by the
stockholders. There are 120,000 shares of common stock reserved for issuance
under the 2000 Outside Director Plan. All options granted under the 2000 Outside
Director Plan expire no later than five years from the date of grant. The 2000
Outside Director Plan expires in June 2005, after which date no further options
may be granted under the 2000 Outside Director Plan; however, any outstanding
options under the 2000 Outside Director Plan may be exercised in accordance with
their terms.

     Activity under the stock option plans described above, was as follows:

<TABLE><CAPTION>
                                                     1995                      2000
                                        1989        Outside       2000        Outside     Weighted
                                      Employee     Director     Employee     Director      Average
                                        Plan         Plan         Plan         Plan    Exercise Price
                                      --------     --------     --------     --------     --------
<S>                                   <C>          <C>          <C>          <C>          <C>
Balance at December 31, 1999           273,367       28,000           --           --       2.04
    Grants                                  --           --      260,000       75,000       3.23
    Terminations                       (24,895)          --      (11,000)     (15,000)      2.71
    Exercises                          (58,300)     (28,000)          --           --       2.07
                                      --------     --------     --------     --------

Balance at December 31, 2000           190,172           --      249,000       60,000       2.73
    Grants                                  --           --      127,000       30,000       2.90
    Terminations                        (3,500)          --      (19,000)     (15,000)      2.68
    Exercises                               --           --           --           --         --
                                      --------     --------     --------     --------

Balance at December 31, 2001           186,672           --      357,000       75,000       2.81
    Grants                                  --           --       30,000           --       2.37
    Terminations                          (500)          --      (60,000)     (15,000)      2.92
    Exercises                          (10,500)          --           --           --       2.16
                                      --------     --------     --------     --------

Balance at December 31, 2002           175,672           --      327,000       60,000       2.78

Exercisable at December 31, 2002       175,672           --       70,661       35,000       2.57
                                      ========     ========     ========     ========
</TABLE>

     At December 31, 2002, approximately 624,872 common shares were reserved for
future issuance under all outstanding stock options described above. An
additional 233,000 common shares were reserved for potential issuance under
future stock option grants. The weighted average remaining life of the options
outstanding under the 1989 Employee Plan,

                                      F-13
<PAGE>
the 2000 Employee Plan and the 2000 Outside Director Plan as of December 31,
2002 was approximately six years and three months. The exercise price of the
options outstanding and of the options exercisable as of December 31, 2002
ranged from $1.31 to $4.00. The weighted-average grant date fair values of
options granted during 2000, 2001 and 2002 were $0.66, $0.44 and $0.43 per
share, respectively. The fair value of each stock option grant has been
estimated on the date of grant using the Black-Scholes option pricing model, for
the purpose discussed in Note 2(m), with the following weighted-average
assumptions:
                                        2000         2001         2002
                                        ----         ----         ----
     Risk-free interest rate            5.5%         4.2%         2.9%
     Dividend yield                     0            0            0
     Expected volatility                45.6%        45.8%        45.6%
     Expected life                      3 years      2.5 years    3 years

(D)  COMMON STOCK RIGHTS PLAN

     In September 1995, the Board of Directors of the Company adopted a Common
Stock Rights Plan and declared a dividend of one common share purchase right (a
"Right") for each of the then outstanding shares of the common stock of the
Company. Each Right entitles the registered holder to purchase from the Company
one share of common stock at an initial purchase price of $70.00 per share,
subject to adjustment. The description and terms of the Rights are set forth in
a Rights Agreement between the Company and American Stock Transfer & Trust Co.,
as Rights Agent.

     The Rights become exercisable and transferable apart from the common stock
upon the earlier of (i) 10 days following a public announcement that a person or
group (acquiring person) has, without the prior consent of the Continuing
Directors (as such term is defined in the Rights Agreement), acquired beneficial
ownership of 15 percent or more of the outstanding common stock, or (ii) 10 days
following commencement of a tender offer or exchange offer the consummation of
which would result in ownership by a person or group of 20% or more of the
outstanding common stock (the earlier of such dates being called the
"Distribution Date").

     Upon the acquisition of 15% or more of the Company's common stock by an
acquiring person, the holder of each Right not owned by the acquiring person
would be entitled to purchase common stock having a market value equal to two
times the exercise price of the Right (i.e., at a 50% discount). If, after the
Distribution Date, the Company should consolidate or merge with any other entity
and the Company were not the surviving company, or, if the Company were the
surviving company, all or part of the Company's common stock were changed or
exchanged into the securities of any other entity, or if more than 50% of the
Company's assets or earning power were sold, each Right would entitle its holder
to purchase, at the Rights' then-current purchase price, a number of shares of
the acquiring company's common stock having a market value at that time equal to
twice the Right's exercise price.

     At any time after a person or group becomes an acquiring person and prior
to the acquisition by such person or group of 50% or more of the outstanding
common stock, the Board of Directors of the Company may exchange the Rights
(other than Rights owned by such person or group which have become void), in
whole or in part, at an exchange ratio of one share of common stock per Right
(subject to adjustment).

     At any time prior to fourteen days following the date that any person or
group becomes an acquiring person (subject to extension by the Board of
Directors), the Board of Directors of the Company may redeem the then
outstanding Rights in whole, but not in part, at a price of $.005 per Right,
subject to adjustment. The Rights will expire on the earlier of (i) the close of
business on September 19, 2005, or (ii) the time at which the Rights are
redeemed by the Company.

7    COMMITMENTS AND CONTINGENT LIABILITIES

     In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others an interpretation of FASB Statements No. 5,
57 and 107 and rescission of FASB Interpretation No. 34" ("FIN No. 45"). FIN No.
45 requires that a guarantor recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken by issuing the
guarantee. FIN No. 45 also requires additional disclosures to be made by a
guarantor in its interim and annual financial statements about its obligations
under certain guarantees it has issued. The accounting requirements for the
initial recognition of guarantees are applicable on a prospective basis for
guarantees issued or modified after December 31, 2002. The disclosure
requirements are effective for all guarantees outstanding, regardless of when
they were issued or modified, for financial statements for interim or annual
periods ending after December 15, 2002. The provisions of FIN No. 45 are not
expected to have a material effect on the Company's consolidated financial
statements. The following is a summary of the Company's agreements and
obligations that it has determined to be within the scope of FIN No. 45.

                                      F-14
<PAGE>
     The Company's By-Laws, as amended, in effect provide that the Company will
indemnify its officers and directors to the maximum extent permitted by Delaware
law. The maximum payment that the Company may be required to make under such
provisions is theoretically unlimited and is impossible to determine. The
Company maintains directors' and officers' liability insurance, which may
provide reimbursement to the Company for payments made to, or on behalf of,
officers and directors pursuant to the indemnification provisions. The Company's
indemnification obligations were grandfathered under the provisions of FIN No.
45 as they were in effect prior to December 31, 2002. Accordingly, the Company
has recorded no liability for such obligations as of December 31, 2002. Since
its incorporation, the Company has had no occasion to be required to indemnify
any of its officers or directors for any reason.

     The Company enters into agreements with third parties in the ordinary
course of business under which the Company is obligated to indemnify such third
parties for and against various risks and losses. The precise terms of such
indemnities vary with the nature of the agreement. In many cases, the Company
limits the maximum amount of its indemnification obligations, but in some cases
those obligations may be theoretically unlimited. The Company has not incurred
material expenses in discharging any of these indemnification obligations, and
based on its analysis of the nature of the risks involved, the Company believes
that the fair value of these agreements is minimal. Accordingly, the Company has
recorded no liabilities for these obligations as of December 31, 2002.

     The Company has entered into employment contracts with its two executive
officers which could require the Company to pay three months' salary as
severance pay depending upon the circumstances of any termination of employment
of these key employees.

     The research, manufacturing and marketing of human and animal health care
products by the Company entail an inherent risk that liability claims will be
asserted against the Company. The Company feels it has adequate levels of
liability insurance to support its operations.

8    SEGMENT AND SIGNIFICANT CUSTOMER INFORMATION

     The Company principally operates in the business segment described in Note
1. Pursuant to SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information", the Company operates in one reportable business segment,
that being the development, acquisition, manufacture and marketing of products
that improve the health and productivity of cows for the dairy and beef
industry. Almost all of the Company's internally funded research and development
expenses are in support of products that improve the health and productivity of
cows for the dairy and beef industry. The Company's primary customers for the
majority of its product sales (76%, 76% and 70% for the years ended December 31,
2000, 2001 and 2002, respectively) are in the U.S. dairy and beef industry.
Revenues derived from foreign customers, who are also in the dairy and beef
industry, aggregated 22%, 22% and 29% of the Company's total product sales for
the years ended December 31, 2000, 2001 and 2002, respectively. Grant income
amounted to approximately 2% ($96,000), 2% ($133,000) and 5% ($303,000) of total
revenues in the years ended December 31, 2000, 2001 and 2002, respectively.

9    EMPLOYEE BENEFITS

     The Company has a 401(k) savings plan in which all employees completing one
year of service with the Company (working at least 1,000 hours) are eligible to
participate. Participants may contribute up to the maximum amount allowed by the
Federal Government. Beginning January 1, 1994, the Company matched 50% of each
employee's contribution to the plan up to a maximum match of 3% of each
employee's base compensation. Under this matching contribution program, the
Company paid approximately $20,000 to the plan for the year ended December 31,
2000. Beginning January 1, 2001, the Company increased this matching
contribution to 50% of each employee's contribution to the plan up to a maximum
match of 4% of each employee's base compensation. Under this matching
contribution program, the Company paid approximately $29,000 and $33,000 to the
plan for the years ended December 31, 2001 and 2002, respectively.


                                      F-15
<PAGE>
10   UNAUDITED QUARTERLY FINANCIAL DATA

     The following tables present the quarterly information for fiscal years
2001 and 2002 (in thousands, except per share amounts):
<TABLE><CAPTION>
                                                     Three Months Ended
                                    ----------------------------------------------------
                                     March 31       June 30    September 30   December 31
                                    ----------    ----------    ----------    ----------
<S>                                 <C>           <C>           <C>           <C>
Fiscal 2001:
Total revenues                      $    1,489    $    1,837    $    1,388    $    1,964
Income (loss) before taxes                 193           175           (80)          410
Net income (loss)                          116           105           (57)          255
Net income (loss) per common share:
     Basic                          $     0.04    $     0.04    $    (0.02)   $     0.09
     Diluted                        $     0.04    $     0.04    $    (0.02)   $     0.09

Fiscal 2002:
Total revenues                      $    1,897    $    1,557    $    1,386    $    1,345
Income (loss) before taxes                 287           (35)           47         1,182
Net income (loss)                          169           (23)           30           710
Net income (loss) per common share:
     Basic                          $     0.06    $    (0.01)   $     0.01    $     0.26
     Diluted                        $     0.06    $    (0.01)   $     0.01    $     0.26
</TABLE>

11   LICENSING AND SALE OF TECHNOLOGY

     A payment of $100,000 received in March 2001 under a license agreement
covering certain rights to the Company's DIFFGAM technology was recognized as
revenue from the sale of technology rights over the twenty-two month period
ended in December 2002, which represents the period during which the Company had
agreed to provide clinical material to the licensee at a discount. An unrelated
$100,000 payment received in August 2001 for an option to buy the Company's
interest in a joint venture is being recognized as revenue from the sale of
technology rights over the twenty month option period ending in March 2003 (see
Note 12). Additionally, an unrelated $5,000 payment was received in December
2002 under a license agreement covering certain other rights to the Company's
DIFFGAM technology for January 2003. As of December 31, 2002, the Company had
recorded $20,000 in deferred revenue relating to the latter two agreements,
described above.

     In October 2002, the Company received $930,000 in consideration of the
early termination of the license to market the Kamar Heatmount Detector. The
full amount of the proceeds was recorded as other income in the fourth quarter
of 2002. The license was scheduled to expire after an additional twenty-seven
months on December 31, 2004, had it not been terminated. As a result of the
termination of this license, the Company's product sales, product costs and
sales and marketing expenses were reduced beginning October 1, 2002. The
following unaudited, pro forma, condensed financial information gives effect to
this transaction as if it had occurred as of the beginning of the twelve month
periods ended December 31, 2001 and 2002:
<TABLE><CAPTION>
                        Year Ended                       Pro forma      Year Ended                      Pro forma
                    December 31, 2001   Adjustments      Adjusted    December 31, 2002  Adjustments      Adjusted
                       ------------    ------------    ------------    ------------    ------------    ------------
<S>                    <C>             <C>             <C>             <C>             <C>             <C>
Product sales          $  6,395,140    $ (2,468,235)   $  3,926,905    $  5,301,313    $ (2,204,077)   $  3,097,236
Product costs             3,214,984      (1,539,616)      1,675,368       2,799,429      (1,347,861)      1,451,568
Sales and marketing
  expenses                1,358,563        (673,961)        684,602       1,227,598        (566,922)        660,676
Net operating income        670,884        (254,658)        416,226         533,141        (289,294)        243,847
Net interest and
  other income               26,156              --          26,156         948,243        (930,000)         18,243
Income before taxes         697,040        (254,658)        442,382       1,481,384      (1,219,294)        262,090
Tax expense                 276,605        (101,055)        175,550         595,147        (489,865)        105,282
Net income                  420,435        (153,603)        266,832         886,237        (729,429)        156,808
Diluted net income
  per common share     $       0.15    $      (0.06)   $       0.09    $       0.32    $      (0.26)   $       0.06
</TABLE>

                                      F-16
<PAGE>
     In December 2002, the Company received a $400,000 payment upon the
termination of a license to the Company's DIFFGAM technology. The full amount of
the proceeds was recorded as revenue from the sale of technology rights in the
fourth quarter of 2002. This license agreement was first entered into in March
2001 and was terminated in accordance with the terms of the agreement.


12   SUBSEQUENT EVENTS

     In March 2003, the Company sold its 50% interest in the joint venture,
AgriCell Company, LLC, to DMV International Nutritionals, an operating division
of DMV USA LP of the Netherlands for $1,100,000. In 2001, DMV paid the Company
$100,000 for an option to purchase the Company's interest. This joint venture
and the related technology had no book value. The $1,100,000 in proceeds from
the sale are to be recorded as other income in the first quarter of 2003.

     In March 2003, the Company entered into an agreement with a vendor that may
provide certain manufacturing services for the Company's MAST OUT(TM) product.
The vendor has agreed to work with the Company on the manufacture of clinical
material for a fee. Should the Company elect to commercialize a product without
the services of this vendor, the Company has agreed to pay the vendor $100,000.
















                                      F-17
<PAGE>
                       IMMUCELL CORPORATION AND SUBSIDIARY
            SCHEDULE 2-SUPPLEMENTAL VALUATION AND QUALIFYING ACCOUNTS











Allowance for Doubtful Accounts:

Balance at December 31, 1999                           41,000
Amount charged to costs and expenses                       --
Write-offs                                             (2,000)
                                                     --------

Balance at December 31, 2000                           39,000
Amount charged to costs and expenses                       --
Write-offs                                             (1,000)
                                                     --------

Balance at December 31, 2001                           38,000
Amount charged to costs and expenses                       --
Write-offs                                             (1,000)
Reversal of accrual                                   (18,000)
                                                     --------

Balance at December 31, 2002                           19,000
                                                     ========











                                      F-18
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                      IMMUCELL CORPORATION

Date:  March 18, 2003                 By:   /s/ Michael F. Brigham
                                            ----------------------
                                            Michael F. Brigham
                                            President, Chief Executive
                                            Officer and Treasurer


                                POWER OF ATTORNEY

We, the undersigned directors and officers of ImmuCell Corporation hereby
severally constitute and appoint Michael F. Brigham our true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for us and in our stead, in any and all capacities, to sign any and all
amendments to this report and all documents relating thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent, full power and authority to do and perform each and every act and
thing necessary or advisable to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.



Date:  March 18, 2003                 By:   /s/ Michael F. Brigham
                                            -----------------------------------
                                            Michael F. Brigham
                                            President, Chief Executive Officer,
                                            Treasurer and Director


Date:  March 18, 2003                 By:   /s/ Anthony B. Cashen
                                            -----------------------------------
                                            Anthony B. Cashen, Director


Date:  March 18, 2003                 By:   /s/ Joseph H. Crabb
                                            -----------------------------------
                                            Joseph H. Crabb, Ph.D., Director


Date:  March 18, 2003                 By:   /s/ William H. Maxwell
                                            -----------------------------------
                                            William H. Maxwell, M.D., Director


Date:  March 18, 2003                 By:   /s/ Jonathan E. Rothschild
                                            -----------------------------------
                                            Jonathan E. Rothschild, Director


Date:  March 18, 2003                 By:   /s/ Mitchel Sayare
                                            -----------------------------------
                                            Mitchel Sayare, Ph.D., Director
<PAGE>
                              IMMUCELL CORPORATION

                                 CERTIFICATIONS

          I, Michael F. Brigham, certify that:

          1. I have reviewed this annual report on Form 10-K of ImmuCell
Corporation;

          2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;

          3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the Registrant as of, and for, the periods presented in this annual report;

          4. I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the Registrant and I have:

          a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its consolidated
subsidiaries, is made known to me by others within those entities, particularly
during the period in which this annual report is being prepared;

          b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

          c) presented in this annual report my conclusions about the
effectiveness of the disclosure controls and procedures based on my evaluation
as of the Evaluation Date;

          5. I have disclosed, based on my most recent evaluation, to the
Registrant's auditors and the audit committee of Registrant's board of directors
(or persons performing the equivalent function):

          a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to record,
process, summarize and report financial data and have identified for the
Registrant's auditors any material weaknesses in internal controls; and

          b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's internal
controls; and

          6. I have indicated in this annual report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.

March 18, 2003


/s/ Michael F. Brigham
----------------------
Michael F. Brigham
President, Chief Executive Officer and Treasurer