IMMUCELL CORP /DE/

Previous wording

We focus on the two most critical stages of dairy productivity, those being the first 30 days of life and the first 30 days of lactation. Our concentrated colostrum and purified Nisin technologies offer unique animal health solutions during these periods when immunity is at its most vulnerable. Both of our product lines present immediate growth opportunities and, in the future, may potentially be applied in the human health sector, alongside the animal health sector that we currently serve. The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited financial statements and the related notes and other financial information included in this Quarterly Report on Form 10-Q (Quarterly Report). Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. One should review the Cautionary Note below for a discussion of some of the important factors that could cause actual results to differ materially from the results, objectives or expectations described in or implied by the forward-looking statements contained in the following discussion and analysis.

Current wording

We focus on the two most critical stages of dairy productivity, those being the first 30 days of life and the first 30 days of lactation. Our concentrated colostrum and purified Nisin technologies offer unique animal health solutions during these periods when immunity is at its most vulnerable. We believe that both of our product lines could potentially present growth opportunities in the human health sector, alongside the animal health sector that we currently serve. The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited financial statements and the related notes and other financial information included in this Quarterly Report on Form 10-Q (Quarterly Report). Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. One should review the Cautionary Note below for a discussion of some of the important factors that could cause actual results to differ materially from the results, objectives or expectations described in or implied by the forward-looking statements contained in the following discussion and analysis.

Previous wording

In response to the strong customer demand for theFirst Defense® product line that we are experiencing, we completed significant investments in facilities, equipment and staffing necessary to double our production capacity. Despite delays in the installation of certain equipment, we completed these capacity-expanding investments around the end of 2022. In late 2022, we began experiencing production contamination events that became more frequent during 2023 and continued through April of 2024. With newly implemented controls in place, we now believe that we have successfully remediated the issues underlying these contamination events. By remediating the contamination events, optimizing the operation of the new equipment installed to increase production output and implementing a price increase, we began to improve process yields beginning during the fourth quarter of 2024, as demonstrated by the 37% and 42% gross margin percentages that we achieved during the fourth quarter of 2024 and first quarter of 2025, respectively. We did not find one “smoking gun” as the root cause to the contamination and yield losses. We think the solution is more about optimizing and controlling critical process parameters and multiple production inputs and process steps.

Current wording

In response to the strong customer demand for theFirst Defense® product line that we have been experiencing, we undertook significant investments in facilities, equipment and staffing necessary to double our production capacity. Despite delays in the installation of certain equipment, we completed these capacity-expanding investments around the end of 2022. In late 2022, we began experiencing production contamination events that became more frequent during 2023 and continued through April of 2024. Our efforts to address those events did ultimately succeed in restoring production and improved gross margins. Given the biological nature of our manufacturing process, the possibility of contamination is an inherent risk, as evidenced by the loss of one work in process lot ofFirst Defense® in the second quarter of 2025. However, we do believe that our prior remediation efforts have improved our ability to monitor for and mitigate future contamination. We think the key to success is about optimizing and controlling critical process parameters and multiple production inputs and process steps.

Previous wording

Concurrently, we began reducing product development expenses during the second half of 2024, as we await approval of Re-Tain®by the Food and Drug Administration (FDA). After an investment of about 25 years and approximately $50 million in the development of this technology, we are eager to see this product through to regulatory approval and initial market acceptance. At the same time, we are also in the very early stages of exploring potential strategic options, which potential financial support could offset some of our product development expenses.

Current wording

Concurrently, we began reducing product development expenses during the second half of 2024, as we await approval of Re-Tain®by the Food and Drug Administration (FDA). After an investment of about 25 years and approximately $50 million in the development of this technology, we are eager to see this product through to regulatory approval and initial market acceptance. At the same time we are also in the very early stages of exploring potential strategic options, to offset some of our product development expenses.

Previous wording

Net cash provided by operating activities was $1.6 million during the quarter ended March 31, 2025 in comparison to net cash provided by operating activities of $419,000 during the quarter ended March 31, 2024. This $1.2 million improvement in net cash provided by operating activities between the quarters was largely due to the $1.9 million increase in net income to $1.4 million during the quarter ended March 31, 2025 from a net loss of $438,000 during the quarter ended March 31, 2024. This improvement in net income was supplemented by an $862,000 increase in cash collected from accounts receivable that was net against the use of $1.5 million more cash used to purchase inventory and to pay accounts payable. Interest expense (excluding amortization of debt issuance and debt discount costs) was $117,000 and $136,000 during the quarters ended March 31, 2025 and 2024, respectively. Our debt bears interest at fixed rates, which on a blended basis amounts to 4.50% per annum. We anticipate that interest expense (excluding amortization of debt issuance and debt discount costs) will be $452,000 and $322,000 during the years ending December 31, 2025 and 2026, respectively. Our total non-cash depreciation, amortization and stock-based compensation expense was $739,000 and $759,000 during the quarters ended March 31, 2025 and 2024, respectively. We anticipate that depreciation expense (largely pertaining toRe-Tain®), while not affecting our cash flows from operations, will be a significant factor in reducing our net income until and unless product sales increase sufficiently to offset these non-cash expenses. Further, as we fill the order backlog forFirst Defense®, we will require additional capital to fund an anticipated increase in inventory levels.

Current wording

Net cash provided by operating activities was $3.2 million during the six-month period ended June 30, 2025 in comparison to net cash provided by operating activities of $1 million during the six-month period ended June 30, 2024. This $2.2 million improvement in net cash provided by operating activities between the six-month periods was largely due to the $3.9 million increase in net income to $1.9 million during the six-month period ended June 30, 2025 from a net (loss) of ($2 million) during the six-month period ended June 30, 2024. This improvement in net income was supplemented by a $1.2 million increase in cash collected from accounts receivable that was net against the use of $2.4 million more cash used to purchase inventory and to pay accounts payable. Interest expense (including amortization of debt issuance and debt discount costs) was $253,000 and $288,000 during the six-month periods ended June 30, 2025 and 2024, respectively. Our debt bears interest at fixed rates, which on a blended basis amounts to 4.50% per annum. Under the bank debt refinancing that closed in August of 2025 (discussed in “Subsequent Events” in Note 19 to the accompanying unaudited financial statements) interest expense (excluding amortization of debt issuance and debt discount costs) will be approximately $442,000 and $365,000 during the years ending December 31, 2025 and 2026, respectively. Our total non-cash depreciation, amortization and stock-based compensation expense was $1.5 million during both of the six-month periods ended June 30, 2025 and 2024. We anticipate that depreciation expense (largely pertaining toRe-Tain®), while not affecting our cash flows from operations, will be a significant factor in reducing our net income, so we are seeking to arrange some form of strategic option to help offset these expenses. Further, as we fill the order backlog forFirst Defense®, we will require additional capital to fund an anticipated increase in inventory levels.

Previous wording

Net cash used for investing activities was $329,000 and $70,000 during the quarters ended March 31, 2025 and 2024, respectively, consisting solely of cash spent to fund the purchase of property, plant and equipment. To conserve cash at this time, we have deferred all large dollar capital expenditure projects.

Current wording

Net cash used for investing activities was $455,000 and $177,000 during the six-month periods ended June 30, 2025 and 2024, respectively, consisting of cash spent to fund the purchase of property, plant and equipment, net of proceeds from disposals of property, plant and equipment. To conserve cash, we deferred all large dollar capital expenditure projects. We are evaluating an investment of approximately $3 million to increase our annual production capacity forFirst Defense® from approximately $30 million or more to approximately $40 million or more.

Previous wording

Net cash used for financing activities was $404,000 and $367,000 during the quarters ended March 31, 2025 and 2024, respectively, consisting largely of debt principal repayments. We had aggregate debt outstanding (net of debt issuance and debt discount costs) of approximately $10.2 million and $10.5 million as of March 31, 2025 and December 31, 2024, respectively. We anticipate that debt principal repayments will aggregate approximately $1.5 million and $3.3 million during the years ending December 31, 2025 and 2026, respectively. During the first quarter of 2024, the availability of our $1 million line of credit, which bears interest at the National Prime Rate per annum, was extended until September 11, 2025. No draw on our line of credit was outstanding as of March 31, 2025 or December 31, 2024. See Note 9 to the accompanying unaudited financial statements for more information about our bank debt. During the second quarter of 2024, we entered into an At-The-Market (ATM) Agreement with Craig-Hallum Capital Group LLC, under which we may offer and sell up to $11 million of shares of our common stock. As of December 31, 2024, we had sold 1,228,227 shares under this ATM Offering conducted pursuant to the ATM Agreement. Net proceeds through December 31, 2024 (net of approximately $152,000 in upfront legal, accounting and other fees and approximately $140,000 in sales commissions) were approximately $4.4 million. There was not much activity under the ATM Offering during the first quarter of 2025, but we did incur professional fees to maintain the effectiveness of the program. From January 1, 2025 to May 6, 2025, we sold 58,306 shares under this ATM Offering generating net proceeds of approximately $269,884. The ATM Agreement gives our board the flexibility to evaluate the potential uses of the proceeds while considering the cost of dilution in real time. This funding has provided a very productive financial bridge for us to fund our operations, while we work to improve our gross margin and reduce product development expenses. While the capital raised is not enough to fund larger capital expenditure investments, such as further increasingFirst Defense® production capacity or building our own facility for the aseptic filling services forRe-Tain®, it has allowed us to release funding for certain smaller and necessary capital expenditures.

Current wording

Net cash used for financing activities was $480,000 and $478,000 during the six-month periods ended June 30, 2025 and 2024, respectively, consisting largely of debt principal repayments. We had aggregate debt outstanding (net of debt issuance and debt discount costs) of approximately $9.8 million and $10.5 million as of June 30, 2025 and December 31, 2024, respectively. Under the bank debt refinancing that closed in August of 2025, debt principal repayments will aggregate approximately $1.5 million and $1.6 million during the years ending December 31, 2025 and 2026, respectively. During the first quarter of 2024, the availability of our $1 million line of credit, which bears interest at the National Prime Rate per annum, was extended until September 11, 2025. No draw on our line of credit was outstanding as of June 30, 2025 or December 31, 2024. See Note 9 to the accompanying unaudited financial statements for more information about our bank debt. During the second quarter of 2024, we entered into an At-The-Market (ATM) Agreement with Craig-Hallum Capital Group LLC, under which we may offer and sell up to $11 million of shares of our common stock. As of December 31, 2024, we had sold 1,228,227 shares under this ATM Offering conducted pursuant to the ATM Agreement. Net proceeds through December 31, 2024 (net of approximately $152,000 in upfront legal, accounting and other fees and approximately $140,000 in sales commissions) were approximately $4.4 million. There was only modest activity under the ATM Offering during the first six months of 2025, but we did incur professional fees to maintain the effectiveness of the program. From January 1, 2025 to August 7, 2025, we sold 63,230 shares under this ATM Offering generating net proceeds (net of approximately $57,000 in legal, accounting and other fees and approximately $11,000 in sales commissions) of approximately $281,000. The ATM Agreement gives our board the flexibility to evaluate the potential uses of the proceeds while considering the cost of dilution in real time. This vehicle provided a very productive financial bridge for us to fund our operations, while we worked to improve our gross margin and reduce product development expenses.

Previous wording

We began significant investments to increase our production capacity forFirst Defense® product line during 2014. During 2018, it became clear that demand forTri-Shield First Defense® was outpacing production. In response to this increasing demand, we began a series of additional investments during 2019 to increase our production capacity for theFirst Defense® product line from approximately $16.5 million to approximately $30 million or more per year (with an option to increase further to approximately $40 million in the future). When we describe the production capacity for theFirst Defense® product line in this Quarterly Report, it should be noted that the actual value of this capacity varies based on biological and process yields, product format mix, selling price and other factors. The additional investment inFirst Defense® should allow us to fulfill the current backlog ofFirst Defense® orders. Operating at very close to 100% of available capacity is not efficient or sustainable. Our objective is to be in position to operate without contaminations or significant disruptions at the capacity level we choose to cover sales with adequate buffer stock, which would allow more time for necessary preventative maintenance. We also need to meet or exceed our production yield assumptions to succeed. Our production process is complex and difficult to scale-up quickly. We remain deeply committed to fulfilling the order backlog and meeting on going demand forFirst Defense®.

Current wording

We began significant investments to increase our production capacity forFirst Defense® product line during 2014. During 2018, it became clear that demand forTri-Shield First Defense® was outpacing production. In response to this increasing demand, we began a series of additional investments during 2019 to increase our production capacity for theFirst Defense® product line from approximately $16.5 million to approximately $30 million or more per year (with an option to increase further to approximately $40 million in the future). When we describe the production capacity for theFirst Defense® product line in this Quarterly Report, it should be noted that the actual value of this capacity varies based on biological and process yields, product format mix, selling price and other factors. The additional investment inFirst Defense® has allowed us to significantly reduce the current backlog ofFirst Defense® orders that had accumulated. Operating at very close to 100% of available capacity is not efficient or sustainable. Our objective is to be in position to operate without significant contaminations or disruptions at the capacity level we choose to cover sales with adequate buffer stock, which would allow more time for necessary preventative maintenance. We also need to meet or exceed our production yield assumptions to succeed. Our production process is complex and difficult to scale-up quickly. We remain deeply committed to meeting ongoing demand forFirst Defense®.

Previous wording

The second phase of the additional investments inFirst Defense®included the installation of Freeze-Dryer #4 to further increase the estimated annual production capacity of theFirst Defense® product line (in terms of annual sales dollars) by an additional 33% from approximately $23 million to approximately $30 million or more. As of July of 2022, we had completed almost all of the facility expansion work and new equipment installations needed to increase our production capacity to approximately $30 million or more per year. However, the most critical piece of new equipment (being Freeze-Dryer #4) was delivered six months late by the fabricator. Regardless, by the end of 2022, we had Freeze-Dryer #4 installed and approved for use by the USDA. At the same time, Freeze-Dryer #2 stopped operating requiring a six-month repair and netting us back to three operating freeze dryers during the first half of 2023. As of July of 2023, we were back to four operating freeze dryers. This investment also included equipment and facility modifications to scale-up and upgrade our vaccine manufacturing capacity and improve our quality laboratories atBuilding 56 as well as the installation of new equipment to increase the throughput of our gel filling operations atBuilding 175A.

Current wording

The second phase of the additional investments inFirst Defense®included the installation of Freeze-Dryer #4 to further increase the estimated annual production capacity of theFirst Defense® product line (in terms of annual sales dollars) by an additional 33% from approximately $23 million to approximately $30 million or more. As of July of 2023, we were up to four freeze-dryers, through the implementation of Freeze-Dryer #4. This investment also included equipment and facility modifications to scale-up and upgrade our vaccine manufacturing capacity and improve our quality laboratories atBuilding 56 as well as the installation of new equipment to increase the throughput of our gel filling operations atBuilding 175A.

Previous wording

The third phase of the additional investments inFirst Defense® involved the construction of an additional 15,400 square feet of space adjacent to and connected toBuilding 175A at 175 Industrial Way (Building 175B) and newequipment to further increase our estimated annualFirst Defense® production capacity from approximately $30 million to approximately $40 million with options for further expansion. Given the long lead time required for investments like this, we initiated this project by entering into a lease amendment during the third quarter of 2022 covering a to-be-constructed building shell for approximately $250,000 per year. Construction of the building shell by our landlord was substantially complete as of April 1, 2023, and rent payments commenced as of August 1, 2023. We made this lease commitment because of the unique proximity of the land adjacent to our currently leased space and the high level of demand for properties of this type in the Portland market. We did not want to risk losing this opportunity to others. The anticipated benefits to us from this new lease include: i) space for the potential to install Freeze-Dryers #5, #6, #7 and #8 if justified by market demand in the future, ii) improved space and quality for our powder milling operations by separating our upstream processes (liquid processing) atBuilding 56 from our clean downstream processes (milling, formulation, filling and packaging) atBuilding 175A and iii) much needed additional warehouse space. We have been running our equipment and staff close to 100% of capacity in order to fill the backlog of orders. One of our objectives is to create a more sustainable production schedule. Freeze-Dryer #5 is the key piece of equipment required to allow us to increase our estimated annual production capacity to above $30 million. Based on past experience, we are planning for approximately 18 months of lead time for fabrication, installation, qualification and implementation of Freeze-Dryer #5. However, due to the loss in gross margin during 2023 caused by the slowdown in production output necessary to remediate the product contamination events discussed below, we have decided to defer most of this investment, for the time being. Instead, we initiated the initial steps on a portion of this project with a reduced budget of approximately $700,000 atBuilding 175B during the third quarter of 2023. This work was completed during the first quarter of 2024, which provided additional warehousing space and allowed us to move all shipping and receiving functions out ofBuilding 56 to create more space for liquid processing atBuilding 56.

Current wording

The third phase of the additional investments inFirst Defense® involved the construction of an additional 15,400 square feet of space adjacent to and connected toBuilding 175A at 175 Industrial Way (Building 175B) and will involve the purchase of newequipment to further increase our estimated annualFirst Defense® production capacity from approximately $30 million to approximately $40 million with options for further expansion. Given the long lead time required for investments like this, we initiated this project by entering into a lease amendment during the third quarter of 2022 covering a to-be-constructed building shell for approximately $250,000 per year. Construction of the building shell by our landlord was substantially complete as of April 1, 2023, and rent payments commenced as of August 1, 2023. We made this lease commitment because of the unique proximity of the land adjacent to our currently leased space and the high level of demand for properties of this type in the Portland market. We did not want to risk losing this opportunity to others. The anticipated benefits to us from this new lease include: i) space for the potential to install Freeze-Dryers #5, #6, #7 and #8 if justified by market demand in the future, ii) improved space and quality for our powder milling operations by separating our upstream processes (liquid processing) atBuilding 56 from our clean downstream processes (milling, formulation, filling and packaging) atBuilding 175A and iii) much needed additional warehouse space. We have been running our equipment and staff close to 100% of capacity in order to fill the backlog of orders. One of our objectives is to create a more sustainable production schedule. Freeze-Dryer #5 is the key piece of equipment required to allow us to increase our estimated annual production capacity to above $30 million. Based on past experience, we are planning for approximately 18 months of lead time for fabrication, installation, qualification and implementation of Freeze-Dryer #5. However, due to the loss in gross margin during 2023 caused by the slowdown in production output necessary to remediate the product contamination events discussed below, we deferred most of this investment. Instead, we initiated the initial steps on a portion of this project with a reduced budget of approximately $700,000 atBuilding 175B during the third quarter of 2023. This work was completed during the first quarter of 2024, which provided additional warehousing space and allowed us to move all shipping and receiving functions out ofBuilding 56 to create more space for liquid processing atBuilding 56.

Previous wording

The primary purpose of the additional investments inRe-Tain®is to bring the formulation and aseptic filling capabilities forRe-Tain® DP into available space in our DS facility in order to lessen or eliminate our reliance on third-party DP manufacturing services as well as the build out of warehouse space atBuilding 14 for packing and shipping facilities forRe-Tain®. We began initial installation of the filling equipment during the first quarter of 2022 and then paused this installation work due to the lack of adequate cash.

Current wording

The primary purpose of the additional investments inRe-Tain®is to bring the formulation and aseptic filling capabilities forRe-Tain® DP into available space in our DS facility in order to lessen or eliminate our reliance on third-party DP manufacturing services as well as the build out of warehouse space atBuilding 14 for packing and shipping facilities forRe-Tain®. We began initial installation of the filling equipment during the first quarter of 2022 and then paused this installation work to better preserve cash while awaiting regulatory approval.

Previous wording

As our increased production capacity was coming online around the end of the third quarter of 2022, our standard in-process quality control testing detected a product contamination event likely related to our incoming raw material (which is sourced from many different cows at many different farms). We took immediate steps to address the contamination, and production ran without issue during the balance of the fourth quarter of 2022. Subsequently, as we began to operate at a higher level of capacity at the beginning of 2023, we were forced to slow down production again to remediate a second contamination event also likely related to our incoming raw material. We then ran for approximately six months without contamination and then experienced a smaller third contamination event in September of 2023 impacting two lots of Work-in-Progress inventory, likely related to process changes implemented to run our increased level of liquid processing. Although all of the incoming material utilized in this production phase had passed quality control testing, the product failed the quality control tests later in the production process. We experienced a fourth contamination event impacting three lots of Work-in-Process inventory during the first three and a half months of 2024. New remediation steps implemented in response to this fourth event during April of 2024 appear to have been successful so far because we have run without contamination since then. Throughout these contamination events, all product that was sold to market met all in-process and final release testing to meet USDA-required quality standards.

Current wording

As our increased production capacity was coming online around the end of the third quarter of 2022, our standard in-process quality control testing detected a product contamination event likely related to our incoming raw material (which is sourced from many different cows at many different farms). We took immediate steps to address the contamination, and production ran without issue during the balance of the fourth quarter of 2022. Subsequently, as we began to operate at a higher level of capacity at the beginning of 2023, we were forced to slow down production again to remediate a second contamination event also likely related to our incoming raw material. We then ran for approximately six months without contamination and then experienced a smaller third contamination event in September of 2023 impacting two lots of work in progress inventory, likely related to process changes implemented to run our increased level of liquid processing. Although all of the incoming material utilized in this production phase had passed quality control testing, the product failed the quality control tests later in the production process. We experienced a fourth contamination event impacting three lots of Work-in-Process inventory during the first three and a half months of 2024. New remediation steps implemented in response to this fourth event during April of 2024 appear to have been productive. However, during the second quarter of 2025, we did experience a new contamination at a Work-in-Process stage of production. Despite our ongoing prevention efforts, our plans do anticipate that contamination events may arise from time to time with bioprocessing of this nature. Throughout these contamination events, all product that was sold to market met all in-process and final release testing under USDA-required quality standards.

Previous wording

As we look back at these production contamination events, we believe the initial contaminations were associated with rapid growth in our milk supply. Having largely remediated that problem, we then experienced additional contaminations that we believe were largely caused by rapidly increasing our production capacity. Our proprietary production process does allow us to create an effective product out of a non-aseptic starting raw material. Although these types of losses are expected to happen from time to time in the production of a biological product such as ours, we believe that the sudden and large contamination events were related in several different ways to our efforts to increase production output. We also believe we have mitigated the risk of large-scale reoccurrence of such losses by implementing various new quality control steps and manufacturing process and facility improvements. To meet our goals, we must run without significant equipment failures or contamination losses, and we must continue to improve our production yields.

Current wording

As we look back at these prior contamination events, we believe that the root cause was associated with the rapid growth in our hyperimmunized colostrum supply and with processing challenges associated with rapidly increasing our production output. Our proprietary production process does allow us to create an effective product out of a non-aseptic starting raw material. Although these types of losses are expected to happen from time to time in the production of a biological product such as ours, we believe that the sudden and large contamination events were related in several different ways to our efforts to increase production output. We also believe we have mitigated the risk of large-scale reoccurrence of such losses by implementing various new quality control steps and manufacturing process and facility improvements. To meet our goals, we must run without significant equipment failures or contamination losses, and we must continue to improve our production yields.

Previous wording

The lessons from the remediation of the contamination events have improved our production processes going forward. We have implemented several important improvements at the source farm level including more product and environmental testing, more training of farm staff and better enforcement of our protocols. While we never release product to the market that does not pass our in-process and final quality control release tests, we had allowed product to advance in the production process at risk, while the in-process quality control tests were being performed. We no longer advance product to the next stage before complete in-process quality control test results for the current stage are reviewed. Although this adds time to the overall production cycle, we believe that it has helped us reduce the chance of further contaminations. Notwithstanding the challenges that contamination events have posed for us, we are excited to have reached both our estimated annualized full capacity of at least $30 million forFirst Defense® (with an option to increase our estimated full capacity to approximately $40 million per year in the future with the additional capital investments, as discussed above) while, at the same time, advancing to the final stages of a very significant FDA product development initiative withRe-Tain®.

Current wording

We continue to optimize our investments to increase production capacity and to implement the corrective actions taken in response to these contamination events. Although we produced far less than we needed during 2023 and 2024, we believe that our remediation efforts have allowed us to steadily ramp back up to full production capacity. The lessons from the remediation of the contamination events have improved our production processes going forward. We have implemented several important improvements at the source farm level including more product and environmental testing, more training of farm staff and better enforcement of our protocols. While we never release product to the market that does not pass our in-process and final quality control release tests, we had allowed product to advance in the production process at risk, while the in-process quality control tests were being performed. We no longer advance product to the next stage before complete in-process quality control test results for the current stage are reviewed. Although this adds time to the overall production cycle, we believe that it has helped us reduce the chance and cost of further contaminations. We reached our goal to exceed $30 million in annualized production output with sales of $8.1 million and $7.8 million during the quarters ended March 31, 2025 and December 31, 2024, respectively. Notwithstanding the challenges that contamination events have posed for us, we are excited to have reached both our estimated annualized full capacity of $30 million or more forFirst Defense® (with an option to increase our estimated full capacity to approximately $40 million or more per year in the future subject to the additional capital investments, as discussed above) while, at the same time, advancing to the final stages of a very significant FDA product development initiative withRe-Tain®.

Previous wording

Our near-term goal is to increase and stabilize supply ofFirst Defense®, regain lost business and continue our growth curve. This goal not only aims to meet end-user demand but also to replenish our distributors with the necessary buffer stock. The significant increase in sales recognized during the fourth quarter of 2024 and first quarter of 2025 results from our higher production output. We do not solely benchmark our sales expectations off trailing twelve-month sales results. Instead, we look at the sales of competitive products to assess the size of the addressable market and plan for growth when projecting our future production capacity needs. By increasing production capacity and mitigating contamination events, we were able to significantly increase sales during the most recent periods compared to the year prior. Sales since 2023 are displayed in the following table (in thousands, except for percentages):

Current wording

After an extended period of backlog that depleted the distribution chain, distributor inventories have been replenished and we have started to intentionally build up our own buffer stocks. Our top priorities moving forward are recovering lost business and reestablishing our growth trajectory. We will continue to prioritize our efforts to increase and stabilize supply ofFirst Defense®. We do not solely benchmark our sales expectations off trailing twelve-month sales results. Instead, we look at the sales of competitive products to assess the size of the addressable market and plan for growth when projecting our future production capacity needs. As we increased our production output, sales during the year ended December 31, 2024 increased to $26.5 million in comparison to $17.5 million during the year ended December 31, 2023. By increasing production capacity and mitigating contamination events, we were able to significantly increase sales during the most recent periods compared to the year prior. Eliminating the order backlog has been a critical business objective for some time now. During the first half of 2025, we transitioned from significant drop shipping to critical customers to again shipping direct to distribution. Refilling the distribution pipeline after an extended backlog likely provided a temporary boost to sales. Because this inventory rebuild is not expected to recur, we may experience a softening in outbound sales during the second half of 2025. Our primary focus remains on recovering from the market disruption caused by prolonged supply shortages and capturing increased market share – an area that continues to represent a significant growth opportunity.

Previous wording

We captured an 11% increase in sales revenue during the first quarter of 2025 compared to the first quarter of 2024. Domestic sales during the quarter ended March 31, 2025 increased by 13%, and international sales decreased by 3%, in comparison to the quarter ended March 31, 2024. This international sales decrease was largely related to the timing of shipping around the end of the quarter. International sales aggregated 11% and 13% of total sales during the quarters ended March 31, 2025 and 2024, respectively. The quarterly sales results are summarized in the following table (in thousands, except for percentages):

Current wording

We captured an 18% increase in sales revenue during the second quarter of 2025 compared to the second quarter of 2024. Domestic sales during the quarter ended June 30, 2025 were essentially flat, and international sales increased by 170%, in comparison to the quarter ended June 30, 2024. International sales aggregated 24% and 11% of total sales during the quarters ended June 30, 2025 and 2024, respectively. The quarterly sales results are summarized in the following table (in thousands, except for percentages):

Previous wording

We captured a 28% increase in sales revenue during the six-month period ended March 31, 2025 compared to the six-month period ended March 31, 2024. Domestic sales during the six-month period ended March 31, 2025 increased by 23%, and international sales increased by 78%, in comparison to the six-month period ended March 31, 2024. International sales aggregated 14% and 10% of total sales during the six-month periods ended March 31, 2025 and 2024, respectively. The sales results for these six-month periods are summarized in the following table (in thousands, except for percentages):

Current wording

We captured a 14% increase in sales revenue during the six-month period ended June 30, 2025 compared to the six-month period ended June 30, 2024. Domestic sales during the six-month period ended June 30, 2025 increased by 7%, and international sales increased by 64%, in comparison to the six-month period ended June 30, 2024. International sales aggregated 17% and 12% of total sales during the six-month periods ended June 30, 2025 and 2024, respectively. The sales results for these six-month periods are summarized in the following table (in thousands, except for percentages):

Previous wording

We captured a 28% increase in sales revenue during the twelve-month period ended March 31, 2025 compared to the twelve-month period ended March 31, 2024. Domestic sales during the twelve-month period ended March 31, 2025 increased by 23%, and international sales increased by 80%, in comparison to the twelve-month period ended March 31, 2024. International sales aggregated 13% and 9% of total sales during the twelve-month periods ended March 31, 2025 and 2024, respectively. The sales during these twelve-month periods are summarized in the following table (in thousands, except for percentages):

Current wording

We captured a 22% increase in sales revenue during the twelve-month period ended June 30, 2025 compared to the twelve-month period ended June 30, 2024. Domestic sales during the twelve-month period ended June 30, 2025 increased by 13%, and international sales increased by 99%, in comparison to the twelve-month period ended June 30, 2024. International sales aggregated 16% and 10% of total sales during the twelve-month periods ended June 30, 2025 and 2024, respectively. The sales during these twelve-month periods are summarized in the following table (in thousands, except for percentages):

Previous wording

Sales of theFirst Defense® product line made up 99% to 100% of our total sales during the three-month, six-month and twelve-month periods ended March 31, 2025 and 2024. Our sales are generally seasonal with highest demand expected during the first quarter of each year. The compound annual growth rate (CAGR) of our total product sales was 52%, 14% and 16% during the year, five-year and six-year periods ended December 31, 2024, respectively.

Current wording

Sales of theFirst Defense® product line made up 99% of our total sales during the three-month, six-month, nine-month and twelve-month periods ended June 30, 2025 and 2024. Our sales are generally seasonal with highest demand expected during the first quarter of each year. The compound annual growth rate (CAGR) of our total product sales was 52%, 14% and 16% during the year, five-year and six-year periods ended December 31, 2024, respectively.

Previous wording

We likely lost some business beginning in late 2022, as a result of the backlog. During the first quarters of 2023 and 2024, the impact of tight supplies hit even harder, leaving our customers without product during their busiest calving season. Our inability to timely meet the needs of our customers resulted in the loss of some customers who seek alternative scours management products during this period of short supply, and some of these customers may not resume purchasing our product when we have eliminated the backlog. While we worked to allocate product directly to certain large customers during this period of short supply, we likely lost some customers that could not procure product. While backlog is a better problem to have than seeing product expiring on our shelves, it is nonetheless a significant challenge when we do not get our customers everything that they want. Our sales team has resumed more normal sales growth initiatives now, in response to the increasing product supply. We will work to regain end-user customers that we may have lost while we were short on product and will aggressively compete for new business. As we emerge from an extended period of time on backlog, we anticipate higher than normal sales fluctuations quarter to quarter. What is most important to us at this time is that we achieve sales growth over the longer periods of time, even if we experience some quarter-to-quarter fluctuations.

Current wording

We likely lost some business beginning in late 2022, as a result of the backlog. During the first quarters of 2023 and 2024, the impact of tight supplies hit even harder, leaving our customers without product during their busiest calving season. Our inability to timely meet the needs of our customers resulted in the loss of some customers who sought alternative scours management products during this period of short supply, and some of these customers may not resume purchasing our product now that we have eliminated the backlog. While we worked to allocate product directly to certain large customers during this period of short supply, we likely lost some customers that could not procure product. Our sales team has resumed more normal sales growth initiatives now, in response to the increasing product supply. We will work to regain end-user customers that we may have lost while we were short on product and will aggressively compete for new business. As we emerge from an extended period of time on backlog, we anticipate higher than normal sales fluctuations quarter to quarter. What is most important to us at this time is that we achieve sales growth over the longer periods of time, even if we experience some quarter-to-quarter fluctuations.

Previous wording

Valuation of the backlog is a non-GAAP estimate that is based on purchase orders on hand at the time that could not be met because of a lack of available inventory. We are reporting this figure because it reflects the orders on our books presently that we cannot ship. Quantification of the backlog during the current periods has become far less comparable to prior periods. At times, customers have placed orders for more than a month’s worth of their demand, perhaps in reaction to our ongoing backlog situation, whereas in the past they ordered more closely in line with their current demand. We are concerned that this backlog amount may not be highly relevant at this time as it includes very old orders, redundancy in demand and orders that may be cancelled given the time that has passed since they were originally placed. The backlog was reduced from approximately $2.4 million as of December 31, 2021 to approximately $205,000 as of September 30, 2022. In part because of a first contamination event experienced around the end of the third quarter of 2022, our backlog increased to approximately $2.5 million as of December 31, 2022. In part because of a second contamination event experienced during the first quarter of 2023, the backlog continued to increase to approximately $7.5 million as of March 31, 2023, to approximately $8 million as of June 30, 2023, to approximately $8.9 million as of September 30, 2023 and to approximately $9.4 million as of December 31, 2023. We were able to reduce this backlog modestly to approximately $9.1 million as of March 31, 2024 and then reduce it further to approximately $8.9 million as of June 30, 2024. We were able to reduce this backlog further to approximately $7.3 million as of September 30, 2024 and then further to $4.4 million as of December 31, 2024. The increased level of sales during the first quarter of 2025 helped us decrease the backlog to $4 million as of March 31, 2025. The backlog of orders was further reduced to approximately $3.4 million as of May 6, 2025.

Current wording

Valuation of the backlog is a non-GAAP estimate that is based on purchase orders on hand at the time that could not be met because of a lack of available inventory. We have historically reported this figure because it reflects the orders on our books presently that we cannot ship. Over time, the backlog has become a less reliable indicator for several reasons, such as aging orders which may be cancelled or customer placement of larger than usual orders to establish their place in line, perhaps in reaction to our previously ongoing backlog situation. We were able to reduce this backlog modestly to approximately $9.1 million as of March 31, 2024 and then reduce it further to approximately $8.9 million as of June 30, 2024. We were able to reduce this backlog further to approximately $7.3 million as of September 30, 2024 and then further to $4.4 million as of December 31, 2024. The increased level of sales during the six-month period ended June 30, 2025 helped us decrease the backlog to less than $100,000 as of June 30, 2025. We had no significant backlog of orders as of August 7, 2025.

Previous wording

We also sell our ownCMT, which is used to detect somatic cell counts in milk. Sales ofCMT aggregated less than 1% of our total product sales during the periods reported. Sales ofCMT were approximately $39,000 and $37,000 during the quarters ended March 31, 2025 and 2024, respectively. Sales ofCMT were approximately $78,000 and $93,000 during the six-month periods ended March 31, 2025 and 2024, respectively. Sales ofCMT were approximately $181,000 and $179,000 during the twelve-month periods ended March 31, 2025 and 2024, respectively.

Current wording

We also sell our ownCMT, which is used to detect somatic cell counts in milk. Sales ofCMT aggregated less than 1% of our total product sales during the periods reported. Sales ofCMT were approximately $46,000 and $43,000 during the quarters ended June 30, 2025 and 2024, respectively. Sales ofCMT were approximately $85,000 and $80,000 during the six-month periods ended June 30, 2025 and 2024, respectively. Sales ofCMT were approximately $184,000 and $172,000 during the trailing twelve-month periods ended June 30, 2025 and 2024, respectively.

Previous wording

The change in our gross margin (product sales less costs of goods sold) and our gross margin as a percentage of product sales during the three-month, six-month and twelve-month periods ended March 31, 2025 and 2024 are summarized in the following tables (in thousands, except for percentages):

Current wording

The change in our gross margin (product sales less costs of goods sold) and our gross margin as a percentage of product sales during the three-month, six-month, nine-month and trailing twelve-month periods ended June 30, 2025 and 2024 are summarized in the following tables (in thousands, except for percentages):

Previous wording

While our biological and process yields continue to be variable, we have seen a favorable improvement to our finished goods yield recently. TheTri-Shield® product format is more complex (i.e., three antibodies versus two antibodies forDual-Force®) making it more costly to produce, and both the bivalent and trivalent gel product formats are more expensive to produce than the bolus format. These new formats earn a higher selling price and are creating sales growth for us. A number of other factors contribute to the variability in our costs, resulting in some fluctuations in gross margin percentages from quarter to quarter and from year to year. We also invest to sustain compliance with cGMP regulations in our production processes. Increasing production can be more expensive in the initial stages. Additionally, the biological yields from our raw material are always variable, which affects our costs of goods sold in a similar way. Just as our customers’ cows respond differently to commercial dam-level vaccines, depending on the time of year and immune competency, our source cows have similar biological variances in response to our proprietary vaccines. As is the case with any vaccine program, animals respond less effectively to their first exposure to a new vaccine, and thereafter the effectiveness of their immune response improves in response to subsequent immunizations. While this variability impacts our costs of producing inventory, one of the key commercial benefits of ourFirst Defense® product line is that we compensate for the variability in a cow’s immune response by standardizing each dose of finished product. This ensures that every calf is equally protected, which is something that dam-level commercial scours vaccines cannot offer. We continue to work on processing and yield improvements and other opportunities to reduce costs, while enhancing process knowledge and robustness.

Current wording

We contracted to purchase hyperimmunized colostrum from more than 39,000 cows during the year ended December 31, 2024 and more than 19,000 cows during the six-month period ended June 30, 2025. This amounted to more than 777,000 liters of hyperimmunized colostrum during the year ended December 31, 2024 and more than 371,000 liters of hyperimmunized colostrum during the six-month period ended June 30, 2025. While our biological and process yields continue to be variable, we have seen a favorable improvement to our finished goods yield recently. TheTri-Shield® product format is more complex (i.e., three antibodies versus two antibodies forDual-Force®) making it more costly to produce, and both the bivalent and trivalent gel product formats are more expensive to produce than the bolus format. These new formats earn a higher selling price and are creating sales growth for us. A number of other factors contribute to the variability in our costs, resulting in some fluctuations in gross margin percentages from quarter to quarter and from year to year. We also invest to sustain compliance with cGMP regulations in our production processes. Increasing production can be more expensive in the initial stages. Additionally, the biological yields from our raw material are always variable, which affects our costs of goods sold in a similar way. Just as our customers’ cows respond differently to commercial dam-level vaccines, depending on the time of year and immune competency, our source cows have similar biological variances in response to our proprietary vaccines. As is the case with any vaccine program, animals respond less effectively to their first exposure to a new vaccine, and thereafter the effectiveness of their immune response improves in response to subsequent immunizations. While this variability impacts our costs of producing inventory, one of the key commercial benefits of ourFirst Defense® product line is that we compensate for the variability in a cow’s immune response by standardizing each dose of finished product. This ensures that every calf is equally protected, which is something that our competitors’ products, which are vaccines, cannot offer. We continue to work on processing and yield improvements and other opportunities to reduce costs, while enhancing process knowledge and robustness.

Previous wording

The following table displays the relationship between sales and gross margin during recent periods (in thousands except for percentages):

Current wording

The disruption in output during 2023 and 2024 due to contamination events did not allow us to benefit from spreading our fixed costs over higher volumes as we normally do. In more recent quarters, we’ve benefitted from process improvements. We were able to increase our gross margin as a percentage of product sales to 44%, 42% and 37% during the most recent quarters ended June 30, 2025, March 31, 2025 and December 31, 2024, respectively. The following table displays the relationship between sales and gross margin during recent periods (in thousands except for percentages):

Previous wording

As demonstrated in the table below, Work-in-Process inventory as a percentage of total inventory has ranged from 57% to 81%, and the dollar value of Work-in-Process inventory has changed significantly since December 31, 2021. The hyper-immunized colostrum we purchase for use in the production ofFirst**** Defense® is the largest component of Work-in-Process inventory. As we began to increase our production capacity, we also increased the supplier base that we work with in order to increase the availability of this critical ingredient. As certain contamination events discussed above slowed the implementation of our increased capacity, we accumulated more colostrum than originally planned. While this is a good safety measure to have in place to ensure that we do not run short of colostrum, we do expect to reduce this use of cash as we move forward with our increased production rate. Also, we are developing what could potentially be a spray-dried alternative format of ourFirst Defense Technology® feed products that may not require the liquid processing and freeze-drying production steps used to produceFirst Defense® in a capsule or gel tube. If successful, this effort could expand our product portfolio with a bulk product designed to meet the needs of large dairy and calf-ranch customers at a lower cost. This would help us turn some of this inventory to cash sooner. In a frozen state, this colostrum has a 30-month useable shelf life. The change in Work-in-Process inventory is demonstrated in the following table (in thousands, except for percentages):

Current wording

As demonstrated in the table below, Work-in-Process inventory as a percentage of total inventory has ranged from 57% to 81%, and the dollar value of Work-in-Process inventory has changed significantly since December 31, 2021. The hyperimmunized colostrum we purchase for use in the production ofFirst**** Defense® is the largest component of Work-in-Process inventory. As we began to increase our production capacity, we also increased the supplier base that we work with in order to increase the availability of this critical ingredient. As certain contamination events discussed above slowed the implementation of our increased capacity, we accumulated more colostrum than originally planned. While this is a good safety measure to have in place to ensure that we do not run short of colostrum, we do expect to reduce this use of cash as we move forward with our increased production rate. We have expanded theFirst**** Defense® line to include a functional feed platform alongside our established USDA-approved products. Currently manufactured by a contract manufacturing organization (CMO), the functional feed line requires fewer processing steps and thereby retains more colostral fat and bioactive proteins. It is specifically designed to meet the needs of large dairies and calf ranches seeking a cost-effective solution. We expect this will help us turn some of this inventory into cash. The change in Work-in-Process inventory is demonstrated in the following table (in thousands, except for percentages):

Previous wording

Overview: The majority of our product development expenses pertain to the development ofRe-Tain®. During the quarter ended March 31, 2025, product development expenses decreased by 40%, or $506,000, to $757,000 in comparison to $1.3 million during the quarter ended March 31, 2024. Product development expenses aggregated 9% and 17% of product sales during the quarters ended March 31, 2025 and 2024, respectively. Product development expenses included non-cash depreciation and stock-based compensation expenses of $364,000 and $367,000 during the three-month periods ended March 31, 2025 and 2024, respectively. Approximately $336,000 and $340,000 of these non-cash expenses were comprised of depreciation expenses pertaining largely to our DS facility and equipment for**Re-Tain®**during the quarters ended March 31, 2025 and 2024, respectively. We began depreciating this asset when the Certificate of Occupancy for the new construction was issued during the fourth quarter of 2017, but sales of our new product cannot be realized until we achieve FDA approval. Product development expenses (excluding depreciation expense of $1.4 million) were $3 million during the year ended December 31, 2023 when we were in production mode. Product development expenses (excluding depreciation expense of $1.4 million) were $2.5 million during the year ended December 31, 2024.

Current wording

Overview: The majority of our product development expenses pertain to the development ofRe-Tain®. During the quarter ended June 30, 2025, product development expenses decreased by 19%, or $199,000, to $832,000 in comparison to $1 million during the quarter ended June 30, 2024. Product development expenses aggregated 13% and 19% of product sales during the quarters ended June 30, 2025 and 2024, respectively. Product development expenses included non-cash depreciation and stock-based compensation expenses of $362,000 and $377,000 during the three-month periods ended June 30, 2025 and 2024, respectively. Approximately $331,000 and $342,000 of these non-cash expenses were comprised of depreciation expenses pertaining largely to our DS facility and equipment forRe-Tain®during the quarters ended June 30, 2025 and 2024, respectively. We began depreciating this asset when the Certificate of Occupancy for the new construction was issued during the fourth quarter of 2017, but sales of our new product cannot be realized until we achieve FDA approval. During the six-month period ended June 30, 2025, product development expenses decreased by 31%, or $704,000, to $1.6 million in comparison to $2.3 million during the six-month period ended June 30, 2024. Product development expenses aggregated 11% and 18% of product sales during the six-month periods ended June 30, 2025 and 2024, respectively. Product development expenses included non-cash depreciation and stock-based compensation expenses of $727,000 and $744,000 during the six-month periods ended June 30, 2025 and 2024, respectively. Approximately $667,000 and $683,000 of these non-cash expenses were composed of depreciation expenses pertaining largely to our DS Facility and equipment forRe-Tain® during the six-month periods ended June 30, 2025 and 2024, respectively.

Previous wording

Beginning during the second half of 2024, we implemented an aggressive idle of product development expenses pertaining toRe-Tain****® after the production of inventory intended for initial market launch was completed. It was our goal to reduce product development expenses (excluding depreciation) to approximately $2.5 million during the year ended December 31, 2024. The actual expense incurred was $2,532,000, representing a 16%, or $477,000, reduction from the 2023 expense (excluding depreciation). Product development expenses (excluding depreciation) were $1.6 million during the six-month period ended June 30, 2024. This means that we reduced product development expenses (excluding depreciation) by approximately 43%, or approximately $689,000, during the second half of 2024 in comparison to the first half of 2024. It is our further objective to reduce product development expenses (excluding depreciation) to approximately $2.1 million (of whichRe-Tain® development expenses are expected to be approximately $1.7 million) during the year ending December 31, 2025, which would be an 18%, or approximately $462,000, decrease from the 2024 level. This aggressive idle strategy (as opposed to a complete shut down) allows us to continue our pursuit of FDA approval while reducing our cash spend and ensuring no adverse impact to critical equipment. We have a plan to bring the DS plant back to full production mode in approximately two to three months, subject to available funding. At the same time, we are exploring strategic options for this product. Initial market acceptance and perhaps the interest of a partner could justify the resumption of production in our DS plant and help us find a new DP filling solution.

Current wording

Product development expenses (excluding depreciation expense of $1.4 million) were $3 million during the year ended December 31, 2023 when we were in production mode. Product development expenses (excluding depreciation expense of $1.4 million) were $2.5 million during the year ended December 31, 2024, representing a 16%, or $477,000, reduction from the 2023 expense (excluding depreciation). Beginning during the second half of 2024, we implemented an aggressive idle of product development expenses pertaining toRe-Tain® after the production of inventory that we will utilize for Investigational Product use was completed. It has been our further objective to reduce product development expenses (excluding depreciation) to approximately $2.1 million (of whichRe-Tain® development expenses are expected to be approximately $1.7 million) during the year ending December 31, 2025, which would be an 18%, or approximately $462,000, decrease from the 2024 level. During the six-month period ended June 30, 2025 product development expenses (excluding depreciation) were reduced to $922,000 (of whichRe-Tain® development expenses were $671,000) in comparison to $1.6 million (of whichRe-Tain® development expenses were $1.4 million) during the six-month period ended June 30, 2024. This aggressive idle strategy (as opposed to a complete shut down) allows us to continue our pursuit of FDA approval while reducing our cash spend and ensuring no adverse impact to critical equipment. If we come off of aggressive idle strategy, we have a plan to bring the DS plant back to full production mode in approximately two to three months, subject to available funding. At the same time, we are exploring strategic options for this product. Initial market acceptance and perhaps the interest of a partner could justify the resumption of production in our DS plant and help us find a new DP filling solution.

Previous wording

During the third quarter of 2016, the City of Portland approved a Tax Increment Financing (TIF) credit enhancement package that reduces the real estate taxes onBuilding 33 (our DS production facility forRe-Tain®) by 65% over the eleven-year period beginning on July 1, 2017 and ending June 30, 2028 and by 30% during the year ending June 30, 2029, at which time the rebate expires. During the second quarter of 2017, the TIF was approved by the Maine Department of Economic and Community Development. The value of the tax savings will increase (decrease) in proportion to any increases (decreases) in the assessment of the building for city real estate tax purposes or the City’s tax rate. The following table discloses how much of the new taxes we have generated is being relieved by the TIF and how much we are paying:

Current wording

During the third quarter of 2016, the City of Portland approved a Tax Increment Financing (TIF) credit enhancement package that reduces the real estate taxes onBuilding 33 (our DS production facility forRe-Tain®) by 65% over the eleven-year period beginning on July 1, 2017 and ending June 30, 2028 and by 30% during the year ending June 30, 2029, at which time the rebate expires. During the second quarter of 2017, the TIF was approved by the Maine Department of Economic and Community Development. The value of the tax savings will increase (decrease) in proportion to any increases (decreases) in the assessment of the building for city real estate tax purposes or the City’s tax rate. The following table discloses how much of the new taxes we have generated is being relieved by the TIF of how much we are paying:

Previous wording

Re-Tain® Development Objective: Our product,Re-Tain®, could be the first mastitis product to be marketed without FDA-required milk discard or pre-slaughter withdrawal label restrictions. As we work to change the way that mastitis is managed in the dairy industry, we aim to demonstrate that our bacteriocin, Nisin A, which is designed specifically for subclinical mastitis, can provide producers the freedom to change when and how mastitis is treated.**Re-Tain®is not a broad-spectrum antibiotic used in human health. Rather, it consists of a highly targeted active ingredient without an FDA-required milk discard or pre-slaughter withdrawal label restriction. While milk prices vary, the cost of the milk discard associated with traditional antibiotics ranges from approximately $53.00 (for 4 days of milk at 70 pounds per day at the Class III milk price average of $18.89 per hundredweight during 2024) to approximately $145.00 (for 11 days of milk at 70 pounds per day at the Class III milk price average of $18.89 per hundredweight during 2024) per treated animal. These high milk discard costs associated with traditional antibiotic treatments lead producers to only treat mastitis after clinical signs develop. We expect thatRe-Tain®**will be a first-of-its-kind product that can be used to economically treat at the earliest stage of infection, giving producers the ability to get ahead of mastitis before clinical signs develop so the best cows stay at their best performance level and in the herd longer.

Current wording

Re-Tain® Development Objective: Our product,Re-Tain®, upon anticipated FDA approval, could represent a first-of-its-kind new animal drug, unrelated to human-use antibiotics. As we work to change the way that mastitis is managed in the dairy industry, we aim to demonstrate that our bacteriocin, Nisin A, which is designed specifically for subclinical mastitis, can provide producers the freedom to change when and how mastitis is treated.**Re-Tain®is not a broad-spectrum antibiotic used in human health. Rather, it consists of a highly targeted active ingredient without an FDA-required milk discard or pre-slaughter withdrawal label restrictions. The high milk discard costs associated with traditional antibiotic treatments lead producers to treat mastitis only after clinical signs develop. We expect thatRe-Tain®**will be a first-of-its-kind product, giving producers the ability to get ahead of mastitis before clinical signs develop so the best cows stay at their best performance level and in the herd longer. Our product has been subject to the FDA’s phased review process since 2004. We received our first major Technical Section Complete Letter from the FDA during the third quarter of 2008, and we received our fourth major Technical Section Complete Letter from the FDA during the third quarter of 2018. The remaining fifth major Technical Section, named Chemistry, Manufacturing and Controls (CMC), is related to commercial manufacturing.

Previous wording

Human Food Safety: During the third quarter of 2018, we received the Human Food Safety Technical Section Complete Letter from the FDA confirming, among other things, a zero milk discard period and a zero pre-slaughter withdrawal period during and after treatment with our product. Achieving this critical differentiating feature for our product encouraged us to continue the significant product development investment necessary to bringRe-Tain****® to market. It would have been hard to justify an ongoing investment of this nature in a product without this significant competitive advantage. During the second quarter of 2021, we updated this Technical Section Complete Letter with FDA approval of the official analytical method to measure Nisin in milk.

Current wording

Human Food Safety: The active ingredient, Nisin A, is an antibacterial peptide that was designated as Generally Regarded as Safe (GRAS) over 40 years ago for use in many foods to prevent the growth of pathogens. Nisin degrades in the gastrointestinal tract to amino acids, which further supports its safety. The Nisin we produce is more than 96% pure, which is much more pure than any Nisin used in food preservation applications. During the third quarter of 2018, the FDA issued a Human Food Safety Technical Section Complete Letter confirming, among other things, that there will be no FDA-required milk discard or pre-slaughter withdrawal label restrictions on our label, based on its analysis of our safety and Nisin residue data. Achieving this critical differentiating feature for our product encouraged us to continue the significant product development investment necessary to bringRe-Tain® to market. During the second quarter of 2021, we updated this Technical Section Complete Letter with FDA approval of the official analytical method to measure Nisin in milk. WhenRe-Tain® was first being developed, it was more common for producers to know if their milk would go exclusively to the fluid milk market instead of being further processed with cultures to produce cheese and yogurt. Presently, it is much more difficult to know this with much certainty. This change in milk distribution practices makes it difficult to treat sick cows without considering the negative impact that milk from cows treated withRe-Tain® may have on starter cultures. The remaining hurdle to market launch was focused on the commercial manufacture of the Drug Substance and Drug Product. Details of this effort are described in the next four paragraphs.

Previous wording

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

Current wording

Chemistry, Manufacturing and Controls (CMC): The CMC Technical Section is complex and comprehensive. Having previously achieved the four different Technical Section Complete Letters from the FDA discussed above, approval of the CMC Technical Section is the fifth and final significant step required beforeRe-Tain****® product sales can be initiated in the United States. Implementing DS production, which is a required component of the CMC Technical Section, has been the lengthiest part of this project. We previously entered into an agreement with a multi-national pharmaceutical ingredient manufacturer for our commercial-scale supplies of DS. However, we determined during 2014 that the agreement did not offer us the most advantageous supply arrangement in terms of either cost or long-term dependability. As a result, we presented this product development opportunity to a variety of large and small animal health companies. While such a corporate partnership could have provided access to a much larger sales and marketing team and allowed us to avoid the large investment in a commercial-scale production facility, we concluded that a partner would have taken an unduly large share of the gross margin from all future product sales ofRe-Tain****®. During the third quarter of 2014, we completed an investment in facility modifications and processing equipment necessary to produce our DS at pilot-scale atBuilding 56. This small-scale facility was used to: i) expand our process knowledge and controls, ii) establish operating ranges for critical process parameters, iii) conduct product stability studies, iv) optimize process yields and v) determine the cost of production. We believe these efforts have reduced the risks associated with our investment in the commercial-scale DS production facility. Having raised equity during 2016 and 2017, we were able to move away from these earlier partnering strategies and assume control over the commercial-scale manufacturing process in our own facility. During the fourth quarter of 2015, we acquired land near our existing Portland facility for the construction of a new commercial-scale DS production facility. We commenced construction of this facility during the third quarter of 2016 and completed construction during the fourth quarter of 2017. Equipment installation and qualification was initiated during the third quarter of 2017 and completed during the third quarter of 2018. Total construction and equipment costs aggregated approximately $20.8 million. We began the process of making several rounds of CMC submissions during 2019. The FDA notified us during the second quarter of 2024 that the inspectional observation at our DS facility had been cleared.

Previous wording

Our DS manufacturing facility and our potential future DP manufacturing facility (or that of a DP contract manufacturer for us) would be subject to ongoing FDA inspections. During the third quarter of 2019, the FDA conducted a pre-approval inspection of our DS facility. This resulted in the issuance of certain deficiencies as identified on the FDA’s Form 483. We submitted responses and data summaries in a phased manner over the fourth quarter of 2019 and first quarter of 2020. During the first quarter of 2022, the FDA conducted another pre-approval inspection of our DS facility. This also resulted in the issuance of certain deficiencies as identified on the FDA’s Form 483. We have responded to all of the queries. Early during the first quarter of 2024, the FDA conducted another pre-approval inspection of our DS facility. This resulted in the issuance of one deficiency as identified on the FDA’s Form 483. During the first quarter of 2024, we successfully responded to this inspectional observation and achieved “Voluntary Action Indicated” status. The remaining critical path milestone is for our contract manufacturer to resolve the deficiencies at their DP facility, which work is currently underway.

Current wording

Our DS manufacturing facility and our potential future DP manufacturing facility (or that of a DP contract manufacturer for us) are subject to ongoing FDA inspections. Early during the first quarter of 2024, the FDA conducted its third pre-approval inspection of our DS facility. This resulted in the issuance of one deficiency as identified on the FDA’s Form 483. During the first quarter of 2024, we successfully responded to this inspectional observation and achieved “Voluntary Action Indicated” status. The remaining critical path milestone is for our contract manufacturer to resolve the deficiencies at their DP facility, which work is currently underway.

Previous wording

In early January of 2025, we made a Non-Administrative NADA submission that included our fourth submission of the CMC Technical Section, together with the minor technical sections covering All Other Information and Product Labeling. We implemented this filing strategy to eliminate the need for an Administrative NADA submission covering All Other Information and Product Labeling at the end of the application process, which would then be subject to an additional 60-day review at that time. By statute, this CMC Technical Section submission would be subject to a review period of up to 180 days, but because these latest responses to the CMC Incomplete Letter are not complex, we are hopeful for a shorter review period. We expect the FDA to complete its review only after it clears the inspectional observations at the DP facility of our contract manufacturer. This still appears to be the critical path constraint.

Current wording

In early January of 2025, we made a Non-Administrative NADA submission that included our fourth submission of the CMC Technical Section, together with the minor technical sections covering All Other Information and Product Labeling. We implemented this filing strategy to eliminate the need for an Administrative NADA submission covering All Other Information and Product Labeling at the end of the application process, which would then be subject to an additional 60-day review at that time. By statute, this CMC Technical Section submission was subject to a review period of up to 180 days. We expect the FDA to complete its review only after it clears the inspectional observations at the DP facility of our contract manufacturer. Our contract manufacturer responded to the FDA with their corrective actions in late April of 2025. We are awaiting a response from the FDA. This still appears to be the critical path constraint to product approval. Because the inspectional observations at the facilities of our contract manufacturer were not cleared before the end of the 180-day review period, we requested an amendment and were granted another 180-day review period.

Previous wording

If we decide to complete our potential future DP manufacturing facility, we anticipate it would have enough formulation and aseptic filling capacity to exceed the expected production capacity of our DS facility, which is approximately $10 million in annual sales. This production capacity estimate is based on our assumptions as to product pricing and ongoing yield improvement initiatives. Establishing our own DP formulation and aseptic filling capability would provide us with the longer-term advantage of controlling the manufacturing process forRe-Tain****® in one facility, thereby potentially reducing our manufacturing costs and eliminating international cold chain shipping logistics and costs. The DP formulation and aseptic filling operation, if completed, will be located in existing facility space that we had intended to utilize to double our DS production capacity if warranted by sales volumes following market launch. As a result, if we decide to complete this DP facility (rather than utilizing a third party for these services), we would need to explore alternative strategies (in parallel with ongoing DS yield improvement initiatives) to expand our DS production capacity. This integrated manufacturing capability forRe-Tain****® would substantially reduce our dependence on third parties. Upon completion of our formulation and aseptic filling facility, the only significant third-party input forRe-Tain****® would be the DP syringes. The supplier we have identified provides syringes for many of the largest participants in the human and veterinary medical industries, and with whom our DP contract manufacturer presently works. Based on this company’s performance history and reputation in the industry, we are confident that it would be a dependable supplier of syringes in the quantity and of the quality needed forRe-Tain****®.

Current wording

We originally concluded that the fastest route to FDA approval and market launch would be with the services of a contract manufacturer, reducing our risk by benefiting from their demonstrated expertise in aseptic filling. From 2010 to the present, we have worked with a contract manufacturer under several amended contract manufacturing agreements covering the DP formulation, aseptic filling and final packaging services. This contract manufacturer filled DP for our Investigational Product use before the filling contract expired during the fourth quarter of 2024. This contract continues through March of 2026 with regards to labeling and packaging services. We are investigating alternatives to aseptically fill additional DP inventory. Our potential alternative third-party options for the formulation and aseptic filling services are narrowed considerably because our product cannot be formulated or filled in a facility that also processes traditional antibiotics (i.e. beta lactams). If we decide to resume our in-house strategy or enter into a new contract manufacturing agreement, we would anticipate FDA approval of this facility (which is a requirement for commercial manufacturing) would take approximately two years, allowing for two six-month review cycles, subject to the timing of our installation and validation work. This would be a post-approval submission. If we decide to fund and complete our potential future DP manufacturing facility, we anticipate it would have enough formulation and aseptic filling capacity to exceed the expected production capacity of our DS facility, which is approximately $10 million in annual sales. This production capacity estimate is based on our assumptions as to product pricing and ongoing yield improvement initiatives. The DP formulation and aseptic filling operation, if completed, would be located in existing facility space that we had intended to utilize to double our DS production capacity if warranted by sales volumes following market launch. This integrated manufacturing capability forRe-Tain® would substantially reduce our dependence on third parties.

Previous wording

Other Product Development Initiatives: Our next most important product development initiative has been focused on other improvements, line extensions or additions to ourFirst Defense® product line. The bolus format ofFirst Defense® andTri-Shield First Defense® have been listed with the Organic Materials Research Institute (OMRI) since 2013 and 2019, respectively. This means they can be used on organic farms. During the third quarter of 2024, the gel tube format ofFirst Defense® also became OMRI listed. As discussed above, we are developing a potential spray-dried, bulk powder format of ourFirst Defense Technology®. During the third quarter of 2024, we entered into a research agreement with the Mayo Clinic, a non-profit, educational, research and healthcare institution, to explore potential applications of Nisin in certain human surgical situations. This data has been submitted for publication, but we do not see a clear commercial path forward at this time. Subject to the availability of resources, we intend to begin new development projects that are aligned with our core competencies and market focus. We also remain interested in acquiring, on suitable terms, other new products and technologies that fit with our sales focus on the dairy and beef industries, subject to the availability of the needed funding.

Current wording

Other Product Development Initiatives: Our next most important product development initiative has been focused on other improvements, line extensions or additions to ourFirst Defense® product line. The bolus format ofFirst Defense® andTri-Shield First Defense® have been listed with the Organic Materials Research Institute (OMRI) since 2013 and 2019, respectively. This means they can be used on organic farms. During the third quarter of 2024, the gel tube format ofFirst Defense® also became OMRI listed. In 2025, we expanded our line to include a functional feed platform utilizing our hyperimmunized colostrum technology, as discussed above. We made our first sales of this product format during the second quarter of 2025. During the third quarter of 2024, we entered into a research agreement with the Mayo Clinic, a non-profit, educational, research and healthcare institution, to explore potential applications of Nisin in certain human surgical situations. This data has been published and was presented at the ASM Microbe Conference in Los Angeles in June of 2025. While we do not see a clear commercial path forward at this time, we are conducting a follow-up study to better assess the potential for Nisin in this application. Subject to the availability of resources, we intend to begin new development projects that are aligned with our core competencies and market focus. We also remain interested in acquiring, on suitable terms, other new products and technologies that fit with our sales focus on the dairy and beef industries, subject to the availability of the needed funding.

Previous wording

We see ourselves as the “non-Pharma” pharma company. Rather than offering variations of “copy-cat” technology like vaccines and antibiotics, we have taken the path less traveled by developing first-of-their kind products fueled by novel active ingredients such as polyclonal antibodies (forFirst Defense®) and bacteriocins (forRe-Tain®). While we expect thatRe-Tain® could be a significant market disrupter, we project theFirst Defense® market could be larger.

Current wording

We see ourselves as the “non-Pharma” pharma company. Rather than offering variations of “copy-cat” technology like vaccines and antibiotics, we have taken the path less traveled by developing first-of-their-kind products fueled by novel active ingredients such as polyclonal antibodies derived from hyperimmunized colostrum (forFirst Defense®) and bacteriocins (forRe-Tain®). While we expect thatRe-Tain® could be a significant market disrupter, we project theFirst Defense® market could be larger.

Previous wording

During the quarter ended March 31, 2025, sales and marketing expenses increased by 7%, or $56,000, to $857,000 in comparison to $801,000 during the quarter ended March 31, 2024, amounting to 11% of product sales during both of the quarters ended March 31, 2025 and 2024. Sales and marketing expenses included non-cash depreciation and stock-based compensation expenses of $11,000 and $44,000 during the quarters ended March 31, 2025 and 2024, respectively. Our current budgetary guideline is to keep sales and marketing expenses under 20% of total sales. We continue to leverage the efforts of our small sales force by using animal health distributors.

Current wording

During the quarter ended June 30, 2025, sales and marketing expenses decreased by 29%, or $289,000, to $696,000 in comparison to $985,000 during the quarter ended June 30, 2024, amounting to 11% and 18% of product sales during the quarters ended June 30, 2025 and 2024, respectively. Sales and marketing expenses included non-cash depreciation and stock-based compensation expenses of $18,000 and $44,000 during the quarters ended June 30, 2025 and 2024, respectively. During the six-month period ended June 30, 2025, sales and marketing expenses decreased by 13%, or $233,000 to $1.6 million in comparison to $1.8 million during the six-month period ended June 30, 2024, amounting to 11% and 14% of product sales during the six-month periods ended June 30, 2025 and 2024, respectively. Sales and marketing expenses included non-cash depreciation and stock-based compensation expenses of $29,000 and $88,000 during the six-month period ended June 30, 2025 and 2024, respectively. Our current budgetary guideline is to keep sales and marketing expenses under 20% of total sales. We continue to leverage the efforts of our small sales force by using animal health distributors.

Previous wording

TheFirst Defense® product line serves dairy and beef producers by protecting their calf crop from scours, the leading cause of pre-weaning mortality and morbidity. When calves are healthy during this crucial development period, they mature into more productive milking cows and more efficient beef generators. Our primary competition in this category is vaccines that are also regulated for effectiveness and safety by the USDA. However, animal responses to vaccines are inherently variable. COVID breakthrough infections in humans have reminded us that a vaccine does not guarantee immunity. That is true for our competitors as well. In the most controlled research settings, only 80% of animals respond to a vaccine. This leaves 20% of the calf crop unprotected when the scour prevention program relies on scour vaccines. Those unprotected calves can be disease carriers. Not only are they more susceptible to death or likely to require life-saving treatment (sometimes with antibiotics), but they also shed pathogens into the environment creating a greater disease pressure for their herd mates. TheFirst Defense® product line removes the inconsistency inherent with vaccine protection. We sell the only USDA-licensed products in the scour prevention category that are therapeutic multi-valent polyclonal antibodies. This technology eliminates a producer’s reliance on a variable vaccine response to generate antibodies and, instead, can protect every calf equally with a measured dose of antibody-driven immunity against both bacterial and viral scour pathogens.

Current wording

TheFirst Defense® product line serves dairy and beef producers by protecting their calf crop from scours, the leading cause of pre-weaning mortality and morbidity. When calves are healthy during this crucial development period right after birth, they mature into more productive milking cows and more efficient beef generators. Our primary competition in this category is vaccines that are also regulated for effectiveness and safety by the USDA. However, animal responses to vaccines are inherently variable. COVID breakthrough infections in humans reminded us that a vaccine does not guarantee immunity. That is true for our competitors as well. In the most controlled research settings, only 80% of animals respond to a vaccine. This leaves 20% of the calf crop unprotected when the scour prevention program relies on vaccines. Those unprotected calves can be disease carriers. Not only are they more susceptible to death or likely to require life-saving treatment (sometimes with antibiotics), but they also shed pathogens into the environment creating a greater disease pressure for their herd mates. TheFirst Defense® product line removes the inconsistency inherent with vaccine protection. We sell the only USDA-licensed products in the scour prevention category that are therapeutic multi-valent polyclonal antibodies. This technology eliminates a producer’s reliance on a variable vaccine response to generate antibodies and, instead, can protect every calf equally with a measured dose of antibody-driven immunity against both bacterial and viral scour pathogens. In 2025, we expanded our line to include a functional feed platform utilizing our hyperimmunized colostrum technology which contains colostral fat and bioactive proteins. It is specifically designed to meet the needs of large dairies and calf ranches seeking a cost-effective solution.

Previous wording

Re-Tain® could increase the lifetime profitability of a cow and reduce disease transfer to herd mates. It is common practice to move sick cows from their regular herd group to a sick cow group for treatment and the related milk discard. This movement causes stress on the cow and a reduction in milk production. While practices may vary farm-to-farm, there would be no requirement to move cows treated with our product, allowing this costly drop in production to be avoided. It is generally current practice to treat mastitis only when the disease has progressed to the clinical stage where the milk from an infected cow cannot be sold, leaving most subclinical infections untreated. Without a milk discard cost, we expect producers to be more motivated to identify and treat cows at the subclinical stage. This creates a substantial animal welfare benefit. By treating mastitis early at the subclinical level, producers could preserve optimal milk yields. We also believe that animals infected with subclinical mastitis often progress to the clinical disease state requiring antibiotic treatment and milk discard and can experience higher abortion rates.

Current wording

We believeRe-Tain® has the potential to enhance mastitis management by shifting the industry approach from treating at the clinical stage to intervening earlier – at the subclinical stage – while cows are still producing saleable milk.Re-Tain® is being developed specifically to treat subclinical mastitis in lactating dairy cows and, upon anticipated FDA approval, could represent a first-of-its-kind new animal drug that is unrelated to antibiotics used in human medicine. While milk prices vary, the cost of the milk discard associated with traditional antibiotics ranges from approximately $53.00 (for 4 days of milk at 70 pounds per day at the Class III milk price average of $18.89 per hundredweight during 2024) to approximately $145.00 (for 11 days of milk at 70 pounds per day at the Class III milk price average of $18.89 per hundredweight during 2024) per treated animal. It is generally current practice to treat mastitis only when the disease has progressed to the clinical stage where the milk from an infected cow cannot be sold, leaving most subclinical infections untreated. We expect producers to be more motivated to identify and treat cows at the subclinical stage withRe-Tain®. This creates a substantial animal welfare benefit. By treating mastitis early at the subclinical level, producers could preserve optimal milk yields. We also believe that animals infected with subclinical mastitis often progress to the clinical disease state requiring antibiotic treatment and milk discard and can experience higher abortion rates. The success of this product will depend largely on our ability to implement treatment protocols in a way that the Nisin that we deliver to treated cows does not interfere with starter cultures that are used in some milk processing methods to make cheese or yogurt, for example, from the milk of cows treated withRe-Tain®. We hope that milk processors will engage in this evaluation with us in order to help the dairy industry improve the health of certain sick cows (that often go untreated) while, at the same time, improving the quality of milk that is a vital food component for people around the world. We believe that treating subclinically infected cows could enhance best practices in the industry. It is very common practice for cows to be treated with traditional antibiotics that are also used in the prevention of certain diseases in humans. This overuse of antibiotics allows for the growth of pathogens that are resistant to these antibiotics. Because our active ingredient (Nisin) is not used in human healthcare,Re-Tain® would not contribute to the significant public health concern.

Previous wording

The over-use of antibiotics that are medically important to human healthcare is a growing public health concern of our society and an active issue with the FDA, largely because of the growing evidence that this over-use contributes to antibiotic resistance and the rise of “superbugs”. Sustainability objectives require that less antibiotics be used in food producing animals, yet a new FDA-approved drug to treat mastitis has not been developed in years. Our product improves sustainability by utilizing a bacteriocin as an alternative to traditional antibiotics that are used in human medicine. In the big picture, we are introducing an entirely new class of antimicrobial as an animal drug, a bacteriocin, that does not promote resistance against antibiotics used in human medicine making it more socially responsible. The industry could keep treating this very significant disease with traditional antibiotics, but it takes innovation to bring a bacteriocin like Nisin to market.Re-Tain® would, when introduced, offer a needed alternative to these traditional antibiotics, while at the same time improving milk quality and the quantity of milk produced by treated cows. We believe our product fits very well with where the industry is going to be in the coming years.

Current wording

Our product could help the industry address important sustainability objectives. The over-use of antibiotics that are medically important to human healthcare is a growing public health concern of our society and an active issue with the FDA, largely because of the growing evidence that this over-use contributes to antibiotic resistance and the rise of “superbugs”. Sustainability objectives require that less antibiotics be used in food producing animals, yet a new FDA-approved drug to treat mastitis has not been developed in years. Our product improves sustainability by utilizing a bacteriocin as an alternative to traditional antibiotics that are used in human medicine. In the big picture, we are introducing an entirely new class of antimicrobial as an animal drug, a bacteriocin, that does not promote resistance against antibiotics used in human medicine, making it more socially responsible. The industry could keep treating this very significant disease with traditional antibiotics, but it takes innovation to bring a bacteriocin like Nisin to market.Re-Tain® would offer a needed alternative to these traditional antibiotics, while at the same time improving the quantity and quality of milk produced by treated cows. We believe our product fits very well with where the industry is going to be in the coming years.