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. 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.

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 anticipated results, objectives or expectations described in or implied by the forward-looking statements contained in the following discussion and analysis.

Previous wording

This Quarterly Report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and will often include words such as “expects”, “may”, “anticipates”, “aims”, “intends”, “would”, “could”, “should”, “will”, “plans”, “believes”, “estimates”, “targets”, “projects”, “forecasts”, “seeks” and similar words and expressions. Such statements include, but are not limited to, any forward-looking statements relating to: our plans, goals and strategies for our business; projections of future financial or operational performance; the timing and outcome of pending or anticipated applications for regulatory approvals and pending or anticipated regulatory inspections of our facilities and those of our contract manufacturers; future demand for our products; future adoption ofRe-Tain® by dairy producers; growth in acceptance of ourFirst Defense® product line by dairy and beef producers; the impact of international disputes (including Russia’s invasion of Ukraine and unrest in the Middle East) on the world economy including inflation and the price and availability of grain and oil; the impact of the global supply-chain disruptions on our ability to obtain, in a timely and cost-effective fashion, all the supplies and components we need to produce our products; the impact of inflation, tariffs and rising interest rates on our operating expenses and financial results; the scope and timing of ongoing and future product development work and commercialization of our products; future costs of product development efforts; future incidence rates of subclinical mastitis and producers’ level of interest in treating subclinical mastitis; the expected efficacy of new products; estimates about the market size for our products; future market share of and revenue generated by current products and products still in development; our ability to increase production output and reduce costs of goods sold per unit; the adequacy of our own manufacturing facilities or those of third parties with which we have contractual relationships to meet demand for our products on a timely basis; the impacts of backlogs on customer relationships; the efficacy of our contamination remediation efforts; whether or not we will experience future contamination events; the anticipated costs of (or time to complete) planned expansions of our manufacturing facilities and the adequacy of our funds available for these projects; the robustness of our manufacturing processes to meet future demand and related technical issues; estimates about our future production capacity, efficiency and yield; the salability of products currently held in inventory pending regulatory approval; future regulatory requirements relating to our products; future expense ratios and margins; the future consequences and effectiveness of our investments in …

Excerpt shortened here; the source contains the full paragraph.

Current wording

This Quarterly Report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and will often include words such as “expects”, “may”, “anticipates”, “aims”, “intends”, “would”, “could”, “should”, “will”, “plans”, “believes”, “estimates”, “targets”, “projects”, “forecasts”, “seeks” and similar words and expressions. Such statements include, but are not limited to, any forward-looking statements relating to: our plans, goals and strategies for our business; projections of future financial or operational performance; the timing and outcome of pending or anticipated applications for regulatory approvals and pending or anticipated regulatory inspections of our facilities and those of our contract manufacturers; future demand for our products; future adoption ofRe-Tain® by dairy producers; growth in acceptance of ourFirst Defense® product line by dairy and beef producers; the impact of international disputes on the world economy including inflation and the price and availability of grain and oil; the impact of the global supply-chain disruptions on our ability to obtain, in a timely and cost-effective fashion, all the supplies and components we need to produce our products; the impact of inflation, tariffs and rising interest rates on our operating expenses and financial results; the scope and timing of ongoing and future product development work and commercialization of our products; future costs of product development efforts; future incidence rates of subclinical mastitis and producers’ level of interest in treating subclinical mastitis; the expected efficacy of new products; estimates about the market size for our products; future market share of and revenue generated by current products and products still in development; our ability to increase production output and reduce costs of goods sold per unit; the adequacy of our own manufacturing facilities or those of third parties with which we have contractual relationships to meet demand for our products on a timely basis; the impacts of backlogs on customer relationships; the efficacy of our contamination remediation efforts; whether or not we will experience future contamination events; the anticipated costs of (or time to complete) planned expansions of our manufacturing facilities and the adequacy of our funds available for these projects; the robustness of our manufacturing processes to meet future demand and related technical issues; estimates about our future production capacity, efficiency and yield; the salability of products currently held in inventory pending regulatory approval; future regulatory requirements relating to our products; future expense ratios and margins; the future consequences and effectiveness of our investments in our business; future compliance with, or waivers of, bank debt covenant…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

OUTLINE TO ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Current wording

OUTLINE TO ITEM 2–** MANAGEMENT**’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, to offset some of our product development expenses.

Current wording

During the second half of 2024, we began reducing product development expenses, as we await approval ofRe-Tain®** by the Food and Drug Administration (FDA). After an investment of about 26 years and approximately $53 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 partnerships forRe-Tain**® to offset some of our product development expenses.

Previous 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.

Current wording

Net cash provided by operating activities was approximately $2 million during the nine-month period ended September 30, 2025 in comparison to net cash provided by operating activities of $361,000 during the nine-month period ended September 30, 2024. The increase in net cash provided by operating activities of approximately $1.6 million during the nine-month period ended September 30, 2025 compared to the nine-month period ended September 30, 2024 was largely the net result of a $4.5 million swing from a net loss to net income plus a $1.3 million increase in cash received from the collection of accounts receivable net against approximately $3 million and $600,000 more spending on inventory and reducing accounts payable, respectively. Our debt bears interest at fixed rates, which on a blended basis amounts to 4.31% per annum as of September 30, 2025. Interest expense (excluding amortization of debt issuance and debt discount costs) is expected to be approximately $443,000 and $367,000 during the years ending December 31, 2025 and 2026, respectively. Our total non-cash depreciation, amortization and stock-based compensation expense was approximately $2.3 million during both of the nine-month periods ended September 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.

Previous 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.

Current wording

Net cash (used for) investing activities was approximately ($1 million) and ($265,000) during the nine-month periods ended September 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 starting around the first quarter of 2023. We increased capital expenditures to approximately $1.1 million during the nine-month period ended September 30, 2025 from approximately $270,000 during the nine-month period ended September 30, 2024. We are currently 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 $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.

Current wording

Net cash (used for) financing activities was approximately ($818,000) during the nine-month period ended September 30, 2025, consisting principally of approximately $1.9 million of debt principal repayments net of approximately $800,000 and $300,000 of proceeds received from debt and equity issuances, respectively. Net cash provided by financing activities was approximately $2.7 million during the nine-month period ended September 30, 2024, consisting principally of approximately $4.1 million in net proceeds raised through At-The-Market offerings described below, net of approximately $1.1 million in debt principal repayments. We had aggregate debt outstanding (net of debt issuance and debt discount costs) of approximately $9.5 million and $10.5 million as of September 30, 2025 and December 31, 2024, respectively. Debt principal repayments are expected to aggregate approximately $3.8 million (which includes the non-cash refinancing completed in the three-month period ended September 30, 2025) and $1.6 million during the years ending December 31, 2025 and 2026, respectively. During the third quarter of 2025, the availability of our $1 million line of credit, which bears interest at the National Prime Rate per annum, was extended until September 11, 2026. No draw on our line of credit was outstanding as of September 30, 2025 or December 31, 2024. See Note 9 to the accompanying unaudited financial statements for more information about our bank debt. The Company is party to an At-The-Market (ATM) Agreement with broker-dealer Craig-Hallum Capital Group LLC, under which we may offer and sell into the open market up to $11 million of shares of our common stock. In 2024, we sold 1,228,227 shares under the ATM Agreement, resulting in proceeds (net of approximately $152,000 in upfront legal, accounting and other fees and approximately $140,000 in sales commissions) of approximately $4.4 million. During the first nine months of 2025, we sold 63,230 shares under the ATM Agreement, resulting in proceeds (net of approximately $57,000 in legal, accounting and other fees and approximately $10,000 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 has 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 project (based on our best estimates) that our existing cash and cash equivalents, together with gross margin anticipated to be earned from ongoing product sales will be sufficient to meet our currently planned working capital and capital expenditure requirements and to finance our ongoing business operations for at least the next 12 months (the period of time required to be addressed for such purposes by accounting disclosure standards). The table below summarizes the changes in selected key accounts (in thousands, except for percentages):

Current wording

We project (based on our best estimates) that our existing cash and cash equivalents, together with gross margin anticipated to be earned from ongoing product sales will be sufficient to meet our currently planned working capital and capital expenditure requirements and to finance our ongoing business operations for at least the next 12 months (the period of time required to be addressed for such purposes by accounting standards). The table below summarizes the changes in selected key accounts (in thousands, except for percentages):

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® 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®.

Current wording

Our production process is complex and difficult to scale up quickly. We began significant investments in facilities, equipment and staffing necessary 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 or more 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.)

Previous wording

The first phase of the additional investments inFirst Defense® beginning in 2019 included significant renovations to a 14,300 square foot leased facility atBuilding 175A, some facility modifications atBuilding 56 and the necessary production equipment (including Freeze-Dryer #3) to increase our liquid processing capacity by 100% and our freeze-drying capacity by 50%. This resulted in increasing the annual production capacity of theFirst Defense® product line (in terms of annual sales dollars) from approximately $16.5 million to approximately $23 million. Renovations ofBuilding 175A to enable this expansion were completed during the second quarter of 2020. By moving our powder, gel filling and assembly operations fromBuilding 56 into this new space, we created space atBuilding 56 for the installation of the expanded freeze-drying capacity. The new facilities are built to current Good Manufacturing Practices (cGMP) regulations with efficient material and people flows. A site license approval for this new facility was issued by the United States Department of Agriculture (USDA) during the third quarter of 2020. During the second quarter of 2021, we completed the relocation of our gel formulation equipment fromBuilding 56 toBuilding 175A, which created the space necessary to double our liquid processing capacity atBuilding 56. We obtained site license approval of the expanded freeze-drying capacity (Freeze-Dryer #3) atBuilding 56 from the USDA during the third quarter of 2021, and we obtained site license approval of the expanded liquid processing capacity atBuilding 56 from the USDA during the third quarter of 2022. This investment also included equipment and vehicle purchases necessary to expand and improve our colostrum collection capabilities and logistics.

Current wording

The first phase of the additional investments inFirst Defense®** beginning in 2019 included significant renovations to a 14,300 square foot leased facility atBuilding 175A**, some facility modifications atBuilding 56 and the necessary production equipment (including Freeze-Dryer #3) to increase our liquid processing capacity by 100% and our freeze-drying capacity by 50%. This resulted in increasing the annual production capacity of theFirst Defense® product line (in terms of annual sales dollars) from approximately $16.5 million to approximately $23 million.

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 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.

Current wording

The second phase of our 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 30% or more from approximately $23 million to approximately $30 million or more. Despite delays in the installation of certain equipment, we completed these capacity-expanding investments around the end of 2022.

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 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.

Current wording

The third phase of 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 new equipment to further increase our estimated annualFirst Defense® production capacity from approximately $30 million to approximately $40 million with options for further expansion. 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. Freeze-Dryer #5 is the key piece of equipment required to allow us to increase our estimated annual production capacity to $40 million or more. 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. The new facilities are built to current Good Manufacturing Practices (cGMP) regulations and allow for efficient material and people flow.

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 to better preserve cash while awaiting regulatory approval.

Current wording

We made some additional investments inRe-Tain® 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 aseptic filling equipment during the first quarter of 2022, and then we paused this installation work to better preserve cash while awaiting regulatory approval.

Previous wording

The amount and timing of these additional investments in First Defense® and Re-Tain® that were initiated beginning in 2019 are detailed in the following table (in thousands):

Current wording

The amount and timing of these additional investments inFirst Defense® andRe-Tain®began in 2019 and are detailed in the following table (in thousands):

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 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.

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 during the third quarter of 2023 impacting two lots of work in progress inventory, likely related to process changes implemented to run our increased level of liquid processing that were not optimized. 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 during April of 2024 in response to this fourth event appear to have been productive. We were able to offset some of the related losses with insurance, as previously outlined in Note 14 Other (Expenses) Income, Net, of the unaudited financial statements. However, during the second and third quarters of 2025, we did experience minor contaminations at a Work-in-Process stage of production that were likely again related to the quality of our incoming milk supply. With bioprocessing of this nature, our plans do anticipate that contamination events may arise from time to time despite our ongoing prevention efforts. Throughout these contamination events, all product sold by us has met all required in-process and final release testing under USDA quality standards.

Previous 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®.

Current wording

Although we produced far less than we needed during 2023 and 2024 to meet demand, our remediation efforts and expansion investments 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 before fully completing our in-process quality control tests. 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 severity of further contaminations.

Previous 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.

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. These types of losses are expected to happen from time to time in the production of a biological product such as ours. 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. 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. 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. 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 production contamination events and other production process losses experienced resulted in scrapped inventory valued as shown in the following table (in thousands):

Current wording

During the second quarter of 2025, we experienced our first new production contamination event since April of 2024 and additional production process losses. During the third quarter of 2025, we incurred additional production process losses. If we had avoided this aggregate scrap cost of approximately $410,000, our gross margin during the nine-month period ended September 30, 2025 would have been approximately 44.7% in comparison to the reported value of 42.6%. If we had avoided the aggregate scrap cost of approximately $369,000, our gross margin during the nine-month period ended September 30, 2024 would have been approximately 29.2% in comparison to the reported value of 27.3%. Gross margin percentage of product sales adjusted to remove scrap is a non-GAAP estimate that is based on the removal of specific manufacturing scrap costs from total costs and recalculating the gross margin as a percentage of product sales. The production contamination events and other production process losses experienced resulted in scrapped inventory valued as shown in the following table (in thousands):

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 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.

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.

Previous 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):

Current wording

Sales revenue decreased by 8% during the third quarter of 2025 compared to the third quarter of 2024. Domestic sales during the quarter ended September 30, 2025 increased by 2%, and international sales decreased by 79% (largely driven by timing of backlog fulfillment), in comparison to the quarter ended September 30, 2024. International sales aggregated 3% and 13% of total sales during the quarters ended September 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 25% increase in sales revenue during the nine-month period ended June 30, 2025 compared to the nine-month period ended June 30, 2024. Domestic sales during the nine-month period ended June 30, 2025 increased by 16%, and international sales increased by 107%, in comparison to the nine-month period ended June 30, 2024. International sales aggregated 17% and 10% of total sales during the nine-month periods ended June 30, 2025 and 2024, respectively. The sales results for these nine-month periods are summarized in the following table (in thousands, except for percentages):

Current wording

We captured a 7% increase in sales revenue during the nine-month period ended September 30, 2025 compared to the nine-month period ended September 30, 2024. Domestic sales during the nine-month period ended September 30, 2025 increased by 6%, and international sales increased by 15%, in comparison to the nine-month period ended September 30, 2024. International sales aggregated 13% and 12% of total sales during the nine-month periods ended September 30, 2025 and 2024, respectively. The sales results for these nine-month periods are summarized in the following table (in thousands, except for percentages):

Previous 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.

Current wording

Sales of theFirst Defense® product line made up 99% of our total sales during the three-month, nine-month and twelve-month periods ended September 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 14% and 16% during the five-year and six-year periods ended December 31, 2024, respectively.

Previous wording

We obtained USDA approval ofTri-Shield First Defense® (the trivalent format of our product delivered via a gel tube, which provides broader protection to calves) near the end of 2017. Around the time of this new product format launch, total product sales during the years ended December 31, 2017 and 2018 were $10.4 million and $11 million, respectively.**Tri-Shield®**requires two separate liquid production processes for each dose manufactured and sold (in contrast to the bivalent product formats that require just one) making it more expensive to produce, but this product is priced at a significant premium to our traditional bivalent bolus format and is largely responsible for our sales growth. This new product format has become the highest revenue contributor, as demonstrated in the table below(in thousands, except for percentages):

Current wording

We have expanded theFirst Defense® product line to include a functional feed platform alongside our established USDA-approved biologic 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 for their calves. The functional feed product will not fit in a capsule or tube and is intended as a bulk powder additive to liquid feed without USDA-approved claims. The functional feed product is spray-dried. The biologics line is lyophilized (freeze-dried). We obtained USDA approval ofTri-Shield First Defense® (the trivalent format of our biologic product delivered via a gel tube, which provides broader protection to calves) near the end of 2017.Tri-Shield®** **requires two separate liquid production processes for each dose manufactured and sold (in contrast to the bivalent product formats that require just one) making it more expensive to produce, but this product is priced at a significant premium to our traditional bivalent bolus format and is largely responsible for our sales growth. Around the time of this new product format launch, total product sales during the years ended December 31, 2017 and 2018 were $10.4 million and $11 million, respectively. This new product format has become the highest revenue contributor, as demonstrated in the table below (in thousands, except for percentages):

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 $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.

Current wording

We also sell our own** CMT**(California Mastitis Test),** which is used to estimate somatic cell counts in milk. Sales ofCMT** aggregated approximately 1% of our total product sales during the periods reported. Sales ofCMT were approximately $62,000 and $60,000 during the quarters ended September 30, 2025 and 2024, respectively. Sales ofCMT were approximately $147,000 and $140,000 during the nine-month periods ended September 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, nine-month and trailing twelve-month periods ended June 30, 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, nine-month and trailing twelve-month periods ended September 30, 2025 and 2024 are summarized in the following tables (in thousands, except for percentages):

Previous 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.

Current wording

Manufacturing with biologicals is complex and production yields can be variable. 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 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):

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 43%, 44%, 42% and 37% during the most recent quarters ended September 30, 2025, 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 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):

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. We increased purchases of hyperimmunized colostrum as part of our investment to double our production capacity from approximately $16.5 million to more than $30 million per year. From late 2022 to early 2024, we reduced production output to remediate certain related production contamination events. This resulted in the buildup of more colostrum than we needed to produce at the $30 million per year level of output. We intend to sell some of this inventory without further processing at market rate, which is less than our cost. During the third quarter of 2025, we recorded a non-cash write-down to cost of goods sold in the amount of $156,000 to reduce the value of this hyperimmunized colostrum to approximate market value for raw colostrum. We expect cash to be received during the fourth quarter of 2025 or the first quarter of 2026 from any sale of this colostrum, if successful, going forward. While having sufficient inventory levels of critical components 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. The change in Work-in-Process inventory is demonstrated in the following table (in thousands, except for percentages):

Previous wording

d) Sales and Marketing Expenses and Selling Strategy

Current wording

c)* Sales and Marketing Expenses and Selling Strategy*

Previous 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.

Current wording

During the quarter ended September 30, 2025, sales and marketing expenses increased by 9%, or $75,000, to $919,000 in comparison to $844,000 during the quarter ended September 30, 2024, amounting to 17% and 14% of product sales during the quarters ended September 30, 2025 and 2024, respectively. Sales and marketing expenses included non-cash depreciation and stock-based compensation expenses of $35,000 and $44,000 during the quarters ended September 30, 2025 and 2024, respectively. During the nine-month period ended September 30, 2025, sales and marketing expenses decreased by 6%, or $158,000 to $2.5 million in comparison to $2.6 million during the nine-month period ended September 30, 2024, amounting to 12% and 14% of product sales during the nine-month periods ended September 30, 2025 and 2024, respectively. Sales and marketing expenses included non-cash depreciation and stock-based compensation expenses of $64,000 and $131,000 during the nine-month period ended September 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 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 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.

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 for large dairies and calf ranches seeking a cost-effective product. During the years ended December 31, 2024 and 2023, we treated more calves than our next largest calf-level competitive product, which is a vaccine administered to the newborn at birth. Compared to the dam-level competitive products (which are vaccines given to the cow pre-calving), we are second in sales dollars to the market leader. Despite these successes, there remains significant opportunity to displace more competition within North America. There is also opportunity to grow our sales by expanding into international markets.

Previous 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.

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. 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 use 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 related to overuse of antibiotics.

Previous wording

While mindful of being prudent with how much cash we invested in inventory that would have short expiry dating if market launch were delayed, we did build DS inventory during 2022 and 2023 to support potential initial sales ofRe-Tain****®. Over the second half of 2025, we plan to test market acceptance ofRe-Tain****®in collaboration with Michigan State University through Investigational Product use with inventory on hand that now has a relatively short shelf life. We do not anticipate the Investigational Product use to generate sales or gross margin. Although the FDA in 2018 granted a zero milk-discard period forRe-Tain****®, we are introducing a short discard period in these studies out of an abundance of caution. This is due to the possibility that Nisin levels – while considered safe for adult human consumption – could impact certain milk processing applications. If we determine that a milk discard period is required by milk processors at launch, we expect it to be significantly shorter than those associated with traditional antibiotics currently on the market. Discarded milk is often fed to calves, and we believe that this discarded milk would be much healthier for calves than antibiotic-laden milk. It is our objective to complete the study and data analysis during the first quarter of 2026. Our go-to-market strategy forRe-Tain® has evolved in response to FDA approval delays and cash constraints. A full commercial launch will not proceed until three key conditions are met: 1) FDA approval is obtained; 2) a validated aseptic fill solution for DP is in place; and 3) adequate cash is available to produce commercial inventory. In the meantime, we are focused on three key projects: 1) conducting in-field demonstration trials under Investigational Product use status, which could provide valuable insights into how producers perceive this product’s benefits and integrate the product into their herd health protocols; 2) evaluating strategic options that could offset some cash requirements and enable a mass-market launch ofRe-Tain®; and 3) investigating alternative uses for theRe-Tain®manufacturing plant and equipment. This disciplined approach is intended to protect shareholder value, ensure regulatory compliance and support a successful market entry.

Current wording

While mindful of being prudent with how much cash we invested in inventory that would have short expiry dating if market launch were delayed, we did build DS inventory during 2022 and 2023 to support potential initial sales ofRe-Tain®. During the second half of 2025, we are testing market acceptance ofRe-Tain®*** in collaboration with Michigan State University through Investigational Product use with inventory on hand that now has a relatively short shelf life. We do not anticipate the Investigational Product use to generate sales or gross margin. Although the FDA in 2018 granted a zero milk-discard period forRe-Tain*®, we are introducing a short discard period in these studies out of an abundance of caution. This is due to the possibility that Nisin levels – while considered safe for adult human consumption – could impact certain milk processing applications. If we determine that a milk discard period is required by milk processors at launch, we expect it to be significantly shorter than those associated with traditional antibiotics currently on the market. It is our objective to complete the study and data analysis during the first quarter of 2026. Our go-to-market strategy forRe-Tain® has evolved in response to FDA approval delays and cash constraints. A full commercial launch will not proceed until three key conditions are met: 1) FDA approval is obtained; 2) a validated aseptic fill solution for DP is in place; and 3) adequate cash is available to produce commercial inventory. In the meantime, we are focused on three key projects: 1) conducting in-field demonstration trials under Investigational Product use status, which could provide valuable insights into how producers perceive this product’s benefits and integrate the product into their herd health protocols; 2) evaluating strategies that could offset some cash requirements and enable a mass-market launch ofRe-Tain®; and 3) investigating alternative uses for theRe-Tain® manufacturing plant and equipment. This disciplined approach is intended to protect shareholder value, ensure regulatory compliance and support a successful market entry.

Previous 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.

Current wording

Overview: The majority of our product development expenses pertain to the development ofRe-Tain®. During the quarter ended September 30, 2025, product development expenses decreased by 12%, or $92,000, to $694,000 in comparison to $786,000 during the quarter ended September 30, 2024. Product development expenses aggregated approximately 13% of product sales during both of the quarters ended September 30, 2025 and 2024. Product development expenses included non-cash depreciation and stock-based compensation expenses of $358,000 and $367,000 during the three-month periods ended September 30, 2025 and 2024, respectively. Approximately $332,000 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 September 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 nine-month period ended September 30, 2025, product development expenses decreased by 26%, or $796,000, to $2.3 million in comparison to $3.1 million during the nine-month period ended September 30, 2024. Product development expenses aggregated 11% and 16% of product sales during the nine-month periods ended September 30, 2025 and 2024, respectively. Product development expenses included non-cash depreciation and stock-based compensation expenses of approximately $1.1 million during both of the nine-month periods ended September 30, 2025 and 2024. Approximately $999,000 and $1 million of these non-cash expenses were composed of depreciation expenses pertaining largely to our DS Facility and equipment forRe-Tain**® during the nine-month periods ended September 30, 2025 and 2024, respectively.

Previous 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.

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, after the production of inventory that we will utilize for Investigational Product use was completed, we implemented an aggressive idle of product development expenses pertaining toRe-Tain®. 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 nine-month period ended September 30, 2025, product development expenses (excluding depreciation) were reduced to $1.3 million (of whichRe-Tain® development expenses were $919,000) in comparison to $2.1 million (of whichRe-Tain® development expenses were $1.8 million) during the nine-month period ended September 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 three months, subject to available funding. At the same time, we are exploring strategies 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 of 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 (in thousands, except for the assessed value) discloses how much of the new taxes we have generated is being relieved by the TIF of how much we are paying:

Previous wording

Effectiveness: During the first quarter of 2013, we received the Effectiveness Technical Section Complete Letter from the FDA. The anticipated product label (which remains subject to FDA approval) carries claims for the treatment of subclinical mastitis associated with Streptococcus agalactiae, Streptococcus dysgalactiae, Streptococcus uberis, and coagulase-negative staphylococci in lactating dairy cattle.

Current wording

Effectiveness: During the first quarter of 2013, we received the Effectiveness Technical Section Complete Letter from the FDA. The anticipated product label (which remains subject to FDA approval) carries claims for the treatment of subclinical mastitis associated withStreptococcus agalactiae,Streptococcus dysgalactiae,Streptococcus uberis, and coagulase-negative staphylococci in lactating dairy cattle.

Previous 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.

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 is focused on the commercial manufacture of the Drug Product. Details of this effort are described below.

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****®. 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.

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 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.

Previous 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.

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. The FDA notified us during the second quarter of 2024 that the inspectional observation at our DS facility had been cleared, and we 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.