IMMUCELL CORP /DE/

Current report

Overview

Current report

ImmuCell Corporation is an animal‑health biologics company that develops, manufactures, and commercializes products designed to improve the survival, health, and long‑term performance of newborn dairy and beef calves. The Company's practical, science-based solutions help prevent calf scours, one of the most prevalent diseases in neonatal calves worldwide that accounts for 30-40% of pre-weaning mortality in many production systems. The Company’s primary product line, First Defense® utilizes hyperimmunized bovine colostrum to provide pathogen-specific antibodies and other bioactive components. First Defense® is designed to provide Immediate Immunity™ through orally delivered antibodies against the principal viral and bacterial causes of neonatal calf diarrhea (scours), includingEscherichia coli (E.coli), bovine coronavirus, and bovine rotavirus. First Defense® is available in several formats—single‑dose boluses, gel syringes, and multi‑dose powder options—to fit different calf‑management needs. The Company’s manufacturing platform includes proprietary vaccine development, dairy herd hyperimmunization management, colostrum sourcing and qualification, antibody concentration and purification processes, blending, fill-finish operations, and final product testing and release. The Company markets its products through its commercial sales team, in partnership with national and regional animal‑health distributors. Its primary customers are U.S. and Canadian dairy operations, calf ranches, and beef producers, all of whom must manage calves during the critical first weeks of life—a period in which scours and other early‑life health issues can materially affect survival of the calf, farm labor inputs, growth rates, and lifetime productivity per head of cattle. Although our commercial presence outside North America is currently limited, the Company is pursuing international expansion by seeking additional regulatory approvals and building distributor partnerships. The Company has recently increased its focus on and resources for global business development as part of its long‑term growth strategy.

Current report

Key Highlights and Developments in the Year Ended December 31, 2025

Current report

We expanded our manufacturing capacity from approximately 3 million manufactured units during the year ended December 31, 2023 to 4.1 million manufactured units during the year ended December 31, 2024, and 4.6 million manufactured units during the year ended December 31, 2025. We eliminated a production contamination related backlog by the end of June 2025. We are currently identifying additional opportunities to further increase our manufacturing capacity in the future. See Item 1 — Business for further discussion about the Company's strategy for expanding production.

Current report

For the year ended December 31, 2025 compared to the year ended December 31, 2024, we grew revenue by 4.3%, and improved gross margin from 30% to 41% of product sales.

Current report

In December of 2025, we announced a strategy pivot to focus on First Defense® and pause further investment in manufacturing Re-Tain®, to allow us to focus on the scours market opportunity. Re-Tain®was a product development initiative that the Company had pursued for some time. As a result of this decision, we recognized a $2.7 million non-cash impairment charge related to property, plant and equipment, which is included in other expenses, net. Beginning in 2026, we expect that certain product development expenses formerly associated with Re-Tain® manufacturing, including depreciation expense for manufacturing facilities and equipment that we plan to repurpose for the production of First Defense®, as well as other costs including employee-related expenses, will be included in First Defense® costs of goods sold. Furthermore, depreciation expense for idle assets, which were formerly associated with Re-Tain®, that we plan to refit for the purpose of manufacturing First Defense®, may fluctuate as a result of re-evaluating the useful life of the assets.

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Fiscal 2025 also saw significant realignments in company management. We hired a new President and Chief Executive Officer, created and filled a Chief Financial Officer position, and eliminated the Vice President of Operations role.

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Results of Operations for the Year Ended December 31, 2025, Compared with the Year Ended December 31, 2024

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Product sales during the year ended December 31, 2025 were $27.6 million representing a 4%, or $1.2 million, increase over product sales of $26.5 million during the year ended December 31, 2024. The increase was primarily due to an additional $4.2 million of sales of our Tri-Shield® product as a result of higher purchasing volume from existing customers and new dairy and beef customers seeking protection for their calves. The increase was partly offset by an anticipated migration from Dual-Force®products of $2.6 million, as well as $0.4 million decrease in our First Defense Technology® product. We had an order backlog heading into 2024, which benefited product sales in the year ended December 31, 2024 as compared to the year ended December 31, 2025. We entered 2024 with $9.4 million of order backlog, reducing it to $4.4 million by December 31, 2024. By the end of June 2025, we had substantially eliminated the order backlog but still managed to post this increase in product sales for the year ended December 31, 2025. We ended 2025 with no material order backlog. While there is always uncertainty in manufacturing with biological materials, we do not anticipate recurrence of significant future order backlog at this time.

Current report

Domestic sales during the year ended December 31, 2025 increased by 6.5%, and international sales decreased by 9.6%, in comparison to the year ended December 31, 2024. The decrease in international sales was primarily driven by order timing in Canada. International sales aggregated 12% and 14% of total sales during the years ended December 31, 2025 and 2024, respectively.

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Costs of Goods Sold

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Costs of goods sold during the year ended December 31, 2025 were $16.2 million representing a 13%, or $2.4 million, decrease over costs of goods sold of $18.6 million during the year ended December 31, 2024. The decrease was primarily due to manufacturing volumes and efficiencies, partly offset by approximately $0.7 million of inventory write-downs on a portion of the Company's colostrum inventory.

Current report

Product Development Expenses

Current report

The majority of our product development expenses pertain to the development of Re-Tain®, our purified Nisin treatment for subclinical mastitis in lactating cows. During the year ended December 31, 2025, product development expenses decreased by 22%, or $0.9 million, to $3.0 million in comparison to $3.9 million during the year ended December 31, 2024. This decrease was driven by a reduction in product development expenses related to Re-Tain®as part of an aggressive idle of product development expenses as we awaited what we believed would be the fifth and final Technical Section Complete Letter from the FDA. As discussed under "Key Highlights and Developments in the Year Ended December 31, 2025" above, we made the decision to no longer pursue the fifth Technical Section Complete Letter from the FDA during December 2025.

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Sales and Marketing Expenses

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During the year ended December 31, 2025, sales and marketing expenses increased by 3%, or $0.1 million, to $3.6 million in comparison to $3.5 million during the year ended December 31, 2024. This increase was primarily due to $0.4 million higher marketing and consulting as a result of increased commercial activity and inflation. Exiting the backorder situation led us to increase commercial activity generally during 2025. This increase was almost fully offset by a $0.4 million decrease in salaries and wages as a result of open positions during the year ended December 31, 2025. We are planning investments to support increased sales capacity in the year ended December 31, 2026 in both the U.S. and international markets. Sales and marketing expenses amounted to approximately 13% of product sales in both of the years ended December 31, 2025 and 2024.

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During the year ended December 31, 2025, administrative expenses increased by 44%, or $1.0 million, to $3.2 million in comparison to $2.2 million during the year ended December 31, 2024. The increase was primarily due to $0.8 million of costs associated with executive officer changes and additions. On April 7, 2025, we added a chief financial officer to the administrative team. On November 1, 2025, we hired a new President and CEO because of the pending retirement of our former President and CEO. In connection with this hire, we incurred certain one-time expenses, including recruiting fees, a signing bonus and overlapping transitional wages for two months with our former President and CEO. These one-time items contributed to $0.3 million of the $0.8 million costs associated with the executive officer changes and additions. Also contributing to the administrative expense increase was an additional $0.1 million of information technology costs as compared to the prior year. This increasing level of investment in executive staff and infrastructure is intended to support our anticipated growth. In 2026, we anticipate higher administrative expenses associated with the full-year impact of increased headcount and higher wages, much of which is non-cash share-based compensation and other incentive accruals.

Current report

During the year ended December 31, 2025, other expenses, net, increased by 429%, or $2.2 million, to $2.7 million in comparison to $0.5 million during the year ended December 31, 2024. The increase was primarily due a $2.7 million non-cash impairment charge related to property, plant and equipment, formally related to the Re-Tain® product line. Partly offsetting the increase was insurance recoveries related to inventory damages occurring in prior periods of $0.4 million.

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Income Tax Expense

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The Tax Cuts and Jobs Act of 2017 reduced the U.S. corporate income tax rate to 21% and modified rules governing net operating loss carryforwards and carrybacks, among other changes. On July 4, 2025, the One Big Beautiful Bill Act was enacted, which permanently extends and modifies certain provisions of the Tax Cuts and Jobs Act. Key provisions include 100% bonus depreciation for qualified property, immediate expensing of domestic research and experimental expenditures under IRC Section 174A, and restoration of an Earnings Before Interest Taxes Depreciation and Amortization (EBITDA)-based calculation for the business interest expense limitation under IRC Section 163(j). The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The legislation did not have a material impact on our effective tax rate for the year ended December 31, 2025 or our financial statements. We continue to evaluate the impact of these provisions on our tax position, including their effect on our deferred tax assets and related valuation allowance.

Current report

Our effective income tax rate differs from the statutory U.S. corporate tax rate primarily because we continue to provide a full valuation allowance against our deferred tax assets. While this valuation allowance remains in place, we are not recognizing the benefit of our tax losses. We evaluate the realizability of our deferred tax assets at each reporting date, considering all available positive and negative evidence, and will reduce the valuation allowance to the extent it becomes more likely than not that some or all of the deferred tax assets will be realized.

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Our sources of liquidity and capital resources are cash flows from operations, proceeds from our sale of common stock under our At-The-Market Agreement with Craig-Hallum Capital Group LLC (ATM Agreement), and borrowings available under our bank line of credit.

Current report

In April of 2024, we entered into our ATM Agreement, which allows us to offer and sell up to $11 million of shares of our common stock. Proceeds, net of upfront legal, accounting and other fees, less sales commissions during the year ended December 31, 2025 and December 31, 2024 were $0.3 million and $4.4 million, respectively. Particularly in 2024, this provided a financial bridge to fund our operations during a backlog situation that lasted from 2022 to mid-2025. As of December 31, 2025, we have the capacity to sell $6 million of shares under the ATM Agreement but no pending plan to issue additional shares under that arrangement.

Current report

(1) There were 801,760 and 664,000 shares of common stock reserved for stock option issuance that were outstanding as of December 31, 2025 and 2024, respectively.

Current report

We continuously assess sources and uses of cash for our business. In addition to normal working capital requirements, we anticipate that our short-term and long-term cash requirements consist primarily of general corporate needs, capital expenditures, debt requirements, amounts due under operating lease agreements, and other commitments. Based on our current best estimates, we believe that our existing cash and cash equivalents, together with cash flows from operations and our bank line of credit, will be sufficient to meet our currently planned working capital, capital expenditure, and debt requirements and to finance our ongoing business operations for at least the next 12 months and the foreseeable future.

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Cash Flows

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Net cash provided by operating activities increased $2.1 million during the year ended December 31, 2025 as compared to the year ended December 31, 2024. This increase was primarily due to $1.9 million less cash being used for accounts receivable and a $1.1 million decrease in net loss, which included a $2.7 million increase in non-cash adjustments. These factors were partly offset by a $2.9 million increase in cash used for inventory as a result of our efforts to replenish after periods of high backlog.

Current report

Net cash used for investing activities increased $0.8 million during the year ended December 31, 2025, as compared to the year ended December 31, 2024, primarily due to cash spent to fund the purchase of property, plant and equipment primarily for manufacturing. Cash used on property, plant and equipment represents more normalized spend levels than 2024, when there was a significant effort to conserve cash.

Current report

Net cash used for financing activities increased $4.0 million during the year ended December 31, 2025 as compared to the year ended December 31, 2024. The increase in net cash used was primarily due to an approximate reduction of $4.3 million in proceeds from sales of common stock under the ATM Agreement, partly offset by lower payments of equity offering costs. During the year ended December 31, 2025, we refinanced a portion of our bank debt, resulting in borrowings and repayments in approximately the same amount. During the year ended December 31, 2025, we also made standard mandatory repayments on our bank debt of approximately $1.5 million, which were generally consistent with the same payments in the prior year.

Current report

Covenants and Restrictions

Current report

Our debt with Maine Community Bank is subject to certain financial covenants. We are required to meet a minimum debt service coverage (DSC) ratio of 1.35. Our actual DSC ratios were 2.65 and 0.73 for the years ended December 31, 2025, and 2024, respectively. In the second, third and fourth quarters of 2024, the bank preemptively waived the DSC waiver. There is no assurance that we will be able to achieve the required DSC ratio going forward. If we are unable to do so or reach a favorable agreement with our lenders regarding that requirement (including an amendment to or waiver of such requirement), we would be in violation of that covenant, which could result in unfavorable amendments to the terms of our bank debt (including a possible bank requirement to prepay our debt) or have other adverse impacts on our business and results of operations.

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Commitments and Contingencies

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See Part II: Item 8 — Financial Statements and Supplementary Data:** **Note 10, "Commitments and Contingencies" for disclosure of the Company's commitments and contingencies as of December 31, 2025.

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Inventory

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We evaluate inventory for excess, slow moving, and obsolete items and record an adjustment when the cost of inventory exceeds its estimated net realizable value. The inventory valuation adjustment to net realizable value establishes a new cost basis of the inventory that cannot be subsequently reversed. The effect of any inventory adjustment is recorded in costs of goods sold, as appropriate.

Current report

In developing inventory adjustments for excess, slow moving, and obsolete inventory, we are required to use judgment and make estimates of future sales demand and production requirements compared with current inventory levels. Our estimate of projected sales demand and production requirements is primarily based on actual orders received, historical demand, product life cycle changes, product pricing, economic trends, and competitive factors, such as market and pricing trends for similar products. Projecting sales demand and production requirements involves significant management judgment regarding future events. Future events that could significantly influence our judgments and related estimates include general economic conditions within the specific markets in which we operate, changes in demand for our products and customer preference, price fluctuations, and actions of our competitors, including the introduction of new products, technological advances, and pricing changes. Projected sales demand and production requirements can also be affected by the significant redesign of our existing products or the replacement of an existing product by an entirely new generation of product. It is possible that an unfavorable adjustment to our inventory for excess, slow moving, and obsolete inventory may be required in the future if there is a change in any of the aforementioned factors that adversely impacts our estimates of future demand for our products and we do not modify our purchases or production schedule accordingly.

Current report

Long-lived Assets

Current report

We periodically evaluate our long-lived assets, consisting principally of property, plant and equipment, net, operating lease ROU asset and amortizable intangible assets, for potential impairment. In accordance with the applicable accounting guidance for the treatment of long-lived assets, we review the carrying value of our long-lived assets or asset group that is held and used, including intangible assets subject to amortization, for impairment whenever events and circumstances indicate that the carrying value of the assets may not be recoverable. Under the held for use approach, the asset or asset group to be tested for impairment should represent the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the carrying amount of a long-lived asset group exceeds the related undiscounted future cash flows, we recognize an impairment loss by the amount that the carrying value of the asset exceeds fair value.

Current report

Income Taxes

Current report

We account for income taxes in accordance with ASC 740,Income Taxes, which requires that we recognize a current tax liability or asset for current taxes payable or refundable and a deferred tax liability or asset for the estimated future tax effects of temporary differences and carryforwards to the extent they are realizable. We consider future taxable income and feasible tax planning strategies in assessing the need for a valuation allowance against our deferred tax assets at the end of each quarter. If we determine that it is more likely than not that we will realize our deferred tax assets in the future in excess of the net recorded amount over a reasonably short period of time, a reduction of the valuation allowance would increase income in the period such determination was made. Likewise, if we determine that it is more likely than not that we will not realize all or part of our net deferred tax asset in the future, an increase to the valuation allowance would be charged to income in the period such determination was made.

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OUTLINE TO ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTES OF OPERATIONS

Previous report

We are fortunate to be experiencing strong customer demand for the First Defense® product line, but the significant investments in facilities, equipment and staffing necessary to double our production capacity have been challenging. Despite delays in the installation of certain equipment, we completed these capacity-expanding investments around the end of 2022. In late 2022, we began experiencing production contamination events that became more frequent during 2023 and continued through April of 2024. With newly implemented controls in place, we now believe that we have successfully remediated the issues underlying these contamination events. Our next challenge is to resume our past production yields and achieve our gross margin goals in excess of 40%. By both remediating the contamination events and optimizing the operation of the new equipment installed to increase production output, we began to improve process yields beginning during the fourth quarter of 2024, as demonstrated by the 37% gross margin we achieved during the fourth quarter of 2024. We did not find one “smoking gun” as the root cause to the contamination and yield losses. We think the solution is more about optimizing and controlling critical process parameters and multiple production inputs and process steps.

Previous report

Concurrently, we are reducing product development expenses as we await approval of Re-Tain®by the FDA. After an investment of about 25 years and approximately $50 million in the development of this technology, we are committed to seeing this product through to regulatory approval and our previously disclosed limited distribution, controlled launch strategy (Controlled Launch). At the same time, we are also in the very early stages of exploring potential strategic options that could offset some of our product development expenses and enhance a mass-market launch of Re-Tain®. In order to help fund these gross margin losses and production capacity expansions, we raised some new debt during 2023 and equity during 2024.

Previous report

Net cash used for investing activities was ($461,000) during the year ended December 31, 2024 versus ($1.9 million) during the prior year consisting primarily of cash spent to fund the purchase of property, plant and equipment. To conserve cash at this time, we have deferred all large dollar capital expenditure projects.

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Capital Expenditure Investments

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During the three-year period ended December 31, 2016, we invested the aggregate of $4.2 million to construct a 7,100 square foot facility addition at 56 Evergreen Drive (Building 56) and related equipment (primarily Freeze-Dryer #2) and cold storage capacity increasing our freeze-drying capacity by 100% and making other improvements to our liquid processing capacity, which increased our annual production capacity (in terms of annual sales dollars) to approximately $16.5 million. When we describe the production capacity for theFirst Defense® product line in this Annual 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. During the first quarter of 2016, we completed this investment, which also included the construction and equipping of a pilot plant for small-scale DS production forRe-Tain®withinBuilding 56. After construction of the DS production facility forRe-Tain® at 33 Caddie Lane (Building 33) was completed, this space was converted for use in the production of the gel tube formats of the**First Defense®**product line. After renovations of our leased facility at 175 Industrial Way (Building 175A) were completed during the second quarter of 2020, this space was converted to double our liquid processing capacity.

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During the four-year period ended December 31, 2018, we invested the aggregate of $21.6 million to construct a DS production facility forRe-Tain®atBuilding 33. During the fourth quarter of 2017, we completed construction of the DS production facility. We began equipment installation during the third quarter of 2017, and we completed this installation during the third quarter of 2018. The total cost of this investment for the DS production facility and related processing equipment was $20.8 million plus $331,000 for the land and $472,000 for the acquisition of an adjacent 4,080 square foot warehouse facility at 14 Wedge Way (Building 14), which will be used for packing, shipping and cold storage ofRe-Tain® and other warehousing needs.

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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 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). The additional investment inFirst Defense® should allow us to fulfill the current backlog ofFirst Defense® orders and materially reduce the risk of another order backlog. 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 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 demand forFirst Defense® and overcoming the current short supply that we have been experiencing.

Previous report

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

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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):

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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 and 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 contemporary cGMP standards with efficient material and people flows. A site license approval for this new facility was issued by the 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.

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

Previous report

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

Previous report

Production Contamination Events

Previous report

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 the second half of April of 2024 appear to have been successful so far because we have run without contamination since then. Throughout these contamination events, all product that was sold to market met all in-process and final release testing to meet USDA-required quality standards.

Previous report

As we look back at these production contamination events, we believe that the root cause of the initial contaminations was associated with rapid growth in our purchases from the farms where we acquire our raw material. Having largely remediated that problem, we then experienced additional contaminations that we believe were largely caused by rapidly increasing our production capacity. Our proprietary production process does allow us to create an effective product out of a non-aseptic starting raw material. This requires a careful monitoring, however, of the tradeoff between the benefit of adding more heat for longer periods of time to reduce bacterial load against the alternative benefit of less heat for shorter periods of time to preserve more antibody content. Although using more heat could potentially reduce bacterial load, our yield is higher when we use less heat. We know that putting our Work-in-Process inventory through freeze/thaw cycles is not beneficial to yield and increases the risk of contamination. One effective improvement we have implemented, where appropriate, is to lengthen the time of a heat treatment step instead of running two shorter heat treatment steps separated by a freeze/thaw. As we continue to optimize these critical process parameters, we believe we can significantly reduce the risk of further contaminations and improve our gross margin.

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Although these types of losses are expected to happen from time to time in the production of a biological product such as ours, we believe that the sudden and large contamination events were related in several different ways to our efforts to increase production output. We also believe we have mitigated the risk of large-scale reoccurrence of such losses by implementing various new quality control steps and manufacturing process and facility improvements. To meet our goals, we must run without significant equipment failures or contamination losses, and we must continue to improve our production yields.

Previous report

The production contamination events and other production process losses experienced resulted in scrapped inventory valued as shown in the following table (in thousands):

Previous report

We still have more work to do to catch up to product demand forFirst Defense®. We continue to optimize our investments to increase production capacity and to implement the corrective actions being 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 are allowing us to steadily ramp back up to full production capacity. Our current goal is to exceed $30 million in annual production output, while also allowing for essential preventative maintenance. We believe that the $7.8 million in sales recorded during the fourth quarter of 2024 suggests that during the quarter we achieved, even exceeded, this goal.

Previous report

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

Previous report

We pursued an insurance claim under our business interruption policy to offset at least some portion of the losses that we incurred from the contamination events discussed above. Although not a total recovery of our financial losses, we did settle our insurance claim during the first quarter of 2025 and received an insurance payout of approximately $427,000, which is in addition to the $250,000 that we previously received during the third quarter of 2023 under this claim.

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Results of Operations

Previous report

Our near-term goal is to increase and stabilize supply ofFirst Defense®, regain lost business and continue our growth curve. This goal not only aims to meet end-user demand but also to replenish our distributors with the necessary buffer stock. The significant increase in sales recognized during the fourth quarter of 2024 results from our higher production output, but also from the comparison to 2023 when our sales were limited due to a production slowdown necessary to remediate certain contamination events. We do not anticipate being able to repeat this high level of year-over-year sales growth when we compare 2025 to 2024. We do not solely benchmark our sales expectations off trailing twelve-month sales results. Instead, we look at the sales of competitive products to assess the size of the addressable market and plan for growth when projecting our future production capacity needs.

Previous report

Sales during the three-month period ended December 31, 2024 were $7.8 million, representing a 52%, or $2.7 million, increase over sales of $5.1 million during the fourth quarter of 2023. Sales during the year ended December 31, 2024 were $26.5 million, representing a 52%, or $9 million, increase over sales of $17.5 million during the year ended December 31, 2023. By increasing production capacity and mitigating contamination events, we were able to significantly increase sales during the most recent periods compared to the year prior. Quarter to quarter sales since the beginning of 2022 are displayed in the following table:

Previous report

We captured a 52% increase in sales revenue during the fourth quarter of 2024 compared to the fourth quarter of 2023. Domestic sales during the three-month period ended December 31, 2024 increased by 35%, and international sales increased by 308%, in comparison to the three-month period ended December 31, 2023. International sales aggregated 17% and 6% of total sales during the three-month periods ended December 31, 2024 and 2023, respectively. The quarterly sales results are summarized in the following table (in thousands, except for percentages):

Previous report

We captured a 52% increase in sales revenue during the year ended December 31, 2024 compared to the year ended December 31, 2023. Domestic sales during the year ended December 31, 2024 increased by 44%, and international sales increased by 136%, in comparison to the year ended December 31, 2023. International sales aggregated 14% and 9% of total sales during the years ended December 31, 2024 and 2023, respectively. The sales results for the years are summarized in the following table (in thousands, except for percentages):

Previous report

Sales of theFirst Defense® product line made up 99% of our total sales during both of the three-month periods ended December 31, 2024 and 2023 and during both of the years ended December 31, 2024 and 2023. 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.

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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. This new product format has become the highest revenue contributor, as demonstrated in the table below (in thousands, except for percentages):

Previous report

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

Previous report

The production slowdown during the first ten months of 2023 helped cause an increase in the amount of our order backlog. Valuation of the backlog is a non-GAAP estimate that is based on purchase orders on hand at the time that could not be met because of a lack of available inventory. We are reporting this figure because it reflects the orders on our books presently that we cannot ship. Quantification of the backlog during the current periods has become far less comparable to prior periods. At times, customers have placed orders for more than a month’s worth of their demand, perhaps in reaction to our ongoing backlog situation, whereas in the past they ordered more closely in line with their current demand. We are concerned that this backlog amount may not be highly relevant at this time as it includes very old orders, redundancy in demand and orders that may be cancelled given the time that has passed since they were originally placed.

Previous report

The backlog was reduced from approximately $2.4 million as of December 31, 2021 to approximately $205,000 as of September 30, 2022. In part because of a first contamination event experienced around the end of the third quarter of 2022, our backlog increased to approximately $2.5 million as of December 31, 2022. In part because of a second contamination event experienced during the first quarter of 2023, the backlog continued to increase to approximately $7.5 million as of March 31, 2023, to approximately $8 million as of June 30, 2023, to approximately $8.9 million as of September 30, 2023 and to approximately $9.4 million as of December 31, 2023. We were able to reduce this backlog modestly to approximately $9.1 million as of March 31, 2024 and then reduce it further to approximately $8.9 million as of June 30, 2024. We were able to reduce this backlog further to approximately $7.3 million as of September 30, 2024 and then further to $4.4 million as of December 31, 2024. The backlog of orders was worth approximately $4.7 million as of March 21, 2025. As sales demand increased while our production output was reduced, the value of our order backlog has fluctuated as demonstrated in the following table:

Previous report

Effective January 1, 2022, we increased our selling price of theFirst Defense®product line by approximately 5% andCMTby approximately 7%. Effective January 1, 2023, we increased our selling price of theFirst Defense®product line by approximately 4% (a range of 2% to 8%) andCMT by approximately 5%. Effective November 15, 2023, we increased our selling price of theFirst Defense®product line by approximately 8%. Also, effective November 15, 2023, we increased our selling price forCMT by approximately 12%. Effective January 1, 2025, we increased our selling price of theFirst Defense®product line by approximately 6% (a range of 5% to 7.5%). At the same time, we also increased our selling price forCMTby approximately 7%.

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b) Gross Margin

Previous report

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 periods and years ended December 31, 2024 and 2023 are summarized in the following tables (in thousands, except for percentages):

Previous report

The gross margin during recent periods was significantly less than what we anticipate going forward. The 2023 reduction in production output was largely the result of our decision to slow down our production rate while remediating the production contamination events discussed above. During 2023, we did not benefit from spreading our fixed costs over higher volumes as we normally do. Further, we did not furlough any labor during this production slowdown. As we build back sales, we are increasing the amount of gross margin earned compared to prior periods and improving the gross margin as a percentage of sales compared to 2023. The gross margin as a percentage of product sales was 30%, 22%, 41%, 45%, 45%, 49%, 47% and 50% during the years ended December 31, 2024, 2023, 2022, 2021, 2020, 2019, 2018 and 2017, respectively. The 22% gross margin percentage during the year ended December 31, 2023 (including even lower gross margin percentages during the three-month period ended March 31, 2023 and the six-month period ended June 30, 2023) was our lowest ever. Achieving process yield improvements (in addition to running without significant equipment failures or product contaminations) will be essential to increasing our gross margin in future periods. Some of the critical process parameters that we are investigating include optimizing: 1) the time and temperature for pasteurization steps, 2) a critical filtration step and 3) the antibody content of incoming Work-in-Process inventory. As we fully integrate and utilize our increased capacity and evaluate our product costs and selling price, we believe we could increase our gross margin by approximately 3 to 8 percentage points over the 37% gross margin reported for the three-month period ended December 31, 2024. Our immediate goal is to resume a 40% gross margin. This goal has been reduced from prior projections given the lower rates experienced during 2023.

Previous report

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 are creating sales growth for us, and we are focused on increasing total gross margin dollars, even if that is accomplished with a lower gross margin as a percentage of sales. 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 in our production processes. Increasing production can be more expensive in the initial stages. To achieve our inventory production growth objectives, we continue to acquire more raw material (colostrum) from many more cows at several new farms. 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 our**First Defense®**product line is that we compensate for the variability in a cow’s immune response by standardizing each dose of finished product. This ensures that every calf is equally protected, which is something that dam-level commercial scours vaccines cannot offer. We continue to work on processing and yield improvements and other opportunities to reduce costs, while enhancing process knowledge and robustness.

Previous report

Additionally, the significant global supply-chain disruptions that almost all industries are experiencing presently are a challenge to us. The costs of our critical supplies, components, raw materials, utilities and services increased significantly during 2021 and that trend has continued since then. We have little choice but to pay the higher prices and try to take on more months of supply than we would have held previously if we could get our orders fulfilled timely. We believe that gross margin trends going forward should be viewed over longer periods of time than just one quarter.

Previous report

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

Previous report

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

Previous report

c) Product Development Expenses and Strategy

Current report — wording carried from elsewhere

The audited financial statements are presented on the basis of accounting principles that are generally accepted in the United States. All professional accounting standards that were effective and applicable to us as of December 31, 2025 have been taken into consideration in preparing the financial statements. The preparation of financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. See Part II: Item 8 — Financial Statements and Supplementary Data:** **Note 2, "Basis of Presentation and Use of Estimates and Significant Accounting Policies", for a complete discussion of recently issued accounting standards adopted and not yet adopted.