Immucell Corp: Form 10-Q for the period ended Sep 30, 2025

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.

Cautionary Note Regarding Forward-Looking Statements (Safe Harbor Statement):

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 of Re-Tain® by dairy producers; growth in acceptance of our First 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 covenants; anticipated changes in our manufacturing capabilities and efficiencies; our future effectiveness in competing against competitors within both our existing and our anticipated product markets; projections about depreciation expense and its impact on income for book and tax return purposes; and any other statements that are not historical facts. These statements are intended to provide management's current expectation of future events as of the date of this earnings release, are based on management's estimates, projections, beliefs and assumptions as of the date hereof; and are not guarantees of future performance. Such statements involve known and unknown risks and uncertainties that may cause the Company's actual results, financial or operational performance or achievements to be materially different from those expressed or implied by these forward-looking statements, including, but not limited to, those risks and uncertainties relating to: difficulties or delays in development, testing, regulatory approval, production and marketing of our products (including the First Defense® product line and Re-Tain®), competition within our anticipated product markets, customer acceptance of our new and existing products, product performance, alignment between our manufacturing resources and product demand (including the consequences of backlogs), uncertainty associated with the timing and volume of customer orders as we come out of a prolonged backlog, adverse impacts of supply chain disruptions on our operations and customer and supplier relationships, commercial and operational risks relating to our current and planned expansion of production capacity, our ability to obtain colostrum that meets our specifications, and other risks and uncertainties detailed from time to time in filings we make with the SEC, including our Quarterly Reports on Form 10-Q, our Annual Reports on Form 10-K and our Current Reports on Form 8-K. Such statements involve risks and uncertainties and are based on our current expectations, but actual results may differ materially due to various factors, including the risk factors summarized under PART II: OTHER INFORMATION, ITEM 1A-RISK FACTORS and uncertainties otherwise referred to in this Quarterly Report. In addition, there can be no assurance that future risks, uncertainties or developments affecting us will be those that we anticipate. We undertake no obligation to update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

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

• Liquidity and Capital Resources
• Capital Expenditure Investments
• Production Contamination Events
• Results of Operations (Subsections a through i)
• Critical Accounting Policies and Estimates

Liquidity and Capital Resources

During the second half of 2024, we began reducing product development expenses, as we await approval of Re-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 for Re-Tain® to offset some of our product development expenses.

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 to Re-Tain®), while not affecting our cash flows from operations, will be a significant factor in reducing our net income.

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 for First Defense® from approximately $30 million or more to approximately $40 million or more.

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.

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):

(1) There were 738,483 and 664,000 shares of common stock reserved for issuance for stock options that were outstanding as of September 30, 2025 and December 31, 2024, respectively.

* This amount is less than 1%.

Capital Expenditure Investments

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 for First Defense® product line during 2014. During 2018, it became clear that demand for Tri-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 the First 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 the First 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.)

Operating at very close to 100% of available capacity was not efficient or sustainable. With our increased capacity, we now operate at output levels that allow us to cover sales with adequate buffer stock, while also allowing adequate time for necessary preventative maintenance. To accommodate future increases in demand, we will need to meet or exceed our production yield assumptions. We remain deeply committed to meeting ongoing demand for First Defense®.

The first phase of the additional investments in First Defense® beginning in 2019 included significant renovations to a 14,300 square foot leased facility at Building 175A, some facility modifications at Building 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 the First Defense® product line (in terms of annual sales dollars) from approximately $16.5 million to approximately $23 million.

The second phase of our additional investments in First Defense® included the installation of Freeze-Dryer #4 to further increase the estimated annual production capacity of the First 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.

The third phase of additional investments in First Defense® involved the construction of an additional 15,400 square feet of space adjacent to and connected to Building 175A at 175 Industrial Way (Building 175B) and will involve the purchase of new equipment to further increase our estimated annual First 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) at Building 56 from our clean downstream processes (milling, formulation, filling and packaging) at Building 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 at Building 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 of Building 56 to create more space for liquid processing at Building 56. The new facilities are built to current Good Manufacturing Practices (cGMP) regulations and allow for efficient material and people flow.

We made some additional investments in Re-Tain® to bring the formulation and aseptic filling capabilities for Re-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 at Building 14 for packing and shipping facilities for Re-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.

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

(1) Investments of approximately $3 million to increase First Defense® production capacity from approximately $30 million to approximately $40 million per year and approximately $2 million to build an in-house aseptic filling facility for Re-Tain® have been deferred for the time being, due to cash constraints. These estimated costs to complete are based on historic quotations and have not been updated or adjusted to account for inflation, project scope change and other factors.

Production Contamination Events

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.

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.

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.

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):

(1) Total scrap costs during the nine-month period ended September 30, 2025 were attributed to the following causes: 38% raw colostrum reserve, 31% equipment failure, 17% operator error, 11% material failure and 3% other.

Results of Operations

a) Product Sales

Due primarily to disruptions from a series of contamination events between late 2022 and early 2024, we experienced a prolonged period of unusual backlogs. Our backlog of orders was approximately $9.1 million as of March 31, 2024, and then we reduced it to approximately $8.9 million as of June 30, 2024. We were able to reduce this backlog further to approximately $7.3 million as of September 30, 2024 and then further to $4.4 million as of December 31, 2024. The increased inventory availability, during the six-month period ended June 30, 2025 helped us decrease the backlog to less than $100,000 as of June 30, 2025, with no significant change as of September 30, 2025. Through restored and expanded production levels, distributor inventories have been replenished, and we have intentionally built up our own buffer stocks. Our top priorities moving forward are recovering lost business, caused by prolonged supply shortages, and capturing increased market share.

Refilling the distribution pipeline after an extended backlog provided a one-time boost to sales during the first half of 2025. Because this inventory rebuild was not expected to recur, we had previously stated that we might experience a softening in outbound sales during the second half of 2025. That has turned out to be the case. Sales during the third quarter of 2025 were 15% less than the second quarter of 2025 and 8% less than the third quarter of 2024.

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.

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):

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):

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We captured a 16% increase in sales revenue during the trailing twelve-month period ended September 30, 2025 compared to the trailing twelve-month period ended September 30, 2024. Domestic sales during the trailing twelve-month period ended September 30, 2025 increased by 12%, and international sales increased by 51%, in comparison to the trailing twelve-month period ended September 30, 2024. International sales aggregated 14% and 11% of total sales during the trailing twelve-month periods ended September 30, 2025 and 2024, respectively. The sales during these trailing twelve-month periods are summarized in the following table (in thousands, except for percentages):

Sales of the First 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.

We have expanded the First 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 of Tri-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):

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We also sell our own CMT (California Mastitis Test), which is used to estimate somatic cell counts in milk. Sales of CMT aggregated approximately 1% of our total product sales during the periods reported. Sales of CMT were approximately $62,000 and $60,000 during the quarters ended September 30, 2025 and 2024, respectively. Sales of CMT were approximately $147,000 and $140,000 during the nine-month periods ended September 30, 2025 and 2024, respectively.

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

b) Gross Margin

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):

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Manufacturing with biologicals is complex and production yields can be variable. The Tri-Shield® product format is more complex (i.e., three antibodies versus two antibodies for Dual-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 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 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.

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):

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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 of First 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):

c) Sales and Marketing Expenses and Selling Strategy

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

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.

The First 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. The First 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.

We believe Re-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 with Re-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 with Re-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.

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

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 of Re-Tain®. During the second half of 2025, we are testing market acceptance of Re-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 for Re-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 for Re-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 of Re-Tain®; and 3) investigating alternative uses for the Re-Tain® manufacturing plant and equipment. This disciplined approach is intended to protect shareholder value, ensure regulatory compliance and support a successful market entry.

d) Product Development Expenses and Development Strategy

Overview: The majority of our product development expenses pertain to the development of Re-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 for Re-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 for Re-Tain® during the nine-month periods ended September 30, 2025 and 2024, respectively.

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 to Re-Tain®. It has been our further objective to reduce product development expenses (excluding depreciation) to approximately $2.1 million (of which Re-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 which Re-Tain® development expenses were $919,000) in comparison to $2.1 million (of which Re-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.

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 on Building 33 (our DS production facility for Re-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:

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

Re-Tain® Development Status: Approval by the FDA of our New Animal Drug Application (NADA) for Re-Tain® is required before any sales of the product can be initiated. The NADA is comprised of five principal Technical Sections. Each Technical Section can be reviewed and approved separately. By statute, each Technical Section submission is generally subject to one or more six-month review cycles by the FDA. Upon review and assessment by the FDA that all requirements for a Technical Section have been met, the FDA may issue a Technical Section Complete Letter. The current status of our work on these submissions to the FDA is as follows:

1) Environmental Impact: During the third quarter of 2008, we received the Environmental Impact Technical Section Complete Letter from the FDA. During the second quarter of 2021, we received further clarification through a new Environmental Impact Technical Section Complete Letter covering the current dosage regimen and labeling.

2) Target Animal Safety: During the second quarter of 2012, we received the Target Animal Safety Technical Section Complete Letter from the FDA.

3) 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.

4) 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 bring Re-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. When Re-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 with Re-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.

5) 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 before Re-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 of Re-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 at Building 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.

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.

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

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

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

e) Administrative Expenses

During the quarter ended September 30, 2025, administrative expenses increased by 38%, or $201,000, to $729,000 in comparison to $528,000 during the quarter ended September 30, 2024. Administrative expenses amounted to 13% and 9% of product sales during the quarters ended September 30, 2025 and 2024, respectively. Administrative expenses included non-cash depreciation and stock-based compensation expenses of $46,000 during both of the quarters ended September 30, 2025 and 2024. During the nine-month period ended September 30, 2025, administrative expenses increased by 25%, or $411,000, to $2.1 million in comparison to $1.7 million during the nine-month period ended September 30, 2024. Administrative expenses amounted to 10% and 9% of product sales during the nine-month periods ended September 30, 2025 and 2024, respectively. Administrative expenses included non-cash depreciation and stock-based compensation expenses of $148,000 and $147,000 during the nine-month periods ended September 30, 2025 and 2024, respectively. With the growth of our First Defense® product line and the continued development of Re-Tain®, our operations have become increasingly complex. Over the years, we have relied on a small management staff to handle the banking, legal, audit and other tasks associated with being a publicly held company. Having identified the need for greater depth in our management team, in April of 2025, we added a Chief Financial Officer with prior public company experience. In June of 2025, we announced a President and Chief Executive Officer (CEO) succession planning process. In September of 2025, we announced the hiring of the CEO, whose employment began November 1, 2025. The compensation package negotiated between the CEO and the Company will further increase our administrative expenses. We maintain a limited investment in investor relations spending, utilizing a virtual meeting format. At the same time, we continue to provide full disclosure of the status of our business and financial condition in three quarterly reports and one annual report each year, as well as in Current Reports on Form 8-K when legally required or deemed appropriate by management. We believe these efforts have helped us access the capital markets to fund our growth objectives.

f) Net Operating Income (Loss)

During the quarter ended September 30, 2025, our net operating income was $20,000 in contrast to a net operating (loss) of ($575,000) during the quarter ended September 30, 2024. The $595,000 swing from net operating loss to net operating income was largely caused by a $780,000 increase in gross margin, net of a $185,000 increase in operating expenses. During the nine-month period ended September 30, 2025, our net operating income was $1.7 million in contrast to a net operating (loss) of ($2.3 million) during the nine-month period ended September 30, 2024. The $4.0 million swing from net operating loss to net operating income was largely caused by a $3.4 million increase in gross margin and a $543,000 net reduction in operating expenses.

g) Other (Expenses) Income, net

During the quarter ended September 30, 2025, other expenses, net, aggregated $155,000 in comparison to other expenses, net, of $125,000 during the quarter ended September 30, 2024. Interest expense decreased to $135,000 during the quarter ended September 30, 2025 from $144,000 during the quarter ended September 30, 2024. Non-cash amortization of debt issuance and debt discount costs (which is included as a component of interest expense) was $30,000 and $11,000 during the quarters ended September 30, 2025 and 2024, respectively. Other expenses during the quarter ended September 30, 2025 included a non-cash loss on disposal of property, plant and equipment aggregating $62,000. There was no such disposal during the quarter ended September 30, 2024. Interest income was $41,000 and $19,000 during the quarters ended September 30, 2025 and 2024, respectively. During the nine-month period ended September 30, 2025, other income, net, aggregated $110,000 in contrast to other (expenses), net, of ($406,000) during the nine-month period ended September 30, 2024. Interest expense decreased to $387,000 during the nine-month period ended September 30, 2025 from $433,000 during the nine-month period ended September 30, 2024. Non-cash amortization of debt issuance and debt discount costs (which is included as a component of interest expense) was $51,000 and $32,000 during the nine-month periods ended September 30, 2025 and 2024, respectively. Our interest expense (excluding non-cash 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. Other income (expenses) during the nine-month periods ended September 30, 2025 and 2024 included a non-cash loss on disposal of property, plant and equipment in the amount of $60,000 and $15,000, respectively. Interest income was $127,000 and $41,000 during the nine-month periods ended September 30, 2025 and 2024, respectively. Other income included an insurance recovery of $427,000 during the quarter ended March 31, 2025. No such recovery was recorded during the quarter ended September 30, 2025 or during the nine-month period ended September 30, 2024.

h) (Loss) Income Before Income Taxes

During the quarter ended September 30, 2025, our (loss) before income taxes was ($135,000) in comparison to a (loss) before income taxes of ($700,000) during the quarter ended September 30, 2024. During the nine-month period ended September 30, 2025, our income before income taxes was $1.8 million in contrast to a (loss) before income taxes of ($2.7 million) during the nine-month period ended September 30, 2024.

i) Income Taxes and Net (Loss) Income

During the quarters ended September 30, 2025 and 2024, we recorded income tax expense of $4,500 and $1,300, respectively, which is comprised of minimum state tax liabilities. Our net (loss) of ($140,000), or ($0.02) per basic share, during the quarter ended September 30, 2025 was in comparison to a net (loss) of ($702,000), or ($0.09) per basic share, during the quarter ended September 30, 2024. The $562,000 decrease in the net loss during the quarter ended September 30, 2025 compared to the quarter ended September 30, 2024 was largely the result of a $780,000 increase in gross margin net of a $185,000 net increase in operating expenses. During the nine-month periods ended September 30, 2025 and 2024, we recorded income tax expense of $8,300 and $4,000, respectively, which is comprised of minimum state tax liabilities. Our net income of $1.8 million, or $0.20 per diluted share, during the nine-month period ended September 30, 2025 was in contrast to a net (loss) of ($2.7 million), or ($0.34) per basic share during the nine-month period ended September 30, 2024. The $4.5 million improvement from a net loss during the quarter ended September 30, 2024 to a net income during the quarter ended September 30, 2025 was largely the result of a $3.4 million increase in gross margin and a $543,000 net decrease in operating expenses.

We have substantial net operating loss carryforwards that could largely offset future income tax liabilities. As of December 31, 2024, our federal net operating loss carryforward was $17.7 million. As of December 31, 2024, our state net operating loss carryforward was $7.8 million. On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. This legislation made significant changes in the U.S. tax laws, including a reduction in the corporate tax rates, changes to net operating loss carryforwards and carrybacks, and a repeal of the corporate alternative minimum tax. The legislation reduced the U.S. corporate tax rate from 34% to 21%. Our income tax rate differs from this statutory tax rate primarily because we are currently providing for a full valuation allowance against our deferred tax assets. While we are recording this full valuation allowance, we are not recognizing the benefit of our tax losses.

In addition to the results discussed above from our Statements of Operations, we believe it is important to consider our Statements of Cash Flows in the accompanying unaudited financial statements and the discussion under Liquidity and Capital Resources above to assess the cash generating ability of our operations.

Critical Accounting Policies and Estimates

The unaudited 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 September 30, 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. On an ongoing basis, we evaluate our estimates. Significant estimates include our valuation of inventory, certain other assets related to Re-Tain®, deferred tax assets and costs of goods sold. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We have chosen to highlight certain policies that we consider critical to the operations of our business and understanding of our financial statements. These critical accounting estimates have been consistently applied.

We sell products that provide Immediate Immunity™ to newborn dairy and beef cattle. We recognize revenue in accordance with the five step model in ASC 606. These include the following: i) identification of the contract with the customer, ii) identification of the performance obligations in the contract, iii) determination of the transaction price, iv) allocation of the transaction price to the separate performance obligations in the contract and v) recognition of revenue associated with performance obligations as they are satisfied. We recognize revenue at the time of shipment (including to distributors) for substantially all products, as title and risk of loss pass to the customer on delivery to the common carrier after concluding that collectability is reasonably assured. We do not bill for or collect sales tax because our sales are generally made to distributors and thus our sales to them are not subject to sales tax. We generally have experienced an immaterial amount of product returns.

Inventory includes raw materials, work-in-process and finished goods and is recorded at the lower of cost, on the first-in, first-out method, or net realizable value (determined as the estimated selling price in the normal course of business, less reasonably predictable costs of completion, disposal and transportation). Work-in-process and finished goods inventories include materials, labor and manufacturing overhead. Valuing inventory is a critical accounting policy because of the estimates and assumptions used by management to determine its cost accounting and because of the variability of the cost per dose due to fluctuations in the biological yield.

Disclosure Controls and Procedures: Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosures. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of September 30, 2025. Based on this evaluation, management concluded that our disclosure controls and procedures were effective as of that date.

Changes in Internal Controls over Financial Reporting: Our Chief Financial Officer and other members of management and our accounting team periodically evaluate any change in internal control over financial reporting which has occurred during the prior fiscal quarter. We have concluded that there was no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

OUTLINE TO ITEM 1A - RISK FACTORS

• Financial Risks
• Product Risks
• Regulatory Risks
• Economic Risks Pertaining to the Dairy and Beef Industries
• Small Size of the Company
• Global Risks
• Risks Pertaining to Common Stock
• Other Risks

Financial Risks

Gross margin on product sales: One of our goals is to achieve a gross margin as a percentage of total sales of approximately 45% or more (including depreciation expense) after the initial launch of new products. Depreciation expense will be a larger component of costs of goods sold for Re-Tain® than it is for the First Defense® product line. The estimated gross margin for Re-Tain® is still to be determined and will be heavily influenced by production and sales volume in the early years after commercial launch. This may materially influence the achievement of our gross margin goals, at least for some period of time. Many factors discussed in this Quarterly Report (including contaminations, process yields, inflation, cost increases, supply-chain disruptions and the rising price of commodities and supplies) impact our costs of goods sold. There is a risk that we are not able to achieve our gross margin goal, which would adversely affect our operating results and could impact our future operating plans. We missed our gross margin goal during the years ended December 31, 2024 and 2023 with realized gross margins equal to 30% and 22% of product sales, respectively. We achieved a gross margin of 43% of product sales during the nine-month period ended September 30, 2025. There is a risk that our plans to maintain or improve our gross margin may not be realized due to cost increases, production yield losses, future manufacturing contamination events, production equipment failures, price inelasticity or any combination of these factors. In addition, such negative events, depending on their severity, could deplete our cash and thus reduce our ability to fund our business.

Exposure to interest rates and debt service obligations: Future rises in interest rates could negatively affect the operating costs of dairy and beef producers and thus put further financial pressure on an already stressed business sector, which could indirectly, but materially and adversely, affect our business. Increases in interest rates since 2020 have had only limited effect on our direct cost of borrowing. Our mortgage debt outstanding as of September 30, 2025 was $5.4 million bearing interest at the fixed rate of 3.53% per annum. Our equipment loans outstanding as of September 30, 2025 were $1.4 million bearing interest at the fixed rate of 3.50% per annum. The outstanding balance on our two State of Maine loans as of September 30, 2025 was approximately $464,000 bearing interest at the fixed rate of 5% per annum. The $2.3 million in debt that we borrowed during the third quarter of 2025 (which had an outstanding balance of approximately $2.3 million as of September 30, 2025) bears interest at the fixed rate of 6.5% per annum (down from a blended rate of approximately 7.3% per annum on two 2023 loans refinanced through this new borrowing). Our outstanding debt as of September 30, 2025 aggregating $9.5 million (gross of debt issuance and debt discount costs) bears interest at the blended fixed rate of 4.31% per annum as of September 30, 2025. Increasing interest rates would negatively impact the cost of any future borrowings. We are obligated to make principal and interest payments aggregating approximately $4.2 million and $2.0 million during the years ending December 31, 2025 and 2026, respectively. See Note 9 to the accompanying unaudited financial statements for more details about our debt outstanding at September 30, 2025. A decline in sales or gross margin, coupled with this debt outstanding at September 30, 2025 service burden, could impair our ability to fund our capital and operating needs and objectives.

Debt covenants: Our debt with Maine Community Bank (formerly Gorham Savings 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 0.73, (1.10), 0.44, 2.68 and 2.03 for the years ended December 31, 2024, 2023, 2022, 2021 and 2020, respectively. After being allowed several compliance waivers, our next compliance obligation is for the year ending December 31, 2025. For the trailing twelve-month period ended September 30, 2025, our DSC ratio was 2.96. There is no assurance that we will be able to achieve the required DSC ratio in the future. If not, then we would be in violation of that covenant, which could result in acceleration of our bank debt or have other adverse impacts on our business and results of operations.

Currency exchange fluctuation: We do not believe that currency exchange rates have had a significant effect on our revenues and expenses. However, future increases in the value of the U.S. dollar could affect our customers and the demand for our products. We hope to increase the level of our future sales of products outside the United States. The cost of our products to international customers could be affected by currency fluctuations. The decline of the U.S. dollar against other currencies could make our products less expensive to international customers. Conversely, a stronger U.S. dollar could make our products more costly for international customers. A weaker U.S. dollar makes international purchases more expensive for us.

Inflation, supply disruptions, tax rates and economic downturns: Inflation is having a material and adverse impact on almost all supplies we purchase and labor we hire and retain. Continuing or increasing inflationary trends could materially reduce our gross margin on product sales if we are unable or unwilling to impose offsetting price increases on our customers. The extent and duration of the negative impact on the economics of our customers and on the demand for our products going forward are very difficult to assess. The Class III milk price has been volatile since the onset of the pandemic. Market conditions have improved somewhat, but this volatility remains a concern. Additionally, like most input costs, the cost of grain and other feed is rising, which puts a strain on the profitability of our customers. There is also economic uncertainty for beef producers, as the supply chain is interrupted or otherwise adversely affected due to closures of processing plants and reduced throughput. This is a very unusual situation for farmers who work so hard to improve production quality and efficiency in order to help feed a growing population with high-quality and cost-effective proteins. Global supply-chain disruptions have affected international trade. Stock market valuations remain very volatile. Inflation has increased significantly, and tax rates may increase. There is a risk of a period of economic downturn, the severity and duration of which are difficult to know. Prior to the pandemic and the responsive federal economic stimulus programs, many feared the United States had taken on too much national debt. Now the debt load is significantly higher. A combination of the conditions, trends and concerns summarized above could have a corresponding negative effect on our business and operations, including the supply of the colostrum we purchase to produce our First Defense® product line, the demand for our products in the U.S. market and our ability to penetrate or maintain a profitable presence in international markets.

Projection of net income (loss): Generally speaking, our financial performance can differ significantly from management projections, due to numerous factors that are difficult to predict or that are beyond our control. Weaker than expected sales of the First Defense® product line could lead to operating losses or less profits. The timing of FDA approval of Re-Tain® will continue to have a material impact on our net income (loss). This is why we have been reducing product development expenses, while seeking a potential partner to fund some or all of these expenses, and evaluating alternative uses of Re-Tain® related assets.

Risks associated with our funding strategy for Re-Tain®: Constraints on cash and liquidity to support the commercialization of Re-Tain® pose a risk to our business. Having completed the construction and equipping of the DS production facility at a cost of approximately $20.8 million, we will continue to incur product development expenses to operate and maintain this facility until commercialization, or achieve some other strategy. We have reduced these expenses now that production of inventory for Investigational Product use is complete. Although our agreement to have DP filled by our current contract manufacturer expired in November of 2024, that agreement continued to provide for ongoing product labeling and packaging through the first quarter of 2026. To fill more inventory after that, we will need to secure a new DP manufacturing agreement, or bring the process in-house, which would require significant capital expenditures. Continued investment in Re-Tain® could distract resources from First Defense® growth.

Uncertainty of market size and product sales estimates: Estimating the size of the total addressable market and future sales growth potential for our First Defense® product line is based on our experience and understanding of market dynamics but is inherently subjective. Estimating the size of the market for any new product, such as Re-Tain®, involves more uncertainties than do projections for established products. We do not know whether, or to what extent, our products will achieve, maintain or increase market acceptance and profitability. Some of the uncertainties surrounding Re-Tain® include its impact on cheese starter cultures, the product’s effectiveness against currently prevalent pathogens, market acceptance, the effect of a premium selling price on market penetration, cost of manufacture, competition from new and existing products sold by substantially larger competitors with greater market reach and promotional resources and other risks described under “Product Risks” – “Sales risks pertaining to Re-Tain®” below. Since Re-Tain® is a novel approach to treating mastitis, there are many uncertainties with regards to how quickly and to what extent we can develop the subclinical mastitis treatment market. We believe that polypeptide antimicrobial technology may be viewed positively (relative to traditional antibiotics). If realized, this may offset some of these risks and result in better overall market acceptance.

Net deferred tax assets: The realizability of our net deferred tax assets is a subjective estimate that is contingent upon many variables. During the second quarter of 2018, we recorded a full valuation allowance against our net deferred tax assets that significantly increased our net loss in comparison to other periods. This non-cash expense could be reversed, and this valuation allowance could be reduced or eliminated, if warranted by our actual and projected profitability in the future. We will continue to assess the need for the valuation allowance each quarter.

Product Risks

Product risks generally: We set objectives for our products that we believe we can achieve, but the achievement of such goals is not a certainty. The sale of our products is subject to production, financial, efficacy, regulatory, competitive and other market risks. Elevated standards to achieve and maintain regulatory compliance required to sell our products continue to evolve. Failure to achieve acceptable biological yields from our production processes can materially increase our costs of goods sold and reduce our production output, leading to lower margins and/or an order backlog that could adversely affect our customer relationships and operating results. First Defense® is sold at a premium to competitive products, and we expect that Re-Tain® would require a significant price premium relative to competitive products. There is no assurance that we will continue to achieve market acceptance of the First Defense® product line, or achieve and sustain market acceptance of Re-Tain®, at a profitable price level or that we can continue to manufacture our products at a low enough cost to result in a sufficient gross margin to justify their continued manufacture and sale.

Contamination events, equipment failures and gross margin from our production process: As described in this Quarterly Report, we experienced certain contamination events and equipment failures in our production process that resulted in scrapped inventory and a slowdown of our production process, which had a significant negative impact on our operating results. We are at risk of further such production contaminations or equipment failures resulting in more scrapped inventory. Additional contamination events or equipment failures causing significantly less production output, depending on their severity, could deplete our cash resulting in an inability to fund our business operations.

Sales risks pertaining to Re-Tain®: Actual or prospective Re-Tain® customers may decide to discontinue, reduce or avoid usage of Re-Tain® due to the following risks:

1) A rejection of a tank of milk, when tested randomly for inhibitors by a milk hauler, because too much of the milk in a bulk tank is comprised of milk from cows being treated with Re-Tain®.

2) A failed or stalled cheese tank could occur when a Nisin susceptible cheese starter culture is exposed to Nisin residues in milk from treated cows.

3) Producers’ current practice generally is to treat for clinical mastitis only, once the milk shows visible indicators of being abnormal. In order to gain market penetration for Re-Tain®, we will need to change that practice and increase awareness of the importance of treating subclinical disease. This will require the producers’ ability and willingness to diagnose without visual indicators. These diagnoses can be done with somatic cell testing or using CMT. Users of Re-Tain® could have unsatisfactory treatment outcomes if they lack the equipment needed to measure and monitor somatic cell counts (SCC) of the herd or individual cows (for which data is needed). This risk limits our access to treatment cows because about 40% of farms do not presently have access to this kind of testing at the cow level and thus may not be good candidates for the use of Re-Tain®.

4) Perceived benefits from Re-Tain® could be undercut if the product is administered to cows that we would not identify as the best treatment candidates based on SCC data or if the product is administered to cows that are infected with pathogens outside of our label claims. Also, if currently pending investigational trials of Re-Tain® were to yield lower than anticipated cure rates, this could make Re-Tain® less attractive for dairy producers.

5) Future off-label use of our product in cows infected with clinical mastitis before we have run the required studies and achieved a label claim extension for this more advanced disease state, could result in negative treatment outcomes and potential legal liability.

6) Producers might not choose to use it or might use it improperly, rather than follow our label instructions to administer one dose after each of three consecutive milkings, or they might limit use within the herd in an abundance of caution to avoid the negative outcomes described above.

Reliance on sales of the First Defense® product line: We presently are reliant on the market acceptance of the First Defense® product line to generate product sales and fund our operations. Our business cannot cover expenses without sufficient gross margin earned on sales of the First Defense® product line. Future profitability is thus largely contingent upon the gross margin we earn from First Defense®, together with prudent management of product development expenses.

Concentration of sales: Sales of the First Defense® product line aggregated 99% of our total product sales during both of the years ended December 31, 2024 and 2023, and 99% of total product sales during both of the nine-month periods ended September 30, 2025 and 2024. Our primary customers for the majority of our product sales (86% and 91% during the years ended December 31, 2024 and 2023, respectively, and 87% and 88% during the nine-month periods ended September 30, 2025 and 2024, respectively), are in the U.S. dairy and beef industries. The concentration of our sales from one product into just two markets (the dairy and beef markets) is a risk to our business. The animal health distribution segment has been aggressively consolidating over the last few years, with larger distributors acquiring smaller distributors. A large portion of our product sales (77% and 79% during the years ended December 31, 2024 and 2023, respectively, and 73% and 77% during the nine-month periods ended September 30, 2025 and 2024, respectively), was made to two large distributors. A large portion of our trade accounts receivable (68% and 78% as of September 30, 2025 and December 31, 2024, respectively) was due from these two distributors. We have a good history with these distributors, but the concentration of sales and accounts receivable with a small number of customers does present a risk to us, including risks related to such customers experiencing financial difficulties or altering the basis on which they do business with us in a manner unfavorable to us.

Production capacity constraints: We invested $9.9 million from 2019 to December 31, 2024 to increase our annual production capacity (in terms of annual sales dollars) for the First Defense® product line from approximately $16.5 million to approximately $30 million or more based on current selling prices and estimated production yields. We are evaluating plans to further increase our production capacity. While previous capacity expansion investments have proceeded very close to budget, there is a risk of cost overruns in our ongoing projects and any future production expansions that we may undertake, and a risk that we will not be able to achieve our production capacity growth objectives on a timely basis, resulting in a continuing or increasing shortfall in supply to the market. The inability to meet market demand for our products is a risk to our business. The prior extended period of product supply shortages may have caused us to lose customers who are not easily regained now that production output is meeting or exceeding sales demand. Our long-term capital plan to continue to expand the First Defense® product line requires ongoing review of equipment capacity and utilization across the manufacturing value stream at Building 56 and our leased facilities at Building 175A and 175B, as well as assessment of costs, functional obsolescence and reliability of equipment. This review and assessment could identify a need to fund unexpected equipment maintenance or replacement costs.

Product liability: The manufacture and sale of our products entails a risk of product liability. Our exposure to product liability is mitigated to some extent by the fact that our products are directed towards the animal health market. We have maintained product liability insurance in an amount which we believe is reasonable in relation to our potential exposure in this area. We have no history of claims of this nature being made.

Regulatory Risks

Regulatory requirements for the First Defense® product line: The USDA-approved formats of our First Defense® product line are sold in the United States subject to a product license from the Center for Veterinary Biologics, USDA, which was first obtained in 1991, with subsequent approvals of line extensions in 2017 and 2018. As a result, our operations are subject to periodic inspection by the USDA, and we are at risk of an unfavorable outcome from such inspections. The potency of serial lots is directly traceable to the original serial used to obtain the product performance claims (the Reference Standard). Due to the unique nature of the label claims, host animal re-testing is not required as long as periodic laboratory analyses continue to support the stability of the stored Reference Standard. To date, these analyses have demonstrated strong stability. However, if the USDA were not to approve requalification of the Reference Standard, additional clinical studies could be required to meet regulatory requirements and allow for continued sales of the product, which could interrupt sales and adversely affect our operating results. Territories outside of the United States may require additional regulatory oversight that we may not be able to meet with our current facilities, processes and resources. There is a risk that we will become subject to regulatory actions in the future, including actions that result in our inability to ship product. In these cases, the resulting interruption in sales could have a material and adverse effect on our operating results.

Regulatory requirements for Re-Tain®: Commercial introduction of this product in the United States requires us to obtain FDA approval. Completing the process of obtaining FDA approval of the pending NADA involves risk. The regulatory development process timeline has been extensive (approximately 18 years from when the product rights were returned to us by a former partner in 2007) and has involved multiple commercial production strategies and multiple submissions of the CMC Technical Section. We are working with a qualified contract manufacturer for alignment of the required validations and DP manufacture and have met with the FDA to clarify filing strategy and requirements. Early during the first quarter of 2024, the FDA conducted another pre-approval inspection of our DS facility. This resulted in the issuance of one deficiency as identified on the FDA’s Form 483. Since then, we have cleared the inspectional observation with the FDA. However, our efforts continue to be subject to inspection and approval by the FDA and other factors outside of our control, and there remains a risk that the required FDA approvals of our product and facilities could be further delayed or not obtained. The facility of our contract manufacturer is subject to similar inspectional obligations and is currently working to resolve certain inspectional observations at their facility. International regulatory approvals would be required for sales of Re-Tain® outside of the United States, and there is a risk that these approvals would be or become too costly to pursue or be delayed or not obtained.

Regulatory requirements limiting access to suppliers and customer base: Maine, where our principal executive office and manufacturing facilities are located, has adopted product reporting and phase-out requirements for per- and polyfluoroalkyl substances (PFAS). Maine’s statute establishes a phased ban for products that contain intentionally added PFAS, with all products (subject to certain exceptions) other than cooling, heating, ventilation, air conditioning or refrigeration equipment being banned by 2032 unless the Maine Department of Environmental Protection (DEP) has determined that the use of PFAS within the product is a “currently unavoidable use.” Beginning January 1, 2032, the sale of products containing intentionally added but “currently unavoidable” PFAS also is banned if the manufacturer of such products has failed to report to the DEP information concerning the presence of PFAS in those products. The phased bans may limit our ability to use or access supplies and may limit those customers to whom we may sell our products. The U.S. Environmental Protection Agency also has adopted a PFAS reporting law, which requires that importers of articles that contain PFAS report the presence of such substances to the extent such information is known or reasonably ascertainable. This reporting requirement may limit our ability to import supplies.

Economic Risks Pertaining to the Dairy and Beef Industries

Immigration: In 2025, the U.S. government began stepping up immigration enforcement and deportation efforts, resulting in a rising rate of deportations of people who are in our country illegally. Many farms in the U.S. employ migrants as a significant portion of their workforce. Significant deportations of these individuals could have a negative impact on the operations of our customers and of our source farms.

The industry data referred to below is compiled from USDA databases.

Cattle count: The January count of all cattle and calves in the United States had steadily declined from 97,000,000 as of January 1, 2007 to 88,500,000 as of January 1, 2014. Then this figure increased each year, reaching 94,800,000 as of January 1, 2019 before declining to 93,800,000 as of both January 1, 2020 and January 1, 2021. This count continued to decline to 92,100,000 as of January 1, 2022, to 88,800,000 as of January 1, 2023 and to 87,200,000 as of January 1, 2024. This count dropped to 86,700,000 as of January 1, 2025. The cattle count has not been this low since it was 82,100,000 in 1951. Reflecting seasonal trends, this figure was equal to 102,000,000, 101,000,000, 98,600,000, 95,400,000 and 94,200,000 as of July 1, 2020, 2021, 2022, 2023 and 2025, respectively (the USDA did not publish this data point for 2024). A significant decline in the cattle count could negatively affect the size of our addressable market.

Herd size: Prior to 1957, there were over 20,000,000 cows in the U.S. dairy herd. Prior to 1986, there were over 10,000,000 cows in the U.S. dairy herd. From 1998 through 2021, the size (annual average) of the U.S. dairy herd ranged from the low of 9,011,000 in 2004 to the high of 9,448,000 in 2021. This average declined to 9,402,000 during the year ended December 31, 2022 and then declined to 9,386,000 during the year ended December 31, 2023. This average declined slightly to 9,342,000 during the year ended December 31, 2024, and then it increased to 9,451,000 during the first eight-months of 2025. A significant decline in the herd size could negatively affect the size of our addressable market.

Milk cow price: In 2015, the annual average price for a milk cow hit $1,993, which was an all-time high. Since then, this annual average value steadily declined to $1,205 during 2019 before increasing to $1,300 during 2020 and to $1,363 during 2021. This price for 2022 increased significantly to an average of $1,598, which is a 17% increase over 2021. The 2023 average price of $1,763 represents a 10% increase over prior year. This price for 2024 increased to an average of $2,243, which is a 27% increase over 2023. In July of 2025, this year-to-date average price increased by 27% over the 2024 average to $2,847. A significant decline in the milk cow price could negatively affect the size of our addressable market.

Newborn calf price: Currently, prices for newborn calves are near all-time highs. A significant decline in the price of a newborn calf could negatively affect the size of our addressable market.

Milk price: The price paid to producers for milk is volatile. This market volatility, and the resulting impact on our primary end users, could negatively impact our ability to maintain and grow sales at a profitable level. The Class III milk price (an industry benchmark that reflects the value of product used to make cheese) is an important indicator because it defines our customers’ revenue level. This annual average milk price level (measured in dollars per hundred pounds of milk) reached its highest point (since these prices were first reported in 1980) during 2014 at $22.34 (peaking at $24.60 in September of 2014), which price level has never been repeated. During the year ended December 31, 2020, this average milk price was equal to $18.16, but it was extremely volatile during the year due largely to disruption in demand related to the COVID-19 pandemic. The one-month fluctuation of 73% from a low of $12.14 in May of 2020 to $21.04 in June of 2020 set an all-time record for variability. The average price for 2021 decreased by 6% to $17.08. This price average increased by 29% to $21.96 during the year ended December 31, 2022. The average price decreased by 22% to $17.02 during the year ended December 31, 2023. This average price increased by 11% to $18.89 during the year ended December 31, 2024. This average price decreased by 2% to $18.57 during the eight months ended August 31, 2025. The annual fluctuations in this milk price level are demonstrated in the following table:

Feed Costs: The actual level of milk prices may be less important than its level relative to feed costs. One measure of this relationship is known as the milk-to-feed price ratio, which represents the amount of feed that one pound of milk can buy. An increase in feed costs also has a negative impact on the beef industry and therefore could have a resulting negative impact on our business and results of operations. This ratio varies farm-to-farm based on individual operating parameters. Since this ratio reached 3.24 in 2005, it has not exceeded 3.00. This ratio averaged 1.74 for 2021, amounting to a significant decline of 25% from the 2020 average of 2.32. This average has not been lower since 2012. During 2022, this ratio improved by 9% to 1.90. This ratio dropped by 12% to 1.67 during the year ended December 31, 2023. This ratio increased to 2.48 during the year ended December 31, 2024, representing an increase of 49% over the average for 2023. This ratio decreased slightly to 2.46 during the eight months ended August 31, 2025, representing a decrease of 1% over 2024. The following table demonstrates the annual volatility:

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Volatility of the dairy market: While the number of cows in the U.S. herd and the production of milk per cow directly influence the supply of milk, the price for milk is also influenced by very volatile international demand for milk products. Given our focus on the dairy and beef industries, the volatile market conditions and the resulting financial insecurities of our primary end users are risks to our ability to maintain and grow sales at a profitable level. These factors also heighten the challenge of selling premium-priced animal health products (such as Tri-Shield® and Re-Tain®) into the dairy market. Additionally, some important trading partners of the United States impose tariff and non-tariff barriers to their importation of U.S. dairy products. It presently is unclear whether or to what extent ongoing trade negotiations will result in changes in U.S. exports of dairy products, or otherwise affect international demand for milk.

Small Size of the Company

Dependence on key personnel: We are a small company with approximately 77 employees (including 7 part-time employees) presently. As such, we rely on certain key employees to support multiple operational functions, with limited redundancy in capacity and skillset. The loss of any of these key employees could adversely affect our operations until a qualified replacement is hired and trained, which could be even more challenging in the present difficult labor market. Our competitive position will be highly influenced by our ability to attract, retain and motivate key scientific, manufacturing, managerial and sales and marketing personnel. The cost of attracting and retaining the needed additional personnel in this current job market and inflationary environment could adversely affect our margins and profitability.

Reliance on outside party to provide certain services under contract for us: We are exposed to additional regulatory compliance risks through the subcontractors that we choose to work with to produce Re-Tain®, who also need to satisfy certain regulatory requirements in order to provide us with the products and services we need. One example of this outside reliance is our DP contract manufacturer. Because our contract manufacturer notified us of its intent to terminate its supply agreement with us, we initiated an investment of approximately $4 million during 2022 to construct and equip our own DP formulation and aseptic filling capability for Re-Tain® in our existing DS facility. Due to the loss in gross margin during 2023 caused by the slowdown in production output necessary to remediate product contamination events, we decided to defer spending of approximately $2 million of these funds for the near term. The objective of this investment is to end our reliance on an outside party to perform these services for us. Actual project costs could exceed our current estimates. Completion of this project could be delayed due to a number of factors outside our control, including delays in equipment fabrication, equipment delivery or facility construction. In addition, there is a risk that we fail to achieve regulatory approval of the new facility or that such approval is delayed or requires significant additional expenditures to obtain. We are evaluating alternatives for DP supply going forward, which include the resumption of the investment in our own in-house DP services (when prudent based on our cash reserves) or another contract manufacturing agreement or a further extension with our current contractor. We anticipate a supply interruption after the Investigational Product use of Re-Tain® after the DP supply provided from our contract manufacturer is consumed and until new supply from a new contract manufacturing agreement or our own formulation and aseptic filling facility is implemented.

Competition from others: Many of our competitors are significantly larger and more diversified in the relevant markets than we are and have substantially greater financial, marketing, manufacturing and human resources and more extensive product development and sales/distribution capabilities than we do, including greater ability to withstand adverse economic or market conditions and declining revenues and/or profitability. Elanco, Merck and Zoetis, among other companies, sell products that compete directly with the First Defense® product line in preventing scours in newborn calves. The scours product sold by Zoetis sells for approximately half the price of our product, although it does not have an E. coli claim (which ours does). With Tri-Shield®, we can compete more effectively against vaccines that are given to the mother cow (dam) to improve the quality of the colostrum that she produces for the newborn calf. Elanco, Merck and Zoetis, among other companies, provide these dam vaccine products to the market. More recently, we have seen some opportunistic “me too” products enter the market without USDA claims while we were on short supply. There are many companies competing in the mastitis treatment market, most notably Boehringer Ingelheim, Merck and Zoetis. The mastitis products sold by these large companies are well established in the market and are priced lower than what we expect for Re-Tain®, but all of them involve traditional antibiotics and are sold subject to a requirement to discard milk during and for a period of time after treatment. There is no assurance that our products will compete successfully in these markets. We may not be aware of other companies that compete with us or intend to compete with us in the future.

Global Risks

Tariffs and Trade Policies: Changes in tariffs or cross-border trade policies could affect our ability to expand sales of our products into foreign markets. The businesses of some of our U.S. dairy and beef customers could be significantly affected by changes in tariffs, immigration or trade policies, thus negatively affecting demand for our products. Additionally, tariffs on products and materials that we import could increase our costs of goods sold.

International Conflicts: International conflicts, such as the ongoing war in Ukraine, give rise to uncertainties and stress on the global economy, which in turn can affect the demand for our products and our costs of operation.

Climate change: Our business, and our activities and the activities of our customers and suppliers, could be disrupted by climate change. Potential physical risks from climate change may include altered distribution and intensity of rainfall, prolonged droughts or flooding, increased frequency of wildfires and other natural disasters, rising sea levels, and a rising heat index, any of which could cause negative impacts to our business and those of our customers and suppliers. Increased temperatures and rising water levels may negatively impact our dairy and beef livestock customers by increasing the prevalence of parasites and diseases that affect food animals. The physical changes caused by climate change may also prompt changes in regulations or consumer preferences which in turn could have negative consequences for our and our customers’ businesses. Climate change may negatively impact our business and our customers’ operations. In addition, concerns regarding greenhouse gas emissions and other potential environmental impacts of livestock production have led to some consumers opting to limit or avoid consuming animal products. If such events affect our customers’ businesses, they may purchase fewer of our products, and our revenues may be negatively impacted. In addition, increased frequency of natural disasters and adverse weather conditions may disrupt our manufacturing processes or our supply chain. These disruptions may have a material adverse effect on our business, financial condition, results of operations and/or cash flows.

Bovine diseases: The potential for epidemics of bovine diseases such as Highly Pathogenic Avian Influenza (HPAI), Foot and Mouth Disease, Bovine Tuberculosis, Brucellosis and Bovine Spongiform Encephalopathy (BSE) presents a risk to us and our customers. We have seen a severe negative impact of bird flu on the U.S. poultry flock causing a significant increase in the price of eggs. We have seen a cross-over to cows in the dairy industry. Documented cases of BSE in the United States have led to an overall tightening of regulations pertaining to ingredients of animal origin, especially bovine. The First Defense® product line is manufactured from concentrated bovine colostrum, which is not considered a BSE risk material. Future regulatory action to increase protection of the human food supply could affect the First Defense® product line, although presently we do not anticipate that this will be the case.

Risks Pertaining to Common Stock

Stock market valuation and liquidity: Our common stock trades on The Nasdaq Capital Market (Nasdaq: ICCC). Our average daily trading volume (which was 15,801 shares per day during the 20-day period ended October 31, 2025) is lower, our bid/ask stock price spread can be larger and our share price can be more volatile than what other companies experience. Those factors could result in investors facing difficulty selling their stock for proceeds that they may expect or desire. Our share price as of October 31, 2025 was $6.2393. Most companies in the animal health sector have market capitalization values that greatly exceed our market capitalization of approximately $56.4 million as of October 31, 2025. Our product sales during the twelve-month period ended September 30, 2025 were $27.8 million. This means that our market capitalization as of October 31, 2025 was equal to approximately 2.03 times our sales during the twelve-month period ended September 30, 2025.

Certain provisions might discourage, delay or prevent a change in control of our Company or changes in our management: Provisions of our certificate of incorporation, our bylaws or Delaware law may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares of our common stock. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. These provisions include:

• limitations on the removal of directors;
• advance notice requirements for stockholder proposals and nominations;
• the ability of our Board of Directors to alter or repeal our bylaws;
• Section 203 of the Delaware General Corporation Law, which prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder (generally defined as a person which together with its affiliates owns, or within the last three years has owned, 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder) unless the business combination is approved in a prescribed manner.

The existence of the foregoing provisions and anti-takeover measures could depress the trading price of our common stock or limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our Company, thereby reducing the likelihood of obtaining a premium for our common stock in an acquisition.

No expectation to pay any dividends or repurchase stock for the foreseeable future: We do not anticipate paying any dividends to, or repurchasing stock from, our stockholders for the foreseeable future. Instead, we expect to use cash to fund product development costs and investments in our facilities and production equipment, and to increase our working capital. Stockholders must be prepared to rely on market sales of their common stock after price appreciation to earn an investment return, which may never occur. Any determination to pay dividends or repurchase stock in the future will be made at the discretion of our Board of Directors and will depend on our financial condition, results of operations, contractual restrictions, restrictions imposed by applicable laws, current and anticipated needs for liquidity and other factors our Board of Directors deems relevant.

Possible dilution: We have accessed, and may access in the future, the capital markets. We have, from time to time, issued additional common stock under an ATM Offering in order to fund our operations, as described elsewhere in this Quarterly Report.

Other Risks

Access to raw materials and contract manufacturing services: Our objective is to maintain more than one source of supply for the components used to manufacture and test our products that we obtain from third parties. However, we may experience difficulty in efficiently acquiring essential supplies. We have significantly increased the number of farms from which we purchase colostrum for the First Defense® product line. A significant reduction in farm capacity could make it difficult for us to produce enough inventory to meet customer demand. The specific antibodies that we purify from colostrum for the First Defense® product line are not readily available from other sources. We are and will be dependent on our manufacturing facilities and operations in Portland, Maine, along with contract manufactures in some cases, for the production of the First Defense® product line and Re-Tain®. We will be dependent on one manufacturer for the supply of syringes for Re-Tain®. We were dependent on our contract manufacturer for the DP formulation and aseptic filling for supply of our Nisin DP through 2024. At present, we have no such agreement in place for future DP supply. Any facility used to perform these services will be subject to FDA inspection and approval, the outcome and timing of which are not within our control. We anticipate that this FDA approval process would take at least two years. The potential alternative options for these services are narrowed considerably because our product cannot be formulated or filled in a facility that also processes traditional antibiotics (i.e., beta lactams). Any significant damage to or other disruption in the services at any of these third-party facilities or our own facilities (including due to lack of financing, regulatory issues or non-compliance) would adversely affect the production of inventory and result in significant added expenses and loss of potential future sales. We anticipate a supply interruption after our Investigational Product use initiative is complete. The extent of the interruption will be subject to the supply timeline from a new contract manufacturing agreement or from our own formulation and aseptic filling facility for DP.

Failure to protect intellectual property: The protection and enforcement of our intellectual property rights may require the expenditure of significant financial, managerial and operational resources. We rely on trademark, copyright and patent law, trade secret protection, agreements and other methods with our employees and others to protect our proprietary rights. However, we may be unable to adequately protect our intellectual property rights or prevent third parties from infringing or misappropriating our intellectual property rights. We may not be able to obtain registration for all intellectual property we seek to register, and effective intellectual property protection may not be available in every country in which our products are sold. In some cases, we have chosen (and may choose in the future) not to seek patent protection for certain products or processes. Instead, we have sought (and may seek in the future) to maintain the confidentiality of any relevant proprietary technology through trade secrets, operational safeguards and contractual agreements. Reliance upon trade secrets, rather than patent protection may cause us to be vulnerable to competitors who successfully replicate (knock off) our manufacturing techniques and processes. Further, our confidentiality agreements may not effectively prevent disclosure of our proprietary information, technologies and processes and may not provide an adequate remedy in the event of unauthorized disclosure of such information. Others may independently develop similar trade secrets or technology or obtain access to our unpatented trade secrets or proprietary technology. Others may have filed patent applications and may have been issued patents involving products or technologies potentially useful to us or necessary for us to commercialize our products or achieve our business goals. If that were to be the case, there can be no assurance that we will be able to obtain licenses to such patents on terms that are acceptable to us. Any of our intellectual property rights may be challenged by others or invalidated through administrative process or litigation. Third parties may claim in the future, that we have infringed their intellectual property rights, which could result in significant costs and potential damages and license requirements. We may initiate claims or litigation against others for infringement, misappropriation or violation of our intellectual property rights or other proprietary rights or to establish the validity of such rights. However, we may be unable to discover or determine the extent of any infringement, misappropriation or other violation of our intellectual property rights and other proprietary rights. In addition, we may be unable to prevent third parties from infringing upon, misappropriating or otherwise violating our intellectual property rights and other proprietary rights.

Increasing dependence on the continuous and reliable operation of our information technology systems: We rely on information systems throughout our company. Any disruption of these systems or significant security breaches could adversely affect our business. Although we maintain information security policies and employ system backup measures and engage in information system redundancy planning and processes, such policies, measures, planning and processes, as well as our current disaster recovery plan may be ineffective or inadequate to address all eventualities. As information systems and the use of software and related applications by us, our business partners, suppliers, and customers become more cloud-based, we become inherently more susceptible to cyberattacks. There has been an increase in global cybersecurity vulnerabilities and threats, including more sophisticated and targeted cyber-related attacks that pose a risk to the security of our information systems and networks and the confidentiality, availability and integrity of data and information. There are reports of increased activity by hackers and scammers. Any such attack or breach could compromise our networks and the information stored thereon could be accessed, publicly disclosed, lost, or stolen. While we have invested in our data and information technology infrastructure (including working with an information security technology consultant to assess and enhance our security systems and procedures, and periodically training our employees in such systems and procedures), there can be no assurance that these efforts will prevent a system disruption, attack, or security breach and, as such, the risk of system disruptions and security breaches from a cyberattack remains. We have not experienced any material adverse effect on our business or operations as a consequence of any such attack or breach but may incur increasing costs in performing the tasks described above. Given the unpredictability of the timing, nature and scope of such disruptions and the evolving nature of cybersecurity threats, which vary in technique and sources, if we or our business partners or suppliers were to experience a system disruption, attack or security breach that impacts any of our critical functions, or our customers were to experience a system disruption, attack or security breach via any of our connected products and services, we could potentially be subject to production downtimes, operational delays or other detrimental impacts on our operations. Furthermore, any access to, public disclosure of, or other loss of data or information, including any of our (or our customers’ or suppliers’) confidential or proprietary information or personal data or information, as a result of an attack or security breach could result in governmental actions or private claims or proceedings, which could damage our reputation, cause a loss of confidence in our products and services, damage our ability to develop (and protect our rights to) our proprietary technologies and have a material adverse effect on our business, financial condition, results of operations or prospects. While this exposure is common to all companies, larger companies with greater resources may be better able to mitigate this risk than we can.