ICCC 10-K & 10-Q changes, risk factors and insider trading

Exposure to interest rates and debt service obligations: Rising interest rates could negatively affect the operating costs of dairydistributors and beef producers and thus put further financial pressure on andairy alreadyand stressedbeef business sector,sectors, which could indirectly, but materially and adversely, affect our business. IncreasesOur inaggregate interest rates since 2020 have had only limited effect on our direct cost of borrowing. During the first quarter of 2020, we refinanced our bankoutstanding debt (with the exception of our line of credit) with fixed rate notes. Our mortgage debt outstanding as of December 31, 20242025 wastotaled $5.6$9.1 million bearing(without interest at the fixed rate of 3.53% per annum. Our equipment loans outstanding as of December 31, 2024 were $1.9 million bearing interest at the fixed rate of 3.50% per annum. The outstanding balance on the two State of Maine loans as of December 31, 2024 was approximately $592,000 bearing interest at the fixed rate of 5% per annum. The $3 million incounting debt thatissuance weand borroweddebt duringdiscount the third quarter of 2023 (which had an outstanding balance of approximately $2.5 million as of December 31, 2024costs) bearsbearing interest at the blended fixed rate of 7.33% per annum illustrating the effect of rising interest rates. Our outstanding debt as of December 31, 2024 aggregating $10.6 million (gross of debt issuance and debt discount costs) bears interest at the blended fixed rate of 4.51%4.31% per annum. Increasing interest rates would negatively impact the cost of any future borrowings. This was experienced on the new debt facilities aggregating $3 million that we closed during the third quarter of 2023. The additional debt we incurred to fund our growth objectives has significantly increased our total debt service costs. We are obligated to make principal and interest payments aggregating approximately $2 million and $3.7$1.5 million during the years ending December 31, 20252026 and 2026,2027, respectively. See Note 9 to the accompanying audited financial statements for more details about our debt. A decline in sales or gross margin, coupled with this debt 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) and the Finance Authority of Maine 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, 2.682.65 and 2.030.73 for the years ended December 31, 2024, 2023, 2022, 20212025 and 2020,2024, respectively. During the first quarter of 2023, theThe DSC ratio covenant for the year ended December 31, 2023 was preemptively waived by our lender. Instead, we were required to meet a minimum DSC ratio requirement of 1.35lenders for the twelve-monthtwelve months periods ended June 30, 2024, September 30, 2024 and December 31, 2024,2024. and then again annually after that. During the first quarter of 2024, the DSC ratio covenant for the twelve-month period ended June 30, 2024 was preemptively waived by our lenders. During the third quarter of 2024, the DSC ratio covenant for the twelve-month period ended September 30, 2024 was preemptively waived by our lenders. During the fourth quarter of 2024, the DSC ratio covenant for the twelve-month period ended December 31, 2024 was preemptively waived by our lenders. Our next compliance obligation is for the year ending December 31, 2025. There is no assurance that we will be able to achieve the required DSC ratio going forward. If we are unable to do so or reach a favorable agreement with our lenders regarding that requirement (including an amendment to or waiver of such requirement), we would be in violation of that covenant, which could result in unfavorable amendments to the terms of our bank debt (including a possible bank requirement to prepay our debt) or have other adverse impacts on our business and results of operations.

Currency exchange fluctuation: We do not believe that currency exchange rates have had a significant effect on our revenues and expenses. However, particularly if we expand non-U.S. sales of First Defense® future increases in the value of the U.S. dollar could affectmake our products more expensive for our non-U.S. customers and theaffect 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. TheConversely, 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.

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-TainFirst Defense Technology®, 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-TainFirst Defense Technology® include the product’s effectiveness against currently prevalent pathogens, market acceptance, the effect of a premiumour selling price on market penetration, cost ofthe manufacture,potential cannibalization effect on other First Defense® products, 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.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, and we expect Re-Tain® to be sold,sold at significant price premiums 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®,line 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. As we bring Re-Tain® to market, theseThese risks could be heightened by the additional uncertainties associated with introducing a new product requiring a shift in customer behavior.

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 would not have beenbe profitable during the years ended December 31, 2012, 2013, 2015 and 2016, during the nine-month periods ended September 30, 2017 or during the three-month periods ended March 31, 2019, December 31, 2020, June 30, 2021, September 30, 2021, December 31, 2021, March 31, 2022 and December 31, 2024 without the gross margin that we earnedearn on sales of the First Defense® product line. Our anticipatedability return to profitabilityachieve isnet contingentoperating uponincome thein 2025 was largely driven by gross margin we earnearned from First Defense® and prudent management of product development expenses.

Concentration of sales: Sales of the First Defense® productline lineof products aggregated 99% of our total product sales during both of the years ended December 31, 20242025 and 2023.2024. Our primary customers for theThe majority of our product sales (86%is and 91% during the years ended December 31, 2024 and 2023, respectively), are infrom the U.S. dairy and beef industries.industries The(approximately 88% and 86% during the years ended December 31, 2025 and 2024, respectively), and 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%approximately 72% and 79%77% during the years ended December 31, 20242025 and 2023,2024, respectively), was made to two large distributors.distributors Aand a large portion of our trade accounts receivable (78%approximately 69% and 79%78% as of December 31, 20242025 and 2023,2024, 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: The inability to meet market demand for our products is a risk to our business. We invested $9.9$11.0 million from 2019 to December 31, 20242025 to increase our annual production capacity (in terms of annual sales dollars) for the First Defense® product line from approximately $16.52.2 million manufactured units in 2018 to approximately $30 4.6 million ormanufactured moreunits basedin on2025. currentOur selling prices and estimated production yields. We are making initialfuture plans tocall furtherfor increase increases of our production capacity.capacity Whilethrough previousyield improvements and by redeploying assets previously slated for production of Re-Tain®. Expanding manufacturing capacity expansioninvolves investmentspractical haveand proceededtechnical veryrisks closeaffecting efficiency of production, risks of contamination, and risks of not being able to budget,access theresufficient high-quality colostrum needed for this process. 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 historically largeA backlog of orders, as well as any ongoing order backlog,orders presents a risk that we could lose customers during this period that are not easily regained thereafter, when our production capacity is expected to meet or exceed sales demand.regained. 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.

Regulatory requirements for the First Defense® product line: First Defense® is 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 asif 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 requirehave additional regulatory oversight requirements 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.

ImmigrationDairy Staffing: The U.S. government is stepping up deportationimmigration efforts,enforcement resultingefforts. inColostrum asuppliers risingto rateour manufacturing process or customers of deportations of criminals that are in our country illegally.products Manymay farmsbe employchallenged hard-working,to non-criminalrecruit, train and retain employees who haveare notcritical yetfor achievedour legalcolostrum citizenship.supply process and use of our product in the field. Significant deportations of these individuals could have a negative impact on the operations of our customers and of our source farms.

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 our premium-priced animal health products (such as Tri-Shield® and Re-Tain®) into the dairy market.

Dependence on key personnel: We are a small company with approximately73 75 employees (including 6 part-time employees).employees. As such, we rely on certain key employees to support multiple operational functions, with limited redundancy in capacity. 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.

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. Merck Elanco, Merck, Zoetis, Boehringer Ingelheim and Zoetis,CEVA, 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 provide these dam vaccine products to the market.U.S. 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 other competitors are pricedactive lowerin thaninternational 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 (unlike our product which does not carry an FDA-required milk discard or pre-slaughter withdrawal period).markets. 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.

International Conflicts: International conflicts, including ongoing wars in Ukraine and the Middle East,conflicts 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. We have formerly done business in Iran. Although our ability to do so in the future is unclear, a cessation of sales to Iran would not materially affect our revenues or profitability.

Bovine diseases: The potential for epidemics and outbreaks 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 usour suppliers and to 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 havepolicy for the prevention of certain diseases has 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.

Stock market valuation and liquidity: Our common stock trades on The Nasdaq Capital Market (Nasdaq: ICCC). Our average daily trading volume (which was 7,10016,939 shares per day during the 20-day period ended March 21,20, 20252026) 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 March 21,20, 20252026 was $4.91.$6.07. Most companies in the animal health sector have market capitalization values that greatly exceed our market capitalization of approximately $44.1$54.9 million as of March 21,20, 2025.2026. Our product sales during the year ended December 31, 20242025 were $26.5$27.6 million. This means that our market capitalization as of March 21,20, 20252026 was equal to approximately 1.66two times our sales during the year ended December 31, 2024.2025. Before adequate gross margin from the sale of existing and new products is achieved, our market capitalization may be heavily dependent on the perceived potential for margin expansion and revenue growth from our product under development and may therefore be negatively affected by the related uncertainties and risks.

The existence of the foregoing provisions and anti-takeover measures could depressadversely affect 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.acquisition disfavored by our Board of Directors.

Possible dilution: We arehave accessingaccessed the capital markets and issuingissued additional common stock, from time to time, under an At-the-Market (ATM) Offering in order to fund our operations, as described elsewhere in this Annual Report. Such issuances have a dilutive effect on our existing stockholders.stockholders and may occur again in the future.

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 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 a contract with Norbrook for the DP formulation and aseptic filling for supply of our Nisin DP through 2024. 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).line. Any significant damage to or other disruption in the services at anyour of these third-partyleased facilities or our ownowned 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 potential loss of future sales. We anticipate a supply interruption and adverse effects on our Controlled Launch of Re-Tain® beginning during the first quarter of 2026 (subject to confirmation of final product shelf-life disposition by the FDA). These goods represent the initial DP production from our contract manufacturer. 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.

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 since the COVID-19 pandemic. 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. See also PART I, ITEM 1C –— CYBERSECURITY below.

We focus on the two most critical stages of dairy productivity, those being the first 30 days of life and the first 30 days of lactation. Our concentrated colostrum and purified Nisin technologies offer unique animal health solutions during these periods when immunity is at its most vulnerable. Both of our product lines present growth opportunities and, in the future, may potentially be applied to other species or potentially the human health sector, alongside the animal health sector that we currently serve. The First Defense® production capacity expansion that we initially thought might have been completed in a year to a year and a half ended up taking about three years to complete, but our fourth quarter sales results do demonstrate that we have increased our production capacity to, or above, $30 million per year. The increased capacity is enabling us to address our order backlog that was equal to approximately $4.4 million and $4.7 million, as of December 31, 2024 and March 21, 2025, respectively. The following discussion and analysis of our financial condition and results of operations should be read together with our audited financial statements and the related notes and other financial information included in Part II: ITEMItem 8 — FINANCIALFinancial STATEMENTSStatements ANDand SUPPLEMENTARYSupplementary DATAData of this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual 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 underRegarding Forward-Looking Statements before Part I: ITEMItem 1 — BUSINESSBusiness and Part I: ITEMItem 1A — RISKRisk FACTORSFactors of this Annual Report for a discussion of some of the important factors that could cause actual results to differ materially from the results, objectives or expectations described in, or implied by, the forward-looking statements contained in the following discussion and analysis.

Net cash provided by financing activities was $2.9 million during the year ended December 31, 2024 versus of $1.8 million during the prior year. During the third quarter of 2023, we received $3 million in new debt proceeds. We had aggregate debt outstanding (net of debt issuance and debt discount costs) of approximately $10.5$9.1 million and $12$10.5 million as of December 31, 20242025 and 2023,2024, respectively. DebtRecurring debt principal repayments (excluding the line of credit) aggregated $1.5 million andduring $1.2 million duringboth the years ended December 31, 20242025 and 2023, respectively.2024. We anticipate that recurring debt principal repayments will aggregate approximately $1.5$1.6 million and $3.3$1.2 million during the years ending December 31, 20252026 and 2026,2027, respectively. During the firstthird quarter of 2024,2025, the availability of our $1$1.0 million line of credit, which bears interest at the National Prime Rate per annum, was extended until September 11, 2025.2026. No draw on our line of credit was outstanding as of December 31, 20242025, or December 31, 2023.2024. See Part II: Item 8 — Financial Statements and Supplementary Data: Note 99, to"Bank the accompanying audited financial statementsDebt" for more information about our bank debt. During the second quarter of 2024, we entered into an At-The-Market (ATM) Agreement with Craig-Hallum Capital Group LLC, under which we may offer and sell up to $11 million of shares of our common stock. As of December 31, 2024, we had sold 1,228,227 shares under this ATM Offering conducted pursuant to the ATM Agreement. Net proceeds through December 31, 2024 (net of approximately $152,000 in upfront legal, accounting and other fees and approximately $140,000 in sales commissions) were approximately $4.4 million. The ATM Agreement gives our board the flexibility to evaluate the potential uses of the proceeds while considering the cost of dilution in real time. This funding has provided a very productive financial bridge for us to fund our operations, while we work to improve our gross margin and reduce product development expenses. While the capital raised is not enough to fund larger capital expenditure investments, such as further increasing First Defense® production capacity or building our own facility for the aseptic filling services for Re-Tain®, it has allowed us to release funding for certain smaller and necessary capital expenditures.

ThereExcept as set forth below, there have been no material changes tofrom the risk factors identified in our Annual Report on Form 10-K for the year ended December 31, 2025, in response to Item 1A., “Risk Factors,” of Part I of the Annual Report.

ImmuCell Corporation, founded in 1982 and aan SEC-registered public company since 1987, is an animal health biologics company focused on the development, manufacture, and commercialization of products intended to improve the survivability, health, and long-term performance of neonatal dairy and beef calves.

In connection with the idle status of certain property, plant and equipment, net,net (related to the repurposing of certain equipment previously utilized in the manufacturing of Re-Tain®), during December 2025, we reassessed prior estimates of the useful lives of that manufacturing equipment. Because the equipment had seen such limited use during the period since installation, we increased the estimated remaining useful lives on certain equipment by a weighted average of five years effective January 1, 2026.years. The effect of this change in estimateestimate, effective January 1, 2026, for the three months ended MarchJune 31,30, 2026 was a $0.1 million decrease to depreciation expense included in costs of goods sold, and an increase in operating income and net income of $0.1 million, or $0.01 per both basic and diluted share. The effect of this change in estimate for the six months ended June 30, 2026 was a $0.2 million decrease to depreciation expense included in costs of goods sold, and an increase in operating income and net income of $0.2 million, or $0.02 per both basic and diluted share.

Sales of the First Defense® product line are seasonal, with higher sales expected during the first quarter of the calendar year, largely driven by the beef calving season, which runs primarily from January to April, unlike the dairy industry where operations generally calve year-round. Warm and dry weather conditions may reduce the producers' perceived need for disease prevention products such as the First Defense® product line. However, heat stress on calves caused by extremely hot summer weather and cold stress during the winter months can increase the incidence of scours and the need for our products.

Results of Operations for the Three Months Ended MarchJune 31,30, 2026, Compared with the Three Months Ended MarchJune 31,30, 2025

Sales of the First Defense® product line made up 99.5%approximately 99% of our total sales during the three months ended MarchJune 31,30, 2026 and 2025. We also sell our own CMT, which is used to detect somatic cell counts in milk. Sales of CMT aggregated approximately 0.5%1% of our total product sales during the periods reported.

Product sales during the three months ended MarchJune 31,30, 2026 were $10.4$7.2 million representing a 28.4%,11.5%, or $2.3$0.7 million, increase over product sales of $8.1$6.4 million during the three months ended MarchJune 31,30, 2025. The increase was primarily due to higher sales volumes for all product categories of Tri-Shieldthe First Defense® product line, including portfolio expansion, and Dual Force® combined with year-over-year product price increases across most product lines.increases.

Domestic sales during the three months ended MarchJune 31,30, 2026 increased by 35.7%27.7% (to $9.7$6.2 million), and international sales decreased by 30.2%38.9% (to $0.6$1.0 million), in comparison to the three months ended MarchJune 31,30, 2025. International sales aggregated 6.0%13.4% and 11.1%24.4% of total sales during the three months ended MarchJune 31,30, 2026 and 2025, respectively.

Costs of goods sold during the three months ended MarchJune 31,30, 2026 were $5.7$4.7 million representing a 20.9%,30.9%, or $1.0$1.1 million, increase over costs of goods sold of $4.7 million during the three months ended MarchJune 31,30, 2025. The increase was primarily due to higher sales of First Defense® combined with a shift of $0.3 million of costs associated with the former Re-Tain® manufacturing facility from product development expense to costs of goods sold.sold, Costalong with $0.2 million in manufacturing inefficiencies and $0.2 million of increased raw material costs during the three months ended June 30, 2026. Costs of goods sold increased at a rate lowerhigher than sales due to price increases effective January 1, 2026 and manufacturing efficiencies obtained during the period, partially offset by the shift of depreciation and building related expenses related to our 33 Caddie facility (formerly associated with Re-Tain®) from product development expense as a result of the Company's December 2025 decision to cease its focusefforts on obtaining FDA approval of Re-Tain® and instead refit the facility for use in producing First Defense® products.products, and manufacturing inefficiencies and increased raw material costs in the three months ending June 30, 2026, partially offset by price increases effective January 1, 2026.

During the three months ended MarchJune 31,30, 2026, sales and marketing expenses increased by 43.9%,59.6%, or $0.4 million, to $1.2$1.1 million in comparison to $0.9$0.7 million during the three months ended MarchJune 31,30, 2025. This increase was primarily due to expanded commercial efforts in First Defense® leading to higher wages, including share-based compensation,compensation and expenses associated with new and backfilled sales positions, coupled with increased promotional and tradeshow related expenses.positions. In the three months ended MarchJune 31,30, 2025, we restricted commercial spending due to tight product supply; however, this tight supply was alleviated in the summer of 2025.

During the threesix months ended MarchJune 31,30, 2026, administrative expenses increased by 82.7%,79.4%, or $0.5$1.1 million, to $1.1$2.4 million in comparison to $0.6$1.3 million during the threesix months ended MarchJune 31,30, 2025. The increase was primarily due to a $0.4$0.7 million increase in executive compensation (including share-based compensation)., coupled with $0.2 million additional legal and professional service fees.

During the threesix months ended MarchJune 31,30, 2026, product development expenses decreased by 58.0%,72.5%, or $0.4$1.2 million, to $0.3$0.4 million in comparison to $0.8$1.6 million during the threesix months ended MarchJune 31,30, 2025. This decrease was driven by the $0.3$0.6 million shift to costs of goods sold of depreciation and building related expenses related to our 33 Caddie facility (formerly associated with Re-Tain®) as part of our recently announced strategy to utilize the facility for the production of First Defense® as a result of the Company'sour December 2025 decision to cease itsour focusefforts on obtaining FDA approval of Re-Tain® and instead refit the facility for use in producing First Defense® products, coupled with a $0.4 million reduction of wages and lab supplies associated with Re-Tain® product development.development and $0.1 million lower licenses and fees.

Other (ExpenseExpenses) Income, Net

During the threesix months ended MarchJune 31,30, 2026, other expense,(expenses) income, net was $15,187($0.1) million in comparison to $0.3 million of other (expenses) income, net during the threesix months ended MarchJune 31,30, 2025. The year-over-year netexpenses shiftincrease of 104.6%126.2% or $0.3 million was primarily due to a one-time insurance settlement of $0.4 millionrecovery which occurred in the threesix months ended MarchJune 31,30, 2025.

We had aggregate debt outstanding (net of debt issuance and debt discount costs) of $8.7$8.3 million and $9.1 million as of MarchJune 31,30, 2026 and December 31, 2025, respectively. Recurring debt principal repayments (excluding the line of credit) aggregated $0.4$0.8 million during both the threesix months ended MarchJune 31,30, 2026 and 2025. We anticipate that recurring debt principal repayments will aggregate approximately $1.6 million during the year ending December 31, 2026. Our $1.0 million line of credit, which bears interest at the National Prime Rate per annum, is currently available until September 11, 2026. No draw on our line of credit was outstanding as of MarchJune 31,30, 2026, or December 31, 2025.

Interest expense (excluding amortization of debt issuance and debt discount costs) was approximately $97,000$189,027 and $117,000$231,110 during the threesix months ended MarchJune 31,30, 2026,2026 and 2025, respectively. Our debt bears interest at fixed rates, which on a blended basis amounts to 4.3%4.29% per annum.annum as of June 30, 2026. We anticipate that interest expense (excluding amortization of debt issuance and debt discount costs) will be $367,000 during the year ending December 31, 2026.

In April of 2024, we entered into our ATM Agreement, which allows us to offer and sell up to $11 million of shares of our common stock. As of MarchJune 31,30, 2026, we have the capacity to sell $6 million of shares under the ATM Agreement but no pending plan to issue additional shares under that arrangement.

Net cash provided by operating activities increased $2.0$3.4 million during the three six months ended March 31,June 30, 2026 as compared to the three six months ended March 31,June 30, 2025. The increase was primarily due to a $0.5$1.8 million increase in net income, $0.8which benefitted from a $2.0 million settlement as the result of a contract dispute with a prior contract manufacturer for Re-Tain®. Working capital changes also contributed to the increase, including i) $1.4 million less cash used for inventory,inventory $0.4as millionfinished lessgoods were built up in 2025, ii) cash usedoutflows for accounts payable and accrued expenses,expenses decreased by $0.8 million primarily due to timing of payroll and $0.3executive bonus payments, and iii) $0.9 million additionalless cash provided by accounts receivable.receivable due to timing of order fulfillment.

Net cash used for investing activities decreasedincreased $0.2$0.4 million during the three six months ended March 31,June 30, 2026 as compared to the three six months ended March 31,June 30, 2025. The decreaseincrease was primarily due to aspending reduction inon capital expenditures.expenditures related to investments supporting the first phase of the First Defense® planned production increase. See “First Defense® Manufacturing Expansion” section above for further information.