LIFECORE BIOMEDICAL, INC. \DE\ (LFCR)

Item 2.    Management’s discussion and analysis of financial condition and results of operations

The following discussion should be read in conjunction with the unaudited consolidated financial statements and accompanying notes included in Part I, Item 1, of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Transition Report on Form 10-KT for the transition period ended December 31, 2025 (the “2025 Transition Report”).

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results that are subject to the safe harbor created under the Private Securities Litigation Reform Act of 1995 and other safe harbors under the Securities Act of 1933, as amended, and the Exchange Act. Words such as “anticipate,” “estimate,” “expect,” “project,” “aim,” “designed to,” “plan,” “intend,” “believe,” “may,” “might,” “will,” “should,” “can have,” “likely” and similar expressions are used to identify forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected. Potential risks and uncertainties include, without limitation:

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•the timing and amount of future expenses, revenue, cash flow and capital requirements, and timing and availability of and the need for additional financing;

•our ability to maintain or expand our relationships with our current customers, including the impact of changes in consumer demand or prices for the products we manufacture for our customers;

•our ability to grow and diversify our business with new customers, including the potential loss of development customers if they do not receive required funding or regulatory approvals or for other reasons;

•our ability to comply with covenants under our credit agreements and to pay required interest and principal payments when due;

•our ability to fund redemptions of shares of the outstanding Series A Redeemable Convertible Preferred Stock in accordance with their terms;

•our ability to raise additional capital for ongoing needs, including through equity financing, debt financing, collaborations, strategic alliances or licensing arrangements;

•the impact of macroeconomic events or circumstances on our operations and financial performance, including inflation, tariffs, interest rates, social unrest and global instability;

•the performance of our third-party suppliers;

•pharmaceutical industry market forces that may impact our customers’ success and continued demand for the products we produce for those customers;

•our ability to recruit or retain key scientific, technical, business development, and management personnel and our executive officers;

•our ability to comply with stringent U.S. and foreign government regulation in the manufacture of pharmaceutical products, including current Good Manufacturing Practice, or cGMP; and

•the outcome and cost of existing and any new litigation or regulatory proceedings.

We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Accordingly, our actual results could differ materially from those projected in the forward-looking statements for many reasons, including the risk factors referenced in Item 1A. “Risk Factors” of the 2025 Transition Report.

All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements as well as others made in this report, the 2025 Transition Report, and hereafter in our other SEC filings and public communications.

You should evaluate all forward-looking statements made by us in the context of all risks and uncertainties described with respect to our business. We caution you that the risks and uncertainties identified by us may not be all of the factors that are important to you. Furthermore, the forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

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Overview

Lifecore is a fully integrated CDMO that offers highly differentiated clinical and commercial capabilities in the development, cGMP manufacturing and aseptic filling of complex formulations and highly viscous sterile injectable pharmaceutical drug or medical device products in syringes, vials and cartridges, across a wide variety of modalities. We manufacture pharmaceutical-grade, non-animal-sourced hyaluronic acid (“HA”) in bulk form as well as for use in formulated and filled syringes and vials for our customers’ injectable products used in treating a broad spectrum of medical conditions and procedures, including ophthalmic and orthopedic applications. We also offer product development service capabilities to our customers that include analytical method development and validation, formulation development, sterile filtration, process scale-up, pilot studies, stability studies, process validation and production of materials for clinical studies.

Since May 2024, Lifecore has continued to make impactful improvements to its operations and financial position:

•We have improved operations by expanding our revenue‑generating capacity, increasing our focus on manufacturing efficiency and cost management, and investing in systems and processes to support more effective execution. In September 2024, the Company expanded its aseptic filling capabilities through the installation of a fully automated high‑speed, multi‑purpose 5‑head aseptic isolator filler. In January 2026, Lifecore implemented a new enterprise resource planning (“ERP”) system designed to enhance inventory control, data visibility, and financial management. Through these and other initiatives, the Company believes that it has improved workforce productivity, reflecting the performance-driven culture at Lifecore and underscoring the Company’s commitment to continuous improvement.

•We have strengthened our financial position through, among other actions, (i) raising $24.3 million in a private placement of Lifecore common stock in October 2024, (ii) a three-year term extension of our existing asset-based lending revolving credit facility with BMO in November 2024, (iii) the sale of certain excess capital equipment for $17 million in January 2025, (iv) the repayment of $19.7 million of borrowings on our outstanding revolving credit facility over the past 18 months, (v) reduced obligations with the payment of an aggregate amount of $4.7 million to the holders of the Redeemable Convertible Preferred Stock in full satisfaction of outstanding registration delay fees in November 2025, (vi) the implementation of operational cost reductions, including overhead costs and professional fees associated with legal, accounting and consulting spend; and (vii) in October 2024 we regained compliance with SEC reporting requirements and have been maintaining those requirements.

•We enhanced our business development strategy, increased our investment in sales and marketing to support brand visibility, and expanded our business development team with sales talent who will focus on key drug development geographies in the United States and internationally. We have signed a total of 13 programs over the last 12 months, including eight late-stage programs.

Lifecore expects to further improve efficiencies and productivity through additional procurement and operational strategies that will build upon the new capabilities and information available from our ERP system. Lifecore expects this system to strengthen inventory control, support sharper financial management, and help reduce costs as the company grows. To further advance the Company’s efficiency objectives, the Company’s senior management team includes a head of business transformation who is championing the Company’s efforts to improve its cost structure, to drive productivity, and gain efficiencies. Through June 30, 2026, the Company has progressed more than 40 projects intended to promote cost reductions or productivity improvements.

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On August 1, 2025, our Board of Directors approved changing our fiscal year from a fiscal year ending on the last Sunday of May to a calendar year ending on December 31, and the Company has reported calendar periods since September 30, 2025. In accordance with SEC rules, the Company is presenting current period results compared to the most closely-comparable prior periods that can be derived from previously-reported results, which for this report were the three and six months ended May 25, 2025. With the exception of certain statements of operations, the Company did not previously report these periods on a standalone basis; rather, those periods were generally derived from the audited financial statements in the Company’s Form 10-K for the year ended May 25, 2025, less the unaudited results reported in its Forms 10-Q for the nine months ended February 23, 2025 and the six months ended November 24, 2024, respectively. In deriving the comparative period results, the Company reclassified certain amounts from previously-reported results to present them on a basis consistent with the current period presentation and, in some cases, the previously audited annual results. It was not practicable or cost-justifiable for the Company to prepare equivalent calendar-based comparative periods because the Company’s previous fiscal calendar does not align to the new calendar periods. The Company will begin providing calendar-based comparative periods beginning with its reporting as of and for the periods ended September 30, 2026.

Financial overview

Lifecore generates revenues from two activities within a single, integrated segment: CDMO and HA manufacturing. CDMO includes aseptic formulation and filling of syringes, vials and cartridges for injectable products used for medical purposes and product development services to assist its customers in obtaining regulatory approval for the commercial sale of their device or drug product. HA manufacturing includes the production and sale of pharmaceutical-grade, non-animal-sourced HA using our proprietary, fermentation-based HA process in bulk form.

The following costs are included in cost of sales: raw materials (including packaging, syringes, fermentation supplies and purification supplies), direct labor, overhead (including indirect labor, depreciation, and facility-related costs), and shipping and shipping-related costs.

Numerous factors can influence gross profit, including product mix, customer mix, manufacturing costs, timing of production, production yields, volume, sales discounts, contractual provisions, and charges to state inventories at their net realizable value, including as that relates to excess or obsolete inventory, among others. Many of these factors influence or are interrelated with other factors.

R&D expenses consist primarily of product development and commercialization initiatives.

SG&A expenses consist of salaries and related costs for administrative, public company and business development functions as well as legal fees, and consulting fees. Public company costs include compliance, audit, tax, insurance and investor relations

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Item 7.    Management’s discussion and analysis of financial condition and results of operations

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The following discussion should be read in conjunction with the Company’s consolidated financial statements and notes contained in Part IV, Item 15 of this Annual Report on Form 10-K. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Please see “Part I, Item 1A. Risk Factors” and “Cautionary Note About Forward-Looking Statements” contained in this Annual Report on Form 10-K.

Overview

Lifecore is a fully integrated CDMO that offers highly differentiated clinical and commercial capabilities in the development, cGMP manufacturing and aseptic filling of complex formulations and highly viscous sterile injectable pharmaceutical drug or medical device products in syringes, vials and cartridges, across a wide variety of modalities. We manufacture HA in bulk form as well as for use in formulated and filled syringes and vials for our customers’ injectable products used in treating a broad spectrum of medical conditions and procedures, including ophthalmic and orthopedic applications. We also offer product development service capabilities to our customers that include analytical method development and validation, formulation development, sterile filtration, process scale-up, pilot studies, stability studies, process validation and production of materials for clinical studies.

During fiscal year 2025, Lifecore continued to execute on the previously announced strategic initiatives to support higher performance as a CDMO. We have made significant improvements to our revenue generating capacity, financial position, management team, governance, financial reporting and stock exchange compliance, and business development efforts. In addition, we implemented various process improvements to ensure improved productivity and discipline in key areas of our business. Based on all of these improvements, together with our competitive advantages and our strategic plan described below, we believe that we are well-positioned for future growth.

For additional information, see “Part I, Item 1. Business” of this Annual Report on Form 10-K.

Financial overview

Lifecore generates revenues from two activities within a single, integrated segment: CDMO and HA manufacturing. CDMO includes aseptic formulation and filling of syringes, vials and cartridges for injectable products used for medical purposes and product development services to assist its customers in obtaining regulatory approval for the commercial sale of their device or drug product. HA manufacturing includes the production and sale of pharmaceutical-grade, non-animal-sourced HA using our proprietary, fermentation-based HA process in bulk form.

The following costs are included in cost of goods sold: raw materials (including packaging, syringes, fermentation supplies and purification supplies), direct labor, overhead (including indirect labor, depreciation, and facility-related costs), and shipping and shipping-related costs.

Numerous factors can influence gross profit, including product mix, customer mix, manufacturing costs, timing of production, production yields, volume, sales discounts, contractual provisions, and charges for excess or obsolete inventory, among others. Many of these factors influence or are interrelated with other factors.

R&D expenses consist primarily of product development and commercialization initiatives.

SG&A expenses consist of salaries and related costs for administrative, public company and business development functions as well as legal fees, and consulting fees. Public company costs include compliance, audit, tax, insurance and investor relations.

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The debt derivative liability, related party, is a set of embedded derivatives recorded at fair value each period. The derivatives represent certain call and put premiums contained in the credit facility that can be exercised upon qualifying events of default or changes in control. Changes in the fair value are recorded as non-operating income or expense.

Results of operations – Fiscal year ended May 25, 2025 compared to year ended May 26, 2024

Revenues and gross profit

The increase in revenues was due to a $7.1 million increase in HA manufacturing demand primarily due to our largest customer's supply chain initiatives. The HA manufacturing revenue increase was partially offset by the $6.5 million decline in CDMO revenues that is primarily due to $6.2 million lower development revenue due to completion of a discrete development project in the prior comparable period, timing of customer project lifecycles, $4.3 million of reduced volumes primarily driven by a customer working down inventory levels built in the prior fiscal year period, and $3.2 million of lower sales volume from a customer termination, partially offset by $5.4 million of value focused customer pricing initiatives and $1.8 million from a contractual take-or-pay arrangement recognized in fiscal year 2025.

The $1.6 million decrease in gross profit is due to a $5.9 million decrease in CDMO gross profit, partially offset by a net $4.3 million increase in HA manufacturing gross profit due to increased volumes and manufacturing variances. There were a combination of factors within CDMO gross profit including a $3.3 million fluctuation on the adjustment of inventories to their net realizable value primarily due to the absence of a favorable adjustment in the prior fiscal year due to an improvement in sales prices, a $2.1 million decrease due to a customer termination that also resulted in a write-off of inventory and equipment, and an otherwise consistent overall sales mix that included a contractual take-or-pay arrangement and pricing improvements that offset the margin on lower development revenues described above.

Operating expenses

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Research and development (“R&D”)

The decrease of $0.3 million in R&D expenses was primarily due to fewer headcount for the fiscal year ended May 25, 2025 compared to the prior period.

Selling, general, and administrative (“SG&A”)

The increase of $3.6 million in SG&A expenses was primarily due to a $3.7 million increase in stock-based compensation, the majority of which was related to new hire performance stock unit grants to our executive officers. Also included in SG&A expenses for the current period is $11.6 million primarily related to legal expenses related to legacy matters including the SEC subpoena, an activist investor and a securities class action claim, as well as costs associated with the legacy financial restatement. The prior period included $10.2 million primarily related to incremental audit and consulting fees for the legacy financial restatement, expenses related to strategic alternatives and the divestiture of Curation Foods, and $1.7 million of other one-time costs associated with becoming a standalone CDMO.

Loss on sale or disposal of assets

The $7.0 million loss on sale or disposal of assets was primarily due to a $6.4 million loss on the sale of certain excess equipment that was primarily related to the write-off of historically capitalized interest costs, as well as $0.6 million related to capital projects that were abandoned.

Restructuring costs

The $1.7 million net recovery for the current fiscal year includes a recovery of $3.2 million following the favorable reversal of a historical lease obligation of the divested Curation Foods business, for which we recorded $1.0 million of expense in the prior fiscal year. The current fiscal year recovery was partially offset by $1.4 million of severance expense related to the transformation of the finance and accounting department.

Non-operating income or expense

Interest expense, net

The increase in interest expense, net of interest income, was primarily from $3.8 million more interest related to the Alcon term loans, which will continue to grow due to accumulating interest paid-in-kind and amortization of the debt discount.

Change in fair value of debt derivative liability, related party

The change in the fair value of debt derivative liability, related party, in fiscal year 2025 was primarily caused by the absence of significant changes recognized in fiscal year 2024. Those changes were primarily due to changes in the probability factors related to the timing of a change in control event. Management moved back the estimated timing of that event following the conclusion of a strategic review process at the end of fiscal year 2024.

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Other expense, net

The decrease of $3.0 million in other expense was primarily driven by a $2.7 million decrease compared to the prior fiscal year for monetary penalties associated with late filings accrued under the registration rights agreement with the preferred stockholders (see “Part IV, Item 15. Note 11 - Equity” elsewhere in this Annual Report on Form 10-K).

Income tax expense

Neither income tax expense nor its changes were material to the periods presented.

Liquidity and capital resources

As of May 25, 2025, the Company had cash of $8.3 million and, based on the borrowing base at May 25, 2025, the Company had approximately $27.3 million available for borrowing under the Revolving Credit Facility of the $40 million maximum committed amount. Under the Revolving Credit Facility, the Company is subject to a springing fixed charge ratio covenant of 1:1 generally in the event that the Company's available liquidity under the Revolving Credit Facility falls below $2.5 million. As of May 25, 2025, the Company was in compliance with all financial covenants under the Term Loan Credit Facility and Revolving Credit Facility. See “Part IV, Item 15. Note 10 - Debt” in this Annual Report on Form 10-K for a summary of the Term Loan Credit Facility and Revolving Credit Facility.

Cash outflows of $0.2 million during the fiscal year ended May 25, 2025 improved by $10.4 million compared to cash outflows of $10

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