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Item 2. Management’s Discussion and Analysis

2025-11-06 compared with 2025-04-03 · 130 added, 173 removed, 50 unchanged (86% of the section changed)

Management’s discussion and analysis of financial condition and results of operations

(all dollar values are in thousands, unless otherwise noted)

The following discussion should be read in conjunction with the unaudited condensed 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 Annual Report on Form 10-K for the fiscal year ended May 26, 2024 (the “2024 Annual Report”).

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 Annual Report on Form 10-K for the fiscal year ended May 25, 2025 (the “2025 Annual 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,” “plan,” “intend,” “believe,” “may,” “might,” “will,” “should,” “can have,” “likely” and similar expressions are used to identify forward-looking statements.

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, the timing and expenses associated with operations, government regulations affecting our business, the timing of regulatory approvals, the Company’s ability to successfully enact its business strategies, including with respect to installation, capacity generation and its ability to attract demand for its services, its ability expand its relationship with its existing customers or attract new customers, the impact of inflation on the Company’s business and financial condition, indications of a change in the market cycles in the CDMO market;

changes in business conditions and general economic conditions both domestically and globally, including rising interest rates, fluctuation in foreign currency exchange rates, access to capital, and tariffs and global trade tensions, and those other risks mentioned in this report and the 2024 Annual Report.

Potential risks and uncertainties include, without limitation:

• 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 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 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;

• 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 listed in Item 1A.

“Risk Factors” of this report and in the 2024 Annual Report.

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 this 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 Annual Report, and hereafter in our other SEC filings and public communications.

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Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

The Company is a fully integrated contract development and manufacturing organization (“CDMO”) that offers highly differentiated capabilities in the development, fill and finish of complex sterile injectable pharmaceutical products in syringes, vials, and cartridges under contract for product sponsors, along with producing premium, injectable grade sodium hyaluronate (“HA”) for use as an active pharmaceutical ingredient (“API”).

Lifecore uses its experience in handling of viscous, complex products to be a technical leader in contract development services to create a manufacturable, scalable and compliant production process for many types of medicinal products.

These services include activities such as formulation technology development, material component definition, analytical method development, filling optimization, packaging design, stability studies, process validation, clinical production and ultimately production of commercially approved products.

The Company has more than 40 years of expertise as a partner for global and emerging biopharmaceutical and biotechnology companies across multiple therapeutic categories to bring their innovations to market.

In May 2025, the United States Food and Drug Administration (“FDA”) completed a general drug product good manufacturing practices, or “GMP,” inspection of Lifecore Biomedical.

Lifecore has provided an initial response to the FDA’s Form 483 observations within the expected fifteen calendar day timeframe and anticipates receiving the FDA’s response and resolving the inspection findings during the fourth quarter of fiscal 2025.

Built over many years of experience, Lifecore separates itself from its competition based on its five areas of expertise, including but not limited to Lifecore’s ability to:

Establish strategic relationships with market leaders

Lifecore continues to develop and manufacture products with partners who have strong marketing, sales, and distribution capabilities, reaching the patients they serve.

Through its strong reputation and history of providing pharmaceutical grade HA and products, Lifecore has established long-term relationships with global and emerging biopharmaceutical and biotechnology companies across multiple therapeutic categories and leverages those partnerships to attract new relationships in other medical markets.

Expand medical applications for HA

Due to the growing knowledge of the unique characteristics of HA and Lifecore’s unique strength and history as a trusted manufacturer of pharmaceutical injectable grade HA products, Lifecore continues to identify and pursue opportunities for the use of HA in other medical applications, such as wound care, aesthetic surgery, drug delivery, next generation orthopedics and device coatings, and through sales to academic and corporate research customers.

Further applications may involve expanding process development activity and/or additional licensing of technology.

Utilize manufacturing infrastructure to meet customer demand

Lifecore has made strategic capital investments in its CDMO business focusing on extending its formulation and filling capacity and capabilities to meet increasing partner demand and regulatory expectations and to attract new contract filling opportunities.

Maintain flexibility and speed in product development and supply relationships

Lifecore’s vertically integrated development and manufacturing capabilities and strong quality systems allow it to quickly move a product from development to commercial production.

Lifecore’s role extends from supplying HA raw materials to providing technology transfer and development services to manufacture aseptically filled, finished sterile products, and assuming full supply chain responsibilities (from raw material management through packaging and serialization).

Deliver consistent quality

Lifecore has built a world class quality and regulatory system that is demonstrated in its results, processes and customer relationships.

With over 38 years of a superior track record with global regulatory bodies (FDA, EMA, ANVISA, etc.), Lifecore is the partner of choice for companies looking for proven experience in delivering QbD, cGMP compliance, and manufacturing excellence with pharmaceutical elegance and quality.

Lifecore’s world class quality and regulatory system and excellent track record with the global regulatory bodies ensure partners that they will safely bring innovative therapies to market.

We are focused on driving profitable growth with new product development along with clinical and commercial manufacturing of sterile injectable products.

Lifecore seeks to expand its presence in the CDMO marketplace by partnering with biopharmaceutical and biotechnology companies to bring their unique therapies to market.

Lifecore’s goal of continuing success will be to execute on its three strategic priorities:

1) Managing Business Development Pipeline:

Accelerate product development activities for virtual, small and large biopharmaceutical and biotechnology companies in various stages of the product lifecycle, spanning clinical development stage to commercialization, which aligns with the business’ overall product development strategy.

2) Maximizing Capacity:

Meet customer demand by maximizing capacity in the syringe, vial and cartridge multi-purpose filler production line to significantly increase the number of products produced.

3) Advancing Product Commercialization:

Continue to seek out opportunities to advance customers’ late-stage product development activities by supporting their clinical programs and commercial process scale-up activities.

Reportable segments

The Company operates as one reportable segment.

This is based on the objectives of the business and how our chief operating decision maker, the President and Chief Executive Officer, monitors operating performance and allocates resources.

Related party transactions

For a discussion of significant related party transactions, refer to note 17 to the condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q.

Results of operations — Three months ended February 23, 2025

Revenues and gross profit

Lifecore generates revenues from two integrated activities:

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 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.

Lifecore continues to make impactful improvements to operations, resulting in reduced operational expenses and improved productivity.

Through active management and targeted initiatives, the Company has improved workforce productivity by more than 20% over approximately the past year.

This achievement reflects the performance-driven culture at Lifecore and underscores the Company’s commitment to continuous improvement.

Lifecore plans to further maximize efficiencies and productivity via aggressive procurement and operational strategies.

The Company believes that a key catalyst in this effort will be the launch of its new enterprise resource planning (“ERP”) system, which is expected to go live in Q1 2026.

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, Lifecore recently hired a seasoned industry executive in the role of head of business transformation.

This newly created position will champion the Company’s efforts to improve its cost structure, to drive productivity, and gain efficiencies.

On August 1, 2025, the Company’s Board of Directors approved a change in the Company’s fiscal year that ends on the last Sunday of May to a fiscal year that corresponds with the calendar year, ending on December 31, effective for the fiscal year beginning May 26, 2025 and ending December 31, 2025.

The Fiscal Year Change is applied on a prospective basis and does not adjust operating results for prior periods.

As a result of the Fiscal Year Change, commencing with this Quarterly Report on Form 10-Q, the Company will be filing Quarterly Reports on Form 10-Q covering quarterly periods on a calendar year basis.

Also as a result of the Fiscal Year Change, the Company will file a Form 10-KT covering the “transition period” beginning May 26, 2025 and ending December 31, 2025, which will include separate reporting of the approximately one-month period from May 26 to June 30, 2025.

For periodic reports covering periods through and including June 30, 2026 (including this Quarterly Report on Form 10-Q), the Company will select comparative financial information in accordance with SEC rules that are applicable to the Fiscal Year Change.

Specifically, for balance sheet information, the Company will present information from the latest audited date, which for this Quarterly Report on Form 10-Q is May 25, 2025;

and for period-based information, the Company will present the most closely-comparable previously reported three-month period, which for this Quarterly Report on Form 10-Q is the three months ended August 25, 2024.

This comparative information is selected to provide meaningful context for evaluating the Company’s performance through and including June 30, 2026.

It is 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.

Accordingly, readers should consider the differences in calendar timing when comparing results between periods.

The discussion and analysis that follows focuses on the Company’s financial condition, results of operations, and cash flows for the calendar quarter ended September 30, 2025, compared to the three-month period ended August 25, 2024.

Where applicable, management has highlighted material variances and provided commentary on key drivers of performance, including the impact of the fiscal year change.

Financial overview

Lifecore generates revenues from two activities within a single, integrated segment:

CDMO and HA manufacturing.

Lifecore generates revenues from the development and manufacture of HA products and provides contract development and aseptic manufacturing services to customers.

Numerous factors can influence gross profit, including HA manufacturing product mix, customer mix, manufacturing costs, timing of production, production yields, volume, sales discounts, and charges for excess or obsolete inventory, among others.

Many of these factors influence or are interrelated with other factors.

The Company includes in cost of goods sold all of the following costs:

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.

Three months ended Change

February 23, 2025 February 25, 2024 Amount %

$ 20,789 $ 22,306 $ (1,517) (7) %

HA manufacturing

14,365 13,398 967 7 %

Total revenues 35,154 35,704 (550) (2) %

Cost of goods sold 25,309 23,810 1,499 6 %

Gross profit 9,845 11,894 (2,049) (17) %

Gross profit percentage 28.0 % 33.3 % (5.3) %

The decrease in revenues was primarily due to a $1.5 million decrease in CDMO revenues, which included $1.7 million of lower sales volume from a customer termination and $1.5 million lower development revenue due to completion of discrete project life-cycles and timing of customer projects, partially offset by $1.1 million of value focused customer pricing initiatives and a $0.9 million contractual take-or-pay arrangement.

In addition, HA manufacturing revenues increased $1.0 million primarily from increased demand from a customer due to their supply chain initiatives.

The $2.0 million unfavorable gross profit is due to a $3.0 million decrease in CDMO gross profit which reflected a $2.5 million fluctuation on the adjustment of inventories to their net realizable value, primarily due to the absence of a favorable adjustment in the prior year due to an improvement in sales prices, and a $0.9 million decrease due to a customer termination resulting in write-off of inventory and equipment that was partially offset by $0.5 million due to an overall favorable sales mix that included a contractual take-or-pay arrangement, lower development revenue and pricing improvements.

There was also a $1.0 million increase in HA manufacturing gross profit due to increased volumes and manufacturing variances.

Operating expenses

Three months ended Change

February 23, 2025 February 25, 2024 Amount %

Research and development $ 2,045 $ 2,170 $ (125) (6) %

Selling, general and administrative 10,093 9,848 245 2 %

Loss on sale or disposal of assets

6,851 — 6,851 n/m

Restructuring costs (115) 771 (886) (115) %

Total operating expenses $ 18,874 $ 12,789 $ 6,085 48 %

Research and development (“R&D”)

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.

The decrease in R&D expenses is primarily due to fewer headcount for the three months ended February 23, 2025 compared to the prior period.

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

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.

The increase in SG&A expenses was primarily due to $1.1 million increase in stock-based compensation, the majority of which was related to new hire performance stock unit grants to our principal executive officers and partially offset by $0.7 million of lower consulting expenses from finance and accounting consultants.

Also included in SG&A for the current period is $2.2 million primarily related to litigation expenses related to an activist investor matter and the securities class action lawsuit.

The prior period included $2.3 million primarily related to incremental audit and consulting fees related to the financial restatement and expenses related to the divestiture of Curation Foods.

Loss on sale or disposal of assets

The $6.9 million loss on sale or disposal of assets was primarily due to a $6.4 million loss on the sale of the not yet installed, high-speed, multi-purpose isolator-filler that was primarily related to the write-off of historically capitalized interest costs, as well as $0.5 million related to capital projects that were abandoned.

Restructuring costs

The $0.1 million net recovery in the current period includes $0.6 million following the favorable reversal of a historical lease obligation related to the Curation Foods business, for which we had recorded $0.7 million of expense in the prior period.

We anticipate recording an additional reversal of $2.5 million related to that lease obligation in the fourth quarter of fiscal 2025.

The $0.6 million favorable reversal was partially offset by $0.5 million of severance related to the transformation of the finance and accounting department.

Non-operating income or expense

Three months ended Change

February 23, 2025 February 25, 2024 Amount %

Interest expense, net $ (5,481) $ (4,289) $ (1,192) 28 %

Change in fair value of debt derivative liability, related party (600) 21,000 (21,600) (103) %

Other expense, net 333 (814) 1,147 (141) %

Income tax (expense) benefit 8 (217) 225 (104) %

Interest expense, net

The increase in interest expense, net was primarily a result of an increase of $0.9 million related to the growth in principal, net of unamortized discount, under the Alcon term loans due to interest paid-in-kind and amortization of the initial debt derivative value.

There was an additional net increase of $0.3 million primarily from a reduction in capitalized interest related to the idling, then sale, of the isolator-filler.

Change in fair value of debt derivative liability, related party

The debt derivative liability, related party, is a set of embedded derivatives recorded at fair value each period.

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Changes in the fair value are recorded as non-operating income or expense.

The change in the fair value of debt derivative liability, related party, in 2025 was primarily caused by the absence of significant changes recognized in 2024.

Those changes were primarily due to adjustments to 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.

Other expense, net

Other expense, net decreased $1.1 million primarily due to the end of the accumulation of monetary penalties to the preferred stockholders following the filing of registration statements in October 2024.

Income tax benefit or expense

The income tax benefit or expense primarily consists of current state income tax obligations and a schedule of net deferred federal tax attributes that are substantially offset by valuation allowances and net operating loss carryforwards.

Changes in the income tax benefit or expense are driven by the mix of these various items and were not significant for the periods presented.

Results of operations — Nine months ended February 23, 2025

Three months ended September 30, 2025

Revenues and gross profit

Lifecore generates revenues from two integrated activities:

CDMO and HA manufacturing.

Lifecore generates revenues from the development and manufacture of HA products and provides contract development and aseptic manufacturing services to customers.

Many of these factors influence or are interrelated with other factors.

The Company includes in cost of goods sold all of the following costs:

Nine months ended Change

February 23, 2025 February 25, 2024 Amount %

Three months ended Change

September 30,

2025 August 25,

2024 Amount %

$ 21,749 $ 20,180 $ 1,569 8 %

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Total revenues

31,109 24,705 6,404 26 %

Cost of goods sold 23,318 19,318 4,000 21 %

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Gross profit percentage 25.0 % 21.8 % 3.2 %

The increase in revenues was due to a $3.0 million increase in HA manufacturing demand primarily due to our largest customer's supply chain initiatives.

The decline in CDMO revenues is primarily due to $2.7 million of reduced volumes primarily driven by a customer working down inventory levels built in the prior year period, $1.7 million of lower sales volume from a customer termination, and $1.7 million lower development revenue due to completion of discrete project life-cycles and timing of customer projects, partially offset by $5.0 million of value focused customer pricing initiatives and a $0.9 million contractual take-or-pay arrangement.

The $1.7 million improvement in gross profit is due to a $1.7 million increase in HA manufacturing gross profit due to increased volumes and manufacturing variances.

There were a combination of factors within CDMO gross profit that offset, including a $2.7 million fluctuation on the adjustment of inventories to their net realizable value, primarily due to the absence of a favorable adjustment in the prior year due to an improvement in sales prices, and a $0.9 million decrease due to a customer termination resulting in write-off of inventory and equipment which were negated by $3.6 million due to a favorable overall sales mix that included a contractual take-or-pay arrangement, lower development revenues and pricing improvements.

The increase in revenues of $6.4 million was primarily due to a $4.8 million increase in HA manufacturing revenues primarily from increased demand from a customer due to its supply chain initiatives.

In addition, CDMO revenues increased $1.6 million , which was primarily from $2.6 million of higher sales volumes and $0.3 million of pricing and other revenue.

These gains were partially offset by $1.3 million of lower development revenue due to completion of a discrete development project in the prior comparable period and timing of customer project lifecycles.

The increase of $2.4 million in gross profit is due a $4.3 million increase in HA manufacturing gross profit due to increased sales volume and manufacturing absorption, partially offset by a $1.9 million decrease in CDMO gross profit.

The CDMO decline was due to lower development revenue of $1.4 million and a decrease in aseptic gross profit of $1.9 million due to product mix and costing, partially offset by favorable manufacturing absorption of $1.4 million.

Operating expenses

Nine months ended Change

February 23, 2025 February 25, 2024 Amount %

Three months ended Change

September 30,

2025 August 25,

2024 Amount %

Research and development $ 1,963 $ 2,186 $ (223) (10) %

Selling, general and administrative 8,895 14,785 (5,890) (40) %

Loss on sale or disposal of assets

6,895 2 6,893 n/m

Restructuring costs 772 918 (146) (16) %

Total operating expenses $ 10,858 $ 16,971 $ (6,113) (36) %

Research and development (“R&D”)

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

The decrease in R&D expenses are primarily due to fewer headcount for the nine months ended February 23, 2025 compared to the prior period.

R&D expenses modestly declined reflecting a relatively consistent level of product development and commercialization activities.

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

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.

The increase in SG&A expenses was primarily due to a $3.8 million increase in stock-based compensation, the majority of which was related to new hire performance stock unit grants to our principal executive officers and a $0.5 million increase primarily related to consulting, legal and accounting fees.

Also included in SG&A for the current period is $9.5 million primarily related to various legacy legal matters related to the SEC subpoena, an activist investor and a securities class action claim, as well as costs associated with the financial restatement.

The prior period included $7.2 million primarily related to incremental audit and consulting fees related to the financial restatement and expenses related to strategic alternatives and the divestiture of Curation Foods.

Loss on sale or disposal of assets

Restructuring costs

The $0.8 million of expense for the current period includes $1.3 million of severance expense related to a first half reduction in force as well as the severance related to the transformation of the finance and accounting department in the third quarter.

These expenses were offset by a recovery of $0.6 million following the favorable reversal of a historical lease obligation related to the Curation Foods business for which we recorded $0.7 million of expense in the prior period.

We anticipate recording an additional reversal of $2.5 million related to that net lease obligation reversal in the fourth quarter of fiscal 2025.

The $5.9 million decrease in SG&A expenses includes a reduction of $2.2 million in recurring accounting, legal and consulting expenses and a net $3.7 million reduction in non-recurring expenses primarily related to legacy matters.

Included in SG&A for the current period is $1.6 million of non-recurring costs p rimarily related to legal expenses related to legacy matters and excess audit fees.

The prior period included $3.6 million of non-recurring expenses primarily related to incremental audit and consulting fees for the legacy financial restatement and legal expenses related to legacy matters, $1.2 million related to the stockholder activist settlement and $0.5 million of restructuring costs.

Non-operating income or expense

Nine months ended Change

February 23, 2025 February 25, 2024 Amount %

Three months ended Change

September 30,

2025 August 25,

2024 Amount %

Interest expense, net $ (6,384) $ (5,383) $ (1,001) 19 %

Change in fair value of debt derivative liability, related party 1,500 41,900 (40,400) (96) %

Other expense, net (174) (1,950) 1,776 (91) %

Income tax expense (10) (240) 230 (96) %

Change in fair value of debt derivative liability, related party (375) 900 (1,275) n/m

Other expense, net 110 (203) 313 n/m

Income tax (expense) benefit (333) 25 (358) n/m

Interest expense, net

The increase in interest expense, net was primarily a result of an increase of $2.8 million related to the growth in principal, net of unamortized discount, of the Alcon term loans due to interest paid-in-kind and amortization of the initial debt derivative value.

There was an additional net increase of $1.2 million primarily from a reduction in capitalized interest related to the idling, then sale, of the isolator-filler.

The increase in interest expense, net of interest income, included an increase of $1.3 million related to the Alcon term loans, which will continue to grow due to accumulating interest paid-in-kind and amortization of the debt discount, partially offset by a $0.4 million decrease due to lower outstanding borrowings under the revolving credit facility.

Change in fair value of debt derivative liability, related party

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.

The change in the fair value of debt derivative liability, related party, in 2025 was primarily caused by the absence of significant changes recognized in 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.

The $1.3 million change from income to expense was primarily due to a decrease in discount rates in the 2024 period and the passage of time in the 2025 period.

Other expense, net

Other expense, net decreased $1.8 million primarily due to the end of the accumulation of monetary penalties to the preferred stockholders following the filing of registration statements in October 2024.

The change from expense to income was primarily caused by the absence of $0.3 million of estimated expense accrued for monetary penalties to the preferred stockholders following the filing of registration statements in October 2024.

Income tax benefit or expense

Changes in the income tax benefit or expense are driven by the mix of these various items and were not significant for the periods presented.

The change from income to expense of $0.4 million was primarily caused by the passage of new Federal tax laws in the 2025 period that resulted in higher deferred tax expense.

The new tax laws caused a one-time acceleration of various tax deductions which did not result in income due to the establishment of valuation allowances on all deferred tax assets.

At the same time, that acceleration reduced deductions available to offset future deferred tax liabilities, causing an increase to deferred tax expense.

Liquidity and capital resources

As of February 23, 2025, the Company had cash of $5.4 million and had approximately $25.5 million available for borrowing under the Revolving Credit Facility.

As of September 30, 2025, the Company had cash of $18.9 million.

In June 2025, the Company received $10.0 million cash from the early payment of principal under its note receivable from the sale of equipment in fiscal year 2025.

In June 2025, the Company repaid $2.5 million of borrowings on the outstanding revolving credit facility .

Based on the borrowing base at September 30, 2025, the Company had approximately $23.6 million available for borrowing under the Revolving Credit Facility of the $40.0 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 February 23, 2025, the Company was in compliance with all financial covenants under the Term Loan Credit Facility and Revolving Credit Facility.

Cash outflows of $3.0 million in the nine-month period of 2025 improved by $13.0 million compared to cash outflows of $16.0 million in the nine-month period of 2024 for the following reasons:

• Financing proceeds of $23.9 million from the issuance of common stock and $2.4 million from a lease amendment in the 2025 period, which we used to repay $17.2 million of borrowings under our revolving credit facility, exceeded the $5.0 million of financing proceeds from a customer deposit and borrowings under the revolving credit facility of $3.1 million received in the 2024 period;

• We received investing proceeds of $7.0 million from the sale of a non-operational isolator-filler, and we reduced capital spending by $4.4 million;

• Net working capital investments required $4.5 million less cash in 2025 compared to 2024, partially offset by a $1.6 million increase in earnings as adjusted for non-cash items.

Contractual obligations

The Company’s material contractual obligations for the next five years mainly relate to its debt and lease obligations.

The Company’s future capital requirements will depend on numerous factors, including the progress of its research and development programs;

the continued development of marketing, sales and distribution capabilities;

the ability of the Company to establish and maintain new and existing licensing arrangements;

the costs associated with any legal contingencies and employment-related claims;

As of September 30, 2025, the Company was in compliance with all financial covenants under the Term Loan Credit Facility and Revolving Credit Facility.

See “Part I, Item 1.

Note 9 - Debt” in this Quarterly Report on Form 10-Q for a summary of the Term Loan Credit Facility and Revolving Credit Facility.

Cash flow improved by $1.6 million in the three months ended September 30, 2025 compared to the three months ended August 25, 2024 period for the following reasons:

• Operating cash flows improved $2.4 million.

In the 2024 period, earnings as adjusted for non-cash items used cash of $8.1 million, which was partially funded by $7.5 million of favorable working capital changes primarily related to net receivable collections and extension of accounts payable.

In contrast, in the 2025 period, earnings as adjusted for non-cash items generated $1.1 million of cash, and changes in working capital of $0.6 million;

• Investing cash outflows decreased by $1.7 million from lower capital spending in the 2025 period compared to the 2024 period;

• Financing cash flows decreased $2.5 million as a result of the absence of $1.9 million of net proceeds under the revolving credit facility in the 2024 period and due to higher cash payments of $0.6 million under employee stock plans.

The Company’s future capital requirements will depend on numerous factors, including our future capital expenditure requirements;

development, production and manufacturing activities;

administrative requirements (including salaries, insurance expenses and legal compliance costs);

ability to establish and maintain new and existing customer arrangements;

the costs associated with any legal proceedings and claims;

any decision to pursue acquisition opportunities;

the timing and amount, if any, of payments received under licensing and research and development agreements;

the costs involved in preparing, filing, prosecuting, defending, and enforcing intellectual property rights;

the timing and amount of amounts payable or payments owed under customer agreements;

the ability to comply with regulatory requirements;

the emergence of competitive technology and market forces;

the effectiveness of product commercialization activities and arrangements;

the effectiveness of customers’ activities and arrangements;

demand for redemption of the Redeemable Convertible Preferred Stock and payment of the accrued and unpaid liquidation preference on shares of the Convertible Preferred Stock, if required;

payments required under the Term Loan Credit Facility and Revolving Credit Facility;

and other factors.

If the Company’s currently available funds, together with the internally generated cash flow from operations are not sufficient to satisfy its capital needs, the Company would be required to seek additional funding through other arrangements with collaborative partners, sale of real estate or other assets, additional debt or bank borrowings and public or private sales of its securities.

If the Company’s currently available funds, together with the internally generated cash flow from operations are not sufficient to satisfy its capital needs, the Company would be required to seek additional funding through various financing transactions or arrangements, including equity financing, debt financing, collaborations, strategic alliances or licensing arrangements, or other means.

There can be no assurance that additional funds, if required, will be available to the Company on favorable terms, if at all.

The Company believes that its cash from operations, potential equity offerings, sale of other assets, along with existing cash, and availability under its Revolving Credit Facility will be sufficient to finance its operational and capital requirements for at least the next twelve months.

Refer to note 10 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a description of the terms of outstanding indebtedness, including the Term Loan Credit Facility and Revolving Credit Facility, which is incorporated herein by reference.

As of February 23, 2025 the Company had $169,287 in borrowings outstanding under the Term Loan Credit Facility at an effective annual interest rate of 20.9%, which includes the amortization of the debt discount.

The stated annual interest rate is 10%.

As of February 23, 2025, the Company had $2,500 in borrowings outstanding under the Revolving Credit Facility, at an effective annual interest rate of 8.67% .

The Company’s principal sources of liquidity consist of its existing cash, cash generated by operations (if any), proceeds from the sale of certain excess equipment, and availability under its Revolving Credit Facility.

The Company expects these sources will be sufficient to finance its current operational and capital requirements for at least the next twelve months.

There is no assurance that our cash, cash generated from operations, if any, and available borrowing under the Revolving Credit Facility will be sufficient to fund our anticipated capital needs and operating expenses, particularly if we do not generate revenues in the amounts currently anticipated or if our operating costs are greater than anticipated.

Cash obligations relating to Series A Redeemable Convertible Preferred Stock

On January 9, 2023, the Company issued 38,750 shares of Series A Convertible Preferred Stock, par value $0.001 per share, that accrues dividends and that is, in certain cases, redeemable at the option of the holder as discussed further below.

The holders of Redeemable Convertible Preferred Stock are entitled to dividends at a rate of 7.5% per annum, or $75 per share, payable in-kind and compounding quarterly.

The holders are also entitled to participate in dividends declared or paid on the Common Stock on an as-converted basis.

At September 30, 2025, there were $0.9 million of dividends in arrears that had not yet been paid-in-kind in the form of additional shares of Redeemable Convertible Preferred Stock, representing $12.50 per preferred share.

The Redeemable Convertible Preferred Stock is redeemable by the holders after the earlier of June 29, 2026 or the termination or waiver of the restriction on cash dividends and/or redemptions that is set forth in the Company’s credit agreements.

The redemption price for each share of Redeemable Convertible Preferred Stock is an amount equal to its liquidation preference.

As of September 30, 2025 and May 25, 2025, the aggregate liquidation preference of the Redeemable Convertible Preferred Stock was $47.5 million and $46.3 million, respectively.

Lifecore’s internally generated cash is not expected to be sufficient to fund all or any significant portion of the Series A liquidation preference and Lifecore is considering its financing alternatives, which would be dependent upon the amount of any redemptions and may include supplementing any cash generated from operations or borrowing under its existing credit facilities with other financing transactions such as equity financing, debt financing, collaborations, strategic alliances or licensing arrangements, or other means.

In November 2025, the Company paid an aggregate amount of $4.7 million to the holders of the Redeemable Convertible Preferred Stock in full satisfaction of the outstanding registration delay fees.

See “Part I, Item 1.

Note 10 – Equity ” in this Quarterly Report on Form 10-Q for a description of this obligation.

Contractual and other cash obligations

The Company’s material contractual obligations for the next five years mainly relate to its debt and lease obligations.

Refer to “Part I, Item 1.

– Debt” elsewhere in this Quarterly Report on Form 10-Q for a description of the terms of outstanding indebtedness, including the Term Loan Credit Facility and Revolving Credit Facility, which is incorporated herein by reference.

As of September 30, 2025 the Company had $179.6 million in borrowings outstanding under the Term Loan Credit Facility at an effective annual interest rate of 20.9%, which includes the amortization of the debt discount.

The stated annual interest rate is 10%, which is payable-in-kind until May 2026, following which interest is payable at a fixed rate of 3% per annum in cash with the remainder payable-in-kind.

The obligations under the Term Loan Credit Facility mature on May 22, 2029.

Interest paid-in-kind under the Term Loan Credit Facility for the three months ended September 30, 2025 was $4.4 million.

As of September 30, 2025, the Company had no borrowings outstanding under the Revolving Credit Facility.

The Company repaid $2.5 million of borrowings in June 2025, and this repayment was a condition to the Company being able to access any other borrowings under the Revolving Credit Facility.

The obligations under the Revolving Credit Facility mature on November 26, 2027.

Interest paid under the Revolving Credit Facility for the three months ended September 30, 2025 was negligible.

Critical accounting estimates

2 unchanged sentences

Quantitative and qualitative disclosures about market risk

Item 305 of Regulation S-K is not required for Smaller Reporting Companies.

The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis