Lifecore Biomedical Inc.

03/16/2026 | Press release | Distributed by Public on 03/16/2026 06:16

Annual Transition Report (Form 10-KT)

Management's discussion and analysis of financial condition and results of operations
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-KT. 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-KT.
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.
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 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 by more than 20% over approximately the past year. We believe this achievement reflects the performance-driven culture at Lifecore and underscores 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, and (vi) the implementation of operational cost reductions, including overhead costs and professional fees associated with legal, accounting and consulting spend.
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, 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, our Board of Directors approved a change in the Company's fiscal year from a fiscal year ending on the last Sunday of May to a calendar year ending on December 31. As a result, this Annual Report on Form 10-KT reports current results for the transition period from May 26, 2025 through December 31, 2025. To provide meaningful comparisons in the "Results of operations" section below, operating results for the seven-month transition period ended December 31, 2025 are compared to the unaudited seven-month period ended December 31, 2024, which is derived from the audited results of fiscal year ended May 25, 2025. This presentation reflects the comparative information required under SEC rules applicable to fiscal year changes and is intended to facilitate an understanding of changes in the Company's operating results and financial condition.
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 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.
The debt derivative liability, related party, represents the fair value of various features in the credit facility that require bifurcation and accounting as a derivative instrument. Changes in the fair value are recorded as non-operating income or expense.
Results of operations - seven months ended December 31, 2025 and 2024
Revenues and gross profit
Seven months ended
December 31, 		Change
2025 2024 Amount %
(dollars in thousands)
(unaudited)
Revenues:
CDMO
$ 51,489 $ 49,053 $ 2,436 5 %
HA manufacturing
24,032 13,903 10,129 73 %
Total revenues
75,521 62,956 12,565 20 %
Cost of sales
51,832 46,629 5,203 11 %
Gross profit 23,689 16,327 7,362 45 %
Gross profit percentage 31.4 % 25.9 % 5.5 %
The increase of $12.6 million in revenues was primarily due to a $10.1 million increase in HA manufacturing revenues, $8.4 million of which was primarily due to timing of revenues from Lifecore's largest customer's supply chain initiatives and $1.7 million of increased demand from other customers and pricing initiatives. In addition, CDMO revenues increased $2.4 million, which was primarily from $2.9 million of overall higher sales volumes, $0.5 million of sales of customer specific materials, $0.4 million of higher development revenue, and $0.2 million of pricing. These increases were partially offsetby the absence of $1.6 million of take-or-pay revenue recognized in the comparable period.
The increaseof $7.4 millionin gross profit is due a $7.6 million increase from HA manufacturing due to increased sales volume and manufacturing absorption, partially offset by a $0.2 million decrease from CDMO. The CDMO decrease was due to a decrease in aseptic gross profit of $0.1 million and a decrease in development gross profit of $0.1 million. The decline in aseptic gross profit was due to the absence of $1.6 million in take-or-pay revenue that occurred in the comparable period, partially offset by favorable manufacturing volumes, costing, and pricing initiatives.
Operating expenses
Seven months ended
December 31, 		Change
2025 2024 Amount %
(dollars in thousands)
(unaudited)
Research and development $ 4,965 $ 4,720 $ 245 5 %
Selling, general and administrative 19,457 30,846 (11,389) (37) %
Total operating expenses $ 24,422 $ 35,566 $ (11,144) (31) %
Research and development ("R&D")
R&D expenses modestly declined reflecting a relatively consistent level of product development and commercialization activities.
Selling, general, and administrative ("SG&A")
The $11.4 milliondecrease in SG&A expenses includes a reduction of $2.5 million in recurring accounting, legal and consulting expenses, a $1.8 million reduction in stock-based compensation, and a net $6.6 million reduction in non-recurring expenses primarily related to legacy matters and prior period restructuring.
Non-operating income or expense
Seven months ended
December 31, 		Change
2025 2024 Amount %
(dollars in thousands)
(unaudited)
Interest expense, net $ (15,574) $ (13,066) $ (2,508) 19 %
Change in fair value of debt derivative liability, related party (1,573) 1,900 (3,473) n/m
Other income (expense), net
256 (215) 471 n/m
Income tax expense (337) (18) (319) n/m
Interest expense, net
The increase in interest expense, net of interest income, of $2.5 million was primarily from $3.0 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. This increase was partially offset by $0.3 million of lower amortization of deferred financing fees on the revolving credit facility caused by its extension through November 2027 and a $0.2 million aggregate net decrease from various other small items. There were also offsetting changes of $0.8 million less interest expense caused by lower average revolver borrowings and $0.8 million more interest expense caused by the placement into service of the multi-purpose 5-head aseptic isolator filler, which reduced the amount of interest that was capitalized to property, plant and equipment.
Change in fair value of debt derivative liability, related party
The $3.5 million change from income to expense was caused by distinct reasons each period. The change in the 2025 period was primarily caused by passage of time, which lowered the effect of cash flow discounting on the fair value calculations, in addition to offsetting changes to assumptions related to change in control timing and other scenario probabilities. The change in the 2024 period was primarily caused by a decrease in discount rates, which included an improvement in the Company's derived credit rating following an equity raise in October 2024.
Other income (expense), net
The change from expense to income of $0.5 million was primarily driven by the absence of estimated expense accrued for monetary penalties to the preferred stockholders recognized in the comparative period following the filing of registration statements in October 2024.
Income tax expense
The increasein expense of $0.3 millionwas 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 scheduled future deferred tax liabilities, causing an increase to deferred tax expense.
Results of operations -fiscal years ended May 25, 2025 and May 26, 2024
Revenues and gross profit
Year ended Change
(dollars in thousands) May 25, 2025 May 26, 2024 Amount %
Revenues:
CDMO
$ 90,095 $ 96,616 $ (6,521) (7) %
HA manufacturing
38,772 31,645 7,127 23 %
Total revenues
128,867 128,261 606 - %
Cost of sales
88,569 86,411 2,158 2 %
Gross profit 40,298 41,850 (1,552) (4) %
Gross profit percentage 31.3 % 32.6 % (1.3) %
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
Year ended Change
(dollars in thousands) May 25, 2025 May 26, 2024 Amount %
Research and development $ 8,258 $ 8,575 $ (317) (4) %
Selling, general and administrative 44,046 40,463 3,583 9 %
Loss on sale or disposal of assets, net of portion classified as cost of sales
6,986 - 6,986 n/m
Restructuring (recovery) costs
(1,747) 1,656 (3,403) n/m
Total operating expenses $ 57,543 $ 50,694 $ 6,849 14 %
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
Year ended Change
(in thousands)
May 25, 2025 May 26, 2024 Amount %
Interest expense, net $ (21,835) $ (18,090) $ (3,745) 21 %
Change in fair value of debt derivative liability, related party 409 39,500 (39,091) (99) %
Other expense, net (3) (3,052) 3,049 (100) %
Income tax expense (43) (183) 140 (77) %
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.
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.
Income tax expense
Neither income tax expense nor its changes were material to the periods presented.
Liquidity and capital resources
As of December 31, 2025, the Company had cash of $17.5 million and $21.4 million available for borrowing (together, "consolidated liquidity") under its $40.0 millionRevolving Credit Facility, with no amounts outstanding as of December 31, 2025. As of December 31, 2025, the Company had approximately $189.9 million in total indebtedness with Alcon, with $184.1 million outstanding under the Term Loan Credit Facility. The Company is subject to minimum liquidity covenants under its credit agreements, the most restrictive of which requires the Company to maintain at least $4.0 millionof consolidated liquidity, as adjusted for any excess payables, at the end of each fiscal quarter. As of December 31, 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-KTfor a summary of the Term Loan Credit Facility and Revolving Credit Facility.
The following table presents comparative summary cash flows for the seven-month periods ended December 31, 2025 and 2024:
Seven months ended
December 31,
Change
2025 2024
(in thousands)
(unaudited)
Net cash provided by (used in):
Operating activities
$ 7,330 $ (5,593) $ 12,923
Investing activities
6,304 (6,231) 12,535
Financing activities
(4,430) 7,279 (11,709)
Total
$ 9,204 $ (4,545) $ 13,749
Cash flow improved by $13.7 million in the transition period ended December 31, 2025 compared to the unaudited seven-month period ended December 31, 2024 period for the following reasons:
•Operating cash flows improved $12.9 million. In the 2024 period, earnings as adjusted for non-cash items used cash of $9.0 million, which was partially funded by $3.4 million of favorable working capital changes primarily related to net receivable collections and higher accounts payable, partially offset by higher contract assets and inventory. In contrast, in the 2025 period, earnings as adjusted for non-cash items generated $10.4 million of cash, offset by changes in working capital of $3.1 million primarily related to the $4.7 million payment to fully satisfy the preferred stock registration delay fees, partially offset by $1.6 million of other net working capital changes;
•Investing cash flows improved by $12.5 million due to the receipt of $10.0 million cash from the payment of a note receivable related to a sale of equipment in the 2025 period in addition to lower capital spending in the 2025 period compared to the 2024 period; and
•Financing cash flows decreased $11.7 million as a result of $2.5 million of revolver borrowings repaid in the 2025 period and the absence of certain one-time cash flows from the 2024 period, including inflows of $23.8 million from the issuance of common stock and $2.4 million from a lease amendment which were used to repay a net $17.2 million of borrowings under the revolving credit facility in the 2024 period.
The following table presents comparative summary cash flows for the fiscal years ended May 25, 2025 and May 26, 2024:
Year ended
Change
(in thousands) May 25, 2025 May 26, 2024
Net cash provided by (used in):
Operating activities
$ (206) $ 257 $ (463)
Investing activities
(6,415) (18,395) 11,980
Financing activities
6,424 7,509 (1,085)
Total
$ (197) $ (10,629) $ 10,432
Cash outflows of $0.2 million during the fiscal year ended May 25, 2025 improved by $10.4 million compared to cash outflows of $10.6 million during the fiscal year ended May 26, 2024 for the following reasons:
•Financing proceeds, net, of $23.9 million from the issuance of common stock in October 2024 and $2.4 million from a lease amendment in the fiscal year 2025 period were used to repay a net $17.2 million of borrowings under our revolving credit facility, $0.9 million of other borrowings and $1.3 million related to employee stock plans, compared to $5.0 million of financing proceeds from a customer deposit and net borrowings under the revolving credit facility of $2.9 million received in the fiscal year 2024 period;
•We received investing proceeds of $7.0 million from the sale of excess equipment in January 2025, and we reduced capital spending by $5.0 million in fiscal year 2025 compared to fiscal year 2024;
•Net working capital investments required $1.0 million more cash in fiscal year 2025 compared to fiscal year 2024, partially offset by a $0.5 million increase in earnings as adjusted for non-cash items.
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 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 customers' activities and arrangements; any redemptions 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 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's principal sources of liquidity consist of its existing cash, any additional cash generated by operations, 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.
Cash obligations relating to Redeemable Convertible Preferred Stock
On January 9, 2023, the Company issued 38,750 shares of Redeemable Convertible Preferred Stock for a purchase price of $1,000 per share (the stated value) and gross proceeds of $38.8 million. The Redeemable Convertible Preferred Stock accrues dividends and is 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 December 31, 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 $18.75 per preferred share.
Each holder of outstanding shares of Redeemable Convertible Preferred Stock have the right to require the Company to redeem such holder's outstanding Redeemable Convertible Preferred Stock 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 December 31, 2025and May 25, 2025, the aggregate liquidation preference of the Redeemable Convertible Preferred Stock was $48.4 million and $46.3 million, respectively. The Company estimates that the accrued and unpaid liquidation preference for all such shares of Redeemable Convertible Preferred Stock, assuming no earlier conversions or redemptions, will be $50.2 million on June 29, 2026. If the Company does not redeem all shares of Redeemable Convertible Preferred Stock that are submitted for redemption, we must pay the holder cash interest at a rate of 1% per month (equivalent to 12% per annum) in respect of that holder's unredeemed shares of Redeemable Convertible Preferred Stock until paid in full.
Lifecore's internally generated cash is not expected to be sufficient to fund all or any significant redemptions of the Redeemable Convertible Preferred Stock. Lifecore's financing alternatives would be dependent upon the amount of any redemptions and may include supplementing any cash generated from operations and borrowing under its existing credit facilities with 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 11 - Equity" in this Annual Report on Form 10-KT 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.
Indebtedness
Refer to "Part IV, Item 15. Note 10. -Debt" elsewhere in this Annual Report on Form 10-KT 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 December 31, 2025 the Company had $184.1 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 transition period ended December 31, 2025 was $10.6 million.
As of December 31, 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 transition period ended December 31, 2025 was negligible.
Critical accounting policies and estimates
This management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts reported in the financial statements and accompanying notes.
We have determined that the following accounting policies and estimates are critical to the preparation of the financial statements, so we have provided these additional disclosures to supplement our summary of significant accounting policies located in Note 1 to the consolidated financial statements in "Part IV, Item 15" of this Annual Report on Form 10-KT.
Valuation of debt derivative liability
The Company reported a fair value of its debt derivative liability of $26.6 million at December 31, 2025, and recognized expense of $1.6 million from the change in the fair value of its debt derivative liability for the transition period ended December 31, 2025 and recorded income from the change in the fair value of its debt derivative liability of $0.4 million and $39.5 million for the fiscal years ended May 25, 2025 and May 26, 2024, respectively.
The debt derivative liability represents the fair value of various features in the Term Loan Credit Agreement that require bifurcation and accounting as a derivative instrument. Its fair value is estimated using a discounted cash flow method that includes annually weighted probabilities that the lender exercises its option to require payment of the term loans upon a qualifying change in control or that the debt is held to maturity and refinanced. Management makes key judgments and estimates that are input into the valuation model, the most sensitive of which is the probability and timing of a change in control event occurring over the remaining term of the debt. Changes in these assumptions could result in a significant increase to our liabilities and expenses. For example, if all other assumptions were held equal, a one year acceleration of each of the change in control scenario dates occurring after December 31, 2026 would have increased the fair value of the debt derivative liability and increased our net loss by $7.2 million as of and for the transition period ended December 31, 2025.
Revenue recognition for development services
The Company recognized revenues for development services of $14.2 million, $23.2 million and $29.4 million for the transition period ended December 31, 2025 and fiscal years ended May 25, 2025 and May 26, 2024, respectively. Revenue for these services is recognized over time based on highly subjective measures of progress. To measure progress, management uses a proportion of labor hours incurred compared to the total estimated hours at the individual development project level.
Individual development projects can be unique, complex and/or novel. Determining the total estimated hours to complete any given project is highly subjective, and so the total amount of development revenue recognized by the Company is sensitive to changes in those hours. To mitigate the risk of such changes, management utilizes several data points to estimate total project hours, including project quotations and periodic status updates from project managers. If total project hours were underestimated by 10% on $10 million of development projects that were halfway complete at the end of the year, we would overstate development revenue by $0.5 million.
Qualitative impairment reviews of goodwill and other indefinite-lived intangible assets
The Company had goodwill of $13.9 million and indefinite-lived intangible assets of $4.2 million, a component of other assets, as of December 31, 2025. We are required to review these assets on an annual basis to determine whether impairment may exist. The impairment analysis consists of an optional qualitative assessment potentially followed by a quantitative analysis. If we determine that the carrying value of these assets exceeds their fair value, an impairment charge is recorded for the excess.
The critical judgments involved in our annual qualitative testing include an assessment of unfavorable events, an analysis of prior year valuation assumptions and their sensitivity to change, and in the case of goodwill, a comparison of its carrying value against its fair value based on our market capitalization, derived from quoted stock prices, and balance sheet carrying values. We make judgments about whether any of that information puts our goodwill or other indefinite-lived intangible assets at enough risk of impairment to warrant the performance of more rigorous quantitative testing.
In the transition period ended December 31, 2025, the Company's qualitative assessment indicated a minimal risk of impairment. For example, with respect to our qualitative testing of goodwill, even a 50% decrease in our quoted stock price would not have caused the carrying value of our goodwill to exceed its fair value. We observed a similarly low sensitivity to changes in assumptions for our indefinite-lived intangible assets.
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