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What changed in LIFECORE BIOMEDICAL, INC. \DE\'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of LIFECORE BIOMEDICAL, INC. \DE\'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+329 added−318 removedSource: 10-K (2024-03-20) vs 10-K (2022-09-14)

Top changes in LIFECORE BIOMEDICAL, INC. \DE\'s 2023 10-K

329 paragraphs added · 318 removed · 150 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeFollowing the Eat Smart Disposition, and BreatheWay sale subsequent to fiscal year end, Curation Foods retains its O Olive and Yucatan businesses, and the Company retains its Lifecore business. As a result of the Eat Smart Disposition, the Company met the requirements of ASC 205-20, to report the results of the Eat Smart business as a discontinued operation.
Biggest changeThe BreatheWay Disposition did not meet the requirements for reporting the businesses as discontinued operations. Accordingly, the consolidated financial statements and notes to the consolidated financial statements reflect the results of the Eat Smart, Yucatan and O Olive businesses as a discontinued operation for the periods presented.
Government Regulation Lifecore The Food and Drug Administration (“FDA”) regulates and/or approves the clinical trials, manufacturing, labeling, distribution, import, export, sale and promotion of medical devices and drug products in or from the United States.
Government Regulation The Food and Drug Administration (“FDA”) regulates and/or approves the clinical trials, manufacturing, labeling, distribution, import, export, sale and promotion of medical devices and drug products in or from the United States.
(“Lifecore”), is a fully integrated contract development and manufacturing organization (“CDMO”) that offers highly differentiated capabilities in the development, fill and finish of sterile, injectable pharmaceutical products in syringes and vials.
(“Lifecore”), is a fully integrated contract development and manufacturing organization (“CDMO”) that offers highly differentiated capabilities in the development, fill and finish of sterile, injectable-grade pharmaceutical products in syringes and vials.
Other applicable FDA requirements include but are not limited to reporting requirements such as the medical device reporting regulation, which requires certain companies to provide information to the FDA regarding deaths or serious injuries alleged to have been associated with the use of its devices, as well as product malfunctions that would likely cause or contribute to death or serious injury if the malfunction were to recur.
Other applicable FDA requirements include but are not limited to reporting requirements such as the medical device reporting regulation, which requires certain companies to provide information to the FDA regarding deaths or serious injuries alleged to have been associated with the use of its devices, as well as product malfunctions that would likely cause or contribute to death or 5 Table of Contents serious injury if the malfunction were to recur.
The FDA also conducts pre-approval inspections for PMA and NDA product introduction. Lifecore’s facility is subject to inspections as both a device and a drug manufacturing operation.
The FDA also conducts pre-approval inspections for PMA and NDA product introductions. Lifecore’s facility is subject to inspections as both a device and a drug manufacturing operation.
Landec makes available free of charge copies of its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after filing such material electronically with, or otherwise furnishing it to, the U.S.
Lifecore Biomedical makes available free of charge copies of its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after filing such material electronically with, or otherwise furnishing it to, the SEC.
With over 35 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.
With over 40 years of a superior track record with global regulatory bodies (FDA, EMA, ANV ISA, 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.
Securities and Exchange Commission (“SEC”). In addition, these materials may be obtained at the website maintained by the SEC at www.sec.gov. The reference to the Company’s website address does not constitute incorporation by reference of the information contained on the website, and the information contained on the website is not part of this document. 7 Ta ble of Contents
In addition, these materials may be obtained at the website maintained by the SEC at www.sec.gov. The reference to the Company’s website address does not constitute incorporation by reference of the information contained on the website, and the information contained on the website is not part of this document. 6 Table of Contents
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. 3 Ta ble of Contents Curation Foods Curation Foods Overview Based in Santa Maria, California, Curation Foods’ primary business is the processing, marketing and selling of guacamole, avocado products, and olive oils and wine vinegars.
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. Curation Foods Curation Foods’ primary business was the processing, marketing and selling of guacamole, avocado products, and olive oils and wine vinegars.
Lifecore Biomedical The commercial production of HA requires fermentation, separation, and purification and aseptic processing capabilities. HA can primarily be produced in two ways, either through bacterial fermentation or through extraction from rooster combs. Lifecore produces HA only from bacterial fermentation, using an efficient microbial fermentation process and an effective purification operation.
HA can primarily be produced in two ways, either through bacterial fermentation or through extraction from rooster combs. Lifecore produces HA only from bacterial fermentation, using an efficient microbial fermentation process and an effective purification operation.
Our Employee Engagement and Culture Our hiring process has been designed to provide an equitable candidate experience, facilitate the inclusion of new perspectives, foster innovation and creativity and leverage technology and data analytics to address gaps in representation.
Lifecore intends to recruit additional personnel in connection with the development, manufacturing and marketing of its products. Our Employee Engagement and Culture Our hiring process has been designed to provide an equitable candidate experience, facilitate the inclusion of new perspectives, foster innovation and creativity and leverage technology and data analytics to address gaps in representation.
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 applications for products with partners who have strong marketing, sales, and distribution capabilities to end-user markets.
These services include activities such as technology development, material component changes, analytical method development, formulation development, pilot studies, stability studies, process validation and production of materials for clinical studies. 3 Table of Contents 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 applications for products with partners who have strong marketing, sales, and distribution capabilities to end-user markets.
Item 1. Business Corporate Overview Landec Corporation and its subsidiaries (“Landec,” the “Company”, "we" or "us") design, develop, manufacture, and sell differentiated products for biomaterials and food markets, and license technology applications to partners.
Item 1. Business Corporate Overview Lifecore Biomedical, Inc. and its subsidiaries (“Lifecore Biomedical”, the “Company”, “we” or “us”, previously Landec Corporation) design, develop, manufacture, and sell differentiated products for biomaterials markets, and license technology applications to partners. Lifecore Biomedical’s biomedical company, Lifecore Biomedical Operating Company, Inc.
We are currently in the process of developing a platform for growth opportunities and ways to understand and communicate career pathways. We have also invested in our training and development programs and infrastructure for our employees. Available Information Landec’s website is www.landec.com.
We seek to empower our employees to own their career path and seek out training programs to take them to the next level. We are currently in the process of developing a platform for growth opportunities and ways to understand and communicate career pathways. We have also invested in our training and development programs and infrastructure for our employees.
Reportable Segments Landec has three reportable business segments – Lifecore, Curation Foods, and Other, which are described below. 2 Ta ble of Contents Lifecore Biomedical Lifecore, located in Chaska, Minnesota, is a fully integrated CDMO that offers highly differentiated capabilities in the development, fill and finish of sterile, injectable pharmaceutical products in syringes and vials.
Lifecore Lifecore, located in Chaska, Minnesota, is a fully integrated CDMO that offers highly differentiated capabilities in the development, fill and finish of sterile, injectable pharmaceutical products in syringes and vials.
We provide training to all employees in the areas of Food Safety, Human Safety and Human Resources. Individual training plans for continued growth are developed between employees and supervisors or managers.
We provide training to our employees in the areas of Safety and Human Resources. Individual training plans for continued growth are developed between employees and supervisors or managers. Frontline supervision workers at factory locations are provided improvement tools for training, as well as employee interface training.
BreatheWay Packaging Technology : The Company’s BreatheWay membrane technology establishes a beneficial packaging atmosphere adapting to changing fresh product respiration and temperature in order to extend freshness naturally. Subsequent to the fiscal year ended May 29, 2022, on June 2, 2022, the Company sold its BreatheWay technology business for $3.2 million in cash.
In May of 2022, the Board of Directors approved a plan to sell the assets of Curation Foods’ BreatheWay packaging technology business. The Company’s BreatheWay membrane technology establishes a beneficial packaging atmosphere adapting to changing fresh product respiration and temperature to extend freshness naturally. On June 2, 2022, the Company sold its BreatheWay technology business (the “BreatheWay Disposition”).
As a leading manufacturer of premium, injectable grade Hyaluronic Acid, Lifecore brings 37 years of expertise as a partner for global and emerging biopharmaceutical and biotechnology companies across multiple therapeutic categories to bring their innovations to market. Landec’s natural food company, Curation Foods, Inc.
As a leading manufacturer of premium, injectable grade sodium hyaluronic (“HA”), Lifecore brings over 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. Lifecore recognizes revenue in two different product categories, CDMO and fermentation.
Curation Foods serves as the corporate umbrella for its portfolio of three natural food brands, O Olive Oil & Vinegar® products, and Yucatan® and Cabo Fresh® authentic guacamole and avocado products.
Curation Foods served as the corporate umbrella for its portfolio of three natural food brands, O Olive Oil & Vinegar® products, and Yucatan® and Cabo Fresh® authentic guacamole and avocado products. On December 13, 2021, the Company completed the sale of Curation Foods’ Eat Smart business, including its salad and cut vegetable businesses (the “Eat Smart Disposition”).
The Company expects to continue to assess the evolving impact of the COVID-19 pandemic, and intends to continue to make adjustments to its responses accordingly. Sales and Marketing Lifecore relies on name recognition and referrals regarding its biomedical-based CDMO and manufacturing experience and expertise to attract new customers and offers its services with minimal marketing and sales infrastructure.
Sales and Marketing Lifecore relies on name recognition and referrals regarding its biomedical-based CDMO and manufacturing experience and expertise to attract new customers and offers its services with minimal marketing and sales infrastructure. Manufacturing and Processing The commercial production of HA requires fermentation, separation, purification and aseptic processing capabilities.
Lifecore CDMO provides product development services to its partners for HA-based, as well as non-HA based, aseptically formulated and filled products. These services include activities such as technology development, material component changes, analytical method development, formulation development, pilot studies, stability studies, process validation and production of materials for clinical studies.
Lifecore CDMO provides product development services to its partners for HA-based, as well as non-HA based, aseptically formulated and filled products.
FDA also maintains adverse event reporting requirements for drug products, among other post-market regulatory requirements.
FDA also maintains adverse event reporting requirements for drug products, among other post-market regulatory requirements. Human Capital Our Mission The strength of our team and our workplace culture is essential to our ability to achieve our broader mission.
As of May 29, 2022, Landec had 689 full-time employees, of whom 561 were dedicated to research, development, manufacturing, quality control and regulatory affairs, and 128 were dedicated to sales, marketing and administrative activities. Landec intends to recruit additional personnel in connection with the development, manufacturing and marketing of its products.
As of May 28, 2023, the Company had 459 full-time employees, of whom 419 were dedicated to research, development, manufacturing, quality control and regulatory affairs, and 40 were dedicated to sales, marketing and administrative activities. Substantially all of our employees are located in the United States. None of our employees are represented by labor unions or collective bargaining agreements.
As of the date of this report, the Company believes that its current manufacturing capacity plan will be sufficient to allow it to meet the needs of its current customers for the foreseeable future. Curation Foods O Olive Oil & Vinegar O uses third parties to crush, process, and bottle its olive oil products, primarily within California.
The Company believes that its current manufacturing capacity plan will be sufficient to allow it to meet the needs of its current customers for the foreseeable future. Competition Our competition in the CDMO market includes a number of full-service contract manufacturers and large pharmaceutical companies that have the ability to insource manufacturing.
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On August 10, 2022, Landec formally announced that we will become a CDMO-focused life sciences company with a planned corporate rebranding including renaming the Company to Lifecore Biomedical and exploring potential sales opportunities of the Company’s remaining Curation Foods assets. Landec’s biomedical company, Lifecore Biomedical, Inc.
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Lifecore Biomedical previously operated a natural food company, through its wholly owned subsidiary, Curation Foods, Inc. (“Curation Foods”), which was previously focused on the distribution of plant-based foods to retail, club and foodservice channels throughout North America, which was presented in Lifecore Biomedical’s prior financial statements as the Curation Foods segment.
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(“Curation Foods”) is focused on innovating and distributing plant-based foods with 100% clean ingredients to retail, club and foodservice channels throughout North America. Landec was incorporated in California on October 31, 1986 and reincorporated as a Delaware corporation on November 6, 2008. Landec’s common stock is listed on the NASDAQ Global Select Market under the symbol “LNDC”.
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However, upon the sale of Yucatan Foods (“Yucatan”) on February 7, 2023 and O Olive Oil & Vinegar (“O Olive”) on April 6, 2023, the Company ceased to operate the Curation Foods business. Accordingly, commencing in the fourth quarter of fiscal year 2023, the Curation Foods segment of Lifecore Biomedical is presented as a discontinued operation in its entirety.
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The Company’s principal executive offices are located at 2811 Airpark Drive Santa Maria, California 93455, and the telephone number is (650) 306-1650.
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We are focused on driving profitable growth with product development and 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.
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We believe that the major distinguishing characteristics of Curation Foods that provide competitive advantage are insight driven product innovation, diversified fresh food supply chain, refrigerated supply chain and customer reach. We believe that Curation Foods is well positioned as a single source of a broad range of its products.
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Lifecore’s goal of continuing success will be to execute on its three strategic priorities: 2 Table of Contents 1) Managing Business Development Pipeline : Accelerate product development activities for 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 and vial 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.
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On December 13, 2021 (the “Closing Date”), Landec and Curation Foods (together, the “Sellers”), and Taylor Farms Retail, Inc.
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Lifecore Biomedical was incorporated under the name “Landec Corporation” in California on October 31, 1986 and reincorporated as a Delaware corporation on November 6, 2008. On November 14, 2022, the Company filed an amendment to the Certificate of Incorporation to change the Company’s name from Landec Corporation to Lifecore Biomedical, Inc.
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(“Taylor Farms” and together with the Sellers, the “Parties”) completed the sale (the “Eat Smart Disposition”) of Curation Foods’ Eat Smart business, including its salad and cut vegetable businesses (the “Business”), pursuant to the terms of an asset purchase agreement executed by the Parties on December 13, 2021 (the “Asset Purchase Agreement”).
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(the “Name Change”), which was approved by the Board of Directors of the Company and became effective on November 14, 2022. In connection with the Name Change, the Company’s common stock, par value $0.001 per share (“Common Stock”) began trading under its new NASDAQ ticker symbol, “LFCR”, on November 15, 2022.
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Pursuant to the Asset Purchase Agreement, Taylor Farms acquired the Business for a purchase price of $73.5 million in cash, subject to post-closing adjustments based upon net working capital at the Closing Date.
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References to “Landec” or “Landec Corporation” refer to operations and/or transactions of the Company prior to the Name Change. The Company’s principal executive offices are located at 3515 Lyman Boulevard, Chaska, Minnesota 55318, and the telephone number is (952) 368-4300.
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As part of the Eat Smart Disposition, Taylor Farms acquired, among other assets related to the Business, the manufacturing facility and warehouses (and corresponding equipment) located in Bowling Green, Ohio and Guadalupe, California, as well as inventory, accounts receivable and accounts payable, intellectual property and information related to the Business, and assumed certain liabilities and executory obligations under the Company’s and Curation Foods’ outstanding contracts related to the Business, in each case, subject to the terms of the Asset Purchase Agreement.
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Reportable Segments The Company previously operated in principally two reportable segments, Lifecore and Curation, and disclosed Other which included corporate activities. During the fourth quarter of fiscal year 2023, in connection with the previously announced strategic shift and upon the sale of Yucatan and O Olive, the Company has ceased to operate the Curation Foods business.
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Accordingly, the operating results for the Eat Smart business have been reclassified as a discontinued operation within these consolidated financial statements. Curation Foods Brands O Olive Oil & Vinegar (" O ") : The Company acquired O on March 1, 2017.
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As a result, we changed the level of detail at which our chief operating decision maker (“CODM”) regularly reviews and manages the businesses, resulting in a change to our reportable segments.
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O , founded in 1995, is based in Petaluma, California, and is the premier producer of California specialty olive oils and wine vinegars. Its products are sold in natural food, conventional grocery and mass retail stores, primarily in the United States and Canada. Yucatan & Cabo Fresh Avocado Products: The Company acquired Yucatan Foods on December 1, 2018.
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With the exit of the Curation Foods business, the “Curation” segment ceased to exist; and “Other”, which previously included corporate general, interest, income tax and other general and administrative expenses, is incorporated into the single “Lifecore” segment. Beginning with the fourth quarter of fiscal year 2023, we manage and report our operating results through one reportable segment: Lifecore.
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Yucatan Foods was founded in 1991. As part of the acquisition of Yucatan Foods, Curation Foods acquired the newly built production facility in Guanajuato, Mexico. The Yucatan Foods business added a double-digit growth platform, a lower-cost infrastructure in Mexico, and higher margin product offerings that generally exhibit less sourcing volatility.
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This change allows us to better align our business models, resources, and cost structure to the specific current and future growth of our business, while maintaining the necessary information and transparency to our stockholders. Our historical segment information has been recast to conform to the current segment structure.
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The Company manufactures and sells Yucatan and Cabo Fresh guacamole and avocado food products primarily to the U.S. grocery channel, but also to the U.S. mass retail, Canadian grocery retail and foodservice channels.
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On February 7, 2023, the Company completed the sale of the Company’s avocado products business, including its Yucatan® and Cabo Fresh® brands, as well as the associated manufacturing facility and operations in Guanajuato, Mexico (the “Yucatan Disposition”).
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Windset : Until June 1, 2021, the Company held a 26.9% investment ownership in Windset Holding 2010 Ltd. (“Windset”), a leading edge grower of hydroponically-grown produce. Included in discontinued operations are the dividends and Landec’s share of the change in fair market value of its investment in Windset.
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On April 6, 2023, the Company completed the sale of its O Olive Oil and Vinegar Business (“O Olive Sale”). 4 Table of Contents The accounting requirements for reporting the Eat Smart, Yucatan and O Olive businesses as discontinued operations were met when the Eat Smart Disposition, Yucatan Disposition and O Olive Sale were completed on each respective closing date.
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On June 1, 2021, the Company and Curation Foods sold all of its equity interests of Windset in exchange for an aggregate purchase price of $45.1 million, subject to certain adjustments.
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Also, some pharmaceutical companies have been seeking to divest all or portions of their manufacturing capacity, and any such divested assets may be acquired by our competitors. Some of our significantly larger and global competitors have substantially greater financial, marketing, technical and other resources than we do.
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Other Included in the Other segment is Corporate, which includes corporate general and administrative expenses, non-Lifecore and non-Curation Food interest income, interest expense, and income tax expenses. 4 Ta ble of Contents COVID-19 Pandemic There are many uncertainties regarding the current novel coronavirus (“COVID-19”) pandemic, including the scope of scientific and health issues, the anticipated duration of the pandemic, and the extent of local and worldwide social, political, and economic disruption it may cause.
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Moreover, additional competition may emerge and may, among other things, create downward pricing pressure, which could negatively impact our financial condition and results of operations. Seasonality Lifecore is not significantly affected by seasonality.
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The COVID-19 pandemic, as well as actions taken in response to the pandemic, have had and we believe will continue to have significant adverse impacts on many aspects of the Company’s operations, directly and indirectly, including with respect to sales, customer behaviors, business and manufacturing operations, inventory, the Company’s employees, and the market generally, and the scope and nature of these impacts continue to evolve each day.
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However, the timing of customer orders, the scale, scope, mix, and the duration of our fulfillment of such customer orders can result in variability in our periodic revenues.
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Curation Foods is supported by dedicated sales and marketing teams located throughout the U.S. and Canada. Manufacturing and Processing Seasonality Lifecore is not significantly affected by seasonality. Curation Foods can be affected by seasonal weather factors, which can result in higher costs of sourcing and processing its products.
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The fermentation, production, and processing of vinegar is performed at the Company’s facility in Petaluma, California, using ingredients sourced from various third parties primarily within California. O uses third parties in California to bottle its vinegar products.
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Yucatan and Cabo Fresh Guacamole for the Yucatan and Cabo Fresh brands is primarily produced and packed at the Company’s facility in Guanajuato, Mexico, using ingredients sourced from various third parties within the United States and Mexico. BreatheWay BreatheWay packaging systems use polymer manufacturing, membrane manufacturing, and label package conversion.
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Contract manufacturers make virtually all of the polymers for the BreatheWay packaging system and breathable membranes.
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Subsequent to the fiscal year ended May 29, 2022, on June 2, 2022, the Company sold its BreatheWay technology business for $3.2 million in cash. 5 Ta ble of Contents Competition The Company operates in highly competitive and rapidly evolving fields, and new developments are expected to continue at a rapid pace.
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Competition from large food-products, industrial, medical and pharmaceutical companies is expected to be intense. In addition, the nature of our collaborative arrangements may result in our business partners and licensees becoming our competitors.
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Many of our competitors have substantially greater financial and technical resources and production and marketing capabilities than we do, and may have substantially greater experience in conducting clinical and field trials, obtaining regulatory approvals and manufacturing and marketing commercial products. The food industry is highly competitive, and further consolidation with our customers would likely increase competition.
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Competitive pressures also may restrict our ability to increase prices, including in response to commodity and other cost increases. We sell branded, private brand, and customized food products, as well as commercially branded foods.
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Our branded products have an advantage over private brand products primarily due to advertising and name recognition, although private brand products typically sell at a discount to those of branded competitors.
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In addition, when branded competitors focus on price and promotion, the environment for private brand producers becomes more challenging because the price difference between private brand products and branded products may become less significant.
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In most product categories, we compete not only with other widely advertised branded products, but also with other private label and store brand products that are generally sold at lower prices.
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A strong competitive response from one or more of our competitors to our marketplace efforts, or a consumer shift towards more generic, lower-priced, or other value offerings, could result in us reducing pricing, increasing marketing or other expenditures, or losing market share.
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Our margins and profits could decrease if a reduction in prices or increased costs are not counterbalanced with increased sales volume. In addition, substantial growth in e-commerce has encouraged the entry of new competitors and business models, intensifying competition by simplifying distribution and lowering barriers to entry.
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The expanding presence of e-commerce retailers has impacted, and may continue to impact, consumer preferences and market dynamics, which in turn may negatively affect our sales or profits.
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Curation Foods The Company’s food products and operations are also subject to regulation by various foreign, federal, state, and local agencies, with respect to production processes, product attributes, packaging, labeling, advertising, import, export, storage, transportation and distribution. 6 Ta ble of Contents In the U.S., food products are primarily regulated by the FDA, which has the authority to inspect the Company’s food facilities, and regulates, among other things, food manufacturing, food packing and holding, food additives, food safety, the growing and harvesting of produce intended for human consumption, food transportation, food labeling, food packaging, and food supplier controls including foreign supplier verification.
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In addition, advertising of our products is subject to regulation by the Federal Trade Commission (“FTC”), and operations are subject to certain health and safety regulations, such as those issued under the Occupational Safety and Health Act (“OSHA”).
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All of our U.S. facilities and food products must be in compliance with the Federal Food, Drug, and Cosmetic Act (“FDC Act”) as amended by, among other things, the FDA Food Safety Modernization Act (“FSMA”).
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In addition, our operations in Mexico are subject to Mexican regulations through the SAGARPA, and our food products sold into Canada must be in compliance with applicable Canadian food safety and labeling regulations. Human Capital Our Mission The strength of our team and our workplace culture is essential to our ability to achieve our broader mission.
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We developed a COVID-19 Taskforce to assure employee health and safety throughout the workplace and encourage employees to carry this information into their communities. We also partner with local health departments in our various locations to supply our employees with COVID-19 communications to keep them informed in the ever-changing environment.
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Frontline supervision workers at factory locations are provided continuous improvement tools for training in line with our "ZEST" efforts as well as employee interface training covering topics such as how to provide feedback or how to have difficult conversations regarding performance.
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ZEST is our manufacturing operational system that will empower our people to work in a different way, changing their mindset and behaviors leading to an acceleration of our performance across our operations. • Zero Mindset - Zero breakdown, zero defects, zero recalls, zero accidents, zero pollution. • Empowerment - Empower employees to impact change. I operate. I maintain.
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I own the outcomes. • Standardization - Implementing the same practice across the network for efficiency. • Training - The cornerstone of success and employee engagement. We empower our employees to own their career path and seek out training programs to take them to the next level.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

59 edited+56 added−63 removed69 unchanged
Biggest changeOther factors that affect our operations include: • our ability and our growers’ ability to obtain an adequate supply of labor, • our growers’ ability to obtain an adequate supply of water, • the seasonality and availability and quantity of our supplies, • our ability to process produce during critical harvest periods, • the timing and effects of ripening, • the degree of perishability, • the effectiveness of worldwide distribution systems, • total worldwide industry volumes, • the seasonality and timing of consumer demand, • foreign currency fluctuations, and • foreign importation restrictions and foreign political risks.
Biggest changeOther factors that affect our operations include: • our ability to obtain an adequate supply of labor; • the availability and quantity of our supplies; • the effectiveness of worldwide distribution systems; • total worldwide industry volumes; • the seasonality and timing of consumer demand; and • foreign importation restrictions and foreign political risks. 13 Table of Contents Our stock price may fluctuate in response to various conditions, many of which are beyond our control.
For example: • our certificate of incorporation includes a provision authorizing our Board of Directors to issue blank check preferred stock without stockholder approval, which, if issued, would increase the number of outstanding shares of our capital stock and could make it more difficult for a stockholder to acquire us; • our certificate of incorporation provides for a dual-class Board of Directors, in which each class will serve for a staggered two-year term; • our certificate of incorporation limits the number of directors that may serve on the Board of Directors without the majority approval of all of the outstanding shares of our common stock; • our amended and restated bylaws require advance notice of stockholder proposals and director nominations; • our Board of Directors has the right to implement additional anti-takeover protections in the future, including stockholder rights plans and other amendments to our organizational documents, without stockholder approval; and • Section 203 of the Delaware General Corporation Law may prevent large stockholders from completing a merger or acquisition of us.
For example: 14 Table of Contents • our certificate of incorporation includes a provision authorizing our Board of Directors to issue blank check preferred stock without stockholder approval, which, if issued, would increase the number of outstanding shares of our capital stock and could make it more difficult for a stockholder to acquire us; • our certificate of incorporation provides for a dual-class Board of Directors, in which each class will serve for a staggered two-year term; • our certificate of incorporation limits the number of directors that may serve on the Board of Directors without the majority approval of all of the outstanding shares of our Common Stock; • our amended and restated bylaws require advance notice of stockholder proposals and director nominations; • our Board of Directors has the right to implement additional anti-takeover protections in the future, including stockholder rights plans and other amendments to our organizational documents, without stockholder approval; and • Section 203 of the Delaware General Corporation Law may prevent large stockholders from completing a merger or acquisition of us.
Further, this economic volatility and uncertainty about future economic conditions makes it challenging for Landec to forecast its operating results, make business decisions, and identify the risks that may affect its business, sources and uses of cash, financial condition and results of operations. Litigation costs and the outcome of litigation could have a material adverse effect on our business.
Further, this economic volatility and uncertainty about future economic conditions makes it challenging for the Company to forecast its operating results, make business decisions, and identify the risks that may affect its business, sources and uses of cash, financial condition and results of operations. Litigation costs and the outcome of litigation could have a material adverse effect on our business.
We cannot be certain that these measures will successfully remediate the material weakness or that other material weaknesses and control deficiencies will not be discovered in the future.
We cannot be certain that these measures will successfully remediate the material weaknesses or that other material weaknesses and control deficiencies will not be discovered in the future.
We operate in highly competitive and rapidly evolving fields, and new developments are expected to continue at a rapid pace. Competition from large food products, industrial, medical and pharmaceutical companies is expected to be intense. In addition, the nature of our collaborative arrangements may result in our corporate partners and licensees becoming our competitors.
We operate in highly competitive and rapidly evolving fields, and new developments are expected to continue at a rapid pace. Competition from large industrial, medical and pharmaceutical companies is expected to be intense. In addition, the nature of our collaborative arrangements may result in our corporate partners and licensees becoming our competitors.
Failure to comply with the applicable regulatory requirements can, among other things, result in: • the issuance of adverse inspectional observations, • Warning or Courtesy Letters, • import refusals, • fines, injunctions, civil penalties, and facility suspensions, • withdrawal of regulatory approvals or registrations, • product recalls and product seizures, including cessation of manufacturing and sales, • operating restrictions, and • criminal prosecution Compliance with foreign, federal, state, and local laws and regulations is costly and time-consuming.
Failure to comply with the applicable regulatory requirements can, among other things, result in: • the issuance of adverse inspectional observations, • Warning or Courtesy Letters, • import refusals, • fines, injunctions, civil penalties, and facility suspensions, 10 Table of Contents • withdrawal of regulatory approvals or registrations, • product recalls and product seizures, including cessation of manufacturing and sales, • operating restrictions, and • criminal prosecution Compliance with foreign, federal, state, and local laws and regulations is costly and time-consuming.
In addition, competition for senior level personnel with knowledge and experience in our different lines of business is intense. If any of our key personnel were to leave, we would need to devote substantial resources and management attention to replace them.
In addition, competition for senior level personnel with knowledge and experience in our different lines of business is intense. If any of our key personnel were to leave, we would need to devote substantial resources and management attention to replacing them.
We may be unable to adequately protect our intellectual property rights or may infringe intellectual property rights of others. We may receive notices from third parties, including some of our competitors, claiming infringement by our products of their patent and other proprietary rights.
We depend on our intellectual property, and we may be unable to adequately protect our intellectual property rights or may infringe intellectual property rights of others. We may receive notices from third parties, including some of our competitors, claiming infringement by our products of their patent and other proprietary rights.
The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including the following: • weather-related produce sourcing issues, • technological innovations applicable to our products, • pandemics, epidemics and other natural disasters, including the COVID-19 pandemic, • our attainment of (or failure to attain) milestones in the commercialization of our technology, • our development of new products or the development of new products by our competitors, • new patents or changes in existing patents applicable to our products, • our acquisition of new businesses or the sale or disposal of a part of our businesses, • development of new collaborative arrangements by us, our competitors or other parties, • changes in government regulations, interpretation, or enforcement applicable to our business, • changes in investor perception of our business, • fluctuations in our operating results, and • changes in the general market conditions in our industry.
The market price of our Common Stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including the following: • technological innovations applicable to our products, • pandemics, epidemics and other natural disasters, including the COVID-19 pandemic, • our attainment of (or failure to attain) milestones in the commercialization of our technology, • our development of new products or the development of new products by our competitors, • new patents or changes in existing patents applicable to our products, • our acquisition of new businesses or the sale or disposal of a part of our businesses, • development of new collaborative arrangements by us, our competitors, or other parties, • changes in government regulations, interpretation, or enforcement applicable to our business, • changes in investor perception of our business, • fluctuations in our operating results, and • changes in the general market conditions in our industry.
See Item 9A., “Controls and Procedures,” in this Annual Report on Form 10-K for additional information regarding the identified material weakness and our actions to date to remediate the material weakness.
See Item 9A., “Controls and Procedures,” in this Annual Report on Form 10-K for additional information regarding the identified material weaknesses and our actions to date to remediate the material weaknesses.
The implementation of procedures to remediate the material weakness is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles.
The implementation of procedures to remediate the material weaknesses is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles.
Such changes have the potential to adversely impact the U.S. economy or certain sectors thereof, our industry and the global demand for our products, and as a result, could have a material adverse effect on our business, financial condition and results of operations. 17 Ta ble of Contents We may be exposed to employment related claims and costs that could materially adversely affect our business.
Such changes have the potential to adversely impact the U.S. economy or certain sectors thereof, our industry and the global demand for our products, and as a result, could have a material adverse effect on our business, financial condition and results of operations. We may be exposed to employment-related claims and costs that could materially adversely affect our business.
Given the current uncertain economic environment, and the COVID-19 pandemic, our customers, suppliers, and partners may have difficulties obtaining capital at adequate or historical levels to finance their ongoing business and operations, which could impair their ability to make timely payments to us.
Given the current uncertain economic environment, our customers, suppliers, and partners may have difficulties obtaining capital at adequate or historical levels to finance their ongoing business and operations, which could impair their ability to make timely payments to us.
In addition, several recent decisions by the United States NLRB have found companies, such as Curation Foods, which use contract employees could be found to be “joint employers” with the staffing firm, which may increase our potential exposure for any such claims from contract employees. We may be subject to unionization, work stoppages, slowdowns or increased labor costs.
In addition, several recent decisions by the United States NLRB have found companies that use contract employees could be found to be “joint employers” with the staffing firm, which may increase our potential exposure for any such claims from contract employees. We may be subject to unionization, work stoppages, slowdowns or increased labor costs.
In addition, since some of the products processed by Lifecore and Curation Foods are sole sourced to customers, our operating results could be adversely affected if one or more of our major customers were to develop other sources of supply.
In addition, since some of the products processed by Lifecore are sole sourced to customers, our operating results could be adversely affected if one or more of our major customers were to develop other sources of supply.
We could incur substantial costs and our management could spend a significant amount of time responding to such complaints or litigation regarding employee claims, which may have a material adverse effect on our business, operating results and financial condition.
We have incurred and, in the future, could incur substantial costs and our management could spend a significant amount of time responding to such complaints or litigation regarding employee claims, which may have a material adverse effect on our business, operating results and financial condition.
Our failure to develop new products or the failure of our new products to achieve market acceptance would have a material adverse effect on our business, results of operations and financial condition. We have a concentration of manufacturing for Lifecore and Curation Foods and may have to depend on third parties to manufacture our products.
Our failure to develop new products or the failure of our new products to achieve market acceptance would have a material adverse effect on our business, results of operations and financial condition. We have a concentration of manufacturing and may have to depend on third parties to manufacture our products.
We cannot guarantee that we will be able to remain in compliance with all applicable covenants under the credit agreements in the future, that our lenders will elect to provide waivers or enter into amendments in the future, or, if the lenders do provide waivers, that those waivers will not be conditioned upon additional costs or restrictions that could materially or adversely impact our business, cash flows, results of operations, and financial condition.
As previously disclosed, we have been in noncompliance with our credit agreements in the past, and we cannot guarantee that we will be able to remain in compliance with all applicable covenants under the credit agreements in the future, that our lenders will elect to provide waivers or enter into amendments in the future, or, if the lenders do provide waivers, that those waivers will not be conditioned upon additional costs or restrictions that could materially or adversely impact our business, cash flows, results of operations, and financial condition.
This could have a material adverse effect on our business, which could impact our results of operations and our financial condition. 14 Ta ble of Contents We depend on strategic partners and licenses for future development.
This could have a material adverse effect on our business, which could impact our results of operations and our financial condition. We depend on strategic partners and licenses for future development.
Lifecore can be affected by the timing of orders from its relatively small customer base and the timing of the shipment of those orders. Our earnings may also fluctuate based on our ability to collect accounts receivable from customers and on price fluctuations in fruit markets.
Lifecore can be affected by the timing of orders from its relatively small customer base and the timing of the shipment of those orders. Our earnings may also fluctuate based on our ability to collect accounts receivable from customers.
The testing, manufacturing, marketing, and sale of the products we develop involve an inherent risk of allegations of product liability, including foodborne illness.
The testing, manufacturing, marketing, and sale of the products we develop involve an inherent risk of allegations of product liability.
The reduction, delay or cancellation of orders from one or more major customers for any reason or the loss of one or more of our major customers could materially and adversely affect our business, operating results, and financial condition.
The reduction, delay or cancellation of orders from one or more major customers for any reason or the loss of one or more of our major customers, whether through competition, consolidation, or otherwise, could materially and adversely affect our business, operating results, and financial condition.
None of our U.S. based employees are represented by a union, while our employees in our Tanok, Mexico facility are represented by a local union. However, our employees have the right under the National Labor Relations Act to form or affiliate with a union.
None of our U.S. based employees are represented by a union. However, our employees have the right under the National Labor Relations Act to form or affiliate with a union.
Several of the raw materials we use to manufacture our products are currently purchased from a single source, including some monomers used to synthesize Intelimer polymers, substrate materials for our breathable membrane products, and raw materials for our HA products. Any interruption of our relationship with single-source suppliers or service providers could delay product shipments and materially harm our business.
Several of the raw materials we use to manufacture our products are currently purchased from a single source, including raw materials for our HA products. Any interruption of our relationship with single-source suppliers or service providers could delay product shipments and materially harm our business.
Any patents issued to us may not provide us with competitive advantages or may be challenged by third parties. Patents held by others may prevent the commercialization of products incorporating our technology. Furthermore, others may independently develop similar products, duplicate our products or design around our patents.
Any patents issued to us may not provide us with competitive advantages or may be challenged by third parties. Patents held by others may prevent the commercialization of products incorporating our technology.
The extent to which, and rate at which, we achieve market acceptance, including customer preferences and trends, and penetration of our current and future products is a function of many variables including, but not limited to: • price, • safety, • efficacy, • reliability, • conversion costs, • regulatory approvals, • marketing and sales efforts, and • general economic conditions affecting purchasing patterns We may not be able to develop and introduce new products and technologies in a timely manner or new products and technologies may not gain market acceptance.
The extent to which, and rate at which, we achieve market acceptance, including customer preferences and trends, and penetration of our current and future products is a function of many variables including, but not limited to price, safety, efficacy, reliability, conversion costs, regulatory approvals, marketing and sales efforts, and general economic conditions affecting purchasing patterns.
The transaction documents related to the Eat Smart Disposition and the BreatheWay Sale provide for, among other things, indemnification obligations designed to make us potentially financially responsible for certain breaches in any of our representations or warranties or covenants, and certain other matters pursuant to such agreements.
The transaction documents related to the Eat Smart Disposition, the BreatheWay Disposition, the Yucatan Disposition, and the O Olive Sale provide for, among other things, our retention of certain historical known liabilities related to the Curation Foods business, and certain indemnification obligations designed to make us potentially financially responsible for certain breaches in any of our representations or warranties or covenants, and certain other matters pursuant to such agreements.
As part of preparing our fiscal year 2022 consolidated financial statements, we identified an error in management’s conclusions regarding the presentation of certain amounts related to discontinued operations as a result of the Eat Smart Disposition, which resulted in an error in our previously reported consolidated balance sheets and quarterly statements of operations presented in our fiscal year 2022 third quarter consolidated financial statements.
As part of preparing our fiscal year 2022 consolidated financial statements, we identified errors in management’s conclusions regarding the presentation of certain amounts related to discontinued operations as a result of the Eat Smart Disposition and impairment charges relates to the Company’s former Curation Foods businesses, which resulted in errors in our previously reported consolidated balance sheets and quarterly statements of operations presented in our fiscal year 2022 third quarter and fiscal year 2022 consolidated financial statements.
We may be required to incur significant costs to comply with the laws and regulations in the future which may have a material adverse effect on our business, operating results and financial condition. Our food packaging products are subject to regulation under the FDC Act.
We may be required to incur significant costs to comply with the laws and regulations in the future which may have a material adverse effect on our business, operating results and financial condition.
From time to time we may be subject to litigation claims through the ordinary course of our business operations regarding, but not limited to, employment matters, safety standards, product liability, security of customer and employee personal information, contractual relations with vendors, marketing and infringement of trademarks and other intellectual property rights.
From time to time, we have been subject and may in the future be subject to litigation claims regarding, but not limited to, employment matters, safety standards, product liability, security of customer and employee personal information, contractual relations with vendors, marketing and infringement of trademarks and other intellectual property rights, and compliance with laws.
Our success in generating significant sales of our products depends in part on our ability and that of our partners and licensees to achieve market acceptance of our new products and technology.
We may not be able to achieve acceptance of our new products in the marketplace. Our success in generating significant sales of our products depends in part on our ability and that of our partners and licensees to achieve market acceptance of our new products and technology.
There can be no assurance that the Company will be able to retain key management, technical, sales and customer support personnel, or that the Company will realize the anticipated benefits of any acquisitions, and the failure to do so would have a material adverse effect on the Company’s business, results of operations and financial condition. 12 Ta ble of Contents We may not be able to achieve acceptance of our new products in the marketplace.
There can be no assurance that the Company will be able to retain key management, technical, sales and customer support personnel, or that the Company will realize the anticipated benefits of any acquisitions, and the failure to do so would have a material adverse effect on the Company’s business, results of operations and financial condition.
We may not be able to implement all of the actions that we intend to take in this program and we may not be able to realize the expected benefits from such realignment and restructuring plans or other similar restructurings on the anticipated timing, or at all.
In addition, we may not be able to realize the expected benefits from such realignment and restructuring plans or other similar restructurings on the anticipated timing, or at all.
Risks Related to Our Business and Operations Our shareholder value creation program, Project SWIFT, may not have the anticipated results we intended, exposes us to additional restructuring costs and operational risks, and may be negatively perceived in the markets.
Our stockholder value creation program may not have the anticipated results we intended, expose us to additional restructuring costs and operational risks, and may be negatively perceived in the markets.
Future changes in regulations or interpretations relating to matters such as safe working conditions, laboratory and manufacturing practices, produce safety, environmental controls, and disposal of hazardous or potentially hazardous substances may adversely affect our business. Our food operations are subject to regulation by the FDA, FTC, and other governmental entities.
Future changes in regulations or interpretations relating to matters such as safe working conditions, laboratory and manufacturing practices, produce safety, environmental controls, and disposal of hazardous or potentially hazardous substances may adversely affect our business.
In addition, complying with these covenants may make it more difficult for us to successfully execute our business strategy and compete against companies who are not subject to such restrictions.
In addition, complying with these covenants may make it more difficult for us to successfully execute our business strategy and compete against companies who are not subject to such restrictions. Our credit agreements also contain covenants related to maintaining current financial reporting and going concern maintenance.
If some or all of our workforce were to become unionized and the terms of the collective bargaining agreement were significantly different from our current compensation arrangements, it could increase our costs and adversely impact our profitability. Moreover, participation in labor unions could put us at increased risk of labor strikes and disruption of our operations.
If some or all of our workforce were to become unionized and the terms of the collective bargaining agreement were significantly different from our current compensation arrangements, it could increase our costs and adversely impact our profitability.
Our historical financial results have been, and we anticipate that our future financial results will be, subject to fluctuations. Our ability to generate cash, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control.
Our ability to generate cash, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control.
In addition, changes in environmental regulations may impose the need for additional capital equipment or other requirements. Any new business acquisition w ill involve uncertainty relating to integration. We completed the Yucatan Foods acquisition in December, 2018, and the O acquisition in March, 2017. We have acquired other businesses in the past and may make additional acquisitions in the future.
In addition, changes in environmental regulations may impose the need for additional capital equipment or other requirements. Any new business acquisition w ill involve uncertainty relating to integration. We have acquired other businesses in the past and may make additional acquisitions in the future. The successful integration of new business acquisitions may require substantial effort from the Company’s management.
Additional risks not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and results of operations in future periods.
Additional risks not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and results of operations in future periods. Risks Related to Our Business and Operations We have identified material weaknesses in our internal control over financial reporting, which if not remediated, could adversely affect our business.
We are dependent on our key employees and if one or more of them were to leave, we could experience difficulties in replacing them, or effectively transitioning their replacements and our operating results could suffer.
Moreover, participation in labor unions could put us at increased risk of labor strikes and disruption of our operations. 15 Table of Contents We are dependent on our key employees and if one or more of them were to leave, we could experience difficulties in replacing them, or effectively transitioning their replacements and our operating results could suffer.
Litigation to defend ourselves against claims by third parties, or to enforce any rights that we may have against third parties, may continue to be necessary, which could result in substantial costs and diversion of our resources, causing a material adverse effect on our business, financial condition, results of operations or cash flows. 19 Ta ble of Contents Future lapses in disclosure controls and procedures or internal control over financial reporting could materially and adversely affect the Company’s operations, profitability or reputation.
Litigation to defend ourselves against claims by third parties or enforcement actions by regulators, or to enforce any rights that we may have against third parties, has been and may continue to be necessary, which has resulted and in the future could result in substantial costs, penalties, limitations on our business and diversion of our resources, causing a material adverse effect on our business, financial condition, results of operations or cash flows.
Furthermore, actual or anticipated cyberattacks or data breaches may cause significant disruptions to our network operations, which may impact our ability to deliver shipments or respond to customer needs in a timely or efficient manner. 18 Ta ble of Contents Data and security breaches could also occur as a result of non-technical issues, including an intentional or inadvertent breach by our employees or by persons with whom we have commercial relationships that result in the unauthorized release of confidential information related to our business or personal information of our employees.
Data and security breaches could also occur as a result of non-technical issues, including an intentional or inadvertent breach by our employees or by persons with whom we have commercial relationships that result in the unauthorized release of confidential information related to our business or personal information of our employees.
Fluctuations in our quarterly results may, particularly if unforeseen, cause us to miss projections which might result in analysts or investors changing their valuation of our stock. We may issue preferred stock with preferential rights that could affect your rights.
Fluctuations in our quarterly results may, particularly if unforeseen, cause us to miss projections which might result in analysts or investors changing their valuation of our stock. Our Series A Preferred Stock has rights, preferences, and privileges that are not held by, and are preferential to, the rights of holders of our common stock.
The successful integration of new business acquisitions may require substantial effort from the Company’s management. The diversion of the attention of management and any difficulties encountered in the transition process could have a material adverse effect on the Company’s ability to realize the anticipated benefits of the acquisitions.
The diversion of the attention of management and any difficulties encountered in the transition process could have a material adverse effect on the Company’s ability to realize the anticipated benefits of the acquisitions. The successful combination of new businesses also requires coordination of research and development activities, manufacturing, sales and marketing efforts.
The successful combination of new businesses also requires coordination of research and development activities, manufacturing, sales and marketing efforts. In addition, the process of combining organizations located in different geographic regions could cause the interruption of, or a loss of momentum in, the Company’s activities.
In addition, the process of combining organizations located in different geographic regions could cause the interruption of, or a loss of momentum in, the Company’s activities.
Cancellations or delays of orders by our customers may adversely affect our business and the sophistication and buying power of our customers could have a negative impact on profits. During the fiscal year ended May 29, 2022, the Company had sales concentrations of 10% or greater from two customers within the Lifecore segment.
Cancellations or delays of orders by our customers may adversely affect our business and the sophistication and buying power of our customers could have a negative impact on profits.
We and our partners/customers are in the early stage of product commercialization of certain Intelimer-based specialty packaging, and HA-based products and non-HA products and new oil and vinegar products. We expect that our future growth will depend in large part on our and our partners’/customers’ ability to develop and market new products in our target markets and in new markets.
We expect that our future growth will depend in large part on our and our partners’/customers’ ability to develop and market new products in our target markets and in new markets.
We have previously announced the development of a shareholder value creation program, Project SWIFT, designed to strategically realign our Curation Foods business to focus the business on its strategic assets and redesign the organization to be the appropriate size to compete and thrive.
Over the past few years, we implemented our previously announced stockholder value creation program, Project SWIFT, which was designed to strategically realign our business to focus on its strategic assets and redesign the organization, including the divestiture of substantially all of our Curation Foods business and assets and a structuring of the overall business.
We are also required to maintain certain financial covenants, including a maximum total leverage ratio and a minimum fixed charge coverage ratio. The terms of our credit facilities may restrict our current and future operations and could adversely affect our ability to finance our future operations or capital needs or to execute preferred business strategies.
The terms of our credit facilities may restrict our current and future 7 Table of Contents operations and could adversely affect our ability to finance our future operations or capital needs or to execute preferred business strategies.
Even if we were able to obtain alternative financing, it may not be available on commercially reasonable terms or on terms that are acceptable to us. Our ability to make payments on our debt, fund our other liquidity needs, and make planned capital expenditures will depend on our ability to generate cash in the future.
Even if we were able to obtain alternative financing, it may not be available on commercially reasonable terms or on terms that are acceptable to us.
In addition, we may not be able to procure comparable materials at similar prices and terms within a reasonable time, if at all, all of which could materially harm our business. We depend on our infrastructure to have sufficient capacity to handle our on-going production needs.
In addition, we may not be able to procure comparable materials at similar prices and terms within a reasonable time, if at all, all of which could materially harm our business. 12 Table of Contents Our profitability is dependent upon our ability to obtain appropriate pricing for our products and to control our cost structure.
Our credit facilities provides our lenders with a lien against substantially all of our assets, and contains financial covenants that may limit our operational flexibility and cash flow available to invest in the ongoing needs of our business or otherwise adversely affect our results of operations.
We are highly leveraged, and our contractual obligations may limit our operational flexibility and cash flow available to invest in the ongoing needs of our business or otherwise adversely affect our results of operations. We are highly leveraged.
We expect that, for the foreseeable future, a limited number of customers may continue to account for a substantial portion of our revenues. We may experience changes in the composition of our customer base as we have experienced in the past.
We may experience changes in the composition of our customer base as we have experienced in the past.
If we are required to indemnify the counterparties to these agreements, we may be subject to unforeseen or unanticipated liabilities, which may be material and which may have a material adverse effect on our business, financial condition and results of operations. We are subject to the risks of doing business internationally.
In addition, we may be subject to unforeseen or unanticipated liabilities, which may be material and which may have a material adverse effect on our business, financial condition and results of operations. Our dependence on single-source suppliers and service providers may cause disruption in our operations should any supplier fail to deliver materials.
Many of these competitors have substantially greater financial and technical resources and production and marketing capabilities than we do, and may have substantially greater experience in conducting clinical and field trials, obtaining regulatory approvals and manufacturing and marketing commercial products. The food industry is highly competitive, and further consolidation in the industry would likely increase competition.
Many of these competitors have substantially greater financial and technical resources and production and marketing capabilities than we do, and may have substantially greater experience in conducting clinical and field trials, obtaining regulatory approvals and manufacturing and marketing commercial products. 9 Table of Contents If we are unable to secure contract manufacturers with capabilities to produce the products that we require, we CDMO services are highly complex and failure to provide quality and timely services to our CDMO customers, could adversely impact our business.
Our current customers may not continue to place orders, orders by existing customers may be canceled or may not continue at the levels of previous periods, or we may not be able to obtain orders from new customers. 9 Ta ble of Contents Our customers, such as supermarkets, warehouse clubs, and food distributors, have continued to consolidate, resulting in fewer customers on which we can rely for business.
Our current customers may not continue to place orders, orders by existing customers may be canceled or may not continue at the levels of previous periods, or we may not be able to obtain orders from new customers. Our sale of some products may expose us to product liability claims.
In the past, our results of operations have fluctuated significantly from quarter to quarter and are expected to continue to fluctuate in the future. Curation Foods can be affected by seasonal and weather-related factors which have impacted our financial results in the past due to shortages of essential value-added produce items.
Risks Related to Ownership of Our Common Stock Our future operating results are likely to fluctuate which may cause our stock price to decline. In the past, our results of operations have fluctuated significantly from quarter to quarter and are expected to continue to fluctuate in the future.
Risks Related to Ownership of Our Common Stock We have identified a material weakness in our internal control over financial reporting, which if not remediated, could adversely affect our business. Our independent registered public accountants identified a material weakness in our internal control over financial reporting related to the restatement described elsewhere in this Annual Report on Form 10-K.
Our independent registered public accountants identified material weaknesses in our internal control over financial reporting, which have not been remediated. In addition, as previously disclosed, our independent registered public accountants have identified material weaknesses in our internal control over financial reporting in the past, which have not been remediated.
Removed
This program includes reviewing strategic options for the closure of our leased offices in Santa Maria, California and Los Angeles, California, the divestiture of our Eat Smart business, strategic review of our logistics operations, and certain other actions taken to redesign the Curation Foods organization.
Added
As of May 28, 2023, we had approximately $176.3 million in total indebtedness and $10.5 million available for borrowing under our revolving credit facility.
Removed
In addition, we may incur additional restructuring costs in implementing such realignment and restructuring plans or other similar future plans in excess of our expectations.
Added
In addition, the holders of our Convertible Preferred Stock have certain consent rights over our ability to incur indebtedness above certain thresholds, which could further limit our ability to incur additional indebtedness.
Removed
Any reduction in workforce or divestitures of facilities or other assets may also expose us to additional risks, including potential litigation (including labor and employment disputes), unforeseen costs or adverse impacts to the operations of our retained businesses.
Added
The New Term Loan Credit Facility with Alcon also contains certain operational requirements and limitations, including that the Company’s material uncured violation of the Alcon Supply Agreement constitutes an event of default under the New Term Loan Credit Facility.
Removed
In addition, our strategic realignment efforts may not be viewed positively by shareholders and analysts, which may cause our stock price to decline or become volatile. The COVID-19 Pandemic, or any other pandemic, epidemic or outbreak of an infectious disease in the United States or worldwide, may adversely affect our business.
Added
As previously disclosed, we have, in the past, determined we were not in compliance with the covenants under our credit agreement, including with respect to our timely financial reporting and going concern, which were subsequently remediated.
Removed
In December 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China. This virus continues to spread globally and, as of May 29, 2022, has spread to approximately 160 countries, including the United States.
Added
In addition, although we have received waivers from our lenders regarding our current financial reporting delays, there can be no assurances that we will not be in non-compliance in the future.
Removed
To date, the COVID-19 pandemic and preventative measures taken to contain or mitigate the outbreak have caused, and are continuing to cause, business slowdowns or shutdowns in affected areas and significant disruption to our businesses and to the financial markets both globally and in the United States.
Added
The degree to which we are leveraged could have important adverse consequences to holders of our securities, including the following: • we must dedicate a substantial portion of cash flow from operations to the payment of principal and interest on applicable indebtedness which, in turn, reduces funds available for operations, capital expenditures and growth; • our flexibility in planning for, or reacting to, changes in the markets in which we compete may be limited; • we may be at a competitive disadvantage relative to our competitors with less indebtedness; and • we are rendered more vulnerable to general adverse economic and industry conditions.
Removed
The COVID-19 pandemic has had and we believe will continue to have significant adverse impacts on many aspects of the Company’s operations, directly and indirectly, including with respect to sales, customer behaviors, business and manufacturing operations, inventory, the Company’s employees, and the market generally, and the scope and nature of these impacts continue to evolve each day.
Added
In addition, our ability to make payments on our debt, fund our other liquidity needs, and make planned capital expenditures will depend on our ability to generate cash in the future. Our historical financial results have been, and we anticipate that our future financial results will be, subject to fluctuations.
Removed
In particular, the COVID-19 pandemic has resulted in and may continue to result in, regional quarantines, labor shortages or stoppages, adverse changes in consumer purchasing patterns, reductions in customer demand for our products, increased safety and compliance costs, increased logistics cost, disruptions to our supply chains, suppliers and service providers to deliver materials and services on a timely basis, and overall economic instability, which have significantly adversely affected and could further adversely affect our business, financial condition and results of operations.
Added
Our failure to timely file certain periodic reports with the SEC, and our restatements, each pose significant risks to our business, each of which could materially and adversely affect our financial condition and results of operations.
Removed
In addition, in response to the COVID-19 pandemic, our suppliers, growers, and corporate partners have reduced staffing and have reduced, delayed and postponed certain projects, initiatives or other arrangements in response to the spread of the COVID-19 pandemic, which may continue or worsen as the pandemic continues.
Added
We did not timely file this Annual Report on Form 10-K and have not yet filed our Quarterly Report on Form 10-Qs with respect to our first fiscal quarter and second fiscal quarter of the current fiscal year. Consequently, we were not compliant with the periodic reporting requirements under the Exchange Act, nor the continued listing requirements of Nasdaq.
Removed
These actions have resulted in and may result in further business and manufacturing disruption, inventory shortages, delivery delays, additional costs, and reduced sales and operations for us, any of which have and could further significantly affect our business, financial condition and results of operations.
Added
As previously disclosed, on February 13, 2024, this has resulted in Nasdaq issuing a Staff delisting determination, with respect to which the Company has requested a hearing to appeal the determination.
Removed
With respect to our Curation Foods business specifically, the responses to the COVID-19 pandemic have also adversely impacted and may further impact consumer spending and our customer’s preferences, which have had and may continue to have an adverse impact on our sales in that segment.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeProperties As of May 29, 2022, the Company owned or leased the following principle physical properties: Location Business Segment Ownership Facilities Chaska, MN Lifecore Owned 148,200 square feet of office, laboratory and manufacturing space Silao, Guanajuato, Mexico Curation Foods Leased 97,000 square feet of office and manufacturing space Chaska, MN Lifecore Leased 80,950 square feet of office, manufacturing and warehouse space Santa Maria, CA Curation Foods Leased 36,300 square feet of office and laboratory space Chanhassen, MN Lifecore Leased 21,384 square feet of warehouse and office space Petaluma, CA Curation Foods Leased 18,400 square feet of office and manufacturing space The Company does not anticipate experiencing significant difficulty in retaining occupancy of any of our manufacturing, laboratory, cold storage, or office facilities through lease renewals prior to expiration or through month-to-month occupancy, or in replacing them with equivalent facilities.
Biggest changeProperties As of May 28, 2023, the Company owned or leased the following principle physical properties: Location Business Segment Ownership Facilities Chaska, MN Lifecore Owned 148,200 square feet of office, laboratory and manufacturing space Chaska, MN Lifecore Leased 80,950 square feet of office, manufacturing and warehouse space Santa Maria, CA Curation Foods Leased 36,300 square feet of office and laboratory space Chanhassen, MN Lifecore Leased 21,384 square feet of warehouse and office space Petaluma, CA Curation Foods Leased 18,400 square feet of office and manufacturing space In addition to the principal physical properties described above, the Company owns or leases a number of other facilities in various locations in the United States that are used for manufacturing and administration activities.
We believe our existing facilities, both owned and leased, are in good condition and suitable for the conduct of our business.
The Company does not anticipate experiencing significant difficulty in retaining occupancy of any of our manufacturing, laboratory, or office facilities through lease renewals prior to expiration or through month-to-month occupancy, or in replacing them with equivalent facilities. We believe our existing facilities, both owned and leased, are in good condition and suitable for the conduct of our business.
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Leases for these leased facilities expire at various dates through the year 2030. All of our owned real property is subject to liens in favor of the lenders under our 2020 credit agreement with BMO Harris Bank N.A. (“BMO”) as administrative agent.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe Company may still repurchase up to $3.8 million of the Company’s Common Stock under the Company’s stock repurchase plan announced on July 14, 2010. Recent Sales of Unregistered Equity Securities The Company did not sell any unregistered equity securities during the twelve months ended May 29, 2022.
Biggest changeThe Company may still repurchase up to $3.8 million of the Company’s Common Stock under the Company’s stock repurchase plan announced on July 14, 2010. Under the Company’s credit agreement with BMO, the Company is prohibited from repurchasing or redeeming its stock, subject to certain limited exceptions.
The Company presently intends to retain all future earnings, if any, for its business and does not anticipate paying cash dividends on its Common Stock in the foreseeable future. Issuer Purchases of Equity Securities For the twelve months ended May 29, 2022, there have been no shares repurchased by the Company.
The Company presently intends to retain all future earnings, if any, for its business and does not anticipate paying cash dividends on its Common Stock in the foreseeable future. Issuer Purchases of Equity Securities For the twelve months ended May 28, 2023, there have been no shares repurchased by the Company.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information The Common Stock is traded on the NASDAQ Global Select Market under the symbol “LNDC”. Holders As of September 13, 2022, there were approximately 45 holders of record of our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information The Common Stock is traded on the NASDAQ Global Select Market under the symbol “LFCR”. Holders As of March 14, 2024, there were approximately 47 holders of record of our Common Stock.
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Recent Sales of Unregistered Equity Securities The Company did not sell any unregistered equity securities during the three months ended May 28, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest change(In thousands, except percentages) Year Ended Change Year Ended Change May 29, 2022 May 30, 2021 Amount % May 30, 2021 May 31, 2020 Amount % Lifecore $ 7,359 $ 6,157 $ 1,202 20% $ 6,157 $ 5,910 $ 247 4% Curation 482 1,266 (784) (62)% 1,266 1,625 (359) (22)% Other — — — —% — 47 (47) (100)% Total R&D $ 7,841 $ 7,423 $ 418 6% $ 7,423 $ 7,582 $ (159) (2)% The increase in R&D expenses for fiscal year 2022 compared to fiscal year 2021 was primarily due an increase in Lifecore’s R&D expenses primarily due to higher salary and benefit expenses, including increased headcount, partially offset but a decrease in Curation Foods R&D expenses due to a decrease in R&D activities.
Biggest changeOperating Expenses: (In thousands, except percentages) Year Ended Change May 29, 2022 May 30, 2021 Amount % As Restated As Restated Research and Development $ 7,839 $ 6,684 $ 1,155 17% Selling, general and administrative 34,659 27,721 6,938 25% Restructuring costs 8,359 13,355 (4,996) (37)% Total Operating Expenses $ 50,857 $ 47,760 $ 3,097 6% Research and Development ( “ R&D ” ) The increase in R&D expenses for fiscal year 2022 compared to fiscal year 2021 was primarily due to higher salary and benefits expenses, including increased headcount.
Revenue, net of estimated allowances and returns, is recognized when or as the Company satisfies its performance obligations under a contract and control of the product is transferred to the customer. Lifecore Lifecore generates revenue from two integrated activities: CDMO and Fermentation. CDMO is comprised of aseptic and development services.
Revenue, net of estimated allowances and returns, is recognized when or as the Company satisfies its performance obligations under a contract and control of the product is transferred to the customer. Lifecore generates revenue from two integrated activities: CDMO and Fermentation. CDMO is comprised of aseptic and development services.
To determine the fair value of a reporting unit as part of its quantitative test, the Company uses a discounted cash flow ("DCF") method under the income approach, as it believes that this approach is the most reliable indicator of the fair value of its businesses and the fair value of their future earnings and cash flows.
To determine the fair value of a reporting unit as part of its quantitative test, the Company uses a discounted cash flow (“DCF”) method under the income approach, as it believes that this approach is the most reliable indicator of the fair value of its businesses and the fair value of their future earnings and cash flows.
The accounting estimates that require management’s most significant and subjective judgments include revenue recognition; loss contingencies, sales returns and credit losses; recognition and measurement of current and deferred income tax assets and liabilities; the assessment of recoverability of long-lived assets (including intangible assets and goodwill) and inventory; the valuation and recognition of stock-based compensation.
The accounting estimates that require management’s most significant and subjective judgments include revenue recognition; loss contingencies, sales returns and credit losses; recognition and measurement of current and deferred income tax assets and liabilities; the assessment of recoverability of long-lived assets (including intangible assets and goodwill) and inventory; the valuation and recognition of stock-based compensation and the valuation of debt derivatives liability.
Under the income approach, fair value is determined based on estimated future cash flows, discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk of the Company and the rate of return an outside investor could expect to earn.
Under the income 33 Table of Contents approach, fair value is determined based on estimated future cash flows, discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk of the Company and the rate of return an outside investor could expect to earn.
Lifecore’s standard payment terms with its customers generally range from 30 days to 60 days. Aseptic Lifecore provides aseptic formulation and filling of syringes and vials with precisely formulated medical grade HA and non-HA materials for injectable products used for medical purposes.
Lifecore’s standard payment terms with its customers generally range from 30 days to 60 days. 32 Table of Contents Aseptic Lifecore provides aseptic formulation and filling of syringes and vials with precisely formulated medical grade HA and non-HA materials for injectable products used for medical purposes.
The other key estimates and factors used in the DCF method include, but are not limited to, future volumes, net sales and expense growth 24 Ta ble of Contents rates, gross margin and gross margin growth rates, and the discount rate applied. Changes in such estimates or the application of alternative assumptions could produce different results.
The other key estimates and factors used in the DCF method include, but are not limited to, future volumes, net sales and expense growth rates, gross margin and gross margin growth rates, and the discount rate applied. Changes in such estimates or the application of alternative assumptions could produce different results.
The net cash used in financing activities during fiscal year 2022 was primarily due to $86.4 million of debt pay downs under the Company's term loan, partially offset by a $20.0 million draw on the term loan multi draw accordion feature to fund Lifecore capital expenditures, and an $11.0 million net draw down on the Company’s line of credit.
Net cash used in financing activities during fiscal year 2022 was $57.0 million, as restated, primarily due to (1) $86.4 million of debt pay downs under the Company’s term loan, partially offset by (1) a $20.0 million draw on the term loan multi draw accordion feature to fund Lifecore capital expenditures, and (2) an $11.0 million net draw down on the Company’s line of credit.
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 licensing arrangements; the costs associated with employment-related claims; any decision to pursue additional acquisition opportunities; weather conditions that can affect the supply and price of produce, 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 ability to comply with regulatory requirements; the emergence of competitive technology and market forces; the effectiveness of product commercialization activities and arrangements; and other factors.
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 licensing arrangements; the costs associated with employment-related claims; any decision to pursue additional 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 ability to comply with regulatory requirements; the emergence of competitive technology and market forces; the effectiveness of product commercialization activities and arrangements; and other factors.
Interest Expense The increase in interest expense during fiscal year 2022 compared to fiscal year 2021, was primarily a result of prepaid interest and prepayment penalties incurred related to payments made on our term debt resulting from the sales of our investment in Windset and the Eat Smart Disposition, combined with higher interest rates and an increase in deferred financing costs incurred as a result of our debt refinancing in December 2020.
Interest Expense The increase in interest expense during fiscal year 2022 compared to fiscal year 2021, was primarily a result of interest and prepayment penalties incurred related to payments made on our term debt resulting from the sale of our investment in Windset, combined with higher interest rates and an increase in deferred financing costs incurred as a result of our debt refinancing in December 2020.
Item 7. 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 contained in Item 8 of this report.
Item 7. 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 contained in Part IV, Item 15 of this report.
Fermentation Lifecore manufactures and sells pharmaceutical-grade sodium hyaluronate (“HA”) in bulk form to its customers. The HA produced is distinct as customers are able to utilize the product provided under HA supply contracts when they obtain control.
Fermentation Lifecore manufactures and sells HA in bulk form to its customers. The HA produced is distinct as customers are able to utilize the product provided under HA supply contracts when they obtain control.
The primary uses of net cash in operating activities during fiscal year 2022 were (1) a $97.4 million net loss, (2) an $6.6 million net increase in working capital, and (3) a $6.9 million reduction in deferred taxes.
The primary uses of net cash in operating activities during fiscal year 2022 were (1) a $116.7 million net loss, (2) an $3.1 million net increase in working capital, and (3) a $6.8 million reduction in deferred taxes.
These uses of cash were partially offset by (1) $60.8 million impairment of goodwill and intangible assets, (2) $20.5 million of depreciation/amortization and stock based compensation expense, and (3) $5.5 million Loss on sale of Eat Smart and loss on disposal of property and equipment related to restructuring, net.
These uses of cash were partially offset by (1) $78.1 million impairment of goodwill and long-lived and indefinite-lived assets, (2) $20.7 million of depreciation/amortization and stock-based compensation expense, and (3) $5.5 million Loss on sale of Eat Smart and loss on disposal of property and equipment related to restructuring, net.
The Refinance Term Loan Credit Agreement also provides that in the event of a prepayment of any amount other than the scheduled installments within twelve months after the 31 Ta ble of Contents closing date, a penalty will be assessed equal to the aggregate amount of interest that would have otherwise been payable from date of prepayment event until twelve months after the closing date plus 3% of the amount prepaid.
The Prior Term Loan Credit Facility also provided that in the event of a prepayment of any amount other than the scheduled installments within twelve months after the closing date, a penalty will be assessed equal to the aggregate amount of interest that would have otherwise been payable from date of prepayment event until twelve months after the closing date plus 3% of the amount prepaid.
Potential risks and uncertainties include, without limitation, those mentioned in this report and, in particular, the factors described in Item 1A. “Risk Factors”. Please see “Note About Forward Looking Statements”. Overview Landec Corporation and its subsidiaries (“Landec”, the “Company”, “we” or “us”) design, develop, manufacture, and sell differentiated products for food and biomaterials markets, and license technology applications to partners.
Potential risks and uncertainties include, without limitation, those mentioned in this report and, in particular, the factors described in Item 1A. “Risk Factors”. Please see “Cautionary Note About Forward-Looking Statements”. Corporate Overview Lifecore Biomedical and its subsidiaries (“Lifecore Biomedical,” the “Company”, “we” or “us”) design, develop, manufacture, and sell differentiated products for biomaterials markets, and license technology applications to partners.
As a leading manufacturer of premium, injectable grade Hyaluronic Acid, Lifecore brings 37 years of expertise as a partner for global and emerging biopharmaceutical and biotechnology companies across multiple therapeutic categories to bring their innovations to market. Landec’s natural food company, Curation Foods, Inc.
As a leading manufacturer of premium, injectable grade sodium hyaluronic (“HA”), Lifecore brings over 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. Lifecore Biomedical previously operated a natural food company, Curation Foods, Inc.
Gross Profit: There are numerous factors that can influence gross profit including product mix, customer mix, manufacturing costs, volume, sales discounts and charges for excess or obsolete inventory, to name a few. Many of these factors influence or are interrelated with other factors.
Lifecore generates revenues from two integrated activities: (1) CDMO and (2) fermentation. There are numerous factors that can influence gross profit including product mix, customer mix, manufacturing costs, volume, sales discounts, and charges for excess or obsolete inventory, to name a few. Many of these factors influence or are interrelated with other factors.
Interest on the Refinance Term Loan is at a per annum rate based on either (i) the base rate plus a spread of 7.50% or (ii) the LIBOR rate plus a spread of 8.50%.
Interest on the Prior Term Loan Facility was at a per annum rate based on either (i) the base rate plus a spread of 7.50% or (ii) the SOFR rate plus a spread of 8.50%.
Loss on Debt Refinancing The loss on debt refinancing was due to a write-off of unamortized debt issuance costs in connection with the Company refinancing its debt in December 2020.
Loss on Debt Extinguishment The loss on debt extinguishment of $1.1 million in fiscal year 2021 was due to write-off of unamortized debt issuance costs in connection with the Company refinancing its debt in December 2020.
Generally Accepted Accounting Principles (“GAAP”) requires management to make certain estimates and judgments that affect the amounts reported in the financial statements and accompanying notes to the Consolidated Financial Statements.
Critical Accounting Policies and Use of Estimates Use of Estimates The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make certain estimates and judgments that affect the amounts reported in the financial statements and accompanying notes to the Consolidated Financial Statements.
The primary factors for the increase in working capital during the fiscal year ended 2022, was a $6.0 million increase in inventory driven by production in our Avocado Products division and to support the sales growth at Lifecore, a $6.1 million increase in accounts receivable driven by sales increases and timing of customer payments, and a $3.2 million net increase in accrued compensation and other accrued liabilities driven by severance accruals, partially offset by an increase in accounts payable of $9.3 million related to the increase in inventory and timing of payments.
The primary factors for the increase in working capital during the fiscal year ended 2022, was a $6.1 million increase in accounts receivable driven by sales increases and timing of customer payments, an increase of $2.2 million in inventory to support the sales growth at Lifecore, and a decrease of $2.5 million in accrued compensation driven by severance accruals.
Net cash provided by investing activities during fiscal year 2022 was primarily due to the receipt of $73.5 million related to the Eat Smart Disposition (partially offset by a $9.8 million working capital adjustment and cash expenses related to the Eat Smart Disposition), $45.1 million related to the sale of the Company's investment in Windset, partially offset by the purchase of $28.1 million of equipment to support the growth of the Company’s Lifecore and Curation Foods businesses.
Net cash provided by investing activities for fiscal year 2022 was $80.0 million, as restated, primarily including the receipt of $73.5 million related to the Eat Smart Disposition (partially offset by a $9.8 million working capital adjustment and cash expenses related to the Eat Smart Disposition), $45.1 million related to the sale of the Company’s investment in Windset, and $1.1 million of proceeds from the sale of property and equipment.
These services include activities such as technology development, material component changes, analytical method development, formulation development, pilot studies, stability studies, process validation and production of materials for use within clinical studies.
These services include activities such as technology development, material component changes, analytical method development, formulation development, pilot studies, stability studies, process validation and production of materials for use within clinical studies. The Company’s customers benefit from the expertise of its scientists who have extensive experience performing such tasks.
Unfavorable settlement of any particular issue could increase the Company's effective tax rate in the year of resolution. Any resolution of a tax issue may require the use of cash in the year of resolution.
Unfavorable settlement of any particular issue could increase the Company’s effective tax rate in the year of resolution. Any resolution of a tax issue may require the use of cash in the year of resolution. The Company’s tax-contingency accruals are recorded in Other accrued liabilities in the accompanying Consolidated Balance Sheets.
Interest on the Refinance Revolver is based upon the Company’s average availability, at a per annum rate of either (i) LIBOR rate plus a spread of between 2.00% and 2.50% or (ii) base rate plus a spread of between 1.00% and 1.50%, plus a commitment fee, as applicable, of 0.375%.
Interest on the Revolving Credit Facility is based upon the Company’s average availability, at a per annum rate of either (i) SOFR rate plus a spread of between 2.00% and 2.50% or (ii) base rate plus a spread of between 1.00% and 1.50%, plus a commitment fee, as applicable, of 0.375% and plus (iii) for the period from December 1, 2022 until January 31, 2023, additional 2% per annum.
There can be no assurance that additional funds, if required, will be available to the Company on favorable terms, if at all. 32 Ta ble of Contents The Company believes that its cash from operations, along with existing cash and cash equivalents and availability under its line of credit will be sufficient to finance its operational and capital requirements for at least the next twelve months.
The Company believes that its cash from operations, along with existing cash and cash equivalents and availability under its line of credit will be sufficient to finance its operational and capital requirements for at least the next twelve months.
The decrease in R&D expenses for fiscal year 2021 compared to fiscal year 2020 was primarily due a decrease in Curation Foods and Other R&D expenses due to a decrease in R&D activities in these segments, partially offset by an increase in Lifecore’s R&D expenses primarily due to higher salary and benefit expenses, including increased headcount. 27 Ta ble of Contents Selling, General and Administrative ("SG&A") SG&A expenses consist primarily of sales and marketing expenses associated with Landec’s product sales and services, business development expenses, and staff and administrative expenses.
The increase in R&D expenses for fiscal year 2023 compared to fiscal year 2022 was primarily due to higher salary and benefits expenses, including increased headcount. 23 Table of Contents Selling, General and Administrative ( “ SG&A ” ) SG&A expenses consist primarily of sales and marketing expenses associated with Lifecore’s product sales and services, business development expenses, and staff and administrative expenses.
Cash Flows from Operating Activities Net cash used in operating activities during fiscal year 2022 was $24.4 million compared to $15.0 million of net cash provided by operating activities during fiscal year 2021.
Cash Flows from Operating Activities Net cash used in operating activities during fiscal year 2023 was $17.4 million compared to $22.6 million, as restated, of net cash used during fiscal year 2022 and $16.5 million, as restated, of net cash provided during fiscal year 2021.
Other Income (Expense), net The increase in other income (expense), net for fiscal years 2022 and 2021 compared to the respective prior periods was primarily the result of the change in the fair value of our interest rate swap liability. 29 Ta ble of Contents Income Tax Benefit The change in income tax benefit for fiscal year 2022 compared to fiscal year 2021 was primarily due to the Company’s increase in net loss before income taxes from continuing operations and the Company’s effective tax rate for fiscal year 2022 changed from a tax provision benefit of 16.59% to a tax provision benefit of 11.20% in comparison to fiscal year 2021 after adjustment for discontinued operations.
Income Tax (Provision) Benefit The change in income tax benefit for fiscal year 2022 compared to fiscal year 2021 was primarily due to the Company’s increase in net loss before income taxes from continuing operations and the Company’s effective tax rate for fiscal year 2022 changed from a tax provision benefit of 21.32% to a tax provision benefit of 25.19% in comparison to fiscal year 2021 after adjustment for discontinued operations.
For each of the development activities performed by Lifecore as described above, labor is the primary input (i.e., labor costs represent the majority of the costs incurred in the completion of the services). The Company determined that labor hours are the best measure of progress as it most accurately depicts the effort extended to satisfy the performance obligation over time.
For each of the development activities performed by Lifecore as described above, labor is the primary input (i.e., labor costs represent the majority of the costs incurred in the completion of the services).
Landec has three reportable business segments – Lifecore, Curation Foods, and Other which are described below. Landec’s biomedical company, Lifecore Biomedical®, is a fully integrated contract development and manufacturing organization ("CDMO") that offers highly differentiated capabilities in the development, fill and finish of sterile, injectable pharmaceutical products in syringes and vials.
Lifecore Biomedical’s biomedical company, Lifecore Biomedical Operating Company, Inc. (“Lifecore”), is a fully integrated CDMO that offers highly differentiated capabilities in the development, fill and finish of sterile, injectable pharmaceutical products in syringes and vials.
Lifecore Lifecore is the Company’s FDA-approved CDMO business, which is focused on driving profitable growth with product development and 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 seeks to expand its presence in the CDMO marketplace by partnering with biopharmaceutical and biotechnology companies to bring their unique therapies to market.
Capital Expenditures Landec incurred $28.1 million of capital expenditures during fiscal year 2022, which were primarily represented by continued facility modifications and expansions and equipment purchases intended to increase production capacity to support the growth and increased production efficiency of the Lifecore and Curation Foods businesses. Capital expenditures incurred during fiscal year 2021 were $23.8 million.
As restated, capital expenditures incurred during fiscal years 2022 and 2021 were $29.9 million and $25.2 million, respectively, primarily represented by continued facility modifications and expansions and equipment purchases intended to increase production capacity to support the growth and increased production efficiency of the Lifecore and Curation Foods businesses. 29 Table of Contents Contractual Obligations The Company’s material contractual obligations for the next five years mainly relate to its debt obligations.
Operating Expenses: Research and Development (R&D) R&D expenses consist primarily of product development and commercialization initiatives. R&D expenses in our Lifecore business are focused on new products and applications for HA-based and non-HA biomaterials.
R&D expenses are focused on new products and applications for HA-based and non-HA biomaterials.
Furthermore, the Company has an enforceable right to payment for the performance completed to date for its costs incurred in satisfying the performance obligation plus a reasonable profit margin.
Revenues generated from development services arrangements are recognized over time as Lifecore is creating an asset without an alternate use as it is unique to the customer. Furthermore, the Company has an enforceable right to payment for the performance completed to date for its costs incurred in satisfying the performance obligation plus a reasonable profit margin.
(“Curation Foods”) is focused on innovating and distributing plant-based foods with 100% clean ingredients to retail, club and foodservice channels throughout North America.
(“Curation Foods”), which focused on innovating and distributing plant-based foods with 100% clean ingredients to retail, club and foodservice channels throughout North America. However, upon the sale of Yucatan on February 7, 2023 and O Olive on April 6, 2023, we ceased to operate the Curation Foods business.
On December 31, 2020, the Company refinanced its existing Term Loan and Revolver by entering into two separate Credit Agreements (the "New Credit Agreements") with BMO and Goldman Sachs Specialty Lending Group, L.P. (“Goldman”) and Guggenheim Credit Services, LLC ("Guggenheim"), as lenders (collectively, the “Refinance Lenders”).
Debt On December 31, 2020, the Company refinanced its previously existing term loan and revolving credit facility by entering into (i) a credit agreement with Goldman Sachs Specialty Lending Group, L.P.
Refer to Note 9 - Commitments and Contingencies - Legal Contingencies in the notes to our consolidated financial statements for more information. 28 Ta ble of Contents During fiscal year 2020, the Company announced a restructuring plan to drive enhanced profitability, focus the business on its strategic assets and redesign the organization to be the appropriate size to compete and thrive.
Restructuring Costs During fiscal year 2020, the Company announced a restructuring plan to drive enhanced profitability, focus the business on its strategic assets and redesign the organization to be the appropriate size to compete and thrive. This included a reduction in force, a reduction in leased office spaces and the sale of non-strategic assets.
The Company also recorded an impairment charge of $8.7 million related to its Yucatan Foods trademarks. These impairment charges were primarily a result of an indication of a decrease in the fair market values of our Yucatan Foods businesses driven by lower market valuations and a decrease in projected cash flows.
The impairments were determined using the royalty savings method to estimate the fair value of its trademarks and was primarily a result of an indication of a decrease in the fair market value of the Yucatan and O Olive businesses driven by lower market valuations and a decrease in projected cash flows.
In April 2022 the Company amended the New Credit Agreement to make available again $20.0 million of term debt that that had been previously repaid. In connection with this amendment, the Company incurred debt issuance costs from the lender of $0.7 million.
In connection with this amendment, the Company incurred debt issuance costs from the lender of $0.7 million.
The services described above are significantly affected by each other because Lifecore would not be able to fulfill its promise by transferring each of the goods or services independently. Revenues generated from development services arrangements are recognized over time as Lifecore is creating an asset without an alternate use as it is unique to the customer.
Each of the promised goods and services are not distinct in the context of the contract as the goods and services are highly interdependent and interrelated. The services described above are significantly affected by each other because Lifecore would not be able to fulfill its promise by transferring each of the goods or services independently.
The New Credit Agreements contain customary financial covenants and events of default under which the obligations thereunder could be accelerated and/or the interest rate increased in specified circumstances. In connection with the New Credit Agreements, the Company incurred debt issuance costs from the lender and third-parties of $10.3 million.
The Revolving Credit Facility contains, and the Prior Term Loan Facility contained, customary financial covenants and events of default under which the obligations thereunder could be accelerated and/or the interest rate increased in specified circumstances.
Pursuant to the credit agreement related to the revolving credit facility, BMO has provided the Company, Curation Foods and Lifecore, as co-borrowers, with an up to $75.0 million revolving line of credit (the “Refinance Revolver”) and serves as administrative agent of the Refinance Revolver.
(“BMO”) as lender, which provided the Company, Curation Foods and Lifecore, as co-borrowers, with an up to $75.0 million revolving line of credit (the “Revolving Credit Facility” and, together with Prior Term Loan Facility, the “Credit Facilities”).
(In thousands, except percentages) Year Ended Change Year Ended Change May 29, 2022 May 30, 2021 Amount % May 30, 2021 May 31, 2020 Amount % Lifecore $ 109,320 $ 98,087 $ 11,233 11% $ 98,087 $ 85,833 $ 12,254 14% Curation Foods 76,466 73,459 3,007 4% 73,459 74,233 (774) (1)% Total Revenues $ 185,786 $ 171,546 $ 14,240 8% $ 171,546 $ 160,066 $ 11,480 7% Lifecore The increase in Lifecore’s revenues for fiscal year 2022 compared to fiscal year 2021 was primarily due to an $11.0 million increase in CDMO revenues from an increase in development services activities resulting in higher sales to new and existing customers and an increase in aseptic commercial shipments, resulting from increased demand from existing customers, as well as a $0.2 million increase in fermentation sales due to higher sales to existing customers.
Year Ended May 29, 2022 Compared to May 30, 2021, as restated Revenues and Gross Profit: (In thousands, except percentages) Year Ended Change May 29, 2022 May 30, 2021 Amount % As Restated As Restated Revenues $ 111,270 $ 100,874 $ 10,396 10% Gross Profit $ 39,066 $ 38,937 $ 129 —% The increase in revenues for fiscal year 2022, compared to fiscal year 2021, was due to an $10.6 million increase in CDMO revenues from an increase in development services activities resulting in higher sales to new and existing customers and an increase in aseptic commercial shipments, resulting from increased demand from existing customers, as well as a $0.2 million increase in fermentation sales due to higher sales to existing customers.
As a result, Lifecore’s gross margin increased to 40.0% in fiscal year 2022 from 39.0% in fiscal year 2021. The increase in Lifecore’s gross profit for fiscal year 2021 compared to fiscal year 2020 was primarily due to a 14% increase in revenues, as well as a favorable product mix change in fiscal year 2021.
The increase in gross profit for fiscal year 2022 compared to fiscal year 2021 was primarily due to an 10% increase in revenues, as well as a favorable product mix change in fiscal year 2022, partially offset by a $3.5 million provision to reduce inventories to their net realizable value in fiscal year 2022.
The decrease in the income tax benefit for fiscal year 2021 was primarily due to a significant decrease in the Company's loss before tax from continuing operations, and the increase in change in valuation allowance which offsets federal and state research and development credits, and $2.8 million of NOL carryback benefit applied only for fiscal year 2020.
The increase in the income tax benefit for fiscal year 2022 was primarily due to significant decrease in the Company’s loss before tax from continuing operations, and the decrease in change in valuation allowance which offsets the impairment of Yucatan goodwill. 26 Table of Contents Non-GAAP Financial Information and Reconciliations EBITDA and Consolidated adjusted EBITDA are non-GAAP financial measures.
Other: (In thousands, except percentages) Year Ended Change Year Ended Change May 29, 2022 May 30, 2021 Amount % May 30, 2021 May 31, 2020 Amount % Interest Income $ 81 $ 48 $ 33 69% $ 48 $ 72 $ (24) (33)% Interest Expense, net (17,357) (10,387) (6,970) 67% (10,387) (4,646) (5,741) 124% Transition Services Income 5,814 — 5,814 100% — — — —% Loss on Debt Refinancing — (1,110) 1,110 (100)% (1,110) — (1,110) 100% Other Income (Expense), net 641 111 530 N/M 111 (195) 306 N/M Income Tax Benefit 5,839 1,903 3,936 207% 1,903 8,774 (6,871) (78)% Interest Income The decrease in interest income in fiscal year 2022 compared to fiscal year 2021, and 2021 compared to fiscal 2020 was not significant.
Other Income (Expenses): (In thousands, except percentages) Year Ended Change May 29, 2022 May 30, 2021 Amount % As Restated As Restated Interest Income $ 81 $ 48 $ 33 69% Interest Expense $ (15,551) $ (8,933) $ (6,618) 74% Transition Services Income $ 5,814 $ — $ 5,814 100% Loss on Debt Extinguishment $ — $ (1,110) $ 1,110 (100)% Other (Expense) Income, net $ 760 $ (10,969) $ 11,729 (107)% Income Tax (Provision) Benefit $ 5,211 $ 6,350 $ (1,139) (18)% Interest Income The increase in interest income in fiscal year 2022 compared to fiscal year 2021 was not significant.
(the “Purchaser”), pursuant to which Curation Foods sold all of its assets related to BreatheWay packaging technology business to the Purchasers in exchange for an aggregate purchase price of $3.2 million. 3) Organizational Redesign: Redesigning the organization so that it is the appropriate size for the Company’s future direction.
Gain on sale of BreatheWay On June 2, 2022, the Company and Curation Foods entered into and closed an Asset Purchase Agreement pursuant to which Curation Foods sold all of its assets related to BreatheWay packaging technology business in exchange for an aggregate purchase price of $3.1 million. Upon the sale, the Company recorded a gain of $2.1 million.
Liquidity and Capital Resources As of May 29, 2022, the Company had cash and cash equivalents of $1.6 million, a net increase of $0.3 million from $1.3 million at May 30, 2021.
(2) We adjust the remaining Adjusted EBITDA of segments we exited during 2023 to present the adjusted EBITDA of the Lifecore business, the operating business of the Company going forward. 27 Table of Contents Liquidity and Capital Resources As of May 28, 2023, the Company had cash and cash equivalents of $19.1 million, a net increase of $18.1 million from $1.0 million at May 29, 2022.
Restructuring costs for fiscal year 2021 decreased $0.3 million compared to fiscal year 2020 due to a decrease in restructuring activity related to continuing operations in our Curation Foods Segment as part of our Project SWIFT initiatives. Refer to Note 13 - Restructuring Costs in the notes to our consolidated financial statements for more information.
Restructuring costs for the year ended May 28, 2023 decreased $4.2 million compared to the prior year period due to decreased restructuring activity mainly as a result of the Eat Smart Disposition in fiscal year 2022. Refer to Note 12 - Restructuring Costs in the notes to our consolidated financial statements for more information.
The decrease in the effective tax rate for fiscal year 2022 was primarily due to a significant valuation allowance increase and the impairment of Yucatan Foods goodwill.
The decrease in the effective tax rate for fiscal year 2023 was primarily due to an increase in valuation allowance recorded against certain deferred tax assets, partially offset by the impact of federal and state research and development tax credits.
The effective tax rate for fiscal year 2021 changed from a tax provision benefit of 28.63% to a tax provision benefit of 16.59% in comparison to fiscal year 2020 after adjustment for discontinued operations.
Income Tax (Provision) Benefit The change in income tax benefit for fiscal year 2023 compared to fiscal year 2022 was primarily due to the Company’s increase in net loss before income taxes from continuing operations and the Company’s effective tax rate for fiscal year 2023 changed from a tax provision benefit of 25.19% to a tax provision expense of 0.48% in comparison to fiscal year 2022 after adjustment for discontinued operations.
Pursuant to the credit agreement related to the term loan, Goldman and Guggenheim have provided the Company, Curation Foods and Lifecore, as co-borrowers, with an up to $170.0 million term loan facility (split equally between Goldman and Guggenheim) (the “Refinance Term Loan”) and Goldman serves as administrative agent of the Refinance Term Loan.
(“Goldman”) and Guggenheim Credit Services, LLC (“Guggenheim”), as lenders, which provided the Company, Curation Foods and Lifecore, as co-borrowers, with term loan borrowings of up to $170.0 million (the “Prior Term Loan Facility”), and (ii) a credit agreement with BMO Harris Bank, N.A.
This includes a reduction-in-force, a reduction in leased office spaces and the sale of non-strategic assets. The Company recorded $9.0 million, $3.8 million, and $4.1 million in fiscal years 2022, 2021, and 2020, respectively, related to the restructuring plan.
This included a reduction-in-force, a reduction in leased office spaces, and the sale of non-strategic assets.
During fiscal year 2020, the Company recorded an impairment charge of $1.1 million and $3.5 million related to its O and Yucatan Foods trademarks, respectively. The Company also recorded an impairment charge of $5.2 million and $2.7 million related to its O and Yucatan Foods goodwill, respectively.
Impairment Review of Long-lived and Indefinite-lived Assets During the year ended May 28, 2023, the Company recorded impairment charges of $1.0 million related to Yucatan indefinite-lived intangible asset related to tradenames. In addition, during the year ended May 28, 2023, the Company recorded an impairment charge of $0.3 million related to O Olive’s indefinite-lived intangible asset for tradenames.
The Company’s tax-contingency accruals are recorded in Other accrued liabilities in the accompanying Consolidated Balance Sheets. 25 Ta ble of Contents Results of Operations Revenues: Lifecore generates revenues from the development and manufacture of pharmaceutical-grade sodium hyaluronate (“HA”) products and providing contract development and aseptic manufacturing services to customers.
The impairment charge is reported in loss from discontinued operations in the Consolidated Statements of Operations. 22 Table of Contents Results of Operations Year Ended May 29, 2023 Compared to May 29, 2022 Revenues and Gross Profit: Lifecore generates revenues from the development and manufacture of HA products and providing contract development and aseptic manufacturing services to customers.
In the third quarter of fiscal year 2022, the Company sold Curation Foods’ Eat Smart business, including its salad and cut vegetable businesses for a purchase price of $73.5 million in cash, subject to post-closing adjustments based upon net working capital at the Closing Date.
Pursuant to the Securities Purchase Agreement, Buyer acquired all of the outstanding equity securities of Yucatan for a purchase price of $17.5 million in cash, subject to certain post-closing adjustments at closing, including selling costs, net working capital and other adjustments amounting to $5.0 million The Company recognized a loss on the Yucatan Disposition of $20.7 million in the third quarter ended February 26, 2023.
Removed
Included in the Other segment is Corporate, which includes corporate general and administrative expenses, non-Lifecore and non-Curation Food interest income, interest expense, and income tax expenses. 21 Ta ble of Contents Strategy The Company’s strategy is to maximize the value of our business portfolio by investing in growth to drive momentum at Lifecore while driving profitable growth across the organization with consumer insights driven innovation.
Added
Accordingly, commencing in the fourth quarter of fiscal year 2023, the Curation Foods segment of Lifecore Biomedical is presented as a discontinued operation in its entirety. 19 Table of Contents Reportable Segments Lifecore Biomedical operates as one reportable segment, Lifecore, which is described in further detail below.
Removed
Each of our business segments are in different life stages and have clear strategic priorities. On August 10, 2022, Landec formally announced that we will become a CDMO-focused life sciences company with a planned corporate rebranding including renaming the Company to Lifecore Biomedical and exploring potential sales opportunities of the Company’s remaining Curation Foods assets.
Added
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. Change in Reportable Segments The Company previously operated in principally two reportable segments, Lifecore and Curation, and disclosed Other which included corporate activities.
Removed
Curation Foods Curation Foods, the Company’s natural food business, is focused on transforming its business to improve operational performance. The Company launched Project SWIFT which aims to strengthen Curation Foods by simplifying the business.
Added
During the fourth quarter of fiscal year 2023, in connection with the previously announced strategic shift and upon the sale of Yucatan and O Olive, the Company has ceased to operate the Curation Foods business.
Removed
The Company believes that the decisive actions of Project SWIFT will help improve the Company’s operating cost structure, enhance profitability, and strengthen its balance sheet with an overall aim to deliver long-term value to shareholders. Curation Foods intends to continue to deliver high levels of product quality and safety, while successfully executing on its customer and partner commitments.
Added
As a result, we changed the level of detail at which our chief operating decision maker (“CODM”) regularly reviews and manages the businesses, resulting in a change to our reportable segments.
Removed
Project SWIFT will continue to be implemented throughout fiscal 2023, with three strategic priorities designed to improve Curation Foods’ overall financial performance and profitability: 1) Network & Operational Optimization: Streamline the organization to maximize efficiency and productivity by continuous improvement in plant operations with lean manufacturing practices.
Added
With the exit of the Curation Foods business, the “Curation” segment ceased to exist; and “Other”, which previously included corporate general, interest, income tax and other general and administrative expenses, is incorporated into the single “Lifecore” segment. Commencing with this Annual Report on Form 10-K, we will now manage and report our operating results through one reportable segment: Lifecore.
Removed
This included the consolidation and centralization of Curation Foods various offices into its Innovation Center headquarters in Santa Maria, California in fiscal 2020. 2) Focus on Strategic Assets : Simplify the business by divesting non-core assets.
Added
This change allows us to better align our business models, resources, and cost structure to the specific current and future growth of our business, while maintaining the necessary information and transparency to our stockholders. Our historical segment information has been recast to conform to the current segment structure, and all previously operated Curation Food business are presented as discontinued operations.
Removed
In the first quarter of fiscal year 2021, the Company sold its interest in the Ontario, California salad dressing manufacturing facility for net proceeds of $4.9 million. During the second quarter of fiscal year 2021, the Company sold the underutilized Hanover manufacturing facility building and assets related thereto for net proceeds of $8.0 million.
Added
Lifecore Lifecore, located in Chaska, Minnesota, is a fully integrated CDMO that offers highly differentiated capabilities in the development, fill and finish of sterile, injectable pharmaceutical products in syringes and vials.
Removed
Subsequent to the end of fiscal year 2020, on June 2, 2022, the Company and Curation Foods entered into and closed an Asset Purchase Agreement with Hazel Technologies, Inc.
Added
It is involved in the manufacture of pharmaceutical-grade sodium hyaluronate (“HA”) in bulk form as well as formulated and filled syringes and vials for injectable products used in treating a broad spectrum of medical conditions and procedures.
Removed
In fiscal 2021 through 2022, the Company focused on redesigning strategic initiatives, developed and elevated internal talent and reduced overall headcount to improve efficiencies. 22 Ta ble of Contents The COVID-19 Pandemic There are many uncertainties regarding the COVID-19 pandemic, including the scope of scientific and health issues, the anticipated duration of the pandemic, and the extent of local and worldwide social, political, and economic disruption it may cause.
Added
Lifecore uses its fermentation process and aseptic formulation and filling expertise to be a leader in the development of HA-based products for multiple applications and to take advantage of non-HA device and drug opportunities which leverage its expertise in manufacturing and aseptic syringe filling capabilities.
Removed
The COVID-19 pandemic has had and we believe will continue to have significant adverse impacts on many aspects of the Company’s operations, directly and indirectly, including with respect to sales, customer behaviors, business and manufacturing operations, inventory, the Company’s employees, and the market generally, and the scope and nature of these impacts continue to evolve each day.
Added
Lifecore CDMO provides product development services to its partners for HA-based, as well as non-HA based, aseptically formulated and filled products. These services include activities such as technology development, material component changes, analytical method development, formulation development, pilot studies, stability studies, process validation and production of materials for clinical studies.
Removed
The Company expects to continue to assess the evolving impact of the COVID-19 pandemic, and intends to continue to make adjustments to its responses accordingly. Critical Accounting Policies and Use of Estimates Use of Estimates The preparation of financial statements in conformity with U.S.
Added
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 applications for products with partners who have strong marketing, sales, and distribution capabilities to end-user markets.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeInterest on the Refinance Revolver is based upon the Company’s average availability, at a per annum rate of either (i) LIBOR rate plus a spread of between 2.00% and 2.50% or (ii) base rate plus a spread of between 1.00% and 1.50%, plus a commitment fee, as applicable, of 0.375%.
Biggest changeIn this regard, changes in interest rates will affect our net interest expense, as well as the fair value of our debt. 34 Table of Contents Interest on the Revolving Credit Facility is based upon the Company’s average availability, at a per annum rate of either (i) SOFR rate plus a spread of between 2.00% and 2.50% or (ii) base rate plus a spread of between 1.00% and 1.50%, plus a commitment fee, as applicable, of 0.375% and plus (iii) for the period from December 1, 2022 until January 31, 2023, additional 2% per annum.
A hypothetical 100 basis point increase or decrease in weighted average interest rates under our Refinance Revolver, based upon the face value of such instruments, would increase our interest expense by approximately $0.4 million over a twelve-month period. Foreign Currency Exposure Our Mexican-based operations transacts a portion of the business in Mexican pesos.
A hypothetical 100 basis point increase or decrease in weighted average interest rates under our Refinance Revolver, based upon the face value of such instruments, would increase our interest expense by approximately $0.2 million over a twelve-month period.
Interest on the Refinance Term Loan is at a per annum rate based on either (i) the base rate plus a spread of 7.50% or (ii) the LIBOR rate plus a spread of 8.50%.
Interest on the Prior Term Loan Facility was at a per annum rate based on either (i) the base rate plus a spread of 7.50% or (ii) the SOFR rate plus a spread of 8.50%.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Exposure Our net interest expense is sensitive to changes in the general level of interest rates. In this regard, changes in interest rates will affect our net interest expense, as well as the fair value of our debt.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Exposure Our net interest expense is sensitive to changes in the general level of interest rates.
Removed
On December 31, 2020, the Company refinanced its existing Term Loan and Revolver by entering into two separate Credit Agreements (the "New Credit Agreements") with BMO and Goldman Sachs Specialty Lending Group, L.P. (“Goldman”) and Guggenheim Credit Services, LLC ("Guggenheim"), as lenders (collectively, the “Refinance Lenders”).
Removed
Pursuant to the credit agreement related to the revolving credit facility, BMO has provided the Company, Curation Foods and Lifecore, as co-borrowers, with an up to $75.0 million revolving line of credit (the “Refinance Revolver”) and serves as administrative agent of the Refinance Revolver.
Removed
Pursuant to the credit agreement related to the term loan, Goldman and Guggenheim have provided the Company, Curation Foods and Lifecore, as co-borrowers, with an up to $170.0 million term loan facility (split equally between Goldman and Guggenheim) (the “Refinance Term Loan”) and Goldman serves as administrative agent of the Refinance Term Loan.
Removed
The Refinance Revolver and Refinance Term Loan are guaranteed, and secured by, substantially all of the Company’s and the Company's direct and indirect subsidiaries' assets.
Removed
Funds are transferred by our corporate office to Mexico to satisfy local Mexican cash needs. We do not currently use derivative instruments to hedge fluctuations in the Mexican peso to U.S. dollar exchange rates. Total impact from foreign currency translation is not significant.

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