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What changed in LIFECORE BIOMEDICAL, INC. \DE\'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of LIFECORE BIOMEDICAL, INC. \DE\'s 2023 and 2024 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 2024 report.

+292 added−249 removedSource: 10-K (2024-08-26) vs 10-K (2024-03-20)

Top changes in LIFECORE BIOMEDICAL, INC. \DE\'s 2024 10-K

292 paragraphs added · 249 removed · 154 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeExpand medical applications for HA: Due to the growing knowledge of the unique characteristics of HA and Lifecore’s unique strength and history as a trusted manufacturer of pharmaceutical injectable grade HA products, Lifecore continues to identify and pursue opportunities for the use of HA in other medical applications, such as wound care, aesthetic surgery, drug delivery, next generation orthopedics and device coatings, and through sales to academic and corporate research customers.
Biggest changeThrough its strong reputation and history of providing pharmaceutical grade HA and products, Lifecore has established long-term relationships with global and emerging biopharmaceutical and biotechnology companies across multiple therapeutic categories and leverages those partnerships to attract new relationships in other medical markets. 2 Table of Contents Expand medical applications for HA : Due to the growing knowledge of the unique characteristics of HA and Lifecore’s unique strength and history as a trusted manufacturer of pharmaceutical injectable grade HA products, Lifecore continues to identify and pursue opportunities for the use of HA in other medical applications, such as wound care, aesthetic surgery, drug delivery, next generation orthopedics and device coatings, and through sales to academic and corporate research customers.
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.
Lifecore 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.
Lifecore’s facilities in Chaska, Minnesota are used for the HA and non-HA manufacturing process, formulation, aseptic syringe and vial filling, analytical services, secondary packaging, warehousing raw materials and finished goods, and distribution.
Lifecore’s facilities in Chaska, Minnesota are used for the HA and non-HA manufacturing process, formulation, aseptic syringe, vial and cartridge filling, analytical services, secondary packaging, warehousing raw materials and finished goods, and distribution.
Other regulatory requirements are placed on the design, manufacture, processing, packaging, labeling, distribution, record-keeping and reporting of a medical device or drug products and on the quality control procedures. For example, medical device and drug manufacturing facilities are subject to periodic inspections by the FDA to assure compliance with device and/or drug requirements, as applicable.
Other regulatory requirements are placed on the design, manufacture, processing, packaging, labeling, distribution, record-keeping and reporting of a medical device or drug products and on the quality control procedures. For example, medical device and drug manufacturing facilities are subject to periodic inspections by the FDA and other international regulatory agencies to assure compliance with device and/or drug requirements, as applicable.
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.
Lifecore’s goal of continuing success will be to execute on its three strategic priorities: 1) Managing Business Development Pipeline : Accelerate product development activities for virtual, small and large biopharmaceutical and biotechnology companies in various stages of the product lifecycle, spanning clinical development stage to commercialization, which aligns with the business’ overall product development strategy. 2) Maximizing Capacity : Meet customer demand by maximizing capacity in the syringe, vial and cartridge multi-purpose filler production line to significantly increase the number of products produced. 3) Advancing Product Commercialization : Continue to seek out opportunities to advance customers’ late-stage product development activities by supporting their clinical programs and commercial process scale-up activities.
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.
Government Regulation The Food and Drug Administration (“FDA”) regulates and/or approves the clinical trials, commercial production, manufacturing, labeling, distribution, import, export, sale and promotion of medical devices and drug products in or from the United States.
Some of the Company’s and its customers’ products are subject to extensive and rigorous regulation by the FDA, which regulates some of the products as medical devices or drug products, that in some cases require FDA approval or clearance, prior to U.S. distribution of Pre-Market Approval (“PMA”), or New Drug Applications (“NDA”), or Pre-Market Notifications, or other submissions and by foreign countries, which regulate some of the products as medical devices or drug products.
Some of the Company’s and its customers’ products are subject to extensive and rigorous regulation by the FDA, which regulates some of the products as medical devices or drug products, that in some cases require FDA approval or clearance, prior to U.S. distribution of Pre-Market Approval for device products, or New Drug Applications for drug products, or Pre-Market Notifications, or other submissions and by foreign countries, which regulate some of the products as medical devices or drug products.
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
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.
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 3 Table of Contents produces HA only from bacterial fermentation, using an efficient microbial fermentation process and an effective purification operation.
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 May 26, 2024, the Company had 524 full-time employees, of whom 484 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.
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.
With over 38 years of a superior track record with global regulatory bodies (FDA (as defined below), 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.
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.
As a leading manufacturer of premium, injectable grade sodium hyaluronic (“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.
For PMA devices and NDA drug products, the company that owns the product submission is required to submit an annual report and also to obtain approval, as applicable, for modifications to the device, drug product, or its labeling.
The FDA and other international regulatory agencies may conduct pre-approval inspections for device and drug product introductions. For device and drug products, the company that owns the product submission is required to submit an annual report and also to obtain approval, as applicable, for modifications to the device, drug product, or its labeling.
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.
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.
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.
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. We seek to empower our employees to own their career path and seek out training programs to take them to the next level.
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.
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 Lifecore’s website is www.lifecore.com.
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.
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 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.
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. We provide training to our employees in the areas of safety and human resources along with production area specific training.
(“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.
Item 1. Business Corporate Overview Lifecore Biomedical, Inc. and its subsidiaries (“Lifecore”, the “Company”, “we” or “us”) 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, vials and cartridges, including complex formulations.
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.
The Company brings more than 40 years of expertise as a partner for global and emerging biopharmaceutical and biotechnology companies across multiple therapeutic categories to bring their innovations to market.
Lifecore CDMO provides product development services to its partners for HA-based, as well as non-HA based, aseptically formulated and filled products.
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’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’s world class quality and regulatory system and excellent track record with the global regulatory bodies ensure partners that they will safely bring innovative therapies to market. We are focused on driving profitable growth with product development and manufacturing of sterile injectable products.
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.
The Company’s principal executive offices are located at 3515 Lyman Boulevard, Chaska, Minnesota 55318, and the telephone number is (952) 368-4300. Reportable Segments The Company operates in one reportable segment: Lifecore, which is described in further detail below.
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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.
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This is based on the objectives of the business and how our Chief Operating Decision Maker (“CODM”), the President and Chief Executive Officer, regularly reviews and manages the business, monitors operating performance and allocates resources.
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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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Lifecore intends to recruit additional personnel in connection with the development, manufacturing and marketing of its products.
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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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On July 8, 2024, we implemented a strategic reduction of the Company’s workforce (the “Workforce Reduction Plan”) to terminate 46 full-time employees of the Company, representing approximately 9% of the Company’s workforce, as part of an initiative to strategically optimize the Company’s cost structure.
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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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In connection with the Workforce Reduction Plan, the Company 4 Table of Contents estimates that it will incur termination benefit costs of approximately $1.0 million, which primarily consist of one-time severance benefits. These costs are expected to be incurred in the first quarter of fiscal year 2025 and paid during both the first and second quarters of fiscal year 2025.
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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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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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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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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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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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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.
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Through its strong reputation and history of providing pharmaceutical grade HA and products, Lifecore has established long-term relationships with global and emerging biopharmaceutical and biotechnology companies across multiple therapeutic categories and leverages those partnerships to attract new relationships in other medical markets.
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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”).
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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”).
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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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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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The 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.
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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.
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Similarly, companies that own FDA Pre-Market Notifications for marketed products must obtain additional FDA clearance for certain modifications to their devices or labeling.
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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.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

55 edited+76 added−10 removed119 unchanged
Biggest changeFor example, pursuant to the terms of the New Term Loan Credit Facility, the Company’s material uncured violation of the Alcon Supply Agreement constitutes an event of default under the New Term Loan Credit Facility, which puts significant pressure on the Company to comply with the terms of the Alcon Supply Agreement, and that failure to do so may cause the Company’s obligations under the New Term Loan Credit Facility to be accelerated and trigger other remedies Alcon may be entitled to under the New Term Loan Credit Facility, which could have a material adverse effect on the Company’s business, prospects, results of operations, liquidity and financial condition.
Biggest changeFor example, pursuant to the terms of the Term Loan Credit Facility, the Company’s material uncured violation of the Alcon Supply Agreement constitutes an event of default under the Term Loan Credit Facility.
Our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls or fraud. Even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements.
Our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls or fraud. Even effective internal controls over financial reporting can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements.
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.
From time to time, we have been subject to, 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.
A failure by us to comply with the covenants specified in our credit agreements, as amended, could result in an event of default under the agreements, which would give the lenders the right to terminate their commitments to provide additional loans under our credit facilities and to declare all borrowings outstanding, together with accrued and unpaid interest, to be immediately due and payable.
A failure by us to comply with the covenants specified in our credit agreements, as amended, could result in an event of default under the agreements, which would give the lenders the right to terminate their commitments to provide additional loans under our credit agreements and to declare all borrowings outstanding, together with accrued and unpaid interest, to be immediately due and payable.
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.
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 flows 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.
The holders of the Convertible Preferred Stock may have interests that are different from those of the holder of Common Stock, and could adversely impact the Company’s ability to effectuate its strategic initiatives and operate its business.
The holders of the Convertible Preferred Stock may have interests that are different from those of the holders of Common Stock, and could adversely impact the Company’s ability to effectuate its strategic initiatives and operate its business.
We have not paid any dividends on our Common Stock since inception and do not expect to in the foreseeable future. Any dividends may be subject to preferential dividends payable on any preferred stock we may issue.
We have never paid any dividends on our Common Stock. We have not paid any dividends on our Common Stock since inception and do not expect to in the foreseeable future. Any dividends may be subject to preferential dividends payable on any preferred stock we may issue.
In addition, if the debt under our credit facilities were to be accelerated, we may not have sufficient cash or be able to borrow sufficient funds to refinance the debt or sell sufficient assets to repay the debt, which could immediately, materially and adversely affect our business, cash flows, results of operations, and financial condition, and there would be no guarantee that we would be able to find alternative financing.
In addition, if the debt under our credit agreements were to be accelerated, we may not have sufficient cash or be able to borrow sufficient funds to refinance the debt or sell sufficient assets to repay the debt, which could immediately, materially and adversely affect our business, cash flows, results of operations, and financial condition, and there would be no guarantee that we would be able to find alternative financing.
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.
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, 15 Table of Contents • 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.
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.
As previously disclosed, we have been in noncompliance with our credit 7 Table of Contents 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.
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.
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.
We have issued Convertible Preferred Stock, which have rights, preferences and privileged that are not held by, and are preferential to, the Company’s Common Stock, including with respect to dividends, distributions and payments on liquidation, winding up and dissolution, which could adversely impact the rights of the holders of the Company’s Common Stock.
We have issued Convertible Preferred Stock, which have rights, preferences and privileges that are not held by, and are preferential to, the Company’s Common Stock, including with respect to dividends, distributions and payments on liquidation, winding up and dissolution, which could adversely impact the rights of the holders of the Company’s Common Stock.
We are still 11 Table of Contents in the process of integrating these changes, and have experienced challenges in connection therewith, including additional restructuring costs, unexpected operational challenges, including with respect to financial reporting as described elsewhere in this Annual Report on Form 10-K, and similar or other issues may arise in the future.
We are still in the process of integrating these changes, and have experienced challenges in connection therewith, including additional restructuring costs, unexpected operational challenges, including with respect to financial reporting as described elsewhere in this Annual Report on Form 10-K, and similar or other issues may arise in the future.
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.
As previously disclosed, we have, in the past, determined we were not in compliance with the covenants under our credit agreements, including with respect to our timely financial reporting and going concern, which were subsequently remediated.
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.
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. Our profitability is dependent upon our ability to obtain appropriate pricing for our products and to control our cost structure.
If our machinery or facilities are damaged or impaired due to natural disasters or mechanical failure, or we lose members of our workforce such that our workforce falls below the levels needed to maintain our business, we may not be able to operate at a sufficient capacity to meet our production needs.
If our machinery or facilities are damaged or impaired due to natural disasters or mechanical failure, or we lose members of our workforce such that our workforce falls below the levels needed to maintain our business, we may not be able to operate at 14 Table of Contents a sufficient capacity to meet our production needs.
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.
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 Convertible Preferred Stock has rights, preferences, and privileges that are not held by, and are preferential to, the rights of holders of our Common Stock.
Any such incident could, among other things, lead to increased costs, lost revenue, reimbursement to customers for lost product, damage to and possibly termination of customer relationships, time and expense spent investigating and remediating the cause and, depending on the cause, similar losses with respect to other manufacturing runs.
Any such incident could, among other things, lead to increased costs, lost revenue, reimbursement to customers for lost product, 11 Table of Contents damage to and possibly termination of customer relationships, time and expense spent investigating and remediating the cause and, depending on the cause, similar losses with respect to other manufacturing runs.
Our reputation and business may be harmed if our computer network security or any of the databases containing our trade secrets, proprietary information or the personal information of our employees, or those of third parties, are compromised. Cyber-attacks or security breaches could compromise our confidential business information, cause a disruption in the Company’s operations or harm our reputation.
Our reputation and business may be harmed if our computer network security or any of the databases containing our trade secrets, proprietary information or the personal information of our employees, or those of third parties, are compromised. Cyberattacks or security breaches could compromise our confidential business information, cause a disruption in the Company’s operations or harm our reputation.
In addition, cyber-attacks on our customers or vendors could disrupt our ability to procure product from our vendors or our customers’ ability to order our products, and may negatively impact our reputation. Any of these occurrences could disrupt our business, result in potential liability or reputational damage, or otherwise have an adverse effect on our financial results.
In addition, cyberattacks on our customers or vendors could disrupt our ability to procure product from our vendors or our customers’ ability to order our products, and may negatively impact our reputation. Any of these occurrences could disrupt our business, result in potential liability or reputational damage, or otherwise have an adverse effect on our financial results.
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.
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 18 Table of Contents substantial resources and management attention to replacing them.
During the fiscal year ended May 28, 2023, the Company had sales concentrations of 10% or greater from two customers within the Lifecore segment, including Alcon, which is also one of our primary lenders. We expect that, for the foreseeable future, a limited number of customers may continue to account for a substantial portion of our revenues.
During the fiscal year ended May 26, 2024, the Company had sales concentrations of 10% or greater from two customers within the Lifecore segment, including Alcon, which is also one of our primary lenders. We expect that, for the foreseeable future, a limited number of customers may continue to account for a substantial portion of our revenues.
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.
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. 13 Table of Contents We have a concentration of manufacturing and may have to depend on third parties to manufacture our products.
We have access to sensitive intellectual property and confidential information of our customers and supplies, and rely on nondisclosure agreements, information technology security systems and other measures to protect certain customer and supplier information and intellectual property that we have in our possession or to which we have access.
We have access to sensitive intellectual property and confidential information of our customers and supplies, and rely on nondisclosure agreements, information technology security systems and other measures to protect certain customer and supplier 19 Table of Contents information and intellectual property that we have in our possession or to which we have access.
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 cannot be certain that these measures will successfully remediate the material weaknesses or that other material weaknesses and control deficiencies will not be identified in the future.
The products also require the approval of foreign government agencies before sales may be made in many other countries. The process of obtaining these clearances or approvals varies according to the nature and use of the product.
The products also require the approval of foreign government agencies before sales may be 12 Table of Contents made in many other countries. The process of obtaining these clearances or approvals varies according to the nature and use of the product.
As described elsewhere in this Annual Report on Form 10-K, the Company entered into Refinancing Transactions (defined below) with Alcon, a significant customer of the Company, on May 22, 2023, pursuant to which Alcon agreed to become the Company’s lender under the New Term Loan Credit Facility.
As described elsewhere in this Annual Report on Form 10-K, in May 2023, we entered into Refinancing Transactions with Alcon, a significant customer of the Company, pursuant to which Alcon agreed to become the Company’s lender under the New Term Loan Credit Facility.
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.
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 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; 16 Table of Contents • 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.
In addition, our adoption of certain standards or mandated compliance to certain requirements could necessitate additional investments that could have an adverse effect on our results of operations. 17 Table of Contents
In addition, our adoption of certain standards or mandated compliance to certain requirements could necessitate additional investments that could have an adverse effect on our results of operations.
In addition, such issues could subject us to litigation, the cost of which could be significant. The Company may be adversely impacted by the terms of its refinancing transactions with Alcon and by Alcon’s concentrated relationship with the Company as a significant customer of and lender to the Company.
In addition, such issues could subject us to litigation, the cost of which could be significant. We may be adversely impacted by the terms of our refinancing transactions with Alcon and by Alcon’s concentrated relationship with us as a significant customer of ours and as our lender.
We cannot guarantee that our business will generate sufficient cash flow from our operations or that future borrowings will be available to us in an amount sufficient to enable us to make payments of our debt, fund other liquidity needs, and make planned capital expenditures.
We cannot guarantee that our business will generate sufficient cash flow from our operations or that future borrowings will be available to us in an amount sufficient to enable us to make payments of our debt, fund other liquidity needs, and make planned capital expenditures. We have limited capital and will need to raise additional capital in the immediate future.
Item 1A. Risk Factors Our business faces significant risks and uncertainties. Certain important factors may have a material adverse effect on our business, prospects, financial condition and results of operations, any of which could subsequently have an adverse effect on the trading price of our Common Stock, and you should carefully consider them.
Item 1A. Risk Factors Our business faces significant risks and uncertainties. Certain important factors may have a material adverse effect on our business, prospects, financial condition and results of operations, any of which could subsequently have an adverse effect on the trading price of our common stock, par value $0.001 per share (“Common Stock”), and you should carefully consider them.
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.
The terms of our credit agreements 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.
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.
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.
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.
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 partners may pursue existing or alternative technologies in preference to our technology. Furthermore, we may not be able to negotiate additional collaborative arrangements in the future on acceptable terms, if at all, and our collaborative arrangements may not be successful.
Our partners may pursue existing or alternative technologies in preference to our technology. Furthermore, we may not be able to negotiate additional collaborative arrangements in the future on acceptable terms, if at all, and our collaborative arrangements may not be successful. Any new business acquisition w ill involve uncertainty relating to integration.
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.
In addition, as previously disclosed, material weaknesses have been identified in our internal control 6 Table of Contents over financial reporting in the past, which have not been remediated.
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.
As of May 26, 2024, we had approximately $164.5 million in total indebtedness and $12.3 million available for borrowing under our revolving credit facility.
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.
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.
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.
In addition, changes in environmental regulations may impose the need for additional capital equipment or other requirements. 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.
Other 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.
Other 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 timing of consumer demand; and • foreign importation restrictions and foreign political risks.
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.
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.
As a result of these transactions, the Company may be subject to risks related to the nature and significance of this relationship.
As publicly disclosed, we also have other commercial arrangements with Alcon. As a result of these transactions, the Company may be subject to risks related to the nature and significance of this relationship.
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.
A significant portion of our revenue has been concentrated on a few large customers, including Alcon, one of our primary lenders. 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.
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.
Our failure to timely file certain periodic reports with the SEC and our prior restatements have had, and may in the future have further, material adverse consequences to, and pose significant risk to, our business, which could materially and adversely affect our business, our financial condition, our results of operations and our cash flows.
For example, as further described in Note 9 - Commitments and Contingencies to the Consolidated Financial Statements, the Chicago Regional Office of the SEC has issued a subpoena to the Company seeking documents and information concerning the Restatement.
For example, as further described “Note 9 – Commitments and Contingencies - SEC Subpoena” to our unaudited consolidated financial statements contained in this Annual Report on Form 10-K, on February 16, 2024, the Chicago Regional Office of the SEC issued a subpoena to the Company seeking documents and information concerning the Restatement.
See Part II, Item 8. Financial Statements and Supplementary Data, Note 1 for further information. If the steps we take do not correct the material weakness in a timely manner, we may be unable to conclude in the future that we maintain effective internal control over financial reporting.
If the steps we take do not remediate the material weakness in a timely manner, we may be unable to conclude in the future that we maintain effective internal control over financial reporting.
The Board may issue additional Convertible Preferred Stock or could authorize the issuance of new securities with priority as to dividends, distributions and payments on liquidation, winding up and dissolution over the rights of the holders of our Common Stock. We have never paid any dividends on our Common Stock.
See “-We have limited capital and will need to raise additional capital in the near future.” The Board may issue additional Convertible Preferred Stock in the future, or could authorize the issuance of new securities with priority as to dividends, distributions and payments on liquidation, winding up and dissolution over the rights of the holders of our Common Stock, all of which could further enhance or expand the risks described above.
Furthermore, others may independently develop similar products, duplicate our products or design around our patents. 16 Table of Contents We have access to certain intellectual property and information of our customers and suppliers, and failure to protect that intellectual property or information could adversely affect our future growth and success.
We have access to certain intellectual property and information of our customers and suppliers, and failure to protect that intellectual property or information could adversely affect our future growth and success.
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.
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.
These provisions may prevent a merger or acquisition of us which could limit the price investors would pay for our Common Stock in the future. General Risks Changes to U.S. trade policy, tariff and import/export regulations may have a material adverse effect on our business.
These provisions may prevent a merger or acquisition of us which could limit the price investors would pay for our Common Stock in the future.
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.
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. As previously disclosed, material weaknesses in our internal control over financial reporting have been identified, which have not been remediated.
The protection of employee and company data in the information technology systems we utilize (including those maintained by third-party providers) is critical. Despite the efforts by us to secure computer networks utilized for our business, security could be compromised, confidential information, such as Company information assets and personally identifiable employee information, could be misappropriated, or system disruptions could occur.
Despite the efforts by us to secure computer networks utilized for our business, security could be compromised, confidential information, such as Company information assets and personally identifiable employee information, could be misappropriated, or system disruptions could occur, and there can be no assurance that our cybersecurity risk management program and processes, including our policies, controls or procedures, will be fully implemented, complied with or effective in protecting our systems and information.
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.
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.
In addition, the conversion price of the Convertible Preferred Stock may be adjusted in connection with certain dilutive events, including in the event of subsequent equity offerings at a price below the current conversion price. These rights could adversely impact the Company’s access to equity capital, and otherwise compound the dilutive effects of future equity raises by the Company.
These rights could adversely impact the Company’s access to equity capital, and otherwise compound the dilutive effects of future equity raises by the Company.
Removed
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.
Added
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. Risk Factor Summary Our business is subject to numerous risks and uncertainties, including those highlighted in this section titled “Risk Factors” and summarized below.
Removed
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.
Added
We have various categories of risks, including risks related to our business and operations, risks related to ownership of our Common Stock, and general risks, which are discussed more fully below.
Removed
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.
Added
As a result, this risk factor summary does not contain all of the information that may be important to you, and you should read this risk factor summary together with the more detailed discussion of risks and uncertainties set forth following this summary, as well as elsewhere in this Annual Report on Form 10-K.
Removed
If Nasdaq declines our request, or our appeal is unsuccessful our Common Stock will be delisted on Nasdaq, which could negatively impact our Company and holders of our Common Stock, including by reducing the willingness of investors to hold our Common Stock because of the resulting decreased price, liquidity and trading of our Common Stock, limited availability of price quotations and reduced news and analyst coverage.
Added
These risks include, but are not limited to, the following: • We have identified material weaknesses in our internal control over financial reporting, which if not remediated, could adversely affect our business. • 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 have limited capital and will need to raise additional capital in the immediate future. • Our failure to timely file certain periodic reports with the SEC and our prior restatements have had, and may in the future have further, material adverse consequences to our business, our financial condition, results of operations and our cash flows. • A significant portion of our revenue has been concentrated on a few large customers, including Alcon, one of our primary lenders.
Removed
Delisting may adversely impact the perception of our financial condition, cause reputational harm with investors, our employees and parties conducting business with us and limit our access to debt and equity financing.
Added
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. 5 Table of Contents • Actions of activist stockholders could be disruptive and costly, and the possibility that activist stockholders may seek changes that conflict with our strategic direction could cause uncertainty about the strategic direction of our business. • Our sale of some products may expose us to product liability claims. • We are subject to increasing competition in the marketplace. • If we are unable to secure contract manufacturers with capabilities to produce the products that we require, our CDMO services are highly complex and failure to provide quality and timely services to our CDMO customers, could adversely impact our business. • We may be adversely impacted by the terms of our refinancing transactions with Alcon and by Alcon’s concentrated relationship with us as a significant customer of ours and as our lender. • Our operations are subject to regulations that directly impact our business. • 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. • We may not be able to achieve acceptance of our new products in the marketplace. • We have a concentration of manufacturing and may have to depend on third parties to manufacture our products. • Potential indemnification obligations related to divestitures made in connection with the sale transactions related to Project SWIFT 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. • Our profitability is dependent upon our ability to obtain appropriate pricing for our products and to control our cost structure. • We depend on our infrastructure to have sufficient capacity to handle our on-going production needs. • We depend on strategic partners and licenses for future development. • Any new business acquisition will involve uncertainty relating to integration. • Our future operating results are likely to fluctuate which may cause our stock price to decline. • Our stock price may fluctuate in response to various conditions, many of which are beyond our control. • Our Convertible Preferred Stock has rights, preferences, and privileges that are not held by, and are preferential to, the rights of holders of our Common Stock. • We have never paid any dividends on our Common Stock. • Our corporate organizational documents and Delaware law have anti-takeover provisions that may inhibit or prohibit a takeover of us and the replacement or removal of our management. • Our business and operations could be negatively affected if it becomes subject to any securities litigation or stockholder activism, which could cause us to incur significant expense, hinder execution of business and growth strategy and impact its stock price. • Our Common Stock may be delisted from Nasdaq, which could significantly adversely affect us, our business, and the value and liquidity of our Common Stock. • Changes to U.S. trade policy, tariff and import/export regulations may have a material adverse effect on our business. • We may be exposed to employment-related claims and costs that could materially adversely affect our business. • We may be subject to unionization, work stoppages, slowdowns or increased labor costs. • 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. • Our reputation and business may be harmed if our computer network security or any of the databases containing our trade secrets, proprietary information or the personal information of our employees, or those of third parties, are compromised. • 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 have access to certain intellectual property and information of our customers and suppliers, and failure to protect that intellectual property or information could adversely affect our future growth and success. • The global economy is experiencing continued volatility, which may have an adverse effect on our business. • Litigation costs and the outcome of litigation could have a material adverse effect on our business. • Increasing attention to Environmental, Social, and Governance (“ESG”) matters may impact our business, financial results or stock price.
Removed
If our Common Stock is delisted from Nasdaq and is traded on the over-the-counter market, the application of the “penny stock” rules could adversely affect the market price of our Common Stock and increase the transaction costs to sell those shares.
Added
Management assessed the effectiveness of our internal control over financial reporting as of May 26, 2024. In making this assessment, we identified deficiencies in the internal control over financial reporting that aggregated to material weaknesses in certain components of the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) framework.
Removed
Any of these actions could have a material adverse consequence on our business, operations, and the value of our securities. 8 Table of Contents Our failure to timely file these periodic reports with the SEC have also had other adverse consequences for the Company, including reputational harm with customers, difficulties in attracting and retaining employees, accruing penalty fees with our Series A holders, and could have an adverse impact on our reputation, impact our ability to comply with our reporting requirements in connection with our covenants under our credit agreements and our ability to raise capital, and may subject us to enforcement actions by the SEC and stockholder lawsuits.
Added
As a result, our control activities were ineffective and represent a material weakness.
Removed
While we cannot predict the duration or outcome of this matter at this time, it could lead to adverse consequences for the Company, including additional costs and expenses, distractions for management and reputational harm. Our previously announced strategic review process may not result in any future strategic transactions.
Added
Additionally, material errors in the Company's financial statements were identified in the 2023 Annual Report, primarily relating to the areas of inventory valuation, the capitalization of interest on assets under construction, recording of development revenue and related cost of sales, the presentation of certain operating costs and expenses of continuing operations and discontinued operations, and the write off of other receivables of the Company’s former Curation Foods businesses that were not collectible prior to the fiscal year periods presented in the consolidated financial statements.
Removed
In March 2023, we publicly announced our intent to initiate a process to evaluate our potential strategic alternatives to maximize value for stockholders. There can be no assurance that this strategic review process will result in us pursuing a transaction or that any transaction, if pursued, will be completed on attractive terms, or at all.
Added
The material weaknesses and the remediation thereof have caused, and are expected in the future to cause, us to incur significant accounting, legal, and other advisory costs and expenses, and substantial time from our management time and employees.
Removed
If we do not pursue such a transaction, or announce the conclusion of our strategic review process, it may adversely impact our reputation or our stock price. A significant portion of our revenue has been concentrated on a few large customers.
Added
We anticipate the need to raise additional capital to execute on our strategies for growth and to fund our significant capital expenditures. We may be unable to obtain additional capital when required or on favorable terms.
Added
Future capital expenditures, including the installation of our fillers, our exploration, development, production and marketing activities, as well as our administrative requirements (such as salaries, insurance expenses and general overhead expenses, as well as legal compliance costs and accounting expenses) have required, and are anticipated to continue to require, a substantial amount of additional capital and cash flow.
Added
In addition, the Revolving Credit Facility matures on December 31, 2025, which, if not extended, will need to be refinanced. We may pursue sources of additional capital through various financing transactions or arrangements, including equity financing, collaboration, strategic alliances or licensing arrangements, debt financing or other means.
Added
We may not be successful in identifying suitable financing transactions in the time period required or at all, and we may not obtain the capital we require by other means.
Added
If we do not succeed in raising additional capital, our resources may not be sufficient to fund our growth strategies and budgeted capital expenditures, which could have significant adverse impacts on our business, financial condition, results of operations, and cash flows.
Added
In addition, if we do not succeed in raising additional capital in the near-term, we may determine in subsequent periods that substantial doubt exists as to our ability to continue as a going concern for the year following the reporting of our financial statements for such period, which management must assess in connection with the issuance of its financial statements for each period based on the events and conditions at that time (including any significant indebtedness that may become due during that year, such as the Revolving Credit Facility, as noted above).

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Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed1 unchanged
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.
Biggest changeProperties As of May 26, 2024, the Company owned or leased the following principle physical properties: Location Ownership Facilities Chaska, MN Owned 148,200 square feet of office, laboratory and manufacturing space Chaska, MN Leased 80,950 square feet of office, manufacturing and warehouse space Chanhassen, MN Leased 21,384 square feet of warehouse and office space Leases for these leased facilities expire at various dates through the year 2033.
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.
All of our owned real property is subject to liens in favor of the lenders under our 2020 credit agreement, as amended, 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

3 edited+6 added−2 removed0 unchanged
Biggest changeThe 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.
Biggest changeThe 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.
Since certain holders are listed under their brokerage firm’s names, the actual number of stockholders is higher. Dividends The Company has not paid any dividends on the Common Stock since its inception.
Holders As of August 23, 2024, there were approximately 46 holders of record of our Common Stock. Since certain holders are listed under their brokerage firm’s names, the actual number of stockholders is higher. Dividends The Company has not paid any dividends on the Common Stock since its inception.
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.
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”.
Removed
The 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.
Added
Performance graph The following graph shows a comparison of cumulative total shareholder return, calculated on a dividend-reinvested basis, for (1) the Company’s common stock, (2) the NASDAQ Composite and (3) the Russell 2000 Index, for the period from June 30, 2019 through June 30, 2024.
Removed
Recent Sales of Unregistered Equity Securities The Company did not sell any unregistered equity securities during the three months ended May 28, 2023.
Added
The graph assumes the value of the investment in our common stock and each index was $100 on June 30, 2019 and that all dividends were reinvested. The graph plots the value of the initial $100 investment at annual intervals for the years shown.
Added
We have not paid any cash dividends and, therefore, the cumulative total return calculation for us is based solely upon stock price appreciation and not upon reinvestment of cash dividends. Historic stock price performance is not necessarily indicative of future stock price performance. Index Data: Copyright NASDAQ OMX, Inc. Used with permission. All rights reserved. Index Data: Copyright Russell Investments.
Added
Used with permission. All rights reserved. The graph is furnished and shall not be deemed “filed” with the SEC or subject to Section 18 of the Exchange Act, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Added
Recent Sales of Unregistered Equity Securities During the year ended May 26, 2024 issued a restricted stock unit (“RSU”) award with respect to 525,000 shares of its common stock and a performance stock unit (“PSU”) award for up to 1,500,000 shares of its common stock to Paul Josephs under 23 Table of Contents the Company’s Equity Inducement Plan adopted on March 20, 2024 (the “Inducement Plan”).
Added
The RSU award and PSU award were granted in reliance upon the exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). The securities have not been registered under the Securities Act, and may not be offered or sold without registration or an applicable exemption from registration requirements.

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 May 28, 2023 May 29, 2022 May 30, 2021 Net loss $ (99,563) $ (116,715) $ (32,294) Interest expense, net of interest income 17,581 15,470 8,885 Income tax provision (benefit) 308 (5,211) (6,350) Depreciation and amortization 10,315 7,136 5,349 Total EBITDA $ (71,359) $ (99,320) $ (24,410) Restructuring and other non-recurring charges (1) 19,529 15,885 29,643 Loss on debt extinguishment 23,741 — 1,110 Loss from discontinued operations, net of tax (2) 35,327 101,239 8,857 Total adjusted EBITDA - Consolidated $ 7,238 $ 17,804 $ 15,200 (1) 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.
Biggest change(In thousands, except percentages) Year Ended May 26, 2024 May 28, 2023 May 29, 2022 Net income (loss) $ 12,013 $ (99,563) $ (116,715) Interest Expense, net of interest income 18,090 17,581 15,470 Provision for income tax expense (benefit) 183 308 (5,211) Depreciation and amortization on property and equipment 7,954 10,315 7,136 Total EBITDA $ 38,240 $ (71,359) $ (99,320) Restructuring costs 1,656 4,184 8,359 Reorganization costs (1) 9,796 15,949 7,526 Change in fair value of debt derivative liability, related party (39,500) — — Financing fees (non-interest) 3,513 788 — Contract cancellation and other costs 567 716 — Loss on debt extinguishment — 23,741 — Start-up costs 1,684 — — Franchise tax equivalent to income tax 272 241 — Stockholder activist settlement 459 — — Gain on sale of divested business — (2,108) — (Income) loss from discontinued operations, net of taxes (2,682) 35,327 101,239 Stock-based Compensation 6,201 3,612 2,608 Total adjusted EBITDA - Consolidated $ 20,206 $ 11,091 $ 20,412 (1) Reorganization costs mainly relate to activities in connection with the approved restructuring plan. a.
The Revolving Credit Facility is, and the Prior Term Loan Facility was, guaranteed, and secured by, substantially all of the Company’s and the Company’s direct and indirect subsidiaries’ assets. In April 2022, the Company amended the Credit Facilities to make available an additional $20.0 million of term debt that had been previously repaid.
The Revolving Credit Facility is, and the Prior Term Loan Facility was, guaranteed, and secured by, substantially all of the Company’s and the Company’s direct and indirect subsidiaries’ assets. In April 2022, the Company amended the Prior Credit Facilities to make available an additional $20.0 million of term debt that had been previously repaid.
The Revolving Loan Amendment provides for, among other things, (i) a waiver of all known existing defaults under the Revolving Credit Agreement as of the date of the Revolving Loan Amendment, (ii) the reduction of the maximum amount available under the Revolving Credit Agreement to up to the lesser of (x) $40.0 million, less a reserve for certain secured credit products, if any, and (y) the borrowing base (which, pursuant to the Revolving Loan Amendment, was modified to include a further reduction of the borrowing base by an additional $4.0 million), (iii) the modification of the springing minimum fixed charge coverage ratio of 1.00 to 1.00, with such covenant not tested until the fiscal quarter ending on or about February 28, 2024 and, on or thereafter, upon the earlier of the occurrence of an Event of Default or availability being less than the greater of 10% of the maximum borrowing amount and $4.0 million,, (iv) cash dominion at all times the Revolving Credit Facility remains outstanding, and (v) certain other revisions to align with the terms of the New Term Loan Credit Facility and address the relative priorities and credit for borrowings related to the Company’s commercial relationships with Alcon.
The Revolving Loan Amendment provides for, among other things, (i) a waiver of all known existing defaults under a revolving credit agreement as of the date of the Revolving Loan Amendment, (ii) the reduction of the maximum amount available under a revolving credit agreement to up to the lesser of (x) $40.0 million, less a reserve for certain secured credit products, if any, and (y) the borrowing base (which, pursuant to the Revolving Loan Amendment, was modified to include a further reduction of the borrowing base by an additional $4.0 million), (iii) the modification of the springing minimum fixed charge coverage ratio of 1.00 to 1.00, with such covenant not tested until the fiscal quarter ending on or about February 28, 2024 and, on or thereafter, upon the earlier of the occurrence of an event of default or availability being less than the greater of 10% of the maximum borrowing amount and $4.0 million, (iv) cash dominion at all times the Revolving Credit Facility remains outstanding, and (v) certain other revisions to align with the terms of the New Term Loan Credit Facility and address the relative priorities and credit for borrowings related to the Company’s commercial relationships with Alcon.
On January 9, 2023, the Company entered into further amendments to the Credit Facilities to, among other things, provide for the limited waiver from events of default under the Credit Facilities related to certain financial covenant requirements, as well as a waiver of certain existing terms and covenants under the Prior Term Loan Facility, including with respect to the fixed coverage charge ratio, leverage ratio and minimum liquidity covenants, 2% increase of annual interest rate, which was payable in kind, and a one-time amendment fee in an amount equal to 3% of the principal amount as of January 9, 2023 .
On January 9, 2023, the Company entered into further amendments to the Prior Credit Facilities to, among other things, provide for the limited waiver from events of default under the Prior Credit Facilities related to certain financial covenant requirements, as well as a waiver of certain existing terms and covenants under the Prior Term Loan Facility, including with respect to the fixed coverage ratio leverage ratio and minimum liquidity covenants, 2% increase of annual interest rate, which was payable in kind, and a one-time amendment fee in an amount equal to 3% of the principal amount as of January 9, 2023.
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.
The Prior Term Loan 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.
These uses of cash were partially offset by (1) a $20.0 million net decrease in working capital, (2) $0.6 million non-cash restructuring and impairment of assets charges, (3) $16.9 million of depreciation/amortization and stock-based compensation expense, (4) $20.7 million loss on sale of Yucatan and (5) $23.7 million loss on early debt extinguishment.
These uses of cash were partially offset by (1) a $20.0 million net decrease in working capital, (2) $0.6 million non-cash restructuring and impairment of assets charges, (3) $16.8 million of depreciation/amortization and stock-based compensation expense, (4) $20.7 million loss on sale of Yucatan and (5) $23.7 million loss on early debt extinguishment.
With over 40 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 38 years of a superior track record with global regulatory bodies (FDA, EMA, ANVISA, etc.), Lifecore is the partner of choice for companies looking for proven experience in delivering QbD, cGMP compliance, and manufacturing excellence with pharmaceutical elegance and quality.
Further applications may involve expanding process development activity and/or additional licensing of technology. 20 Table of Contents Utilize manufacturing infrastructure to meet customer demand : Lifecore has made strategic capital investments in its CDMO business focusing on extending its aseptic filling capacity and capabilities to meet increasing partner demand and to attract new contract filling opportunities outside of HA markets.
Further applications may involve expanding process development activity and/or additional licensing of technology. Utilize manufacturing infrastructure to meet customer demand : Lifecore has made strategic capital investments in its CDMO business focusing on extending its aseptic filling capacity and capabilities to meet increasing partner demand and to attract new contract filling opportunities outside of HA markets.
The Equipment Sale Leaseback Agreement contains an option for the Company to repurchase the Equipment upon the earlier of (i) seven (7) years and (ii) the expansion of the Company’s existing 31 Table of Contents production capacity with respect to sodium hyaluronate, for a purchase price equal to the Purchase Price, less the aggregate of all Paydown Payments (as defined in the Equipment Lease Agreement).
The Equipment Sale Leaseback Agreement contains an option for the Company to repurchase the Equipment upon the earlier of (i) seven (7) years and (ii) the expansion of the Company’s existing production capacity with respect to sodium hyaluronate, for a purchase price equal to the Purchase Price, less the aggregate of all Paydown Payments (as defined in the Equipment Lease Agreement).
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.
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.
Lifecore’s role in these relationships extends from supplying HA raw materials to providing technology transfer and development services to manufacturing aseptically filled, finished sterile products, and assuming full supply chain responsibilities. Deliver consistent quality: Lifecore has built a world class quality and regulatory system that is demonstrated in its results, processes and customer relationships.
Lifecore’s role in these relationships extends from supplying HA raw 24 Table of Contents materials to providing technology transfer and development services to manufacturing aseptically filled, finished sterile products, and assuming full supply chain responsibilities. Deliver consistent quality: Lifecore has built a world class quality and regulatory system that is demonstrated in its results, processes and customer relationships.
Interest is payable-in-kind until the third anniversary of the closing date and following the third anniversary of the closing date is payable at a rate equal to 3% per annum in cash with the remainder payable-in-kind, in each case, unless otherwise elected by the Borrowers to pay a greater proportion in cash.
Interest is payable-in-kind until the third anniversary of the closing date and following the third anniversary of the closing date is payable at 31 Table of Contents a rate equal to 3% per annum in cash with the remainder payable-in-kind, in each case, unless otherwise elected by the Borrowers to pay a greater proportion in cash.
Cash Flows from Financing Activities Net cash provided by financing activities during fiscal year 2023 was $39.7 million, primarily due to (1) $150.0 million proceeds from long-term debt, (2) $38.1 million proceeds from sale of preferred stock and (3) $4.8 million proceeds from sale of Common Stock, partially offset by (1) $123.7 million of payments on long-term debt, (2) $23.2 million net draw down on the Company’s line of credit and (3) $6.1 million of payments for debt issuance costs.
Net cash provided by financing activities during fiscal year 2023 was $39.7 million, primarily due to (1) $0.0 million proceeds from long-term debt, (2) $38.1 million proceeds from sale of preferred stock and (3) $4.8 million proceeds from sale of Common Stock, partially offset by (1) $123.7 million of payments on long-term debt, (2) $31.5 million net draw down on the Company’s line of credit and (3) $6.1 million of payments for debt issuance costs.
In connection with the January 2023 amendments to the Credit Facilities, the Company incurred debt issuance costs from the lender and third parties of $4.2 million (comprised of $1.1 million in cash and $3.1 million paid-in-kind) and $62.5 thousand, respectively, during the year ended May 28, 2023.
In connection with the January 2023 amendments to the Prior Credit Facilities, the Company incurred debt issuance costs from the lender and third parties of $4.2 million (comprised of $1.1 million in cash and $3.1 million PIK) and $62.5 thousand, respectively, during the year ended May 28, 2023.
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.
Lifecore’s standard payment terms with its customers generally range from 30 days to 60 days. CDMO - Aseptic Lifecore provides aseptic formulation and filling of syringes, vials and cartridges with precisely formulated medical grade HA and non-HA materials for injectable products used for medical purposes.
Amendment to Revolving Credit Facility On May 22, 2023, the Borrowers and certain of the Company’s other subsidiaries, as guarantors, entered into a Limited Waiver, Consent and Fifth Amendment (the “Revolving Loan Amendment”) to the Revolving Credit Facility.
Amendment to Revolving Credit Facility On May 22, 2023, the Borrowers and certain of the Company’s other subsidiaries, as guarantors, entered into a Limited Waiver, Consent and Fifth Amendment (the “Revolving Loan Amendment”) to the credit agreement with BMO, as lender (the “Revolving Credit Facility”).
In instances where our customers contract with us to aseptically fill syringes or vials with our HA, the goods are not distinct in the context of the contract.
In instances where our customers contract with us to aseptically fill syringes, vials and cartridges with our HA, the goods are distinct in the context of the contract.
In connection with the New Term Loan Credit Facility, the Company recorded a loss on debt extinguishment in the Consolidated Statements of Operations amounting to $23.7 million, comprised of a prepayment penalty of $12.9 million, write-off unamortized deferred financing fees related to the Prior Term Loan Credit Facility of $7.5 million and third-party fees of $3.3 million.
In connection with the New Term Loan Credit Facility, the Company recorded a loss on debt extinguishment in the consolidated statement of operations for the year ended May 28, 2023, amounting to $23.7 million, comprised of a prepayment penalty of $12.9 million, write-off unamortized deferred financing fees related to the Prior Term Loan Facility of $7.6 million and third-party fees of $3.3 million.
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.
Gain on sale of Divested Businesses On June 2, 2022, the Company and Curation Foods entered into an asset purchase agreement and consummated the transactions contemplated thereby, 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.
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.
Critical Accounting Estimates Use of Estimates The preparation of financial statements in conformity with 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.
These estimates involve the consideration of complex factors and require management to make judgments. The analysis of historical and future trends can require extended periods of time to resolve, and are subject to change from period to period. The actual results may differ from management’s estimates.
These estimates involve the consideration of complex factors and require management to make judgments. The analysis of historical and future trends can require extended periods of time to resolve, and are subject to change from period to period. The actual results may differ from management’s estimates. Our accounting policies are more fully described in “Part IV, Item 15.
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.
Corporate Overview The Company is a fully integrated CDMO that offers highly differentiated capabilities in the development, fill and finish of complex sterile injectable pharmaceutical products in syringes and vials.
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.
The accounting estimates that require management’s most significant and subjective judgments include revenue recognition; 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 of debt derivatives liability, and the valuation of performance share units.
Significant Events During Fiscal Year 2023 Loss on Debt Extinguishment On May 22, 2023, the Company entered into the New Term Loan Credit Facility (as defined below) with Alcon. The proceeds of this New Term Loan Credit Facility were used to repay the Prior Term Loan Facility in its entirety.
Loss on Debt Extinguishment On May 22, 2023, the Company Curation and Lifecore Biomedical Operating Company, Inc. (together with the Company and Curation, the “Borrowers”) entered into the New Term Loan Credit Facility (as defined below) with Alcon. The proceeds of this New Term Loan Credit Facility were used to repay the Prior Term Loan Facility in its entirety.
Our accounting policies are more fully described in Note 1 – Organization, Basis of Presentation, and Summary of Significant Accounting Policies to our consolidated financial statements. Management has discussed the development and selection of these critical accounting policies and estimates with our Board of Directors.
Note 1 – Organization, Basis of Presentation, and Summary of Significant Accounting Policies”. Management has discussed the development and selection of these critical accounting policies and estimates with our Board of Directors.
In connection with the entry into the Revolving Loan Amendment, the Company recorded $1.2 million of debt origination costs. BMO and Alcon also entered into an intercreditor agreement regarding their relative rights, as lenders, in the assets of the Company and its subsidiaries that serve as collateral for their respective credit facilities (the “Intercreditor Agreement”).
BMO and Alcon also entered into an intercreditor agreement regarding their relative rights, as lenders, in the assets of the Company and its subsidiaries that serve as collateral for their respective credit facilities (the “Intercreditor Agreement”).
Capital Expenditures The Company incurred $21.5 million of capital expenditures during fiscal year 2023, which was primarily represented by facility expansions and purchased equipment to support the growth of the Lifecore business.
Capital Expenditures The Company incurred $17.9 million and $21.5 million of capital expenditures during fiscal years 2024 and 2023, respectively, which was primarily represented by facility expansions and purchased equipment to support the growth of the Lifecore business. The decrease in capital expenditures from fiscal year 2023 to 2024 was due to the planned decrease in capital project spending.
This amendment also reduced the maximum commitment under the Revolving Credit Facility from $75.0 million to $60.0 million, which was further reduced to $40.0 million upon the sale of Yucatan.
This amendment also reduced the maximum commitment under the Revolving Credit Facility from $75.0 million to $60.0 million, which was further reduced to $40.0 million upon the sale of Yucatan. The Prior Term Loan Facility would have matured on December 31, 2025. The Revolving Credit Facility matures on December 31, 2025.
The New Term Loan Credit Facility contains one financial covenant, a minimum liquidity covenant, requiring $4.0 million of Consolidated Liquidity (as defined in the New Term Loan Credit Facility) as of the end of each fiscal quarter of the Company.
The New Term Loan Credit Facility contains one financial covenant, a minimum liquidity covenant, requiring $4.0 million of Consolidated Liquidity (as defined in the Term Loan Credit Facility) as of May 28, 2023 and as of the end of the first, second and third fiscal quarters of 2024 of the Company.
Under this approach, which requires significant judgments, the Company estimates the future cash flows of each reporting unit and discounts these cash flows at a rate of return that reflects their relative risk.
The income approach is a discounted cash flow (“DCF”) method which requires significant judgments. The Company estimates the future cash flows and discounts these cash flows at a rate of return that reflects their relative risk.
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.
Upon the sale, the Company recorded a gain of $2.1 million. Restructuring Costs Beginning in 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.
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.
As a leading manufacturer of premium, injectable grade 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.
Alcon is only entitled to cancel the Equipment Lease Agreement in the event of insolvency, liquidation or bankruptcy, and its remedies for other breaches of the Equipment Lease Agreement are otherwise limited to monetary damages. Purchase Commitments Subsequent to the sale of Yucatan and O Olive during fiscal year 2023, the Company no longer has future purchase commitments.
Alcon is only entitled to cancel the Equipment Lease Agreement in the event of insolvency, liquidation or bankruptcy, and its remedies for other breaches of the Equipment Lease Agreement are otherwise limited to monetary damages.
Lifecore recognizes revenue for these products at the point in time when legal title to the product is transferred to the customer, which is at the time that shipment is made or upon delivery of the product to our customer.
Lifecore recognizes revenue for these products at the point in time when legal title to the product is transferred to the customer, which is at the time that shipment is made or upon delivery of the product to our customer. During the fourth fiscal quarter of fiscal years 2024 and 2023, we entered into a bill-and-hold arrangement with a customer.
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.
These services include activities such as technology development, material component changes, analytical method development, formulation development, pilot studies, stability studies, process validation, production of proprietary materials for use within clinical studies and the transfer of proprietary process documentation and results of validation to the customers.
The New Term Loan Credit Facility refinanced in full all obligations of the Borrowers and their subsidiaries under the Prior Term Loan Credit Facility, which was terminated upon the entry into the New Term Loan Credit Facility and all noncompliance with debt covenants was thereby cured. 30 Table of Contents The New Term Loan Credit Facility provides for up to $142.3 million in term loans, subject to certain adjustments based on the post-closing adjustments to the Purchase Price (as defined in the Equipment Sale and Leaseback Agreement, defined below), which were funded in full on May 22, 2023.
The Term Loan Credit Facility provides for up to $142.3 million in term loans, subject to certain adjustments based on the post-closing adjustments to the Purchase Price (as defined in the Equipment Sale and Leaseback Agreement, defined below), which were funded in full on May 22, 2023.
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.
The decrease in the effective tax rate for fiscal year 2023 was primarily due to a significant valuation allowance increase and the impairment of Yucatan Foods, LLC (“Yucatan”) goodwill. 27 Table of Contents Non-GAAP Financial Information and Reconciliations EBITDA and Consolidated adjusted EBITDA are non-GAAP financial measures.
Operating Expenses: (In thousands, except percentages) Year Ended Change May 28, 2023 May 29, 2022 Amount % As Restated Research and Development $ 8,736 $ 7,839 $ 897 11% Selling, general and administrative 38,969 34,659 4,310 12% Gain on sale of BreatheWay (2,108) — (2,108) 100% Restructuring costs 4,184 8,359 (4,175) (50)% Total Operating Expenses $ 49,781 $ 50,857 $ (1,076) (2)% Research and Development ( “ R&D ” ) R&D expenses consist primarily of product development and commercialization initiatives.
Operating Expenses: (In thousands, except percentages) Year Ended Change May 26, 2024 May 28, 2023 Amount % Research and Development $ 8,575 $ 8,736 $ (161) (2)% Selling, general and administrative 40,463 38,969 1,494 4% Gain on sale of divested business — (2,108) 2,108 100% Restructuring costs 1,656 4,184 (2,528) (60)% Total Operating Expenses $ 50,694 $ 49,781 $ 913 2% Research and Development ( “ R&D ” ) R&D expenses consist primarily of product development and commercialization initiatives.
In fiscal year 2023, the Company earned $0.3 million of transition services income related to transition services provided to Flagship related to the Yucatan disposition and provided to Hazel Technologies related to the BreatheWay disposition.
Transition Services Income In fiscal year 2023, the Company earned $0.3 million of transition services income related to the BreatheWay Disposition. No such transition services income was present during fiscal year 2024.
Loss on Debt Extinguishment The loss on debt extinguishment of $23.7 million in fiscal year 2023 was due to the New Term Loan Facility with Alcon entered into in May 2023, including the $12.9 million prepayment fee to Goldman Sachs, the prior lender, write-off unamortized 24 Table of Contents deferred financing fees related to the Prior Term Loan Credit Facility of $7.5 million and third-party fees of $3.3 million.
Loss on Debt Extinguishment The loss on debt extinguishment of $23.7 million in fiscal year 2023 was due to the New Term Loan Credit Facility with Alcon entered into in May 2023, including the $12.9 million prepayment fee to Goldman Sachs Specialty Lending Group, L.P.
These non-GAAP financial measures should be read in conjunction with the Company’s consolidated financial statements presented in accordance with GAAP. The table below includes reconciliations of these non-GAAP financial measures to their respective most directly comparable financial measures calculated in accordance with GAAP.
The table below includes reconciliations of these non-GAAP financial measures to their respective most directly comparable financial measures calculated in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”).
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.
Cash Flows from Operating Activities Net cash provided by operating activities during fiscal year 2024 was $0.2 million compared to $17.4 million of net cash used during fiscal year 2023.
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.
A goodwill impairment loss is recognized for the amount that the carrying amount of a reporting unit, including goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit. 35 Table of Contents To determine the fair value of a reporting unit as part of its quantitative test, the Company considers both the market and 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.
R&D expenses 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. The decrease in R&D expenses for fiscal year 2024 compared to fiscal year 2023 was not significant.
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.
The Company brings more than 40 years of expertise as a partner for global and emerging biopharmaceutical and biotechnology companies across multiple therapeutic categories to bring their innovations to market.
(“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”).
Prior Term Loan Facility 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 and Guggenheim Credit Services, LLC, 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 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 30 Table of Contents Loan Facility, the “Prior Credit Facilities”).
Cash Flows from Investing Activities Net cash used in investing activities during fiscal year 2023 was $4.8 million, primarily due to the receipt of $11.8 million, $3.1 million and $1.7 million related to the Yucatan Disposition, BreatheWay Disposition and O Olive Sale, respectively, offset by the purchase of $21.5 million of equipment to support the growth of the Company’s Lifecore business.
Cash Flows from Investing Activities Net cash used in investing activities during fiscal year 2024 was $17.9 million, due to the purchase of equipment to support the growth of the business in line with the planned capital project spending. 29 Table of Contents Net cash used in investing activities during fiscal year 2023 was $4.8 million, primarily due to $21.5 million of purchases of equipment to support the growth of the business, offset by $16.7 million of proceeds from the sale of divested business.
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. Strategy Lifecore is an FDA-approved CDMO business, which is focused on driving profitable growth with product development and manufacturing of sterile injectable products.
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. Reportable Segments The Company operates in one reportable segment: Lifecore, which is described in further detail below.
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.
The content of any website referred to in this document is not incorporated by reference into this document. Year Ended May 26, 2024 Compared to May 28, 2023 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.
During the fourth fiscal quarter, we entered into a bill-and-hold arrangement with a customer under which $3.2 million of product sales were recognized in the year ended May 28, 2023. Revenue for bill-and-hold arrangements is recognized when control transfers to the customer, even though the customer does not have physical possession of the goods.
Revenue for bill-and-hold arrangements is recognized when control transfers to the customer, even though the customer does not have physical possession of the goods.
Lifecore recognizes revenue for these products at the point in time when legal title to the product is transferred to the customer, which is at the time that shipment is made or upon delivery of the product. Development Services Lifecore provides product development services to assist its customers in obtaining regulatory approval for the commercial sale of their drug product.
CDMO - Development Services Lifecore provides product development services to assist its customers in obtaining regulatory approval for the commercial sale of their drug product.
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.
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.
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.
Income Tax (Provision) Benefit The effective tax rate for fiscal year 2024 changed from a tax provision expense of 0.48% to a tax provision expense of 1.93% in comparison to fiscal year 2023.
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.
Potential risks and uncertainties include, without limitation, those mentioned in this report and, in particular, the factors described in “Part I, Item 1A. Risk Factors”. Please see “Cautionary Note About Forward-Looking Statements”.
The Company recorded $4.2 million and $8.4 million during the years ended May 28, 2023 and May 29, 2022, 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. The Company recorded $1.7 million and $4.2 million during the years ended May 26, 2024 and May 28, 2023, respectively, related to the restructuring plan.
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.
The primary factors for the $3.8 million overall net cash used related to operating working capital during fiscal year 2024 was (1) cash sources related to an $0.3 million increase in other accrued liabilities, (2) a $2.4 million decrease in prepaid expenses and other assets, and (3) a $1.4 million increase in accrued compensation, (4) a $0.9 million decrease in inventories, offset by (1) cash uses related to a $2.4 million increase in accounts receivable driven by timing of customer payments, (2) a decrease in accounts payable of $6.7 million related to the timing of payments, and (3) $0.1 million for a decrease in deferred revenue.
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.
Restructuring costs for the year ended May 26, 2024 decreased $2.5 million compared to the prior year period due as a result of the restructuring 26 Table of Contents plan to divest the Curation Foods businesses being substantially complete. Refer to “Part IV, Item 15. Note 10 - Restructuring Costs” in the notes for more information.
The primary sources of net cash provided by operating activities during fiscal year 2021 were (1) a $9.8 million decrease in working capital, (2) $23.2 million of depreciation/amortization and stock-based compensation expense, (3) $11.5 million change in the fair value of investment in non-public company, (4) $10.1 million of loss on disposal of property and equipment, related to restructuring, (5) $1.1 million of loss on early debt extinguishment, and (6) $0.9 million provision for expected credit losses.
The primary impact to net cash from operating activities during fiscal year 2024 were (1) $12.0 million of net income; (2) non-cash add backs of (i) $14.2 million on interest expense with a related party, (ii) $15.1 million of depreciation/amortization and stock-based compensation expense, and (iii) $1.4 million non-cash restructuring and impairment of assets charges; and (3) $3.8 million net increase in operating working capital.
There can be no assurance that additional funds, if required, will be available to the Company on favorable terms, if at all.
There can be no assurance that additional funds, if required, will be available to the Company on favorable terms, if at all. Debt As of May 26, 2024 and May 28, 2023, the Company had $157.3 million and $142.5 million in borrowings outstanding under the Term Loan Credit Facility, at an effective annual interest rate of 22.5%.
Other Income (Expenses): (In thousands, except percentages) Year Ended Change May 28, 2023 May 29, 2022 Amount % As Restated Interest Income $ 68 $ 81 $ (13) (16)% Interest Expense $ (17,649) $ (15,551) $ (2,098) 13% Transition Services Income $ 349 $ 5,814 $ (5,465) (94)% Loss on Debt Extinguishment $ (23,741) $ — $ (23,741) (100)% Other (Expense) Income, net $ (1,159) $ 760 $ (1,919) N/M Income Tax (Provision) Benefit $ (308) $ 5,211 $ (5,519) N/M Interest Income The decrease in interest income in fiscal year 2023 compared to fiscal year 2022 was not significant.
Other Income (Expenses): (In thousands, except percentages) Year Ended Change May 26, 2024 May 28, 2023 Amount % Interest expense, net $ (18,090) $ (17,581) $ (509) 3% Transition services income $ — $ 349 $ (349) (100)% Loss on debt extinguishment $ — $ (23,741) $ 23,741 (100)% Other (expense) income, net $ (3,052) $ (1,159) $ (1,893) 163% Change in fair value of debt derivative liability, related party $ 39,500 $ — $ 39,500 100% Provision for income tax (expense) benefit $ (183) $ (308) $ 125 (41)% Interest Expense, net The decrease in Interest Expense, net for fiscal year 2024 compared to fiscal year 2023 was primarily a result of fluctuations in the principal balance under the Company’s revolving credit facility.
(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.
Liquidity and Capital Resources As of May 26, 2024, the Company had cash and cash equivalents of $8.5 million, a net decrease of $10.6 million from $19.1 million at May 28, 2023.
Related to these continued activities: (a) In fiscal year 2023, the Company incurred (i) $6.5 million of restructuring and non-recurring charges, primarily related to legal costs, audit fees and transition costs from the Company’s corporate headquarters relocation and the Company’s transition to Lifecore Biomedical, (ii) $6.4 million in restructuring costs associated with financial advisor and legal fees related to management of the prior term loan lenders, (iii) $5.8 million non-recurring charges primarily related to consolidating and optimizing operations associated with Project SWIFT, and (iv) $0.8 million in non-recurring charges primary related to one-time expenses incurred in the Lifecore production process.
For fiscal year 2023, the Company incurred non-recurring charges primarily related to: (i) $6.3 million for financial advisor and legal fees related to management of the prior term loan lenders, (ii) $6.4 million of incremental audit and consulting fees specifically related to the audit of the numerous non-standard transactions that occurred in fiscal year 2022 associated with the sale of the Eat Smart business, (iii) and $3.2 million for litigation costs associated with the divested businesses, costs associated with maintaining abandoned facilities (including the prior headquarters) after the sale of the Yucatan and O Olive businesses, and incremental compensation and operating expenses for reorganization of the business. c.
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 decrease in the income tax expense for fiscal year 2024 was primarily due to a valuation allowance decrease of $5.8 million resulting from utilization of net operating loss deferred tax assets and by an increase in deferred tax liabilities for debt discount of $7.9 million.
Net cash used in investing activities for fiscal year 2021 was $3.4 million, as restated, primarily due to (1) $48.4 million net pay down on the Company’s revolving line of credit and (2) $10.5 million of debt issuance costs incurred to refinance the Company's term loan and revolving line of credit, partially offset by $55.9 million of net cash received from the increase in the Company’s refinanced term loan.
Cash Flows from Financing Activities Net cash provided by financing activities during fiscal year 2024 was $7.5 million, primarily due to (1) $149.6 million net proceeds from revolving credit facility, and (2) $0.7 million proceeds from exercise of options, partially offset by (1) $0.6 million of principal payments on equipment financing, (2) $0.2 million payments for debt issuance costs, (3) $0.1 million principal payments on finance leases, and (4) $0.2 million of taxes paid by Company for employee stock plans.
Refinancing Transactions New Term Loan Credit Facility On May 22, 2023, the Company, Curation and Lifecore Biomedical (together with the Company and Curation, the “Borrowers”), certain of the Company’s other subsidiaries, as guarantors, and Alcon Research, LLC (“Alcon”), as administrative agent, collateral agent and lender, entered into that certain Credit and Guaranty Agreement (the “New Term Loan Credit Facility”).
New Term Loan Credit Facility On May 22, 2023, the Company and Alcon entered into a Credit and Guaranty Agreement (the “Term Loan Credit Facility”). The Term Loan Credit Facility refinanced in full all obligations of the Company and their subsidiaries under its prior term loan credit facility.
(b) In fiscal year 2022, the Company incurred (i) $13.0 million of restructuring costs primarily related to consolidating and transitioning operations associated with Project SWIFT, (ii) $1.5 million in non-recurring charges primarily related to audit fees and transition costs from the Company’s corporate headquarters relocation and the Company’s transition to Lifecore Biomedical, and (iii) $1.4 million in non-recurring costs associated with financial advisor and legal fees related to litigation expenses.
For fiscal year 2022, the Company incurred non-recurring charges primarily related to: (i) $4.6 million net Transaction Services Agreement ("TSA") costs that will not recur upon exit from the TSA associated with the divested Eat Smart business, (ii) $1.5 million incremental compensation expenses related to reorganization of the business including costs associated with duplicative roles as the headquarters transitioned to Minnesota and consulting fees associated with the employee programs put in place as part of the headquarters transition and sale of the Eat Smart business, and (iii) and $1.4 million for litigation costs associated with the divested businesses.
(In thousands, except percentages) Year Ended Change May 28, 2023 May 29, 2022 Amount % As Restated Revenues $ 103,269 $ 111,270 $ (8,001) (7)% Gross Profit $ 27,985 $ 39,066 $ (11,081) (28)% The decrease in revenues for fiscal year 2023, compared to fiscal year 2022, was due to a $10.0 million decrease in CDMO sales primarily due to the timing of shipments and lower development revenue associated with a delay in onboarding new customers, partially offset by a $3.9 million increase in fermentation revenues due to increased demand.
(In thousands, except percentages) Year Ended Change May 26, 2024 May 28, 2023 Amount % Total Revenues $ 128,261 $ 103,269 $ 24,992 24% Gross Profit $ 41,850 $ 27,985 $ 13,865 50% The increase in revenues for fiscal year 2024, compared to fiscal year 2023, was due to (i) a $20.2 million increase in CDMO revenues consisting of a $9.9 million increase related to the launch of a new commercial product and a $10.3 million increase primarily due to increased order volume from existing customers; and (ii) a $4.8 million increase in fermentation revenues due to increased order volume from existing customers. 25 Table of Contents The increase in gross profit for fiscal year 2024 compared to fiscal year 2023 was primarily due to increased revenues resulting in a favorable volume variance of $6.8 million and a favorable sales mix and adjustments to write down inventories to their net realizable value in the comparable periods driving a favorable rate variance of $7.1 million.
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.
This is based on the objectives of the business and how our CODM, the President and Chief Executive Officer, regularly reviews and manages the business, monitors operating performance and allocates resources. Related Party Transactions For a discussion of significant related party transactions, refer to “Part IV, Item 15.
Removed
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.
Added
Note 1 - Organization, Basis of Presentation, and Summary of Significant Accounting Policies” elsewhere in this Annual Report on Form 10-K.
Removed
(“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.
Added
Results of Operations A discussion of changes in our results of operations and cash flows from fiscal year 2023 to fiscal year 2022 has been omitted from this Annual Report on Form 10-K, but may be found in “Part II, Item 7.
Removed
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.
Added
Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended May 28, 2023, filed with the SEC on March 20, 2024, which is available free of charge on the SEC’s website at www.sec.gov and at www.lifecore.com, by clicking “Investors” located at the top of the page.
Removed
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.
Added
Gross profit margin percentage increased from 27.1% to 32.6%.
Removed
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.
Added
The 553 basis points (“bps”) improvement is due to a 380 bps increase in CDMO gross profit margin percentage as a result of a favorable sales mix and increased customer pricing and a 189 bps increase primarily due to adjustments to write down inventories to their net realizable value in the comparable periods partially offset by a slight decrease of 16 bps in fermentation gross profit margin percentage.
Removed
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.
Added
The increase in SG&A expenses for fiscal year 2024 compared to fiscal year 2023 was primarily due to increases in non-cash stock-based compensation expense due to the higher mix of restricted stock units (“RSUs”) grants over stock options of $2.6 million, a non-cash right-of-use impairment for the Santa Maria building (a divested business office) of $1.4 million, partially off-set by a reduction in consulting fees of $0.9 million incurred in completing the year-end audit.

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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 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.
Biggest changeInterest 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 2.75%; (ii) SOFR FILO rate plus a spread of 4.25%; (ii) Base Rate plus a spread of 1.75%, or (iv) Base Rate FILO plus a spread of 3.25%, plus a commitment fee, as applicable of 0.375%.
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 Term Loan Facility is at a per annum rate of 10.0%. 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.
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.
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.
Removed
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%.

Other LFCR 10-K year-over-year comparisons