Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Quarter Ended August 28, 2022,February 26, 2023, or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period for _________ to _________.
Commission file number: 000-27446
LANDEC CORPORATIONLIFECORE BIOMEDICAL, INC.
(Exact name of registrant as specified in its charter)
Delaware94-3025618
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification Number)
2811 Airpark Drive3515 Lyman Boulevard
Santa Maria,Chaska,CaliforniaMinnesota9345555318
(Address of principal executive offices)(Zip Code)

(650) 306-1650(952) 368-4300
(Registrant'sRegistrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading SymbolName of each exchange on which registered
Common stock, par value $0.001 per shareLNDCLFCRThe NASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated Filer ☒Emerging Growth Company
Non Accelerated FilerSmaller Reporting Company ☐ 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No  ☒
As of October 3, 2022,May 26, 2023, there were 29,595,55430,322,169 shares of common stock outstanding.



Table of Contents

LANDEC CORPORATIONLIFECORE BIOMEDICAL, INC.
FORM 10-Q
For the Fiscal Quarter Ended August 28, 2022February 26, 2023

INDEX
Page

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LANDEC CORPORATIONLIFECORE BIOMEDICAL, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
August 28, 2022May 29, 2022February 26, 2023May 29, 2022
(unaudited)(unaudited)
ASSETSASSETSASSETS
Current Assets:Current Assets:Current Assets:
Cash and cash equivalentsCash and cash equivalents$4,222 $1,643 Cash and cash equivalents$2,950 $991 
Accounts receivable, less allowance for credit lossesAccounts receivable, less allowance for credit losses40,934 48,172 Accounts receivable, less allowance for credit losses32,371 40,094 
InventoriesInventories64,285 66,845 Inventories48,696 44,300 
Prepaid expenses and other current assetsPrepaid expenses and other current assets7,157 7,052 Prepaid expenses and other current assets4,422 5,183 
Current assets, discontinued operationsCurrent assets, discontinued operations— 33,144 
Total Current AssetsTotal Current Assets116,598 123,712 Total Current Assets88,439 123,712 
Property and equipment, netProperty and equipment, net129,024 130,435 Property and equipment, net120,799 115,031 
Operating lease right-of-use assetsOperating lease right-of-use assets8,229 8,580 Operating lease right-of-use assets5,924 6,519 
GoodwillGoodwill13,881 13,881 Goodwill13,881 13,881 
Trademarks/tradenames, netTrademarks/tradenames, net8,400 8,400 Trademarks/tradenames, net4,400 4,700 
Customer relationships, net6,875 7,150 
Other assets2,793 3,002 
Other non-current assetsOther non-current assets2,710 2,900 
Non-current assets, discontinued operationsNon-current assets, discontinued operations— 11,063 
Total AssetsTotal Assets$285,800 $295,160 Total Assets$236,153 $277,806 
LIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:Current Liabilities:Current Liabilities:
Accounts payableAccounts payable$16,366 $15,802 Accounts payable$14,762 $12,988 
Accrued compensationAccrued compensation6,373 9,238 Accrued compensation6,733 8,941 
Other accrued liabilitiesOther accrued liabilities7,832 7,647 Other accrued liabilities12,012 6,847 
Current portion of lease liabilitiesCurrent portion of lease liabilities5,021 5,026 Current portion of lease liabilities1,455 4,592 
Deferred revenueDeferred revenue803 919 Deferred revenue2,711 919 
Line of creditLine of credit44,000 40,000 Line of credit— 40,000 
Current portion of long-term debt, netCurrent portion of long-term debt, net2,704 599 Current portion of long-term debt, net— 98,178 
Current liabilities, discontinued operationsCurrent liabilities, discontinued operations— 4,345 
Total Current LiabilitiesTotal Current Liabilities83,099 79,231 Total Current Liabilities37,673 176,810 
Line of creditLine of credit16,000 — 
Long-term debt, netLong-term debt, net95,865 97,579 Long-term debt, net98,964 — 
Long-term lease liabilitiesLong-term lease liabilities9,447 9,983 Long-term lease liabilities10,516 8,356 
Deferred taxes, netDeferred taxes, net291 232 Deferred taxes, net80 126 
Other non-current liabilitiesOther non-current liabilities199 190 Other non-current liabilities203 190 
Non-current liabilities, discontinued operationsNon-current liabilities, discontinued operations— 1,627 
Total LiabilitiesTotal Liabilities188,901 187,215 Total Liabilities163,436 187,109 
Convertible Preferred Stock, 0.001 par value; 2,000 shares authorized; 39 shares issued and outstanding at February 26, 2023 (none at May 29, 2022), respectivelyConvertible Preferred Stock, 0.001 par value; 2,000 shares authorized; 39 shares issued and outstanding at February 26, 2023 (none at May 29, 2022), respectively38,510 — 
Stockholders’ Equity:Stockholders’ Equity:Stockholders’ Equity:
Common stock, $0.001 par value; 50,000 shares authorized; 29,593 and 29,513 shares issued and outstanding at August 28, 2022 and May 29, 2022, respectively30 30 
Common Stock, $0.001 par value; 50,000 shares authorized; 30,319 and 29,513 shares issued and outstanding at February 26, 2023 and May 29, 2022, respectivelyCommon Stock, $0.001 par value; 50,000 shares authorized; 30,319 and 29,513 shares issued and outstanding at February 26, 2023 and May 29, 2022, respectively30 30 
Additional paid-in capitalAdditional paid-in capital168,070 167,352 Additional paid-in capital174,268 167,352 
Retained earnings (accumulated deficit)(70,915)(58,851)
Accumulated deficitAccumulated deficit(140,091)(76,099)
Accumulated other comprehensive lossAccumulated other comprehensive loss(286)(586)Accumulated other comprehensive loss— (586)
Total Stockholders’ EquityTotal Stockholders’ Equity96,899 107,945 Total Stockholders’ Equity34,207 90,697 
Total Liabilities and Stockholders’ Equity$285,800 $295,160 
Total Liabilities, Convertible Preferred Stock and Stockholders’ EquityTotal Liabilities, Convertible Preferred Stock and Stockholders’ Equity236,153 277,806 

See accompanying notes to the consolidated financial statements.
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LANDEC CORPORATIONLIFECORE BIOMEDICAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
(In thousands, except per share amounts)

Three Months EndedThree Months EndedNine Months Ended
August 28, 2022August 29, 2021February 26, 2023February 27, 2022February 26, 2023February 27, 2022
Product sales
Product sales
$43,355 $41,632 
Product sales
$27,600 $37,399 $77,748 $90,140 
Cost of product sales
Cost of product sales
37,534 31,197 
Cost of product sales
21,622 24,533 58,178 58,507 
Gross profitGross profit5,821 10,435 Gross profit5,978 12,866 19,570 31,633 
Operating costs and expenses:Operating costs and expenses:Operating costs and expenses:
Research and developmentResearch and development2,048 1,873 Research and development1,964 2,000 6,128 5,722 
Selling, general and administrativeSelling, general and administrative10,883 9,470 Selling, general and administrative10,972 14,163 31,201 27,659 
Impairment of indefinite-lived intangible assetsImpairment of indefinite-lived intangible assets— — 300 — 
Gain on sale of BreatheWayGain on sale of BreatheWay— — (2,108)— 
Restructuring costsRestructuring costs1,047 1,834 Restructuring costs2,741 5,270 4,611 7,530 
Total operating costs and expensesTotal operating costs and expenses13,978 13,177 Total operating costs and expenses15,677 21,433 40,132 40,911 
Operating lossOperating loss(8,157)(2,742)Operating loss(9,699)(8,567)(20,562)(9,278)
Interest incomeInterest income15 27 Interest income22 20 53 66 
Interest expenseInterest expense(3,678)(6,678)Interest expense(5,818)(4,105)(13,715)(13,877)
Transition services incomeTransition services income70 5,473 70 5,473 
Other income (expense), netOther income (expense), net(180)109 Other income (expense), net34 454 (481)642 
Net loss before taxNet loss before tax(12,000)(9,284)Net loss before tax(15,391)(6,725)(34,635)(16,974)
Income tax (expense) benefitIncome tax (expense) benefit(64)1,651 Income tax (expense) benefit(70)87 (78)5,591 
Net loss from continuing operationsNet loss from continuing operations(12,064)(7,633)Net loss from continuing operations(15,461)(6,638)(34,713)(11,383)
Discontinued operations:Discontinued operations:
Loss from discontinued operationsLoss from discontinued operations$(24,731)$(6,859)$(29,279)$(49,576)
Income tax (expense) benefitIncome tax (expense) benefit— 411 — (157)
Loss from discontinued operations, net of taxLoss from discontinued operations, net of tax— (1,844)Loss from discontinued operations, net of tax(24,731)(6,448)(29,279)(49,733)
Net lossNet loss$(12,064)$(9,477)Net loss$(40,192)$(13,086)$(63,992)$(61,116)
Basic net loss per share:Basic net loss per share:Basic net loss per share:
Loss from continuing operationsLoss from continuing operations$(0.41)$(0.26)Loss from continuing operations$(0.51)$(0.23)$(1.16)$(0.39)
Loss from discontinued operationsLoss from discontinued operations— (0.06)Loss from discontinued operations(0.82)(0.22)(0.98)(1.68)
Total basic net loss per shareTotal basic net loss per share$(0.41)$(0.32)Total basic net loss per share$(1.33)$(0.45)$(2.14)$(2.07)
Diluted net loss per share:Diluted net loss per share:Diluted net loss per share:
Loss from continuing operationsLoss from continuing operations$(0.41)$(0.26)Loss from continuing operations$(0.51)$(0.23)$(1.16)$(0.39)
Loss from discontinued operationsLoss from discontinued operations— (0.06)Loss from discontinued operations(0.82)(0.22)(0.98)(1.68)
Total diluted net loss per shareTotal diluted net loss per share$(0.41)$(0.32)Total diluted net loss per share$(1.33)$(0.45)$(2.14)$(2.07)
Shares used in per share computation:Shares used in per share computation:Shares used in per share computation:
BasicBasic29,577 29,424 Basic30,304 29,482 29,838 29,459 
DilutedDiluted29,577 29,424 Diluted30,304 29,482 29,838 29,459 
Other comprehensive income (loss), net of tax:
Net unrealized gain (losses) on interest rate swaps (net of tax effect of $(16) and $(90))$300 $366 
Other comprehensive income (loss), net of tax300 366 
Other comprehensive income, net of tax:Other comprehensive income, net of tax:
Net unrealized gain on interest rate swaps (net of tax effect of $0, $(100), $(16) and $(190))Net unrealized gain on interest rate swaps (net of tax effect of $0, $(100), $(16) and $(190))$— $104 $586 $646 
Other comprehensive income, net of taxOther comprehensive income, net of tax— 104 586 646 
Total comprehensive lossTotal comprehensive loss$(11,764)$(9,111)Total comprehensive loss$(40,192)$(12,982)$(63,406)$(60,470)
See accompanying notes to the consolidated financial statements.
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LANDEC CORPORATIONLIFECORE BIOMEDICAL, INC.
CONSOLIDATED STATEMENT OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
(Unaudited)
(In (In thousands)

Three Months Ended August 28, 2022
Three and Nine Months Ended February 26, 2023Three and Nine Months Ended February 26, 2023
Additional
Paid-in
Capital
Retained
Earnings (Accumulated Deficit)
Accumulated
Other
Comprehensive
 Loss
Total
Stockholders’
Equity
Convertible Preferred StockCommon StockAdditional
Paid-in
Capital
Accumulated DeficitAccumulated
Other
Comprehensive
 Loss
Total
Stockholders’
Equity
Common Stock
SharesAmountSharesAmountSharesAmount
Balance at May 29, 2022Balance at May 29, 202229,513 $30 $167,352 $(58,851)$(586)$107,945 Balance at May 29, 2022— $— 29,513 $30 $167,352 $(76,099)$(586)$90,697 
Issuance of stock under stock plans, net of shares withheldIssuance of stock under stock plans, net of shares withheld80 — — — — — Issuance of stock under stock plans, net of shares withheld— — 80 — — — — — 
Taxes paid by Company for employee stock plansTaxes paid by Company for employee stock plans— — (67)— — (67)Taxes paid by Company for employee stock plans— — — — (67)— — (67)
Stock-based compensationStock-based compensation— — 785 — — 785 Stock-based compensation— — — — 785 — — 785 
Net lossNet loss— — — (12,064)— (12,064)Net loss— — — — — (11,351)— (11,351)
Other comprehensive income, net of taxOther comprehensive income, net of tax— — — — 300 300 Other comprehensive income, net of tax— — — — — — 300 300 
Balance at August 28, 2022Balance at August 28, 202229,593 $30 $168,070 $(70,915)$(286)$96,899 Balance at August 28, 2022— $— 29,593 $30 $168,070 $(87,450)$(286)$80,364 
Issuance of stock under stock plans, net of shares withheldIssuance of stock under stock plans, net of shares withheld— — 76 — 
Taxes paid by Company for employee stock plansTaxes paid by Company for employee stock plans— — — — (142)— (142)
Stock-based compensationStock-based compensation— — — — 1,108 — 1,108 
Net lossNet loss— — — — — (12,449)(12,449)
Other comprehensive income, net of taxOther comprehensive income, net of tax— — — — — — 286 286 
Issuance of shares to Wynnefield Capital, Inc.Issuance of shares to Wynnefield Capital, Inc.— — 628 — 5,000 — — 5,000 
Balance at November 27, 2022Balance at November 27, 2022— $— 30,297 $30 $174,036 $(99,899)$— $74,167 
Issuance of stock under stock plans, net of shares withheldIssuance of stock under stock plans, net of shares withheld22 — — — — — 
Proceeds of Convertible Preferred Stock, net of issuance costsProceeds of Convertible Preferred Stock, net of issuance costs39 38,082 — — — — — — 
Convertible Preferred Stock PIK dividendConvertible Preferred Stock PIK dividend— 428 — — (428)— — (428)
Cost of issuance of shares to Wynnefield Capital, Inc.Cost of issuance of shares to Wynnefield Capital, Inc.— — — — (178)— — (178)
Taxes paid by Company for employee stock plansTaxes paid by Company for employee stock plans— — — — (65)— — (65)
Stock-based compensationStock-based compensation— — — — 903 — — 903 
Net lossNet loss— — — — — (40,192)— (40,192)
Balance at February 26, 2023Balance at February 26, 202339 $38,510 30,319 $30 $174,268 $(140,091)$— $34,207 

Three Months Ended August 29, 2021
Three and Nine Months Ended February 27, 2022Three and Nine Months Ended February 27, 2022
Additional
Paid-in
Capital
Retained
Earnings (Accumulated Deficit)
Accumulated
Other
Comprehensive Loss
Total
Stockholders’
Equity
Additional
Paid-in
Capital
Retained
Earnings (Accumulated Deficit)
Accumulated
Other
Comprehensive Loss
Total
Stockholders’
Equity
Common StockConvertible Preferred StockCommon Stock
SharesAmountSharesAmountSharesAmount
Balance at May 31, 202029,333 $29 $165,533 $38,580 $(1,358)$202,784 
Balance at May 30, 2021Balance at May 30, 202129,33329165,53338,580(1,358)202,784
Issuance of stock under stock plans, net of shares withheldIssuance of stock under stock plans, net of shares withheld129Issuance of stock under stock plans, net of shares withheld129
Taxes paid by Company for employee stock plansTaxes paid by Company for employee stock plans(428)(428)Taxes paid by Company for employee stock plans(428)(428)
Stock-based compensationStock-based compensation620620Stock-based compensation620620
Net lossNet loss(9,477)(9,477)Net loss(9,509)(9,509)
Other comprehensive income, net of taxOther comprehensive income, net of tax366366Other comprehensive income, net of tax366366
Balance at August 29, 2021Balance at August 29, 202129,462$29 $165,725 $29,103 $(992)$193,865 Balance at August 29, 2021$— 29,462$29 $165,725 $29,071 $(992)$193,833 
Issuance of stock under stock plans, net of shares withheldIssuance of stock under stock plans, net of shares withheld19
Taxes paid by Company for employee stock plansTaxes paid by Company for employee stock plans(84)(84)
Stock-based compensationStock-based compensation686686
Net lossNet loss— — — — — (38,521)(38,521)
Other comprehensive income, net of taxOther comprehensive income, net of tax— — — — — — 176176
Balance at November 28, 2021Balance at November 28, 2021$— 29,481$29 $166,327 $(9,450)$(816)$156,090 
Issuance of stock under stock plans, net of shares withheldIssuance of stock under stock plans, net of shares withheld1
Taxes paid by Company for employee stock plansTaxes paid by Company for employee stock plans(6)(6)
Stock-based compensationStock-based compensation622622
Net lossNet loss— — — — — (13,086)(13,086)
Other comprehensive income, net of taxOther comprehensive income, net of tax— — — — — — 104104
Balance at February 27, 2022Balance at February 27, 2022$— 29,482$29 $166,943 $(22,536)$(712)$143,724 

See accompanying notes to the consolidated financial statements.
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LANDEC CORPORATIONLIFECORE BIOMEDICAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)
(In thousands)
Three Months EndedNine Months Ended
August 28, 2022August 29, 2021February 26, 2023February 27, 2022
Cash flows from operating activities:Cash flows from operating activities:Cash flows from operating activities:
Net lossNet loss$(12,064)$(9,477)Net loss$(63,992)$(61,116)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to reconcile net loss to net cash used in operating activities:
Impairment of indefinite-lived intangible assets and goodwillImpairment of indefinite-lived intangible assets and goodwill300 32,057 
Depreciation, amortization of intangibles, debt costs and right-of-use assetsDepreciation, amortization of intangibles, debt costs and right-of-use assets5,009 5,054 Depreciation, amortization of intangibles, debt costs and right-of-use assets10,392 14,488 
Gain on sale of BreatheWayGain on sale of BreatheWay(2,108)— Gain on sale of BreatheWay(2,108)— 
Stock-based compensation expenseStock-based compensation expense785 620 Stock-based compensation expense2,796 1,928 
Deferred taxesDeferred taxes43 (2,138)Deferred taxes57 (5,471)
Gain on disposal of property and equipment related to restructuring, net— (92)
Provision for expected credit losses— 60 
Net loss on disposal of property and equipment held and used— 16 
Loss on disposal of property and equipment related to restructuring, netLoss on disposal of property and equipment related to restructuring, net— 5,185 
Loss on sale of YucatanLoss on sale of Yucatan21,039 — 
Loss on sale of Eat SmartLoss on sale of Eat Smart— 235 
Other, netOther, net(18)(70)Other, net101 (540)
Changes in current assets and current liabilities:Changes in current assets and current liabilities:Changes in current assets and current liabilities:
Accounts receivable, netAccounts receivable, net7,238 7,997 Accounts receivable, net8,994 (7,525)
Inventory2,560 248 
InventoriesInventories(13,451)(11,910)
Prepaid expenses and other current assetsPrepaid expenses and other current assets(761)(2,697)Prepaid expenses and other current assets(1,169)(1,448)
Accounts payableAccounts payable581 1,517 Accounts payable11,405 13,507 
Accrued compensationAccrued compensation(2,865)(3,131)Accrued compensation(1,895)(2,027)
Other accrued liabilitiesOther accrued liabilities183 2,838 Other accrued liabilities8,570 (70)
Deferred revenueDeferred revenue(116)86 Deferred revenue1,792 662 
Net cash (used in) provided by operating activities(1,533)831 
Net cash used in operating activitiesNet cash used in operating activities(17,169)(22,045)
Cash flows from investing activities:Cash flows from investing activities:Cash flows from investing activities:
Proceeds from sale of BreatheWay, net3,135 — 
Purchases of property and equipmentPurchases of property and equipment(2,929)(7,913)Purchases of property and equipment(12,319)(18,539)
Proceeds from the sale of BreatheWay, netProceeds from the sale of BreatheWay, net3,135 — 
Proceeds from the sale of Yucatan, netProceeds from the sale of Yucatan, net12,531 — 
Proceeds from the sale of Eat Smart, netProceeds from the sale of Eat Smart, net— 73,500 
Eat Smart sale net working capital adjustmentsEat Smart sale net working capital adjustments— (2,390)
Sale of Investment in non-public companySale of Investment in non-public company— 45,100 Sale of Investment in non-public company— 45,100 
Proceeds from sales of property and equipmentProceeds from sales of property and equipment— 1,082 Proceeds from sales of property and equipment— 1,096 
Net cash provided by investing activitiesNet cash provided by investing activities206 38,269 Net cash provided by investing activities3,347 98,767 
Cash flows from financing activities:Cash flows from financing activities:Cash flows from financing activities:
Proceeds from sale of common stock, net of issuance costsProceeds from sale of common stock, net of issuance costs4,822 — 
Proceeds from long-term debtProceeds from long-term debt3,367 — 
Payments on long-term debtPayments on long-term debt(27)(41,388)Payments on long-term debt(3,199)(86,376)
Proceeds from lines of creditProceeds from lines of credit4,000 8,000 Proceeds from lines of credit18,400 45,011 
Payments on lines of creditPayments on lines of credit— (5,000)Payments on lines of credit(42,400)(34,111)
Taxes paid by Company for employee stock plans(67)(428)
Taxes paid for employee stock plansTaxes paid for employee stock plans(274)(518)
Payments for debt issuance costsPayments for debt issuance costs— (132)Payments for debt issuance costs(3,669)(169)
Proceeds from sale of preferred stock, net of issuance costsProceeds from sale of preferred stock, net of issuance costs38,082 — 
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities3,906 (38,948)Net cash provided by (used in) financing activities15,129 (76,163)
Net increase in cash and cash equivalentsNet increase in cash and cash equivalents2,579 152 Net increase in cash and cash equivalents1,307 559 
Cash and cash equivalents, beginning of periodCash and cash equivalents, beginning of period1,643 1,295 Cash and cash equivalents, beginning of period1,643 1,295 
Cash and cash equivalents, end of periodCash and cash equivalents, end of period$4,222 $1,447 Cash and cash equivalents, end of period$2,950 $1,854 
Supplemental disclosure of non-cash investing and financing activities:Supplemental disclosure of non-cash investing and financing activities:Supplemental disclosure of non-cash investing and financing activities:
Purchases of property and equipment on trade vendor creditPurchases of property and equipment on trade vendor credit$2,243 $1,994 Purchases of property and equipment on trade vendor credit$3,918 $1,764 
Convertible Preferred Stock PIK dividendConvertible Preferred Stock PIK dividend$(428)$— 

See accompanying notes to the consolidated financial statements.
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Table of Contents
LANDEC CORPORATIONLIFECORE BIOMEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Unaudited)

1.    Organization, Basis of Presentation, and Summary of Significant Accounting Policies
Organization
Landec CorporationLifecore Biomedical, Inc. and its subsidiaries (“Landec”Lifecore Biomedical” or the “Company”), previously Landec Corporation) design, develop, manufacture, and sell differentiated products for food and biomaterials markets, and license technology applications to partners.
Landec’sLifecore Biomedical’s biomedical company, Lifecore Biomedical Operating Company, Inc. (“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. As a leading manufacturer of premium, injectable grade Hyaluronic Acid, Lifecore brings 37 years of expertise as a partner for global and emerging biopharmaceutical and biotechnology companies across multiple therapeutic categories to bring their innovations to market. Lifecore recognizes revenue in two different product categories, CDMO and Fermentation.
Landec’sLifecore Biomedical previously operated a natural food company, through its wholly owned subsidiary, Curation Foods, Inc. (“Curation Foods”), iswhich was previously focused on innovating and distributingthe distribution of plant-based foods with 100% clean ingredients to retail, club and foodservice channels throughout North America. Its products are soldAmerica, which was presented in natural food, conventional groceryLifecore Biomedical’s prior financial statements as the Curation Foods segment. However, upon the sale of Yucatan Foods on February 7, 2023 (see “Yucatan Disposition and mass retail stores, primarilyDiscontinued Operations” below) and O Olive Oil & Vinegar (“O Olive”) on April 6, 2023, (refer to Note 10), the Company has ceased to operate the Curation Foods business. Accordingly, commencing in the United Statesfourth quarter of fiscal year 2023, the Curation Foods segment of Lifecore Biomedical will be presented as a discontinued operation in its entirety.
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. (the “Name Change”), which was approved by the board of directors of the Company and Canada. The company categorizes revenue in three categories: avocado products, olive oil and wine vinegars and technology, which reports revenues for BreatheWay patented supply chain solutions.became effective on November 14, 2022. In connection with the Name Change, the Company’s common stock began trading under its new NASDAQ ticker symbol, “LFCR”, on November 15, 2022. References to “Landec” or “Landec Corporation” refer to operations and/or transactions of the Company prior to the Name Change.
Eat Smart SaleYucatan Disposition and Discontinued Operations
On December 13, 2021February 7, 2023 (the “Closing Date”), Landec andCompany, Camden Fruit Corp., a direct wholly owned subsidiary of Curation Foods (together,and an indirect wholly owned subsidiary of the Company (“Camden” and together with the Curation Foods and the Company, the “Sellers”), Yucatan Foods, LLC, a wholly owned subsidiary of the Camden (“Yucatan”), and Taylor Farms Retail, Inc.Yucatan Acquisition Holdings LLC, a wholly owned subsidiary of Flagship Food Group LLC (“Taylor Farms”Buyer” and together with Yucatan and the Sellers, the “Parties”) completed the sale (the “Eat Smart“Yucatan Disposition”) of Curation Foods’ Eat Smartthe Company’s avocado products business, including its saladYucatan® and cut vegetable businessesCabo Fresh® brands, as well as the associated manufacturing facility and operations in Guanajuato, Mexico (the “Business”), pursuant to the terms of an asseta securities purchase agreement executed by the Parties on December 13, 2021February 7, 2023 (the “Asset“Securities Purchase Agreement”). Pursuant to the AssetSecurities Purchase Agreement, Taylor FarmsBuyer acquired all of the Businessoutstanding equity securities of Yucatan for a purchase price of $73.5$17.5 million in cash, subject to certain post-closing adjustments based upon negotiation of theat closing, including selling costs, net working capital balances atand other adjustments amounting to $5.0 million. The Company recognized a loss on the Closing Date. As partYucatan Disposition of $21.0 million in the Eat Smartthird quarter ended February 26, 2023. The loss on the Yucatan Disposition Taylor Farms acquired, among other assets and liabilities related tois recorded in loss from discontinued operations in the Business, the manufacturing facility and warehouses (and corresponding equipment) located in Bowling Green, Ohio and Guadalupe, California, as well as inventory, accounts receivable, accounts payable, intellectual property and information related to the Business, and assumed certain liabilities and executory obligations under the Company’s and Curation Foods’ outstanding contracts related to the Business, in each case, subject to the termsConsolidated Statement of the Asset Purchase Agreement.Comprehensive (Loss) Income.
The accounting requirements for reporting the Eat SmartYucatan Foods business as a discontinued operationoperations were met when the Eat SmartYucatan Disposition was completed on the Closing Date. Accordingly, the consolidated financial statements and notes to the consolidated financial statements reflect the results of the Eat SmartYucatan business as a discontinued operation for the periods presented. Refer to Note 9 - Discontinued Operations for additional information.
Securities Purchase Agreement
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On November 25, 2022, the Company entered into a Securities Purchase Agreement (the “Wynnefield Purchase Agreement”) with entities affiliated with Wynnefield Capital, Inc. (the “Purchasers”). Pursuant to the Wynnefield Purchase Agreement, the Company agreed to sell an aggregate of 627,746 shares of its common stock (the “Shares”) for aggregate gross proceeds of approximately $5.0 million (the “Offering”). The purchase price for each Share was $7.97. The Offering closed on November 25, 2022. Pursuant to the Wynnefield Purchase Agreement, the Company granted the Purchasers certain piggyback registration rights and agreed, among other things, to indemnify such parties under any registration statement filed that includes the Shares from certain losses, claims, damages and liabilities.
Series A Convertible Preferred Share Purchase Agreement
On January 9, 2023, the Company simultaneously signed and closed a Securities Purchase Agreement (the “Preferred Share Purchase Agreement”) with a group of certain accredited investors. Refer to Note 2 – Convertible Preferred Stock for additional information.
Amendment to Credit Agreements

On January 9, 2023, the Company entered into certain amendments to its existing Credit Facilities (defined below).Refer to Note 6 – Debt and Note 10 – Subsequent Events for additional information.
Basis of Presentation
The accompanying unaudited consolidated financial statements of LandecLifecore Biomedical have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring accruals) have been made which are necessary to present fairly the financial position of the Company at August 28, 2022,February 26, 2023, and the results of operations and cash flows for all periods presented. Although LandecLifecore Biomedical believes that the disclosures in these financial statements are adequate to make the information presented not misleading, certain information normally included in financial statements and related footnotes prepared in accordance with GAAP have been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). The accompanying financial data should be reviewed in conjunction with the audited financial statements and accompanying notes included in Landec'sLifecore Biomedical’s Annual Report on Form 10-K10-K/A for the fiscal year ended May 29, 2022 (the “Annual Report”).
The Company’s fiscal year is the 52- or 53-week period that ends on the last Sunday of May with quarters within each year ending on the last Sunday of August, November, and February; however, in instances where the last Sunday would result in a quarter being 12-weeks in length, the Company’s policy is to extend that quarter to the following Sunday. A 14th week is included in the fiscal year every five or six years to realign the Company’s fiscal quarters with calendar quarters.
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The results of operations for the three and nine months ended August 28, 2022February 26, 2023 are not necessarily indicative of the results that may be expected for an entire fiscal year because there is some seasonality in Curation Foods’ business and the order patterns of Lifecore’s customers which may lead to significant fluctuations in Landec’sLifecore Biomedical’s quarterly results of operations.
Basis of Consolidation
The consolidated financial statements are presented on the accrual basis of accounting in accordance with GAAP and include the accounts of Landec CorporationLifecore Biomedical and its subsidiaries, Lifecore and Curation Foods. All material inter-company transactions and balances have been eliminated.
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. 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 and indefinite lived assets (including intangible assets and goodwill), and inventory; and the valuation and recognition of stock-based compensation.
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.
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Going Concern Update
As disclosed in the Company’s previous filings, the Company had previously determined that there were factors, which was principally the result of our noncompliance with financial covenants, that raised substantial doubt about its ability to continue as a going concern. Since that time, the Company has taken measures to strengthen its financial position, including the repayment and termination of the Prior Term Loan Facility, and the entry into the Refinancing Transactions (defined below), in each case, on May 22, 2023. The Refinancing Transactions provided the Company with additional liquidity, eliminated the Company’s noncompliance with its financial covenants under Credit Facilities (including granting the Company applicable waivers under the Revolving Term Loan Facility), reduced the Company’s near-term debt service costs, and eliminated certain financial covenants that existed under the Prior Term Loan Facility. In addition, the completion of the Company’s sale of the Yucatan and O Olive business, and the entry into an amended and restated supply agreement with Alcon Research, LLC (“Alcon”) to extend and expand its prior supply agreement, as further described in Note 10 – Subsequent Events, also provided the Company with additional liquidity. The cash provided under the Refinancing Transactions, completed divestitures of remaining Curation Foods businesses, and the lower debt service costs under our Refinancing Transactions provide improved forecasted cash flow from operations that allow sufficient liquidity over the next 12 months to meet our obligations as they come due.
Based on the foregoing, management believes that our cash position as of the date of filing these financial statement (the “Filing Date”) and forecasted cash flow from operations is sufficient to meet capital and liquidity requirements for at least the next 12 months. As a result, there is no longer substantial doubt about the Company’s ability to continue as a going concern.

Cash and Cash Equivalents
The Company records all highly liquid securities with three months or less from date of purchase to maturity as cash equivalents. Cash equivalents consist mainly of money market funds. The market value of cash equivalents approximates their historical cost given their short-term nature.
Reconciliation of Cash and Cash Equivalents as presented on the Statements of Cash Flows
The following table provides a reconciliation of cash and cash equivalents and cash and cash equivalents, discontinued operations within the Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows:

(In thousands)(In thousands)August 28, 2022May 29, 2022August 29, 2021May 30, 2021(In thousands)February 26, 2023May 29, 2022February 27, 2022May 30, 2021
Cash and cash equivalentsCash and cash equivalents$4,222 $1,643 $1,406 $1,159 Cash and cash equivalents$2,950 $991 $1,854 $1,159 
Cash and cash equivalents, discontinued operationsCash and cash equivalents, discontinued operations— — 41 136 Cash and cash equivalents, discontinued operations— 652 — 136 
Cash and cash equivalentsCash and cash equivalents$4,222 $1,643 $1,447 $1,295 Cash and cash equivalents$2,950 $1,643 $1,854 $1,295 

Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value and consist of the following:

(In thousands)(In thousands)August 28, 2022May 29, 2022(In thousands)February 26, 2023May 29, 2022
Finished goodsFinished goods$25,266 $33,029 Finished goods$14,636 $13,418 
Raw materialsRaw materials27,402 24,221 Raw materials22,554 21,329 
Work in progressWork in progress11,617 9,595 Work in progress11,506 9,553 
TotalTotal$64,285 $66,845 Total$48,696 $44,300 

If the cost of the inventories exceeds their net realizable value, provisions are recorded currently to reduce them to net realizable value. The Company also records a provision for slow moving and obsolete inventories based on the estimate of demand for its products.

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Accounts Receivable, Sales Returns and Allowance for Credit Losses
The Company carries its accounts receivable at their face amounts less an allowance for estimated sales returns and credit losses. Sales return allowances are estimated based on historical sales return amounts.
The Company uses the loss rate method to estimate its expected credit losses on trade accounts receivable and contract assets. In order to estimate expected credit losses, the Company assessed recent historical experience, current economic conditions and any reasonable and supportable forecasts to identify risk characteristics that are shared within the financial asset. These risk characteristics are then used to bifurcate the loss rate method into risk pools. The risk pools were determined based on the industries in which the Company operates. Historical credit loss for each risk pool is then applied to the current period aging as presented in the identified risk pools to determine the needed reserve allowance. At times when there are no current economic conditions or forecasts that may affect future credit losses, the Company has determined that recent historical experience provides the best basis for estimating credit losses.
The information obtained from assessing historical experience, current economic conditions and reasonable and supportable forecasts were used to identify risk characteristics that can affect future credit loss experience. There were no significant risk characteristics identified in the review of historical experiences or in the review of estimates of current economic conditions and forecasts.
Estimating credit losses based on risk characteristics requires significant judgment by management. Significant judgments include, but are not limited to: assessing current economic conditions and the extent to which they are relevant to the existing characteristics of the Company’s financial assets, the estimated life of financial assets, and the level of reliance on historical experience in light of economic conditions. The Company will continually review and update, when necessary, its historical risk characteristics that are meaningful to estimating credit losses, any new risk characteristics that arise in the natural course of business, and the estimated life of its financial assets.
The changes in the Company’s allowance for sales returns and credit losses are summarized in the following table (in thousands):
 Balance at
beginning of
period
Provision (benefit) for expected credit lossesWrite offs,
net of
recoveries
Balance at
end of period
Three months ended August 29, 2021$85 $— $— $85 
Three months ended August 28, 2022$65 $— $— $65 
 Balance at
beginning of
period
Provision (benefit) for expected credit lossesWrite offs,
net of
recoveries
Balance at
end of period
Nine months ended February 26, 2023$$— $(1)$
Nine months ended February 27, 2022$$— $— $
Debt Issuance Costs
The Company records its line of credit debt issuance costs as an asset, and as such, $0.7 million and $1.7$1.3 million were recorded as Prepaid expenses and other current assets, and Other non-current assets in the accompanying Consolidated Balance Sheets, respectively, as of August 28, 2022,February 26, 2023, and $0.7 million and $1.9 million, respectively, as of May 29, 2022. The Company records its term debt issuance costs as a contra-liability, and as such, $1.5$8.1 million and $3.6$5.5 million waswere recorded as Current portion ofa reduction to long-term debt, net and Long-termcurrent portion of long-term debt, net in the accompanying Consolidated Balance Sheets, respectively, as of August 28, 2022February 26, 2023 and $1.5 million and $4.0 million, respectively, as of May 29, 2022.
Financial Instruments
The Company’s financial instruments are primarily composed of commercial-term trade payables, debt instruments, and derivative instruments. For short-term instruments, the historical carrying amount approximates the fair value of the instrument. The fair value of long-term debt and lines of credit approximates their carrying value.
Cash Flow Hedges
The Company has entered into interest rate swap agreements to manage interest rate risk. These derivative instruments may offset a portion of the changes in interest expense. The Company designates these derivative instruments as cash flow hedges. The Company accounts for its derivative instruments as either an asset or a liability and carries them at fair value in Other assets or Other non-current liabilities. The accounting for changes in the fair value of the derivative instrument depends on the intended use of the derivative instrument and the resulting designation.
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For derivative instruments that hedge the exposure to variability in expected future cash flows and are designated as cash flow hedges, the entire change in the fair value of the hedging instrument is recorded as a component of Accumulated other comprehensive loss (“AOCL”) in Stockholders’ Equity. Those amounts are subsequently reclassified to earnings in the same line item in the Consolidated Statements of Comprehensive (Loss) Income as impacted when the hedged item affects earnings. To receive hedge accounting treatment, cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions.
During the third quarter of fiscal year 2021, the Company discontinued its hedge accounting prospectively since it was determined that the derivatives are no longer highly effective in offsetting changes in the net investment. The derivatives continue to be carried at fair value in the accompanying Consolidated Balance Sheets with changes in their fair values from the date of discontinued hedge accounting recognized in current period earnings in Other income (expense), net in the Consolidated Statements of Comprehensive (Loss) Income. Amounts previously accumulated in AOCL during the period of effectiveness will continue to be realized over the remaining term of the underlying forecasted debt payments as a component of AOCL in Stockholders’ Equity.
Accumulated Other Comprehensive Loss
Comprehensive income (loss) consists of two components, net loss and Otherother comprehensive income (loss) (“OCI”). OCI refers to revenue, expenses, and gains and losses that under GAAP are recorded as a component of stockholders’ equity but are excluded from net loss. The Company’s OCI consists of net deferred gains and losses on its interest rate swap derivative instruments. The components of AOCL, net of tax, are as follows:

(In thousands)AOCL
Balance as of May 29, 2022$(586)
Amounts reclassified from OCI300586 
Other comprehensive income, net$300586 
Balance as of August 28, 2022February 26, 2023$(286)— 

The Company expects to reclassify approximately $0.3 million into earnings in the next 12 months.
Assets Held for Sale
In May 2021, the Board of Directors approved a plan to sell Curation Foods’ Rock Hill, South Carolina distribution facility. There was no impairment recorded in fiscal year 2021. The asset was sold on June 9, 2021 for gross proceeds of $1.1 million. A gain of $0.6 million was recorded upon the sale which isand was included in loss from discontinued operations within the Consolidated Statements of Comprehensive (Loss) Income.
In May 2022, the Board of Directors approved a plan to sell the assets of Curation Foods’ BreatheWay packaging technology business. The $1.0 million carrying value of these assets ($0.9 million of inventory and $0.1 million net book value of property and equipment) are included in Prepaid expenses and other current assets on the Consolidated Balance Sheets as of May 29, 2022 and were classified as assets held for sale. There was no impairment recorded in fiscal year 2022. These assets were sold during the first quarter of fiscal year 2023 for net proceeds of $3.1 million. A gain of $2.1 million was recorded upon the sale, which is included in Selling, general and administrative within the Consolidated Statements of Comprehensive (Loss) Income.Income for the nine months ended February 26, 2023.
Leases
Under Topic 842, the Company determines if an arrangement is a lease at inception. Right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of the leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate is a quoted rate based on the understanding of what the Company'sCompany’s credit rating would be. Certain agreements may contain the option to extend the lease term, terminate the lease before the contractual expiration date, or purchase the leased asset. The Company, when reasonably certain to exercise the option, considers these options in determining the measurement of the lease. The Company'sCompany’s lease agreements do not contain any material residual value guarantees.
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The Company'sCompany’s lease agreements generally contain lease and non-lease components. Non-lease components primarily include payments for maintenance and utilities. The Company combines fixed payments for non-lease components with lease payments and accounts for them together as a single lease component which increases the amount of lease assets and liabilities.
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Payments under lease arrangements are primarily fixed; however, certain lease agreements contain variable payments, which are expensed as incurred and are not included in the operating lease assets and liabilities. These amounts primarily include payments affected by changes in price indices.
Long-lived and Indefinite-Lived Intangible Assets
The Company’s intangible assets are comprised of customer relationships with a finite estimated useful life of 12 years, and trademarks/tradenames and goodwill with indefinite useful lives.

During the nine months ended February 26, 2023, the Company recorded an impairment charge of $1.0 million related to Yucatan Foods indefinite-lived intangible asset related to trademarks/tradenames which is included in discontinued operations. In addition, during the nine months ended February 26, 2023, the Company recorded an impairment charge of $0.3 million related to O Olive’s indefinite-lived intangible asset for their trademarks/tradenames. The impairments were determined using the royalty savings method to estimate the fair value of its trademarks and was primarily a result of an indication of a decrease in the fair market value of the Yucatan Foods and O Olive businesses driven by lower market valuations and a decrease in projected cash flows. The O Olive impairment charge is included in the line item “Impairment of indefinite-lived intangible assets” on the Consolidated Statements of Comprehensive (Loss) Income, and is reported in the Curation Foods business segment (See Note 7).
Fair Value Measurements
The Company uses fair value measurement accounting for financial assets and liabilities and for financial instruments and certain other items measured at fair value. The Company has elected the fair value option for its investment in a non-public company. The Company has not elected the fair value option for any of its other eligible financial assets or liabilities.
The accounting guidance established a three-tier hierarchy for fair value measurements, which prioritizes the inputs used in measuring fair value as follows:
Level 1 – observable inputs such as quoted prices for identical instruments in active markets.
Level 2 – inputs other than quoted prices in active markets that are observable either directly or indirectly through corroboration with observable market data.
Level 3 – unobservable inputs in which there is little or no market data, which would require the Company to develop its own assumptions.
As of August 28, 2022February 26, 2023 and May 29, 2022, the Company held certain assets and liabilities that are required or it elected to be measured at fair value on a recurring basis, including its interest rate swap contracts.
The fair value of the Company’s interest rate swap contracts is determined based on model inputs that can be observed in a liquid market, including yield curves, and is categorized as a Level 2 fair value measurement and is included in Prepaid expenses and other current assets in the accompanying Consolidated Balance Sheets.
As of May 29, 2022, related to the assets of Curation Foods’ BreatheWay packaging technology business, the Company had $1.0 million in Prepaid expenses and other current assets within the Consolidated Balance Sheet meeting the criteria of held for sale. These assets are recognized at the lower of cost or fair value less cost to sell using market approach. The fair value of these assets are classified as level 3 in the fair value hierarchy due to a mix of unobservable inputs utilized such as independent research in the market as well as actual quotes from market participants.
Imprecision in estimating unobservable market inputs can affect the amount of gain or loss recorded for a particular position. The use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
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The following table summarizes the fair value of the Company’s assets and liabilities that are measured at fair value on a recurring and nonrecurring basis:basis (in thousands):

(In thousands)Fair Value at August 28, 2022Fair Value at May 29, 2022
Assets:Level 1Level 2Level 3Level 1Level 2Level 3
Interest rate swap contracts$— $86 $— $— $— $— 
Assets held for sale - nonrecurring— — — — — 1,027 
Fair Value at February 26, 2023Fair Value at May 29, 2022
Assets:Assets:Level 1Level 2Level 3Level 1Level 2Level 3
Assets held for sale - nonrecurringAssets held for sale - nonrecurring$— $— $— $— $— $1,027 
Current assets, discontinued operationCurrent assets, discontinued operation
Property & equipmentProperty & equipment— — — — 3,500 — 
Customer relationshipCustomer relationship— — — — — 1,400 
TradenamesTradenames— — — — — 4,000 
Total assetsTotal assets$— $86 $— $— $— $1,027 Total assets— — — — 3,500 6,427 

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Revenue Recognition
The Company follows the five step, principles-based model to recognize revenue upon the transfer of promised goods or services to customers and in an amount that reflects the consideration for which the Company expects to be entitled in exchange for those goods or services. Revenue, net of estimated allowances and returns, is recognized when or as the Company satisfies its performance obligations under a contract and control of the product is transferred to the customer.

Lifecore

Lifecore generates revenue from two integrated activities: CDMO and Fermentation. CDMO is comprised of aseptic and development services. Lifecore’s standard terms of sale are generally included in its contracts and purchase orders. Shipping and other transportation costs charged to customers are recorded in both revenue and cost of goods sold. Lifecore has elected to account for shipping and handling as fulfillment activities, and not as a separate performance obligation. Lifecore’s standard payment terms with its customers generally range from 30 days to 60 days.

Aseptic

Lifecore provides aseptic formulation and filling of syringes and vials with precisely formulated medical grade HA and non-HA materials for injectable products used for medical purposes. 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. 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. 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.

Each of the promised goods and services are not distinct in the context of the contract as the goods and services are highly interdependent and interrelated. The services described above are significantly affected by each other because Lifecore would not be able to fulfill its promise by transferring each of the goods or services independently.

Revenues generated from development services arrangements are recognized over time as Lifecore is creating an asset without an alternate use as it is unique to the customer. Furthermore, the Company has an enforceable right to payment for the performance completed to date for its costs incurred in satisfying the performance obligation plus a reasonable profit margin. For each of the development activities performed by Lifecore as described above, labor is the primary input (i.e., labor costs represent the majority of the costs incurred in the completion of the services). The Company determined that labor hours are the best measure of progress as it most accurately depicts the effort extended to satisfy the performance obligation over time.

Fermentation
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Lifecore manufactures and sells pharmaceutical-grade sodium hyaluronate (“HA”) in bulk form to its customers. The HA produced is distinct as customers are able to utilize the product provided under HA supply contracts when they obtain control. 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.
Curation Foods
Curation Foods’ standard terms of sale, both prior to and following the Eat Smart Disposition and Yucatan Disposition, are generally included in its contracts and purchase orders. Revenue is recognized at the time shipment is made or upon delivery as control of the product is transferred to the customer. Shipping and other transportation costs charged to customers are recorded in both revenue and cost of goods sold. Curation Foods has elected to account for shipping and handling as fulfillment activities, and not as a separate performance obligation. Curation Foods’ standard payment terms with its customers generally range from 30 days to 90 days. Certain customers may receive cash-based incentives (including: volume rebates, discounts, and promotions), which are accounted for as variable consideration to Curation Foods’ performance obligations. Curation Foods estimates these sales incentives based on the expected amount to be provided to its customers and reduces revenues recognized towards its
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performance obligations. The Company has not historically had and does not anticipate significant changes in its estimates for variable consideration.
The Company disaggregates its revenue by segment based on how it markets its products and services and reviews results of operations. The following tables disaggregate segment revenue by major product lines and services:

(In thousands)(In thousands)Three Months Ended(In thousands)Three Months EndedNine Months Ended
Lifecore:Lifecore:August 28, 2022August 29, 2021Lifecore:February 26, 2023February 27, 2022February 26, 2023February 27, 2022
Contract development and manufacturing organization$18,247 $17,789 
Contact development and manufacturing organizationContact development and manufacturing organization$17,809 $24,799 $52,088 $63,951 
FermentationFermentation5,456 4,163 Fermentation8,521 10,009 19,635 17,756 
TotalTotal$23,703 $21,952 Total$26,330 $34,808 $71,723 $81,707 
(In thousands)(In thousands)Three Months Ended(In thousands)Three Months EndedNine Months Ended
Curation Foods:Curation Foods:August 28, 2022August 29, 2021Curation Foods:February 26, 2023February 27, 2022February 26, 2023February 27, 2022
Avocado products$17,093 $16,962 
Olive oil and wine vinegars2,559 2,340 
Olive Oil and vinegarsOlive Oil and vinegars$1,270 $2,169 $6,025 $7,016 
TechnologyTechnology— 378 Technology— 422 — 1,417 
TotalTotal$19,652 $19,680 Total$1,270 $2,591 $6,025 $8,433 
Contract Assets and Liabilities
Contract assets primarily relate to the Company’s conditional right to consideration for work completed but not billed at the reporting date. The Company’s contract assets as of August 28, 2022February 26, 2023 and May 29, 2022, were $12.8$4.7 million and $10.2 million, respectively.
Contract liabilities primarily relate to payments received from customers in advance of performance under the contract. The Company’s contract liabilities as of August 28, 2022February 26, 2023 and May 29, 2022, were $0.8$2.7 million and $0.9 million, respectively. Revenue recognized during the three and nine months ended August 28, 2022,February 26, 2023, that was included in the contract liability balance at the beginning of fiscal year 2023, was $0.3 million.$0.1 million and $0.5 million, respectively.
Shipping and Handling Costs
Amounts billed to third-party customers for shipping and handling are included as a component of revenues. Shipping and handling costs incurred are included as a component of cost of products sold and represent costs incurred to ship product from the processing facility or distribution center to the end consumer markets.
Legal Contingencies
In the ordinary course of business, the Company is involved in various legal proceedings and claims.
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The Company makes a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least each fiscal quarter and adjusted to reflect the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. Legal fees are expensed in the period in which they are incurred.

Compliance Matters and Related Litigation
On December 1, 2018, the Company acquired all of the voting interests and substantially all of the assets of Yucatan Foods (the “Yucatan Acquisition”), which owns a guacamole manufacturing plant in Mexico called Procesadora Tanok, S de RL de C.V. (“Tanok”).
On October 21, 2019, the Company retained Latham & Watkins LLP to conduct an internal investigation relating to potential environmental and Foreign Corrupt Practices Act (“FCPA”) compliance matters associated with regulatory permitting at the Tanok facility in Mexico. The Company subsequently disclosed to the U.S. Securities and Exchange Commission (“SEC”) and the U.S. Department of Justice (“DOJ”) the conduct under investigation, and these agencies have commenced an investigation. The Company has also disclosed the conduct under investigation to the Mexican Attorney General’s Office, which has commenced an investigation, and to Mexican regulatory agencies. The Company is cooperating in the government investigations and requests for information. The conduct at issue began prior to the Yucatan Acquisition, and the agreement for
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the Yucatan Acquisition provides the Company with certain indemnification rights that may allow the Company to recover the cost of a portion of the liabilities that have been and may be incurred by the Company in connection with these compliance matters. On September 2, 2020, one of the former owners of Yucatan filed a lawsuit against the Company in Los Angeles County Superior Court for breach of employment agreement, breach of contract, breach of holdback agreement, declaratory relief and accounting, and related claims. The Plaintiff seeks over $10 million in damages, including delivery of shares of his stock held in escrow for the indemnification claims described above. On November 3, 2020, the Company filed an answer and cross-complaint against the Plaintiff and other parties for fraud, indemnification, and other claims, and seeking no less than $80 million in damages.
At this stage, the ultimate outcome of these or any other investigations, legal actions, or potential claims that may arise from the matters under investigation is uncertain and the Company cannot reasonably predict the timing or outcomes, or estimate the amount of net loss after indemnification, or its effect, if any, on its financial statements. Separately, there are indemnification provisions in the purchase agreement that may allow the Company to recover costs for fraud or breach of the purchase agreement from the seller. Because recovery of amounts are contingent upon a legal settlement, no amounts have been recorded as recoverable costs for the three and nine months ended August 28, 2022.February 26, 2023.
During the third quarter of fiscal year 2021 the Company reached a resolution with its insurance carrier that resulted in a recovery of $1.6 million which is recorded as a reduction of Selling, general and administrative in the Consolidated Statements of Operations for the fiscal year ended May 30, 2021. Absent further material developments in the investigation, the Company does not expect additional material recovery from the insurance carrier.
Accounting Pronouncements
On January 9, 2023, upon the issuance of the Series A Convertible Preferred Stock (as defined in Note 2– Convertible Preferred Stock), the Company adopted ASU No. 2020-06, “Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40)”. This ASU simplified the accounting for certain financial instruments with characteristics of liabilities and equity. The FASB reduced the number of accounting models for convertible debt and convertible preferred stock instruments and made certain disclosure amendments to improve the information provided to users.

2.    Investment in Non-public CompanyConvertible Preferred Stock
On January 9, 2023, the Company issued an aggregate of 38,750 shares of the Series A Convertible Preferred Stock, par value $0.001 per share (the “Convertible Preferred Stock”), all of which are convertible into shares of common stock at the election of the holders of the Convertible Preferred Stock, subject to the exchange and beneficial ownership limitations described below. The Convertible Preferred Stock ranks senior to the Company’s common stock with respect to dividends, distributions and payments on liquidation, winding-up and dissolution. Upon issuance, the shares of the Convertible Preferred Stock are fully paid and non-assessable, which means that its holders have paid their purchase price in full and are not required to pay additional funds.

Dividends

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The holders of Convertible Preferred Stock are entitled to dividends on the Liquidation Preference (as defined below) at the rate of 7.5% per annum, payable in-kind (“PIK”). The Company may, at its option, pay such dividends in cash from and after the earlier of June 29, 2026, or the termination or waiver of the restriction on cash dividends and/or redemptions that is set forth in the Credit Facilities (such earlier date, the “Applicable Date”). The holders are also entitled to participate in dividends declared or paid on the common stock on an as-converted basis.

Liquidation and Redemption

Upon a liquidation, dissolution, winding up or change of control of the Company, each share of Convertible Preferred Stock will be entitled to receive an amount per share of Convertible Preferred Stock equal to the greater of (i) the purchase price paid by the purchaser at issuance, plus all accrued and unpaid dividends (the “Liquidation Preference”) and (ii) the amount that the holder of Convertible Preferred Stock (each, a “Holder” and collectively, the “Holders”) would have been entitled to receive at such time if the Convertible Preferred Stock had been converted into common stock immediately prior to such liquidation event. Upon certain bankruptcy events, the Company is required to pay to each Holder an amount in cash equal to the Liquidation Preference being redeemed. From and after the Applicable Date, each Holder shall have the right to require the Company to redeem all or any part of such Holder’s Convertible Preferred Stock for an amount equal to the Liquidation Preference. At the time of a redemption, if the Company does not have sufficient funds to redeem any preferred shares submitted for redemption, each holder is entitled to receive interest on the unpaid portion of the redemption at 1% per month until fully paid (the “1% contingent interest”). As of February 15, 2011, Curation Foods26, 2023, the aggregate liquidation preference of the Convertible Preferred Stock approximated $39.2 million.

Conversion

Each Holder has the right, at its option, to convert its Convertible Preferred Stock, in whole or in part, into fully paid and non-assessable shares of common stock at an initial conversion price equal to $7.00 per share. The conversion price is subject to customary anti-dilution adjustments, including in the event of any stock split, stock dividend, recapitalization or similar events, and is also subject to adjustment in the event of subsequent offerings of common stock or convertible securities by the Company for less than the conversion price. Pursuant to the terms of the Certificate of Designations of the Convertible Preferred Stock filed by the Company with the Delaware Secretary of State on January 9, 2023, unless and until approval of the Company’s stockholders is obtained as contemplated by NASDAQ listing rules, no Holder may convert shares of Convertible Preferred Stock through either an optional or a mandatory conversion into shares of common stock if and solely to the extent that the issuance of such shares of common stock would exceed the aggregate number of shares of common stock that is equal to 19.99% of the amount of common stock of the Company outstanding on the date on which we issued the Convertible Preferred Stock (the “Exchange Limit”). Additionally, subject to certain exceptions and waiver by each Holder, the Company will not issue any shares of common stock to any respective Holder to the extent that such issuance of common stock would result in such Holder beneficially owning in excess of 9.99% of the then-outstanding common stock (together with the Exchange Limit, the “Conversion Limits”). Subject to certain conditions, the Company may from time to time, at its option, require conversion of all or any portion of the outstanding shares of Convertible Preferred Stock to common stock if, for at least 20 consecutive trading days during the respective measuring period the closing price of the common stock was at least 150% of the conversion price (the “Mandatory Conversion Right”). The Company may not exercise this Mandatory Conversion Right unless certain conditions with regard to the shares of common stock to be issued upon such conversion are satisfied.

Voting

Each Holder is entitled to vote with the holders of the shares of common stock on all matters submitted for a vote of holders of shares of common stock (voting together with the holders of shares of common stock as one class). Each Holder is entitled the whole number of votes equal to the number of shares of common stock into which such Holder’s shares of Convertible Preferred Stock would be convertible on the record date for the vote or consent (subject to the Conversion Limits).

Registration Rights Agreement

On January 9, 2023, in connection with the issuance of the Convertible Preferred Stock, the Company and the Holders also entered into a share purchase agreementRegistration Rights Agreement (the “Windset Purchase“Registration Rights Agreement”) pursuant to which, among other things, the Company granted the Holders certain registration rights with Windset. Pursuantrespect to the Windset Purchase Agreement, Curation Foods purchased from Windset 150,000 Senior A preferred shares for $15.0 million and 201 common shares for $201. On July 15, 2014, Curation Foods increased its investment in Windset by purchasing from the Newell Capital Corporation an additional 68 common shares and 51,211 junior preferred shares of Windset for $11.0 million. After this purchase,common stock issuable upon conversion of the Company’s common shares represented a 26.9% ownership interest in Windset.Convertible Preferred Stock. The Senior A preferred shares yielded a cash dividend of 7.5% annually. The dividend was payableRegistration Rights Agreement contains monetary penalties if the registration statement is not declared effective by the SEC within 90 days of each anniversarythe issuance of the executionConvertible Preferred Stock on January 9, 2023, or if earlier, the fifth business day after the SEC notifies the Company that the registration statement is not subject to further review. The Registration Rights Agreement also contains monetary penalties if the Company fails to maintain the effectiveness of the Windset Purchase Agreement. The non-voting junior preferred stock did not yield a dividend unless declared
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registration statement once deemed effective by the BoardSEC. As of Directorsthe date of Windset and no such dividend has been declared.
On June 1, 2021,this Quarterly Report on Form 10-Q, the Company has incurred approximately $0.8 million in monetary penalties under the Registration Rights Agreement.

Classification

The Convertible Preferred Stock is redeemable contingent upon the occurrence of an event that is not probable. Accordingly, the Company has presented the Convertible Preferred Stock outside of permanent equity. The Convertible Preferred Stock was recorded at its issuance date fair value of the net proceeds raised and Curation Foods entered intowill not require subsequent measurement until it becomes probable of being redeemable.

The Company recorded proceeds of $38.8 million, net of costs associated with the issuance of the Convertible Preferred Stock of approximately $0.7 million approximating $38.1 million. As of February 26, 2023, the Company recorded PIK dividends of approximately $0.4 million as a reduction to Additional Paid in Capital and closed a Share Purchase Agreement (the “Purchase Agreement”) with Newell Capital Corporation and Newell Brothers Investment 2 Corp., as Purchasers (the “Purchasers”) and Windset, pursuant to which Curation Foods sold all of its equity interests of Windsetan increase to the Purchasers in exchange for an aggregate purchase priceConvertible Preferred Stock balance to $38.5 million. As of $45.1 million.February 26, 2023, there were approximately 39,200 shares of Convertible Preferred Stock outstanding.

3.    Stock-based Compensation and Stockholders'Stockholders’ Equity
Stock-Based Compensation Activity
The estimated fair value for stock options, which determines the Company’s calculation of stock-based compensation expense, is based on the Black-Scholes option pricing model. Restricted stock units (“RSUs”) are valued at the closing market price of the Company’s common stock on the grant date. The Company uses the straight-line method to recognize the fair value of stock-based compensation arrangements.
During the three months ended August 28, 2022,February 26, 2023, the Company granted 725,000no options to purchase shares of common stock and awarded 255,00077,098 RSUs. During the nine months ended February 26, 2023, the Company granted 743,050 options to purchase shares of common stock and awarded 336,186 RSUs.
As of August 28, 2022,February 26, 2023, the Company has reserved 3.63.4 million shares of common stock for future issuance under its current and former equity plans.
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Stock-Based Compensation Expense
The Company’s stock-based awards include stock option grants and RSUs. The Company records compensation expense for stock-based awards issued to employees and directors in exchange for services provided based on the estimated fair value of the awards on their grant dates and is recognized over the required service periods, generally the vesting period.
The following table summarizes stock-based compensation by income statement line item:
Three Months EndedThree Months EndedNine months ended
(In thousands)(In thousands)August 28, 2022August 29, 2021(In thousands)February 26, 2023February 27, 2022February 26, 2023February 27, 2022
Continuing operations:Continuing operations:Continuing operations:
Cost of product salesCost of product sales$101 $81 Cost of product sales$109 $75 307 $177 
Research and developmentResearch and development90 49 Research and development31 51 173 151 
Selling, general and administrativeSelling, general and administrative594 534 Selling, general and administrative763 488 2,316 1,575 
Discontinued Operations:Discontinued Operations:Discontinued Operations:
Cost of product salesCost of product sales— (44)Cost of product sales— — 25 
Total stock-based compensationTotal stock-based compensation$785 $620 Total stock-based compensation$903 $622 $2,796 $1,928 

As of August 28, 2022,February 26, 2023, there was $6.9$5.0 million of total unrecognized compensation expense related to unvested equity compensation awards granted under the LandecLifecore incentive stock plans. Total expense is expected to be recognized over the weighted-average period of 2.43 years2.14 for stock options and 2.241.95 years for RSUs.
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Stock Repurchase Plan

On July 14, 2010, the Board of Directors of the Company approved the establishment of a stock repurchase plan which allows for the repurchase of up to $10.0 million of the Company’s common stock. The Company may still repurchase up to $3.8 million of the Company’s common stock under the Company’s stock repurchase plan. The Company may repurchase its common stock from time to time in open market purchases or in privately negotiated transactions. The timing and actual number of shares repurchased is at the discretion of management of the Company and will depend on a variety of factors, including stock price, corporate and regulatory requirements, market conditions, the relative attractiveness of other capital deployment opportunities and other corporate priorities. The stock repurchase program does not obligate LandecLifecore Biomedical to acquire any amount of its common stock and the program may be modified, suspended or terminated at any time at the Company'sCompany’s discretion without prior notice. During the threenine months ended August 28,February 26, 2023 and February 27, 2022, and August 29, 2021, the Company did not purchase any shares on the open market.market or in privately negotiated transactions.

4.    Diluted Earnings Per Share 
The following table sets forth the computation of diluted earnings per share:

Three Months EndedThree Months EndedNine Months Ended
(In thousands, except per share amounts)(In thousands, except per share amounts)August 28, 2022August 29, 2021(In thousands, except per share amounts)February 26, 2023February 27, 2022February 26, 2023February 27, 2022
Numerator:Numerator:  Numerator:  
Net lossNet loss$(12,064)$(9,477)Net loss$(40,192)$(13,086)$(63,992)$(61,116)
Denominator:Denominator:Denominator:
Weighted average shares for basic net loss per shareWeighted average shares for basic net loss per share29,577 29,424 Weighted average shares for basic net loss per share30,304 29,482 29,838 29,459 
Effect of dilutive securities:Effect of dilutive securities:Effect of dilutive securities:
Convertible preferred stockConvertible preferred stock— — — — 
Stock options and restricted stock unitsStock options and restricted stock units— — Stock options and restricted stock units— — — — 
Weighted average shares for diluted net loss per shareWeighted average shares for diluted net loss per share29,577 29,424 Weighted average shares for diluted net loss per share30,304 29,482 29,838 29,459 
Diluted net loss per share$(0.41)$(0.32)
Basic and Diluted net loss per shareBasic and Diluted net loss per share$(1.33)$(0.45)$(2.14)$(2.07)

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Due to the Company’s net loss for the three and nine months ended August 28,February 26, 2023 and February 27, 2022, and August 29, 2021, the net loss per share includes only the weighted average shares outstanding and thus excludes RSUs, and stock options and Convertible Preferred Stock, as such impact would be antidilutive. See Note 3 - Stock Based Compensation2 for more information on outstanding convertible preferred stock and Stockholders' EquityNote 3 for more information on outstanding RSUs and stock options.

5.    Income Taxes
The provision for income taxes from continuing operations for the threenine months ended August 28,February 26, 2023 and February 27, 2022, and August 29, 2021, was an expense of $0.1 million and a (expense)/benefit of $1.7$(78) thousand and $5.6 million, respectively. The effective tax rate for the threenine months ended August 28,February 26, 2023 and February 27, 2022 was 0.2% and August 29, 2021 was 1% and 18%32.0%, respectively. The effective tax rate for the threenine months ended August 28, 2022,February 26, 2023, was lower than the statutory federal income tax rate of 21% primarily due to the movement of the valuation allowance recorded against certain deferred tax assets, partially offset by the impact of federal and state research and development tax credits.
As of August 28, 2022both February 26, 2023 and May 29, 2022, the Company had unrecognized tax benefits of $1.1 million and $1.0 million, respectively.million. Included in the balance of unrecognized tax benefits as of August 28, 2022both February 26, 2023 and May 29, 2022, is $1.0 million and $0.9 million respectively, of tax benefits that, if recognized, would result in an adjustment to the Company’s effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly within the next twelve months.
The Company has elected to classify interest and penalties related to uncertain tax positions as a component of its provision for income taxes. The Company has accrued an insignificant amount of interest and penalties relating to the income tax on the unrecognized tax benefits as of August 28, 2022February 26, 2023 and May 29, 2022.
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Due to tax attribute carryforwards, the Company is subject to examination for tax years 2013 forward for U.S. tax purposes. The Company is also subject to examination in various state jurisdictions for tax years 2012 forward, none of which were significant.

6.    Debt
Long-term debt, net consists of the following:
(In thousands)(In thousands)August 28, 2022May 29, 2022(In thousands)February 26, 2023May 29, 2022
Term loanTerm loan$103,712 $103,712 Term loan$107,079 $103,712 
Total principal amount of long-term debtTotal principal amount of long-term debt103,712 103,712 Total principal amount of long-term debt107,079 103,712 
Less: unamortized debt issuance costsLess: unamortized debt issuance costs(5,143)(5,534)Less: unamortized debt issuance costs(8,115)(5,534)
Total long-term debt, net of unamortized debt issuance costsTotal long-term debt, net of unamortized debt issuance costs98,569 98,178 Total long-term debt, net of unamortized debt issuance costs98,964 98,178 
Less: current portion of long-term debt, netLess: current portion of long-term debt, net(2,704)(599)Less: current portion of long-term debt, net— (98,178)
Long-term debt, netLong-term debt, net$95,865 $97,579 Long-term debt, net$98,964 $— 

On December 31, 2020, the Company refinanced its previously existing Term Loanterm loan and Revolverrevolving credit facility by entering into two separate Credit Agreements (the "New Credit Agreements") with BMO and(1) a credit agreement Goldman Sachs Specialty Lending Group, L.P. (“Goldman”) and Guggenheim Credit Services, LLC ("Guggenheim"(“Guggenheim”), as lenders, (collectively,which provided the “Refinance Lenders”). PursuantCompany, Curation Foods and Lifecore, as co-borrowers, with term loan borrowings of up to the$170.0 million (the “Prior Term Loan Facility”), and (ii) a credit agreement related to the revolving credit facility,with BMO hasHarris Bank, N.A. (“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 “Refinance Revolver”)“Revolving Credit Facility” and serves as administrative agent of the Refinance Revolver. Pursuant to the credit agreement related to the term loan, Goldman and Guggenheim have provided the Company, Curation Foods and Lifecore, as co-borrowers,together with an up to $170.0 million term loan facility (split equally between Goldman and Guggenheim) (the “Refinance Term Loan”) and Goldman serves as administrative agent of the Refinance Term Loan. The Refinance Revolver and RefinancePrior Term Loan areFacility, the “Credit Facilities”). 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'sCompany’s direct and indirect subsidiaries'subsidiaries’ assets.
The RefinanceIn April 2022 the Company amended the Credit Facilities to make available an additional $20.0 million of term debt that had been previously repaid. In connection with this amendment, the Company incurred debt issuance costs from the lender of $0.7 million.

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, 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.

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 $50.0 million upon the sale of Yucatan.
The Prior Term Loan Facility would have matured on December 31, 2025. The Revolving Term Facility matures on December 31, 2025. The Refinance Revolver matures on December 31, 2025 or, if the Refinance Term Loan remains outstanding on such date, ninety (90) days prior to the maturity date of the Refinance Term Loan (on October 2, 2025).
The Refinance Term Loan provides for principal payments by the Company of 5% per annum, payable quarterly in arrears in equal installments, commencing on March 30, 2023, with the remainder due at maturity.
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Interest on the Refinance RevolverRevolving Credit Facility is based upon the Company’s average availability, at a per annum rate of either (i) LIBORSOFR 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. Interest on the RefinancePrior Term Loan isFacility was at a per annum rate based on either (i) the base rate plus a spread of 7.50% or (ii) the LIBORSOFR rate plus a spread of 8.50%. The RefinancePrior Term Loan Credit AgreementFacility also providesprovided 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 NewRevolving Credit Agreements provideFacility contains, and the Company the right to increase the revolver commitments under the Refinance Revolver, subject to the satisfaction of certain conditions (including consent from BMO), by obtaining additional commitments from either BMO or another lending institution at an amount of up to $15.0 million.
The New Credit Agreements containPrior Term Loan Facility contained, customary financial covenants and events of default under which the obligations thereunder could be accelerated and/or the interest rate increased in specified circumstances.
In connection with the NewJanuary 2023 amendments to the Credit Agreements,Facilities, the Company incurred debt issuance costs from the lender and third-parties of $10.3 million.
Concurrent with the close of the New Credit Agreements, the Company repaid all outstanding borrowings under the previous Credit Agreement, and terminated such previous Credit Agreement. In connection with the repayment of borrowings under such previous Credit Agreement, the Company recognized a loss in fiscal year 2021 of $1.1 million as a resultand $62.5 thousand, respectively, during the nine months ended February 26, 2023.
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Table of the non-cash write-off of unamortized debt issuance costs related to the refinancing under the New Credit Agreements.Contents
In April 2022 the Company amended the New Credit Agreement to make available again $20.0 million of term debt that had been previously repaid. In connection with this amendment, the Company incurred debt issuance costs from the lender of $0.7 million.
As of August 28, 2022, $44.0February 26, 2023, the Company had $16.0 million wasin borrowings outstanding onunder the RefinanceAmended Revolver Credit Facility, at an effective annual interest rate of 4.1%7.2%. As of August 28, 2022,February 26, 2023, the RefinanceCompany had $107.0 million in borrowings outstanding under the Prior Term Loan hadFacility, at an effective annual interest rate of 10.1%13.2%. As the Company was able to refinance the Term Debt with New Term Debt subsequent to February 26, 2023 but prior to the filing of August 28, 2022,this Quarterly Report on Form 10-Q, we have classified the obligation as long term as of our balance sheet date.
As of February 26, 2023, the Company was not in compliance with all financial covenants under the Credit Facilities. As further described in Note 10 – Subsequent Events, on May 22, 2023, the Company entered into the New Term Loan Facility, and concurrently therewith, terminated the Prior Term Loan Facility and repaid the borrowings outstanding thereunder, and entered into a further amendment to the Revolving Credit Facility, at which time the Company was in compliance with all financial covenants and had no events of default under the New Term Loan Facility and the Revolving Credit Agreements.Facility.
Derivative Instruments
On November 1, 2016, the Company entered into an interest rate swap contract (the “2016 Swap”) with BMO at a notional amount of $50.0 million. The 2016 Swap had the effect of changing the Company’s previous Term Loanterm loan obligation from a variable interest rate to a fixed 30-day LIBOR rate of 1.22%. The 2016 Swap matured in September 2021.
On June 25, 2018, the Company entered into an interest rate swap contract (the “2018 Swap”) with BMO at a notional amount of $30.0 million. The 2018 Swap had the effect on the Company’s previous debt of converting the first $30.0 million of the total outstanding amount of the Company’s 30-day LIBOR borrowings from a variable interest rate to a fixed 30-day LIBOR rate of 2.74%. The 2018 Swap matured in September 2021.
On December 2, 2019, the Company entered into an interest rate swap contract (the "2019 Swap"“2019 Swap”) with BMO at a notional amount of $110.0 million which decreases quarterly. The 2019 Swap had the effect on our previous debt of converting primarily all of the $110.0 million of the total outstanding amount of the Company'sCompany’s 30-day LIBOR borrowings from a variable interest rate to a fixed 30-day LIBOR rate of 1.53%. The 2019 Swap will maturematured in November 2022.

7.    Business Segment Reporting
The Company operateshistorically operated using three strategic reportable business segments, aligned with how the Chief Executive Officer, who is the chief operating decision maker (“CODM”), manages the business: the Lifecore segment, the Curation Foods segment, and the Other segment.
The Lifecore segment sells products utilizing hyaluronan, a naturally occurring polysaccharide that is widely distributed in the extracellular matrix of connective tissues in both animals and humans, and non-HA products for medical use primarily in the Ophthalmic, Orthopedic and other markets.
The Curation Foods business includes (i)included activities from three natural food brands, including O Olive Oil & Vinegar, Yucatan Foods, and Cabo Fresh, and (ii) BreatheWay® activities.Fresh. The Curation Foods segment includes sales of BreatheWay packaging to partners for fruit and vegetable products, sales of olive oils and wine vinegars under the O brand, and sales of avocado products
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under the brands Yucatan Foods and Cabo Fresh. In December 2021, the Company completed the Eat Smart Disposition.Disposition and on February 7, 2023 the Company completed the sale of the avocado products business, including its Yucatan® and Cabo Fresh® brands. As a result, the Company met the requirements of ASC 205-20 to report the results of the Eat Smart businessand Yucatan Foods businesses as discontinued operations. The operating results for the Eat Smart business,and Yucatan Foods businesses, in all periods presented, have been reclassified to discontinued operations and are no longer reported in the Curation Foods business segment. See Note 1 – Organization, Basis of Presentation, and Summary of Significant Accounting Policies – Eat Smart SaleYucatan Foods and Discontinued Operations for further discussion.
The Other segment includes corporate general and administrative expenses, non-Lifecore and non-Curation Foods interest expense, interest income, and income tax expenses. Corporate overhead is allocated between segments based on actual utilization and relative size.
All of the Company'sCompany’s assets are located within the United States of America except for its Yucatan production facility in Mexico.America.
The Company’s international sales by geography are based on the billing address of the customer and were as follows, excluding discontinued operations:
Three Months Ended
(In millions)August 28, 2022August 29, 2021
Switzerland$4.0 $3.4 
Canada3.7 3.5 
All Other Countries1.9 1.7 
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Three Months EndedNine Months Ended
(In millions)February 26, 2023February 27, 2022February 26, 2023February 27, 2022
Switzerland$6.8 $8.2 $14.8 $13.6 
Canada0.7 0.2 1.9 1.4 
Czech Republic0.7 0.7 2.4 2.4 
Ireland1.1 0.5 2.9 1.3 
Australia1.1 — 1.1 — 
United Kingdom0.6 0.9 1.4 2.2 
All Other Countries0.2 1.6 0.4 1.9 

Operations by business segment consisted of the following:
(In thousands)(In thousands)LifecoreCuration FoodsOtherTotal(In thousands)LifecoreCuration FoodsOtherTotal
Three Months Ended August 28, 2022
Three Months Ended February 26, 2023Three Months Ended February 26, 2023
Net salesNet sales$23,703 $19,652 $— $43,355 Net sales$26,330 $1,270 $— $27,600 
Gross profitGross profit6,101 (280)— 5,821 Gross profit6,072 (94)— 5,978 
Net (loss) income from continuing operationsNet (loss) income from continuing operations502 (3,374)(9,192)(12,064)Net (loss) income from continuing operations851 280 (16,592)(15,461)
Loss from discontinued operations, net of taxLoss from discontinued operations, net of tax— — — — Loss from discontinued operations, net of tax— (22,802)(1,929)(24,731)
Depreciation and amortizationDepreciation and amortization1,771 2,820 11 4,602 Depreciation and amortization1,878 243 10 2,131 
Interest incomeInterest income15 — — 15 Interest income16 — 22 
Interest expenseInterest expense— — 3,678 3,678 Interest expense— — 5,818 5,818 
Income tax (benefit) expenseIncome tax (benefit) expense158 (1,065)971 64 Income tax (benefit) expense268 (3,019)2,821 70 
Corporate overhead allocationCorporate overhead allocation1,038 334 (1,372)— Corporate overhead allocation739 241 (980)— 
Nine Months Ended February 26, 2023Nine Months Ended February 26, 2023
Net salesNet sales$71,723 $6,025 $— $77,748 
Gross profitGross profit18,847 723 — 19,570 
Net (loss) income from continuing operationsNet (loss) income from continuing operations2,269 (1,974)(35,008)(34,713)
Loss from discontinued operations, net of taxLoss from discontinued operations, net of tax— (27,350)(1,929)(29,279)
Depreciation and amortizationDepreciation and amortization5,492 2,637 31 8,160 
Dividend incomeDividend income— — — — 
Interest incomeInterest income47 — 53 
Interest expenseInterest expense— 13,714 13,715 
Income tax (benefit) expenseIncome tax (benefit) expense717 (4,135)3,496 78 
Corporate overhead allocationCorporate overhead allocation2,799 858 (3,657)— 
Three Months Ended August 29, 2021
(In thousands)(In thousands)LifecoreCuration FoodsOtherTotal
Three Months Ended February 27, 2022Three Months Ended February 27, 2022
Net salesNet sales$21,952 $19,680 $— $41,632 Net sales$34,808 $2,591 $— $37,399 
Gross profitGross profit5,764 4,671 — 10,435 Gross profit12,905 (39)— 12,866 
Net (loss) income from continuing operationsNet (loss) income from continuing operations580 (284)(7,929)(7,633)Net (loss) income from continuing operations5,054 (5,380)(6,312)(6,638)
Loss from discontinued operations, net of taxLoss from discontinued operations, net of tax— (1,844)— (1,844)Loss from discontinued operations, net of tax— (3,407)(3,041)(6,448)
Depreciation and amortizationDepreciation and amortization1,547 881 26 2,454 Depreciation and amortization1,674 304 18 1,996 
Interest incomeInterest income20 — 27 Interest income18 — 20 
Interest expenseInterest expense— 137 6,541 6,678 Interest expense— 26 4,079 4,105 
Income tax (benefit) expenseIncome tax (benefit) expense183 (218)(1,616)(1,651)Income tax (benefit) expense1,596 (1,678)(5)(87)
Corporate overhead allocation1,137 1,471 (2,608)— 
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Corporate overhead allocation1,175 289 (1,464)— 
Nine Months Ended February 27, 2022
Net sales$81,707 $8,433 $— $90,140 
Gross profit30,384 1,249 — 31,633 
Net (loss) income from continuing operations11,317 4,640 (27,340)(11,383)
Loss from discontinued operations, net of tax— (46,692)(3,041)(49,733)
Depreciation and amortization4,894 364 70 5,328 
Interest income57 — 66 
Interest expense— 300 13,577 13,877 
Income tax (benefit) expense3,574 (13,422)4,257 (5,591)
Corporate overhead allocation3,389 778 (4,167)— 

During the threenine months ended August 28,February 26, 2023 and February 27, 2022, and August 29, 2021, the Company had sales concentrations of 10% or greater from two customers. The Company’s top two customers, from the Lifecore segment, accounted for 16%37% and 10%15% of total revenues for the threenine months ended August 28, 2022,February 26, 2023, and 15%17% and 11%13% for the threenine months ended August 29, 2021.February 27, 2022. The Company had accounts receivable concentrations of 10% or greater from threetwo customers accounting for 21%, 16%,47% and 13%10% of accounts receivable as of August 28, 2022,February 26, 2023, and two customers as of August 29, 2021February 27, 2022 accounting for 12%25% and 10%19%.
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8.    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 includes a reduction-in-force, a reduction in leased office spaces and the sale of non-strategic assets.
The following table summarizes the restructuring costs recognized in the Company’s Consolidated Statements of Comprehensive (Loss) Income, by Business Segment, excluding discontinued operations:operations. There were no restructuring costs recognized on the Lifecore segment.
(in thousands)(in thousands)Curation FoodsOtherTotal(in thousands)Curation FoodsOtherTotal
Three Months Ended August 28, 2022
Three Months Ended February 26, 2023Three Months Ended February 26, 2023
Employee severance and benefit costsEmployee severance and benefit costs$208 $— $208 Employee severance and benefit costs$683 $1,679 $2,362 
Lease costsLease costs20 — 20 Lease costs43 — 43 
Other restructuring costsOther restructuring costs194 625 819 Other restructuring costs175 161 336 
Total restructuring costsTotal restructuring costs$422 $625 $1,047 Total restructuring costs$901 $1,840 $2,741 
(in thousands)(in thousands)Curation FoodsOtherTotal
Nine Months Ended February 26, 2023Nine Months Ended February 26, 2023
Employee severance and benefit costsEmployee severance and benefit costs927 1,679 2,606 
Lease costsLease costs88 — 88 
Other restructuring costsOther restructuring costs494 1,423 1,917 
Total restructuring costsTotal restructuring costs$1,509 $3,102 $4,611 
Employee severance and benefit costs
Employee severance and benefit costs are costs incurred as a result of reduction-in-force driven by our restructuring plan and closure of offices and facilities. These costs were driven primarily by reduction-in-force related to our Curation Foods segment.
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Lease Costs
In August 2020, the Company closed its leased Santa Clara, California office and entered into a sublease agreement. In the fourth quarter of fiscal year 2020 the Company closed its leased Los Angeles, California office and plans to sublease the office. The Company approved a plan to explore opportunities to sub lease its Santa Maria office and expects to complete the sublease plan within the next 12 months.

Other restructuring costs

Other restructuring costs are primarily related to consulting costs incurred in connection with the execution of the Company’s 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.
The following table summarizes the restructuring costs recognized in the Company’s Consolidated Statements of (Loss) Income, by Business Segment, since inception of the restructuring plan in fiscal year 2020 through the threenine months ended August 28, 2022,February 26, 2023, excluding discontinued operations:

Curation FoodsOtherTotalCuration FoodsOtherTotal
(in thousands)(in thousands)(in thousands)
Asset write-off costs, netAsset write-off costs, net$7,552 $418 $7,970 Asset write-off costs, net$7,552 $418 $7,970 
Employee severance and benefit costsEmployee severance and benefit costs767 784 1,551 Employee severance and benefit costs1,486 2,463 3,949 
Lease costsLease costs2,238 26 2,264 Lease costs2,306 26 2,332 
Other restructuring costsOther restructuring costs517 5,523 6,040 Other restructuring costs817 6,321 7,138 
Total restructuring costsTotal restructuring costs$11,074 $6,751 $17,825 Total restructuring costs$12,161 $9,228 $21,389 

The total expected cost related to the restructuring plan is approximately $23.0 million.


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9.    Discontinued Operations

As discussed in Note 1 – Organization, Basis of Presentation, and Summary of Significant Accounting Policies – Eat Smart SaleYucatan Disposition and Discontinued Operations, on December 13, 2021,February 7, 2023, we completed the Eat SmartYucatan Disposition. Eat SmartYucatan Foods represented a component of the business within the Curation Foods segment and its sale represents a strategic shift in the Company going forward. Accordingly, concurrent with the execution of the AssetSecurities Purchase Agreement, Eat SmartYucatan meets the accounting requirements for reporting as discontinued operations for all periods presented. The Discontinued Operations includes the operations of Eat Smart prior to its sale.

There were no assets or liabilities of Yucatan Foods as of February 26, 2023. The assets and liabilities of Yucatan as of May 29, 2022 were as follows (in thousands):
May 29, 2022
ASSETS
   Cash and cash equivalents$652 
   Accounts receivable, less allowance for credit losses8,078 
   Inventories22,545 
   Prepaid expenses and other current assets1,869 
Total current assets, discontinued operations33,144 
   Property and equipment, net3,500 
   Operating lease right-of-use assets2,061 
   Trademarks/tradenames, net4,000 
   Customer relationships, net1,400 
   Other assets102 
Total other non-current assets, discontinued operations11,063 
Total assets, discontinued operations$44,207 
LIABILITIES
   Accounts payable$2,814 
   Accrued compensation297 
   Other accrued liabilities800 
   Current portion of lease liabilities434 
Total current liabilities, discontinued operations4,345 
   Long-term lease liabilities1,627 
Non-current liabilities, discontinued operations1,627 
Total liabilities, discontinued operations$5,972 

The key components of income from discontinued operations for the three and nine months ended August 28,February 26, 2023 and February 27, 2022 and August 29, 2021 were as follows (in thousands):

Three Months Ended
August 29, 2021
Product sales$87,156 
Cost of product sales80,072 
Gross profit7,084 
Operating costs and expenses:
Research and development953 
Selling, general and administrative6,469 
Restructuring costs728 
Total operating costs and expenses8,150 
Operating loss(1,066)
Dividend income— 
Interest expense(1,239)
Loss from discontinued operations before taxes(2,305)
Income tax benefit461 
Loss from discontinued operations, net of tax$(1,844)
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Three Months EndedNine Months Ended
February 26, 2023February 27, 2022February 26, 2023February 27, 2022
Product sales$10,811 $29,234 $42,820 $234,773 
Cost of product sales12,571 29,041 44,812 222,948 
Gross profit(1,760)193 (1,992)11,825 
Operating costs and expenses:
Research and development— 159 1,981 
Selling, general and administrative1,902 3,245 5,216 19,804 
Impairment of intangible asset and goodwill— — 1,000 32,057 
Loss on sale of Eat Smart— 235 — 235 
Loss on Sale of Yucatan21,039 21,039 
Restructuring costs30 3,209 30 4,642 
Total operating costs and expenses22,971 6,848 27,287 58,719 
Operating loss(24,731)(6,655)(29,279)(46,894)
Interest expense— (204)— (2,682)
Loss from discontinued operations before taxes(24,731)(6,859)(29,279)(49,576)
Income tax benefit (expense)— 411 — (157)
Loss from discontinued operations, net of tax$(24,731)$(6,448)$(29,279)$(49,733)

Cash provided by operating activities by the Yucatan business totaled $0.1 million and $2.9 million for the nine months ended February 26, 2023 and 2022, respectively. There was no cash used in investing activities from the Yucatan business for the nine months ended February 26, 2023 and $2.5 million cash used in investing activities from the Yucatan business for the nine months ended February 27, 2022. Depreciation and amortization expense of the Yucatan business totaled $0.1 million and $0.8 million for the three months ended February 26, 2023 and 2022, respectively, and $0.5 million and $2.8 million for the nine months ended February 26, 2023 and 2022, respectively. There were no capital expenditures of the Yucatan business for the nine months ended February 26, 2023 and $2.5 million of capital expenditures for the nine months ended February 27, 2022.

There was no cash used, provided by, nor any capital expenditures of, the Eat Smart business for the nine months ended February 26, 2023. Cash used in operating activities and cash provided by investing activities by the Eat Smart business totaled $0.0$5.5 million and $0.2$117.8 million for the threenine months ended August 28,February 27, 2022, and August 29, 2021, respectively. Cash provided by investing activities from the Eat Smart business totaled $0.0 million and $45.1 million for the three months ended August 28, 2022 and August 29, 2021, respectively. Depreciation and amortization expense of the Eat Smart business totaled $0.0$0.3 million and $2.3$5.1 million for the three and nine months ended August 28, 2022 and August 29, 2021, respectively.February 27, 2022. Capital expenditures of the Eat Smart business totaled $0.0 million and $1.1$1.9 million for the threenine months ended August 28, 2022 and August 29, 2021, respectively.

Interest expense was allocated to discontinued operations based on the interest expense related to the amount of debt required to be paid down under the New Credit Agreements as a result of the Eat Smart Disposition.

There were no assets or liabilities of Eat Smart as of August 28, 2022 or May 29,February 27, 2022.

10.    Subsequent Events

Sale of O Olive Oil and Vinegar Business

On April 6, 2023, the Company completed the sale of its O Olive Oil and Vinegar Business. (“O Olive Sale) for an aggregate purchase price of $6.2 million, subject to certain customary post-closing adjustments, consisting of approximately $3.1 million in cash and $3.1 million seller's note. The seller’s note matures on March 31, 2026, accrues interest at a rate of 12% payable in kind beginning on October 31, 2023, and is prepayable by the buyer at any time. Net proceeds from the transaction were used to repay borrowings under the Company’s credit facilities. The results of operations related to the O Olive business will be reported as discontinued operations beginning in the fourth quarter ended May 28, 2023. The Company is in the process of analyzing the results of the O Olive Sale, however it expects to recognize a loss on the O Olive Sale in the fourth quarter ended May 28, 2023. A potential range of losses cannot be estimated at this time.

Alcon Supply Agreement

On May 3, 2023, the Company entered into an Amended and Restated Supply Agreement (the “Supply Agreement”), dated May 3, 2023, with Alcon, which amended and restated certain existing supply agreements entered into between the Company and Alcon-Couvreur N.V., an affiliate of Alcon, related to the Company’s manufacture and supply of sodium hyaluronate (“HA”) for Alcon.

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The initial term of the Supply Agreement expires December 31, 2033.Following the initial term, the Supply Agreement automatically extends for an additional two-year term unless Alcon provides the Company with a notice of non-renewal prior to the expiration of the initial term. The Supply Agreement also contains certain termination provisions which provide that the agreement may be terminated (a) by Alcon upon six months’ written notice to the Company, or (b) by either party if the other party fails to perform or otherwise breaches any of its material obligations under the Supply Agreement, the non-breaching party notifies the breaching party of its intent to terminate the Supply Agreement, and the breaching party fails to cure such breach.

The Supply Agreement contains terms and provisions customary for transactions of this type, including product warranties and confidentiality and indemnification obligations. Orders of HA pursuant to the Supply Agreement are based on customary forecasting mechanics and are payable by Alcon based on certain prices that are subject to annual index-based adjustments. Pursuant to the Supply Agreement, the Company is also required to commit certain HA manufacturing capacity based on Alcon’s forecasts. Alcon and the Company have also agreed to negotiate in good faith to finalize a plan to increase the Company’s HA manufacturing capacity to meet the anticipated volumes.In the event the Company is unable to supply the agreed-upon volumes and safety stock pursuant to the Supply Agreement, under certain circumstances, Alcon will be entitled to certain rights with respect to the manufacturing and supply of HA for Alcon.

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, as administrative agent, collateral agent and lender, entered into that certain Credit and Guaranty Agreement (the “New Term Loan Credit Facility”).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.

The New Term Loan Credit Facility provides for up to $140.0 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 obligations under the New Term Loan Credit Facility mature on May 22, 2029. The New Term Loan Credit Facility is secured by the same collateral that secures the Revolving Credit Facility (as defined below), with relative priorities in respect thereof, as set forth in the Intercreditor Agreement (as defined below).

The loans under the New Term Loan Credit Facility have a fixed interest rate equal to 10% per annum.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. The New Term Loan Credit Facility contains customary affirmative covenants including, but not limited to, financial reporting requirements and maintenance of existence requirements and negative covenants, including, but not limited to, limitations on the incurrence of debt, liens, investments, restricted payments, restricted debt payments, and affiliate transactions. 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.

In connection with the New Term Loan Facility, the Company wrote off deferred financing costs amounting to $7.5 million and paid prepayment penalties of $12.9 million to our prior term loan lenders.

Pledge and Security Agreement

Also on May 22, 2023, the Borrowers and certain of the Company’s other subsidiaries, as grantors (collectively, the “Grantors”), entered into that certain Pledge and Security Agreement (the “Term Loan Security Agreement”), dated as of May 22, 2023, with Alcon, as collateral agent. Pursuant to the Term Loan Security Agreement, the Grantors secured their obligations under the New Term Loan Credit Facility by granting to Alcon, as collateral agent, a first priority security interest in certain collateral, including but not limited to equipment, fixtures, real property and intellectual property. The security interest granted by the Grantors under the Term Loan Security Agreement continues in effect until the payment in full of all of the secured obligations under the New Term Loan Credit Facility.

Amendment to Revolving Credit Agreement

On May 22, 2023, the Borrowers and certain of the Company’s other subsidiaries, as guarantors, entered intoa Limited Waiver, Consent and Fifth Amendment (the “Revolving Loan Amendment”) to the Revolving Credit Facility

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
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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.

In connection with the entry into the Revolving Loan Amendment, the Company also agreed to pay to BMO an amendment fee of $1.2 million, $800,000 of which is paid concurrently with the Company’s entry into the Revolving Loan Amendment, with the remaining $400,000 payable upon the earlier of (i) repayment in full of the Company’s obligations, and termination of all commitments, under the Revolving Credit Facility and (ii) the occurrence of a Change of Control (as defined in the Revolving Credit Facility).

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”).

In connection with the Revolving Loan Amendment, the Company wrote off deferred financing costs amounting to $0.6 million during the fourth quarter of fiscal year 2023.

As the Company's borrowings under the Amended Loan Amendments for the next twelve months will increase to above the $16.0 million as of the balance sheet date, and scheduled repayments is not due until December 31, 2025, we have determined the line of credit to be classified as a long-term liability as of February 26, 2023.

Equipment Sale and Leaseback Agreements

On May 22, 2023, the Company entered into that certain Equipment Sale and Leaseback Agreement (the “Equipment Sale and Leaseback Agreement” and, together with the Equipment Sale Leaseback Agreement, the New Term Loan Credit Facility, the Term Loan Security Agreement, and the Revolving Loan Amendment, collectively, the “Refinancing Transactions”), dated May 22, 2023, with Alcon, wherein the Company sold $10.0 million (subject to certain post-closing adjustments) (the “Purchase Price”) of certain equipment, machinery, and other property associated with the production of sodium hyaluronate (the “Equipment”) to Alcon. 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).

Concurrently with the entry into the Equipment Sale and Leaseback Agreement, the Company entered into that certain Equipment Lease Agreement (the “Equipment Lease Agreement”), dated May 22, 2023, with Alcon, wherein Alcon leased the Equipment back to the Company. The Equipment Lease Agreement expires upon the earlier of (i) May 22, 2033, and (ii) the date that the Equipment is repurchased by the Company pursuant to the terms of the Equipment Lease Agreement. Upon the expiration of the Equipment Lease Agreement on May 22, 2033, the Company shall automatically repurchase the Equipment for $1.00 (if not previously repurchased pursuant to the option under the Equipment Sale and Leaseback Agreement).

During the lease term, the Company is obligated to make quarterly rental payments to Alcon equal to (i) 1/40th of the Purchase Price (the “Paydown Payments”), plus (ii) 1.5% times the Purchase Price less cumulative Paydown Payments made.

The Equipment Lease Agreement contains terms and provisions (including representations, covenants and conditions) that are generally customary for a commercial lease of this nature, including obligations relating to the use, operation and maintenance of the Equipment. During the term of the lease, Alcon is not permitted to sell or encumber the Equipment. 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.
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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the unaudited consolidated financial statements and accompanying notes included in Part I, Item 1, of this Form 10-Q and the audited consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Landec’sLifecore Biomedical’s Annual Report on Form 10-K10-K/A for the fiscal year ended May 29, 2022.
This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results that are subject to the safe harbor created under the Private Securities Litigation Reform Act of 1995 and other safe harbors under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Words such as “anticipate”, “estimate”, “expect”, “project”, “plan”, “intend”, “believe”, “may”, “might”, “will”, “should”, “can have”, “likely” and similar expressions are used to identify forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected. Potential risks and uncertainties include, without limitation, the timing and expenses associated with operations, the ability to achieve acceptance of our new products in the market place, weather conditions that can affect the supply and price of produce, government regulations affecting our business, uncertainties related to COVID-19 and the impact of our responses to it, the timing of regulatory approvals, the impact of adverse and uncertain economic conditions in the U.S. and international markets, the mix between domestic and international sales, our ability to continue as a going concern, and those other risks mentioned in this report and in our Annual Report on Form 10-K10-K/A for the fiscal year ended May 29, 2022.
We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Accordingly, our actual results could differ materially from those projected in the forward-looking statements for many reasons, including the risk factors listed in Item 1A. “Risk Factors” and in our Annual Report on Form 10-K10-K/A for the fiscal year ended May 29, 2022.
All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements as well as others made in this report, our Annual Report on Form 10-K10-K/A for the fiscal year ended May 29, 2022, and hereafter in our other SEC filings and public communications.
You should evaluate all forward-looking statements made by us in the context of all risks and uncertainties described with respect to our business. We caution you that the risks and uncertainties identified by us may not be all of the factors that are important to you. Furthermore, the forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Critical Accounting Policies and Use of Estimates
There have been no material changes to the Company'sCompany’s critical accounting policies and use of estimates from those disclosed in the Company’s Form 10-K10-K/A for the fiscal year ended May 29, 2022. For a discussion of our critical accounting policies and use of estimates, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Use of Estimates in Part II, Item 7 of the Company’s Annual Report on Form 10-K10-K/A for the fiscal year ended May 29, 2022.

The Company

Corporate Overview
Landec CorporationLifecore Biomedical and its subsidiaries (“Landec,Lifecore Biomedical,” the “Company”, "we"“we” or "us"“us”) design, develop, manufacture, and sell differentiated products for food and biomaterials markets, and license technology applications to partners.
Landec’sLifecore 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. As a leading manufacturer of premium, injectable grade Hyaluronic Acid, Lifecore brings 37 years of expertise as a partner for global and emerging biopharmaceutical and biotechnology companies across multiple therapeutic categories to bring their innovations to market.
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Landec’sLifecore Biomedical’s natural food company, Curation Foods, Inc. (“Curation Foods”) is focused on innovating and distributing plant-based foods with 100% clean ingredients to retail, club and foodservice channels throughout North America.
LandecLifecore Biomedical was incorporated in California on October 31, 1986 and reincorporated as a Delaware corporation on November 6, 2008. Landec’s common stock iswas previously listed on Thethe NASDAQ Global Select Market under the symbol “LNDC”. The Company’s principal executive offices are located at 2811 Airpark Drive Santa Maria, California 93455,3515 Lyman Boulevard Chaska, Minnesota 55318, and the telephone number is (650) 306-1650.(952) 368-4300.
On November 14, 2022, the Company filed an amendment to its Certificate of Incorporation to change the Company’s name from Landec Corporation to Lifecore Biomedical, Inc. (“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 began trading under its new NASDAQ ticker symbol “LFCR” on November 15, 2022. References to “Landec” or “Landec Corporation” refer to operations and/or transactions of the Company prior to the Name Change.
Going Concern Update
As disclosed in the Company’s previous filings, the Company had previously determined that there were factors, which was principally the result of our noncompliance with financial covenants, that raised substantial doubt about its ability to continue as a going concern. Since that time, the Company has taken measures to strengthen its financial position, including the repayment and termination of the Prior Term Loan Facility, and the entry into the Refinancing Transactions (defined below), in each case, on May 22, 2023. The Refinancing Transactions provided the Company with additional liquidity, eliminated the Company’s noncompliance with its financial covenants under Credit Facilities (including granting the Company applicable waivers under the Revolving Term Loan Facility), reduced the Company’s near-term debt service costs, and eliminated certain financial covenants that existed under the Prior Term Loan Facility. In addition, the completion of the Company’s sale of the Yucatan and O Olive business, and the entry into an amended and restated supply agreement with Alcon Research, LLC (“Alcon”) to extend and expand its prior supply agreement, as further described in Note 10 – Subsequent Events, also provided the Company with additional liquidity. The cash provided under the Refinancing Transactions, completed divestitures of remaining Curation Foods businesses, and the lower debt service costs under our Refinancing Transactions provide improved forecasted cash flow from operations that allow sufficient liquidity over the next 12 months to meet our obligations as they come due.
Based on the foregoing, management believes that our cash position as of the date of filing these financial statement (the “Filing Date”) and forecasted cash flow from operations is sufficient to meet capital and liquidity requirements for at least the next 12 months. As a result, there is no longer substantial doubt about the Company’s ability to continue as a going concern.
Securities Purchase Agreement
On November 25, 2022, the Company entered into a Securities Purchase Agreement (the “Wynnefield Purchase Agreement”) with entities affiliated with Wynnefield Capital, Inc. (the “Purchasers”). Pursuant to the Wynnefield Purchase Agreement, the Company agreed to sell an aggregate of 627,746 shares of its common stock (the “Shares”) for aggregate gross proceeds of approximately $5.0 million (the “Offering”). The purchase price for each Share was $7.97. The Offering closed on November 25, 2022. Pursuant to the Wynnefield Purchase Agreement, the Company granted the Purchasers certain piggyback registration rights and agreed, among other things, to indemnify such parties under any registration statement filed that includes the Shares from certain losses, claims, damages and liabilities.
Series A Convertible Preferred Share Purchase Agreement
On January 9, 2023, the Company simultaneously signed and closed the Preferred Share Purchase Agreement with a group of qualified investors. Pursuant to the Preferred Share Purchase Agreement, the Company issued and sold an aggregate of 38,750 shares of a new series of convertible preferred stock of the Company designated as Series A Convertible Preferred Shares, par value $0.001 per share (the “Convertible Preferred Stock”) for an aggregate of $38.8 million. The Convertible Preferred Stock ranks senior to the Company’s Common Stock with respect to dividends, distributions and payments on liquidation, winding up and dissolution. Each holder of Convertible Preferred Stock has the right, at its option, to convert its Convertible Preferred Stock, in whole or in part, into fully paid and non-assessable shares of our Common Stock at an initial conversion price equal to $7.00 per share. The conversion price is subject to customary anti-dilution adjustments, including in the event of any stock split, stock dividend, recapitalization or similar events, and is also subject to adjustment in the event of subsequent offerings of Common Stock or convertible securities by the Company for less than the conversion price. Immediately following the closing of the Preferred Share Repurchase Agreement, two Series A Convertible Preferred Stock directors were appointed to the Company’s Board of Directors.
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Yucatan Disposition
On February 7, 2023 (the “Closing Date”), Company, Camden Fruit Corp., a direct wholly owned subsidiary of Curation Foods and an indirect wholly owned subsidiary of the Company (“Camden” and together with the Curation Foods and the Company, the “Sellers”), Yucatan Foods, LLC, a wholly owned subsidiary of the Camden (“Yucatan”), and Yucatan Acquisition Holdings LLC, a wholly owned subsidiary of Flagship Food Group LLC (“Buyer” and together with Yucatan and the Sellers, the “Parties”) completed the sale (the “Yucatan Disposition”) 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 “Business”), pursuant to the terms of a securities purchase agreement executed by the Parties on February 7, 2023 (the “Securities Purchase Agreement”). Pursuant to the Securities Purchase Agreement, Buyer acquired all of the outstanding equity securities of Yucatan for a purchase price of $17.5 million in cash, subject to certain post-closing adjustments at closing, including selling costs, net working capital and other adjustments amounting to $5.0 million. The Company recognized a loss on the Yucatan Disposition of $21.0 million in the third quarter ended February 26, 2023. The loss on the Yucatan Disposition is recorded in loss from discontinued operations in the Consolidated Statement of Comprehensive (Loss) Income.
Sale of O Olive Oil and Vinegar Business
On April 6, 2023, the Company completed the sale of all of its Curation Foods assets related to the O Olive Oil and Vinegar Business. (“O Olive Sale) for an aggregate purchase price of $6.2 million, subject to certain customary post-closing adjustments, consisting of approximately $3.1 million in cash and $3.1 million seller's note. The seller’s note matures on March 31, 2026, accrues interest at a rate of 12% payable in kind beginning on October 31, 2023 and is prepayable by the buyer at any time. Net proceeds from the transaction were used to repay borrowings under the Company’s credit facilities. The results of operations related to the O Olive Business will be reported as discontinued operations beginning in the fourth quarter ended May 28, 2023. The Company is in the process of analyzing the results of the O Olive Sale, however it expects to recognize a loss on the O Olive Sale in the fourth quarter ended May 28, 2023. A potential range of losses cannot be estimated at this time.
Reportable Segments
LandecLifecore Biomedical has three reportable business segments – Lifecore, Curation Foods, and Other, which are described below.
Lifecore Biomedical
Lifecore, located in Chaska, Minnesota, is a fully integrated CDMO that offers highly differentiated capabilities in the development, fill and finish of sterile, injectable pharmaceutical products in syringes and vials. 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. Lifecore uses its fermentation process and aseptic formulation and filling expertise to be a leader in the development of HA-based products for multiple applications and to take advantage of non-HA device and drug opportunities which leverage its expertise in manufacturing and aseptic syringe filling capabilities.
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.
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. Through its strong reputation and history of providing pharmaceutical grade HA and products, Lifecore has established long-term relationships with global and emerging biopharmaceutical and biotechnology companies across multiple therapeutic categories and leverages those partnerships to attract new relationships in other medical markets.
Expand medical applications for HA:
Due to the growing knowledge of the unique characteristics of HA and Lifecore’s unique strength and history as a trusted manufacturer of pharmaceutical injectable grade HA products, Lifecore continues to identify and pursue opportunities for the use of HA in other medical applications, such as wound care, aesthetic surgery, drug delivery, next generation
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orthopedics and device coatings, and through sales to academic and corporate research customers. Further applications may involve expanding process development activity and/or additional licensing of technology.
Utilize manufacturing infrastructure to meet customer demand:
Lifecore has made strategic capital investments in its CDMO business focusing on extending its aseptic filling capacity and capabilities to meet increasing partner demand and to attract new contract filling opportunities outside of HA markets. Lifecore is using its manufacturing capabilities to provide contract manufacturing and development services to its partners in the area of sterile pre-filled syringes and vials, as well as fermentation and purification requirements.
Maintain flexibility in product development and supply relationships:
Lifecore’s vertically integrated development and manufacturing capabilities allow it to establish a variety of contractual relationships with global corporate partners. 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.
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Deliver consistent quality:
Lifecore has built a world class quality and regulatory system that is demonstrated in its results, processes and customer relationships. With over 37 years of a superior track record with global regulatory bodies (FDA, EMA, ANVISA, etc.), Lifecore is the partner of choice for companies looking for proven experience in delivering QbD, cGMP compliance, and manufacturing excellence with pharmaceutical elegance and quality. Lifecore’s world class quality and regulatory system and excellent track record with the global regulatory bodies ensure partners that they will safely bring innovative therapies to market.
Curation Foods
Curation Foods Overview
Based in Santa Maria, California, Curation Foods’ primary business is the processing, marketing and selling of guacamole, avocado products, and olive oils and wine vinegars. Curation Foods serves as the corporate umbrella for its patented BreatheWay® packaging technology and for its portfolio of three natural food brands, O Olive Oil & Vinegar® products, and Yucatan® and Cabo Fresh® authentic guacamole and avocado products. We believe that the major distinguishing characteristics of Curation Foods that provide competitive advantage are insight driven product innovation, diversified fresh food supply chain, refrigerated supply chain and customer reach. We believe that Curation Foods is well positioned as a single source of a broad range of its products.
On December 13, 2021 (the “Closing Date”), Landec and Curation Foods (together, the “Sellers”), and Taylor Farms Retail, Inc. (“Taylor Farms” and together with the Sellers, the “Parties”) completed the sale (the “Eat Smart Disposition”) of Curation Foods’ Eat Smart business, including its salad and cut vegetable businesses (the “Business”), pursuant to the terms of an asset purchase agreement executed by the Parties on December 13, 2021 (the “Asset Purchase Agreement”). Pursuant to the Asset Purchase Agreement, Taylor Farms acquired the Business for a purchase price of $73.5 million in cash, subject to post-closing adjustments based upon net working capital at the Closing Date. As part of the Eat Smart Disposition, Taylor Farms acquired, among other assets related to the Business, the manufacturing facility and warehouses (and corresponding equipment) located in Bowling Green, Ohio and Guadalupe, California, as well as inventory, accounts receivable and accounts payable, intellectual property and information related to the Business, and assumed certain liabilities and executory obligations under the Company’s and Curation Foods’ outstanding contracts related to the Business, in each case, subject to the terms of the Asset Purchase Agreement.
On June 2, 2022, the Company sold its BreatheWay technology business for $3.2 million in cash.cash (the “BreatheWay Sale”).
Following the Eat Smart Disposition, andas well as the BreatheWay Sale and Yucatan Disposition subsequent to fiscal year end, Curation Foods retainsretained its O Olive and Yucatan businesses,business, and the Company retainsretained its Lifecore business.
As a result of the Eat Smart Disposition, the Company met the requirements of ASC 205-20 to report the results of the Eat Smart business as a discontinued operation. Accordingly, the operating results for the Eat Smart business have therefore been reclassified as a discontinued operation within these consolidated financial statements.
Curation Foods Brands
O Olive Oil & Vinegar:Vinegar: The Company acquired O Olive on March 1, 2017. O, Olive, founded in 1995, is based in Petaluma, California, and is the premier producer of California specialty olive oils and wine vinegars. Its products are sold in
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natural food, conventional grocery and mass retail stores, primarily in the United States and Canada.

As discussed above, on April 6, 2023, the Company sold its O Olive Oil and Vinegar business.
Yucatan & Cabo Fresh Avocado Products:Products: The Company acquired Yucatan Foods on December 1, 2018. Yucatan Foods was founded in 1991. As part of the acquisition of Yucatan Foods, Curation Foods acquired the newly built production facility in Guanajuato, Mexico. The Yucatan Foods business added a double-digit growth platform, a lower-cost infrastructure in Mexico, and higher margin product offerings that generally exhibit less sourcing volatility. The Company manufactures and sells Yucatan and Cabo Fresh guacamole and avocado food products primarily to the U.S. grocery channel, but also to the U.S. mass retail, Canadian grocery retail and foodservice channels. On February 7, 2023, the Company sold its Yucatan Foods business for $17.5 million in cash and recognized a loss on the Yucatan Disposition of $21.0 million in this third quarter ended February 26, 2023.

Impairment Review of Long-lived and Indefinite-lived assets
During the nine months ended February 26, 2023, the Company recorded impairment charges of $1.0 million related to Yucatan Foods indefinite-lived intangible asset related to tradenames. In addition, during the nine months ended February 26, 2023, the Company recorded an impairment charge of $0.3 million related to O Olive’s indefinite-lived intangible asset for tradenames. The Company intendsimpairments were determined using the royalty savings method to continue exploring potential sale opportunities forestimate the fair value of its remaining Curation Foods assets:trademarks and was primarily a result of an indication of a decrease in the fair market value of the Yucatan Foods and O. Subject to Olive businesses driven by lower market conditions,valuations and a decrease in projected cash flows. The impairment charge is included in the Company anticipates completing these sales during fiscal year 2023.
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indefinite-lived intangible assets” on the Consolidated Statements of Comprehensive (Loss) Income and is reported in the Curation Foods business segment (See Note 7 – Business Segment Reporting).
Other
Included in the Other segment is Corporate, which includes corporate general and administrative expenses, non-Lifecore and non-Curation Food interest income, interest expense, and income tax expenses.
COVID-19 Pandemic
There are many uncertainties regarding the current novel coronavirus (“COVID-19”) pandemic, including the scope of scientific and health issues, the anticipated duration of the pandemic, and the extent of local and worldwide social, political, and economic disruption it may cause. The COVID-19 pandemic, as well as actions taken in response to the pandemic, have had and we believe will continue to have significant adverse impacts on many aspects of the Company’s operations, directly and indirectly, including with respect to sales, customer behaviors, business and manufacturing operations, inventory, the Company’s employees, and the market generally, and the scope and nature of these impacts continue to evolve each day. The Company expects to continue to assess the evolving impact of the COVID-19 pandemic and intends to continue to make adjustments to its responses accordingly.

Results of Operations
Revenues:
Lifecore generates revenues from the development and manufacture of pharmaceutical-grade sodium hyaluronate (“HA”) products and providing contract development and aseptic manufacturing services to customers. Lifecore generates revenues from two integrated activities: (1) CDMO and (2) fermentation.
Curation Foods revenues for the periods presented consist of revenues generated from sales of (1) Yucatan, Cabo Fresh, and private label branded guacamole and avocado products, (2) O olive oils and wine vinegars, and (3) BreatheWay packaging to license partners. As a result of the Eat SmartYucatan Disposition, the Company met the requirements of ASC 205-20, to report the results of the Eat SmartYucatan business as a discontinued operation. Accordingly, the operating results for the Eat SmartYucatan business have therefore been reclassified as a discontinued operations for the periods presented.

(In thousands)(In thousands)Three Months EndedChange(In thousands)Three Months EndedChangeNine Months EndedChange
August 28, 2022August 29, 2021Amount%February 26, 2023February 27, 2022Amount%February 26, 2023February 27, 2022Amount%
LifecoreLifecore$23,703 $21,952 1,751 %Lifecore$26,330 $34,808 (8,478)(24)%$71,723 $81,707 (9,984)(12)%
Curation FoodsCuration Foods19,652 19,680 (28)— %Curation Foods1,270 2,591 (1,321)(51)%6,025 8,433 (2,408)(29)%
Total RevenuesTotal Revenues$43,355 $41,632 $1,723 %Total Revenues$27,600 $37,399 $(9,799)(26)%$77,748 $90,140 $(12,392)(14)%
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Lifecore
The increasedecrease in Lifecore’s revenues for the three months ended August 28, 2022,February 26, 2023, compared to the same period last year, was due to a $1.3$7.0 million increasedecrease in CDMO sales primarily due to the timing of shipments and lower development revenue associated with a delay in onboarding new customers as well as a $1.5 million decrease in fermentation salesrevenues primarily due to the timing of shipments within the fiscal year.
The decrease in Lifecore’s revenues for the nine months ended February 26, 2023, compared to the same period last year, and increased demand from existing customers,was due to a $11.9 million decrease in CDMO for the same reasons as well asdescribed above for the three months ended February 26, 2023, partially offset by a $0.5$1.9 million increase in CDMOfermentation revenues primarily from an increasedue to the timing of shipments in development services activities resulting in higher sales to new and existing customers.the prior year period, which was influenced by excess channel inventory as a result of the global pandemic’s negative impact on elective procedures.
Curation Foods
The slight decrease in Curation Foods’ revenues for the three and nine months ended August 28, 2022,February 26, 2023, compared to the same period last year, was primarily driven by the sale of our BreatheWay packaging technology business on June 2, 2022 which as a result of the sale did not earn any revenue during the three and nine months ended August 28, 2022February 26, 2023 compared to $0.4 million and $1.4 million, respectively, during the three and nine months ended August 29, 2021.February 27, 2022.
Gross Profit:
There are numerous factors that can influence gross profit including product mix, customer mix, manufacturing costs, volume, sales discounts and charges for excess or obsolete inventory, to name a few. Many of these factors influence or are interrelated with other factors. The Company includes in cost of sales all of the following costs: raw materials (including packaging, syringes, fermentation and purification supplies), direct labor, overhead (including indirect labor, depreciation, and facility-related costs), and shipping and shipping-related costs.

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(In thousands)(In thousands)Three Months EndedChange(In thousands)Three Months EndedChangeNine Months EndedChange
August 28, 2022August 29, 2021Amount%February 26, 2023February 27, 2022Amount%February 26, 2023February 27, 2022Amount%
LifecoreLifecore$6,101 $5,764 $337 %Lifecore$6,072 $12,905 $(6,833)(53)%$18,847 $30,384 $(11,537)(38)%
Curation FoodsCuration Foods(280)4,671 (4,951)(106)%Curation Foods(94)(39)(55)141 %723 1,249 (526)(42)%
Total Gross ProfitTotal Gross Profit$5,821 $10,435 $(4,614)(44)%Total Gross Profit$5,978 $12,866 $(6,888)(54)%$19,570 $31,633 $(12,063)(38)%

Lifecore
The increasedecrease in gross profit for the Lifecore business for the three and nine months ended August 28, 2022,February 26, 2023, compared to the same period last year, was due primarily to increased revenue.decreased revenue, as well as an unfavorable sales mix.

Curation Foods
The decrease in gross profit for the Curation Foods business for the three and nine months ended August 28, 2022,February 26, 2023, compared to the same period last year, was primarily driven by increased freight costs combined with increased raw product sourcing costs.
Operating Expenses:
Research and Development
R&D expenses consist primarily of product development and commercialization initiatives. R&D expenses in our Lifecore business are focused on new products and applications for HA-based and non-HA biomaterials. In the Curation Foods business R&D expenses are primarily focused on innovating our current product lines.
(In thousands)Three Months EndedChange
August 28, 2022August 29, 2021Amount%
Lifecore$2,046 $1,668 $378 23 %
Curation Foods205 (203)(99)%
Total R&D$2,048 $1,873 $175 %
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(In thousands)Three Months EndedChangeNine Months EndedChange
February 26, 2023February 27, 2022Amount%February 26, 2023February 27, 2022Amount%
Lifecore$1,962 $1,978 $(16)(1)%$6,117 $5,309 $808 15 %
Curation Foods22 (20)(91)%11 413 (402)(97)%
Total R&D$1,964 $2,000 $(36)(2)%$6,128 $5,722 $406 %
The increase in R&D expenses for the threenine months ended August 28, 2022,February 26, 2023, compared to the same period last year, was primarily due to higher salary and benefits expenses, including increased headcount, in our Lifecore Segment. These increases were offset by small decreases in the Curation foods segment. The decrease in R&D expenses for the three months ended February 26, 2023 was not significant.
Selling, General, and Administrative (“SG&A”)
SG&A expenses consist primarily of sales and marketing expenses associated with Landec’sLifecore’s product sales and services, business development expenses, and staff and administrative expenses.
(In thousands)(In thousands)Three Months EndedChange(In thousands)Three Months EndedChangeNine Months EndedChange
August 28, 2022August 29, 2021Amount%February 26, 2023February 27, 2022Amount%February 26, 2023February 27, 2022Amount%
LifecoreLifecore$2,372 $2,216 $156 %Lifecore$2,267 $3,119 $(852)(27)%$6,992 $6,852 $140 %
Curation FoodsCuration Foods3,444 2,892 552 19 %Curation Foods1,605 6,935 (5,330)(77)%6,431 8,327 (1,896)(23)%
OtherOther5,067 4,362 705 16 %Other7,100 4,109 2,991 73 %17,778 12,480 5,298 42 %
Total SG&ATotal SG&A$10,883 $9,470 $1,413 15 %Total SG&A$10,972 $14,163 $(3,191)(23)%$31,201 $27,659 $3,542 13 %

The decrease in total SG&A expenses for the three months ended February 26, 2023, compared to the same period last year, was due primarily to a decrease in salary and benefits expenses in our Lifecore and Curation Foods segments.

The increase in total SG&A expenses for the threenine months ended August 28, 2022,February 26, 2023, compared to the same period last year, was due primarily to an increase at our Other segment primarily due to an increase in legal fees from compliance and other litigation matters, combined with increased salary and benefits expenses in our Curation Foods segment.
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matters.
Restructuring Costs

(In thousands)(In thousands)Three Months EndedChange(In thousands)Three Months EndedChangeNine Months EndedChange
August 28, 2022August 29, 2021Amount%February 26, 2023February 27, 2022Amount%February 26, 2023February 27, 2022Amount%
LifecoreLifecore$— $— $— — %Lifecore$— $— $— — %$— $— $— — %
Curation FoodsCuration Foods422 468 (46)(10)%Curation Foods901 5,220 (4,319)(83)%1,509 5,405 (3,896)(72)%
OtherOther625 1,366 (741)(54)%Other1,840 50 1,790 3,580 %3,102 2,125 977 46 %
Total SG&ATotal SG&A$1,047 $1,834 $(787)(43)%Total SG&A$2,741 $5,270 $(2,529)(48)%$4,611 $7,530 $(2,919)(39)%

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 includes a reduction-in-force, a reduction in leased office spaces and the sale of non-strategic assets. The Company recorded $1.0$2.7 million and $1.8$5.3 million during the three months ended August 28,February 26, 2023 and February 27, 2022, and August 29, 2021, respectively, related to the restructuring plan. Restructuring costs for the threenine months ended August 28, 2022February 26, 2023 decreased $0.8$2.9 million compared to the prior year period due to decreased restructuring activity in our Other Segment as part of our Project SWIFT initiatives to sell Curation Foods assets and prepare the Company for the transition to Lifecore.assets. Refer to Note 8 - Restructuring Costs in the notes to our consolidated financial statements for more information.

Impairment of Long-lived and Indefinite-Lived Intangible Assets

As discussed above, during the nine months ended February 26, 2023, the Company recorded impairment charges on Yucatan’s and O Olive's tradenames, which amounted to $1.3 million in the aggregate. A similar charge did not occur during the
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nine months ended February 27, 2022. The impairment charge is allocated to the Curation Foods segment in its entirety. Refer to “Impairment Review of Long-Lived and Indefinite-Lived Intangible Assets” in this Management’s Discussion and Analysis for additional details and information.

Other:
(In thousands)(In thousands)Three Months EndedChange(In thousands)Three Months EndedChangeNine Months EndedChange
August 28, 2022August 29, 2021Amount%February 26, 2023February 27, 2022Amount%February 26, 2023February 27, 2022Amount%
Interest IncomeInterest Income$15 $27 $(12)(44)%Interest Income$22 $20 $10 %$53 $66 $(13)(20)%
Interest ExpenseInterest Expense$(3,678)$(6,678)$3,000 (45)%Interest Expense$(5,818)$(4,105)$(1,713)42 %$(13,715)$(13,877)$162 (1)%
Other Income (Expense), netOther Income (Expense), net$(180)$109 $(289)N/MOther Income (Expense), net$34 $454 $(420)(93)%$(481)$642 $(1,123)N/M
Income Tax (Expense) BenefitIncome Tax (Expense) Benefit$(64)$1,651 $(1,715)N/MIncome Tax (Expense) Benefit$(70)$87 $(157)N/M$(78)$5,591 $(5,669)N/M
Interest Income
The increase and decrease in interest income for the three and nine months ended August 28, 2022,February 26, 2023, respectively, compared to the same period last year, was not significant.

Interest Expense
The decreaseincrease in interest expense for the three months ended August 28, 2022,February 26, 2023, compared to the same period last year, was primarily a result of prepaidincreased interest andrates.
The decrease in interest expense for the nine months ended February 26, 2023, compared to the same period last year, was primarily due to (i) prepayment penalties incurred related to payments made on our term debt resulting from the sales of our investment in Windset during the three months ended August 29, 2021.February 27, 2022, which did not reoccur during the nine months ended February 26, 2023; and (ii) lower outstanding debt balances for the nine months ended February 26, 2023 compared to the nine months February 27, 2022. This decrease was offset by the change in interest rates during the three months ended February 26, 2023 as described above.
Other Income (Expense)
The decrease in other income (expense) for the three months ended August 28, 2022,February 26, 2023, compared to the same period last year, was primarily the result of the change in the fair value of our interest rate swap liability that is no longer an effective hedge as a result of our debt refinancing in December 2020.
Income Taxes
The change in income tax (expense) benefit for the three months ended August 28, 2022February 26, 2023 compared to the same period last year 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 the three months ended August 28, 2022February 26, 2023 changed from a tax provision benefit of 18%1.3% to a tax provision expense of 0.5%0.4% in comparison to the same period last year, after adjustment for discontinued operations.year. The decrease in the effective tax rate for the three months ended August 28, 2022February 26, 2023 was primarily due to the valuation allowance recorded against certain deferred tax assets, partially offset by the impact of federal and state research and development tax credits.
The change in income tax benefit for the nine months ended February 26, 2023 compared to the same period last year was primarily due to the Company’s effective tax rate for the nine months ended February 26, 2023 changed from a tax provision benefit of 32.9% to a tax provision expense of 0.2% in comparison to the same period last year. The decrease in the effective tax rate for the nine months ended February 26, 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.

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Liquidity and Capital Resources
As of August 28, 2022,February 26, 2023, the Company had cash and cash equivalents of $4.2$3.0 million, a net increase of $2.6$2.0 million from $1.6$1.0 million as of May 29, 2022.
Cash Flow from Operating Activities 
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Net cash used in operating activities during the threenine months ended August 28, 2022February 26, 2023 was $1.5$17.2 million, compared to $0.8$22.0 million of net cash provided byused in operating activities for the same period last year. The primary uses of net cash in operating activities during the threenine months ended August 28, 2022February 26, 2023 were (1) a $12.1$64.0 million net loss and (2) $2.1 million gain on sale of BreatheWay assets. These uses of cash were partially offset by (1) a $6.8$14.2 million net decrease in working capital and (2) $5.8$13.2 million of depreciation/amortization and stock basedstock-based compensation expense.
The primary factors for the decrease in working capital during the threenine months ended August 28, 2022,February 26, 2023, was a $2.6$13.5 million decreaseincrease in inventory driven by salesthe increased in total inventory of product,$8.8 million in Curation Foods, which is in alignment with our expectations for production season, a $7.2$9.0 million decrease in accounts receivable driven by timing of customer payments, partially offset by a $2.9$1.9 million decrease in accrued compensation driven by severance payments. In addition, cash used in accounts payable increased $11.4 million due to timing.
Cash Flow from Investing Activities
Net cash provided byused in investing activities during the threenine months ended August 28, 2022February 26, 2023 was $0.2$3.3 million, compared to $38.3$98.8 million of net cash provided by for the same period last year. Net cash provided byused in investing activities during the threenine months ended August 28, 2022February 26, 2023 was primarily due to the receipt of $12.5 million and $3.1 million related to the sale of our Yucatan Foods and BreatheWay assets, respectively, partially offset by the purchase of $2.9$12.3 million of equipment to support the growth of the Company’s Lifecore business. The three months ended February 27, 2022 included cash provided of $73.5 million of proceeds from the sale of Eat Smart and $45.1 million related to the sale of investment in non-public company, which did not reoccur in the three months ended February 26, 2023.
Cash Flow from Financing Activities
Net cash provided by financing activities during the threenine months ended August 28, 2022February 26, 2023 was $3.9$15.1 million compared to $38.9$76.2 million of net cash used in financing activities for the same period last year. The net cash provided by financing activities during the threenine months ended August 28, 2022February 26, 2023 was primarily due to a $4.0$38.1 million of proceeds from the sale of preferred stock, net of issuance costs, $18.4 million increase in the Company’s line of credit.credit, $4.8 million proceeds from a sale of common stock and $3.4 million of proceeds from the issuance of long-term debt, partially offset by $42.4 million of payments from the line of credit, $3.7 million of payments for debt issuance costs and $3.2 million of payments on long-term debt. The nine months ended February 27, 2022 included cash provided of $86.4 million related to payments on long-term debt, which were minimal in the nine months ended February 26, 2023.
Capital Expenditures
During the threenine months ended August 28, 2022, LandecFebruary 26, 2023, the Company incurred $2.9$12.3 million of capital expenditures, which was primarily represented by facility expansions and purchased equipment to support the growth of the Lifecore business, compared to capital expenditures of $7.9$18.5 million for the threenine months ended August 29, 2021.February 27, 2022. During the threenine months ended August 28, 2022,February 26, 2023, capital expenditures for Lifecore and Curation Foods were $2.8$12.2 million and $0.1 million, respectively.
Debt
On December 31, 2020, the Company refinanced its previously existing Term Loanterm loan and Revolverrevolving credit facility by entering into two separate Credit Agreements (the "New Credit Agreements")(1) a credit agreement with BMO and Goldman Sachs Specialty Lending Group, L.P. (“Goldman”) and Guggenheim Credit Services, LLC ("Guggenheim"(“Guggenheim”), as lenders, (collectively,which provided the “Refinance Lenders”). PursuantCompany, Curation Foods and Lifecore, as co-borrowers, with term loan borrowings of up to the$170.0 million (the “Prior Term Loan Facility”), and (ii) a credit agreement related to the revolving credit facility,with BMO hasHarris Bank, N.A. (“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 “Refinance Revolver”)“Revolving Credit Facility” and, serves as administrative agent of the Refinance Revolver. Pursuant to the credit agreement related to the term loan, Goldman and Guggenheim have provided the Company, Curation Foods and Lifecore, as co-borrowers,together with an up to $170.0 million term loan facility (split equally between Goldman and Guggenheim) (the “Refinance Term Loan”) and Goldman serves as administrative agent of the Refinance Term Loan. The Refinance Revolver and RefinancePrior Term Loan areFacility, the “Credit Facilities”). 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'sCompany’s direct and indirect subsidiaries'subsidiaries’ assets.
The RefinanceIn April 2022 the Company amended the Credit Facilities to make available and additional $20.0 million of term debt that had been previously repaid. In connection with this amendment, the Company incurred debt issuance costs from the lender of $0.7 million.
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, a 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. This amendment
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also reduced the maximum commitment under the Revolving Credit Facility from $75.0 million to $60.0 million, which was further reduced to $50.0 million upon the sale of Yucatan.
The Prior Term Loan Facility would have matured on December 31, 2025. The Revolving Term Facility matures on December 31, 2025. The Refinance Revolver matures on December 31, 2025 or, if the Refinance Term Loan remains outstanding on such date, ninety (90) days prior to the maturity date of the Refinance Term Loan (on October 2, 2025).
The Refinance Term Loan provides for principal payments by the Company of 5% per annum, payable quarterly in arrears in equal installments, commencing on March 30, 2023, with the remainder due at maturity.
Interest on the Refinance RevolverRevolving Credit Facility is based upon the Company’s average availability, at a per annum rate of either (i) LIBORSOFR 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. Interest on the RefinancePrior Term Loan isFacility was at a per annum rate based on either (i) the base rate plus a spread of 7.50% or (ii) the LIBORSOFR rate plus a spread of 8.50%. The RefinancePrior Term Loan Credit AgreementFacility also
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provides 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 NewRevolving Credit Agreements provideFacility contains, and the Company the right to increase the revolver commitments under the Refinance Revolver, subject to the satisfaction of certain conditions (including consent from BMO), by obtaining additional commitments from either BMO or another lending institution at an amount of up to $15.0 million.
The New Credit Agreements containPrior Term Loan Facility contained, customary financial covenants and events of default under which the obligations thereunder could be accelerated and/or the interest rate increased in specified circumstances.
In connection with the NewJanuary 2023 amendments to the Credit Agreements,Facilities, the Company incurred debt issuance costs from the lender and third-parties of $10.3 million.
Concurrent with the close of the New Credit Agreements, the Company repaid all outstanding borrowings under the previous Credit Agreement, and terminated such previous Credit Agreement. In connection with the repayment of borrowings under such previous Credit Agreement, the Company recognized a loss in fiscal year 2021third parties of $1.1 million as a result ofand $62.5 thousand, respectively, during the non-cash write-off of unamortized debt issuance costs related to the refinancing under the New Credit Agreements.
In April 2022 the Company amended the New Credit Agreement to make available again $20.0 million of term debt that had been previously repaid. In connection with this amendment, the Company incurred debt issuance costs from the lender of $0.7 million.nine months ended February 26, 2023.
As of August 28, 2022, $44.0February 26, 2023, the Company had $16.0 million wasin borrowings outstanding onunder the RefinanceAmended Revolver Credit Facility, at an effective annual interest rate of 4.1%7.2%. As of August 28, 2022,February 26, 2023, the RefinanceCompany had $107.0 million in borrowings outstanding under the Prior Term Loan hadFacility, at an effective annual interest rate of 10.1%13.2%. As the Company was able to refinance the Term Debt with New Term Debt subsequent to February 26, 2023 but prior to the filing of August 28, 2022,this Quarterly Report on Form 10-Q, we have classified the obligation as long term as of our balance sheet date.
As of February 26, 2023, the Company was not in compliance with all financial covenants under the Credit Facilities. However, as more fully described in Note 10 – Subsequent Events, on May 22, 2023, the Company entered into the New Term Loan Facility, and concurrently therewith, terminated the Prior Term Loan Facility and repaid the borrowings outstanding thereunder, and entered into a further amendment to the Revolving Credit Facility, at which time the Company was in compliance with all financial covenants and had no events of default under the New Term Loan Facility and the Revolving Credit Agreements.Facility.
Refinancing Transactions
New Term Loan Credit Facility
On May 22, 2023, 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”). 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.
The New Term Loan Credit Agreement provides for up to $140.0 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 obligations under the New Term Loan Credit Facility mature on May 22, 2029. The New Term Loan Credit Facility is secured by the same collateral that secures the Revolving Credit Facility, with relative priorities in respect thereof, as set forth in the Intercreditor Agreement (as defined below).
The loans under the New Term Loan Credit Facility have a fixed interest rate equal to 10% per annum. 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. The New Term Loan Credit Facility contains customary affirmative covenants including, but not limited to, financial reporting requirements and maintenance of existence requirements and negative covenants, including, but not limited to, limitations on the incurrence of debt, liens, investments, restricted payments, restricted debt payments, and affiliate transactions. 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.
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Pledge and Security Agreement
Also on May 22, 2023, the Borrowers and certain of the Company’s other subsidiaries, as grantors (collectively, the “Grantors”), entered into that certain Pledge and Security Agreement (the “Term Loan Security Agreement”), dated as of May 22, 2023, with Alcon, as collateral agent. Pursuant to the Term Loan Security Agreement, the Grantors secured their obligations under the New Term Loan Credit Facility by granting to Alcon, as collateral agent, a first priority security interest in certain collateral, including but not limited to equipment, fixtures, real property and intellectual property. The security interest granted by the Grantors under the Term Loan Security Agreement continues in effect until the payment in full of all of the secured obligations under the New Term Loan 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 Revolving Credit Facility.
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.
In connection with the entry into the Revolving Loan Amendment, the Company also agreed to pay to BMO an amendment fee of $1.2 million, $800,000 of which is paid concurrently with the Company’s entry into the Revolving Loan Amendment, with the remaining $400,000 payable upon the earlier of (i) repayment in full of the Company’s obligations, and termination of all commitments, under the Revolving Credit Facility and (ii) the occurrence of a Change of Control (as defined in the Revolving Credit Facility).
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”).
Equipment Sale and Leaseback Agreements
On May 22, 2023, the Company entered into that certain Equipment Sale and Leaseback Agreement (the “Equipment Sale and Leaseback Agreement”), dated May 22, 2023, with Alcon, wherein the Company sold $10.0 million (subject to certain post-closing adjustments) (the “Purchase Price”) of certain equipment, machinery, and other property associated with the production of sodium hyaluronate (the “Equipment”) to Alcon. 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).
Concurrently with the entry into the Equipment Sale and Leaseback Agreement, the Company entered into that certain Equipment Lease Agreement (the “Equipment Lease Agreement” and, together with the Equipment Sale Leaseback Agreement, the New Term Loan Credit Facility, the Term Loan Security Agreement, and the Revolving Loan Amendment, collectively, the “Refinancing Transactions”), dated May 22, 2023, with Alcon, wherein Alcon leased the Equipment back to the Company. The Equipment Lease Agreement expires upon the earlier of (i) May 22, 2033, and (ii) the date that the Equipment is repurchased by the Company pursuant to the terms of the Equipment Lease Agreement. Upon the expiration of the Equipment Lease Agreement on May 22, 2033, the Company shall automatically repurchase the Equipment for $1.00 (if not previously repurchased pursuant to the option under the Equipment Sale and Leaseback Agreement).
During the lease term, the Company is obligated to make quarterly rental payments to Alcon equal to (i) 1/40th of the Purchase Price (the “Paydown Payments”), plus (ii) 1.5% times the Purchase Price less cumulative Paydown Payments made.
The Equipment Lease Agreement contains terms and provisions (including representations, covenants and conditions) that are generally customary for a commercial lease of this nature, including obligations relating to the use, operation and maintenance of the Equipment. During the term of the lease, Alcon is not permitted to sell or encumber the Equipment. Alcon is
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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.
Off-Balance Sheet Arrangements and Contractual Obligations
The Company is not a party to any agreements with, or commitments to, any special purpose entities that would constitute material off-balance sheet financing. There have been no material changes to our long-term contractual obligations as reported in our most recent Annual Report filed on Form 10-K10-K/A for the fiscal year ended May 29, 2022. See Note 6 – Debt for further information on the Company’s loans.
Going Concern

Please see “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Going Concern” above for discussion on our ability to continue as a going concern, as of the Filing Date
.
Item 3.    Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to the information provided under Item 7A. "Quantitative“Quantitative and Qualitative Disclosures About Market Risk"Risk” which is included and described in the Form 10-K10-K/A for the fiscal year ended May 29, 2022 filed with the SEC on September 14, 2022.March 16, 2023.

Item 4.    Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon the evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were not effective as of August 28, 2022,February 26, 2023, due to the material weaknessweaknesses in internal control over financial reporting that waswere disclosed in our Annual Report on Form 10-K10-K/A for the fiscal year ended May 29, 2022.
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Remediation of Previously Disclosed Material Weakness in Internal Control over Financial Reporting
As previously disclosed in Item 9A of our Annual Report on Form 10-K10-K/A for the year ended May 29, 2022, management identified a material weaknessweaknesses as of such date. The first identified material weakness was duethat we did not design and operate effective internal controls over the assessment of recoverability and measurement of fair value of certain indefinite-lived and long-lived assets. This resulted in a material error for the fiscal year ended May 29, 2022, that was corrected in the Annual Report on Form 10-K/A for the year ended May 29, 2022, and for the first quarter ended August 28, 2022, was corrected in the Quarterly Report on Form 10-Q/A for the quarter ended August 28, 2022, with the impacted financial information corrected in Note 1 - Correction of Error in Previously Reported Interim Financial Statements (Unaudited) to our consolidated financial statements included in Part I, Item 1 of the Quarterly Report on Form 10-Q/A. The second identified material weakness was that we did not designingdesign and operatingoperate effective internal controls over the completeness and accuracy of the accounting for non-standard transactions, thatwhich would include discontinued operations and restructuring activity. Specifically, we did not design controls for non-standard transactions to ensure the accurate presentation of non-standard transactions, which would include discontinued operations and certain restructuring costs in our financial statements. ThisThese two material weakness resulted in a material error in our interim financial information as presented in and filed with our Quarterly Report on Form 10-Q for our fiscal third quarter ended February 27, 2022, which was restated in Note 1 to our consolidated financial statements included in Part IV, Item 15 of our Annual Report on Form 10-K for the year ended May 29, 2022.weaknesses remain unremediated.
In response to the material weakness referred toweaknesses described above, with the oversight of the Audit Committee of our Board of Directors, duringmanagement has corrected the three months ended August 28, 2022 we began implementingerrors in its annual and interim financial statements. Management is currently evaluating remediation activities related to our processes for assessing recoverability and measurement of fair value of certain indefinite-lived and long-lived assets that will include, but are not limited to the following (i) developing a more comprehensive review over the periodic assessment of recoverability of indefinite-lived and long-lived assets; and (ii) enhancing and developing a more comprehensive review process and monitoring controls related to the measurement of fair values of indefinite-lived and long-lived assets. In addition, management is currently evaluating remediation activities related to our non-standard transaction processes that will include, but are not limited to the following (i) enhancing and developing a more comprehensive review
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process and monitoring controls related to non-standard transactions; and (ii) continuing to provide training and development to our accounting team related to non-standard transactions, including discontinued operations and restructuring activity.
The remediation efforts, which are ongoing, are intended to both address the identified material weaknesses and to enhance our overall financial control environment and will be subject to ongoing senior management review, as well as Audit Committee oversight. We plan to address the material weaknesses mentioned above. The material weaknessescomplete this remediation process as quickly as possible. Management is committed to continuous improvement of our internal control over financial reporting and will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.continue to diligently review our internal control over financial reporting.
Changes in Internal Control over Financial Reporting
The change described under “Remediation of Previously“Previously Disclosed Material Weakness in Internal Control over Financial Reporting” above represents a change in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) under the Exchange Act) during the threenine months ended August 28, 2022February 26, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. There were no other changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1.    Legal Proceedings
In the ordinary course of business, the Company is involved in various legal proceedings and claims. For further discussion, see the disclosures contained in Note 1 - Organization, Basis of Presentation, and Summary of Significant Accounting Policies - Legal Contingencies, which are incorporated herein by reference.

Item 1A.    Risk Factors
You should carefully consider the risks described below and in Item 1A, Risk Factors, of our Annual Report on Form 10-K10-K/A for the fiscal year ended May 29, 2022, as supplemented by ourthe Quarterly Report on Form 10-Q for the fiscal periodperiods ended August 28,November 27, 2022, as our business, financial condition and results of operations could be adversely affected by any of the risks and uncertainties described therein and herein. ThereSome statements in this report, including statements in the risk factors, constitute forward-looking statements. Except as described below, there have been no material changes to our risk factors as previously disclosed in our Annual Report on Form 10-K10-K/A for the fiscal year ended May 29, 2022, as supplemented by ourthis Quarterly Report on Form 10-Q for the fiscal period ended August 28, 2022.November 27, 2022 and this Quarterly Report. We have previously determined that there was substantial doubt as the Company’s ability to continue as a going concern, and the factors that raised such substantial doubt may again occur in the future.
As disclosed in the Company’s previous filings, the Company had previously determined that there were factors that raised substantial doubt about its ability to continue as a going concern. Since that time, the Company has taken measures to strengthen its financial position, which have caused management to determinate that the Company has sufficient capital to meet its capital and liquidity requirements for the next 12 months and thus no longer have substantial doubt as to the Company’s ability to operate as a going concern, as described under “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources”. However, there can be no assurance that the factors that raised such substantial doubt in the past will not occur again in the future, including failing to comply with the covenants under our existing credit facilities or a decline in our liquidity, nor that other factors may not cause us to make a similar determination in the future. If management were to conclude that there was substantial doubt as to the Company’s ability to continue as a going concern in the future, we and our financial condition could be adversely impacted, including reputational harm, potential violations of our Credit Facilities, decreases in the value of our common stock or investor confidence, among others.
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.
As described under “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources,” the Company entered into Refinancing Transactions 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. On May 3, 2023, the Company also entered into the Alcon Supply Agreement with Alcon, which amended and restated certain existing supply agreements entered into between the Company and Alcon related to the Company’s manufacture and supply of sodium hyaluronate ("HA") for Alcon, which significantly expanded the anticipated commercial relationship between the Company and Alcon. As a result of these transactions, the Company may be subject to risks related to the nature and significance of this relationship. For example, given the increased scope of the customer relationship and the relative increased customer concentration, the Company’s revenues and operational results may become more reliant on the success and health of that relationship, including on Alcon’s continued ability and desire to use the Company for the manufacture and supply of HA, and give them greater influence over the Company’s operations generally. Additionally, Alcon has not traditionally acted as a lender, and, as a result, the Company may be subject to risks related to the unique nature of the relationship between the Company and Alcon, including the fact that Alcon may not have the same motivations, incentives and practices as a traditional lender. For 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.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
None.

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Item 3.    Defaults Upon Senior Securities
None.

The information contained in “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Going Concern” is incorporated herein by reference.
Item 4.    Mine Safety Disclosures
Not applicable.

Item 5.    Other Information
None.

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Item 6.    Exhibits
Exhibit
Number
Exhibit Title
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101.INS+XBRL Instance
101.SCH+XBRL Taxonomy Extension Schema
101.CAL+XBRL Taxonomy Extension Calculation
101.DEF+XBRL Taxonomy Extension Definition
101.LAB+XBRL Taxonomy Extension Labels
101.PRE+XBRL Taxonomy Extension Presentation
*The schedules and other attachments to this exhibit have been omitted. The Company agrees to furnish a copy of any omitted schedules or attachments to the SEC upon request.
**Information is furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.
+Filed herewith.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

LANDEC CORPORATIONLIFECORE BIOMEDICAL, INC.
By:/s/ John D. Morberg
John D. Morberg
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date:    October 7, 2022June 2, 2023

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