LIFECORE BIOMEDICAL INC DE
For the period ended Aug 25, 2024. Filed Oct 4, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Aug 25, 2024 · Filed Oct 4, 2024
LFCR$6.36-0.6%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-02-25; filed 2024-08-09.
0001005286-24-000112
Item 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-08-25; filed 2024-10-04.
0001005286-24-000145
Item 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 99 previous paragraphs and 65 current paragraphs.
25 unchanged; 24 reworded; 16 added; 49 removed; 1 previous and 0 current paragraphs rearranged.
Tables are not compared: 4 previous and 4 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (16)
Current report
(All dollar values are in thousands, unless otherwise noted)
Current report
We are focused on driving profitable growth with new product development along with clinical and commercial manufacturing of sterile injectable products. Lifecore seeks to expand its presence in the CDMO marketplace by partnering with biopharmaceutical and biotechnology companies to bring their unique therapies to market. Lifecore’s goal of continuing success will be to execute on its three strategic priorities:
Current report
1)Managing Business Development Pipeline: Accelerate product development activities for virtual, small and large biopharmaceutical and biotechnology companies in various stages of the product lifecycle, spanning clinical development stage to commercialization, which aligns with the business’ overall product development strategy.
Current report
2)Maximizing Capacity: Meet customer demand by maximizing capacity in the syringe, vial and cartridge multi-purpose filler production line to significantly increase the number of products produced.
Current report
3)Advancing Product Commercialization: Continue to seek out opportunities to advance customers’ late-stage product development activities by supporting their clinical programs and commercial process scale-up activities.
Current report
The 1,068 basis points (“bps”) improvement in the Gross Profit Percentage is due to a $3.6 million or 1,429 bps increase in CDMO revenue gross profit, of which $2.0 million or 887 bps increase results from a favorable sales mix and $1.6 million or 542 bps increase is due to price increases to our customers, both of which are in CDMO revenues and a $0.2 million or 68 bps increase resulting from the increase in HA manufacturing revenues partially offset by a $1.1 million or 429 bps decrease primarily due to writing down inventories to their net realizable value.
Current report
Selling, general and administrative expenses consist of salaries and related costs for administrative, public company and business development functions as well as legal fees, and consulting fees. Public company costs include compliance, audit, tax, insurance and investor relations.
Current report
Included within SG&A for the three months ended August 25, 2024 were higher professional fees than we expect to incur on a normalized basis of approximately (a) $3.6 million of reorganization costs consisting primarily of (i) $1.6 million of audit fee overages related to the completion of the Company’s FY 2024 quarterly and annual reporting as a result of switching auditors; (ii) $1.1 million of legal fees related to civil litigation involving the former owners (and sellers) of Yucatan Foods; and (iii) $0.8 million of consulting costs to support the Company’s FY 2024 audit; and (b) $1.2 million of legal fees related to the stockholder activist settlement.
Current report
Included within SG&A in the prior year three month period ended August 27, 2023 were approximately $2.8 million of costs that we do not expect to incur on a normalized basis consisting primarily of (i) $1.2 million of reorganization costs related to the sale of the food businesses; (ii) $0.8 million of costs related to the Company’s strategic alternatives review that was completed in the 4th quarter of FY 2024; (iii) $0.4 million of audit fee overages primarily related to the Company’s accounting for the sale of the food businesses in FY 2023; and (iv) $0.2 million of consulting costs to support the Company’s FY 2023 audit.
Current report
Other Non-Operating Items:
Current report
The increase in interest expense, net for the three months ended August 25, 2024, compared to the same period last year, was primarily a result of $997 increased interest expense related to Alcon term loan debt, primarily related to amortization of the debt discount. There was also a reduction in capitalized interest of $258 due to completed projects in the current year.
Current report
Other Expense, net
Current report
Other Expense, net included $275 and $250 in monetary penalties related to the late registration statement filings as contained in the Registration Rights Agreement (excluding interest) for the three months ended August 25, 2024 and August 27, 2023, respectively, and was the primary cause of the increase period over period.
Current report
As of August 25, 2024, the Company had cash of $5,520, a net decrease of $2,942, from the $8,462 balance as of May 26, 2024. The decrease in cash for the three months ended August 25, 2024 and August 27, 2023, were attributed to the following:
Current report
(1) The primary reasons for this source of cash were a $6.0 million decrease in total accounts receivable and a $3.6 million increase in operating accounts payable, partially offset by an increase in inventories.
Current report
(2) The primary reason for this use of cash is a $4.2 million decrease in accounts payable.
Removed paragraphs (49)
Previous report
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Previous report
Corporate Overview
Previous report
As result of the Company exiting all previous food related business as part of the strategic shift in the Company’s operations that was completed as of May 28, 2023, commencing with this Quarterly Report on Form 10-Q, the Company changed its presentation of “Product sales” and “Cost of product sales” to “Revenues” and “Cost of goods sold,” respectively.
Previous report
Gross profit margin percentage increased from 32.2% to 33.3% for the three months ended February 25, 2024 compared to the same period last year. The 110 basis points (“bps”) improvement is due to a 310 bps increase resulting from the increase in fermentation revenues and a 61 bps increase primarily due to adjustments to write down inventories to their net realizable value in the comparable periods partially offset by a 261 bps reduction in CDMO gross profit margin percentage as a result of lower development revenues and an unfavorable sales mix in the aseptic commercial business.
Previous report
Total revenues for the nine months ended February 25, 2024, compared to the same period last year, was due to a $15.1 million increase in CDMO revenues due to increased demand and a $3.2 million increase in fermentation revenues, primarily due to the timing of shipments.
Previous report
The increase in gross profit for the Lifecore business for the nine months ended February 25, 2024, compared to the same period last year, was due to increased revenues resulting in a favorable volume variance of $5.1 million partially offset by an unfavorable sales mix as evidenced by an unfavorable rate variance of $0.7 million.
Previous report
Gross profit margin percentage decreased from 28.0% to 27.2% for the nine months ended February 25, 2024, compared to the same period last year. The 82 basis points (“bps”) reduction is due to a 277 bps reduction in CDMO gross profit margin percentage as a result of lower development revenues and an unfavorable sales mix in the aseptic commercial business and a 94 bps reduction resulting from a lower percentage of total sales being fermentation revenues partially offset by a 289 bps increase primarily due to adjustments to write down inventories to their net realizable value in the comparable periods.
Previous report
The decrease in R&D expenses for the three and nine months ended February 25, 2024, compared to the same period last year was not significant.
Previous report
SG&A expenses consist primarily of sales and marketing expenses associated with Lifecore’s revenue and services, business development expenses, and staff and administrative expenses.
Previous report
Gain on sale of divested business
Previous report
On June 2, 2022, the Company closed an Asset Purchase Agreement for the sale of all of its assets related to the BreatheWay packaging technology business and recorded a gain of $2.1 million in its Condensed Consolidated Statement of Operations for the nine months ended February 26, 2023.
Previous report
Restructuring Costs
Previous report
Restructuring costs for the three months ended February 25, 2024 decreased by $1.8 million, compared to the prior year period, as a result of the restructuring plan to divest the Curation businesses being substantially complete. The restructuring costs for the three months ended February 25, 2024 included $0.1 million expense in employee severance and benefit costs and $0.7 million in lease costs primarily as a result of a $1.4 million impairment of an ROU asset and $0.6 million accrual for lease related liabilities, partially off-set $1.3 million by contractual amounts owed for sublease income.
Previous report
Restructuring costs for the nine months ended February 25, 2024 decreased by $3.3 million, compared to the prior year period, as a result of the restructuring plan to divest the Curation businesses being substantially complete. The restructuring costs for the nine months ended February 25, 2024 included $0.2 million expense in employee severance and benefit costs and $0.7 million in lease costs primarily as a result of the $1.4 million impairment of an ROU asset and $0.6 million accrual for lease related liabilities, partially offset $1.3 million by contractual amounts owed for sublease income.
Previous report
Other:
Previous report
The decrease in interest expense for the three and nine months ended February 25, 2024, compared to the same period last year, was primarily a result of the Company’s Term Loan Credit Facility (defined below) being determined to be a related party and being segregated into a separate line item. The remaining interest expense in the current period primarily relates to the Company’s revolving credit facility, which increased in connection with an increased principle balance and increase in interest rates.
Previous report
Interest Expense, related party
Previous report
The increase in interest expense from related party for the three and nine months ended February 25, 2024, compared to the same period last year, was a result of the determination of the lender in the Company’s Term Loan Credit Facility (defined below) was a related party on May 22, 2023. As a result, the Company’s Term Loan Credit Facility was reclassified into a separate line item.
Previous report
Other Income (Expense)
Previous report
The increase in other income (expense) for the three and nine months ended February 25, 2024, compared to the same periods last year was not significant.
Previous report
Non-GAAP Financial Information and Reconciliations
Previous report
EBITDA and Consolidated adjusted EBITDA are non-GAAP financial measures. EBITDA from continuing operations represents net income (loss) from continuing operations before interest expense, interest income, income tax (benefit) expense, and depreciation and amortization expense. Adjusted EBITDA from continuing operations reflects adjustments to EBITDA from continuing operations to identify items that, in management’s judgment, significantly affect the assessment of earnings results between periods. This information is provided in order to allow investors to make meaningful comparisons of the Company’s earnings performance between periods and to view the Company’s business from the same perspective as Company management. As the Company cannot predict the timing and amount of charges that include, but are not limited to, items such as costs associated with our reorganization including associated divestitures, movement of headquarters, transactional impacts of these transactions, remaining costs associated with divested businesses and associated cost of third parties (collectively, “Reorganization Costs”), restructuring programs, mark-to-market adjustments on derivative contracts, non- interest financing costs, stock compensation, product launch and start-up costs and other items that may arise from time to time that would impact comparability, management does not consider these costs when evaluating the Company’s performance, when making decisions regarding the allocation of resources, in determining incentive compensation, or in determining earnings estimates. EBITDA from continuing operations and adjusted EBITDA from continuing operations are performance measures commonly used by management to assess operating performance and incentive compensation, and the Company believes they are commonly reported and widely used by investors and other interested parties as a measure of a company’s operating performance between periods.
Previous report
The table below includes reconciliations of these non-GAAP financial measures to their respective most directly comparable financial measures calculated in accordance with GAAP.
Previous report
(1)Reorganization costs mainly relate to activities in connection with the approved restructuring plan.
Previous report
a. For the three months ended February 25, 2024, the Company incurred non-recurring charges primarily related to: (i) $1.6 million of incremental audit and consulting fees specifically related to the audit of the numerous non-standard transactions that occurred in fiscal year 2023 associated with the sale of the Yucatan and O Olive businesses, (ii) $0.5 million of costs associated with maintaining abandoned facilities (including the prior headquarters) after the sale of the businesses and incremental compensation expenses for reorganization of the business including costs associated with duplicative roles as the headquarters transitioned to Minnesota, and (iii) $0.2 million litigation costs associated with the divested businesses.
Previous report
-25- b. For the three months ended February 26, 2023, the Company incurred non-recurring charges primarily related to: (i) $2.3 million for financial advisor and legal fees related to management of the prior term loan lenders, (ii) $1.3 million of incremental audit and consulting fees specifically related to the audit of the numerous non-standard transactions that occurred in fiscal year 2022 associated with the sale of the Eat Smart business and (iii) $1.7 million litigation costs associated with the divested businesses.
Previous report
c. For the nine months ended February 25, 2024, the Company incurred non-recurring charges primarily related to: (i) $3.2 million of incremental audit and consulting fees specifically related to the audit of the numerous non-standard transactions that occurred in fiscal year 2023 associated with the sale of the Yucatan and O Olive businesses, (ii) $1.7 million of costs associated with maintaining abandoned facilities (including the prior headquarters) after the sale of the businesses and incremental compensation expenses for reorganization of the business including costs associated with duplicative roles as the headquarters transitioned to Minnesota, (iii) $1.2 million in fees for exploration of strategic opportunities to best position Lifecore as a standalone CDMO, and (iv) $1.1 million litigation costs associated with the divested businesses.
Previous report
d. For the nine months ended February 26, 2023, the Company incurred non-recurring charges primarily related to: (i) $3.0 million for financial advisor and legal fees related to management of the prior term loan lenders, (ii) $4.3 million of incremental audit and consulting fees specifically related to the audit of the numerous non-standard transactions that occurred in fiscal year 2022 associated with the sale of the Eat Smart business and (iii) $2.0 million litigation costs associated with the divested businesses.
Previous report
As of February 25, 2024, the Company had cash of $3.1 million, a net decrease of $16.0 million from $19.1 million balance as of May 28, 2023.
Previous report
Cash Flows From Operating Activities
Previous report
Net cash used in operating activities during the nine months ended February 25, 2024 was $8.9 million, compared to $15.2 million of net cash used in operating activities for the same period last year. The primary uses of net cash in operating activities during the nine months ended February 25, 2024 were (1) $19.1 million in net loss offset by certain non-cash adjustments approximating $19.6 million to reconcile to net cash used in operating activities. The non-cash adjustments include (i) $11.2 million of depreciation/amortization and stock-based compensation expense; (ii) $(41.9) million change in debt derivative liability; (iii) $9.4 million of interest expense paid-in-kind; and (iv) $0.3 million of other adjustments. Changes in current assets and current liabilities approximated $8.4 million of a net decrease to operating working capital.
Previous report
The primary factors for the $8.4 million net cash uses related to operating working capital during the nine months ended February 25, 2024, was uses of cash consisting of (i) a decrease in accounts payable of $4.9 million due to timing of payments; (ii) an increase of $2.5 million in accounts receivable; and (iii) a decrease in deferred revenues of $0.8 million; offset by sources of cash from (i) an increase in other accrued liabilities of $2.6 million; (ii) a decrease of $0.6 million in inventories; and (iii) a decrease of $1.6 million in prepaid expenses and other current assets.
Previous report
Cash Flows From Investing Activities
Previous report
Net cash used in investing activities during the nine months ended February 25, 2024 was $15.3 million, compared to $1.4 million of net cash provided by investing activities for the same period last year. Net cash used in investing activities during the nine months ended February 25, 2024 was due to the purchase of $15.3 million of equipment to support the growth of the Lifecore business. The nine months ended February 26, 2023 included cash provided of $15.7 million from the sale of BreatheWay, offset by $14.3 million of purchases of property and equipment.
Previous report
Cash Flows From Financing Activities
Previous report
Net cash provided by financing activities during the nine months ended February 25, 2024 was $8.1 million compared to $15.1 million of net cash provided by financing activities for the same period last year. The net cash provided by financing activities during the nine months ended February 25, 2024 was primarily due to net proceeds on the Company’s Revolving Credit Facility of $3.1 million and $0.7 million of proceeds from the sale of common stock, net of issuance costs.
Previous report
Capital Expenditures
Previous report
During the nine months ended February 25, 2024, the Company incurred $15.3 million of property and equipment capital expenditures, compared to $14.3 million for the nine months ended February 26, 2023, primarily to support the growth of the Company.
Previous report
Term Loan Credit Facility
Previous report
On May 22, 2023, the Company, Curation and Alcon entered into Term Loan Credit Facility. The Term Loan Credit Facility refinanced in full all obligations of the Company and their subsidiaries under its prior term loan credit facility. Upon entry into the Term Loan Credit Facility, its prior term loan credit facility was terminated and all noncompliance with debt covenants were thereby cured. Prior to the Term Loan Credit Facility and presently, Alcon is a significant customer of the Company.
Showing the first 40 of 49 passages. Open the source sections for the rest.
Reworded paragraphs (24)
Previous wording
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes included in Part I, Item 1, of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2023 Annual Report.
Current wording
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes included in Part I, Item 1, of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the fiscal year ended May 26, 2024 (the “2024 Annual Report”).
Previous wording
This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results that are subject to the safe harbor created under the Private Securities Litigation Reform Act of 1995 and other safe harbors under the Securities Act of 1933, as amended, and the Exchange Act. Words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “might,” “will,” “should,” “can have,” “likely” and similar expressions are used to identify forward-looking statements. 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, government regulations affecting our business, 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, and those other risks mentioned in this report and the 2023 Annual Report.
Current wording
This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results that are subject to the safe harbor created under the Private Securities Litigation Reform Act of 1995 and other safe harbors under the Securities Act of 1933, as amended, and the Exchange Act. Words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “might,” “will,” “should,” “can have,” “likely” and similar expressions are used to identify forward-looking statements. 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 new products in the marketplace, government regulations affecting our business, 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, and those other risks mentioned in this report and the 2024 Annual Report.
Previous wording
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 the 2023 Annual Report.
Current wording
We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Accordingly, our actual results could differ materially from those projected in the forward-looking statements for many reasons, including the risk factors listed in Item 1A. “Risk Factors” of this report and in the 2024 Annual Report.
Previous wording
The Company is a fully integrated CDMO that offers highly differentiated capabilities in the development, fill and finish of complex sterile injectable pharmaceutical products in syringes and vials. As a leading manufacturer of premium, injectable grade sodium 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. The Company brings more than 40 years of expertise as a partner for global and emerging biopharmaceutical and biotechnology companies across multiple therapeutic categories to bring their innovations to market.
Current wording
The Company is a fully integrated contract development and manufacturing organization (CDMO) that offers highly differentiated capabilities in the development, fill and finish of complex sterile injectable pharmaceutical products in syringes, vials, and cartridges under contract for product sponsors, along with producing premium, injectable grade sodium hyaluronate (HA) for use as an active pharmaceutical ingredient (API). Lifecore uses its experience in handling of viscous, complex products to be a technical leader in contract development services to create a manufacturable, scalable and compliant production process for many types of medicinal products. These services include activities such as formulation technology development, material component definition, analytical method development, filling optimization, packaging design, stability studies, process validation, clinical production and ultimately production of commercially approved products. The Company has more than 40 years of expertise as a partner for global and emerging biopharmaceutical and biotechnology companies across multiple therapeutic categories to bring their innovations to market.
Previous wording
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.
Current wording
Lifecore continues to develop and manufacture products with partners who have strong marketing, sales, and distribution capabilities, reaching the patients they serve. Through its strong reputation and history of providing pharmaceutical grade HA and products, Lifecore has established long-term relationships with global and emerging biopharmaceutical and biotechnology companies across multiple therapeutic categories and leverages those partnerships to attract new relationships in other medical markets.
Previous wording
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.
Current wording
Lifecore has made strategic capital investments in its CDMO business focusing on extending its formulation and filling capacity and capabilities to meet increasing partner demand and regulatory expectations and to attract new contract filling opportunities.
Previous wording
Maintain flexibility in product development and supply relationships:
Current wording
Maintain flexibility and speed in product development and supply relationships:
Previous wording
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.
Current wording
Lifecore’s vertically integrated development and manufacturing capabilities and strong Quality systems allow it to quickly move a product from development to commercial production. Lifecore’s role extends from supplying HA raw materials to providing technology transfer and development services to manufacture aseptically filled, finished sterile products, and assuming full supply chain responsibilities (from raw material management through packaging and serialization).
Previous wording
Lifecore has built a world class quality and regulatory system that is demonstrated in its results, processes and customer relationships. With over 40 years of a superior track record with global regulatory bodies (FDA, EMA, ANVISA, etc.), Lifecore is the partner of choice for companies looking for proven experience in delivering QbD, cGMP compliance, and manufacturing excellence with pharmaceutical elegance and quality. 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.
Current wording
Lifecore has built a world class quality and regulatory system that is demonstrated in its results, processes and customer relationships. With over 38 years of a superior track record with global regulatory bodies (FDA, EMA, ANVISA, etc.), Lifecore is the partner of choice for companies looking for proven experience in delivering QbD, cGMP compliance, and manufacturing excellence with pharmaceutical elegance and quality. Lifecore’s world class quality and regulatory system and excellent track record with the global regulatory bodies ensure partners that they will safely bring innovative therapies to market.
Previous wording
For a discussion of significant related party transactions, refer to Note 1– Related Party Transactions within the notes to the condensed consolidated financial statements elsewhere in this Quarterly Report on Form 10-Q.
Current wording
For a discussion of significant related party transactions, refer to Related Party Transactions within Note 1 to the condensed consolidated financial statements elsewhere in this Quarterly Report on Form 10-Q.
Previous wording
Lifecore generates revenues from two integrated activities: (1) CDMO and (2) HA manufacturing. Lifecore generates revenues from the development and manufacture of HA products and provides contract development and aseptic manufacturing services to customers.
Current wording
Lifecore generates revenues from two integrated activities: CDMO and HA manufacturing. Lifecore generates revenues from the development and manufacture of HA products and provides contract development and aseptic manufacturing services to customers.
Previous wording
Numerous factors can influence gross profit, including HA manufacturing product mix, customer mix, manufacturing costs, volume, sales discounts, and charges for excess or obsolete inventory, among others. Many of these factors influence or are interrelated with other factors. The Company includes in cost of goods sold all of the following costs: 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.
Current wording
Numerous factors can influence gross profit, including HA manufacturing product mix, customer mix, manufacturing costs, timing of production, volume, sales discounts, and charges for excess or obsolete inventory, among others. Many of these factors influence or are interrelated with other factors. The Company includes in cost of goods sold all of the following costs: 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.
Previous wording
Total revenues for the three months ended February 25, 2024, compared to the same period last year, was due to a $4.9 million increase in fermentation revenues, primarily due to the timing of shipments, and a $4.3 million increase in CDMO revenues due to increased demand.
Current wording
The increase in total revenues for the three months ended August 25, 2024, compared to the same period last year, was due to a $1.5 million increase in HA manufacturing revenues from our largest customer due to timing of shipments, partially offset by a $1.3 million decrease in CDMO revenues primarily as a result of one customer working down inventory levels built in the prior year period.
Previous wording
The increase in gross profit for the Lifecore business for the three months ended February 25, 2024, compared to the same period last year, was primarily due to increased revenues resulting in a favorable volume variance of $2.9 million and a favorable sales mix as evidenced by a favorable rate variance of $0.4 million.
Current wording
The increase in gross profit for the three months ended August 25, 2024, compared to the same period last year, was due primarily to a favorable sales mix between customers and price increases to our customers within CDMO revenues as evidenced by a favorable rate variance of $2.7 million detailed further below.
Previous wording
R&D expenses consist primarily of product development and commercialization initiatives. R&D expenses are focused on new products and applications for HA-based and non-HA biomaterials.
Current wording
R&D expenses consist primarily of product development and commercialization initiatives. R&D expenses are focused on new products and applications for HA-based and non-HA biomaterials. R&D expenses for the three months ended August 25, 2024 was consistent with the prior period.
Previous wording
The increase in total SG&A expenses for the nine months ended February 25, 2024, compared to the same period last year, was primarily due to increases in non-cash stock-based compensation expense due to the higher mix of RSU grants over stock options, consulting and audit fees incurred in completing the year-end audit for fiscal year 2023, consulting and audit fees incurred in completing the year-end audit for fiscal year 2023, and legal fees from compliance and other litigation matters.
Current wording
The increase in total SG&A expenses for the three months ended August 25, 2024, compared to the same period last year, was primarily due to increases in (i) professional fees of $4.7 million, consisting primarily of $2.4 million in audit fees and legal fees of $2.3 million; and (ii) non-cash stock-based compensation expense, primarily due to the impact of performance stock unit grants of $0.9 million.
Previous wording
The increase in change in fair value of debt derivative liability, related party for the three and nine months ended February 25, 2024, compared to the same period last year, was due to a reduction in the fair market value of the debt derivative liability as a result of the Company’s Term Loan Credit Facility. The key inputs to the valuation models that were utilized to estimate the fair value of the debt derivative liability were (i) an estimated probability related to the timing of a change in control over the 12 months following the end of the fiscal period; (ii) the estimated probability related to an event of default of the Supply Agreement with Alcon, as amended, over the 12 months following the end of the fiscal period; and (iii) a risk-adjusted discount rate. Beginning in the second quarter of fiscal year 2024 and continuing through the third quarter of fiscal year 2024, there were sequential declines in the change in control probabilities assumptions in connection with the Company’s review of the strategic alternatives initiative that significantly impacted the fair value of the debt derivative liability. There was no change in the probability related to event of default of the Supply Agreement during fiscal year 2024. There was no derivative liability in the prior period.
Current wording
The change in fair value of debt derivative liability, related party for the three months ended August 25, 2024, compared to the same period last year, was primarily due to the change in the market credit spread. There were no changes in the probability factors related to the timing of a change in control and an event of default on the supply agreement with Alcon for the three months ended August 25, 2024.
Previous wording
The change in the income tax provision for the three and nine months ended February 25, 2024 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.
Current wording
The income tax provision primarily consist of valuation allowances recorded against certain deferred tax assets, partially offset by the impact of federal and state research and development tax credits and the changes in provisions between the periods were not significant.
Previous wording
The Company’s material contractual obligations for the next five years mainly relate to its debt obligations.
Current wording
The Company’s material contractual obligations for the next five years mainly relate to its debt and lease obligations.
Previous wording
The Company’s future capital requirements will depend on numerous factors, including the progress of its research and development programs; the continued development of marketing, sales and distribution capabilities; the ability of the Company to establish and maintain new licensing arrangements; the costs associated with employment-related claims; any decision to pursue additional acquisition opportunities; the timing and amount, if any, of payments received under licensing and research and development agreements; the costs involved in preparing, filing, prosecuting, defending, and enforcing intellectual property rights; the ability to comply with regulatory requirements; the emergence of competitive technology and market forces; the effectiveness of product commercialization activities and arrangements; and other factors. If the Company’s currently available funds, together with the internally generated cash flow from operations are not sufficient to satisfy its capital needs, the Company would be required to seek additional funding through other arrangements with collaborative partners, additional bank borrowings and public or private sales of its securities. There can be no assurance that additional funds, if required, will be available to the Company on favorable terms, if at all.
Current wording
The Company’s future capital requirements will depend on numerous factors, including the progress of its research and development programs; the continued development of marketing, sales and distribution capabilities; the ability of the Company to establish and maintain new licensing arrangements; the costs associated with employment-related claims; any decision to pursue acquisition opportunities; the timing and amount, if any, of payments received under licensing and research and development agreements; the costs involved in preparing, filing, prosecuting, defending, and enforcing intellectual property rights; the ability to comply with regulatory requirements; the emergence of competitive technology and market forces; the effectiveness of product commercialization activities and arrangements; and other factors. If the Company’s currently available funds, together with the internally generated cash flow from operations are not sufficient to satisfy its capital needs, the Company would be required to seek additional funding through other arrangements with collaborative partners, sale of real estate or other assets, additional debt or bank borrowings and public or private sales of its securities. There can be no assurance that additional funds, if required, will be available to the Company on favorable terms, if at all.
Previous wording
The Company believes that its cash from operations, along with existing cash and availability under its Revolving Credit Facility will be sufficient to finance its operational and capital requirements for at least the next twelve months.
Current wording
The Company believes that its cash from operations, potential equity offerings, along with existing cash, availability under its Revolving Credit Facility and the Securities Purchase Agreement executed on October 3, 2024 will be sufficient to finance its operational and capital requirements for at least the next twelve months.
Previous wording
As of February 25, 2024 and May 28, 2023, the Company had $153.5 million and $142.5 million in borrowings outstanding under the Term Loan Credit Facility, at an effective annual interest rate of 10.0% and 10.0%, respectively.
Current wording
As of August 25, 2024 and May 26, 2024, the Company had $161,245 and $157,313 in borrowings outstanding under the Term Loan Credit Facility, at an effective annual interest rate of 22.5% for both periods.
Previous wording
As of February 25, 2024 and May 28, 2023, the Company had $19.9 million and $16.8 million, respectively, in borrowings outstanding under the Revolving Credit Facility (defined below), at an effective annual interest rate of 8.15% and 12.16%, respectively.
Current wording
As of August 25, 2024 and May 26, 2024, the Company had $21,605 and $19,691, respectively, in borrowings outstanding under the Revolving Credit Facility, at an effective annual interest rate of 8.35% for both periods.
Previous wording
As of February 25, 2024 and May 28, 2023, the Company was in compliance with all financial covenants under the Term Loan Credit Facility and Revolving Credit Facility.
Current wording
As of August 25, 2024 and May 26, 2024, the Company was in compliance with all financial covenants under the Term Loan Credit Facility and Revolving Credit Facility and had approximately $4,500 available for borrowing under the Revolving Credit Facility.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
The decrease in total SG&A expenses for the three months ended February 25, 2024, was not significant.