LIFECORE BIOMEDICAL INC DE

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Item 1A. Risk Factors

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Our failure to timely file certain periodic reports with the SEC and our prior restatements have had, and may in the future have further, material adverse consequences to our business, our financial condition, results of operations and our cash flows.

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As previously publicly disclosed, we have failed to timely file certain of our periodic reports with the SEC. We anticipate filing a Notice of Delayed Filing on Form 12b-25 with respect to our Annual Report on Form 10-K for the current fiscal year ended May 26, 2024. We failed to timely file our Annual Report on Form 10-K for the fiscal year ended May 28, 2023, which we filed late on March 20, 2024. We failed to timely file this Quarterly Report on Form 10-Q, as well as the Quarterly Reports on Form 10-Q for the periods ending August 27, 2023 and November 26, 2023, which we filed late on August 9, 2024.

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Also as previously publicly disclosed, we have restated previously issued financial statements for several periods, including, most recently, on May 20, 2024, the restatement of our previously issued consolidated financial statements as of and for the fiscal years ended May 29, 2022, and May 30, 2021 included in the Company’s Annual Reports on Form 10-K or Form 10-K/A, and our unaudited consolidated financial statements as of and for the periods ending August 30, 2020, November 29, 2020, February 28, 2021, August 29, 2021, November 28, 2021, February 27, 2022, August 28, 2022, November 27, 2022 and February 26, 2023 included in the Company’s Quarterly Reports on Form 10-Q or Form 10-Q/A.

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Our failure to timely file certain periodic reports with the SEC and our prior restatements have had, and may in the future have further, material adverse consequences to, and pose significant risk to, our business, which could materially and adversely affect our business, our financial condition, our results of operations and our cash flows. These adverse consequences include, but are not limited to, the potential delisting of our common stock on the Nasdaq Stock Exchange (“Nasdaq”), stockholder litigation, SEC investigations, stockholder activism, violations of our obligations under our existing material arrangements, including our credit agreements and the terms of our Convertible Preferred Stock, our ability to raise capital on attractive terms, or at all, significant fluctuations in the value of our common stock, among others. See the following Risk Factors “—Our common stock may be delisted from Nasdaq, which could significantly adversely affect us, our business, and the value and liquidity of our common stock;” “—Actions of activist stockholders could be disruptive and costly, and the possibility that activist stockholders may seek changes that conflict with our strategic direction could cause uncertainty about the strategic direction of our business;” “—We have limited capital and expect to need to raise additional capital in the near future;” and “—We are highly leveraged, and our contractual obligations may limit our operational flexibility and cash flow available to invest in the ongoing needs of our business or otherwise adversely affect our results of operations” for more information.

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Our failure to timely file certain periodic reports with the SEC and our prior restatements have subjected us to, and may in the future, subject us to further, stockholder litigation or governmental or regulatory investigations. For example, as further described “Note 1— Organization, Basis of Presentation, and Summary of Significant Accounting Policies—Commitments and

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Contingencies—SEC Subpoena” to our unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q, on February 16, 2024, the Chicago Regional Office of the SEC issued a subpoena to the Company seeking documents and information concerning the Restatement. Also, as further described “Note 9— Subsequent Events—Class Action Complaint” to our unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q, on July 29, 2024, shareholder David Carew filed a putative class action complaint on behalf of our stockholders in the United States District Court of Minnesota, captioned Carew v. Lifecore Biomedical, Inc., et. al., No. 0:24-cv-03028 (D. Minn. 2024), against us and certain of our current and prior named executive officers (the “Defendants”). The complaint generally alleges that statements made to our shareholders between October 7, 2020 and March 19, 2024 regarding our financial results, internal controls, remediation efforts, periodic reporting, and financial prospects were false and misleading in violation of Section 10(b) of the Exchange Act, and that the individual defendants are liable for such statements because they are controlling persons under Section 20(a) of the Exchange Act. The complaint seeks compensatory damages, court costs, and attorneys’ fees. In addition, in March 2024, one of our stockholders, 22NW, LP (“22NW”), threatened to bring claims against us relating to its acquisition of economic interests in the Company, including its investment in the Convertible Preferred Stock. We have incurred, and may be required in future to incur further, significant legal fees and other expenses related to this threatened litigation by 22NW, the Carew securities class action lawsuit, and the SEC investigation. In addition, any adverse determination in any of these matters could expose us to significant liabilities, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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We also may fail to be timely on our future filings, which, in addition to the risks and consequences described above, may create further harm to us. For example, as further described in “Note 2—Convertible Preferred Stock—Registration Rights Agreement” to our unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q, we have been incurring penalty fees owed to holders of our Convertible Preferred Stock under the Registration Rights Agreement as a result of our failure to maintain effectiveness of the registration statement related to the registration of the shares of common stock issuable upon the conversion of the Convertible Preferred Stock, and we expect to continue to incur those fees unless or until we are able to become current on our periodic reports, and are thus able to request effectiveness for the registration statement. In addition, the holders of Convertible Preferred Stock may raise additional claims resulting from the Company’s inability to timely and accurately report its financial information, which could cause further harm to the Company and its stockholders, all of which could materially and adversely affect to our business, our financial condition, results of operations and cash flows.

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Our common stock may be delisted from Nasdaq, which could significantly adversely affect us, our business, and the value and liquidity of our common stock.

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Our common stock is currently listed on Nasdaq. As previously disclosed, on February 13, 2024, we received a Staff Delisting Determination (the “Staff Determination”) from the Listing Qualifications Department of Nasdaq notifying us that Nasdaq has initiated a process which could result in the delisting of our common stock from Nasdaq as a result of our failure to comply with Nasdaq Listing Rule 5250(c)(1), which requires listed companies to timely file all required periodic financial reports with the SEC. We have appealed the Staff Determination, and, on April 16, 2024, we appeared for a hearing before the Nasdaq Hearings Panel (the “Panel”), in which we requested a further stay of any suspension or delisting action to enable us to regain compliance with the Listing Rule. The Panel has not yet issued a final decision. In addition, on June 3, 2024, we received a notice from Nasdaq indicating that, because we had not yet held our annual meeting of stockholders (the “2023 Annual Meeting”) within twelve months of our fiscal year end, the Company is not in compliance with the requirements for continued listing under Nasdaq Listing Rule 5620.

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On August 9, 2024, we made the late filing of this Quarterly Report on Form 10-Q, as well as the Quarterly Reports on Form 10-Q for the periods ending August 27, 2023 and November 26, 2023. However, we have not yet filed our Annual Report on Form 10-K for the fiscal year ended May 26, 2024 (the “2024 Annual Report”), and we anticipate filing a Notice of Late Filing pursuant to Rule 12b-25 with respect to the 2024 Annual Report. Based on those facts, as well as our history of noncompliance with the Nasdaq Listing Rules related to filing our periodic reports (as has been previously disclosed), Nasdaq may proceed at any time with the process of delisting of our common stock. If Nasdaq does proceed with the process of delisting our common stock, pursuant to the Nasdaq Listing Rules, we understand that Nasdaq would promptly halt trading of our common stock, and, absent any permitted appeal, would submit an application on Form 25 to the SEC to delist our common stock. Pursuant to the Nasdaq Listing Rules, we understand that we would be entitled to appeal the determination to the Nasdaq Listings Council for up to 15 calendar days after the determination, but such appeal would not operate as a stay of the determination.

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We continue to work diligently to file the 2024 Annual Report as soon as practicable and intend to hold the 2023 Annual Meeting on August 15, 2024. However, there can be no assurance as to whether or when the Company will file the 2024 Annual Report or hold the 2023 Annual Meeting, and there can be no assurance that that the Nasdaq Listings Council will grant the Company’s appeal or that Nasdaq will reinstate trading of the Company’s common stock on Nasdaq, even if the 2024 Annual Report is filed and the 2023 Annual Meeting is held before the expiration of any available appeals deadline.

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A delisting of our common stock from Nasdaq (whether or not our common stock is subsequently listed on any of the marketplaces of the OTC Markets Group (the “OTC Markets”) thereafter) could have significant adverse impacts on our business, financial condition, results of operations and cash flows by, among other things: reducing the liquidity, public float and market price of our common stock; reducing the number of investors, including institutional investors, willing to hold or acquire our common stock, which could negatively impact our ability to raise equity; decreasing the amount of news and analyst coverage relating to us; limiting our ability to issue additional securities, obtain additional financing or pursue strategic restructuring, refinancing or other transactions; and impacting our reputation and, as a consequence, our ability to attract new business. In addition, the delisting of our common stock from Nasdaq could constitute a breach of many of our existing material arrangements (whether or not our common stock is subsequently listed on any of the OTC Markets), including the terms of our credit facilities, the terms of our Convertible Preferred Stock and related Registration Rights Agreement. If a delisting of our common stock were to cause us to violate our obligations under our credit facilities, such occurrence could trigger an event of default, which could have significant adverse impacts on our business, financial condition, results of operations, and cash flows.

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If our common stock were to be delisted from Nasdaq, we intend to take actions to apply for listing the Company’s common stock on one of the OTC Markets. However, we understand that to be eligible for quotation on certain of the OTC Market, issuers must remain current in their filings with the SEC, and we cannot provide assurances as to when that would occur, or if it will occur at all. In addition, even if our common stock is listed on the OTC Markets, the OTC Markets are generally regarded as a less efficient trading market than Nasdaq, and being listed on the OTC Markets may not resolve any breaches that may arise under our existing material arrangements, and thus many of the same risks described above would still apply.

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We are highly leveraged, and our contractual obligations may limit our operational flexibility and cash flow available to invest in the ongoing needs of our business or otherwise adversely affect our results of operations.

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We are highly leveraged. As of February 25, 2024, we had approximately $160.8 million in total indebtedness and $5.7 million available for borrowing under our revolving credit facility.

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We are party to two credit agreements, which contain a number of covenants that limit our ability and our subsidiaries’ ability to, among other things, incur additional indebtedness, pay dividends, create liens, engage in transactions with affiliates, merge or consolidate with other companies, or sell substantially all of our assets. In addition, the holders of our Convertible Preferred Stock have certain consent rights over our ability to incur indebtedness above certain thresholds, which could further limit our ability to incur additional indebtedness. The Term Loan Credit Facility with Alcon also contains certain operational requirements and limitations, including that the Company’s material uncured violation of the Alcon Supply Agreement constitutes an event of default under the Term Loan Credit Facility. The terms of our credit agreements may restrict our current and future operations and could adversely affect our ability to finance our future operations or capital needs or to execute preferred business strategies. In addition, complying with these covenants may make it more difficult for us to successfully execute our business strategy and compete against companies who are not subject to such restrictions. Our credit agreements also contain covenants related to maintaining current financial reporting and going concern maintenance. As previously disclosed, we have, in the past, determined we were not in compliance with the covenants under our credit agreements, including with respect to our timely financial reporting and going concern, which were subsequently remediated. In addition, although we have received waivers from our lenders regarding our current financial reporting delays, there can be no assurances that we will not be in non-compliance in the future.

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A failure by us to comply with the covenants specified in our credit agreements, as amended, could result in an event of default under the agreements, which would give the lenders the right to terminate their commitments to provide additional loans under our credit agreements and to declare all borrowings outstanding, together with accrued and unpaid interest, to be immediately due and payable. In addition, the lenders would have the right to proceed against the collateral we granted to them, which consists of substantially all of our assets. As previously disclosed, we have been in noncompliance with our credit agreements in the past, and we cannot guarantee that we will be able to remain in compliance with all applicable covenants under the credit agreements in the future, that our lenders will elect to provide waivers or enter into amendments in the future, or, if the lenders do provide waivers, that those waivers will not be conditioned upon additional costs or restrictions that could materially or adversely impact our business, cash flows, results of operations, and financial condition. In addition, if the debt under our credit agreements were to be accelerated, we may not have sufficient cash or be able to borrow sufficient funds to refinance the debt or sell sufficient assets to repay the debt, which could immediately, materially and adversely affect our business, cash flows, results of operations, and financial condition, and there would be no guarantee that we would be able to find alternative financing. Even if we were able to obtain alternative financing, it may not be available on commercially reasonable terms or on terms that are acceptable to us.

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The degree to which we are leveraged could have important adverse consequences to holders of our securities, including the following:

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•we must dedicate a substantial portion of cash flows from operations to the payment of principal and interest on applicable indebtedness which, in turn, reduces funds available for operations, capital expenditures and growth;

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•our flexibility in planning for, or reacting to, changes in the markets in which we compete may be limited;

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•we may be at a competitive disadvantage relative to our competitors with less indebtedness; and

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•we are rendered more vulnerable to general adverse economic and industry conditions.

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In addition, our ability to make payments on our debt, fund our other liquidity needs, and make planned capital expenditures will depend on our ability to generate cash in the future. Our historical financial results have been, and we anticipate that our future financial results will be, subject to fluctuations. Our ability to generate cash, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control. We cannot guarantee that our business will generate sufficient cash flow from our operations or that future borrowings will be available to us in an amount sufficient to enable us to make payments on our debt, fund other liquidity needs, and make planned capital expenditures.

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We have limited capital and may need to raise additional capital in the near future.

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We anticipate the need to raise additional capital to execute on our strategies for growth and to fund our significant capital expenses. We may be unable to obtain additional capital when required or on favorable terms. Future capital expenditures, including the installation of our fillers, our exploration, development, production and marketing activities, as well as our administrative requirements (such as salaries, insurance expenses and general overhead expenses, as well as legal compliance costs and accounting expenses) have required, and are anticipated to continue to require, a substantial amount of additional capital and cash flow.

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We may pursue sources of additional capital through various financing transactions or arrangements, including equity financing, collaboration, strategic alliances or licensing arrangements, debt financing or other means. We may not be successful in identifying suitable financing transactions in the time period required or at all, and we may not obtain the capital we require by other means. If we do not succeed in raising additional capital, our resources may not be sufficient to fund our growth strategies and budgeted capital expenditures, which could have significant adverse impacts on our business, financial condition, results of operations, and cash flows.

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Our ability to obtain financing, if and when necessary, may be impaired by such factors as the capital markets (both generally and in our industry in particular), our recent operating and delinquent reporting history, our risk of delisting, our prospects for expansion, and the recently announced changes to our Board and key employees. Further, the holders of our Convertible Preferred Stock are entitled to certain participation rights with respect to any equity financing (subject to certain limitations) and certain consent rights related to further increases in indebtedness or other material transactions, in each case, as further described under the applicable documents related thereto, which could adversely impact the Company’s ability to obtain financing terms on desirable terms, or at all. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, third parties may be reluctant to provide the services we need in order to operate and we may be required to cease our operations, divest our assets at unattractive prices or obtain financing on unattractive terms.

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Any additional capital raised through the sale of equity may dilute the ownership percentage of our stockholders. Raising any such capital could also result in a decrease in the fair market value of our equity securities because our assets would be owned by a larger pool of outstanding equity. In addition, the holders of the Convertible Preferred Stock, by virtue of their anti-dilutive protections and participation rights, may cause such an equity raise to be further dilutive to the Company’s other existing stockholders, and potentially create further consolidation of ownership among our largest stockholders. In addition, the terms of securities we issue in future capital transactions may be more favorable to our new investors, and may include preferences, superior voting rights and the issuance of other derivative securities, and issuances of incentive awards under equity employee incentive plans, which may have a further dilutive effect.

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If we raise additional funds through collaboration, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates, or grant licenses on terms that are not favorable to us. Debt financing, if available, would result in increased fixed payment obligations, may be subject to consent requirements from our lenders and holders of Convertible Preferred Stock and may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring debt or making capital expenditures.

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We may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, which may adversely impact our financial condition.

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We may be adversely impacted by the terms of our refinancing transactions with Alcon and by Alcon’s concentrated relationship with us as a significant customer of ours and as our lender.

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As further described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Liquidity and Capital Resources—Debt,” in May 2023, we entered into Refinancing Transactions with Alcon, a significant customer of the Company, pursuant to which Alcon agreed to become the Company’s lender under the New Term Loan Credit Facility. 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 HA for Alcon, which significantly expanded the anticipated commercial relationship between the Company and Alcon. As publicly disclosed, we also have other commercial arrangements with Alcon. As a result of these transactions, the Company may be subject to risks related to the nature and significance of this relationship. 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.

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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 Term Loan Credit Facility, the Company’s material uncured violation of the Alcon Supply Agreement constitutes an event of default under the Term Loan Credit Facility. Similarly, if Alcon were to foreclose on the assets owned under the Equipment Sale and Leaseback Agreement and prevent us from use of those assets, our ability to service other customers would be severely hindered. Any of those effects could have a material adverse effect on the Company’s business, prospects, financial condition, results of operations, and cash flows.

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Actions of activist stockholders could be disruptive and costly, and the possibility that activist stockholders may seek changes that conflict with our strategic direction could cause uncertainty about the strategic direction of our business.

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In June 2024, we entered into cooperation agreements with various existing stockholders of the Company, including 22NW, who had previously submitted a nomination proposal to elect six directors to the Board and to hold a special meeting to address certain stockholder proposals, pursuant to which we agreed to the appointment of certain Board observers and Board members and other changes to the composition and structure of the Board and its committees, in return for certain customary confidentiality and standstill provisions. The Company also previously entered into similar arrangements with Legion Partners and Wynnefield Capital. Each of 22NW, Legion Partners and Wynnefield Capital (and their respective affiliates) continue to beneficially own significant percentages of the Company’s common stock, including beneficially owning Convertible Preferred Stock. Although the cooperation agreements contained standstill provisions with respect to customary governance-related activism, it did not contain a release from litigation claims, and thus 22NW or other investors remain able to bring such claims against the Company. These negotiations resulted in substantial costs for us, and future activism may similarly create substantial costs for us in the future.

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Activist investors may attempt to effect changes in our strategic direction and how we are governed, or to acquire control over us. Some investors seek to increase short-term stockholder value by advocating corporate actions, such as financial restructuring, increased borrowing, special dividends, stock repurchases, or even sales of assets or the entire company. In addition, holders of Convertible Preferred Stock may have interests that are different from, or may conflict with, those of other stockholders. While we welcome varying opinions from all stockholders, activist campaigns that contest or conflict with our strategic direction could have an adverse effect on our financial condition, results of operations and cash flows, as responding to proxy contests and other actions by activist stockholders can disrupt our operations, be costly and time-consuming, and divert the attention of our Board and senior management from the pursuit of business strategies.

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In addition, perceived uncertainties as to our future direction as a result of changes to the composition of our Board may lead to the perception of a change in the direction of the business, instability or lack of continuity, which may be exploited by our competitors, may cause concern to our current or potential customers, may result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel and business partners. These types of actions could cause

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We have identified material weaknesses in our internal control over financial reporting, which if not remediated, could adversely affect our business.

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As previously disclosed, material weaknesses in our internal control over financial reporting have been identified, which have not been remediated. In addition, as previously disclosed, material weaknesses have been identified in our internal control over financial reporting in the past, which have not been remediated. A “material weakness” is a deficiency, or a combination of deficiencies, in internal controls over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

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You should carefully consider the risks described in Part 1, Item 1A, Risk Factors, of the 2023 Annual Report, as our business, financial condition, results of operations, and cash flows could be adversely affected by any of the risks and uncertainties described therein and herein. Some statements in this report, including statements in the risk factors, constitute forward-looking statements. These risks are not the only risks that may affect us. Additional risks that we are not aware of or do not believe are material at the time of this filing may also become important factors that adversely affect our business. Except as described below, there have been no material changes to our risk factors as previously disclosed in the 2023 Annual Report, as supplemented by this Quarterly Report on Form 10-Q for the fiscal period ended February 25, 2024.