SEC Company Response from LIFECORE BIOMEDICAL, INC. \DE\ (LFCR) (CIK 0001005286) (LFCR) — Mar 10, 2011
LIFECORE BIOMEDICAL, INC. \DE\ (LFCR) (CIK 0001005286)
Date: March 10, 2011 · CIK: 0001005286 · Accession: 0001144204-11-014041
AI Filing Summary & Sentiment
Reasoning
Referenced dates: February 24, 2011
Letter
Unassociated Document
VIA EDGAR
March 10, 2011
Mr. Rufus Decker
Accounting Branch Chief
Division of Corporation Finance
Securities and Exchange Commission
100 F Street N.E.
Washington, D.C. 20549
Re:
Correspondence from you dated February 24, 2011 concerning Landec Corporation
Form 10-K for the Fiscal Year Ended May 30, 2010
Filed August 13, 2010
Forms 10-Q for the Fiscal Quarters Ended August 29, 2010 and November 28, 2010 Form 8-K Filed February 18, 2011
File No. 0-27446
Ladies and Gentlemen:
On behalf of Landec Corporation (“Landec” or the “Company”) this letter is being transmitted in response to comments received from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) by letter dated February 24, 2011 with respect to the Company’s Annual Report on Form 10-K for the fiscal year ended May 30, 2010 filed on August 13, 2010, the Company’s Quarterly Reports on Form 10-Q for the Fiscal Quarters ended August 29, 2010 and November 28, 2010 and the Company’s Current Report on Form 8-K filed on February 18, 2011. The numbering of the paragraphs below corresponds to the numbering of the comments which we have incorporated into this response letter.
Form 10-K for the Fiscal Year Ended May 30, 2010
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 32
Critical Accounting Polices and Use of Estimates, page 33
Goodwill and Other Intangibles, page 34
General
1.
Comment: We note that goodwill is approximately 20% of total assets and 31% of total equity as of May 30, 2010. Given the significance, please address the following in future filings:
Rufus Decker
Accounting Branch Chief
United States Securities and Exchange Commission
March 10, 2011
Page 2
o
Provide a discussion about the projections you have made in preparing estimated fair values using the discounted cash flow as compared with your actual results.
o
To the extent that any of your reporting units have estimated fair values that are not substantially in excess of the carrying values and to the extent that goodwill for these reporting units, in the aggregate or individually, could materially impact your operating results or total equity, please provide the following disclosures for each of these reporting units:
o
The percentage by which fair value exceeds the carrying value as of the most recent step one test.
o
The amount of goodwill.
o
A discussion of the uncertainty associated with key assumptions. For example, to the extent that you have included assumptions in your discounted cash flow model that materially deviates from your historical results, please include a discussion of these assumptions.
o
A discussion of any potential events and/or circumstances that could have a negative effect to the estimated fair value.
If you have determined that the estimated fair value substantially exceeds the carrying value for all of your reporting units, please disclose this determination.
Please refer to Item 303 of Regulation S-K and Sections 216 and 501.14 of the Financial Reporting Codification for guidance.
Response: Beginning with our Form 10-K for the fiscal year ended May 29, 2011, the Company will provide a discussion of the projections used to estimate fair values using discounted cash flows and how those projections compare to historical actual results, as well as key assumptions embedded in those projections. If the estimated fair values substantially exceed the carrying values the Company will disclose this fact. If the estimated fair values do not substantially exceed the carrying values the Company will provide the disclosures requested for each reporting unit.
Results of Operations, page 39
2.
Comment: We note that you attributed the increase in Apio’s value-added revenues to the increase in unit sales volumes. In future filings, please provide investors with an understanding as to why volumes increased. To the extent that the increase in volumes is attributed, in total or in part, to the introduction of new products, please state as such and quantify the impact the new product offerings had to revenues. In this regards, we note your disclosure on page 10 that Apio had ten new product offerings in the last 12-months. Please refer to Item 303(A)(3)(iii) and section 501.12 of the Financial Reporting Codification for guidance.
Rufus Decker
Accounting Branch Chief
United States Securities and Exchange Commission
March 10, 2011
Page 3
Response: In future filings, the Company will segregate and quantify the impact of any increase or decrease in revenues attributable to new products, existing products and new customers.
3.
Comment: In future filings, please provide a discussion and analysis of the material components of your effective tax rate for each period presented. For example, we note that your fiscal year 2010 effective tax rate increased to 50% as compared to 42% for fiscal year 2009 without any explanation as to why. Based on the reconciliation provided within Note 11, there appears to be a few factors impacting both fiscal years’ effective tax rates that should be expanded on to explain the increase.
Response: In future filings, the MD&A and the footnotes to the Company’s financial statements will include a discussion and analysis of the material components of the Company’s effective tax rate for each period presented.
Liquidity and Capital Resources, page 46
4.
Comment: We note that inventories are 18% of total current assets as of May 30, 2010. We further note that you attribute the increase in inventories, in part, to an increase in Apio’s inventory levels. In future filings, please ensure that you provide investors with an understanding of the material causes for the increase in Apio’s inventory levels, as applicable.
Response: The Company advises the Staff that Apio is a fresh vegetable packing company with two different types of inventory: (i) packaging, such as films, trays and cardboard boxes, and (ii) perishable items, such as fresh vegetables and dip, which represented approximately 56% and 44%, respectively, of Apio’s inventory at May 30, 2010. Packaging inventory has typically remained relatively flat throughout the year; however, the perishable inventory can fluctuate significantly from quarter to quarter. Increases or decreases in the perishable inventory at Apio are typically the result of its export business taking title to the inventory while in shipment. As a result, if there is a significant variance in volume of export product in transit at the end of a reporting period, or if there is a significant fluctuation in per unit prices of product purchased to fulfill export needs as compared to the prior period, Apio’s inventory levels will reflect those changes. At May 30, 2010, the increase in inventories at Apio was primarily due to higher per unit costs on exported products due to supply shortages. In future filings, the Company will disclose the causes for material increases or decreases in Apio’s inventory levels.
Rufus Decker
Accounting Branch Chief
United States Securities and Exchange Commission
March 10, 2011
Page 4
5.
Comment: We note that you amended your Credit Agreement with Wells Fargo on August 9, 2010 to amend certain financial covenants and that you further amended the Credit Agreement as it relates to your financial covenants on September 14, 2010. In future filings, please explain to investors why you needed to obtain amendments to your Credit Agreement as it relates to the financial covenants. Please also disclose all of the financial covenants required to be met to the extent that you have determined it is reasonably likely you will not meet these financial covenants. This disclosure should include the minimum/maximum ratios and amounts permitted under the financial covenants in addition to the actual ratios and amounts achieved for the current reporting period. This disclosure will allow investors to easily understand your current status in meeting your financial covenants. Please refer to sections 501.13.b.2 and 501.13.c of the Financial Reporting Codification for guidance.
Response: The Company advises the Staff that the August 9, 2010 amendment to the financial covenants in the Company’s Credit Agreement with Wells Fargo was necessary to amend the definition of “Net Income” to exclude increased non-recurring expenses incurred in connection with the acquisition of Lifecore and to exclude expenses related to the impact of adjustments from the purchase accounting (e.g. inventory step-up, discount on the earn out, etc.) as they relate to the minimum net income covenant. The aforementioned adjustments were made to the initial forecast that the Company had previously provided Wells Fargo which was the basis for the covenants in the Credit Agreement and which were necessary for compliance as of May 30, 2010.
The September 14, 2010 amendment to the financial covenants in the Company’s Credit Agreement with Wells Fargo was to simplify the covenant definitions. The modifications included an amendment to the definition of “Net Income” to include only the current fiscal year to date results as compared to the previous trailing four quarter basis, so as to exclude results prior to the acquisition. In addition, the minimum net income requirement for the first quarter ended August 29, 2010 was changed to $1.00 from $500,000. This amendment was not necessary for compliance as of August 29, 2010.
Rufus Decker
Accounting Branch Chief
United States Securities and Exchange Commission
March 10, 2011
Page 5
The Company has met and expects to continue to meet its financial covenants under the Credit Agreement with Wells Fargo. In future filings, if the Company enters into new amendments, the Company will disclose the nature of the amendments and their impact on the Company’s compliance with any financial covenants. Additionally, to the extent the Company concludes that it is reasonably likely that the Company will not meet a financial covenant, the Company will disclose the minimum/maximum ratio for each of the covenants along with the actual ratios and amounts achieved for the quarter and/or year-to-date period then ended, as applicable.
6.
Comment: In future filings, please include interest payments in your contractual obligations table. This disclosure will increase transparency of your cash flows. To the extent that the interest rates are variable and unknown, please use your judgment to determine the amount to include in your table for estimates of future variable rate interest payments. Please also provide the disclosures with respect to your assumptions for the variable interest payments. If you are in a position of paying cash rather than receiving cash for your interest rate swaps, please disclose estimates of the amounts you will be obligated to pay.
Response: In future filings, the Company will include future interest payments in the contractual obligations table based upon the fixed and variable interest payment requirements. The Company will also disclose in future filings the estimated amount, if any, it will be obligated to pay under its interest rate swap.
Item 9A. Controls and Procedures, page 49
7.
Comment: We note your disclosure “[e]xcept as described above, there were no changes in [y]our internal control over financial reporting during the quarter ended May 30, 2010 that have materially affected, or are reasonably likely to materially affect, [y]our internal control over financial reporting.” In future filings, please revise to state clearly, if correct, that there were changes in your internal control over financial reporting that occurred during this quarter that have materially affected, or are reasonably likely to materially affect, your internal control over financial reporting. Please also clearly state the changes that were made.
Response: The Company advises the Staff that its disclosure of “[e]xcept as described above” was in reference to the acquisition of Lifecore Biomedical, Inc. on April 30, 2010, which was excluded from the Company’s evaluation of internal control over financial reporting, but which is reasonably likely to materially affect the Company’s internal control over financial reporting due to its relative size in comparison to the Company’s consolidated financial results. There were no other changes that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. In future filings, including our Quarterly Report on Form 10-Q for the fiscal quarter ended February 27, 2011, we will provide further disclosure of the impact that the acquisition of Lifecore Biomedical, Inc. has had on the Company’s internal control over financial reporting.
Rufus Decker
Accounting Branch Chief
United States Securities and Exchange Commission
March 10, 2011
Page 6
Consolidated Statements of Income, page 55
8.
Comment: We note that you have included acquisition-related costs within other expenses below operating income. Please provide us with a detailed explanation as to how you determined that these costs meet the definition of non-operating expenses. Otherwise, please reclassify this amount to be part of operating income in future filings. Please refer to ASC 805-10-55-41 and Rule 5-03.9 of Regulation S-X (ASC 225-10-S99-2) for guidance.
Response: The Company will reclassify acquisition-related costs to operating expenses in the Company’s Form 10-K for the fiscal year ending May 29, 2011.
Consolidated Statements of Changes in Stockholders’ Equity, page 56
9.
Comment: In all future period reports, please separately present a reconciliation of total equity attributable to the parent and total equity attributable to noncontrolling interests. Please refer to ASC 810-10-50-1A for guidance.
Response: In future filings, beginning with the Company’s Form 10-K for the fiscal year ending May 29, 2011, the Company will separately present a reconciliation of total equity attributable to the parent and total equity attributable to noncontrolling interests.
Consolidated Statements of Cash Flows, page 57
10.
Comment: In future filings, please revise your presentation of operating activities using the indirect method to arrive at cash flows from operating activities to begin with net income instead of net income applicable to Common Stockholders. Please refer to ASC 230-10-45-28 (paragraph 28 of SFAS 95) for guidance. In this regard, please note that the definition of net income has been revised. Please refer to ASC 810-10-45-19 and 45-20 (paragraphs 29-30 of Appendix A to SFAS 160) for additional guidance.
Rufus Decker
Accounting Branch Chief
United States Securities and Exchange Commission
March 10, 2011
Page 7
Response: In future filings, cash flows from operating activities will begin with net income as required.
2. Acquisition of Lifecore Biomedical, Inc., page 71
11.
Comment: We note that you acquired Lifecore Biomedical, Inc. (Lifecore) on April 30, 2010 and that you have recognized two intangible assets separately from goodwill – trade names valued at $4.2 million and customer base valued at $3.7 million. We further note your discussion within Item 1 of the Form 10-K that Lifecore has a proprietary fermentation process to manufacture premium, pharmaceutical-grade hyaluronan and a proprietary aseptic formulation and filling capability. Also, Lifecore has a world-wide exclusive license and development agreement to develop and commercialize hyaluronan-based products and related products, and that you anticipate sublicensing the technology for certain applications. Finally, we note that Lifecore had recognized patents and license intangible assets on its balance sheet prior to the acquisition. In light of these facts, please provide us with a detailed explanation of your consideration for recognizing
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filename1.htm
Unassociated Document
VIA EDGAR
March 10, 2011
Mr. Rufus Decker
Accounting Branch Chief
Division of Corporation Finance
Securities and Exchange Commission
100 F Street N.E.
Washington, D.C. 20549
Re:
Correspondence from you dated February 24, 2011 concerning Landec Corporation
Form 10-K for the Fiscal Year Ended May 30, 2010
Filed August 13, 2010
Forms 10-Q for the Fiscal Quarters Ended August 29, 2010 and November 28, 2010 Form 8-K Filed February 18, 2011
File No. 0-27446
Ladies and Gentlemen:
On behalf of Landec Corporation (“Landec” or the “Company”) this letter is being transmitted in response to comments received from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) by letter dated February 24, 2011 with respect to the Company’s Annual Report on Form 10-K for the fiscal year ended May 30, 2010 filed on August 13, 2010, the Company’s Quarterly Reports on Form 10-Q for the Fiscal Quarters ended August 29, 2010 and November 28, 2010 and the Company’s Current Report on Form 8-K filed on February 18, 2011. The numbering of the paragraphs below corresponds to the numbering of the comments which we have incorporated into this response letter.
Form 10-K for the Fiscal Year Ended May 30, 2010
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 32
Critical Accounting Polices and Use of Estimates, page 33
Goodwill and Other Intangibles, page 34
General
1.
Comment: We note that goodwill is approximately 20% of total assets and 31% of total equity as of May 30, 2010. Given the significance, please address the following in future filings:
Rufus Decker
Accounting Branch Chief
United States Securities and Exchange Commission
March 10, 2011
Page 2
o
Provide a discussion about the projections you have made in preparing estimated fair values using the discounted cash flow as compared with your actual results.
o
To the extent that any of your reporting units have estimated fair values that are not substantially in excess of the carrying values and to the extent that goodwill for these reporting units, in the aggregate or individually, could materially impact your operating results or total equity, please provide the following disclosures for each of these reporting units:
o
The percentage by which fair value exceeds the carrying value as of the most recent step one test.
o
The amount of goodwill.
o
A discussion of the uncertainty associated with key assumptions. For example, to the extent that you have included assumptions in your discounted cash flow model that materially deviates from your historical results, please include a discussion of these assumptions.
o
A discussion of any potential events and/or circumstances that could have a negative effect to the estimated fair value.
If you have determined that the estimated fair value substantially exceeds the carrying value for all of your reporting units, please disclose this determination.
Please refer to Item 303 of Regulation S-K and Sections 216 and 501.14 of the Financial Reporting Codification for guidance.
Response: Beginning with our Form 10-K for the fiscal year ended May 29, 2011, the Company will provide a discussion of the projections used to estimate fair values using discounted cash flows and how those projections compare to historical actual results, as well as key assumptions embedded in those projections. If the estimated fair values substantially exceed the carrying values the Company will disclose this fact. If the estimated fair values do not substantially exceed the carrying values the Company will provide the disclosures requested for each reporting unit.
Results of Operations, page 39
2.
Comment: We note that you attributed the increase in Apio’s value-added revenues to the increase in unit sales volumes. In future filings, please provide investors with an understanding as to why volumes increased. To the extent that the increase in volumes is attributed, in total or in part, to the introduction of new products, please state as such and quantify the impact the new product offerings had to revenues. In this regards, we note your disclosure on page 10 that Apio had ten new product offerings in the last 12-months. Please refer to Item 303(A)(3)(iii) and section 501.12 of the Financial Reporting Codification for guidance.
Rufus Decker
Accounting Branch Chief
United States Securities and Exchange Commission
March 10, 2011
Page 3
Response: In future filings, the Company will segregate and quantify the impact of any increase or decrease in revenues attributable to new products, existing products and new customers.
3.
Comment: In future filings, please provide a discussion and analysis of the material components of your effective tax rate for each period presented. For example, we note that your fiscal year 2010 effective tax rate increased to 50% as compared to 42% for fiscal year 2009 without any explanation as to why. Based on the reconciliation provided within Note 11, there appears to be a few factors impacting both fiscal years’ effective tax rates that should be expanded on to explain the increase.
Response: In future filings, the MD&A and the footnotes to the Company’s financial statements will include a discussion and analysis of the material components of the Company’s effective tax rate for each period presented.
Liquidity and Capital Resources, page 46
4.
Comment: We note that inventories are 18% of total current assets as of May 30, 2010. We further note that you attribute the increase in inventories, in part, to an increase in Apio’s inventory levels. In future filings, please ensure that you provide investors with an understanding of the material causes for the increase in Apio’s inventory levels, as applicable.
Response: The Company advises the Staff that Apio is a fresh vegetable packing company with two different types of inventory: (i) packaging, such as films, trays and cardboard boxes, and (ii) perishable items, such as fresh vegetables and dip, which represented approximately 56% and 44%, respectively, of Apio’s inventory at May 30, 2010. Packaging inventory has typically remained relatively flat throughout the year; however, the perishable inventory can fluctuate significantly from quarter to quarter. Increases or decreases in the perishable inventory at Apio are typically the result of its export business taking title to the inventory while in shipment. As a result, if there is a significant variance in volume of export product in transit at
the end of a reporting period, or if there is a significant fluctuation in per unit prices of product purchased to fulfill export needs as compared to the prior period, Apio’s inventory levels will reflect those changes. At May 30, 2010, the increase in inventories at Apio was primarily due to higher per unit costs on exported products due to supply shortages. In future filings, the Company will disclose the causes for material increases or decreases in Apio’s inventory levels.
Rufus Decker
Accounting Branch Chief
United States Securities and Exchange Commission
March 10, 2011
Page 4
5.
Comment: We note that you amended your Credit Agreement with Wells Fargo on August 9, 2010 to amend certain financial covenants and that you further amended the Credit Agreement as it relates to your financial covenants on September 14, 2010. In future filings, please explain to investors why you needed to obtain amendments to your Credit Agreement as it relates to the financial covenants. Please also disclose all of the financial covenants required to be met to the extent that you have determined it is reasonably likely you will not meet these financial covenants. This disclosure should include the minimum/maximum ratios and amounts permitted under the financial covenants in addition to the actual ratios and amounts achieved for the current reporting period. This disclosure will allow investors to easily
understand your current status in meeting your financial covenants. Please refer to sections 501.13.b.2 and 501.13.c of the Financial Reporting Codification for guidance.
Response: The Company advises the Staff that the August 9, 2010 amendment to the financial covenants in the Company’s Credit Agreement with Wells Fargo was necessary to amend the definition of “Net Income” to exclude increased non-recurring expenses incurred in connection with the acquisition of Lifecore and to exclude expenses related to the impact of adjustments from the purchase accounting (e.g. inventory step-up, discount on the earn out, etc.) as they relate to the minimum net income covenant. The aforementioned adjustments were made to the initial forecast that the Company had previously provided Wells Fargo which was the basis for the covenants in the Credit Agreement and which were necessary for compliance as of May 30,
2010.
The September 14, 2010 amendment to the financial covenants in the Company’s Credit Agreement with Wells Fargo was to simplify the covenant definitions. The modifications included an amendment to the definition of “Net Income” to include only the current fiscal year to date results as compared to the previous trailing four quarter basis, so as to exclude results prior to the acquisition. In addition, the minimum net income requirement for the first quarter ended August 29, 2010 was changed to $1.00 from $500,000. This amendment was not necessary for compliance as of August 29, 2010.
Rufus Decker
Accounting Branch Chief
United States Securities and Exchange Commission
March 10, 2011
Page 5
The Company has met and expects to continue to meet its financial covenants under the Credit Agreement with Wells Fargo. In future filings, if the Company enters into new amendments, the Company will disclose the nature of the amendments and their impact on the Company’s compliance with any financial covenants. Additionally, to the extent the Company concludes that it is reasonably likely that the Company will not meet a financial covenant, the Company will disclose the minimum/maximum ratio for each of the covenants along with the actual ratios and amounts achieved for the quarter and/or year-to-date period then ended, as applicable.
6.
Comment: In future filings, please include interest payments in your contractual obligations table. This disclosure will increase transparency of your cash flows. To the extent that the interest rates are variable and unknown, please use your judgment to determine the amount to include in your table for estimates of future variable rate interest payments. Please also provide the disclosures with respect to your assumptions for the variable interest payments. If you are in a position of paying cash rather than receiving cash for your interest rate swaps, please disclose estimates of the amounts you will be obligated to pay.
Response: In future filings, the Company will include future interest payments in the contractual obligations table based upon the fixed and variable interest payment requirements. The Company will also disclose in future filings the estimated amount, if any, it will be obligated to pay under its interest rate swap.
Item 9A. Controls and Procedures, page 49
7.
Comment: We note your disclosure “[e]xcept as described above, there were no changes in [y]our internal control over financial reporting during the quarter ended May 30, 2010 that have materially affected, or are reasonably likely to materially affect, [y]our internal control over financial reporting.” In future filings, please revise to state clearly, if correct, that there were changes in your internal control over financial reporting that occurred during this quarter that have materially affected, or are reasonably likely to materially affect, your internal control over financial reporting. Please also clearly state the changes that were made.
Response: The Company advises the Staff that its disclosure of “[e]xcept as described above” was in reference to the acquisition of Lifecore Biomedical, Inc. on April 30, 2010, which was excluded from the Company’s evaluation of internal control over financial reporting, but which is reasonably likely to materially affect the Company’s internal control over financial reporting due to its relative size in comparison to the Company’s consolidated financial results. There were no other changes that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. In future filings, including our Quarterly Report on Form 10-Q for the fiscal quarter ended February
27, 2011, we will provide further disclosure of the impact that the acquisition of Lifecore Biomedical, Inc. has had on the Company’s internal control over financial reporting.
Rufus Decker
Accounting Branch Chief
United States Securities and Exchange Commission
March 10, 2011
Page 6
Consolidated Statements of Income, page 55
8.
Comment: We note that you have included acquisition-related costs within other expenses below operating income. Please provide us with a detailed explanation as to how you determined that these costs meet the definition of non-operating expenses. Otherwise, please reclassify this amount to be part of operating income in future filings. Please refer to ASC 805-10-55-41 and Rule 5-03.9 of Regulation S-X (ASC 225-10-S99-2) for guidance.
Response: The Company will reclassify acquisition-related costs to operating expenses in the Company’s Form 10-K for the fiscal year ending May 29, 2011.
Consolidated Statements of Changes in Stockholders’ Equity, page 56
9.
Comment: In all future period reports, please separately present a reconciliation of total equity attributable to the parent and total equity attributable to noncontrolling interests. Please refer to ASC 810-10-50-1A for guidance.
Response: In future filings, beginning with the Company’s Form 10-K for the fiscal year ending May 29, 2011, the Company will separately present a reconciliation of total equity attributable to the parent and total equity attributable to noncontrolling interests.
Consolidated Statements of Cash Flows, page 57
10.
Comment: In future filings, please revise your presentation of operating activities using the indirect method to arrive at cash flows from operating activities to begin with net income instead of net income applicable to Common Stockholders. Please refer to ASC 230-10-45-28 (paragraph 28 of SFAS 95) for guidance. In this regard, please note that the definition of net income has been revised. Please refer to ASC 810-10-45-19 and 45-20 (paragraphs 29-30 of Appendix A to SFAS 160) for additional guidance.
Rufus Decker
Accounting Branch Chief
United States Securities and Exchange Commission
March 10, 2011
Page 7
Response: In future filings, cash flows from operating activities will begin with net income as required.
2. Acquisition of Lifecore Biomedical, Inc., page 71
11.
Comment: We note that you acquired Lifecore Biomedical, Inc. (Lifecore) on April 30, 2010 and that you have recognized two intangible assets separately from goodwill – trade names valued at $4.2 million and customer base valued at $3.7 million. We further note your discussion within Item 1 of the Form 10-K that Lifecore has a proprietary fermentation process to manufacture premium, pharmaceutical-grade hyaluronan and a proprietary aseptic formulation and filling capability. Also, Lifecore has a world-wide exclusive license and development agreement to develop and commercialize hyaluronan-based products and related products, and that you anticipate sublicensing the technology for certain applications. Finally, we note that Lifecore had recognized patents and license intangible assets on its balance
sheet prior to the acquisition. In light of these facts, please provide us with a detailed explanation of your consideration for recognizing