Table of Contents
UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Quarter Ended November 26, 2017,August 29, 2021, or

[  ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition period for _________ to _________.

Commission file number: 0-27446

000-27446

LANDEC CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

94-3025618

 (StateDelaware

94-3025618
(State or other jurisdiction of incorporation or organization)

 (IRS(IRS Employer Identification Number)

5201 Great America Parkway, Suite 232

Santa Clara, California 95054

2811 Airpark Drive
Santa Maria,California93455
(Address of principal executive offices)(Zip Code)

(650) 306-1650
(Address of principal executive offices)

Registrant's telephone number, including area code:

(650) 306-1650

code)


Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock

stock, par value $0.001 per share

LNDC

The NASDAQ Global Select Stock Market

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has beenbeen subject to such filing requirements for the past 90 days. Yes   X    No ___


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   X    No ___

Indicate by check mark whether the registrant is a large acceleratedaccelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitionthe definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer       ___     Accelerated Filer  X   ☒Emerging Growth Company
Non Accelerated Filer          ___     Smaller Reporting Company ___
Emerging Growth Company ___ ☐

If an emerging growth company, indicate by check mark if the registrantregistrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ___

Indicate by check mark whether the registrant is a shell companycompany (as defined in Rule 12b-2 of the Exchange Act). Yes ___ No    X  

As of December 21, 2017,October 4, 2021, there were 27,533,89229,461,710 shares of Common Stockcommon stock outstanding.






Table of Contents


LANDEC CORPORATION

FORM 10-Q

For

For the Fiscal Quarter Ended November 26, 2017

August 29, 2021


INDEX

Page

Page

Facing sheet

Index

i

d)

e)

18

26

26

27

27

27

27

27

27

27

28

29


i

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

LANDEC CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

  

November 26, 2017

  

May 28, 2017

 
  

(unaudited)

     

ASSETS

        

Current Assets:

        

Cash and cash equivalents

 $4,369  $5,409 

Accounts receivable, less allowance for doubtful accounts

  56,356   47,083 

Inventories

  30,836   25,290 

Prepaid expenses and other current assets

  4,426   3,498 

Total Current Assets

  95,987   81,280 
         

Investment in non-public company, fair value

  65,800   63,600 

Property and equipment, net

  135,271   133,220 

Goodwill

  54,779   54,779 

Trademarks/tradenames, net

  16,028   16,028 

Customer relationships, net

  6,291   6,783 

Other assets

  5,152   2,918 

Total Assets

 $379,308  $358,608 
         

LIABILITIES AND STOCKHOLDERS’ EQUITY

        

Current Liabilities:

        

Accounts payable

 $37,483  $25,868 

Accrued compensation

  7,624   8,211 

Other accrued liabilities

  8,471   9,125 

Deferred revenue

  1,673   310 

Line of credit

  10,000   3,000 

Current portion of long-term debt

  4,940   4,940 

Total Current Liabilities

  70,191   51,454 
         

Long-term debt

  39,829   42,299 

Capital lease obligation, less current portion

  3,688   3,731 

Deferred taxes, net

  26,028   24,581 

Other non-current liabilities

  6,863   8,391 

Total Liabilities

  146,599   130,456 
         

Stockholders’ Equity:

        

Common stock, $0.001 par value; 50,000 shares authorized; 27,534 and 27,499 shares issued and outstanding at November 26, 2017 and May 28, 2017, respectively

  28   27 

Additional paid-in capital

  143,490   141,680 

Retained earnings

  87,103   84,470 

Accumulated other comprehensive income

  568   432 

Total Stockholders’ Equity

  231,189   226,609 

Non-controlling interest

  1,520   1,543 

Total Equity

  232,709   228,152 

Total Liabilities and Stockholders’ Equity

 $379,308  $358,608 

value)
August 29, 2021May 30, 2021
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents$1,447 $1,295 
Accounts receivable, less allowance for credit losses61,956 70,013 
Inventories69,415 69,663 
Prepaid expenses and other current assets9,591 7,350 
Total Current Assets142,409 148,321 
Investment in non-public company, fair value— 45,100 
Property and equipment, net180,460 179,559 
Operating lease right-of-use assets14,299 20,827 
Goodwill69,386 69,386 
Trademarks/tradenames, net25,328 25,328 
Customer relationships, net10,295 10,792 
Other assets3,442 3,611 
Total Assets$445,619 $502,924 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable$46,355 $47,569 
Accrued compensation9,173 12,304 
Other accrued liabilities10,855 7,996 
Current portion of lease liabilities4,054 3,889 
Deferred revenue1,216 1,130 
Line of credit32,000 29,000 
Total Current Liabilities103,653 101,888 
Long-term debt, net123,833 164,902 
Long-term lease liabilities17,072 23,611 
Deferred taxes, net4,091 6,140 
Other non-current liabilities3,105 3,599 
Total Liabilities251,754 300,140 
Stockholders’ Equity:
Common stock, $0.001 par value; 50,000 shares authorized; 29,462 and 29,333 shares issued and outstanding at August 29, 2021 and May 30, 2021, respectively29 29 
Additional paid-in capital165,725 165,533 
Retained earnings29,103 38,580 
Accumulated other comprehensive loss(992)(1,358)
Total Stockholders’ Equity193,865 202,784 
Total Liabilities and Stockholders’ Equity$445,619 $502,924 


See accompanying notes.

notes to the consolidated financial statements.
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LANDEC CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)

(In thousands, exceptexcept per share amounts)

  

Three Months Ended

  

Six Months Ended

 
  

November 26,

2017

  

November 27,

2016

  

November 26,

2017

  

November 27,

2016

 

Product sales

 $136,457  $135,865  $259,814  $268,259 
                 

Cost of product sales

  120,705   116,912   224,776   228,162 
                 

Gross profit

  15,752   18,953   35,038   40,097 
                 

Operating expenses:

                

Research and development

  3,372   1,965   6,091   3,903 

Selling, general and administrative

  12,934   13,724   26,979   27,460 

Total operating costs and expenses

  16,306   15,689   33,070   31,363 
                 

Operating (loss) income

  (554

)

  3,264   1,968   8,734 
                 

Dividend income

  412   412   825   825 

Interest income

  42   4   74   7 

Interest expense

  (480

)

  (380

)

  (884

)

  (1,032

)

Loss on debt refinancing

     (1,233

)

     (1,233

)

Other income

  1,300      2,200    

Net income before taxes

  720   2,067   4,183   7,301 

Income tax expense

  (207

)

  (693

)

  (1,458

)

  (2,582

)

Consolidated net income

  513   1,374   2,725   4,719 

Non-controlling interest expense

  (26

)

  (48

)

  (92

)

  (81

)

Net income applicable to common stockholders

 $487  $1,326  $2,633  $4,638 
                 

Basic net income per share

 $0.02  $0.05  $0.10  $0.17 

Diluted net income per share

 $0.02  $0.05  $0.09  $0.17 
                 

Shares used in per share computation

                

Basic

  27,518   27,249   27,512   27,234 

Diluted

  27,875   27,618   27,866   27,572 
                 

Other comprehensive income, net of tax:

                

Change in net unrealized gains on interest rate swap (net of tax effect of $140, $192, $85, and $192)

 $239  $327  $136  $327 

Other comprehensive income, net of tax

  239   327   136   327 

Total comprehensive income

 $726  $1,653  $2,769  $4,965 

Three Months Ended
August 29, 2021August 30, 2020
Product sales
$128,788 $135,643 
Cost of product sales
111,269 119,296 
Gross profit17,519 16,347 
Operating costs and expenses:
Research and development2,826 2,508 
Selling, general and administrative15,939 17,903 
Restructuring costs2,562 8,404 
Total operating costs and expenses21,327 28,815 
Operating loss(3,808)(12,468)
Dividend income— 281 
Interest income27 
Interest expense(7,917)(3,109)
Other income (expense), net109 (21)
Net loss before tax(11,589)(15,309)
Income tax benefit2,112 4,309 
Net loss$(9,477)$(11,000)
Net loss per common share:
Basic$(0.32)$(0.38)
Diluted$(0.32)$(0.38)
Shares used in per share computation:
Basic29,424 29,242 
Diluted29,424 29,242 
Other comprehensive income (loss), net of tax:
Net unrealized gain (losses) on interest rate swaps (net of tax effect of $(90) and $(121))$366 $304 
Other comprehensive income (loss), net of tax366 304 
Total comprehensive loss$(9,111)$(10,696)

See accompanying notes.

notes to the consolidated financial statements.
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LANDEC CORPORATION

CONSOLIDATED STATEMENT OF CHANGES INSTOCKHOLDERS’ EQUITY

(Unaudited)

(inIn thousands, except per share amounts)

  

Common Stock

  

Additional

Paid-in

  

Retained

  

Accumulated Other

Comprehensive

  

Total

Stockholders’

  

Non-controlling

 
  

Shares

  

Amount

  Capital  Earnings  Income  Equity  Interest 

Balance at May 28, 2017

  27,499  $27  $141,680  $84,470  $432  $226,609  $1,543 

Issuance of common stock at $5.63 to $6.66 per share, net of taxes paid by Landec on behalf of employees

  1                   

Issuance of common stock for vested restricted stock units (“RSUs”)

  34   1            1    

Taxes paid by Company for employee stock plans

        (256

)

        (256

)

   

Stock-based compensation

        2,066         2,066    

Payments to non-controlling interest

                          (115

)

Net income

           2,633      2,633   92 

Other comprehensive income, net of tax

              136   136    

Balance at November 26, 2017

  27,534  $28  $143,490  $87,103  $568  $231,189  $1,520 


Three Months Ended August 29, 2021
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
 Loss
Total
Stockholders’
Equity
Common Stock
SharesAmount
Balance at May 30, 202129,333 $29 $165,533 $38,580 $(1,358)$202,784 
Issuance of stock under stock plans, net of shares withheld129 — — — — — 
Taxes paid by Company for employee stock plans— — (428)— — (428)
Stock-based compensation— — 620 — — 620 
Net loss— — — (9,477)— (9,477)
Other comprehensive income, net of tax— — — — 366 366 
Balance at August 29, 202129,462 $29 $165,725 $29,103 $(992)$193,865 

Three Months Ended August 30, 2020
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive Loss
Total
Stockholders’
Equity
Common Stock
SharesAmount
Balance at May 31, 202029,224 $29 $162,578 $71,245 $(2,808)$231,044 
Issuance of stock under stock plans, net of shares withheld18
Taxes paid by Company for employee stock plans(82)(82)
Stock-based compensation892892
Net loss(11,000)(11,000)
Other comprehensive income, net of tax304304
Balance at August 30, 202029,242$29 $163,388 $60,245 $(2,504)$221,158 

See accompanying notes.

notes to the consolidated financial statements.
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LANDEC CORPORATION

Consolidated StatementS of Cash Flows

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

(In thousands)

  

Six Months Ended

 
  

November 26,

2017

  

November 27,

2016

 

Cash flows from operating activities:

        

Consolidated net income

 $2,725  $4,719 

Adjustments to reconcile net income to net cash provided by operating activities:

        

Depreciation and amortization

  5,934   5,110 

Stock-based compensation expense

  2,066   1,773 

Deferred taxes

  1,364   2,317 

Loss on early debt extinguishment

     1,233 

Change in investment in non-public company, fair value

  (2,200

)

   

Net (gain) loss on disposal of property and equipment

  (45

)

  57 

Changes in current assets and current liabilities:

        

Accounts receivable, net

  (9,273

)

  (3,603

)

Inventories

  (5,546

)

  (2,435

)

Prepaid expenses and other current assets

  (904

)

  666 

Accounts payable

  11,615   (4,990

)

Accrued compensation

  (497

)

  236 

Other accrued liabilities

  (2,272

)

  802 

Deferred revenue

  1,363   (358

)

Net cash provided by operating activities

  4,330   5,527 
         

Cash flows from investing activities:

        

Purchases of property and equipment

  (7,431

)

  (4,738

)

Issuance of note receivable

  (2,099

)

   

Proceeds from sales of fixed assets

  73   14 

Net cash used in investing activities

  (9,457

)

  (4,724

)

         

Cash flows from financing activities:

        

Proceeds from sale of common stock

  1   193 

Taxes paid by Company for employee stock plans

  (256

)

  (272

)

Proceeds from long-term debt

     50,000 

Payments on long-term debt

  (2,543

)

  (54,697

)

Proceeds from lines of credit

  14,500   1,500 

Payments on lines of credit

  (7,500

)

  (3,500

)

Payments for debt issuance costs

     (897

)

Payments for early debt extinguishment penalties

     (233

)

Payments to non-controlling interest

  (115

)

  (166

)

Other, net

     (59

)

Net cash provided by (used in) financing activities

  4,087   (8,131

)

Net decrease in cash and cash equivalents

  (1,040

)

  (7,328

)

Cash and cash equivalents at beginning of period

  5,409   9,894 

Cash and cash equivalents at end of period

 $4,369  $2,566 

Three Months Ended
August 29, 2021August 30, 2020
Cash flows from operating activities:
Net loss$(9,477)$(11,000)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, amortization of intangibles, debt costs and right-of-use assets5,054 5,102 
Deferred taxes(2,138)(4,349)
Stock-based compensation expense620 892 
Provision for expected credit losses60 35 
Net loss (gain) on disposal of property and equipment held and used16 (11)
(Gain) loss on disposal of property and equipment related to restructuring, net(92)6,005 
Other, net(70)21 
Changes in current assets and current liabilities:
Accounts receivable, net7,997 11,144 
Inventories248 6,313 
Prepaid expenses and other current assets(2,697)1,353 
Accounts payable1,517 917 
Accrued compensation(3,131)(139)
Other accrued liabilities2,838 613 
Deferred revenue86 125 
Net cash provided by operating activities831 17,021 
Cash flows from investing activities:
Sale of Investment in non-public company45,100 — 
Purchases of property and equipment(7,913)(4,623)
Proceeds from sales of property and equipment1,082 4,855 
Net cash provided by investing activities38,269 232 
Cash flows from financing activities:
Payments on long-term debt(41,388)(8,030)
Proceeds from lines of credit8,000 11,000 
Payments on lines of credit(5,000)(19,400)
Payments for debt issuance costs(132)(512)
Taxes paid by Company for employee stock plans(428)(82)
Net cash used in financing activities(38,948)(17,024)
Net increase in cash, cash equivalents and restricted cash152 229 
Cash, cash equivalents and restricted cash, beginning of period1,295 553 
Cash, cash equivalents and restricted cash, end of period$1,447 $782 
Supplemental disclosure of non-cash investing and financing activities:
Purchases of property and equipment on trade vendor credit$1,994 $978 


See accompanying notes.

notes to the consolidated financial statements.
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Table of Contents

LANDEC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.

Organization, Basis of Presentation, and Summary of Significant Accounting Policies


1.    Organization,

Basis of Presentation,and Summary of Significant Accounting Policies

Organization
Landec Corporation and its subsidiaries (“Landec” or the “Company”) design, develop, manufacture, and sell differentiated products for food and biomaterials markets, and license technology applications to partners. The Company has two proprietary polymer technology platforms: 1) Intelimer® polymers, and 2) hyaluronan (“HA”) biopolymers. The Company sells specialty packaged branded Eat Smart® and GreenLine® and private label fresh-cut vegetables and whole produce to retailers, club stores, and foodservice operators, primarily in the United States, Canada, and Asia through its Apio, Inc. (“Apio”) subsidiary, and sells HA-based and non-HA biomaterials through its
Landec’s biomedical company, Lifecore Biomedical, Inc. (“Lifecore”) subsidiary. The Company’s HA biopolymers, is a fully integrated contract development and non-HA materialsmanufacturing organization (“CDMO”) that offers highly differentiated capabilities in the development, fill and finish of sterile, injectable-grade pharmaceutical products in syringes and vials. As a leading manufacturer of premium, injectable grade Hyaluronic Acid, Lifecore brings 36 years of expertise as a partner for global and emerging biopharmaceutical and biotechnology companies across multiple therapeutic categories to bring their innovations to market. Lifecore recognizes revenue in two different product categories, CDMO and Fermentation.
Landec’s natural food company, Curation Foods, Inc. (“Curation Foods”), is focused on innovating and distributing plant-based foods with 100% clean ingredients to retail, club and foodservice channels throughout North America. Curation Foods is able to maximize product freshness through its geographically dispersed family of growers, refrigerated supply chain and patented BreatheWay packaging technology. Its products are proprietarysold in that they are specially formulated for specific customers to meet strict regulatory requirements. Through its O Olive Oil, Inc. (“O Olive”) division, which the Company acquired on March 1, 2017, the Company sells premier California specialty olive oils and wine vinegars under the O brand to natural food, conventional grocery and mass retail stores, primarily in the United States and Canada.

The Company’s technologies, along with its customer relationshipscompany categorizes revenue in three categories, fresh packaged salads and tradenames,vegetables, avocado products and technology which reports revenues for BreatheWay patented supply chain solutions. Included in the Curation Foods segment and fresh packaged salads and vegetables revenue disaggregation is O Olive Oil & Vinegar (“O”), which is a premier producer of California specialty olive oils and wine vinegars. Also included in the Curation Foods segment are the foundationdividends from and key differentiating advantages upon which Landec has built its business.

Landec’s share of the change in the fair market value of the Company’s 26.9% investment in Windset Holdings 2010 Ltd. (“Windset”), until the Company sold that investment on June 1, 2021.

Basis of Presentation

Presentation

The accompanying unaudited consolidated financial statements of Landec have been prepared in accordance with United States generally accepted accounting principlesU.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring accruals) have been made which are necessary to present fairly the financial position of the Company at November 26, 2017August 29, 2021, and the results of operations and cash flows for all periods presented. Although Landec believes that the disclosures in these financial statements are adequate to make the information presented not misleading, certain information normally included in financial statements and related footnotes prepared in accordance with GAAP have been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission.Commission (the “SEC”). The accompanying financial data should be reviewed in conjunction with the audited financial statements and accompanying notes included in Landec's Annual Report on Form 10-K for the fiscal year ended May 28, 2017.

30, 2021 (the “Annual Report”).

The Company’s fiscal year is the 52- or 53-week period that ends on the last Sunday of May with quarters within each year ending on the last Sunday of August, November, and February; however, in instances where the last Sunday would result in a quarter being 12-weeks in length, the Company’s policy is to extend that quarter to the following Sunday. A 14th week is included in the fiscal year every five or six years to realign the Company’s fiscal quarters with calendar quarters.
The results of operations for the sixthree months ended November 26, 2017August 29, 2021 are not necessarily indicative of the results that may be expected for an entire fiscal year because there is some seasonality in Apio’s food business, particularly, Apio’s exportCuration Foods’ business and the order patterns of Lifecore’s customers which may lead to significant fluctuations in Landec’s quarterly results of operations.

Basis of Consolidation

The consolidated financial statements are presented on the accrual basis of accounting in accordance with GAAP and include the accounts of Landec Corporation and its subsidiaries, ApioCuration Foods and Lifecore. All intercompanymaterial inter-company transactions and balances have been eliminated.

Arrangements that are not controlled through voting or similar rights are reviewed under the guidance for variable interest entities (“VIEs”). A company is required to consolidate the assets, liabilities and operations of a VIE if it is determined to be the primary beneficiary of the VIE.

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An entity is a VIE and subject to consolidation, if by design: a)(a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by any party,parties, including equity holders or b)(b) as a group the holders of the equity investment at risk lack any one of the following three characteristics: (i) the power, through voting rights or similar rights to direct the activities of an entity that most significantly impact the entity’s economic performance, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity. The Company reviewed the consolidation guidance and concluded that its partnership interest in Apio Cooling, LP and itsthe equity investment in the non-public company areby the Company is not VIEs.

a VIE.
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Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and judgments that affect the amounts reported in the financial statements and accompanying notes. The accounting estimates that require management’s most significant and subjective judgments include revenue recognition; loss contingencies; sales returns and allowances; inventories; self-insurance liabilities;credit losses; recognition and measurement of current and deferred income tax assets and liabilities; the assessment of recoverability of long-lived and indefinite lived assets including(including intangible assets; the valuation of investments;assets), and inventory; and the valuation and recognition of stock-based compensation and contingent liabilities.

compensation.

These estimates involve the consideration of complex factorsfactors and require management to make judgments. The analysis of historical and future trends can require extended periods of time to resolve and are subject to change from period to period. The actual results may differ from management’s estimates.

Cash and Cash Equivalents

The Company records all highly liquid securities with three months or less from date of purchase to maturity as cash equivalents. Cash equivalents consist mainly of money market funds. The market value of cash equivalents approximatesapproximates their historical cost given their short-term nature.

Reconciliation of Cash and Cash Equivalents andRestrictedCash as presented on the Statements of Cash Flows
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows:

(In thousands)August 29, 2021May 30, 2021August 30, 2020May 31, 2020
Cash and cash equivalents$1,447 $1,295 $589 $360 
Restricted cash— — 193 193 
Cash, cash equivalents and restricted cash$1,447 $1,295 $782 $553 

Inventories

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

  

November 26, 2017

  

May 28, 2017

 

Raw materials

 $13,229  $10,158 

Work in progress

  4,702   3,447 

Finished goods

  12,905   11,685 

Total

 $30,836  $25,290 

following:

(In thousands)August 29, 2021May 30, 2021
Finished goods$35,142 $39,493 
Raw materials30,344 23,942 
Work in progress3,929 6,228 
Total$69,415 $69,663 

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


Accounts Receivable, Sales Returns and Allowance for Credit Losses
The Company carries its accounts receivable at their face amounts less an allowance for estimated sales returns and credit losses. Sales return allowances are estimated based on historical sales return amounts.
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The Company uses the loss rate method to estimate its expected credit losses on trade accounts receivable and contract assets. In order to estimate expected credit losses, the Company assessed recent historical experience, current economic conditions and any reasonable and supportable forecasts to identify risk characteristics that are shared within the financial asset. These risk characteristics are then used to bifurcate the loss rate method into risk pools. The risk pools were determined based on the industries in which the Company operates. Historical credit loss for each risk pool is then applied to the current period aging as presented in the identified risk pools to determine the needed reserve allowance. At times when there are no current economic conditions or forecasts that may affect future credit losses, the Company has determined that recent historical experience provides the best basis for estimating credit losses.
The information obtained from assessing historical experience, current economic conditions and reasonable and supportable forecasts were used to identify risk characteristics that can affect future credit loss experience. There were no significant risk characteristics identified in the review of historical experiences or in the review of estimates of current economic conditions and forecasts.
Estimating credit losses based on risk characteristics requires significant judgment by management. Significant judgments include, but are not limited to: assessing current economic conditions and the extent to which they are relevant to the existing characteristics of the Company’s financial assets, the estimated life of financial assets, and the level of reliance on historical experience in light of economic conditions. The Company will continually review and update, when necessary, its historical risk characteristics that are meaningful to estimating credit losses, any new risk characteristics that arise in the natural course of business, and the estimated life of its financial assets.
The changes in the Company’s allowance for sales returns and credit losses are summarized in the following table (in thousands):

 Balance at
beginning of
period
Provision for expected credit lossesWrite offs,
net of
recoveries
Balance at
end of period
Three months ended August 29, 2021$279 $60 $(59)$280 

Related Party Transactions

The Company sells productsand licenses its BreatheWay® food packaging technology to and earns license fees from Windset, Holdings 2010 Ltd. ("Windset").in which, as further described in Note 2, the Company had a 26.9% ownership interest until it sold that interest on June 1, 2021. During the three months ended November 26, 2017 and November 27, 2016,August 30, 2020, the Company recognized revenues of $91,000$0.1 million from product sales to and $75,000, respectively. During the six months ended November 26, 2017 and November 27, 2016, the Company recognized revenues of $195,000 and $193,000, respectively. These amounts havelicense fees from Windset. This amount has been included in productProduct sales in the accompanying Consolidated Statements of Comprehensive (Loss) Income. The related receivable balancesbalance of $109,000 and $388,000 are$0.1 million is included in accountsAccounts receivable in the accompanying Consolidated Balance Sheets as of November 26, 2017 and May 28, 2017, respectively.

30, 2021.

All related party transactions are monitored quarterly by the Company and approved by the Audit Committee of the Board of Directors.

Debt Issuance Costs

The Company records its line of credit debt issuance costs as an asset, and as such, $120,000$0.7 million and $338,000$2.3 million were recorded as prepaidPrepaid expenses and other current assets, and otherOther assets in the accompanying Consolidated Balance Sheets, respectively, as of November 26, 2017,August 29, 2021, and $120,000$0.7 million and $399,000,$2.4 million, respectively, as of May 28, 2017.30, 2021. The Company records its term debt issuance costs as a contra-liability, and as such, $60,000$1.4 million and $171,000$4.8 million was recorded as current portion of long-termOther accrued liabilities, and Long-term debt, and long-term debt,net in the accompanying Consolidated Balance Sheets, respectively, as of November 26, 2017August 29, 2021 and $60,000$1.4 million and $201,000,$5.1 million, respectively, as of May 28, 2017. See Note 7 – Debt of the Notes to Consolidated Financial Statements for further information.

30, 2021.
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Financial Instruments

The Company’sCompany’s financial instruments are primarily composed of commercial-term trade payables, grower advances, notes receivable, debt instruments, and debtderivative instruments. For short-term instruments, the historical carrying amount approximates the fair value of the instrument. The fair value of long-term debt and lines of credit approximates itstheir carrying value.

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Cash Flow Hedges

The Company has entered into an interest rate swap agreementagreements to manage interest rate risk. ThisThese derivative instrumentinstruments may offset a portion of the changes in interest expense. The Company designates thisthese derivative instrumentinstruments as a cash flow hedge.hedges. The Company accounts for its derivative instrumentinstruments as either an asset or a liability and carries itthem at fair value in Other assets or Other non-current liabilities. The accounting for changes in the fair value of the derivative instrument depends on the intended use of the derivative instrument and the resulting designation.

For derivative instruments that hedge the exposure to variability in expected future cash flows thatand are designated as cash flow hedges, the effective portionentire change in the fair value of the gain or loss on the derivativehedging instrument is reportedrecorded as a component of Accumulated Other Comprehensive Incomeother comprehensive loss (“AOCL”) in Stockholders’ Equity andEquity. Those amounts are subsequently reclassified intoto earnings in the same period or periods during whichline item in the Consolidated Statements of Comprehensive (Loss) Income as impacted when the hedged transactionitem affects earnings. The ineffective portion of the gain or loss on the derivative instrument, if any, is recognized in earnings in the current period. To receive hedge accounting treatment, cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions.

During the third quarter of fiscal year 2021, the Company discontinued its hedge accounting prospectively since it was determined that the derivatives are no longer highly effective in offsetting changes in the net investment. The derivatives continue to be carried at fair value in the accompanying Consolidated Balance Sheets with changes in their fair values from the date of discontinued hedge accounting recognized in current period earnings in Other income (expense), net in the Consolidated Statements of Comprehensive (Loss) Income. Amounts previously accumulated in AOCL during the period of effectiveness will continue to be realized over the remaining term of the underlying forecasted debt payments as a component of AOCL in Stockholders’ Equity.
AccumulatedOther Comprehensive Income

Loss

Comprehensive income (loss) consists of two components, net incomeloss and Other Comprehensive Incomecomprehensive income (loss) (“OCI”). OCI refers to revenue, expenses, and gains and losses that under GAAP are recorded as a component of stockholders’ equity but are excluded from net (loss) income. The Company’s OCI consists of net deferred gains and losses on its interest rate swap derivative instrument accounted for as a cash flow hedge.instruments. The components of OCI and the changes in accumulated OCI,AOCL, net of tax, are as follows (in thousands):

  

Unrealized Gains on

Cash Flow Hedge

 

Accumulated OCI, net, as of May 28, 2017

 $432 

Other comprehensive income before reclassifications, net of tax effect

  136 

Amounts reclassified from OCI

   

Accumulated OCI, net, as of November 26, 2017

 $568 

follows:


(In thousands)AOCL
Balance as of May 30, 2021$(1,358)
Amounts reclassified from OCI366 
Other comprehensive income, net366 
Balance as of August 29, 2021$(992)

The Company does not expect any transactions or other eventsexpects to occur that would result in the reclassification of any significant gains or lossesreclassify approximately $0.7 million into earnings in the next 12 months.

Investment in Non-Public Company

On FebruaryFebruary 15, 2011, the Company made its initialan investment in Windset which is reported as an investment in non-public company, fair value, in the accompanying Consolidated Balance Sheets as of November 26, 2017 and May 28, 2017.30, 2021. The Company has elected to account for its investment in Windset under the fair value option. See Note 32 – Investment in Non-public Company for further information.

On June 1, 2021, the Company sold all of its equity interest in Windset to the Newell Capital Corporation and Newell Brothers Investment 2 Corp.

Assets Held for Sale
In January 2020, the Company decided to seek to divest its Curation Foods salad dressing plant in Ontario, California (“Ontario”). During fiscal year 2020, the Company (1) designated the fixed assets of its office and manufacturing space located in Ontario, California, as assets held for sale, and (2) recognized a $10.9 million impairment loss. In the first quarter of fiscal year 2021, the Company sold its interest in Ontario. The Company received net cash proceeds of $4.9 million in connection with the sale, and recorded a gain of $2.8 million during the three months ended August 30, 2020, which is included in Restructuring costs within the Consolidated Statements of Comprehensive (Loss) Income.
In June 2020 the Board of Directors approved a plan to close Curation Foods’ underutilized manufacturing operations in Hanover, Pennsylvania (“Hanover”), sell the building and assets related thereto, and consolidate its operations into its manufacturing facilities in Guadalupe, California and Bowling Green, Ohio. In the first quarter of fiscal year 2021, the Company recognized an $8.8 million impairment loss, which is included in Restructuring costs within the Consolidated Statements of
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Comprehensive (Loss) Income. During the second quarter of fiscal year 2021, the Company sold the Hanover building and assets related thereto for net proceeds of $8.0 million, no gain or loss was recorded upon the sale.
In May 2021 the Board of Directors approved a plan to sell Curation Foods’ Rock Hill, South Carolina distribution facility. The $0.5 million carrying value of this asset was included in prepaid expenses and other current assets on the Consolidated Balance Sheets as of May 30, 2021, and was classified as an asset held for sale. There was no impairment recorded in fiscal year 2021. The asset was sold on June 9, 2021 for gross proceeds of $1.1 million. A gain of $0.6 million was recorded upon the sale, which is included in Restructuring costs within the Consolidated Statements of Comprehensive (Loss) Income.
Leases
Under Topic 842, the Company determines if an arrangement is a lease at inception. Right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of the leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate is a quoted rate based on the understanding of what the Company's credit rating would be. Certain agreements may contain the option to extend the lease term, terminate the lease before the contractual expiration date, or purchase the leased asset. The Company, when reasonably certain to exercise the option, considers these options in determining the measurement of the lease. The Company's lease agreements do not contain any material residual value guarantees.
The Company's lease agreements generally contain lease and non-lease components. Non-lease components primarily include payments for maintenance and utilities. The Company combines fixed payments for non-lease components with lease payments and accounts for them together as a single lease component which increases the amount of lease assets and liabilities.
Payments under lease arrangements are primarily fixed; however, certain lease agreements contain variable payments, which are expensed as incurred and are not included in the operating lease assets and liabilities. These amounts primarily include payments affected by changes in price indices.
Intangible Assets

The Company’sCompany’s intangible assets are comprised of customer relationships with a finite estimated useful life of elevenranging from 11 years to thirteen13 years, and trademarks, trademarks/tradenames and goodwill with indefinite useful lives.

Finite-lived intangible assets are reviewed for possible impairment whenever events or changes in circumstances occur that indicate that the carrying amount of an asset (or asset group) may not be recoverable. Indefinite lived intangible assets are reviewed for impairment at least annually. For goodwill and other indefinite-lived intangible assets, the Company performs a qualitative impairment analysis in accordance with Accounting Standards Codification (“ASC”)ASC 350-30-35.

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Partial Self-Insurance on Employee Health and Workers Compensation Plans

The Company provides health insurance benefits to eligible employees under self-insured plans whereby the Company pays actual medical claims subject to certain stop loss limits and self-insures its workers compensation claims. The Company records self-insurance liabilities based on actual claims filed and an estimate of those claims incurred but not reported. Any projection of losses concerning the Company's liability is subject to a high degree of variability. Among the causes of this variability are unpredictable external factors such as inflation rates, changes in severity, benefit level changes, medical costs, and claims settlement patterns. This self-insurance liability is included in Other accrued liabilities in the accompanying Consolidated Balance Sheets and represents management's best estimate of the amounts that have not been paid as of November 26, 2017 and May 28, 2017. It is reasonably possible that the expense the Company ultimately incurs could differ and adjustments to future reserves may be necessary.

Fair Value Measurements

The Company uses fair value measurement accounting for financial assets and liabilities and for financial instruments and certain other items measured at fair value. The Company has elected the fair value option for its investmentinvestment in a non-public company. See Note 3 – Investment in Non-public Company for further information. The Company also measures its contingent consideration at fair value. See Note 2 – Acquisition of O Olive for further information. The Company has not elected the fair value option for any of its other eligible financial assets or liabilities.

The accounting guidance established a three-tier hierarchy for fair value measurements, which prioritizes the inputs used in measuring fair value as follows:

Level 1 – observable inputs such as quoted prices for identical instruments in active markets.

Level 2 – inputs other than quoted prices in active markets that are observable either directly or indirectly through corroboration with observable market data.

Level 3 – unobservable inputs in which there is little or no market data, which would require the Company to develop its own assumptions.

As of November 26, 2017August 29, 2021 and May 28, 2017,30, 2021, the Company held certain assets and liabilities that are required or it elected to be measured at fair value on a recurring basis, including its interest rate swap and its minority interestcontracts. The investment in Windset.

Windset was required to be measured at fair value on a recurring basis at May 30, 2021.

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The fair value of the Company’sCompany’s interest rate swap contracts is determined based on model inputs that can be observed in a liquid market, including yield curves, and is categorized as a Level 2 fair value measurement investment and is included in Other assets or Other non-current liabilities in the accompanying Consolidated Balance Sheets.

As of May 30, 2021, related to Curation Foods’ distribution facility in Rock Hill, South Carolina the Company had $0.5 million in prepaid expenses and other current assets within the Consolidated Balance Sheet meeting the criteria of assets held for sale. These assets are recognized at the lower of cost or fair value less cost to sell using market approach. The fair value of these assets are classified as level 3 in the Company’s contingent consideration for the acquisitionfair value hierarchy due to a mix of O Olive utilizes significant unobservable inputs including projected earnings before interest, taxes, depreciation and amortization (“EBITDA”) and discount rates. As a result,utilized such as independent research in the Company’s contingent consideration associated with the O Olive acquisition is considered a Level 3 measurement liability. For the three and six months ended November 26, 2017, the Company reduced its contingent consideration liabilitymarket as well as actual quotes from $5.9 million at May 28, 2017 to $5.4 million at November 26, 2017 due to change in projected EBITDA and discount rates during the three year earn out period ended May 31, 2020.

market participants. See Note 8 for additional information.

The Company has elected the fair value option of accounting for its investment in Windset. The calculation of fair value utilizesutilized significant unobservable inputs, including projected cash flows, growth rates,, and discount rates. As a result, the Company’s investment in Windset iswas considered to be a Level 3 measurement investment. The change in the fair value of the Company’sCompany sold its entire investment in Windset on June 1, 2021 for the six months ended November 26, 2017 was due to the Company’s 26.9% minority interest in the change in the fair market value of Windset during the period. $45.1 million.
In determining the fair value of the investment in Windset, the Company utilizesutilized the following significant unobservable inputs in the discounted cash flow models:

  

At November 26, 2017

  

At May 28, 2017

 

Revenue growth rates

  4%   4% 

Expense growth rates

  4%   4% 

Income tax rates

  15%   15% 

Discount rates

  12%   12% 

August 29, 2021 Range
(Weighted Average)
May 30, 2021 Range
(Weighted Average)
Revenue growth ratesN/A7% (6.9%)
Expense growth ratesN/A0% to 8% (5.5)%
Discount ratesN/A10%
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The revenue growth, expense growth, and income tax rate assumptions are considered the Company's best estimate of the trends in those items over the discount period. The discount rate assumption takes into account the risk-free rate of return, the market equity risk premium, and the company’s specific risk premium and then applies an additional discount for lack of liquidity of the underlying securities. The discounted cash flow valuation model used by the Company has the following sensitivity to changes in inputs and assumptions (in thousands):

  

Impact on value of

investment in Windset

as of November 26, 2017

 

10% increase in revenue growth rates

 $7,400 

10% increase in expense growth rates

 $(2,000

)

10% increase in income tax rates

 $(500

)

10% increase in discount rates

 $(4,500

)

Imprecision in estimating unobservable market inputs can affect the amount of gain or loss recorded for a particular position. The use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

The following table summarizes the fair value of the Company’s assets and liabilities that are measured at fair value on a recurring basis (in thousands):

  

Fair Value at November 26, 2017

  

Fair Value at May 28, 2017

 

 

 

Level 1

  

Level 2

  

Level 3

  

Level 1

  

Level 2

  

Level 3

 
Assets:                        

Interest rate swap (1)

 $  $909  $  $  $688  $ 

Investment in non-public company

        65,800         63,600 

Total

 $  $909  $65,800  $  $688  $63,600 

and nonrecurring basis:
(In thousands)Fair Value at August 29, 2021Fair Value at May 30, 2021
Assets:Level 1Level 2Level 3Level 1Level 2Level 3
Assets held for sale - nonrecurring$— $— $— $— $— $515 
Investment in non-public company— — — — — 45,100 
Total assets$— $— $— $— $— $45,615 
Liabilities:
Interest rate swap contracts$— $1,274 $— $— $1,736 $— 
Total liabilities$— $1,274 $— $— $1,736 $— 

The following table reflects the fair value roll forward reconciliation of Level 3 assets and liabilities measured at fair value for the three months ended August 29, 2021:

(1)

Included

(In thousands)Windset Investment
Balance as of May 30, 2021$45,100 
Sale of Investment in Other assets.

non-public company
(45,100)
Balance as of August 29, 2021$— 


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Revenue Recognition

See Note 9 – Business Segment Reporting,

The Company follows the five step, principles-based model to recognize revenue upon the transfer of promised goods or services to customers and in an amount that reflects the consideration for a discussion aboutwhich the Company’s four business segments; namely, Packaged Fresh Vegetables, Food Export, Biomaterials,Company expects to be entitled in exchange for those goods or services. Revenue, net of estimated allowances and Other.

Revenue from product salesreturns, is recognized when thereor as the Company satisfies its performance obligations under a contract and control of the product is persuasive evidence that an arrangement exists, title has transferred to the price is fixed and determinable, and collectability is reasonably assured. Allowances are established for estimated uncollectible amounts, product returns, and discounts based on specific identification and historical losses.

Apio’s Packaged Fresh Vegetables revenues generally consistcustomer.

Curation Foods
Curation Foods’ standard terms of revenues generated from the sale of specialty packaged fresh-cut and whole value-added vegetable products that are generally washedincluded in its contracts and packaged in Apio’s proprietary packaging and sold under Apio’s Eat Smart and GreenLine brands and various private labels.purchase orders. Revenue is generally recognized at the time shipment is made or upon shipmentdelivery as control of these productsthe product is transferred to customers. The Company takes titlethe customer. Shipping and other transportation costs charged to all produce it trades and/or packages, and therefore, records revenuescustomers are recorded in both revenue and cost of goods sold. Curation Foods has elected to account for shipping and handling as fulfillment activities, and not as a separate performance obligation. Curation Foods’ standard payment terms with its customers generally range from 30 days to 90 days. Certain customers may receive cash-based incentives (including: volume rebates, discounts, and promotions), which are accounted for as variable consideration to Curation Foods’ performance obligations. Curation Foods estimates these sales at gross amountsincentives based on the expected amount to be provided to its customers and reduces revenues recognized towards its performance obligations. The Company has not historically had and does not anticipate significant changes in its estimates for variable consideration.
Lifecore

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

Lifecore provides aseptic formulation and filling of syringes and vials with precisely formulated medical grade HA and non-HA materials for injectable products used for medical purposes. In instances where our customers contract with us to aseptically fill syringes or vials with our HA, the goods are not distinct in the accompanying Consolidated Statements of Comprehensive Income.

In addition, Packaged Fresh Vegetables revenues include the revenues generated from Apio Cooling, LP, a vegetable cooling operation in which Apio is the general partner with a 60% ownership position, and from the sale of BreatheWay® packaging to license partners. Revenue is recognized on the vegetable cooling operations as cooling and storage services are provided to Apio’s customers. Sales of BreatheWay packaging are recognized when shipped to Apio’s customers.

Apio’s Food Export revenues consist of revenues generated from the purchase and sale of primarily whole commodity fruit and vegetable products to Asia through its subsidiary, Cal-Ex Trading Company (“Cal-Ex”). As most Cal-Ex customers are in countries outsidecontext of the U.S., title transfers andcontract. Lifecore recognizes revenue is generally recognized upon arrival offor these products at the shipmentpoint in the foreign port. Apio records revenue equal to the sale price to third parties because it takestime when legal title to the product whileis transferred to the customer, which is at the time that shipment is made or upon delivery of the product.


Development Services

Lifecore provides product development services to assist its customers in transit.

Lifecore’s Biomaterials business principally generates revenue throughobtaining regulatory approval for the commercial sale of products containing HA.their drug product. These services include activities such as technology development, material component changes, analytical method development, formulation development, pilot studies, stability studies, process validation and production of materials for use within clinical studies. The Company’s customers benefit from the expertise of its scientists who have extensive experience performing such tasks.


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

Revenues generated from development services arrangements are recognized over time as Lifecore is creating an asset without an alternate use as it is unique to the customer. Furthermore, the Company has an enforceable right to payment for the performance completed to date for its costs incurred in three medical areas: (1) Ophthalmic, which represented approximately 65%satisfying the performance obligation plus a reasonable profit margin. For each of Lifecore’s revenues in fiscal year 2017, (2) Orthopedic, which represented approximately 15% of Lifecore’s revenues in fiscal year 2017, and (3) Other/Non-HA products, which represented approximately 20% of Lifecore’s revenues in fiscal year 2017. The vastthe development activities performed by Lifecore as described above, labor is the primary input (i.e., labor costs represent the majority of Lifecore’s revenuesthe costs incurred in the completion of the services). The Company determined that labor hours are recognizedthe best measure of progress as it most accurately depicts the effort extended to satisfy the performance obligation over time.

Fermentation

Lifecore manufactures and sells pharmaceutical-grade sodium hyaluronate (“HA”) in bulk form to its customers. The HA produced is distinct as customers are able to utilize the product provided under HA supply contracts when they obtain control. Lifecore recognizes revenue for these products at the point in time when legal title to the product is transferred to the customer, which is at the time that shipment is made or upon shipment.

Lifecore’s business development revenues, a portiondelivery of which are included in all three medical areas, are relatedthe product to contract research and development (“R&D”) services and multiple element arrangement services with customers where the Company provides products and/or services in a bundled arrangement.

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O Olive’s business, which

The Company disaggregates its revenue by segment based on how it markets its products and services and reviews results of operations. The following tables disaggregate segment revenue by major product lines and services:
(In thousands)Three Months Ended
Curation Foods:August 29, 2021August 30, 2020
Fresh packaged salads and vegetables$89,496 $96,179 
Avocado products16,962 17,017 
Technology378 643 
Total$106,836 $113,839 
(In thousands)Three Months Ended
Lifecore:August 29, 2021August 30, 2020
Contact development and manufacturing organization$17,789 $16,488 
Fermentation4,163 5,316 
Total$21,952 $21,804 

Contract Assets and Liabilities
Contract assets primarily relate to the Company acquired on March 1, 2017, sells premier California specialty olive oilsCompany’s conditional right to consideration for work completed but not billed at the reporting date. The Company’s contract assets as of August 29, 2021 and wine vinegarsMay 30, 2021, were $10.5 million and $10.6 million, respectively.
Contract liabilities primarily relate to payments received from customers in advance of performance under the O brand to natural food, conventional grocerycontract. The Company’s contract liabilities as of August 29, 2021 and mass retail stores, primarily inMay 30, 2021, were $1.4 million and $0.9 million, respectively. Revenue recognized during the United States and Canada. The revenues of O Olive arethree months ended August 29, 2021, that was included in the Other segment. O Olive’s revenue is generally recognized upon shipmentcontract liability balance at the beginning of its productsfiscal year 2022, was $0.2 million.
Shipping and Handling Costs
Amounts billed to customers. The Company takes title to all products it trades and/or packages,third-party customers for shipping and therefore, records revenueshandling are included as a component of revenues. Shipping and handling costs incurred are included as a component of cost of sales at gross amounts inproducts sold and represent costs incurred to ship product from the accompanying Consolidated Statements of Comprehensive Income.

Contract R&D revenue is recorded as earned, based on the performance requirements of the contract. Non-refundable contract fees for which no further performance obligations exist, and there is no continuing involvement by the Company, are recognized on the earlier of when the payment is receivedprocessing facility or collectability is reasonably assured.

For sales arrangements that contain multiple elements, the Company splits the arrangement into separate units of accounting if the individually delivered elements have valuedistribution center to the customer on a standalone basis. The Company also evaluates whether multiple transactions with the same customer or related party should be considered part of a multiple element arrangement, whereby the Company assesses, among other factors, whether the contracts or agreements are negotiated or executed within a short time frame of each other or if there are indicators that the contracts are negotiated in contemplation of each other. The Company then allocates revenue to each element based on a selling price hierarchy. The relative selling price for a deliverable is based on its vendor-specific objective evidence (“VSOE”), if available, third-party evidence (“TPE”), if VSOE is not available, or estimated selling price, if neither VSOE nor TPE is available. The Company then recognizes revenue on each deliverable in accordance with its policies for product and service revenue recognition. The Company is not typically able to determine VSOE or TPE, and; therefore, uses the estimated selling price to allocate revenue between the elements of an arrangement.

The Company limits the amount of revenue recognition for delivered elements to the amount that is not contingent on the future delivery of products or services or future performance obligations or subject to customer-specific cancellation rights. The Company evaluates each deliverable in an arrangement to determine whether it represents a separate unit of accounting. A deliverable constitutes a separate unit of accounting when it has stand-alone value, and for an arrangement that includes a general right of return relative to the delivered products or services, delivery or performance of the undelivered product or service is considered probable and is substantially controlled by the Company. The Company considers a deliverable to have stand-alone value if the product or service is sold separately by the Company or another vendor or could be resold by the customer. Further, the revenue arrangements generally do not include a general right of return relative to delivered products. Where the aforementioned criteria for a separate unit of accounting are not met, the deliverable is combined with the undelivered element(s) and treated as a single unit of accounting for the purposes of allocation of the arrangement consideration and revenue recognition. The Company allocates the total arrangement consideration to each separable element of an arrangement based upon the relative selling price of each element. Allocation of the consideration is determined at arrangement inception on the basis of each unit’s relative selling price. In instances where the Company has not established fair value for any undelivered element, revenue for all elements is deferred until delivery of the final element is completed and all recognition criteria are met.

For licensing revenue, the initial license fees are deferred and amortized to revenue over the period of the agreement when a contract exists, the fee is fixed and determinable, and collectability is reasonably assured. Noncancellable, nonrefundable license fees are recognized over the period of the agreement, including those governing R&D activities and any related supply agreement entered into concurrently with the license when the risk associated with commercialization of a product is non-substantive at the outset of the arrangement.

From time to time, the Company offers customers sales incentives, which include volume rebates and discounts. These amounts are estimated on a quarterly basis and recorded as a reduction of revenue.

A summary of revenues by type of arrangement as described above is as follows (in thousands):

  

Three Months Ended

  

Six Months Ended

 
  

November 26, 2017

  

November 27, 2016

  

November 26, 2017

  

November 27, 2016

 

Recorded upon shipment

 $118,634  $107,987  $231,908  $214,152 

Recorded upon acceptance in foreign port

  13,996   25,701   21,572   49,040 

Revenue from multiple element arrangements

  2,132   1,683   3,701   3,268 

Revenue from license fees, R&D contracts and royalties/profit sharing

  1,695   494   2,633   1,799 

Total

 $136,457  $135,865  $259,814  $268,259 

end consumer markets.

Legal Contingencies

In the ordinary course of business, the Company is involved in various legal proceedings and claims.

The Company makes a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least each fiscal quarter and adjustedadjusted to reflect the impacts of negotiations, estimateestimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. Legal fees are expensed in the period in which they are incurred.

Compliance Matters and Related Litigation
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Apio has beenOn December 1, 2018, the target of a union organizing campaign which has included two unsuccessful attempts to unionize Apio's Guadalupe, California processing plant. The campaign has involved a union and over 100 former and current employees of Pacific Harvest, Inc. and Rancho Harvest, Inc. (collectively "Pacific Harvest"), Apio's labor contractors at its Guadalupe, California processing facility, bringing legal actions before various state and federal agencies, the California Superior Court, and initiating over 100 individual arbitrations against Apio and Pacific Harvest.

The legal actions consist of three main types of claims: (1) Unfair Labor Practice claims ("ULPs") before the National Labor Relations Board (“NLRB”), (2) discrimination/wrongful termination claims before state and federal agencies and in individual arbitrations, and (3) wage and hour claims as part of two Private Attorney General Act (“PAGA”) cases in state court and in over 100 individual arbitrations.

A settlementCompany acquired all of the ULPs among the union, Apio,voting interests and Pacific Harvest that were pending before the NLRB was approved on December 27, 2016 for $310,000. Apio was responsible for half of this settlement, or $155,000. On May 5, 2017, the parties to the remaining actions executed a settlement agreement concerning the discrimination/wrongful termination claims and the wage and hour claims which covers all non-exempt employees of Pacific Harvest working at Apio's Guadalupe, California processing facility from September 2011 through the settlement date. Under the settlement agreement, the plaintiffs are to be paid $6.0 million in three installments: $2.4 million, which was paid on July 3, 2017, $1.8 million which was paid on November 22, 2017 and $1.8 million which is due in July 2018. The Company and Pacific Harvest have each agreed to pay one half of the settlement payments. The Company paid the entire first two installments of $4.2 million and will be reimbursed by Pacific Harvest for its $2.1 million portion which is included in Other assets in the accompanying Consolidated Balance Sheets. This receivable will be repaid through monthly payments until fully paid, which the Company expects to occur by December 2020. The Company and Pacific Harvest will both make one half of the third installment in July 2018. The Company’s recourse against non-payment by Pacific Harvest is its security interest in assets owned by Pacific Harvest.

As of November 26, 2017 and May 28, 2017, the Company had accrued $1.0 million and $3.2 million, respectively, related to these actions, which is included in Other accrued liabilities in the accompanying Consolidated Balance Sheets.

Recent Accounting Guidance Not Yet Adopted

Revenue Recognition

In May 2014, the FASB issued ASU 2014-09, which creates FASB ASC Topic 606, Revenue from Contracts with Customers and supersedes ASC Topic 605, Revenue Recognition (“ASU 2014-09”). The guidance replaces industry-specific guidance and establishes a single five-step model to identify and recognize revenue. The core principle of the guidance is that an entity should recognize revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Additionally, the guidance requires the entity to disclose further quantitative and qualitative information regarding the nature and amount of revenues arising from contracts with customers, as well as other information about the significant judgments and estimates used in recognizing revenues from contracts with customers. Since its original issuance, the FASB has issued several additional related ASUs to address implementation concerns and to further clarify certain guidance within ASU 2014-09. The Company will adopt these updates beginning with the first quarter of its fiscal year 2019 and anticipates doing so using the full retrospective method, which will require restatement of each prior reporting period presented.

Currently, the Company is in the process of evaluating the impact of the adoption of ASU 2014-09. As a result, the Company has initially identified the following core revenue streams from its contracts with customers:

Finished goods product sales (Packaged Fresh Vegetables and O Olive);

Shipping and handling (Packaged Fresh Vegetables and O Olive);

Buy-sell product sales (Food Export);

Product development and contract manufacturing arrangements (Biomaterials).

The Company’s assessment efforts to date have included reviewing current accounting policies, processes, and systems requirements, as well assigning internal resources and third-party consultants to assist in the process. Additionally, the Company has begun to review historical contracts and other arrangements to identify potential differences that could arise from the adoption of ASU 2014-09. Most notably, the Company is evaluating its current conclusions with respect to gross versus net revenue reporting for its Food Export business, as well as the timing of revenue recognition for its product development contract manufacturing arrangements in its Biomaterials business, to determine whether the application of ASU 2014-09 necessitates changes to such reporting. Beyond its core revenue streams, and the items listed above, the Company is also evaluating the impact of ASU 2014-09 on certain ancillary transactions and other arrangements.

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Currently, the Company cannot reasonably estimate the impact the application of ASU 2014-09 will have upon its consolidated financial statements. The Company continues to assess the impact of ASU 2014-09, along with industry trends and additional interpretive guidance, on its core revenue streams, and as a result of the continued assessment, the Company may modify its plan of adoption accordingly.

Leases

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires companies to generally recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use-assets. ASU 2016-02 also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. The Company will adopt ASU 2016-02 beginning in the first quarter of fiscal year 2020 on a modified retrospective basis.

The Company is currently in the process of evaluating the impact that ASU 2016-02 will have upon its consolidated financial statements and related disclosures. The Company’s assessment efforts to date have included:

Reviewing the provisions of ASU 2016-02;

Gathering information to evaluate its lease population and portfolio;

Evaluating the nature of its real and personal property and other arrangements that may meet the definition of a lease; and

Evaluating systems’ readiness.

As a result of these efforts, the Company currently anticipates that the adoption of ASU 2016-02 will have a significant impact to its long-term assets and liabilities, as, at a minimum, virtually all of its leases designated as operating leases are expected to be reported on the consolidated balance sheets. The pattern of recognition for operating leases within the consolidated statements of comprehensive income is not anticipated to significantly change.

2.

Acquisition of O Olive

On March 1, 2017, the Company purchased substantially all of the assets of O OliveYucatan Foods (the “Yucatan Acquisition”), which owns a guacamole manufacturing plant in Mexico called Procesadora Tanok, S de RL de C.V. (“Tanok”).

On October 21, 2019, the Company retained Latham & Watkins, LLP to conduct an internal investigation relating to potential environmental and Foreign Corrupt Practices Act (“FCPA”) compliance matters associated with regulatory permitting at the Tanok facility in Mexico. The Company subsequently disclosed to the U.S. Securities and Exchange Commission (“SEC”) and the U.S. Department of Justice (“DOJ”) the conduct under investigation, and these agencies have commenced an investigation. The Company has also disclosed the conduct under investigation to the Mexican Attorney General’s Office, which has commenced an investigation, and to Mexican regulatory agencies. The Company is cooperating in the government investigations and requests for $2.5 millioninformation. The conduct at issue began prior to the Yucatan Acquisition, and the agreement for the Yucatan Acquisition provides the Company with certain indemnification rights that may allow the Company to recover the cost of a portion of the liabilities that have been and may be incurred by the Company in cash plus contingent considerationconnection with these compliance
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Table of up to $7.5 million over the next three years based upon O Olive achieving certain EBITDA targets. All accounting for this acquisition is final.

The potential earn out payment up to $7.5 million is based on O Olive’s cumulative EBITDA over the Company’s fiscal years 2018 through 2020. At the endContents

matters. On September 2, 2020, one of each fiscal year, beginning in fiscal year 2018, the former owners of O Olive will earnYucatan filed a lawsuit against the equivalentCompany in Los Angeles County Superior Court for breach of employment agreement, breach of contract, breach of holdback agreement, declaratory relief and accounting, and related claims. The Plaintiff seeks over $10.0 million in damages, including delivery of shares of his stock held in escrow for the indemnification claims described above. On November 3, 2020, the Company filed an answer and cross-complaint against the Plaintiff and other parties for fraud, indemnification, and other claims, and seeking no less than $80 million in damages.
At this stage, the ultimate outcome of these or any other investigations, legal actions, or potential claims that may arise from the matters under investigation is uncertain and the Company cannot reasonably predict the timing or outcomes, or estimate the amount of net loss after indemnification, or its effect, if any, on its financial statements. Separately, there are indemnification provisions in the purchase agreement that may allow the Company to recover costs for breach of the EBITDA achieved by O Olive for that fiscal year up to $4.6 million overpurchase agreement from the three year period. The former owners can also earn an additional $2.9 million onseller. Because recovery of amounts are contingent upon a dollar for dollar basis for exceeding $6.0 million of cumulative EBITDA over the three year period.  legal settlement, no amounts have been recorded as recoverable costs through August 29, 2021.
During the secondthird quarter of fiscal year 2018,2021 the Company performed,reached a resolution with its insurance carrier that resulted in a recovery of $1.6 million. Absent further material developments in the assistance of a third party appraiser, an analysis of O Olive’s projected EBITDA over the earnout period. Based on this analysisinvestigation, the Company has recorded a contingent consideration liability, included in Other non-current liabilities, of $5.4 million and $5.9 million as of November 26, 2017 and May 28, 2017, respectively, representing the present value of the expected earn out payments. The $500,000 reduction in the contingent consideration liability was recorded as a reduction to SG&A in the accompanying Consolidated Statements of Comprehensive Income. For this analysis, the Company assumed that the maximum earn out of $7.5 million would be paid over the three year period with over half being earned in fiscal year 2020.  

The operating results of O Olive are included in the Company’s financial statements beginning March 1, 2017, in the Other segment.

Intangible Assets

The Company identified two intangible assets in connection with the O Olive acquisition: trade names and trademarks valued at $1.6 million, which are considered to be indefinite lived intangible assets and therefore, willdoes not be amortized; and customer relationships valued at $700,000 with an eleven year useful life. The Company recorded $16,000 and $48,000 of amortization expenseexpect additional material recovery from the amortization of the customer relationships intangible during the three and six months ended November 26, 2017, respectively. The trade name/trademark intangible asset was valued using the relief from royalty valuation method and the customer relationship intangible asset was valued using the excess earnings method.

insurance carrier.

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Table of Contents2.    Investment in Non-public Company

3.

Investment in Non-public Company

On February 15, 2011, Apio Curation Foods entered into a share purchase agreement (the “Windset Purchase Agreement”) with Windset. Pursuant to the Windset Purchase Agreement, ApioCuration Foods purchased from Windset 150,000 Senior A preferred shares for $15$15.0 million and 201 common shares for $201. On July 15, 2014, ApioCuration Foods increased its investment in Windset by purchasing from the Newell Capital Corporation an additional 68 common shares and 51,211 junior preferred shares of Windset for $11$11.0 million. After this purchase, the Company’s common shares representrepresented a 26.9% ownership interest in Windset. The Senior A preferred shares yieldyielded a cash dividend of 7.5% annually. The dividend iswas payable within 90 days of each anniversary of the execution of the Windset Purchase Agreement. The non-voting junior preferred stock doesdid not yield a dividend unless declared by the Board of Directors of Windset and no such dividend has been declared.

The Shareholders’ Agreement between Apio and Windset, as amended, includes a put and call option (the “Put and Call Option”), which can be exercised on or after March 31, 2022, whereby Apio can exercise the put to sell its common, Senior A preferred shares, and junior preferred shares to Windset, or Windset can exercise the call to purchase those shares from Apio, in either case, at a price equal to 26.9% of the fair market value of Windset’s common shares, plus the liquidation value of the preferred shares of $20.1 million ($15 million for the Senior A preferred shares and $5.1 million for the junior preferred shares). Under the terms of the arrangement with Windset, the Company is entitled to designate one of five members on the Board of Directors of Windset.

On October 29, 2014, Apio further increased its investment in Windset by purchasing 70,000 shares of Senior B preferred shares for $7 million. The Senior B preferred shares pay an annual dividend of 7.5% on the amount outstanding at each anniversary date of the Windset Purchase Agreement. The Senior B preferred shares purchased by Apio have a put feature whereby Apio can sell back to Windset $1.5 million of shares on the first anniversary, an additional $2.75 million of shares on the second anniversary, and the remaining $2.75 million on the third anniversary. After the third anniversary, Apio may at any time put any or all of the shares not previously sold back to Windset. At any time on or after February 15, 2017, Windset has the right to call any or all of the outstanding common shares, but at such time must also call the same proportion of Senior A preferred shares, Senior B preferred shares, and junior preferred shares owned by Apio. Windset’s partial call provision is restricted such that a partial call cannot result in Apio holding less than 10% of Windset’s common shares outstanding.

The investment in Windset does not qualify for equity method accounting as the investment does not meet the criteria of in-substance common stock due to returns through the annual dividend on the non-voting senior preferred shares that are not available to the common stock holders. As the put and call options require all of the various shares to be put or called in equal proportions, the Company has deemed that the investment, in substance, should be treated as a single security for purposes of accounting.

The fair value of the Company’sCompany’s investment in Windset was determined utilizing the Windset Purchase Agreement’s put/call calculation for value and a discounted cash flow model based on projections developed by Windset that were reviewed by Landec, and considers the put and call conversion options. These features impact the duration of the cash flows utilized to derive the estimated fair values of the investment. These two discounted cash flow models’ estimate for fair value are then weighted. Assumptions included in these discounted cash flow models will be evaluated quarterly based on Windset’s actual and projected operating results to determine the change in fair value.

Duringeach of the three month periodsmonths ended November 26, 2017 and November 27, 2016,August 30, 2020, the Company recorded $412,000$0.3 million in dividend income. During each of the six month periods ended November 26, 2017 and November 27, 2016, the Company recorded $825,000 in dividend income The increaseThere was no change in the fair market value of the Company’s investment in Windset for the six month periodsthree months ended November 26, 2017August 30, 2020.
On June 1, 2021, the Company and November 27, 2016 was $2.2Curation Foods entered into and closed a Share Purchase Agreement (the “Purchase Agreement”) with Newell Capital Corporation and Newell Brothers Investment 2 Corp., as Purchasers (the “Purchasers”) and Windset, pursuant to which Curation Foods sold all of its equity interests of Windset to the Purchasers in exchange for an aggregate purchase price of $45.1 million.

3.    Stock-based Compensation and Stockholders' Equity
Stock-Based Compensation Activity
The estimated fair value for stock options, which determines the Company’s calculation of stock-based compensation expense, is based on the Black-Scholes option pricing model. Restricted stock units (“RSUs”) are valued at the closing market price of the Company’s common stock on the grant date. The Company uses the straight-line method to recognize the fair value of stock-based compensation arrangements.
During the three months ended August 29, 2021, the Company granted 703,000 options to purchase shares of common stock and awarded 83,000 RSUs.
As of August 29, 2021, the Company has reserved 4.0 million shares of common stock for future issuance under its current and $0, respectively, and is included in Other income in the accompanying Consolidated Statementsformer equity plans.
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Table of Comprehensive Income.

4.

Stock-Based Compensation

Contents

Stock-Based Compensation Expense
The Company’sCompany’s stock-based awards include stock option grants and RSUs. The Company records compensation expense for stock-based awards issued to employees and directors in exchange for services provided based on the estimated fair value of the awards on their grant dates and is recognized over the required service periods, generally the vesting period.

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The following table summarizes the stock-based compensation for options and RSUs (in thousands):

  

Three Months Ended

  

Six Months Ended

 
  

November 26, 2017

  

November 27, 2016

  

November 26, 2017

  

November 27, 2016

 

Options

 $354  $307  $678  $599 

RSUs

  762   659   1,388   1,174 

Total stock-based compensation

 $1,116  $966  $2,066  $1,773 

The following table summarizes the stock-based compensation by income statement line item (in thousands):

  

Three Months Ended

  

Six Months Ended

 
  

November 26, 2017

  

November 27, 2016

  

November 26, 2017

  

November 27, 2016

 

Cost of sales

 $137  $124  $261  $237 

Research and development

  23   23   42   46 

Selling, general and administrative

  956   819   1,763   1,490 

Total stock-based compensation

 $1,116  $966  $2,066  $1,773 

The estimated fair value for stock options, which determines the Company’s calculation of stock-based compensation expense, is based on the Black-Scholes option pricing model. RSUs are valued at the closing market price of the Company’s common stock on the date of grant. The Company uses the straight-line method to recognize the fair value of stock-based compensation arrangements.

item:

Three Months Ended
(In thousands)August 29, 2021August 30, 2020
Cost of product sales$37 $123 
Research and development49 64 
Selling, general and administrative534 705 
Total stock-based compensation$620 $892 

As of November 26, 2017,August 29, 2021, there was $6.2$5.0 million of total unrecognized compensation expense related to unvested equity compensation awards granted under the Landec incentive stock plans. Total expense is expected to be recognized over the weighted-average period of 2.52.42 years for stock options and 2.01.36 years for restricted stock unit awards.

5.

Diluted Net Income Per Share

The following table sets forth the computation of diluted net income per share (in thousands, except per share amounts):

  

Three Months Ended

  

Six Months Ended

 
  

November 26, 2017

  

November 27, 2016

  

November 26, 2017

  

November 27, 2016

 

Numerator:

                

Net income applicable to Common Stockholders

 $487  $1,326  $2,633  $4,638 
                 

Denominator:

                

Weighted average shares for basic net income per share

  27,518   27,249   27,512   27,234 

Effect of dilutive securities:

                

Stock options and restricted stock units

  357   369   354   338 

Weighted average shares for diluted net income per share

  27,875   27,618   27,866   27,572 
                 

Diluted net income per share

 $0.02  $0.05  $0.09  $0.17 

For the three and six months ended November 26, 2017 the computation of the diluted net income per share excludes the impact of options to purchase 1.5 million and 1.4 million shares, respectively of Common RSUs.

Stock as such impacts would be antidilutive for this period.

6.

Income Taxes

The provision for income taxes for the six months ended November 26, 2017 was $1.5 million. The effective tax rate for the six months ended November 26, 2017 and November 27, 2016 was 36% and 34%, respectively. The effective tax rate for the six months ended November 26, 2017 was higher than the statutory federal income tax rate of 35% primarily due to state income taxes and incentive stock option expense; partially offset by the domestic manufacturing deduction and research and development credits. There are no significant discrete tax benefits included in the effective tax rate for the six months ended November 26, 2017.

Repurchase Plan
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As of November 26, 2017 and May 28, 2017, the Company had unrecognized tax benefits of approximately $535,000 and $537,000, respectively. Included in the balance of unrecognized tax benefits as of November 26, 2017 and May 28, 2017 is approximately $433,000 and $419,000, respectively, of tax benefits that, if recognized, would result in an adjustment to the Company’s effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly within the next twelve months.

The Company has elected to classify interest and penalties related to uncertain tax positions as a component of its provision for income taxes. The Company has accrued an insignificant amount of interest and penalties relating to the income tax on the unrecognized tax benefits as of November 26, 2017 and May 28, 2017.

Due to tax attribute carryforwards, the Company is subject to examination for tax years 2013 forward for U.S. tax purposes. The Company is also subject to examination in various state jurisdictions for tax years 2012 forward, none of which were individually material.

Our estimated annual effective tax rate may be subject to further uncertainty due to the recent changes in U.S. tax rates and tax laws.

7.

Debt

Long-term debt, net consists of the following (in thousands):

  

November 26, 2017

  

May 28, 2017

 

Term loan with JPMorgan Chase Bank (“JPMorgan”), BMO Harris Bank N,A. (“BMO”), and City National Bank; due in quarterly principal and interest payments of $1,250 beginning December 1, 2016 through September 23, 2021 with the remainder due on maturity, with interest based on the Company’s leverage ratio at a per annum rate of the Eurodollar rate plus a spread of between 1.25% and 2.25%

 $45,000  $47,500 

Total principal amount of long-term debt

  45,000   47,500 

Less: unamortized debt issuance costs

  (231

)

  (261

)

Total long-term debt, net of unamortized debt issuance costs

  44,769   47,239 

Less: current portion of long-term debt, net

  (4,940

)

  (4,940

)

Long-term debt, net

 $39,829  $42,299 

On September 23, 2016, the Company entered into a Credit Agreement with JPMorgan, BMO, and City National Bank, as lenders (collectively, the “Lenders”), and JPMorgan as administrative agent, pursuant to which the Lenders provided the Company with a $100 million revolving line of credit (the “Revolver”) and a $50 million term loan facility (the “Term Loan”), guaranteed by each of the Company’s direct and indirect subsidiaries and secured by substantially all of the Company’s assets, with the exception of the Company’s investment in Windset.

Both the Revolver and the Term Loan mature in five years (on September 23, 2021), with the Term Loan providing for quarterly principal payments of $1.25 million commencing December 1, 2016, with the remainder due at maturity.

Interest on both the Revolver and the Term Loan is based on either the prime rate or Eurodollar rate, at the Company’s discretion, plus a spread based on the Company’s leverage ratio (generally defined as the ratio of the Company’s total indebtedness on such date to the Company’s consolidated EBITDA for the period of four consecutive fiscal quarters ended on or most recently prior to such date). The spread is at a per annum rate of (i) between 0.25% and 1.25% if the prime rate is elected or (ii) between 1.25% and 2.25% if the Eurodollar rate is elected.

The Credit Agreement provides the Company the right to increase the Revolver commitments and/or the Term Loan commitments by obtaining additional commitments either from one or more of the Lenders or another lending institution at an amount of up to $75 million.

The Credit Agreement contains customary financial covenants and events of default under which the obligation could be accelerated and/or the interest rate increased. The Company was in compliance with all financial covenants as of November 26, 2017.

On November 1, 2016, the Company entered into an interest rate swap agreement (“Swap”) with BMO at a notional amount of $50 million. The Swap has the effect of changing the Company’s Term Loan obligation from a variable interest rate to a fixed 30-day LIBOR rate of 1.22%. As of November 26, 2017, the interest rate on the Term Loan was 3.00%. For further discussion regarding the Company’s use of derivative instruments, see the Financial Instruments section of Note 1 – Organization, Basis of Presentation, and Summary of Significant Accounting Policies.

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In connection with the Credit Agreement, the Company incurred lender and third-party debt issuance costs of $897,000, of which $598,000 and $299,000 was allocated to the Revolver and Term Loan, respectively.

As of November 26, 2017, $10 million was outstanding on the Revolver. As of November 26, 2017, the interest rate on the Revolver was 3.00% for the $6 million under the Libor option, and 4.25% for the $4 million under the Alternative Base Rate (Prime) option.

8.

Stockholders’ Equity

During the three months ended November 26, 2017, the Company granted options to purchase 393,000 shares of common stock and awarded 131,000 RSUs. During the six months ended November 26, 2017, the Company granted options to purchase 498,000 shares of common stock and awarded 200,000 RSUs.

As of November 26, 2017, the Company has reserved 3.2 million shares of Common Stock for future issuance under its current and former equity plans.

On July 14, 2010, the Company announced that the Board of Directors of the Company had approved the establishment of a stock repurchase plan authorizingwhich allows for the repurchase of up to $10$10.0 million of the Company’sCompany’s common stock. The Company may still repurchase up to $3.8 million of the Company’s common stock under the Company’s stock repurchase plan. The Company may repurchase its common stock from time to time in open market purchases or in privately negotiated transactions. The timing and actual number of shares repurchased is at the discretion of management of the Company and will depend on a variety of factors, including stock price, corporate and regulatory requirements, market conditions, the relative attractiveness of other capital deployment opportunities and other corporate priorities. The stock repurchase program does not obligate Landec to acquire any amount of its common stock and the program may be modified, suspended or terminated at any time at the Company's discretion without prior notice. During the fiscal year ended May 28, 2017 and the sixthree months ended November 26, 2017,August 29, 2021, the Company did not purchase any shares on the open market.

9.

Business Segment Reporting


4.    Diluted Earnings Per Share 
The following table sets forth the computation of diluted earnings per share:
Three Months Ended
(In thousands, except per share amounts)August 29, 2021August 30, 2020
Numerator:  
Net loss applicable to common stockholders$(9,477)$(11,000)
Denominator:
Weighted average shares for basic net loss per share29,424 29,242 
Effect of dilutive securities:
Stock options and restricted stock units— — 
Weighted average shares for diluted net loss per share29,424 29,242 
Diluted net loss per share$(0.32)$(0.38)

Due to the Company’s net loss for the three months ended August 29, 2021 and August 30, 2020, the net loss per share includes only weighted average shares outstanding. For the three months ended August 29, 2021 and August 30, 2020, the computation of the diluted net loss per share excludes the impact of options to purchase 1.4 million and 2.2 million shares of common stock, respectively, as such impacts would be antidilutive for these periods.


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5.    Income Taxes
The provision for income taxes for the three months ended August 29, 2021 and August 30, 2020, was a benefit of $2.1 million and $4.3 million, respectively. The effective tax rate for the three months ended August 29, 2021 and August 30, 2020 was 18% and 28%, respectively. The effective tax rate for the three months ended August 29, 2021, was lower than the statutory federal income tax rate of 21% primarily due to the movement of the valuation allowance recorded against certain deferred tax assets, partially offset by the impact of state taxes, and stock compensation including an adjustment for 162(m) related non-deductible officer’s compensation.
As of August 29, 2021 and May 30, 2021, the Company had unrecognized tax benefits of $1.1 million and $0.9 million, respectively. Included in the balance of unrecognized tax benefits as of August 29, 2021 and May 30, 2021, is $1.0 million and $0.8 million, respectively, of tax benefits that, if recognized, would result in an adjustment to the Company’s effective tax rate. The Company managesdoes not expect its business operations through three strategic business unitsunrecognized tax benefits to change significantly within the next twelve months.
The Company has elected to classify interest and penalties related to uncertain tax positions as a component of its provision for income taxes. The Company has accrued an Other segment. Basedinsignificant amount of interest and penalties relating to the income tax on the unrecognized tax benefits as of August 29, 2021 and May 30, 2021.
Due to tax attribute carryforwards, the Company is subject to examination for tax years 2017 forward for U.S. tax purposes. The Company is also subject to examination in various state jurisdictions for tax years 2015 forward, none of which were significant.

6.    Debt
Long-term debt, net consists of the following:
(In thousands)August 29, 2021May 30, 2021
Term loan$128,647 $170,000 
Total principal amount of long-term debt128,647 170,000 
Less: unamortized debt issuance costs(4,814)(5,098)
Total long-term debt, net of unamortized debt issuance costs123,833 164,902 
Less: current portion of long-term debt, net— — 
Long-term debt, net$123,833 $164,902 

On December 31, 2020, the Company refinanced its existing Term Loan and Revolver by entering into two separate Credit Agreements (the "New Credit Agreements") with BMO and Goldman Sachs Specialty Lending Group, L.P. (“Goldman”) and Guggenheim Credit Services, LLC ("Guggenheim"), as lenders (collectively, the “Refinance Lenders”). Pursuant to the credit agreement related to the revolving credit facility, BMO has provided the Company, Curation Foods and Lifecore, as co-borrowers, with an up to $75.0 million revolving line of credit (the “Refinance Revolver”) and serves as administrative agent of the Refinance Revolver. Pursuant to the credit agreement related to the term loan, Goldman and Guggenheim have provided the Company, Curation Foods and Lifecore, as co-borrowers, with an up to $170.0 million term loan facility (split equally between Goldman and Guggenheim) (the “Refinance Term Loan”) and Goldman serves as administrative agent of the Refinance Term Loan. The Refinance Revolver and Refinance Term Loan are guaranteed, and secured by, substantially all of the Company’s and the Company's direct and indirect subsidiaries' assets.
The Refinance Term Loan matures on December 31, 2025. The Refinance Revolver matures on December 31, 2025 or, if the Refinance Term Loan remains outstanding on such date, ninety (90) days prior to the maturity date of the Refinance Term Loan (on October 2, 2025).
The Refinance Term Loan provides for principal payments by the Company of 5% per annum, payable quarterly in arrears in equal installments, commencing on March 30, 2023, with the remainder due at maturity.
Interest on the Refinance Revolver is based upon the information reportedCompany’s average availability, at a per annum rate of either (i) LIBOR rate plus a spread of between 2.00% and 2.50% or (ii) base rate plus a spread of between 1.00% and 1.50%, plus a commitment fee, as applicable, of 0.375%. Interest on the Refinance Term Loan is at a per annum rate based on either (i) the base rate plus a spread of 7.50% or (ii) the LIBOR rate plus a spread of 8.50%. The Refinance Term Loan Credit Agreement also states that in the event of a prepayment of any amount other than the scheduled installments within twelve months after the closing date,
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a penalty will be assessed equal to the aggregate amount of interest that would have otherwise been payable from date of prepayment event until twelve months after the closing date plus 3% of the amount prepaid.
The New Credit Agreements provide the Company the right to increase the revolver commitments under the Refinance Revolver, subject to the satisfaction of certain conditions (including consent from BMO), by obtaining additional commitments from either BMO or another lending institution at an amount of up to $15.0 million.
The New Credit Agreements contain customary financial covenants and events of default under which the obligations thereunder could be accelerated and/or the interest rate increased in specified circumstances.
In connection with the New Credit Agreements, the Company incurred debt issuance costs from the lender and third-parties of $10.3 million.
Concurrent with the close of the New Credit Agreements, the Company repaid all outstanding borrowings under the previous Credit Agreement, and terminated the Credit Agreement. In connection with the repayment of borrowings under the Credit Agreement, the Company recognized a loss in fiscal year 2021 of $1.1 million, as a result of the non-cash write-off of unamortized debt issuance costs related to the refinancing under the New Credit Agreements.
As of August 29, 2021, $32.0 million was outstanding on the Refinance Revolver, at an interest rate of 3.00%. As of August 29, 2021, the Refinance Term Loan had an interest rate of 9.5%. As of August 29, 2021, the Company was in compliance with all financial covenants and had no events of default under the New Credit Agreements.
Derivative Instruments
On November 1, 2016, the Company entered into an interest rate swap contract (the “2016 Swap”) with BMO at a notional amount of $50.0 million. The 2016 Swap had the effect of changing the Company’s previous Term Loan obligation from a variable interest rate to a fixed 30-day LIBOR rate of 1.22%.
On June 25, 2018, the Company entered into an interest rate swap contract (the “2018 Swap”) with BMO at a notional amount of $30.0 million. The 2018 Swap had the effect on the Company’s previous debt of converting the first $30.0 million of the total outstanding amount of the Company’s 30-day LIBOR borrowings from a variable interest rate to a fixed 30-day LIBOR rate of 2.74%.
On December 2, 2019, the Company entered into an interest rate swap contract (the "2019 Swap") with BMO at a notional amount of $110.0 million which decreases quarterly. The 2019 Swap had the effect on our previous debt of converting primarily all of the $110.0 million of the total outstanding amount of the Company's 30-day LIBOR borrowings from a variable interest rate to a fixed 30-day LIBOR rate of 1.53%.

7.    Business Segment Reporting
The Company operates using 3 strategic reportable business segments, aligned with how the Chief Executive Officer, who is the chief operating decision maker who is(“CODM”), manages the Chief Executive Officer,business: the Company has the following reportable segments: the Packaged Fresh VegetablesCuration Foods segment, the Food ExportLifecore segment, and the BiomaterialsOther segment.

The PackagedCuration Foods business includes (i) 4 natural food brands, including Eat Smart, O Olive Oil & Vinegar, Yucatan Foods, and Cabo Fresh, Vegetables(ii) BreatheWay® activities, and (iii) activity related to the Company’s previously held investment in Windset. The Curation Foods segment marketsincludes activities to market and packspack specialty packaged whole and fresh-cut fruit and vegetables, the majority of which incorporate the BreatheWay specialty packaging for the retail grocery, club store and food services industry. In addition,industry and are sold primarily under the Packaged Fresh VegetablesEat Smart brand and various private labels. The Curation Foods segment sellsalso includes sales of BreatheWay packaging to partners for fruit and vegetable products. products, sales of olive oils and wine vinegars under the O brand, sales of avocado products under the brands Yucatan Foods and Cabo Fresh, and activity related to the Company’s previously held investment in Windset.
The Food Export segment consists of revenues generated from the purchase and sale of primarily whole commodity fruit and vegetable products predominantly to Asia. The BiomaterialsLifecore segment sells products utilizing hyaluronan, a naturally occurring polysaccharide that is widely distributed in the extracellular matrix of connective tissues in both animals and humans, and non-HA products for medical use primarily in the Ophthalmic, Orthopedic and other markets. Other includes licensing and R&D activities from Landec’s Intelimer polymers for agricultural products, personal care products and other industrial products and from the operations of the O Olive business which was acquired on March 1, 2017.
The Other segment also includes corporate general and administrative expenses, non-Packaged Fresh Vegetablesnon-Curation Foods and non-Biomaterialsnon-Lifecore interest expense, interest income, and income tax expenses. Corporate overhead is allocated between segments based on actual utilization and relative size.
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All of the Company's assets of the Company are located within the United States of America.

America except for its Yucatan production facility in Mexico.

The Company’sCompany’s international sales by geography are based on the billing address of the customer and were as follows (in millions):

  

Three Months Ended

  

Six Months Ended

 
  

November 26, 2017

  

November 27, 2016

  

November 26, 2017

  

November 27, 2016

 

Canada

 $17.5  $16.3  $35.7  $34.0 

Taiwan

 $7.5  $11.1  $11.3  $24.9 

Belgium

 $0.5  $1.6  $2.7  $6.9 

China

 $1.1  $6.3  $1.3  $11.4 

Indonesia

 $2.6  $3.6  $3.8  $5.1 

Japan

 $1.6  $2.9  $3.2  $4.9 

Philippines

 $0.4  $0.7  $1.0  $1.3 

All Other Countries

 $3.2  $3.5  $4.7  $5.7 

follows:

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Three Months Ended
(In millions)August 29, 2021August 30, 2020
Canada$15.6 $16.5 
Switzerland3.4 0.1 
Ireland0.2 0.8 
Belgium— 3.9 
All Other Countries1.8 1.6 

Table of Contents

Operations by business segment consisted of the following (in thousands):

Three Months Ended November 26, 2017

 

Packaged Fresh

Vegetables

  

Food

Export

  

Biomaterials

  

Other

  

Total

 

Net sales

 $107,152  $13,992  $14,113  $1,200  $136,457 

International sales

 $17,708  $13,992  $2,675  $41  $34,416 

Gross profit

 $9,445  $826  $5,217  $264  $15,752 

Net income (loss)

 $(270) $110  $1,260  $(613

)

 $487 

Depreciation and amortization

 $1,958  $  $910  $112  $2,980 

Dividend income

 $412  $  $  $  $412 

Interest income

 $18  $  $  $24  $42 

Interest expense, net

 $  $  $  $480  $480 

Income tax expense (benefit)

 $(95

)

 $31  $374  $(103

)

 $207 
                     

Three Months Ended November 27, 2016

                    

Net sales

 $97,978  $25,701  $11,931  $255  $135,865 

International sales

 $16,422  $25,701  $3,831  $  $45,954 

Gross profit

 $12,001  $1,850  $4,938  $164  $18,953 

Net income (loss)

 $(250

)

 $733  $1,312  $(469

)

 $1,326 

Depreciation and amortization

 $1,792  $2  $719  $37  $2,550 

Dividend income

 $412  $  $  $  $412 

Interest income

 $4  $  $  $  $4 

Interest expense (benefit), net

 $122  $  $(90

)

 $348  $380 

Income tax expense (benefit)

 $(142

)

 $207  $388  $240  $693 
                     

Six Months Ended November 26, 2017

                    

Net sales

 $209,720  $21,568  $26,277  $2,249  $259,814 

International sales

 $35,850  $21,568  $6,174  $73  $63,665 

Gross profit

 $24,460  $1,310  $8,739  $529  $35,038 

Net income (loss)

 $3,513  $(48

)

 $1,105  $(1,937

)

 $2,633 

Depreciation and amortization

 $3,930  $  $1,775  $229  $5,934 

Dividend income

 $825  $  $  $  $825 

Interest income

 $29  $  $  $45  $74 

Interest expense, net

 $  $  $  $884  $884 

Income tax expense (benefit)

 $1,002  $(14

)

 $347  $123  $1,458 
                     

Six Months Ended November 27, 2016

                    

Net sales

 $193,923  $49,040  $24,263  $1,033  $268,259 

International sales

 $34,266  $49,040  $10,873  $  $94,179 

Gross profit

 $26,407  $2,878  $10,060  $752  $40,097 

Net income (loss)

 $2,073  $928  $2,555  $(918

)

 $4,638 

Depreciation and amortization

 $3,612  $3  $1,431  $64  $5,110 

Dividend income

 $825  $  $  $  $825 

Interest income

 $7  $  $  $  $7 

Interest expense, net

 $671  $  $13  $348  $1,032 

Income tax expense

 $513  $262  $738  $1,069  $2,582 

following:

(In thousands)Curation FoodsLifecoreOtherTotal
Three Months Ended August 29, 2021
Net sales$106,836 $21,952 $— $128,788 
Gross profit11,755 5,764 — 17,519 
Net (loss) income(2,128)580 (7,929)(9,477)
Depreciation and amortization3,190 1,547 26 4,763 
Interest income— 20 27 
Interest expense1,376 — 6,541 7,917 
Income tax (benefit) expense(679)183 (1,616)(2,112)
Corporate overhead allocation1,471 1,137 (2,608)— 
Three Months Ended August 30, 2020
Net sales$113,839 $21,804 $— $135,643 
Gross profit11,345 5,002 — 16,347 
Net (loss) income(8,271)112 (2,841)(11,000)
Depreciation and amortization3,410 1,310 28 4,748 
Dividend income281 — — 281 
Interest income— — 
Interest expense1,376 — 1,733 3,109 
Income tax (benefit) expense(2,612)35 (1,732)(4,309)
Corporate overhead allocation1,856 1,403 (3,259)— 

During the sixthree months ended November 26, 2017August 29, 2021 and November 27, 2016,August 30, 2020, sales to the Company’s top five customers accounted for 45%50% and 44%, respectively,51% of sales.sales, respectively. The Company’s top two customers, Costco Wholesale Corporation and Wal-MartWalmart Stores, Inc., from the Packaged Fresh VegetablesCuration Foods segment, accounted for 18%15% and 17%, respectively, of revenues for the three months ended August 29, 2021, and 19% and 14%, respectively, for the sixthree months ended November 26, 2017, and 17% and 13% respectively, for the six months ended November 27, 2016. The Company expects that, for the foreseeable future, a limited numberAugust 30, 2020.

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Table of customers may continue to account for a significant portion of its revenues.

10.

Subsequent Events

On December 22, 2017, the U.S. Government enacted the reconciled tax reform bill, commonly known as the Tax Cuts and Jobs Act of 2017 (the “TCJA”), which became effective on January 1, 2018. Among other tax related changes, the Company’s federal statutory tax rate will be reduced from 35%, to an average rate of 29% for theContents

8.    Restructuring Costs
During fiscal year ended May 27, 2018, and then 21% for fiscal years thereafter. Additionally, as of November 26, 2017,2020, the Company hadannounced a deferred tax liability of $26.0 million basedrestructuring plan to drive enhanced profitability, focus the business on its strategic assets and redesign the organization to be the appropriate size to compete and thrive. This includes a U.S. federal tax rate of 35%. Given thereduction-in-force, a reduction in leased office spaces and the U.S. corporate statutory tax rate,sale of non-strategic assets.
The following table summarizes the Company will remeasure its deferred tax liability and anticipates a $7 million to $9 million benefit to its income tax expense with a corresponding reduction to its deferred tax liability. This impact will berestructuring costs recognized in the Company’s third fiscalConsolidated Statements of (Loss) Income, by Business Segment:
(in thousands)Curation FoodsLifecoreOtherTotal
Three Months Ended August 29, 2021
Asset write-off costs$(567)$— $— $(567)
Employee severance and benefit costs270 — — 270 
Lease costs468 — — 468 
Other restructuring costs1,025 — 1,366 2,391 
Total restructuring costs$1,196 $— $1,366 $2,562 
Asset write-off costs
Asset write-off costs are costs related to impairment or disposal of property and equipment as part of the Company's restructuring plan to drive enhanced profitability, focus the business on its strategic assets and redesign the organization to be the appropriate size to compete and thrive. These costs are included in restructuring costs within the Consolidated Statements of Statements of (Loss) Income. See the Assets Held for Sale section within Note 1 for additional information.
In the first quarter of 2018,fiscal year 2021, the Company sold its interest in Ontario. The Company received net cash proceeds of $4.9 million in connection with the sale and recorded a gain of $2.8 million.
In the first quarter of fiscal year 2021, the Company recognized an $8.8 million impairment loss related to its Hanover building and related assets which iswere sold in the periodsecond quarter of fiscal year 2021.
In the TCJA was enacted.

first quarter of fiscal year 2022, the Company recognized a $0.6 million gain on sale related to its Rock Hill, South Carolina distribution facility.
Employee severance and benefit costs
Employee severance and benefit costs are costs incurred as a result of reduction-in-force driven by our restructuring plan and closure of offices and facilities. These costs were driven primarily by the closure of our San Rafael, California office, Santa Clara, California office, Los Angeles, California office, the sale of our Hanover manufacturing facility, and our transportation management, warehousing, and transportation services agreement with Castellini Company, LLC.
Lease Costs

In August 2020, the Company closed its leased Santa Clara, California office and entered into a sublease agreement. In the fourth quarter of fiscal year 2020 the Company closed its leased Los Angeles, California office and plans to sublease the office.

Other restructuring costs

Other restructuring costs are primarily related to consulting costs incurred in connection with the execution of the Company’s restructuring plan to drive enhanced profitability, focus the business on its strategic assets, and redesign the organization to be the appropriate size to compete and thrive.
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The following table summarizes the restructuring costs recognized in the Company’s Consolidated Statements of (Loss) Income, by Business Segment, since inception of the restructuring plan in fiscal year 2020 through the three months ended August 29, 2021:
Curation FoodsLifecoreOtherTotal
(in thousands)
Asset write-off costs, net$20,465 $— $418 $20,883 
Employee severance and benefit costs3,503 — 784 4,287 
Lease costs2,634 — 26 2,660 
Other restructuring costs5,910 — 3,728 9,638 
Total restructuring costs$32,512 $— $4,956 $37,468 

The total expected cost related to the restructuring plan is approximately $45.0 million.


9.     Subsequent Events
COVID-19 Pandemic
There are many uncertainties regarding the current novel coronavirus (“COVID-19”) pandemic, including the scope of scientific and health issues, the anticipated duration of the pandemic, and the extent of local and worldwide social, political, and economic disruption it may cause. The COVID-19 pandemic, as well as actions taken in response to the pandemic, have had and we believe will continue to have significant adverse impacts on many aspects of the Company’s operations, directly and indirectly, including with respect to sales, customer behaviors, business and manufacturing operations, inventory, the Company’s employees, and the market generally, and the scope and nature of these impacts continue to evolve each day. The Company expects to continue to assess the evolving impact of the COVID-19 pandemic, and intends to continue to make adjustments to its responses accordingly.

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the unaudited consolidated financial statements and accompanyingaccompanying notes included in Part I, Item 1, of this Form 10-Q and the audited consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Landec’s Annual Report on Form 10-K for the fiscal year ended May 28, 2017.

Except for the historical information contained herein, the matters discussed in this report are30, 2021.

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements withinregarding future events and our future results that are subject to the meaningsafe harbor created under the Private Securities Litigation Reform Act of Section 21E1995 and other safe harbors under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934. These1934, as amended (the “Exchange Act”). Words such as “anticipate”, “estimate”, “expect”, “project”, “plan”, “intend”, “believe”, “may”, “might”, “will”, “should”, “can have”, “likely” and similar expressions are used to identify forward-looking statements. All forward-looking statements involve certainare subject to risks and uncertainties that couldmay cause actual results to differ materially from those in the forward-looking statements.that we expected. Potential risks and uncertainties include, without limitation, the timing and expenses associated with operations, the ability to achieve acceptance of our new products in the market place, weather conditions that can affect the supply and price of produce, government regulations affecting our business, uncertainties related to COVID-19 and the impact of our responses to it, the timing of regulatory approvals, the ability to successfully integrate Yucatan Foods into the Curation Foods business, the mix between domestic and international sales, and those other risks mentioned in this Form 10-Qreport and those mentioned in Landec’sour Annual Report on Form 10-K for the fiscal year ended May 28, 2017. Landec undertakes30, 2021.
We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Accordingly, our actual results could differ materially from those projected in the forward-looking statements for many reasons, including the risk factors listed in Item 1A. “Risk Factors” and in our Annual Report on Form 10-K for the fiscal year ended May 30, 2021.
All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements as well as others made in this report, our Annual Report on Form 10-K for the fiscal year ended May 30, 2021, and hereafter in our other SEC filings and public communications.
You should evaluate all forward-looking statements made by us in the context of all risks and uncertainties described with respect to our business. We caution you that the risks and uncertainties identified by us may not be all of the factors that are important to you. Furthermore, the forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements in order to reflectstatement as a result of new information, future events or circumstances that may arise after the date of this report.

otherwise, except as otherwise required by law.


Critical Accounting Policies and Use of Estimates

There have been no material changes to the Company's critical accounting policies which are included and describeduse of estimates from those disclosed in the Company’s Form 10-K for thethe fiscal year ended May 28, 2017 filed with30, 2021. For a discussion of our critical accounting policies and use of estimates, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Use of Estimates in Part II, Item 7 of the Securities and Exchange CommissionCompany’s Annual Report on August 10, 2017.

SeeForm 10-K for the fiscal year ended May 30, 2021.


Recently Issued Accounting Pronouncements
The Company is subject to several recently issued accounting pronouncements. Note 1 – Organization, Basis of Presentation, and Summary of Significant Accounting Policies – Recently Adopted Accounting Pronouncements of the Notes to the Consolidated Financial Statements for a discussionwhich is contained in Part I, Item 1 of recentthis Quarterly Report on Form 10-Q, describes these new accounting guidance not yet adopted.

pronouncements and is incorporated herein by reference.


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The Company


Corporate Overview
Landec Corporation and its subsidiaries (“Landec”Landec,” the “Company”, "we" or the “Company”"us") design, develop, manufacture, and sell differentiated health and wellness products for food and biomaterials markets. There continuesmarkets, and license technology applications to be a dramatic shift in consumer behaviorpartners.
Landec’s natural food company, Curation Foods, Inc. (“Curation Foods”) is focused on innovating and distributing plant-based foods with 100% clean ingredients to healthier eating habitsretail, club and preventive wellnessfoodservice channels throughout North America. Curation Foods is able to improve quality of life. In our Apio, Inc. (“Apio”) Packaged Fresh Vegetable business, we are committed to offering healthy, fresh produce products conveniently packaged to consumers. Apio also exports whole fruit and vegetables, predominantly to Asiamaximize product freshness through its subsidiary, Cal-Ex Trading Company (“Cal-Ex”). In ourgeographically dispersed family of growers, refrigerated supply chain and patented BreatheWay® packaging technology.
Landec’s biomedical company, Lifecore Biomedical, Inc. (“Lifecore”) biomaterials business, we commercialize products, is a fully integrated CDMO that enable people to stay more active as they grow older. In our O Olive Oil, Inc. (“O Olive”) business acquired on March 1, 2017, we sell premium California sourced specialty olive oils and wine vinegar products.

Landec’s Packaged Fresh Vegetables and Biomaterials businesses utilize polymer chemistry technology, a key differentiating factor. Both businesses focus on business-to-business selling such as selling directly to retail grocery store chains and club stores for Apio and directly to partners in the medical device and pharmaceutical markets, with a concentration in ophthalmology for Lifecore.

Landec has three operating segments – Packaged Fresh Vegetables, Food Export and Biomaterials, each of which is described below and an Other segment. The results of the O Olive business are included in the Other segment in fiscal year 2018 because they are not significant to Landec’s overall results for fiscal year 2018. Financial information concerning each of these segments is summarized in Note 9 – Business Segment Reporting.

Apio operates the Packaged Fresh Vegetables business, which combines our proprietary BreatheWay® food packaging technology with theoffers highly differentiated capabilities of a large national food supplier and value-added produce processor which sells products under the Eat Smart® brand to consumers and the GreenLine® brand to foodservice operators, as well as under private labels. In Apio’s Packaged Fresh Vegetables operations, produce is processed by trimming, washing, sorting, blending, and packaging into bags and trays that in most cases incorporate Landec’s BreatheWay membrane technology. The BreatheWay membrane increases shelf-life and reduces shrink (waste) for retailers and helps to ensure that consumers receive fresh produce by the time the product makes its way through the distribution chain. Apio also generates revenue from the sale and/or use of its BreatheWay technology by partners such as ChiquitaBrands International, Inc. (“Chiquita”) for packaging and distribution of bananas and berries and Windset Holding 2010 Ltd., a Canadian corporation (“Windset”), for packaging of greenhouse grown cucumbers and peppers.

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Apio also operates the Food Export business. The Food Export business purchases and sells whole fruit and vegetable commodities predominantly to Asian markets.

Lifecore operates our Biomaterials business and is involved in the development, fill and manufacturefinish of pharmaceutical-grade sodium hyaluronate (“HA”)sterile, injectable pharmaceutical products in syringes and providing contract development and aseptic manufacturing services. Sodium hyaluronate isvials. As a naturally occurring polysaccharide that is widely distributed in the extracellular matrix in animals and humans. Based upon Lifecore’sleading manufacturer of premium, injectable grade Hyaluronic Acid, Lifecore brings 36 years of expertise working with highly viscous HA, the Company specializes in fermentation and aseptic formulation, filling, and packaging services, as a contract developmentpartner for global and manufacturing organization (“CDMO”), for difficultemerging biopharmaceutical and biotechnology companies across multiple therapeutic categories to handle (viscous) medicines filled in finished dose vials and syringes.

O Olive was acquired on March 1, 2017. O Olive, founded in 1995, is based in Petaluma, California, and is a premier producer of California specialty olive oils and wine vinegars. Its products are sold in over 4,600 natural food, conventional grocery and mass retail stores, primarily in the United States and Canada.

bring their innovations to market.

Landec was incorporated in California on October 31, 1986 and reincorporated as a Delaware corporation on November 6, 2008. OurLandec’s common stock is listed on The NASDAQ Global Select Market under the symbol LNDC”“LNDC”. The Company’s principal executive offices are located at 5201 Great America Parkway, Suite 232,2811 Airpark Drive Santa Clara,Maria, California 95054,93455, and the telephone number is (650) 306-1650.

Description of Core Business

Reportable Segments
Landec operates itshas three reportable business in three core business segments: Packaged Fresh Vegetables, Food Exportsegments – Curation Foods, Lifecore and Biomaterials, and it has an Other, segment.  

Packaged Fresh Vegetables Business

which are described below.

Curation Foods
Curation Foods Overview
Based in Guadalupe, Santa Maria, California, Apio’sCuration Foods’ primary business is the processing, marketing and selling of fresh packaged plant based salads and vegetables. Curation Foods serves as the corporate umbrella for its patented BreatheWay® packaging technology and for its portfolio of four natural food brands, including the Company’s legacy and flagship brand Eat Smart® as well as its three more recently acquired natural food brands, O Olive Oil & Vinegar® (“O”) products, and Yucatan® and Cabo Fresh® authentic guacamole and avocado products. The major distinguishing characteristics of Curation Foods that provide competitive advantage are insight driven product innovation, diversified fresh food supply chain, refrigerated supply chain and customer reach. We believe that Curation Foods is well positioned as a single source of a broad range of products. Curation Foods also has six processing facilities. In addition to processing, the Company has two distribution centers and a nationwide network of third party providers for nationwide delivery of all of its packaged salads, vegetable products, avocado products and specialty oil and vinegar products. Our products are currently available in over 74% of retail and club stores across North America.
During fiscal 2019, the Company redefined the strategy for its Curation Foods segment in order to improve the Company’s overall profitability by launching Project SWIFT, a value creation program designed to transform the Curation Foods business by simplifying the business, realigning its resources and seeking to improve the Company’s balance sheet through three strategic priorities - optimizing its operations networks, maximizing strategic assets and redesigning the organization to be more competitive.
Curation Foods Brands
Eat Smart: The Company sells specialty fresh packaged Eat Smart branded and private label salads, fresh-cut vegetables and whole vegetable products primarily packaged in proprietary BreatheWay packaging. The Packaged Fresh Vegetables business markets a variety of fresh-cut and whole vegetablesproduce to the top retail grocery chains,retailers, club stores, and food service operators. During the fiscal year ended May 28, 2017, Apio shipped approximately 26 million cartons of produce to its customers throughout North America,operators, primarily in the United States.

There are four major distinguishing characteristics of Apio that provide competitive advantages in the Packaged Fresh Vegetables market:

(1)

Packaged Vegetables Supplier: Apio has structured its business as a marketer and seller of branded and private label blended, fresh-cut and whole vegetable products. It is focused on selling products primarily under its Eat Smart brand, with some sales under its GreenLine brand and private label brands. As retail grocery chains, club stores and food service operators consolidate, Apio is well positioned as a single source of a broad range of products.

(2)

Nationwide Processing and Distribution: Apio has strategically invested in its Packaged Fresh Vegetables business. Apio’s largest processing plant is in Guadalupe, CA, and is automated with state-of-the-art vegetable processing equipment in one of the lowest cost, growing regions in California, the Santa Maria Valley. With the acquisition of GreenLine in 2012, Apio added three East Coast processing facilities and five East Coast distribution centers for nationwide delivery of all of its packaged vegetable products in order to meet the next-day delivery needs of customers.

(3)

Expanded Product Line Using Technology and Unique Blends: Apio, through the use of its BreatheWay packagingtechnology, is introducing new packaged vegetable products each year. These new product offerings range from various sizes of fresh-cut bagged products, to vegetable trays, to whole produce, to vegetable salads and to snack packs.

(4)

Products Currently in Approximately 70% of North American Retail Grocery Stores: Apio has products in approximately 70% of all North American retail grocery stores. This gives Apio the opportunity to sell new products to existing customers and to increase distribution of its approximately 120 unique products within those customers.

Most vegetable products packaged in Apio’s BreatheWay packaging have an approximate 17 day shelf-life. In addition to packaging innovation, Apio has developed innovative blendsStates and combinations of vegetables that are sold in flexible film bags or rigid trays. More recently, Apio has launched a family of salad kits that are comprised of “superfood” mixtures of vegetables with healthy toppings and dressings. The first salad kit to launch under the Eat Smart® brand was Sweet Kale Salad, which now has significant distribution throughout club and retail stores in North America. Additionally, we have launched underCanada. Within the Eat Smart brand, several other superfood salad kits including Wild Greensproduce is processed by trimming, washing, sorting, blending, and Quinoa, Beetspackaging into bags and Greens, Southwest Salad,trays.

O Olive Oil & Vinegar: The Company acquired O on March 1, 2017. O, founded in 1995, is based in Petaluma, California, and Asian Sesameis the premier producer of California specialty olive oils and more recently a new line of single serve salads under our new Salad Shake-Ups!™ brand. The Company’s expertise includes accessing leading culinary expertswine vinegars. Its products are sold in natural food, conventional grocery and nutritionists nationally to helpmass retail stores, primarily in the new product development process. We believe that the Company’s new products are “on trend”United States and strong market acceptance supports this belief. Recent statistics show that more than two-thirds of adults are considered to be overweight or obese and more than one-third of adults are considered to be obese. More and more consumers are beginning to make better food choices in their schools, homes, and in restaurants and that is where the superfood products can fit into consumers’ daily healthy food choices.

Canada.
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In addition

Yucatan & Cabo Fresh Avocado Products: The Company acquired Yucatan Foods on December 1, 2018. Yucatan Foods was founded in 1991. As part of the acquisition of Yucatan Foods, Curation Foods acquired the newly built production facility in Guanajuato, Mexico. The Yucatan Foods business added a double-digit growth platform, a lower-cost infrastructure in Mexico, and higher margin product offerings that generally exhibit less sourcing volatility. The Company manufactures and sells Yucatan and Cabo Fresh guacamole and avocado food products primarily to proprietarythe U.S. grocery channel, but also to the U.S. mass retail, Canadian grocery retail and foodservice channels.
BreatheWay Packaging Technology: The Company’s BreatheWay membrane technology establishes a beneficial packaging atmosphere adapting to changing fresh product respiration and temperature in order to extend freshness naturally. The BreatheWay supply chain packaging technology extends shelf-life and reduces shrink (waste) for retailers and helps to ensure that consumers receive fresh products. The Company generates revenue from the sale to and/or use of its BreatheWay patented packaging technology and a strong new product development pipeline,integrated packaging solutions.
Windset: Until June 1, 2021, the Company has strong channelsheld a 26.9% investment in Windset Holding 2010 Ltd. (“Windset”), a leading edge grower of distribution throughout North America with retail grocery store chains and club stores. Landec has one or more of its products in approximately 70% of all retail and club store sites in the U.S. giving it a strong platform for introducing new products.

The Company sells its products under its nationally-known brand Eat Smart to retail and club stores and its GreenLine brand to foodservice operators. The Company also periodically licenses its BreatheWay packaging technology to partners such as Chiquita for packaging bananas and berries, and Windset for packaging peppers and cucumbers that are grown hydroponically in greenhouses. These packaging license relationships generate revenues either from product sales or royalties once commercialized. The Company is engaged in the testing and development of other BreatheWay products. Landec manufactures its BreatheWay packaging through selected qualified contract manufacturers.

Windset

The Company believes that hydroponically-grown produce using Windset’s know-how and growing practices will result in higher yields with competitive growing costs that will provide dependable year-round supply to Windset’s customers. In addition, the produce grown in Windset’s greenhouses uses significantly less water than field grown crops and has a very high safety profile as no soil is used in the growing process.produce. Windset owns and operates greenhouses in British Columbia, Canada and in Nevada and California. In addition to growing produce in its own greenhouses, Windset has numerous marketing arrangements with other greenhouse growers and utilizes buy/sell arrangements to meet fluctuation in demand from their customers.

The Curation Foods segment operating results include the dividends and Landec’s share of the change in fair market value of its investment in Windset.

On March 15, 2017,June 1, 2021, the Company and Curation Foods entered into and closed a Share Purchase Agreement (the “Purchase Agreement”) with Newell Capital Corporation and Newell Brothers Investment 2 Corp., as Purchasers (the “Purchasers”) and Windset, agreedpursuant to extend their relationship through March 31, 2022.

See Note 3 – Investmentwhich Curation Foods sold all of its equity interests in Non-public CompanyWindset to the Purchasers in exchange for an aggregate purchase price of $45.1 million. Pursuant to the terms of the NotesPurchase Agreement, Curation Foods also retained certain rights to Consolidated Financial Statementsadditional purchase price consideration in the event of certain transactions or equity issuances involving Windset until September 2022. The Purchase Agreement included various representations, warranties and covenants of the parties generally customary for a discussion about the Company’s 26.9% minority ownership interesttransaction of this nature.

Lifecore Biomedical
Lifecore, located in Windset.

Food Export Business

Food Export revenues consist of revenues generated from the purchase and sale of primarily whole commodity fruit and vegetable products primarily to Asia through Apio’s export company, Cal-Ex. The Food Export businessChaska, Minnesota, is a buy/sell businessfully integrated CDMO that realizes an average gross margin from 5-10%.

Biomaterials Business

offers highly differentiated capabilities in the development, fill and finish of sterile, injectable pharmaceutical products in syringes and vials. It is involved in the manufacture of pharmaceutical-grade sodium hyaluronate (“HA”) in bulk form as well as formulated and filled syringes and vials for injectable products used in treating a broad spectrum of medical conditions and procedures. Lifecore uses its fermentation process and aseptic formulation and filling expertise to be a leader in the development of HA-based products for multiplemultiple applications and to take advantage of non-HA device and drug opportunities which leverage its expertise in manufacturing and aseptic syringe filling capabilities. Elements

Lifecore CDMO provides product development services to its partners for HA-based, as well as non-HA based, aseptically formulated and filled products. These services include activities such as technology development, material component changes, analytical method development, formulation development, pilot studies, stability studies, process validation and production of materials for clinical studies.
Built over many years of experience, Lifecore separates itself from its competition based on its five areas of expertise, including but not limited to Lifecore’s strategy includeability to:
Establish strategic relationships with market leaders:
Lifecore continues to develop applications for products with partners who have strong marketing, sales, and distribution capabilities to end-user markets. Through its strong reputation and history of providing pharmaceutical grade HA and products, Lifecore has established long-term relationships with global and emerging biopharmaceutical and biotechnology companies across multiple therapeutic categories, and leverages those partnerships to attract new relationships in other medical markets.
Expand medical applications for HA:
Due to the following:

(1)

Establish strategic relationships with market leaders:Lifecore will continue 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 been able to establish long-term relationships with the market leading ophthalmic surgical companies, and leverages those partnerships to attract new relationships in other medical markets.

(2)

Expand medical applications for HA: Due to the growing knowledge of the unique characteristics of HA, and the role it plays in normal physiology, Lifecore continues to identify opportunities for the use of HA in other medical applications, such as wound care, aesthetic surgery, drug delivery, device coatings, and through pharmaceutical sales to academic and corporate research customers.

(3)

Utilize manufacturing infrastructure to pursue contract aseptic filling and fermentation opportunities: Lifecore has made strategic capital investments in its contract manufacturing and development business focusing on extending its aseptic filling capacity and capabilities. It is investing in this segment to meet increasing partner demand and attract new contract filling opportunities. 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 fermentation and purification requirements.

growing knowledge of the unique characteristics of HA and Lifecore’s unique strength and history as a trusted manufacturer of pharmaceutical injectable grade HA products, Lifecore continues to identify and pursue opportunities for the use of HA in other medical applications, such as wound care, aesthetic surgery, drug delivery, next generation orthopedics and device coatings, and through sales to academic and corporate research customers. Further applications may involve expanding process development activity and/or additional licensing of technology.
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(4)

Maintain flexibility in product development and supply relationships:Lifecore’s vertically integrated development and manufacturing capabilities allow it to establish a variety of contractual relationships with global corporate partners. Lifecore’s role in these relationships extends from supplying HA raw materials to providing tech transfer and development services to manufacturing aseptically-packaged, finished sterile products, and to assuming full supply chain responsibilities.

Utilize manufacturing infrastructure to meet customer demand:
Lifecore has made strategic capital investments in its CDMO business focusing on extending its aseptic filling capacity and capabilities to meet increasing partner demand and to attract new contract filling opportunities outside of HA markets. Lifecore is using its manufacturing capabilities to provide contract manufacturing and development services to its partners in the area of sterile pre-filled syringes and vials, as well as fermentation and purification requirements.
Maintain flexibility in product development and supply relationships:
Lifecore’s vertically integrated development and manufacturing capabilities allow it to establish a variety of contractual relationships with global corporate partners. Lifecore’s role in these relationships extends from supplying HA raw materials to providing technology transfer and development services to manufacturing aseptically filled, finished sterile products, and assuming full supply chain responsibilities.
Deliver consistent quality:
Lifecore has built a world class quality and regulatory system that is demonstrated in their results, processes and customer relationships. With over 35 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.
Other

Included in the Other segment is Corporate, which includes corporate general and O Olive.administrative expenses, non-Curation Foods and non-Lifecore interest income and income tax expenses.
COVID-19 Pandemic
There are many uncertainties regarding the current novel coronavirus (“COVID-19”) pandemic, including the scope of scientific and health issues, the anticipated duration of the pandemic, and the extent of local and worldwide social, political, and economic disruption it may cause. The COVID-19 pandemic, as well as actions taken in response to the pandemic, have had and we believe will continue to have significant adverse impacts on many aspects of the Company’s operations, directly and indirectly, including with respect to sales, customer behaviors, business and manufacturing operations, inventory, the Company’s employees, and the market generally, and the scope and nature of these impacts continue to evolve each day. The Company acquired O Olive on March 1, 2017. O Olive, founded in 1995, is based in Petaluma, California,expects to continue to assess the evolving impact of the COVID-19 pandemic, and is the premier producer of California specialty olive oils and wine vinegars. Its products are sold in over 4,600 natural food, conventional grocery and mass retail stores, primarily in the United States and Canada.

intends to continue to make adjustments to its responses accordingly.


Results of Operations

Revenues(in thousands):

  

Three Months Ended

  

Six Months Ended

 
  

November 26, 2017

  

November 27, 2016

  

Change

  

November 26, 2017

  

November 27, 2016

  

Change

 

Packaged Fresh Vegetables

 $107,152  $97,978   9

%

 $209,720  $193,923   8

%

Food Export

  13,992   25,701   (46

%)

  21,568   49,040   (56

%)

Total Apio

  121,144   123,679   (2

%)

  231,288   242,963   (5

%)

Biomaterials

  14,113   11,931   18

%

  26,277   24,263   8

%

Other

  1,200   255   371

%

  2,249   1,033   118

%

Total Revenues

 $136,457  $135,865   0

%

 $259,814  $268,259   (3

%)

Packaged Fresh Vegetables (Apio)

Apio’s Packaged Fresh Vegetables

Curation Foods revenues consist of revenues generated from (1) the sale of specialty packaged fresh-cut and whole processed vegetable products and salads that are washed and packaged in Apio’smost cases in the Company’s proprietary BreatheWay packaging and sold primarily under the Eat Smart and GreenLine brandsbrand and various private labels.labels, (2) O olive oils and wine vinegars, and (3) Yucatan and Cabo Fresh branded guacamole and avocado products. In addition, the Packaged Fresh Vegetables revenues includeCuration Foods reportable business segment includes the revenues generated from Apio Cooling, LP, a vegetable cooling operation in which Apio is the general partner with a 60% ownership position and from the sale of BreatheWay packaging to license partners.

Lifecore generates revenues from the development and manufacture of pharmaceutical-grade sodium hyaluronate (“HA”) products and providing contract development and aseptic manufacturing services to customers. Lifecore generates revenues from two integrated activities: (1) CDMO and (2) fermentation.

(In thousands)Three Months EndedChange
August 29, 2021August 30, 2020Amount%
Curation Foods$106,836 $113,839 $(7,003)(6)%
Lifecore21,952 21,804 148 %
Total Revenues$128,788 $135,643 $(6,855)(5)%

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Table of Contents
Curation Foods
The increasedecrease in Apio’s Packaged Fresh VegetablesCuration Foods’ revenues for the three and six months ended November 26, 2017August 29, 2021, compared to the same periodsperiod last year, was primarily duedriven by the planned reduction in Curation Foods’ legacy vegetable and tray business in connection with Project SWIFT and COVID-19 pandemic headwinds. The pandemic has delayed customer store resets and the penetration of new product innovations, and continues to a 5% increase in unit volume sales with all ofpressure the increase in revenues coming from increased sales of our salad products which are higher priced products compared to the Company’s lower priced core products whose sales were essentially flat for the three and six months ended November 26, 2017 compared to the same periods last year.

Food Export (Apio)

Apio’s Food Export revenues consist of revenues generated from the purchase and sale of primarily whole commodity fruit and vegetable products to Asia by Cal-Ex. Apio records revenue equal to the sale price to third parties because it takes title to the product while in transit.

foodservice channel.

Lifecore
The decrease in Apio’s Food Export revenues for the three and six months ended November 26, 2017 compared to the same periods last year was due to a 49% and 58%, respectively, decrease in unit volume sales due to the Company’s strategic decision during fiscal year 2017 to discontinue its lower-margin export fruit business, a large majority of which is typically sold during the first half of our fiscal year.

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Biomaterials (Lifecore)

Lifecore principally generates revenue through the sale of products containing HA. Lifecore primarily sells products to customers in three medical areas: (1) Ophthalmic, which represented approximately 65% of Lifecore’s revenues in fiscal year 2017, (2) Orthopedic, which represented approximately 15% of Lifecore’s revenues in fiscal year 2017, and (3) Other/Non-HA products, which represented approximately 20% of Lifecore’s revenues in fiscal year 2017.

The increase in Lifecore’s revenues for the three months ended November 26, 2017August 29, 2021, compared to the same period last year, was due to a $1.8$1.3 million increase in business developmentCDMO revenues primarily from new customers and a $830,000an increase in aseptic filling revenuesdevelopment services activities primarily due to new commercial aseptic business and an increase inhigher sales to existing customers, partially offset by a $489,000 decrease in fermentation sales due primarily to the timing of shipments within the fiscal year.

The increase in Lifecore’s revenues for the six months ended November 26, 2017 compared to the same period last year was due to a $2.2 million increase in business development revenues primarily from new customers and a $3.5 million increase in aseptic filling revenues due to new commercial aseptic business and an increase in sales to existing customers, partially offset by a $3.7$1.2 million decrease in fermentation sales primarily due primarily to the timing of shipments within the fiscal year.

Other

Other revenues for the three and six months ended November 27, 2016 are generated from the licensing agreements with corporate partners and for the three and six months ended November 26, 2017 from the sale of olive oils and vinegars by O Olive.

The increase in Other revenues for the three and six months ended November 26, 2017 compared to the same periods last year was due to $1.2 million and $2.2 million, respectively, of revenues from O Olive that was acquired on March 1, 2017 compared to $255,000 and 1.0 million, respectively, in revenues for the three and six months ended November 27, 2016 from two license agreements that were completed in August 2016 and December 2016, respectively.

shipments.


Gross Profit(in thousands):

  

Three Months Ended

  

Six Months Ended

 
  

November 26, 2017

  

November 27, 2016

  

Change

  

November 26, 2017

  

November 27, 2016

  

Change

 

Packaged Fresh Vegetables

 $9,445  $12,001   (21

%)

 $24,460  $26,407   (7

%)

Food Export

  826   1,850   (55

%)

  1,310   2,878   (54

%)

Total Apio

  10,271   13,851   (26

%)

  25,770   29,285   (12

%)

Biomaterials

  5,217   4,938   6

%

  8,739   10,060   (13

%)

Corporate

  264   164   61

%

  529   752   (30

%)

Total Gross Profit

 $15,752  $18,953   (17

%)

 $35,038  $40,097   (13

%)

General

There are numerous factors that can influence gross profit including product mix, customer mix, manufacturing costs, volume, sales discounts and charges for excess or obsolete inventory, to name a few. Many of these factors influence or are interrelated withwith other factors. The Company includes in cost of sales all of the costs related to the sale of products in accordance with GAAP. These costs include the following:following costs: raw materials (including produce, seeds, packaging, syringes and fermentation and purification supplies), direct labor, overhead (including indirect labor, depreciation, and facility-related costs), and shipping and shipping-related costs.

(In thousands)Three Months EndedChange
August 29, 2021August 30, 2020Amount%
Curation Foods$11,755 $11,345 $410 %
Lifecore5,764 5,002 762 15 %
Total Gross Profit$17,519 $16,347 $1,172 %

Curation Foods
The following are the primary reasons for the changesincrease in gross profit for the three and six months ended November 26, 2017 compared to the same period last year as outlined in the table above.

Packaged Fresh Vegetables (Apio)

The decrease in gross profit for Apio’s Packaged Fresh VegetablesCuration Foods business for the three and six months ended November 26, 2017 compared to the same periods last year was primarily due to $3.9 million of incremental produce sourcing costs during the second fiscal quarter of 2018 resulting from hurricanes and tropical storms which negatively impacted produce yields and quality. These incremental produce sourcing costs were partially offset by gross profit on higher salad sales.

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Food Export (Apio)

Apio’s Food Export business is a buy/sell business that realizes an average gross margin from 5-10%. The decrease in gross profit for Apio’s Food Export business during the three and six months ended November 26, 2017 compared to the same periods last year was primarily due to a 46% and 56%, respectively, decrease in revenues due to transitioning away from low-margin export fruit business.

Biomaterials (Lifecore)

The increase in Lifecore’s gross profit for the three months ended November 26, 2017August 29, 2021, compared to the same period last year, was lower than the 18%largely due to planned improvements in product mix and operational efficiency.

Lifecore
The increase in revenues primarily due to the timing of production within the fiscal year which resulted in the absorption of overhead into inventory being lower in the second quarter of fiscal year 2018 compared to the same period last year.

The decrease in Lifecore’s gross profit for the six months ended November 26, 2017 compared to the same period last year was a result of an unfavorable product mix change to a higher percentage of revenues coming from lower margin aseptically filled product sales than from higher margin fermentation sales during the same period last year. Gross profit also decreased because of the timing of production and thus overhead absorption within the fiscal year.  These decreases were partially offset by gross profit realized on higher revenues.

Other

The increase in Other gross profitLifecore business for the three months ended November 26, 2017August 29, 2021, compared to the same period last year, was due primarily to the $264,000 of gross profit for the three months ended November 26, 2017 from O Olive (which was acquired on March 1, 2017) being more than the gross profit from two license agreements for the same period last year because one of the licensing agreements was completed in the first quarter (August) of last year and therefore generated noincreased revenue, during the second quarter of last year and the other was completed during early in the third quarter (December) of last year.

The decrease in Other gross profit for the six months ended November 26, 2017 compared to the same period last year was due to the $529,000 of gross profit for the six months ended November 26, 2017 from O Olive (which was acquired on March 1, 2017) being less than the gross profit from two license agreements for the same period last year which were completed in August 2016 and December 2016, respectively.

as well as a favorable sales mix.

Operating Expenses (in thousands):

  

Three Months Ended

  

Six Months Ended

 
  

November 26, 2017

  

November 27, 2016

  

Change

  

November 26, 2017

  

November 27, 2016

  

Change

 

Research and Development:

                        

Apio

 $1,457  $286   409

%

 $2,466  $523   372

%

Lifecore

  1,334   1,333   0

%

  2,702   2,665   1

%

Other

  581   346   68

%

  923   715   29

%

Total R&D

  3,372   1,965   72

%

  6,091   3,903   56

%

                         

Selling, General and Administrative:

                     

Apio

  8,505   9,788   (13

%)

  17,340   19,349   (10

%)

Lifecore

  1,428   1,304   10

%

  2,943   2,710   9

%

Other

  3,001   2,632   14

%

  6,696   5,401   24

%

Total SG&A

 $12,934  $13,724   (6

%)

 $26,979  $27,460   (2

%)

Expenses:

Research and Development

Landec’s Research and Development (“

R&D”) consisted&D expenses consist primarily of product development and commercialization initiatives. R&D efforts at Apioexpenses in our Curation Foods business are primarily focused on newinnovating our current product innovationlines and on the Company’s proprietary BreatheWay membranes used for packaging produce, with a focus on extending the shelf-life of sensitive vegetables and fruit. In the Lifecore business, the R&D effortsexpenses are focused on new products and applications for HA-based and non-HA biomaterials. For Other, the R&D effortsexpenses are primarily focused on supporting the developmentcreating and commercializationdeveloping new innovative lines of new products and new technologies in the Company’s new natural food business.

products.

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(In thousands)Three Months EndedChange
August 29, 2021August 30, 2020Amount%
Curation Foods$1,158 $938 $220 23 %
Lifecore1,668 1,570 98 %
Total R&D$2,826 $2,508 $318 13 %

Table of Contents

The Company’s ability to compete successfully depends heavily upon its ability to ensure a continual and timely flow of innovative and competitive products, services, and technologies to the marketplace. The Company continues to develop new products and to expand the range of its product offerings through R&D.

R&D expenses include expenditures for new product and manufacturing process innovation, or a significant improvement to an existing product or process, which consist of expenses incurred in performing R&D activities, including compensation and benefits for R&D employees, facilities expenses, overhead expenses, cost of laboratory and innovation supplies, third-party formulation expenses, fees paid to contract research organizations and other consultants, stock-based compensation for R&D employees, and other outside expenses.

The increase in R&D expenses for the three and six months ended November 26, 2017August 29, 2021, compared to the same periodsperiod last year, was primarily due to a significant increase inhigher professional service expenses related to new product development activities at Apio driven primarily from the hiringin our EatSmart product lines.

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Table of a VP of Innovation and R&D during the fourth quarter of fiscal year 2017 and the subsequent staff hiring in that department, coupled with an increase in product development activities in Apio’s marketing department.

Contents

Selling, General, and Administrative

Selling, general and administrative (“SG&A”)

SG&A expenses consist primarily of sales and marketing expenses associated with Landec’s product sales and services, business development expenses, and staff and administrative expenses.

(In thousands)Three Months EndedChange
August 29, 2021August 30, 2020Amount%
Curation Foods$9,361 $10,584 $(1,223)(12)%
Lifecore2,216 1,880 336 18 %
Other4,362 5,439 (1,077)(20)%
Total SG&A$15,939 $17,903 $(1,964)(11)%

The decrease in SG&A expenses for the three and six months ended November 26, 2017August 29, 2021, compared to the same periodsperiod last year, was due to a $1.2 million decrease in SG&Aour Curation Foods business primarily due to cost savings driven by our restructuring efforts and a $1.0 million decrease at Apio as a result of (1)our Other segment primarily due to a decrease in marketing expenses, (2) legal fees from compliance and legal settlement costs incurred during the three and six months ended November 27, 2016 of last year from the labor-related lawsuits settled during fiscal year 2017 and (3)other litigation matters, which were partially offset by a reversal of a portion of the annual bonus at the end of the second quarter of fiscal 2018$0.3 million increase in our Lifecore segment due to actual year-to-date results being lower than budget. The decrease at Apio was partially offsethigher salary and benefit expenses driven by an increase in SG&A expenses in Other resulting from an increase in stock-based compensation from equity grants duringheadcount.
Restructuring Costs
(In thousands)Three Months EndedChange
August 29, 2021August 30, 2020Amount%
Curation Foods$1,196 $7,757 $(6,561)(85)%
Other1,366 647 719 111 %
Total Restructuring Costs$2,562 $8,404 $(5,842)(70)%

During fiscal year 2020, the first six months of fiscal 2018, from newCompany announced a restructuring plan to drive enhanced profitability, focus the business development activitieson its strategic assets and from $343,000redesign the organization to be the appropriate size to compete and $729,000, respectively, of SG&A expenses for the three and six months ended November 26, 2017 incurred by O Olive which was acquired on March 1, 2017. These increases in SG&A in Other was partially offset bythrive. This includes a $500,000 reduction in SG&A fromreduction-in-force, a reduction in leased office spaces and the contingent consideration liability associated withsale of non-strategic assets. The Company recorded restructuring costs of $2.6 million and $8.4 million in the O Olive acquisition.

Other (first quarter of fiscal years 2022 and 2021, respectively, related to the restructuring plan. Refer to Note 8 - Restructuring Costs in thousands)the notes to our consolidated financial statements for more information.


Other:

  

Three Months Ended

  

Six Months Ended

 
  

November 26, 2017

  

November 27, 2016

  

Change

  

November 26, 2017

  

November 27, 2016

  

Change

 

Dividend Income

 $412  $412   0% $825  $825   0%

Interest Income

  42   4   950%  74   7   957%

Interest Expense

  (480)  (380)  26%  (884)  (1,032)  (14%)

Loss on Debt Refinancing

     (1,233) 

N/M

      (1,223) 

N/M

 

Other Income

  1,300     

N/M

   2,200     

N/M

 

Income Tax Expense

  (207)  (693)  (70%)  (1,458)  (2,582)  (44%)

Non-controlling Interest Expense

  (26)  (48)  (46%)  (92)  (81)  14%

(In thousands)Three Months EndedChange
August 29, 2021August 30, 2020Amount%
Dividend Income$— $281 $(281)(100)%
Interest Income$27 $$19 N/M
Interest Expense$(7,917)$(3,109)$(4,808)155 %
Other Income (Expense)$109 $(21)$130 N/M
Income Tax Benefit$2,112 $4,309 $(2,197)(51)%

Dividend Income

Dividend income is derived from the dividends accrued on the Company’s $22previously held $15.0 million seniorSenior A preferred stock investment in Windset, which yieldsyielded a cash dividend of 7.5% annually. ThereThe Company sold its remaining investment in Windset on June 1, 2021, accordingly there was no change in dividend income forin the three and six months ended November 26, 2017 compared to the same periods last year.

first quarter of fiscal year 2022.

Interest Income

The increase in interest income for the three and six months ended November 26, 2017August 29, 2021, compared to the same periodsperiod last year, was not significant.

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Table of Contents
Interest Expense

The increase in interest expense for the three months ended November 26, 2017August 29, 2021, compared to the same period last year, was primarily duea result of prepaid interest and prepayment penalties incurred related to lower capitalizationpayments made on our term debt resulting from the sales of our investment in Windset, combined with higher interest rates and an increase in deferred financing costs incurred as a result of our debt refinancing in December 2020.
Other Income (Expense)
The increase in other income for long-term capital projects during the second quarter of fiscal year 2018three months ended August 29, 2021, compared to the second quartersame periods last year, was primarily the result of fiscal year 2017.

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Tablethe change in value of Contentsour indemnification receivable.
Income Taxes

The decreasechange in interest expenseincome tax benefit for the sixthree months ended November 26, 2017August 29, 2021, compared to the same period last year was primarily due to the refinancing of the Company’s debt during the second quarter of fiscal year 2017 which resulted in a lower average interestCompany’s effective tax rate on the Company’s debt since then.

Loss on Debt Refinancing

decreasing from 28%. to 18%. The loss on debt refinancingeffective tax rate for the three and six months ended November 27, 2016August 29, 2021 was lower than the statutory federal income tax rate of 21% primarily due to the one-time write-offmovement of unamortized debt issuance coststhe valuation allowance recorded against certain deferred tax assets, partially offset by the impact of state taxes, and early debt extinguishment prepayment penalties on the Company’s then existing debt as of September 23, 2016.

Other Income

stock compensation including an adjustment for 162(m) related non-deductible officer’s compensation. The increase in other incomeeffective tax rate for the three and six months ended November 26, 2017 comparedAugust 30, 2020, was higher than the statutory federal income tax rate of 21% primarily due to the same periods last year was a resultgeneration of federal & state R&D credits and movements of the change invaluation allowance recorded against certain deferred tax assets, partially offset by the fair valueimpact of the Company’s investment in Windset which increased $1.3 millionstate taxes and $2.2 million, respectively, for the three and six months ended November 26, 2017.

Income Taxes

The decrease in the income tax expense during the three and six months ended November 26, 2017 compared to the same periods last year was due to a 65% and 43%, respectively, decrease in pre-tax income for the three and six months ended November 26, 2017 compared to the same periods last year.

Non-controlling Interest

The non-controlling interest consists of the limited partners’ equity interest in the net income of Apio Cooling, LP. The change in the non-controlling interest for the three and six months ended November 26, 2017 compared to the same periods last year was not significant.

stock based compensation.


Liquidity and Capital Resources

As of November 26, 2017,August 29, 2021, the Company had cash and cash equivalents of $4.4$1.4 million, a net decreaseincrease of $1.0$0.2 million from $5.4$1.3 million as of May 28, 2017.

30, 2021.

Cash Flow from Operating Activities

Landec generated $4.3

Net cash provided by operating activities during the three months ended August 29, 2021 was $0.8 million, compared to $17.0 million of net cash from operating activities during the six months ended November 26, 2017, compared to $5.5 million of net cash generated fromprovided by operating activities for the same period last year. The primary sources of net cash fromprovided by operating activities during the sixthree months ended November 26, 2017August 29, 2021 were from (1) $2.7$6.9 million of net income,decrease in working capital and (2) $8.0$5.7 million of depreciation/amortization and stock based compensation expenses, and (3) a $1.4 million net increase in deferred tax liabilities.expense. These sources of cash were offset by (1) a $2.2$9.5 million increasenet loss, and (2) a $2.1 million reduction in the fair market value of the Company’s Windset investment, a non-cash increase to income and from a net increase of $5.4 million in working capital.

deferred taxes.

The primary factors which increased workingfor the decrease in working capital during the first sixthree months of fiscal year 2018 were (1) a $9.3ended August 29, 2021, was an $8.0 million increasedecrease in accounts receivable due to a $6.5 million increase in accounts receivable at Apio due to sales in November 2017 being $5.9 million higher than May 2017 and a $3.0 million increase in accounts receivable at Lifecore due to sales in November 2017 being $1.5 million higher than May 2017 and the timing of collections at the end of the second quarter of fiscal year 2017, (2) a $5.5 million increase in inventories due primarily to a $2.4 million increase at Apio from an increase in raw materials for expected increases in salad sales during the third quarter and from a $2.7 million increase at Lifecore as it builds its inventory for a  large volume of shipments during the third quarter of fiscal year 2018, and (3) a $2.3 million decrease in other accrued liabilities due to legal settlement payments made during the first six months of fiscal year 2018. The increases in working capital werecustomer payment receipts, partially offset by a $11.6$1.5 million increasedecrease in accounts payable due primarily to a $10.8 million increase at Apio due to a $8.6 million increase in cost of sales in November 2017 compared to May of 2017 and from the timing of payments.

Cash Flow from Investing Activities

Net cash used inprovided by investing activities forduring the sixthree months ended November 26, 2017August 29, 2021 was $9.5$38.3 million, compared to $4.7$0.2 million provided by investing activities for the same period last year. The primary uses ofNet cash inprovided by investing activities during the first sixthree months ended August 29, 2021 was primarily due to the receipt of fiscal year 2018 were for$45.1 million related to the sale of the Company's investment in Windset, partially offset by the purchase of $7.4$7.9 million of equipment primarily to support the growth of the Apio Packaged Fresh VegetablesCompany’s Curation Foods and Lifecore businesses and from the issuance of a $2.1 million note receivable.

businesses.

Cash Flow from Financing Activities

Net cash provided by financing activities for the six months ended November 26, 2017 was $4.1 million compared to net cash used in financing activities of $8.1during the three months ended August 29, 2021 was $38.9 million compared to $17.0 million for the same period last year. The net cash provided byused in financing activities during the first sixthree months of fiscal year 2018ended August 29, 2021 was primarily due to $7.0$41.4 million of debt pay downs under the Company's term loan and from a $3.0 million net borrowings underincrease in the Company’s line of credit. These borrowings were partially offset by $2.5
Capital Expenditures
During the three months ended August 29, 2021, Landec incurred $7.9 million of payments on the Company’s long-term debt.

Capital Expenditures

During the six months ended November 26, 2017, Landeccapital expenditures, which was primarily represented by facility expansions and purchased equipment to support the growth of the Apio Packaged Fresh VegetablesCuration Foods and Lifecore businesses. These expenditures represented the majority of the $7.4 million ofbusinesses, compared to capital expenditures inof $4.6 million for the period.

three months ended August 30, 2020. During the three

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months ended August 29, 2021, capital expenditures for Lifecore and Curation Foods were $5.7 million and $2.2 million, respectively.
Debt

On September 23, 2016,December 31, 2020, the Company enteredrefinanced its existing Term Loan and Revolver by entering into atwo separate Credit AgreementAgreements (the "New Credit Agreements") with JPMorgan, BMO and City National Bank,Goldman Sachs Specialty Lending Group, L.P. (“Goldman”) and Guggenheim Credit Services, LLC ("Guggenheim"), as lenders (collectively, the “Refinance Lenders”), and JPMorgan as administrative agent, pursuant. Pursuant to which the Lenderscredit agreement related to the revolving credit facility, BMO has provided the Company, Curation Foods and Lifecore, as co-borrowers, with a $100an up to $75.0 million revolving line of credit (the “Revolver”“Refinance Revolver”) and a $50serves as administrative agent of the Refinance Revolver. Pursuant to the credit agreement related to the term loan, Goldman and Guggenheim have provided the Company, Curation Foods and Lifecore, as co-borrowers, with an up to $170.0 million term loan facility (split equally between Goldman and Guggenheim) (the “Term“Refinance Term Loan”), guaranteed by each and Goldman serves as administrative agent of the Company’s directRefinance Term Loan. The Refinance Revolver and indirect subsidiariesRefinance Term Loan are guaranteed, and secured by, substantially all of the Company’s assets, withand the exceptionCompany's direct and indirect subsidiaries' assets.
The Refinance Term Loan matures on December 31, 2025. The Refinance Revolver matures on December 31, 2025 or, if the Refinance Term Loan remains outstanding on such date, ninety (90) days prior to the maturity date of the Company’s investment in Windset.

Both the Revolver and theRefinance Term Loan mature in five years (on September 23, 2021), with theOctober 2, 2025).

The Refinance Term Loan providingprovides for quarterly principal payments by the Company of $1.25 million5% per annum, payable quarterly in arrears in equal installments, commencing December 1, 2016,on March 30, 2023, with the remainder due at maturity.

maturity.

Interest on the Refinance Revolver is based upon the Company’s average availability, at a per annum rate of either (i) LIBOR rate plus a spread of between 2.00% and 2.50% or (ii) base rate plus a spread of between 1.00% and 1.50%, plus a commitment fee, as applicable, of 0.375%. Interest on the Refinance Term Loan is at a per annum rate based on either (i) the base rate plus a spread of 7.50% or (ii) the LIBOR rate plus a spread of 8.50%. The Refinance Term Loan Credit Agreement also states that in the event of a prepayment of any amount other than the scheduled installments within twelve months after the closing date, a penalty will be assessed equal to the aggregate amount of interest that would have otherwise been payable from date of prepayment event until twelve months after the closing date plus 3% of the amount prepaid.
The New Credit Agreements provide the Company the right to increase the revolver commitments under the Refinance Revolver, subject to the satisfaction of certain conditions (including consent from BMO), by obtaining additional commitments from either BMO or another lending institution at an amount of up to $15.0 million.
The New Credit Agreements contain customary financial covenants and events of default under which the obligations thereunder could be accelerated and/or the interest rate increased in specified circumstances.
In connection with the New Credit Agreements, the Company incurred debt issuance costs from the lender and third-parties of $10.3 million.
Concurrent with the close of the New Credit Agreements, the Company repaid all outstanding borrowings under the current Credit Agreement, and terminated the Credit Agreement. In connection with the repayment of borrowings under the Credit Agreement, the Company recognized a loss in fiscal year 2021 of $1.1 million, as a result of the non-cash write-off of unamortized debt issuance costs related to the refinancing under the New Credit Agreements.
As of August 29, 2021, $32.0 million was outstanding on the Refinance Revolver, at an interest rate of 3.00%. As of August 29, 2021, the Refinance Term Loan had an interest rate of 9.5%. As of August 29, 2021, the Company was in compliance with all financial covenants and had no events of default under the New Credit Agreements.
Off-Balance Sheet Arrangements and Contractual Obligations
The Company is not a party to any agreements with, or commitments to, any special purpose entities that would constitute material off-balance sheet financing. There have been no material changes to our long-term contractual obligations as reported in our most recent Annual Report filed on Form 10-K for the fiscal year ended May 30, 2021. See Note 76 – Debt of the Notes to Consolidated Financial Statements for further discussion ofinformation on the Company’s debt arrangements.

Landec believes that its cash from operations, along with existing cash and cash equivalents will be sufficient to finance its operational and capital requirements for at least the next twelve months.

loans.


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Item 3.    Quantitative and Qualitative Disclosures AboutAbout Market Risk

There have been no material changes to the Company's market risk duringinformation provided under Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" which is included and described in the first six months ofForm 10-K for the fiscal year 2018.

ended May 30, 2021 filed with the SEC on July 29, 2021.


Item 4.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management

As of August 29, 2021, our management evaluated, with participation of theour Chief Executive Officer and theour Chief Financial Officer, the effectiveness of the Company’sour disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q.procedures. Based on this evaluation, theour Chief Executive Officer and our Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed in reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission,SEC, and are effective in providing reasonable assurance that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controlscontrol over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the fiscalfirst quarter ended November 26, 2017August 29, 2021 that have materially affected, or are reasonably likely to materially affect, our internal controlscontrol over financial reporting.

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Table of Contents

Part

PART II. Other Information

OTHER INFORMATION

Item 1.    LegalProceedings

In the ordinary course of business, the Company is involved in various legal proceedings and claims.

The Company makes a provision for a liability relating to legal matters when it is both probable that a liability has been incurred For further discussion, see the disclosures contained in Note 1 - Organization, Basis of Presentation, and the amountSummary of the loss can be reasonably estimated. These provisionsSignificant Accounting Policies - Legal Contingencies, which are reviewed at least each fiscal quarter and adjusted to reflect the impacts of negotiations, estimate settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. Legal fees are expensed in the period in which they are incurred.

Apio has been the target of a union organizing campaign which has included two unsuccessful attempts to unionize Apio's Guadalupe, California processing plant. The campaign has involved a union and over 100 former and current employees of Pacific Harvest, Inc. and Rancho Harvest, Inc. (collectively "Pacific Harvest"), Apio's labor contractors at its Guadalupe, California processing facility, bringing legal actions before various state and federal agencies, the California Superior Court, and initiating over 100 individual arbitrations against Apio and Pacific Harvest.

The legal actions consist of three main types of claims: (1) Unfair Labor Practice claims ("ULPs") before the National Labor Relations Board (“NLRB”), (2) discrimination/wrongful termination claims before state and federal agencies and in individual arbitrations, and (3) wage and hour claims as part of two Private Attorney General Act (“PAGA”) cases in state court and in over 100 individual arbitrations.

A settlement of the ULPs among the union, Apio, and Pacific Harvest that were pending before the NLRB was approved on December 27, 2016 for $310,000. Apio was responsible for half of this settlement, or $155,000. On May 5, 2017, the parties to the remaining actions executed a settlement agreement concerning the discrimination/wrongful termination claims and the wage and hour claims which covers all non-exempt employees of Pacific Harvest working at Apio's Guadalupe, California processing facility from September 2011 through the settlement date. Under the settlement agreement, the plaintiffs are to be paid $6.0 million in three installments: $2.4 million, which was paid on July 3, 2017, $1.8 million which was paid on November 22, 2017 and $1.8 million which is due in July 2018. The Company and Pacific Harvest have each agreed to pay one half of the settlement payments. The Company paid the entire first two installments of $4.2 million and will be reimbursedincorporated herein by Pacific Harvest for its $2.1 million portion which is included in Other assets in the accompanying Consolidated Balance Sheets. This receivable will be repaid through monthly payments until fully paid, which the Company expects to occur by December 2020. The Company and Pacific Harvest will both make one half of the third installment in July 2018. The Company’s recourse against non-payment by Pacific Harvest is its security interest in assets owned by Pacific Harvest.

As of November 26, 2017 and May 28, 2017, the Company had accrued $1.0 million and $3.2 million, respectively, related to these actions, which is included in Other accrued liabilities in the accompanying Consolidated Balance Sheets.

reference.

Item 1A.    Risk Factors

Our estimated annual effective tax rate may be subject to further uncertainty due to

You should carefully consider the recent changes in U.S. tax rates and tax laws. Other than this item, there have been no significant changes to the Company's risk factors which are included andrisks described in the Form10-KItem 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended May 28, 2017 filed with30, 2021, as supplemented by our Quarterly Report on Form 10-Q for the Securitiesfiscal period ended August 29, 2021, as our business, financial condition and Exchange Commissionresults of operations could be adversely affected by any of the risks and uncertainties described therein and herein. There have been no material changes to our risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended May 30, 2021, as supplemented by our Quarterly Report on Form 10-Q for the fiscal period ended August 10, 2017.

29, 2021.


Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered sales of equity securities or shares repurchased by the Company during the fiscal quarter ended on November 26, 2017.

None.

Item 3.    Defaults Upon Senior Securities

None.

None.

Item 4.    Mine Safety Disclosures

Not applicable

applicable.

Item 5.    Other Information

None.


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Item 6.    Exhibits

Exhibit
Number

Exhibit Title

31.1+

Exhibit
Number

Exhibit Title

31.2+

32.1+

32.2+

101.INS+

XBRL Instance

101.INS**

101.SCH+

XBRL Instance

101.SCH**

XBRL Taxonomy Extension Schema

101.CAL+

101.CAL**

XBRL Taxonomy Extension Calculation

101.DEF+

101.DEF**

XBRL Taxonomy Extension Definition

101.LAB+

101.LAB**

XBRL Taxonomy Extension Labels

101.PRE+

101.PRE**

XBRL Taxonomy Extension Presentation

*

Furnished herewith.

+

**

Filed herewith.

** XBRL

informationInformation is furnished and shall not filed or a part of a registration statement or prospectusbe deemed “filed” for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of sectionSection 18 of the Securities Exchange Act of 1934, as amended and(the “Exchange Act”), or otherwise is not subject to liabilitythe liabilities of that section, nor shall it be deemed to be incorporated by reference into any filing under these sections.

the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.
+Filed herewith.


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Table of Contents

SIGNATURES

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

LANDEC CORPORATION

LANDEC CORPORATION

By:

/s/ Gregory S. Skinner

By:

Gregory S. Skinner

/s/ John D. Morberg

Vice President Finance and John D. Morberg

Chief Financial Officer

(Principal Financial and Accounting Officer)

Date:     January    October 5, 2018

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2021

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