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 ~~24, 2019,~~29, 2020, 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

LANDEC CORPORATION

(Exact name of registrant as specified in its charter)



Delaware			94-3025618
(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification Number)

~~5201 Great America Parkway, Suite 232~~

~~Santa Clara, California 95054~~


2811 Airpark Drive
Santa Maria,	California	93455
(Address of principal executive offices)		(Zip Code)

(650) 306-1650

(~~Address of principal executive offices)~~

Registrant's telephone number, including area ~~code:~~code)

~~(650) 306-1650~~

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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 Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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 accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See ~~definition~~the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ~~___~~

☐

Accelerated Filer X

☒

Emerging Growth Company ~~___~~

☐

Non Accelerated Filer ~~___~~

☐

Smaller Reporting Company ~~___~~

☐

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

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

As of ~~December 27, 2019,~~January 5, 2021, there were ~~29,162,983~~29,323,153 shares of ~~Common Stock~~common stock outstanding.

Table of Contents

LANDEC CORPORATION

FORM 10-Q

For the Fiscal Quarter Ended November ~~24, 2019~~29, 2020

INDEX



			Page
	~~Facing sheet~~

	~~Index~~	i

Part I.	Financial Information

Item 1.	Financial Statements

	a)	Consolidated Balance Sheets as of November ~~24, 2019~~29 , 2020 and May ~~26, 2019~~31, 2020	1

	b)	Consolidated Statements of Comprehensive ~~Loss~~(Loss) Income for the Three ~~and~~a nd Six Months Ended November 29 , 2020 and November 24 , 2019 ~~and November 25, 2018~~	2

	c)	Consolidated Statement of Changes in Stockholders' Equity for the Three ~~and~~ an d Six Months Ended November ~~24, 2019~~29 , 2020 and November ~~25, 2018~~24 , 2019	3

	d)	Consolidated Statements of Cash Flows for the Six Months Ended November 29 , 2020 and November 24 , 2019 ~~and November 25, 2018~~	4

	e)	Notes to Consolidated Financial Statements	5

Item 2.	~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations		2624

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		3433

Item 4.	Controls and Procedures		3433

Part II.	Other Information		3534

Item 1.	Legal Proceedings		3534

Item 1A.	Risk Factors		3534

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		35

Item 3.	Defaults Upon Senior Securities		3635

Item 4.	Mine Safety Disclosures		3635

Item 5.	Other Information		3635

Item 6.	Exhibits		36

	Signatures		37

Table of Contents

LANDEC CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)


	November 29, 2020		May 31, 2020
	(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	2,491	$	360
Accounts receivable, less allowance for credit losses	66,545		76,206
Inventories	71,202		66,311
Prepaid expenses and other current assets	13,949		14,230
Total Current Assets	154,187		157,107

Investment in non-public company, fair value	45,100		56,900
Property and equipment, net	170,973		192,338
Operating leases	21,070		25,321
Goodwill	69,386		69,386
Trademarks/tradenames, net	25,328		25,328
Customer relationships, net	11,784		12,777
Other assets	1,332		2,156
Total Assets	$	499,160	$	541,313

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	60,892	$	51,647
Accrued compensation	7,689		9,034
Other accrued liabilities	12,715		9,978
Current portion of lease liabilities	3,785		4,423
Deferred revenue	644		352
Line of credit	77,000		77,400
Current portion of long-term debt, net	11,189		11,554

Total Current Liabilities	173,914		164,388

Long-term debt, net	82,000		101,363
Long-term lease liabilities	22,206		26,378
Deferred taxes, net	6,745		13,588
Other non-current liabilities	5,357		4,552
Total Liabilities	290,222		310,269

Stockholders’ Equity:
Common stock, $0.001 par value; 50,000 shares authorized; 29,323 and 29,224 shares issued and outstanding at November 29, 2020 and May 31, 2020, respectively	29		29
Additional paid-in capital	164,068		162,578
Retained earnings	46,944		71,245
Accumulated other comprehensive loss	(2,103)		(2,808)
Total Stockholders’ Equity	208,938		231,044
Total Liabilities and Stockholders’ Equity	$	499,160	$	541,313

November 24, 2019 May 26, 2019
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,594
$ 1,080
Accounts receivable, less allowance for doubtful accounts 69,962
69,565
Inventories 58,563
54,132
Prepaid expenses and other current assets 10,061
8,264
Total Current Assets 140,180
133,041

Investment in non-public company, fair value 61,300
61,100
Property and equipment, net 204,687
200,027
Operating leases 29,779
—
Goodwill 77,246
76,742
Trademarks/tradenames, net 29,928
29,928
Customer relationships, net 14,294
15,319
Other assets 2,583
2,934
Total Assets $ 559,997
$ 519,091

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable $ 47,145
$ 53,973
Accrued compensation 8,700
10,687
Other accrued liabilities 10,702
10,001
Current portion of lease liabilities 3,980
75
Deferred revenue 611
499
Line of credit 61,500
52,000
Current portion of long-term debt, net 11,723
9,791
Other current liabilities, discontinued operations —
65
Total Current Liabilities 144,361
137,091

Long-term debt, net 107,470
87,193
Long-term lease liabilities 30,795
3,532
Deferred taxes, net 17,047
19,393
Other non-current liabilities 1,248
1,738
Total Liabilities 300,921
248,947

Stockholders’ Equity:
Common stock, $0.001 par value; 50,000 shares authorized; 29,163 and 29,102 shares issued and outstanding at November 24, 2019 and May 26, 2019, respectively 29
29
Additional paid-in capital 161,556
160,341
Retained earnings 97,912
109,710
Accumulated other comprehensive (loss) income (421 ) 64
Total Stockholders’ Equity 259,076
270,144
Total Liabilities and Stockholders’ Equity $ 559,997
$ 519,091

See accompanying notes to the consolidated financial statements.

-1-

Table of Contents

LANDEC CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~LOSS~~(LOSS) INCOME

(Unaudited)

(In thousands, except per share amounts)

Three Months Ended Six Months Ended
November 24, 2019 November 25, 2018 November 24, 2019 November 25, 2018
Product sales $ 142,593
$ 124,557
$ 281,307
$ 249,225
Cost of product sales 127,079
107,672
250,457
216,003
Gross profit 15,514
16,885
30,850
33,222
Operating costs and expenses:
Research and development 2,822
2,475
5,643
5,266
Selling, general and administrative 18,728
14,400
35,623
28,203
Total operating costs and expenses 21,550
16,875
41,266
33,469
Operating (loss) income (6,036 ) 10
(10,416 ) (247 )

Dividend income 281
412
562
825
Interest income 25
33
50
79
Interest expense (2,169 ) (746 ) (4,244 ) (1,504 )
Other income 200
600
200
1,600
Other expense (206 ) —
(206 ) —
Net (loss) income from continuing operations before tax (7,905 ) 309
(14,054 ) 753
Income tax benefit (expense) 1,165
(422 ) 2,530
(532 )
Net (loss) income from continuing operations $ (6,740 ) $ (113 ) $ (11,524 ) $ 221

Discontinued operations:
Loss from discontinued operations $ —
$ (616 ) $ —
$ (806 )
Income tax benefit —
145
—
190
Loss from discontinued operations, net of tax —
(471 ) —
(616 )
Net loss applicable to common stockholders $ (6,740 ) $ (584 ) $ (11,524 ) $ (395 )

Basic net loss per share:
(Loss) income from continuing operations $ (0.23 ) $ 0.00
$ (0.40 ) $ 0.01
Loss from discontinued operations —
(0.02 ) —
(0.02 )
Total basic net loss per share $ (0.23 ) $ (0.02 ) $ (0.40 ) $ (0.01 )

Diluted net loss per share:
(Loss) income from continuing operations $ (0.23 ) $ 0.00
$ (0.40 ) $ 0.01
Loss from discontinued operations —
(0.02 ) —
(0.02 )
Total diluted net loss per share $ (0.23 ) $ (0.02 ) $ (0.40 ) $ (0.01 )

Shares used in per share computation
Basic 29,155
27,764
29,147
27,751
Diluted 29,155
27,764
29,147
27,751

Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on interest rate swaps (net of tax effect of $(39), $(23), $226 and $4) $ 127
$ 76
$ (485 ) $ (13 )
Other comprehensive income (loss), net of tax 127
76
(485 ) (13 )
Total comprehensive loss $ (6,613 ) $ (508 ) $ (12,009 ) $ (408 )


	Three Months Ended				Six Months Ended
	November 29, 2020		November 24, 2019		November 29, 2020		November 24, 2019
Product sales	$	130,904	$	142,593	$	266,547	$	281,307
Cost of product sales	110,267		127,079		229,564		250,457
Gross profit	20,637		15,514		36,983		30,850
Operating costs and expenses:
Research and development	2,572		2,822		5,080		5,643
Selling, general and administrative	16,106		18,728		34,009		35,623
Legal settlement charge	1,763		0		1,763		0
Restructuring costs	1,662		0		10,066		0
Total operating costs and expenses	22,103		21,550		50,918		41,266
Operating loss	(1,466)		(6,036)		(13,935)		(10,416)

Dividend income	281		281		563		562
Interest income	10		25		18		50
Interest expense, net	(3,039)		(2,169)		(6,148)		(4,244)
Other (expense) income, net	(11,787)		(6)		(11,808)		(6)
Net loss before tax	(16,001)		(7,905)		(31,310)		(14,054)
Income tax benefit	2,700		1,165		7,009		2,530
Net loss	$	(13,301)	$	(6,740)	$	(24,301)	$	(11,524)

Net loss per common share:
Basic	$	(0.45)	$	(0.23)	$	(0.83)	$	(0.40)
Diluted	$	(0.45)	$	(0.23)	$	(0.83)	$	(0.40)

Shares used in per share computation:
Basic	29,280		29,155		29,261		29,147
Diluted	29,280		29,155		29,261		29,147

Other comprehensive income (loss), net of tax:
Net unrealized gain (loss) on interest rate swaps (net of tax effect of $(121), $(39), $(228), and $226)	$	401	$	127	$	705	$	(485)
Other comprehensive income (loss), net of tax	401		127		705		(485)
Total comprehensive loss	$	(12,900)	$	(6,613)	$	(23,596)	$	(12,009)

See accompanying notes to the consolidated financial statements.

-2-

Table of Contents

LANDEC CORPORATION

CONSOLIDATED STATEMENT OF CHANGES INSTOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except per share amounts)


Three and Six Months Ended November 24, 2019
Three and Six Months Ended November 29, 2020																			Three and Six Months Ended November 29, 2020
				Additional Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Total Stockholders’ Equity											Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
	Common Stock										Common Stock
	Shares	Amount									Shares								Amount
Balance at May 26, 2019	29,102	$	29				$		160,341						$				109,710		$	64		$	270,144
ASC 842 transition adjustment	—	—					—				(274			)				—			(274		)
Issuance of stock under stock plans	44	—		—					—					—				—
Taxes paid by Company for employee stock plans	—	—		(55		)		—				—				(55		)
Stock-based compensation	—	—		528				—				—				528
Net loss	—	—		—				(4,784		)		—				(4,784		)
Other comprehensive loss, net of tax	—	—		—				—				(612		)		(612		)
Balance at August 25, 2019	29,146	$	29	$	160,814			$	104,652			$	(548	)		$	264,947
Balance at May 31, 2020																			Balance at May 31, 2020	29,224					$	29		$	162,578		$	71,245		$	(2,808)		$	231,044

Issuance of stock under stock plans	17	—		30				—				—				30			Issuance of stock under stock plans	18					—		—			—			—			0
Taxes paid by Company for employee stock plans	—	—		(75		)		—				—				(75		)	Taxes paid by Company for employee stock plans	—					—		(82)			—			—			(82)
Stock-based compensation	—	—		787				—				—				787			Stock-based compensation	—					—		892			—			—			892
Net loss	—	—		—				(6,740		)		—				(6,740		)	Net loss	—					—		—			(11,000)			—			(11,000)
Other comprehensive income, net of tax	—	—		—				—				127				127			Other comprehensive income, net of tax	—					—		—			—			304			304
Balance at November 24, 2019	29,163	$	29	$	161,556			$	97,912			$	(421	)		$	259,076
Balance at August 30, 2020																			Balance at August 30, 2020	29,242					29		163,388			60,245			(2,504)			221,158

Issuance of stock under stock plans																			Issuance of stock under stock plans	81					—		—			—			—			0
Taxes paid by Company for employee stock plans																			Taxes paid by Company for employee stock plans	—					—		(215)			—			—			(215)
Stock-based compensation																			Stock-based compensation	—					—		895			—			—			895
Net loss																			Net loss	—					—		—			(13,301)			—			(13,301)
Other comprehensive income, net of tax																			Other comprehensive income, net of tax	—					—		—			—			401			401
Balance at November 29, 2020																			Balance at November 29, 2020	29,323					$	29	$	164,068		$	46,944		$	(2,103)		$	208,938


Three and Six Months Ended November 24, 2019
				Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Common Stock
	Shares	Amount
Balance at May 26, 2019	29,102	$	29	$	160,341	$	109,710	$	64	$	270,144
ASC 842 transition adjustment	—	—		—		(274)		—		(274)
Issuance of stock under stock plans	44	—		—		—		—		—
Taxes paid by Company for employee stock plans	—	—		(55)		—		—		(55)
Stock-based compensation	—	—		528		—		—		528
Net loss	—	—		—		(4,784)		—		(4,784)
Other comprehensive loss, net of tax	—	—		—		—		(612)		(612)
Balance at August 25, 2019	29,146	29		160,814		104,652		(548)		264,947

Issuance of stock under stock plans	17	—		30		—		—		30
Taxes paid by Company for employee stock plans	—	—		(75)		—		—		(75)
Stock-based compensation	—	—		787		—		—		787
Net loss	—	—		—		(6,740)		—		(6,740)
Other comprehensive income, net of tax	—	—		—		—		127		127
Balance at November 24, 2019	29,163	$	29	$	161,556	$	97,912	$	(421)	$	259,076

Three and Six Months Ended November 25, 2018
Additional
Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income Total
Stockholders’
Equity
Common Stock
Shares Amount
Balance at May 27, 2018 27,702
$ 28
$ 142,087
$ 109,299
$ 1,148
$ 252,562
Issuance of stock under stock plans 47
—
—
—
—
—
Taxes paid by Company for employee stock plans —
—
(10 ) —
—
(10 )
Stock-based compensation —
—
728
—
—
728
Net income —
—
—
190
—
190
Other comprehensive loss, net of tax —
—
—
—
(89 ) (89 )
Balance at August 26, 2018 27,749
$ 28
$ 142,805
$ 109,489
$ 1,059
$ 253,381
Issuance of stock under stock plans 36
—
—
—
—
—
Taxes paid by Company for employee stock plans —
—
(237 ) —
—
(237 )
Stock-based compensation —
—
938
—
—
938
Net loss —
—
—
(585 ) —
(585 )
Other comprehensive income, net of tax —
—
—
—
76
76
Balance at November 25, 2018 27,785
$ 28
$ 143,506
$ 108,904
$ 1,135
$ 253,573

See accompanying notes to the consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Six Months Ended
	November 29, 2020		November 24, 2019
Cash flows from operating activities:
Consolidated net loss	$	(24,301)	$	(11,524)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation, amortization of intangibles and amortization of debt costs	9,826		9,030
Stock-based compensation expense	1,787		1,315
Deferred taxes	(7,070)		(2,624)
Change in investment in non-public company, fair value	11,800		(200)
Net gain on disposal of property and equipment held and used	(34)		(15)
Loss on disposal of property and equipment related to restructuring, net	6,005		406
Other, net	21		206
Change in contingent consideration liability	0		(500)
Pacific Harvest note receivable reserve	0		1,202
Changes in current assets and current liabilities:
Accounts receivable, net	9,661		(397)
Inventories	(4,891)		(4,431)
Prepaid expenses and other current assets	1,539		(554)
Accounts payable	10,539		(6,105)
Accrued compensation	(1,345)		(1,988)
Other accrued liabilities	4,627		1,145
Deferred revenue	292		112
Net cash provided by (used in) operating activities	18,456		(14,922)

Cash flows from investing activities:
Proceeds from sales of property and equipment	12,885		29
Purchases of property and equipment	(7,407)		(16,029)

Proceeds from collections of notes receivable	0		364
Net cash provided by (used in) investing activities	5,478		(15,636)

Cash flows from financing activities:
Taxes paid by Company for employee stock plans	(297)		(130)
Payments on long-term debt	(20,062)		(5,062)
Proceeds from lines of credit	24,000		62,900
Payments on lines of credit	(24,400)		(53,400)
Payments for debt issuance costs	(1,237)		(766)
Proceeds from sale of common stock	0		30
Proceeds from long-term debt	0		27,500
Net cash (used in) provided by financing activities	(21,996)		31,072
Net increase in cash and cash equivalents	1,938		514
Cash and cash equivalents, beginning of period	553		1,465
Cash and cash equivalents, end of period	$	2,491	$	1,979

Supplemental disclosure of non-cash investing and financing activities:
Purchases of property and equipment on trade vendor credit	$	1,526	$	3,174

Six Months Ended
November 24, 2019 November 25, 2018
Cash flows from operating activities:
Consolidated net loss $ (11,524 ) $ (395 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, amortization of intangibles and amortization of debt costs 9,030
6,458
Stock-based compensation expense 1,315
1,666
Deferred taxes (2,624 ) 226
Change in investment in non-public company, fair value (200 ) (1,600 )
Change in contingent consideration liability (500 ) (900 )
Net (gain) loss on disposal of property and equipment (15 ) 1
Pacific Harvest note receivable reserve 1,202
—
Impairment of assets 406
—
Other, net 206
—
Changes in current assets and current liabilities:
Accounts receivable, net (397 ) 975
Inventories (4,431 ) 191
Prepaid expenses and other current assets (554 ) 2,267
Accounts payable (6,105 ) (1,381 )
Accrued compensation (1,988 ) (3,322 )
Other accrued liabilities 1,145
1,575
Deferred revenue 112
(958 )
Net cash (used in) provided by operating activities (14,922 ) 4,803

Cash flows from investing activities:
Purchases of property and equipment (16,029 ) (18,588 )
Proceeds from collections of notes receivable 364
195
Proceeds from sales of fixed assets 29
3
Net cash used in investing activities (15,636 ) (18,390 )

Cash flows from financing activities:
Proceeds from sale of common stock 30
—
Taxes paid by Company for employee stock plans (130 ) (247 )
Proceeds from debt 27,500
—
Payments on long-term debt (5,062 ) (2,543 )
Proceeds from lines of credit 62,900
15,000
Payments on lines of credit (53,400 ) —
Payments for debt issuance costs (766 ) —
Net cash provided by financing activities 31,072
12,210
Net increase (decrease) in cash, cash equivalents and restricted cash 514
(1,377 )
Cash, cash equivalents and restricted cash, beginning of period 1,465
3,216
Cash, cash equivalents and restricted cash, end of period $ 1,979
$ 1,839

Supplemental disclosure of non-cash investing activities:
Purchases of property and equipment on trade vendor credit $ 3,174
$ 1,319
Pacific Harvest note receivable reserve $ 1,202
$ —

See accompanying notes to the consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 sells specialty packaged branded Eat Smart~~^®Landec’s biomedical company, Lifecore Biomedical, Inc. (“Lifecore”), is a fully integrated contract development and ~~private label fresh-cut vegetables and whole produce to retailers, club stores, and food service operators, primarily~~manufacturing organization (“CDMO”) that offers highly differentiated capabilities in the ~~United States~~development, fill and ~~Canada. The Company also sells premier specialty olive oils~~finish of sterile, injectable pharmaceutical products in syringes and ~~wine vinegars under~~vials. As a leading manufacturer of premium, injectable-grade hyaluronic acid, Lifecore brings 35 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 ~~O Olive Oil & Vinegar~~^® (“O~~”) brand to~~geographically dispersed family of growers, refrigerated supply chain and patented BreatheWay packaging technology. Its products are sold in natural food, conventional grocery and mass retail stores, primarily in the United States and Canada. The ~~majority of Yucatan~~^®company categorizes revenue in three categories, Fresh packaged salads and ~~Cabo Fresh~~^® ~~branded guacamole~~vegetables, Avocado Products, and ~~avocado products are sold~~Technology which reports revenues for BreatheWay patented supply chain solutions. Included in the ~~U.S. grocery channel, but they are also sold in U.S. mass retail, Canadian grocery retail and foodservice channels.~~

~~Landec's food company,~~ Curation Foods ~~Inc.~~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”) serves as~~Foods segment are the ~~corporate umbrella for a portfolio~~dividends from, and Landec’s share of ~~four natural food brands, including~~the change in the fair market value of the Company’s ~~flagship brand Eat Smart as well as three emerging natural food brands, consisting~~26.9% investment ownership, of O ~~olive oil and vinegar products, and its two new brands, Yucatan and Cabo Fresh authentic guacamole and avocado products, acquired by the Company through the acquisition~~Windset, a leading edge grower of ~~Yucatan Foods on December 1, 2018.~~ O~~, Yucatan and Cabo Fresh are referred to collectively as “Emerging Brands”. See Note 2 - Acquisitions for more details.~~

~~The Company has two proprietary polymer technology platforms: 1) Intelimer~~^® ~~polymers, and 2) hyaluronan (“HA”) biopolymers.~~

The Company sells HA-based and non-HA biomaterials through its Lifecore Biomedical, Inc. (“Lifecore”) subsidiary. The Company’s HA biopolymers and non-HA materials are proprietary in that they are specially formulated for specific customers to meet strict regulatory requirements.

~~The Company’s technologies, along with its customer relationships and tradenames, are the foundation and key differentiating advantages upon which Landec has built its business.~~hydroponically grown produce.

Basis of Presentation

The accompanying unaudited consolidated financial statements of Landec have been prepared in accordance with ~~United States generally accepted accounting principles~~U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring accruals) have been made which are necessary to present fairly the financial position of the Company at November ~~24, 2019~~29, 2020, 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 ~~26, 2019~~31, 2020 (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.

In ~~May 2019~~, the Company discontinued the Now Planting business. As a result, the Now Planting business, which was launched during the second quarter of fiscal year 2019, has been reclassified as a discontinued operation under the provisions of Accounting Standards Codification ("ASC") 205-20, ~~Presentation of Financial Statements - Discontinued Operations~~ ~~("ASC 205-20") for the three and six months ended November 25, 2018.~~

The results of operations for the six months ended November ~~24, 2019~~29, 2020 are not necessarily indicative of the results that may be expected for an entire fiscal year because there is some seasonality in Curation Foods’ business and the order patterns of Lifecore’s customers which may lead to significant fluctuations in Landec’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, Curation Foods and Lifecore. All ~~intercompany~~inter-company transactions and balances have been eliminated. ~~The financial results of Yucatan Foods have been included in our consolidated financial statements from the date of acquisition on December 1, 2018.~~

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.

An entity is a VIE and subject to consolidation, if by design: 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 parties, including equity holders, or 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 the ~~partnership interest and~~ equity investment in the non-public company ~~are~~is not ~~VIEs.~~

~~Reclassifications~~

~~Certain reclassifications have been made to prior year financial statements to conform to the current year presentation.~~a VIE.

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; allowance for sales returns and ~~allowances; inventories;~~credit losses; self-insurance liabilities; recognition and measurement of current and deferred income tax assets and liabilities; the assessment of recoverability of long-lived ~~assets including~~asset (including intangible ~~assets~~assets), and inventory; the valuation of investments; and the valuation and recognition of stock-based compensation.

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

We determined that certain inputs used in the valuation of the investment in Windset were incorrect and should have resulted in a $1.8 million reduction in the Investment in non-public company, fair value balance at August 30, 2020. We determined that the impact of the error to previously issued financial statements was not material and have corrected the immaterial error in the current period financial statements. The impact of this correction was an increase to Other (expense) income of $1.8 million for the three-months ended November 29, 2020. There was no impact to the six months ended November 29, 2020.

Cash and Cash Equivalents

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

Reconciliation of Cash and Cash Equivalents ~~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:

The Company was required to maintain ~~$0.4~~$0.0 million and $0.2 million of restricted cash at November ~~24, 2019~~29, 2020 and May ~~26, 2019~~31, 2020, respectively, related to certain collateral requirements for obligations under its workers' compensation programs. The restricted cash is included in Other assets in the Company’s accompanying Consolidated Balance Sheets.

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

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.

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 not current economic conditions or forecasts that may affect future credit losses, the Company has determined that recent historical experience provide 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		Provisions for expected credit losses		Write offs, net of recoveries		Balance at end of period
Six months ended November 29, 2020	$	438	$	102	$	(263)	$	277

Related Party Transactions

The Company sells ~~products~~and 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 has a 26.9% ownership interest. During the three months ended November ~~24, 2019~~29, 2020 and November ~~25, 2018,~~24, 2019, the Company recognized revenues of $0.1 million and $0.1 million, respectively. During the six months ended November ~~24, 2019~~29, 2020 and November ~~25, 2018,~~24, 2019, the Company recognized revenues of ~~$0.2~~$0.3 million and $0.2 million, respectively. These amounts have been included in Product sales in the accompanying Consolidated Statements of Comprehensive ~~Loss.~~(Loss) Income. The related receivable balances of ~~$0.1~~$0.3 million and $0.5 million are included in Accounts receivable in the accompanying Consolidated Balance Sheets as of November ~~24, 2019~~29, 2020 and May ~~26, 2019,~~31, 2020, respectively.

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

The Company records its line of credit debt issuance costs as an asset, and as such, ~~$0.2~~$1.6 million and ~~$0.4~~$0.0 million were recorded as Prepaid expenses and other current assets, and Other assets in the accompanying Consolidated Balance Sheets, respectively, as of November ~~24, 2019~~29, 2020, and ~~$0.1~~$0.3 million and ~~$0.2~~$0.5 million, respectively, as of May ~~26, 2019.~~31, 2020. The Company records its term debt issuance costs as a contra-liability, and as such, ~~$0.3~~$0.8 million and ~~$0.5~~$0.0 million was recorded as Current portion of long-term debt, and Long-term debt, net in the accompanying Consolidated Balance Sheets, respectively, as of November ~~24, 2019~~29, 2020 and ~~$0.2~~$0.4 million and ~~$0.3~~$0.6 million, respectively, as of May ~~26, 2019.~~31, 2020.

Financial Instruments

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

The Company has entered into interest rate swap ~~contracts~~agreements to manage interest rate risk. These derivative instruments may offset a portion of the changes in interest expense. The Company designates these derivative instruments as cash flow hedges. The Company’s derivative instruments are subject to master netting arrangements. These arrangements include provisions to setoff positions with the same counterparties in the event of default by one of the parties. The Company accounts for its derivative instruments as either an asset or a liability and carries them at fair value in Other assets or Other non-current ~~liabilities in the accompanying Consolidated Balance Sheets.~~liabilities. The accounting for changes in the fair value of the derivative ~~instruments~~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 ~~that~~and are designated as cash flow hedges, the ~~effective portion~~entire change in the fair value of the ~~gain or loss on the derivative~~hedging instrument is ~~reported~~recorded as a component of Accumulated ~~Other Comprehensive Income~~other comprehensive loss (“~~AOCI”~~AOCL”) in Stockholders’ ~~Equity and~~Equity. Those amounts are subsequently reclassified ~~into~~to earnings in the same ~~period or periods during which~~line item in the Consolidated Statement of Operations as impacted by the hedged ~~transaction~~item when the hedged item 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.

AccumulatedOther Comprehensive ~~Income~~Loss

Comprehensive income (loss) consists of two components, net ~~income~~loss and Other ~~Comprehensive Income~~comprehensive (loss) income (“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 ~~the determination of~~ net (loss) income. The Company’s ~~AOCI~~OCI consists of net deferred gains and losses on its interest rate swap ~~contracts~~derivative instrument accounted for as a cash flow ~~hedges.~~hedge. The components of ~~AOCI,~~AOCL, net of tax, are as follows:

(In thousands) AOCI
Accumulated OCI, net, as of May 26, 2019 $ 64
Unrealized losses on interest rate swap contracts, net of tax effect (485 )
Accumulated OCI, net, as of November 24, 2019 $ (421 )


(In thousands)	AOCL
Balance as of May 31, 2020	$	(2,808)
Other comprehensive loss before reclassifications, net of tax effect	(344)
Amounts reclassified from OCI	1,049
Other comprehensive income, net	$	705
November 29, 2020	$	(2,103)

The Company ~~does not expect any transactions or other events~~expects to ~~occur that would result in the reclassification of any significant gains or losses~~reclassify approximately $1.7 million into earnings in the next 12 months.

Investment in Non-Public Company

On February 15, 2011, the Company made its initial investment in Windset which is reported as an Investment in non-public company, fair value, in the accompanying Consolidated Balance Sheets as of November ~~24, 2019~~29, 2020 and May ~~26, 2019.~~31, 2020. 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.

Assets Held for Sale

In ~~June 2019,~~January 2020, the Company decided to divest Curation Foods’ salad dressing plant in Ontario, California (“Ontario”). In the third quarter of fiscal year 2020, the Company (1) designated the ~~Santa Maria,~~fixed assets of its office and manufacturing space located in Ontario, California, ~~office~~ as ~~the Curation Foods headquarters, and decided to close and put up~~assets held for sale, and (2) recognized a $10.9 million impairment loss. The remaining fair value of $2.6 million is included in Property and equipment, net within the ~~Curation Foods office~~Consolidated Balance Sheet as of May 31, 2020. Liabilities of $0.3 million and $2.9 million related to these assets are included in ~~San Rafael, California.~~Current portion of lease liabilities and Long-term lease liabilities, respectively, within the Consolidated Balance Sheet as of May 31, 2020. In the first quarter of fiscal year ~~2020,~~2021, the ~~San Rafael property has been designated as held for~~Company sold its interest in Ontario. The Company received net cash proceeds of $4.9 million in connection with the sale and ~~the net carrying value~~recorded a gain of $2.8 million ~~was reclassified from Property and equipment, net to Other current assets within the Consolidated Balance Sheet. The Company recognized a $0.4 million impairment loss~~ during the ~~three and~~ six months ended November ~~24, 2019,~~29, 2020, which is included in ~~Selling, general and administrative~~Restructuring costs within the Consolidated Statements of Comprehensive ~~Loss.~~(Loss) Income.

On June 25, 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. The ~~net~~$17.2 million carrying value of ~~$2.4~~these assets is included in Property and equipment, net on the consolidated Balance Sheets as of May 31, 2020, and was not classified as assets held for sale as the plan to sell was not finalized until subsequent to fiscal year end 2020. In the first quarter of fiscal year 2021, the Company recognized an $8.8 million impairment loss, which is ~~presented as Other current assets~~included in Restructuring costs within the Consolidated ~~Balance Sheet as~~Statements of ~~November 24, 2019.~~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.

Under Topic 842, the Company determines if an arrangement is a lease at inception. Right-of-use ~~("ROU"~~(“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 ~~account~~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,~~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.

The Company’s intangible assets are comprised of customer relationships with a finite estimated useful life ~~of eleven~~ranging from 11 years to ~~thirteen~~13 years, and 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 ASC 350-30-35.

~~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 24, 2019 and May 26, 2019. It is reasonably possible that the expense the Company ultimately incurs could differ and adjustments to future reserves may be necessary.

In the third quarter of fiscal year 2019, the Company recalled ~~five~~5 SKUs of Eat Smart single-serve Salad Shake-Ups!™. In the fourth quarter of fiscal year 2019, the Company submitted a product recall claim. During the three and six months ended November 24, 2019, the Company recognized $0.6 million and $3.0 million ~~respectively,~~ of business interruption insurance ~~recoveries.~~recoveries, respectively, related to those recalls. Amounts received on insurance recoveries related to business interruption are recorded as a reduction to ~~“Cost~~Cost of ~~sales”~~product sales in the Consolidated Statements of Comprehensive (Loss) Income and are classified as operating cash flows. For the three and six months ended November 29, 2020, there were 0 business interruption insurance recovery claims.

Fair Value Measurements

The Company uses fair value measurement accounting for financial assets and liabilities and for financial instruments and certain other items measured at fair value. The Company has elected the fair value option for its investment in a non-public company. See Note 3 – Investment in Non-public Company for further information. The Company also measures its contingent consideration liability at fair value. See Note 2 – Acquisitions 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 ~~24, 2019~~29, 2020 and May ~~26, 2019,~~31, 2020, the Company held certain assets and liabilities that are required or it elected to be measured at fair value on a recurring basis, including its interest rate swap contracts and its minority interest investment in ~~Windset and its contingent consideration liability from the acquisition of~~ O.Windset.

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

As of November 29, 2020 and May 31, 2020, the Company held certain assets that were required to be measured at fair value on a non-recurring basis. The fair market value of the ~~Company’s contingent consideration liability from~~assets held for sale, less the ~~acquisition of~~ O ~~utilizes significant unobservable inputs, including projected earnings before interest, taxes, depreciation~~costs to sell, was $0.0 million and ~~amortization (“EBITDA”) and discount rates. As a result, the Company’s contingent consideration liability associated with the~~ O acquisition is considered a Level 3 measurement liability and is included in Other non-current liabilities in the accompanying Consolidated Balance Sheets. During the three months ended November 24, 2019 the Company estimated that no earn out would be earned under the agreement and therefore reversed the remaining $0.5$2.6 million ~~of contingent liability which is included in Selling, general and administrative within the Consolidated Statements of Comprehensive Loss.~~

~~In determining the fair value of the Company’s contingent consideration liability, the Company utilizes the following significant unobservable inputs in the discounted cash flow models:~~

At November 24,
2019 At May 26,
2019
Cost of debt 5.1% to 5.5% 5.1% to 5.5%
Market price of risk adjustment 14% 14%
EBITDA volatility 28% 28%

The fair value of our contingent consideration liability is not considered sensitive to change in forecasts. A 10% increase in EBITDA forecast would have an immaterial impact on the value of the contingent consideration liability as of November ~~24, 2019.~~29, 2020 and May 31, 2020, respectively. The fair market value of Ontario (classified as an asset held for sale) as of May 31, 2020, was based on third-party valuations, which primarily used the market approach, and the inputs utilized were comparable sales of similar assets, which are generally unobservable and are supported by little or no market data, and therefore were classified within Level 3.

The Company has elected the fair value option of accounting for its investment in Windset. The calculation of fair value utilizes significant unobservable inputs, including projected cash flows, growth rates, and discount rates. As a result, the Company’s investment in Windset is considered to be a Level 3 measurement investment. The change in the fair value of the Company’s investment in Windset for the three and six months ended November ~~24, 2019~~29, 2020, was due to the Company's 26.9% minority interest in the change in the fair market value of Windset during the period.

In determining the fair value of the investment in Windset, the Company utilizes the following significant unobservable inputs in the discounted cash flow models:


	November 29, 2020 Range (Weighted Average)	May 31, 2020 Range (Weighted Average)
Revenue growth rates	7% (6.9)%	6% to 7% (6.4)%
Expense growth rates	0% to 8% (5.5)%	6% to 8% (6.6)%
Income tax rates	15%	15%
Discount rates	11%	12%

At November 24,
2019 At May 26,
2019
Revenue growth rates 6% to 7% 6%
Expense growth rates 5% to 7% 6%
Income tax rates 15% 15%
Discount rates 12% 12%

Table of Contents

The revenue growth, expense growth, and income tax rate assumptions are considered to be 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 29, 2020
10% increase in revenue growth rates	$	6,000
10% increase in expense growth rates	$	(3,200)
10% increase in income tax rates	$	(100)
10% increase in discount rates	$	(1,300)

(In thousands) Impact on value of
investment in Windset
as of November 24, 2019
10% increase in revenue growth rates $ 5,400
10% increase in expense growth rates $ (4,200 )
10% increase in income tax rates $ (500 )
10% increase in discount rates $ (3,600 )

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 and nonrecurring basis:

The following table reflects the fair value roll forward reconciliation of Level 3 assets and liabilities measured at fair value for the six months ended November ~~24, 2019:~~29, 2020:

(In thousands) Windset Investment Contingent
Consideration Liability
Balance as of May 26, 2019 $ 61,100
$ 500
Fair value change 200
(500 )
Balance as of November 24, 2019 $ 61,300
$ —


(In thousands)	Investment in Windset
Balance as of May 31, 2020	$	56,900
Fair value change	(11,800)
Balance as of November 29, 2020	$	45,100

The Company follows the five step, principles-based model to recognize revenue upon the transfer of promised goods or services to customers and in an amount that reflects the consideration for which the Company expects to be entitled in exchange for those goods or services. Revenue, net of estimated allowances and returns, is recognized when the Company has completed its performance obligations under a contract and control of the product is transferred to the customer. Substantially all revenue is recognized at the time shipment is made or upon delivery as control of the product is transferred to the customer. Revenue for development service contracts are generally recognized based upon the labor hours expended relative to the total expected hours as a measure of progress to depict transfer of control of the service over time. The services are not distinct and are accounted for as a single performance obligation for each customer.

For descriptions of the Company’s product offerings and segments refer to Note 1011 – Business Segment Reporting in our annual report on Form 10-K for the year ended May ~~26, 2019.~~31, 2020.

The Company’s standard terms of sale are generally included in its contracts, purchase orders, and invoices. As such, all revenue is considered revenue recognized from contracts with customers. Shipping and other transportation costs charged to customers are recorded in both revenue and cost of goods sold. The Company has elected to account for shipping and handling as fulfillment activities, and not as a separate performance obligation. The Company’s 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 ~~slotting fees)~~promotions), which are accounted for as variable consideration to the Company’s performance obligations. The Company estimates these sales incentives based on the expected amount to be provided to its customers and reduces revenues recognized towards its performance obligations. The Company does not anticipate significant changes in its estimates for variable consideration.

Occasionally, the Company enters into bill-and-hold arrangements, where it invoices the customer for products even though it retains possession of the products until a point-in-time in the future when the products will be shipped to the customer. In these contracts, the primary performance obligation is satisfied, and revenue is generally recognized, at a point-in-time when the product is segregated from the Company’s general inventory, it's ready for shipment to the customer, and the Company does not have the ability to use the product or re-deploy it to another customer.

The Company disaggregates its revenue by segment product lines based on how it markets its products and reviews results of operations. The following tables disaggregate segment revenue by major product lines:

Contract Assets and Liabilities

Contract assets primarily relate to the Company’s conditional right to consideration for work completed but not billed at the reporting date. The Company’s contract assets as of November ~~24, 2019~~29, 2020 and May ~~26, 2019~~31, 2020, were ~~$8.8~~$8.9 million and ~~$5.6~~$9.0 million, respectively.

Contract liabilities primarily relate to payments received from customers in advance of performance under the contract. The Company’s contract liabilities as of November ~~24, 2019~~29, 2020 and May ~~26, 2019~~31, 2020, were $0.3 million and ~~$0.2~~$0.0 million, respectively. Revenue recognized during the three and six months ended November ~~24, 2019~~29, 2020, that was included in the contract liability balance at the beginning of fiscal year ~~2020 were $0.1 million and $0.2 million, respectively.~~2021, was $0.0 million.

Shipping and Handling Costs

Amounts billed to third-party customers for shipping and handling are included as a component of revenues. Shipping and handling costs incurred are included as a component of cost of products sold and represent costs incurred to ~~move~~ship product from the ~~Company’s products from production and storage facilities~~processing facility or distribution center to the customer. Handling costs are incurred from the point the product is segregated from the Company’s general inventory until it is provided to the shipper and generally include costs to store, move and prepare the products for shipment. The cost of shipping and handling services is recognized in Cost of product sales. When the costs of shipping and handling are passed on to a customer, the related amount is recorded in revenue.end consumer markets.

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 adjusted to reflect the impacts of negotiations, ~~estimate~~estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. Legal fees are expensed in the period in which they are incurred.

Claims Alleging Unfair Labor Practices

Curation Foods has been the target of a union organizing campaign which has included ~~three~~3 unsuccessful attempts to unionize Curation ~~Foods'~~Foods’ 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"), Curation ~~Foods'~~Foods’ former 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 Curation Foods and Pacific Harvest.

The legal actions consisted of ~~three main types~~various claims, all 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.

~~The ULP claims~~which were settled in fiscal year 2017 for $0.3 million. Curation Foods was responsible for half of this settlement, or $0.2 million. 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 Curation Foods' Guadalupe, California processing facility from September 2011 through2017. Under the settlement ~~date. Under the Settlement Agreement,~~agreement, the plaintiffs were ~~paid $6.0 million in three installments: $2.4 million of which was~~to be paid in ~~July 2017, $1.8 million of which was paid in November 2017 and $1.8 million of which was paid in July 2018, representing the final payment due under the settlement agreement.~~three installments. 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 Pacific Harvest agreed to reimburse the Company for its $2.1 million portion. As of ~~November 24, 2019,~~May 31, 2020, the outstanding balance of the receivable was $1.2 million. The Company makes ongoing estimates relating to the collectability of receivables. A reserve is established for any note when there is reasonable doubt that the principal or interest will be collected in full. The Company may write-off uncollectable receivables after collection efforts are exhausted. During the ~~second quarter of~~ fiscal year 2020, the ~~Company's quarterly~~Company’s review for collectability concluded that a receivable reserve of $1.2 million would be recorded. ~~This was due~~The Company's conclusion regarding collectability changed as a result of Pacific Harvest communicating their refusal to ~~delinquency in~~pay combined with their bringing claims against the ~~payment schedule that changed~~Company. As of November 29, 2020, the ~~Company's conclusion.~~reserve balance remained at $1.2 million.

Compliance Matters and Related Litigation

~~As previously disclosed, on~~On December 1, 2018, the Company acquired all of the voting interests and substantially all of the assets of Yucatan Foods (the “Yucatan Acquisition”), which owns a guacamole manufacturing plant in Mexico called Procesadora Tanok, S de RL de C.V. (“Tanok”).

On October 21, 2019, the Company retained Latham & Watkins, LLP to conduct an internal investigation relating to potential environmental and Foreign Corrupt Practices Act (“FCPA”) compliance matters associated with regulatory permitting at the Tanok facility in Mexico. The Company subsequently disclosed to the ~~U.S. Securities and Exchange Commission (“SEC”)~~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.~~investigations and requests for information. 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 ~~all or~~ a portion of the liabilities that have been and may be incurred by the Company in connection with these compliance matters. ~~With these~~On September 2, 2020, one of the former owners of Yucatan filed a lawsuit against the Company in Los Angeles County Superior Court for breach of employment agreement, breach of contract, breach of holdback agreement, declaratory relief and accounting, and related claims. The Plaintiff seeks over $10 million in damages, including delivery of shares of his stock held in escrow for the indemnification ~~rights, we do not believe that~~claims described above. On November 3, 2020, the ~~effects of these compliance matters will have a material impact on~~Company filed an answer and cross-complaint against the ~~financial statements. However, at~~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 wethe Company cannot reasonably predict the timing or outcomes, or estimate the amount of net loss ~~if any,~~after indemnification or ~~their~~insurance recovery, or its effect, if any, on ~~our~~its financial statements. Separately, there are indemnification provisions in the purchase agreement that allow the Company to recover costs for breach of warranty, etc. from the seller. Because recovery of amounts are contingent upon the outcome of legal proceedings, no amounts have been recorded as recoverable costs through November 29, 2020. Nor are there any insurance claims recorded as they are similarly contingent.

Other Litigation Matters

On February 10, 2020, a complaint was filed against Curation Foods in the United States District Court for the Northern District of Georgia, Printpack, Inc. v. Curation Foods, Inc., alleging breach of contract pertaining to Curation Foods’ purchase of certain poly film packaging from the plaintiff. The plaintiff sought an unspecified amount of monetary damages, litigation expenses, and interest. The lawsuit was dismissed during the first quarter of fiscal year 2021.

On February 14, 2020, a complaint was filed against the Company, Curation Foods, the Company's current CEO Albert Bolles, and the Company’s former CFO Gregory Skinner (collectively, the “Landec Parties”), and other defendants in Santa Barbara County Superior Court, entitled Pacific Harvest, Inc., et al. v. Curation Foods, Inc., et al. (No. 20CV00920). The case was brought by Pacific Harvest, Inc. (“Pacific”) and Rancho Harvest, Inc. (“Rancho”), two related companies that have provided labor and employee staffing services to Curation Foods. Among other things, Pacific and Rancho allege that Curation Foods wrongfully decreased its use of Pacific’s staffing services and misappropriated Pacific’s trade secrets when Curation Foods increased its use of another staffing company and transitioned Pacific’s employees to the other staffing company. Pacific and Rancho also allege that Curation Foods breached agreements between the parties related to a loan from Curation Foods, on which Pacific and Rancho have ceased making payments. Pacific Harvest and Rancho assert claims for breach of contract, breach of the implied covenant of good faith and fair dealing, intentional interference with contracts and potential economic advantage, misappropriation of trade secrets under California’s Uniform Trade Secrets Act, business practices in violation of California Unfair Competition Law, fraud, defamation, violation of California Usury Law, breach of fiduciary duty, and declaratory relief regarding the parties’ rights and obligations under certain of the parties’ contracts. The Landec Parties have not yet responded to the complaint, and the parties have filed stipulations to continue the time for allowing Pacific and Rancho to file an amended complaint. The parties have engaged in settlement discussions and have come to an agreement in principle regarding settlement, but are currently negotiating the details of the settlement agreement. The Landec Parties anticipate that this case will be dismissed with prejudice in early 2021, following execution of a settlement agreement. The Company recorded an estimated loss contingency reserve of $1.8 million as of November 29, 2020 after considering the total estimated settlement amount and probable insurance recoveries, and is included in Legal settlement charge in the Consolidated Statements of Comprehensive (Loss) Income for the three and six months ended November 29, 2020.

Recent Accounting Guidance

Recently Adopted Pronouncements

~~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. Effective May 27, 2019, the Company adopted the ASU on a modified retrospective basis. Prior period amounts were not adjusted and continue to be reported in accordance with historical accounting policies under ASC 840: ~~Leases~~ (Topic 840). The Company elected the package of practical expedients under which the Company has not reassessed prior conclusions about lease classification and initial direct costs. The Company elected the hindsight expedient to evaluate lease terms, and made a policy election that does not recognize right-of-use assets and lease liabilities related to short-term leases.

Upon adoption of ASU 2016-02, the Company recorded a transitional adjustment of $0.3 million to opening retained earnings to write off the difference in deferred rent balances from prior periods for operating leases with non-level rent. The difference arises from recalculation of deferred rent after applying updated lease terms as a result of applying hindsight. Additionally, the adoption of the standard had a significant impact in the condensed consolidated balance sheet where at the time of the adoption at the beginning of fiscal year 2020, the Company recorded $31.1 million of operating lease liabilities, along with $30.0 million of operating lease right-of-use assets.

~~This change had no impact on the Company’s ability to meet its loan covenants as the impact from the adoption of ASU 2016-02 was taken into consideration when determining its loan covenants.~~

~~Recently Issued Pronouncements to be Adopted~~

Cloud Computing Arrangements

In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (" (“ASU ~~2018-15"~~2018-15”), which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification 350-40 to determine which implementation costs to defer and recognize as an asset. The Accounting Standards Update generally aligns the guidance on recognizing implementation costs incurred in a cloud computing arrangement that is a service contract with that for implementation costs incurred to develop or obtain internal-use software, including hosting arrangements that include an internal-use software license. ASU 2018-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application is permitted. The Company ~~is currently assessing~~adopted ASU 2018-15 on June 1, 2020, and the ~~future impact~~adoption of this ~~update~~standard did not have an impact on ~~its~~the Company’s consolidated financial ~~statements and related disclosures.~~statements.

Fair Value Measurement

In August 2018, the FASB issued ASU 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement (" (“ASU ~~2018-13"~~2018-13”). The guidance eliminates, adds, and modifies certain disclosure requirements for fair value measurements. Entities will no longer have to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company ~~is currently assessing~~adopted ASU 2018-13 on June 1, 2020, and the ~~future impact~~adoption of this ~~update~~standard did not have an impact on ~~its~~the Company’s consolidated financial ~~statements~~statements. As required by ASU 2018-13, the Company included additional disclosures in the Fair Value Measurement section related to the range and ~~related disclosures.~~weighted average rates used to develop significant inputs for the Level 3 investment.

Financial Instruments – Credit Losses

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments ~~— Credit~~—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (" (“ASU ~~2016-13"~~2016-13”), which requires ~~the~~ measurement and recognition of ~~all~~ expected credit losses for financial assets including trade receivables held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently assessing the future impact of this update on its consolidated financial statements and related disclosures.

~~In April 2019, the FASB issued~~ ~~ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, and Topic 825, Financial Instruments, which~~provides practical expedients and policy elections related to the presentation and disclosure of accrued interest and the related allowance for credit losses and clarifies how to disclose line-of-credit arrangements that are converted to term loans. ASU 2019-04 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently assessing the future impact of this update on its consolidated financial statements and related disclosures.

~~Yucatan Foods Acquisition~~

~~On December~~held. Effective June 1, 2018, (the "Acquisition Date") the Company acquired all of the voting interests and substantially all of the assets of Yucatan Foods, a manufacturer and seller of avocado-based food products. The total consideration paid to acquire Yucatan Foods was $75.0 million, consisting of $59.9 million in cash and 1,203,360 shares of common stock (“Stock Consideration”) with a fair value of $15.1 million. The fair value of the Stock Consideration is based on a per-share value of the Company’s common stock on the Acquisition Date. Given that the Sellers are restricted from selling the Landec common stock, a discount for lack of marketability was applied to the Stock Consideration. The discount for lack of marketability was based on restricted stock studies, pre-IPO studies, and utilizing the Black-Scholes option pricing model to estimate a discount of 17.5% and 20.0% for the 3-year and 4-year lockup period, respectively.

Pursuant to the terms of the purchase agreement, all 1,203,360 shares issued as Stock Consideration will be held in an escrow account to secure the indemnification rights of Landec with respect to certain matters, including breaches of representations, warranties and covenants such as environmental and tax representations. The Stock Consideration is comprised of two tranches, with 3-year and 4-year lock-up provisions, respectively, such that 50% of the Stock Consideration is released from lock-up on November 30, 2021, the 3-year anniversary of the close date of the transaction, and 50% of the Stock Consideration is released on November 30, 2022, the 4-year anniversary of the close date of the transaction.

Yucatan Foods, founded in 1991, with its headquarters in Los Angeles, California, produces and sells guacamole and other avocado products under its Yucatan and Cabo Fresh brands primarily in the U.S. and Canada. Yucatan Foods' production facility is located in Guanajuato, Mexico, very near where avocados are grown. Landec acquired Yucatan Foods to grow, strengthen, and stabilize its position in the natural foods market and to improve Curation Foods' margins over time.

~~Upon acquisition, Yucatan Foods became a wholly-owned subsidiary of Curation Foods. The Acquisition Date fair value of the consideration paid consisted of the following:~~

The excess of the purchase price over the aggregate fair value of identifiable net assets acquired was recorded as goodwill. These preliminary fair values of the assets acquired and the liabilities assumed were determined through established and generally accepted valuation techniques and were subject to change during the measurement period as valuations were finalized. During the fourth quarter of fiscal 2019, the Company recorded measurement period adjustments to deferred income taxes of $1.7 million and indemnification provisions for environmental related items of $0.7 million, resulting in an increase to goodwill of $1.0 million. During the second quarter of fiscal 2020, the Company ~~recorded measurement period adjustments~~adopted ASC 326 using the transition method introduced by ASU 2016-13. The adoption of ASC 326 did not have a material impact on our consolidated financial statements.

Under ASC 326, the Company changed its policy for assessing credit losses to ~~deferred income taxes~~include consideration of ~~$0.5 million, resulting in an increase~~a broader range of information to ~~goodwill~~estimate credit losses over the life of ~~$0.5 million. During the second quarter~~its financial assets. As of ~~fiscal~~November 29, 2020 the financial assets of the Company ~~completed~~within the ~~acquisition~~scope of the assessment comprised of trade accounts receivable, contract assets, and deposits. SeetheAccounts Receivable and Sales Returns and Allowance for Credit Losses section within Note 1 for further discussion of the Company's accounting for ~~the Yucatan Foods acquisition. The following is a summary~~credit losses.

Table of ~~the amounts recognized in accounting for the Yucatan Foods acquisition:~~

Contents

(In thousands)
Cash and cash equivalents $ 26
Accounts receivable 6,310
Inventories 11,384
Prepaid expenses and other current assets 1,573
Other assets 102
Property and equipment 14,083
Trademarks/tradenames 15,900
Customer relationships 11,000
Accounts payable (4,507 )
Other accrued liabilities (1,873 )
Deferred tax liabilities (1,767 )
Net identifiable assets acquired 52,231
Goodwill 22,735
Total fair value purchase consideration $ 74,966

~~Intangible Assets~~

The Company identified two intangible assets in connection with the Yucatan Foods acquisition: trademark/tradenames valued at $15.9 million and customer relationships valued at $11.0 million, which are included within Trademarks/tradenames and Customer relationships in the accompanying Consolidated Balance Sheets, respectively. Tradenames are considered to be an indefinite lived asset and therefore, will not be amortized. Customer relationships have an estimated useful life of 12 years and will be amortized to operating expenses on an accelerated basis that reflects the pattern in which the economic benefits are consumed. The tradenames are valued using the relief from royalty valuation method and the customer relationships are valued using the excess earnings method.

~~Goodwill~~

The goodwill recognized from the Yucatan Foods acquisition is primarily attributable to Yucatan Foods' long history and expected synergies from future growth and expansion of our Curation Foods business segment. Approximately 80% of the goodwill is expected to be deductible for income tax purposes. The Company will test goodwill for impairment on an annual basis, or sooner if indicators of impairment are present.

~~O Acquisition~~

~~On March 1, 2017, the Company purchased substantially all of the assets of~~ O ~~for $2.5 million in cash plus contingent consideration of up to $7.5 million based upon~~ O ~~achieving certain EBITDA targets. All accounting for this acquisition is final.~~

~~The potential earn out payment of up to $7.5 million is based on~~ O~~’s cumulative EBITDA over the Company’s fiscal years 2018 through 2020. At the end of each fiscal year, beginning in fiscal year 2018, the former owners of~~ O ~~will earn the equivalent of the EBITDA achieved by~~ O for that fiscal year up to $4.6 million over the three year period. The former owners can then earn an additional $2.9 million on a dollar for dollar basis for exceeding $6.0 million of cumulative EBITDA over the three year period. Each quarter the Company performs an analysis of O~~’s projected EBITDA over the earnout period. Based on this analysis, the Company records a contingent consideration liability, included in Other accrued liabilities or Other non-current liabilities.~~

During the three months ended November 24, 2019 the Company estimated that no earn out would be earned under the agreement and therefore reversed the remaining $0.5 million of contingent liability and thus as of November 24, 2019, the Company did not record a contingent consideration liability. As of May 26, 2019, the contingent consideration liability was $0.5 million, representing the present value of the expected earn out payments.

3.2. Investment in Non-public Company

On February 15, 2011, Curation Foods entered into a share purchase agreement (the “Windset Purchase Agreement”) with Windset. Pursuant to the Windset Purchase Agreement, Curation Foods purchased from Windset 150,000 Senior A preferred shares for $15.0 million and 201 common shares for $201. On July 15, 2014, Curation Foods increased its investment in Windset by purchasing from the Newell Capital Corporation an additional 68 common shares and 51,211 junior preferred shares of Windset for $11.0 million. After this purchase, the Company’s common shares represent a 26.9% ownership interest in Windset. The Senior A preferred shares yield a cash dividend of 7.5% annually. The dividend is payable within 90 days of each anniversary of the execution of the Windset Purchase Agreement. The non-voting junior preferred stock does not yield a dividend unless declared by the Board of Directors of Windset and no0 such dividend has been declared.

The Shareholders’ Agreement between Curation Foods and Windset, as amended on March 15, 2017, includes a put and call option (the “Put and Call Option”), which can be exercised on or after March 31, 2022, whereby Curation Foods 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 Curation Foods, 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 ($15.0 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.

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 stockholders. 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’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.

During the three months ended November ~~24, 2019~~29, 2020 and November ~~25, 2018,~~24, 2019, the Company recorded $0.3 million and ~~$0.4~~$0.3 million, respectively, in dividend income. During the six months ended November ~~24, 2019~~29, 2020 and November ~~25, 2018,~~24, 2019, the Company recorded $0.6 million and ~~$0.8~~$0.6 million, respectively, in dividend income. The ~~increase~~change in the fair market value of the Company’s investment in Windset for the three and six months ended November 29, 2020 and November 24, 2019, was a decrease of $11.8 million and ~~November 25, 2018 was~~an increase of $0.2 million, respectively, and ~~$0.6 million, respectively.~~is included in Other expenses (income) in the accompanying Consolidated Statements of Comprehensive (Loss) Income. The ~~increase~~change in the fair market value of the ~~Company’s~~Company's investment in Windset for the three and six months ended November ~~24, 2019 and November 25, 2018~~29, 2020 was ~~$0.2 million and $1.6 million, respectively, and is included in Other income~~primarily due to changes in the ~~accompanying Consolidated Statements of Comprehensive Loss~~.financial assumptions relating to EBITDA, non productive assets, and debt levels.

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"~~(“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 November ~~24, 2019,~~29, 2020, the Company granted ~~60,000~~21,000 options to purchase shares of common stock and awarded ~~165,000~~82,000 RSUs. During the six months ended November ~~24, 2019,~~29, 2020, the Company granted ~~60,000~~573,000 options to purchase shares of common stock and awarded ~~252,000~~171,000 RSUs.

As of November ~~24, 2019,~~29, 2020, the Company has reserved ~~3.9~~4.1 million shares of ~~Common Stock~~common stock for future issuance under its current and former equity plans.

-15-

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Stock-Based Compensation Expense

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

The following table summarizes stock-based compensation by income statement line item:


	Three Months Ended				Six Months Ended					Three Months Ended				Six Months Ended
(In thousands)	November 24, 2019		November 25, 2018		November 24, 2019		November 25, 2018		(In thousands)	November 29, 2020		November 24, 2019		November 29, 2020	November 24, 2019
Cost of sales	$	82	$	117	$	56	$	218	Cost of sales	$	59	$	82	182	56
Research and development	48		30		78		55		Research and development	62		48		126	78
Selling, general and administrative	657		791		1,181		1,393		Selling, general and administrative	774		657		1,479	1,181
Total stock-based compensation	$	787	$	938	$	1,315	$	1,666	Total stock-based compensation	$	895	$	787	1,787	1,315

As of November ~~24, 2019,~~29, 2020, there was ~~$5.1~~$4.7 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 ~~1.83~~2.37 years for stock options and ~~2.03~~1.55 years for RSUs.

Stock Repurchase Plan

On July 14, 2010, the ~~Company announced that the~~ Board of Directors of the Company ~~had~~ approved the establishment of a stock repurchase plan, ~~authorizing~~which allows for the repurchase of up to ~~$10~~$10.0 million of the Company’s common stock. The Company may still repurchase up to $3.8 million of the Company’s common stock under the Company’s stock repurchase plan. The Company may repurchase its common stock from time to time in open market purchases or in privately negotiated transactions. The timing and actual number of shares repurchased is at the discretion of management of the Company and will depend on a variety of factors, including stock price, corporate and regulatory requirements, market conditions, the relative attractiveness of other capital deployment opportunities and other corporate priorities. The stock repurchase program does not obligate 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 six months ended November ~~24, 2019,~~29, 2020, the Company did ~~not repurchase~~0t purchase any ~~of its outstanding common stock.~~shares on the open market.

The following table sets forth the computation of diluted earnings per share:


	Three Months Ended				Six Months Ended
(In thousands, except per share amounts)	November 29, 2020		November 24, 2019		November 29, 2020		November 24, 2019
Numerator:
Net loss applicable to common stockholders	$	(13,301)	$	(6,740)	$	(24,301)	$	(11,524)

Denominator:
Weighted average shares for basic net loss per share	29,280		29,155		29,261		29,147
Effect of dilutive securities:
Stock options and restricted stock units	0		0		0		0
Weighted average shares for diluted net loss per share	29,280		29,155		29,261		29,147

Diluted net loss per share	$	(0.45)	$	(0.23)	$	(0.83)	$	(0.40)

Three Months Ended Six Months Ended
(In thousands, except per share amounts) November 24,
2019 November 25,
2018 November 24,
2019 November 25,
2018
Numerator:
Net loss applicable to Common Stockholders $ (6,740 ) $ (584 ) $ (11,524 ) $ (395 )
Denominator:
Weighted average shares for basic net loss per share 29,155
27,764
29,147
27,751
Effect of dilutive securities:
Stock options and restricted stock units —
—
—
—
Weighted average shares for diluted net loss per share 29,155
27,764
29,147
27,751

Diluted net loss per share $ (0.23 ) $ (0.02 ) $ (0.40 ) $ (0.01 )

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Due to the Company’s net loss for the three and six months ended November 29, 2020 and November 24, 2019, the net loss per share includes only weighted average shares ~~outstanding and thus excludes 0.2 million and 0.1 million, respectively, of outstanding options and RSUs as such impacts would be antidilutive for this period. Due to the Company’s net loss for~~outstanding. For the three and six months ended November ~~25, 2018,~~29, 2020, the computation of the diluted net loss per share ~~includes only weighted average shares outstanding and thus~~ excludes ~~0.3~~the impact of options to purchase 3.2 million and ~~0.3~~2.3 million ~~respectively,~~shares of ~~outstanding options and RSUs~~common stock, respectively, as such impacts would be antidilutive for these periods.

For the three and six months ended November 24, 2019, the computation of the diluted net loss per share excludes the impact of options to purchase 2.3 million and 2.5 million shares of ~~Common Stock,~~common stock, respectively, as such impacts would be antidilutive for these periods. For the three and six months ended November 25, 2018, the computation of the diluted net loss per share excludes the impact of options to purchase 1.5 million and 1.4 million shares of Common Stock, respectively, as such impacts would be antidilutive for these period.

6.5. Income Taxes

The provision for income taxes for the six months ended November ~~24, 2019~~29, 2020 and November ~~25, 2018~~24, 2019, was a benefit of ~~$2.5~~$7.0 million and ~~an expense of $0.3~~$2.5 million, respectively. The effective tax rate for the six months ended November 29, 2020 and November 24, 2019 was 22% and ~~November 25, 2018 was~~ 18% ~~and 25%~~, respectively. The effective tax rate for the six months ended November ~~24, 2019~~29, 2020, was ~~lower~~higher than the statutory federal income tax rate of 21% primarily due to the ~~impact~~generation of ~~state taxes and stock-based compensation, partially offset by~~ federal & state R&D ~~Credits.~~credits and impact of states taxes, partially offset by the movement of the valuation allowance recorded against certain deferred tax assets.

As of November ~~24, 2019~~29, 2020 and May ~~26, 2019,~~31, 2020, the Company had unrecognized tax benefits of ~~$0.7~~$0.9 million and ~~$0.6~~$0.8 million, respectively. Included in the balance of unrecognized tax benefits as of November ~~24, 2019~~29, 2020 and May ~~26, 2019~~31, 2020, is ~~$0.6~~$0.8 million and ~~$0.5~~$0.7 million, respectively, of tax benefits that, if recognized, would result in an adjustment to the Company’s effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly within the next twelve months.

The Company has elected to classify interest and penalties related to uncertain tax positions as a component of its provision for income taxes. The Company has accrued an insignificant amount of interest and penalties relating to the income tax on the unrecognized tax benefits as of November ~~24, 2019~~29, 2020 and May ~~26, 2019.~~31, 2020.

Due to tax attribute carryforwards, the Company is subject to examination for tax years ~~2016~~2017 forward for U.S. tax purposes. The Company is also subject to examination in various state jurisdictions for tax years ~~2012~~2015 forward, none of which were individually ~~material.~~significant.

6. Debt

Long-term debt, net consists of the following:


(In thousands)	November 24, 2019			May 26, 2019			(In thousands)	November 29, 2020		May 31, 2020
Term loan	$	120,000		$	97,500		Term loan	$	94,000	$	114,000
Total principal amount of long-term debt	120,000			97,500			Total principal amount of long-term debt	94,000		114,000
Less: unamortized debt issuance costs	(807		)	(516		)	Less: unamortized debt issuance costs	(811)		(1,083)
Total long-term debt, net of unamortized debt issuance costs	119,193			96,984			Total long-term debt, net of unamortized debt issuance costs	93,189		112,917
Less: current portion of long-term debt, net	(11,723		)	(9,791		)	Less: current portion of long-term debt, net	(11,189)		(11,554)
Long-term debt, net	$	107,470		$	87,193		Long-term debt, net	$	82,000	$	101,363

On September 23, 2016, the Company entered into a Credit Agreement (the "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 $100.0 million revolving line of credit (the “Revolver”) and a $50.0 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.

On November 30, 2018, the Company entered into the Fourth Amendment to the Credit Agreement, which increased the Term Loan to $100.0 million and the Revolver to $105.0 million.

On October 25, 2019, the Company entered into the Sixth Amendment to the Credit Agreement, ~~(the "Amendment"),~~ which increased the Term Loan to $120.0 million and decreased the revolver to $100.0 million. ~~Both~~

On March 19, 2020, the ~~Revolver and~~Company entered into the ~~Term Loan mature on October 25, 2022, with~~Seventh Amendment to the ~~Term Loan requiring quarterly principal payments of $3.0 million and~~Credit Agreement (the "Seventh Amendment"), which among other changes, retroactively increased the ~~remainder continuing to be due at maturity.~~

~~Interest on both~~maximum Total Leverage Ratio (as defined in the ~~Revolver and the Term Loan continues to be based upon the Company’s leverage ratio (generally defined~~Credit Agreement 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), to 5.75 to 1.00 for the fiscal quarter ended February 23, 2020, which decreases back to 5.00 to 1.00 for the fiscal quarter ending May 31, 2020. The maximum Total Leverage Ratio thereafter decreases by 25 basis points each subsequent fiscal quarter thereafter, until it reaches 3.50 for the fiscal quarter ending November 28, 2021, and then remains fixed through maturity. The Seventh Amendment also introduced additional financial covenants that remain in effect through May 31, 2020, including minimum cumulative monthly Unadjusted EBITDA thresholds and maximum capital expenditures, as well as additional reporting requirements and frequencies. Interest on both the Revolver and the Term Loan continued to be based upon the Company’s Total Leverage Ratio, at a per annum rate of either (i) the prime rate plus a spread of between 0.25% and ~~2.50%~~3.00% or (ii) the Eurodollar rate plus a spread of between 1.25% and ~~3.50%~~4.00%. The ~~amended agreement increased the leverage ratio covenant to 5.00 to 1.00 from 4.50 to 1.00~~Seventh Amendment also provided for the ~~remainder~~acceleration of the maturity of the Term Loan from October 25, 2022 to September 23, 2021 if the Company fails to be in compliance with certain financial covenants.

On July 15, 2020, the Company entered into the Eighth Amendment to the Credit Agreement (the “Eighth Amendment”), which among other things, (i) modified the definition of EBITDA to increase the limit on permitted exclusions for certain unusual, extraordinary or one-time cash items for each fiscal ~~year 2020. The leverage ratio decreases by 25 basis points~~quarter ending on or after February 28, 2021, to a maximum of 20% of EBITDA, and (ii) restricted the Company from making Capital Expenditures over certain thresholds. Interest continues to be based on the Company’s Total Leverage Ratio, at a revised per annum Applicable Rate of either (i) the prime rate plus a spread of between 0.75% and 3.50% or (ii) the Eurodollar rate plus a spread of between 1.75% and 4.50%, plus, in each ~~subsequent quarter thereafter, beginning~~case, a commitment fee, as applicable, of between 0.15% and 0.55%, as further described in the ~~first quarter of fiscal year 2021, until it reaches 3.50 for the second quarter of fiscal year 2022 and remains fixed through maturity.~~Eighth Amendment.

The Credit Agreement ~~provides~~provided 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 $10.0 million.

Both the Revolver and the Term Loan were scheduled to mature on September 23, 2021, with the Term Loan requiring quarterly principal payments of $3.0 million and the remainder continuing to be due at maturity. The Credit Agreement ~~continues to contain~~contained customary financial covenants and events of default under which the obligation could be accelerated and/or the interest rate increased. ~~The~~As of November 29, 2020, the Company was in compliance with all financial covenants asand events of ~~November 24, 2019.~~default provisions under the Credit Agreement.

As of November ~~24, 2019, $61.5~~29, 2020, $77.0 million was outstanding on the Revolver, at an interest rate of ~~5.04% under~~4.65%.

As further described in Note 9 - Subsequent Events, the ~~Eurodollar option.~~Credit Agreement was terminated in connection with the refinancing of the Company's indebtedness subsequent to the balance sheet date.

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~~$50.0 million. The 2016 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%.

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 has the effect of converting the first $30.0 million of the total outstanding amount of the Company’s 30-day LIBOR borrowings from a variable interest rate to a fixed 30-day LIBOR rate of 2.74%.

~~The~~On December 2, 2019, the Company ~~has~~ entered into ~~various non-cancellable operating lease agreements for manufacturing and distribution facilities, vehicles, equipment and office space. Right-of-use assets represent~~an interest rate swap contract (the "2019 Swap") with BMO at a notional amount of $110.0 million which decreases quarterly. The 2019 Swap has the effect of converting primarily all of the $110.0 million of the total outstanding amount of the Company's ~~right~~30-day LIBOR borrowings from a variable interest rate to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at the lease commencement date based on the estimated present valuea fixed 30-day LIBOR rate of ~~lease payments over the lease term.~~1.526%.

The Company leases property and equipment under finance leases. Gross assets recorded under finance leases, included in “Property and equipment, net,” were $3.8 million as of both November 24, 2019 and May 26, 2019. Accumulated amortization associated with finance leases was $0.4 million as of both November 24, 2019 and May 26, 2019.

~~The components of lease cost were as follows:~~

(In thousands, except term and discount rate) Three Months Ended Six Months Ended
November 24, 2019 November 24, 2019
Finance lease cost:
Amortization of leased assets $ 29
$ 57
Interest on lease liabilities 90
180
Operating lease cost 1,568
3,161
Variable lease cost and other 532
697
Total lease cost $ 2,219
$ 4,095

Weighted-average remaining lease term:
Operating leases 13.11
Finance leases 3.10
Weighted-average discount rate:
Operating leases 5.27 %
Finance leases 9.99 %

-18-

~~Our leases have original lease periods ending between 2019 and 2040. The Company's maturity analysis of operating and finance lease liabilities as of November 24, 2019 were as follows:~~

(In thousands) Operating Leases Finance Leases Total
Remainder of 2020 $ 2,927
$ 246
$ 3,173
2021 4,795
455
5,250
2022 4,283
466
4,749
2023 3,612
3,497
7,109
2024 2,946
9
2,955
Thereafter 26,433
2
26,435
Total lease payments 44,996
4,675
49,671
Less: interest (13,845 ) (1,051 ) (14,896 )
Present value of lease liabilities 31,151
3,624
34,775
Less: current obligation of lease liabilities (3,859 ) (121 ) (3,980 )
Total long-term lease liabilities $ 27,292
$ 3,503
$ 30,795

~~The future minimum annual lease payments required under the Company’s existing operating lease agreements as~~Table of ~~May 26, 2019 prior to the adoption of ASC 842 were as follows:~~

Contents

(In thousands) Operating Leases
Fiscal year 2020 $ 5,056
Fiscal year 2021 4,044
Fiscal year 2022 3,589
Fiscal year 2023 3,350
Fiscal year 2024 3,047
Thereafter 9,335
Total $ 28,421

~~Rent expense for operating leases, including month to month arrangements was $7.3 million and $6.1 million and for the fiscal years 2019 and 2018, respectively.~~

~~The future minimum annual lease payments required under the Company’s existing capital lease agreements as of May 26, 2019 prior to the adoption of ASC 842 were as follows:~~

(In thousands) Capital Leases
Fiscal year 2020 $ 486
Fiscal year 2021 489
Fiscal year 2022 460
Fiscal year 2023 3,490
Fiscal year 2024 —
Thereafter —
Total minimum lease payment 4,925
Less: amounts representing interest and taxes (1,291 )
Total 3,634
Less: current portion included in other accrued liabilities (102 )
Long-term capital lease obligation $ 3,532

~~Supplemental cash flow information related to leases are as follows:~~

Six Months Ended
(In thousands) November 24, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 3,662
Operating cash flows from finance leases 180
Financing cash flows from finance leases 62
Lease liabilities arising from obtaining right-of-use assets:
Operating leases $ 2,226

9.7. Business Segment Reporting

The Company ~~has three~~operates using 3 strategic ~~reporting~~reportable business ~~segments:~~segments, aligned with how the Chief Executive Officer, who is the chief operating decision maker (“CODM”), manages the business: the Curation Foods segment, the Lifecore segment, and the Other segment.

The Company decided to discontinue its Now Planting business during the fourth quarter of fiscal year 2019. As a result, the operating results for the Now Planting business are presented as a discontinued operation in the Company's accompanying Consolidated Financial Statements and the financial results for fiscal year 2019 comparable periods have been reclassified to present the Now Planting business as a discontinued operation.

The Curation Foods business includes (i) four natural food brands, Eat Smart, O Olive Oil & Vinegar, as well as Yucatan and Cabo Fresh, acquired by the Company through the acquisition of Yucatan Foods during the third quarter of fiscal 2019 (see the Note 2 - Acquisitions for more details on this transaction), and (ii) BreatheWay^® ~~activities.~~ The Curation Foods segment includes (i) 4 natural food brands, including activities to market and pack specialty packaged whole and fresh-cut ~~fruit~~fruits and vegetables ~~the majority of which incorporate the BreatheWay specialty packaging for the retail grocery, club store and food services industry and are sold primarily~~ under the Eat Smart ~~brand and~~or various private ~~labels. The Curation Foods segment also includes sales~~labels, sale of ~~BreatheWay packaging to partners for fruit~~premium olive oil and ~~vegetable products, sales of olive oils and wine~~ vinegars under the O ~~brand,~~ Olive Oil & Vinegar label, and ~~sales~~the sale of avocado products under the ~~recently acquired brands~~ Yucatan Foods and Cabo ~~Fresh.~~Fresh labels, (ii) BreatheWay® activities, and (iii) activity related to our 26.9% investment in Windset.

The Lifecore segment sells products utilizing hyaluronan, a naturally occurring polysaccharide that is widely distributed in the extracellular matrix of connective tissues in both animals and humans, and non-HA products for medical use primarily in the Ophthalmic, Orthopedic and other markets.

The Other segment includes corporate general and administrative expenses (which includes costs associated with legal claims, including the Tanok compliance matters and related litigation, and Pacific litigation matter), non-Curation Foods and non-Lifecore interest expense, interest income, and income tax expenses.

Corporate overhead is allocated between segments based on actual utilization and relative size.

All of the Company's assets are located within the United States of America except for ~~the~~its Yucatan production facility located in ~~Mexico, which was acquired by the Company as a result of the Yucatan Foods acquisition.~~Mexico.

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


	Three Months Ended				Six Months Ended
(In millions)	November 29, 2020		November 24, 2019		November 29, 2020		November 24, 2019
Canada	$	13.7	$	18.4	$	30.2	$	39.1
Belgium	2.8		3.1		6.7		3.1
Czech Republic	1.2		0		1.7		0
Ireland	0.4		1.1		1.2		2.5
All Other Countries	1.6		2.0		2.8		3.4

-19-

Table of Contents

Three Months Ended Six Months Ended
(In millions) November 24, 2019 November 25, 2018 November 24, 2019 November 25, 2018
Canada $ 18.4
$ 20.3
$ 39.1
$ 40.2
Belgium 3.1
0.5
3.1
2.5
Ireland 1.1
1.2
2.5
2.3
All Other Countries 2.0
1.2
3.4
2.0

Operations by business segment consisted of the following:


(In thousands)	Curation Foods		Lifecore		Other		Total
Three Months Ended November 29, 2020
Net sales	$	107,685	$	23,219	$	0	$	130,904
Gross profit	10,163		10,474		0		20,637
Net (loss) income	(12,383)		4,492		(5,410)		(13,301)
Depreciation and amortization	2,906		1,360		26		4,291
Dividend income	281		0		0		281
Interest income	0		0		10		10
Interest expense	1,376		0		1,663		3,039
Income tax (benefit) expense	(3,911)		1,419		(208)		(2,700)
Corporate overhead allocation	1,402		1,162		(2,564)		0

Six Months Ended November 29, 2020
Net sales	$	221,523	$	45,024	$	0	$	266,547
Gross profit	21,507		15,476		0		36,983
Net (loss) income	(20,654)		4,604		(8,251)		(24,301)
Depreciation and amortization	6,316		2,669		54		9,039
Dividend income	563		0		0		563
Interest income	0		0		18		18
Interest expense	2,751		0		3,396		6,148
Income tax (benefit) expense	(6,523)		1,454		(1,940)		(7,009)
Corporate overhead allocation	3,258		2,565		(5,823)		0

Three Months Ended November 24, 2019
Net sales	$	119,751	$	22,842	$	0	$	142,593
Gross profit	6,890		8,624		0		15,514
Net (loss) income	(8,348)		3,459		(1,851)		(6,740)
Depreciation and amortization	3,143		1,248		23		4,414
Dividend income	281		0		0		281
Interest income	11		0		14		25
Interest expense	1,375		0		794		2,169
Income tax (benefit) expense	(1,723)		919		(361)		(1,165)
Corporate overhead allocation	1,414		959		(2,373)		0

Six Months Ended November 24, 2019
Net sales	$	246,424	$	34,883	$	0	$	281,307
Gross profit	19,712		11,138		0		30,850
Net (loss) income	(10,519)		2,064		(3,069)		(11,524)
Depreciation and amortization	6,348		2,433		46		8,827
Dividend income	562		0		0		562
Interest income	31		0		19		50
Interest expense	2,751		0		1,493		4,244
Income tax (benefit) expense	(2,309)		454		(675)		(2,530)
Corporate overhead allocation	3,109		1,936		(5,045)		0

-20-

(In thousands)
Curation Foods⁽¹⁾
Lifecore Other Total
Three Months Ended November 24, 2019
Net sales $ 119,751
$ 22,842
$ —
$ 142,593
Gross profit 6,890
8,624
—
15,514
Net (loss) income from continuing operations (8,348 ) 3,459
(1,851 ) (6,740 )
Depreciation and amortization 3,143
1,248
23
4,414
Dividend income 281
—
—
281
Interest income 11
—
14
25
Interest expense 1,375
—
794
2,169
Income tax (benefit) expense (1,723 ) 919
(361 ) (1,165 )

Six Months Ended November 24, 2019
Net sales $ 246,424
$ 34,883
$ —
$ 281,307
Gross profit 19,712
11,138
—
30,850
Net (loss) income from continuing operations (10,519 ) 2,064
(3,069 ) (11,524 )
Depreciation and amortization 6,348
2,433
46
8,827
Dividend income 562
—
—
562
Interest income 31
—
19
50
Interest expense 2,751
—
1,493
4,244
Income tax (benefit) expense (2,309 ) 454
(675 ) (2,530 )

Three Months Ended November 25, 2018⁽²⁾

Net sales $ 109,111
$ 15,446
$ —
$ 124,557
Gross profit 11,207
5,678
—
16,885
Net income (loss) from continuing operations 53
1,298
(1,464 ) (113 )
Depreciation and amortization 2,194
978
141
3,313
Dividend income 412
—
—
412
Interest income 30
—
3
33
Interest expense 276
—
470
746
Income tax expense (benefit) 95
432
(105 ) 422

Six Months Ended November 25, 2018⁽²⁾

Net sales $ 221,162
$ 28,063
$ —
$ 249,225
Gross profit 24,577
8,645
—
33,222
Net income (loss) from continuing operations 1,965
751
(2,495 ) 221
Depreciation and amortization 4,234
1,954
270
6,458
Dividend income 825
—
—
825
Interest income 61
—
18
79
Interest expense 863
—
641
1,504
Income tax expense (benefit) 802
250
(520 ) 532

Table of Contents


⁽¹⁾	During the third quarter of fiscal 2019, the Company started consolidating Yucatan Foods whose results are included in the Company's operating results starting from December 1, 2018. See Note 2 - Acquisition for more details of this transaction.


⁽²⁾	The Curation Foods' segment operating results for the three and six months ended November 25, 2018 have been restated to reflect the reclassification of the Now Planting brand to discontinued operations.

During the six months ended November ~~24, 2019~~29, 2020 and November ~~25, 2018,~~24, 2019, sales to the Company’s top five customers accounted for ~~44%~~49% and ~~45%~~44% of sales, respectively. The Company’s top two customers, Walmart Stores, Inc. and Costco Wholesale Corporation, ~~and Wal-Mart Stores, Inc.,~~ from the Curation Foods segment, accounted for ~~13%~~18% and ~~18%~~15%, respectively, of revenues for the six months ended November ~~24, 2019,~~29, 2020, and ~~17%~~18% and ~~16%~~13%, respectively, for the six months ended November ~~25, 2018.~~24, 2019.

~~10. Discontinued Operations~~

8. Restructuring Costs

During ~~the fourth quarter of~~ fiscal year 2019, the Company discontinued its Now Planting soups. As a result, the Company met the requirements of ASC 205-20¸ to report the results of the Now Planting business as a discontinued operation. The operating results for the Now Planting business have therefore been reclassified as a discontinued operation in fiscal year 2019.

~~The carrying amounts of the major classes of liabilities of the Now Planting business included in liabilities of discontinued operations are as follows:~~

(In thousands) November 24, 2019 May 26, 2019
Other current liabilities, discontinued operations:
Accounts payable $ —
$ 51
Accrued expenses and other current liabilities —
14
Total other current liabilities, discontinued operations $ —
$ 65

After the Now Planting business was discontinued, the operations associated with this business qualified for reporting as discontinued operations. Accordingly, the operating results, net of tax, from discontinued operations are presented separately in the Company’s Consolidated Statements of Comprehensive Loss and the notes to the consolidated financial statements have been adjusted to exclude the Now Planting business for the three and six months ended November 25, 2018. Components of amounts reflected in loss from discontinued operations, net of tax are as follows:

Three Months Ended Six Months Ended
(In thousands) November 24, 2019 November 25, 2018 November 24, 2019 November 25, 2018
Revenues $ —
$ 355
$ —
$ 355
Cost of sales —
(647 ) —
(647 )
Research and development —
(58 ) —
(100 )
Selling, general and administrative —
(266 ) —
(414 )
Loss from discontinued operations, before taxes —
(616 ) —
(806 )
Income tax benefit —
145
—
190
Loss from discontinued operations, net of tax $ —
$ (471 ) $ —
$ (616 )

~~11. Subsequent Events~~

~~Restructuring~~

~~On January 2,~~ 2020, the Company announced a restructuring plan to drive enhanced profitability, focus the business on its strategic assets and redesign the organization to be the appropriate size to compete and thrive. This includes a reduction-in-force, a reduction in leased office spaces, and the sale of non-strategic assets.

In the first quarter of fiscal year 2021, the Company sold its interest in Ontario. The Company ~~will close~~received net cash proceeds of $4.9 million in connection with the sale, and recorded a gain of $2.8 million which is included in Restructuring costs within the Consolidated Statements of Comprehensive (Loss) Income. See the Assets Held for Sale section within Note 1 for additional information.

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 were sold in the second quarter of fiscal year 2021. The loss is included in Restructuring costs within the Consolidated Statements of Comprehensive (Loss) Income. See the Assets Held for Sale section within Note 1 for additional information.

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

For the three and six months ended November 29, 2020, other restructuring costs primarily related to consulting costs to execute the Company’s restructuring plan to drive enhanced profitability, focus the business on its strategic assets, and redesign the organization to be the appropriate size to compete and thrive.

The following table summarizes the restructuring costs recognized in the Company’s Consolidated Statements of (Loss) Income, by Business Segment:


(in thousands)	Curation Foods		Lifecore		Other		Total
Three Months Ended November 29, 2020
Asset write-off costs	$	0	$	0	$	0	$	0
Employee severance and benefit costs	211		0		0		211
Lease costs	0		0		0		0
Other restructuring costs	1,295		0		156		1,451
Total restructuring costs	$	1,506	$	0	$	156	$	1,662


(in thousands)	Curation Foods		Lifecore		Other		Total
Six Months Ended November 29, 2020
Asset write-off costs	$	6,005	$	0	$	0	$	6,005
Employee severance and benefit costs	1,115		0		0		1,115
Lease costs	0		0		0		0
Other restructuring costs	2,143		0		803		2,946
Total restructuring costs	$	9,263	$	0	$	803	$	10,066

-21-

Table of Contents

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 six months ended November 29, 2020:


	Curation Foods		Lifecore		Other		Total
(in thousands)
Asset write-off costs, net	$	18,667	$	0	$	418	$	19,085
Employee severance and benefit costs	2,584		0		784		3,368
Lease costs	392		0		26		418
Other restructuring costs	3,166		0		1,314		4,480
Total restructuring costs	$	24,809	$	0	$	2,542	$	27,351

The total expected cost related to the restructuring plan is approximately $29.0 million.

9. Subsequent Events

Debt Refinancing

On December 31, 2020, the Company refinanced its existing Term Loan and Revolver by entering into 2 separate Credit Agreements (the "New Credit Agreements") with BMO Harris Bank N.A. ("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 will serve 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 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 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 ~~pre-tax restructuring and related expense will be approximately $1.2~~up to ~~$1.5 million for employee and severance related expenses and approximately $0.4 to $0.6 million for lease exit costs.~~

$15.0 million.

The New Credit Agreements contains 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 ~~plans~~estimated debt issuance costs from the lender and third-party of approximately $8.6 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. As of December 31, 2020, the Company had $150.0 million in borrowings outstanding under the Refinance Term Loan, and $36.0 million in borrowings outstanding under the Refinance Revolver. In connection with the repayment of borrowings under the Credit Agreement, the Company expects to ~~sell~~recognize a loss in its salad dressing plant in Ontario, California. The Company designated the fixed assets of its office and manufacturing space located in Ontario, California, as assets held for sale after the balance sheet date. The Ontario assets, included as construction in process within property and equipment, net, has been designated as held for use within the Consolidated Balance Sheets as of November 24, 2019, as no finalized plan for disposition existed at the balance sheet date. The disposal is expected to occur by the endthird quarter of fiscal year ~~2020, and at this time~~2021 of $1.2 million, primarily as a result of the ~~Company is not able to estimate the range~~non-cash write-off of ~~any gains or losses this transaction may have~~unamortized debt issuance costs related to the ~~Company's financial statements. The net carrying value~~refinancing under the New Credit Agreements.

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COVID-19 Pandemic

~~San Rafael~~

~~On December 24, 2019~~ the ~~Company closed escrow on~~Company’s operations, directly and indirectly, including with respect to sales, customer behaviors, business and manufacturing operations, inventory, the ~~San Rafael property held for sale.~~Company’s employees, and the market generally, and the scope and nature of these impacts continue to evolve each day. The Company ~~received cash proceeds~~expects to continue to assess the evolving impact of ~~$2.4 million in connection with~~ the ~~sale. The disposal did not have a material impact~~COVID-19 pandemic, and intends to ~~the Company’s financial statements.~~continue to make adjustments to its responses accordingly.

~~Derivative Instruments~~

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~~On December 2, 2019, the Company entered into an interest rate swap contract (the “2019 Swap”) with BMO at a notional amount~~

Table of ~~$110 million. The 2019 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 1.53%.~~Contents

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

The following discussion should be read in conjunction with the unaudited consolidated financial statements and accompanying notes included in Part I, Item 1, of this Form 10-Q and the audited consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Landec’s Annual Report on Form 10-K for the fiscal year ended May ~~26, 2019.~~31, 2020.

~~Except for the historical information contained herein, the matters discussed in this report are~~This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements ~~within~~regarding future events and our future results that are subject to the ~~meaning~~safe harbor created under the Private Securities Litigation Reform Act of ~~Section 21E~~1995 and other safe harbors under the Securities Act of 1933, as amended, and the Securities Exchange Act of ~~1934. These~~1934, as amended (the “Exchange Act”). Words such as “anticipate”, “estimate”, “expect”, “project”, “plan”, “intend”, “believe”, “may”, “might”, “will”, “should”, “can have”, “likely” and similar expressions are used to identify forward-looking statements. All forward-looking statements ~~involve certain~~are subject to risks and uncertainties that ~~could~~may 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-Q~~report and ~~those mentioned~~ in ~~Landec’s~~our Annual Report on Form 10-K for the fiscal year ended May ~~26, 2019. Landec undertakes~~31, 2020.

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 31, 2020.

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 31, 2020, 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 reflect~~statement 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 and use of estimates from those disclosed in the Company’s Form 10-K for the fiscal year ended May ~~26, 2019.~~31, 2020. For a discussion of our critical accounting policies and use of estimates, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Use of Estimates in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended May ~~26, 2019.~~31, 2020.

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 which is contained in Part I, Item 1 of this Quarterly Report on Form 10-Q, describes these new accounting 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 continues~~markets, and license technology applications to ~~be a dramatic shift in consumer behavior to healthier eating habits and preventive wellness to improve quality of life. In our~~partners.

Landec’s natural food company, Curation Foods, Inc. ("(“Curation ~~Foods"~~Foods”) ~~business, we are committed~~is focused on innovating and distributing plant-based foods with 100% clean ingredients to ~~offering healthy, fresh produce products conveniently packaged~~retail, club and foodservice channels throughout North America. Curation Foods is able to ~~consumers. In our~~maximize product freshness through its geographically 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.~~

Landec’s Curation Foods and Lifecore 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 Curation Foods and directly to partnersoffers highly differentiated capabilities in the ~~medical device~~development, fill and finish of sterile, injectable pharmaceutical ~~markets~~products in syringes and vials. As a leading manufacturer of premium, injectable grade Hyaluronic Acid, Lifecore brings 35 years of expertise as a partner for ~~Lifecore.~~global and emerging biopharmaceutical and biotechnology companies across multiple therapeutic categories to bring their innovations to market.

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

Reportable Segments

Landec has three reportable business segments – Curation Foods, Lifecore and ~~Lifecore, each of~~Other, which isare described ~~below, and an Other segment.~~

below.

Curation Foods

Curation Foods Overview

Based in Santa Maria, California, Curation 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 aits patented BreatheWay® packaging technology and for its portfolio of four natural food brands, including the Company’s legacy and flagship brand Eat ~~Smart~~^®Smart® as well as its three ~~emerging~~more recently acquired natural ~~foods~~food brands, O Olive Oil & ~~Vinegar~~^® ("Vinegar® (“O"”) products, and ~~Yucatan~~^®Yucatan® and Cabo Fresh^® authentic guacamole and avocado products. The major distinguishing characteristics of Curation Foods that provide a competitive advantage are its 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 supplier of a broad range of products. Curation Foods also has three East Coast processing facilities and five East Coast distribution centers for nationwide delivery of its packaged salads and vegetable products. As of May 31, 2020, our products ~~that~~ were ~~acquired by~~available in over 86% 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 ~~acquisition of Yucatan~~organization to be more competitive.

Curation Foods ~~L.P.~~Brands

Eat Smart:The Company sells specialty fresh packaged Eat Smart branded ~~salads~~ and private label salads, fresh-cut vegetables and whole produce to retailers, club stores, and food service operators, primarily in the United States and Canada. ~~The Company also sells premier California specialty~~ O olive oils and wine vinegars to natural food, conventional grocery and mass retail stores primarily in the United States and Canada. The majority of Yucatan and Cabo Fresh guacamole and avocado food products are sold in the U.S. grocery channel, but they are also sold in U.S. mass retail, Canadian grocery retail and foodservice channels.

~~The Eat Smart brand combines our proprietary BreatheWay~~^® ~~food packaging technology with the capabilities of a large national food supplier and value-added produce processor to foodservice operators, as well as under private labels.~~ Within the Eat Smart brand, produce is processed by trimming, washing, sorting, blending, and packaging into bags and ~~trays~~trays.

O Olive Oil & Vinegar: The Company acquired O on March 1, 2017. O, founded in 1995, is based in Petaluma, California, and is the premier producer of California specialty olive oils and wine vinegars. Its products are sold in natural food, conventional grocery and mass retail stores, primarily in the United States and Canada.

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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 ~~in most cases incorporate Landec’s~~generally exhibit less sourcing volatility. The Company manufactures and sells Yucatan and Cabo Fresh guacamole and avocado food products primarily to the U.S. grocery channel, but also to the U.S. mass retail, Canadian grocery retail and foodservice channels.

BreatheWay Packaging Technology: The Company’s BreatheWay membrane ~~technology.~~technology establishes a beneficial packaging atmosphere adapting to changing fresh product respiration and temperature in order to extend freshness naturally. The BreatheWay ~~membrane increases~~supply chain packaging technology extends 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. Curation Foods also~~chain to the consumer. The Company generates revenue from the sale to and/or use of its BreatheWay patented packaging technology by partners such as Windset, ~~Holding 2010 Ltd., a Canadian corporation (“Windset”),~~ for packaging of its greenhouse grown cucumbers and peppers.

~~Lifecore~~

Lifecore operates our biomaterials business and is involved in the development and manufacture of pharmaceutical-grade sodium hyaluronate (“HA”) products and providing contract development and aseptic manufacturing services. Sodium hyaluronate is a naturally occurring polysaccharide that is widely distributed in the extracellular matrix in animals and humans. Based upon Lifecore’s expertise working with highly viscous HA, In addition, the Company ~~specializes in fermentation~~sells its complete supply chain solution for fresh pallets of product ensuring more marketable fruit and aseptic formulation, filling, and packaging services, as a contract development and manufacturing organization (“CDMO”), for difficult to handle (viscous) materials filled in finished dose vials and syringes.

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

~~Description of Core Business~~

~~Landec operates its business in three reportable business segments: Curation Foods, Lifecore, and Other.~~

~~Curation Foods~~

~~The Curation Foods business is comprised of Curation Foods' packaged fresh vegetables business sold primarily under the Eat Smart brand,~~ O ~~branded olive oils and wine vinegars, and Yucatan and Cabo Fresh guacamole and avocado food products.~~

~~Eat Smart Packaged Fresh Vegetables~~

Based in Santa Maria, California, Curation Foods’ primary business is the processing, marketing and selling of vegetable-based salads and fresh-cut and whole vegetable products primarily packaged in its proprietary BreatheWay packaging. The packaged fresh vegetables business markets a variety of salads and fresh-cut and whole vegetables to the top retail grocery chains, club stores, and food service operators.

~~There are four major distinguishing characteristics of Curation Foods that provide competitive advantages in the Company's Eat Smart packaged fresh vegetables market:~~

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

~~Nationwide Processing and Distribution:~~ Curation Foods has strategically invested in its salads and fresh-cut vegetables business. Curation Foods’ largest processing plant is in Guadalupe, California, and is automated with state-of-the-art vegetable processing equipment in one of the lower cost, growing regions in California, the Santa Maria Valley. Curation Foods also has three East Coast processing facilities and five East Coast distribution centers for nationwide delivery of all of its packaged salads and vegetable products in order to meet the next-day delivery needs of customers.

~~Expanded Product Line Using Technology and Unique Blends:~~ Curation Foods is introducing new salads and packaged vegetable products each year, and many of these products use our BreatheWay packaging technology to extend shelf-life. 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. During the last twelve months, Curation Foods introduced six new unique products.

~~Products Currently in Approximately 68% of North American Retail Grocery Stores:~~ Curation Foods' packaged fresh vegetables business has products in approximately 68% of all North American retail grocery stores. This gives Curation Foods the opportunity to sell new products to existing customers and to increase distribution of its approximately 120 unique packaged fresh vegetable products within those customers.

retail. Most vegetable products packaged in the Company’s BreatheWay packaging ~~have~~technology achieve a shelf-life of approximately 17 days. In addition to packaging innovation, the Company has developed innovative blends and combinations of vegetables that are sold in flexible film bags or rigid trays. The Company 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 under the Eat Smart brand several other superfood salad kits including Chopped and Crumble salads™~~, Southwest Salad, and Asian Sesame Salad to name a few and, more recently, a line of single-serve salads under our Salad Shake-Ups!~~™ brand. The Company’s expertise includes accessing leading culinary experts and nutritionists nationally to help in the new product development process. We believe that the Company’s new products are “on trend” and strong market acceptance supports this belief. Recent statistics show that more than two-thirds of adults are considered to be overweight or obese. More and more consumers are beginning to make better food choices in their schools, homes, and in restaurants and that is where our Eat Smart products can fit into consumers’ daily healthy food choices.

The Company also periodically licenses its BreatheWay packaging technology to partners for packaging fruits and vegetables, 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~~The Company manufactures its BreatheWay packaging through selected qualified contract manufacturers.

Windset

: The Company holds a 26.9% noncontrolling investment ownership in Windset, a leading-edge grower of hydroponically grown produce. The Company believes that ~~hydroponically-grown produce using~~ Windset’s know-how and growing practices of hydroponically grown produce 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. Windset owns and operates greenhouses in British Columbia, Canada 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.

~~O Olive Oils & Vinegars (O)~~Lifecore Biomedical

~~The Company acquired~~ O ~~on March 1, 2017.~~ O~~, founded~~Lifecore, located in ~~1995,~~Chaska, Minnesota, is ~~based in Petaluma, California, and is the premier producer of California specialty olive oils and wine vinegars. Its products are sold in conventional grocery and mass retail stores, primarily~~a fully integrated CDMO that offers highly differentiated capabilities in the ~~United States~~development, fill and ~~Canada.~~

~~Yucatan~~finish of sterile, injectable pharmaceutical products in syringes and ~~Cabo Fresh~~

The Company acquired Yucatan Foods on December 1, 2018. Yucatan Foods, founded in 1991, is based in Los Angeles, California. As part of the acquisition of Yucatan Foods, Curation Foods acquired the newly built production facility in Guanajuato, Mexico. The Yucatan Foods business adds another double-digit growth platform, a lower-cost infrastructure in Mexico and higher margin product offerings that generally exhibit less sourcing volatility.

~~Lifecore~~

~~Lifecore~~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 ~~leverages~~uses its fermentation process and aseptic formulation and filling expertise to ~~manufacture premium, pharmaceutical-grade HA~~be a leader in the development of HA-based products for multiple applications and ~~uses~~to take advantage of non-HA device and drug opportunities which leverage its expertise in manufacturing and aseptic syringe filling ~~capabilities to deliver private-label HA and non-HA finished products to its customers.~~capabilities.

Lifecore provides product development services as a CDMO to its partners for HA-based, as well as non-HA based, aseptically formulated and filled products. These services include activities such as technology transfer, 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 ~~uses~~separates itself from its ~~fermentation process and aseptic formulation and filling~~competition based on its five areas of expertise, including but not limited to be a leader in the development of HA-based products for multiple applications and to take advantage of non-HA device and drug opportunities which leverage its expertise in manufacturing and aseptic syringe filling capabilities. Elements of Lifecore’s ~~strategy include the following:~~ability to:

Establish strategic relationships with market leaders:

Lifecore ~~will continue~~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 ~~been able to establish~~established long-term relationships with ~~the market leading ophthalmic surgical~~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:~~HA:

Due to the growing knowledge of the unique characteristics of HA and ~~the role it plays in normal physiology,~~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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Utilize manufacturing infrastructure to ~~pursue contract aseptic fillingand fermentation opportunities:~~meet customer demand:

Lifecore has made strategic capital investments in its CDMO business focusing on extending its aseptic filling capacity and ~~capabilities. It is investing in this segment~~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 administrative expenses, non-Curation Foods and non-Lifecore interest income ~~interest expense,~~ and income tax expenses.

COVID-19 Pandemic

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

Results of Operations

Revenues:

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 most cases in the Company’s proprietary BreatheWay packaging and sold primarily under the Eat Smart brand and various private labels, (2) O ~~olive~~Olive oils and wine vinegars, and (3) Yucatan and Cabo Fresh branded guacamole and avocado products. In addition, the Curation Foods reportable business segment includes the revenues generated from the sale of BreatheWay packaging to license partners.

Lifecore generates revenues from the development and manufacture of ~~pharmaceutical-grade sodium hyaluronate (“HA”)~~HA products and providing contract development and aseptic manufacturing services to customers. Lifecore generates revenues from ~~three~~two integrated activities: (1) ~~aseptically filled syringes~~CDMO and ~~vials,~~ (2) ~~fermentation products, and (3) development activities.~~fermentation.


(In thousands)	Three Months Ended				Change				Six Months Ended				Change
	November 29, 2020		November 24, 2019		Amount		%		November 29, 2020		November 24, 2019		Amount		%
Curation Foods	$	107,685	$	119,751	$	(12,066)	(10)	%	$	221,523	$	246,424	$	(24,901)	(10)	%
Lifecore	23,219		22,842		377		2	%	45,024		34,883		10,141		29	%
Total Revenues	$	130,904	$	142,593	$	(11,689)	(8)	%	$	266,547	$	281,307	$	(14,760)	(5)	%

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(In thousands) Three Months Ended Change Six Months Ended Change
November 24, 2019 November 25, 2018 Amount % November 24, 2019 November 25, 2018 Amount %
Curation Foods $ 119,751
$ 109,111
$ 10,640
10 % $ 246,424
$ 221,162
$ 25,262
11 %
Lifecore 22,842
15,446
7,396
48 % 34,883
28,063
6,820
24 %
Total Revenues $ 142,593
$ 124,557
$ 18,036
14 % $ 281,307
$ 249,225
$ 32,082
13 %

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Curation Foods

The ~~increase~~decrease in Curation Foods' revenues for the three months ended November ~~24, 2019,~~29, 2020, compared to the same period last year, was primarily due to ~~the addition of Yucatan Foods, which was acquired on December 1, 2018, that contributed $14.0 million in revenues and from~~ a ~~$6.2 million increase in salad revenues. These increases were partially offset by a $7.9~~$12.5 million decrease in the fresh packaged salads and vegetables segment, which is primarily due to a (1) $6.6 million planned shift away from non-strategic revenue streams, including packaged vegetables in bags and trays, ~~revenues~~ and (2) a ~~$2.0~~$3.2 million decrease in green bean revenues ~~due to weather-related events that resulted~~driven by a decrease in ~~lower yields.~~demand from food service customers during the COVID-19 pandemic.

The ~~increase~~decrease in Curation ~~Foods'~~Foods’ revenues for the six months ended November ~~24, 2019,~~29, 2020, compared to the same period last year, was primarily due to the addition of Yucatan Foods, which was acquired on December 1, 2018, that contributed $30.2 million in revenues and from an $8.4 million increase in salad revenues. These increases were partially offset by a ~~$9.7~~$26.1 million decrease in the fresh packaged salads and vegetables segment, which is primarily due to a (1) $13.2 million planned shift away from non-strategic revenue streams, including packaged vegetables in bags and trays, ~~revenues~~ and (2) a ~~$5.3~~$6.7 million decrease in green bean revenues ~~due to weather-related events that resulted~~driven by a decrease in ~~lower yields.~~demand from food service customers during the COVID-19 pandemic.

Lifecore

The increase in Lifecore’s revenues for the three months ended November ~~24, 2019,~~29, 2020, compared to the same period last year was due to a $3.1 million increase in fermentation revenues as a result of the timing of shipments, a $2.7 million increase in development services revenues primarily due to increased activity with existing customers, and a $1.6 million increase in aseptic revenues due to increased demand.insignificant.

The increase in Lifecore’s revenues for the six months ended November ~~24, 2019,~~29, 2020, compared to the same period last year, was due to a $5.6 million increase in CDMO revenues from an increase in aseptic filling commercial shipments, due to increased demand from existing customers, and a $4.5 million increase in ~~development services revenues~~fermentation sales primarily due to ~~increased activity with existing customers, a $1.5 million increase in aseptic revenues due to increased demand, and a $0.8 million increase in fermentation revenues as a result of the~~ timing of shipments.

Gross Profit:

There are numerous factors that can influence gross profit including product mix, customer mix, manufacturing costs, volume, sales discounts and charges for excess or obsolete inventory, to name a few. Many of these factors influence or are interrelated with other factors. The Company includes in cost of sales all of the following costs: raw materials (including 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 Ended				Change					Six Months Ended				Change					(In thousands)	Three Months Ended				Change				Six Months Ended				Change
	November 24, 2019		November 25, 2018		Amount			%		November 24, 2019		November 25, 2018		Amount			%			November 29, 2020		November 24, 2019		Amount		%		November 29, 2020		November 24, 2019		Amount		%
Curation Foods	$	6,890	$	11,207	$	(4,317	)	(39	)%	$	19,712	$	24,577	$	(4,865	)	(20	)%	Curation Foods	$	10,163	$	6,890	$	3,273	48	%	$	21,507	$	19,712	$	1,795	9	%
Lifecore	8,624		5,678		2,946			52	%	11,138		8,645		2,493			29	%	Lifecore	10,474		8,624		1,850		21	%	15,476		11,138		4,338		39	%
Total Gross Profit	$	15,514	$	16,885	$	(1,371	)	(8	)%	$	30,850	$	33,222	$	(2,372	)	(7	)%	Total Gross Profit	$	20,637	$	15,514	$	5,123	33	%	$	36,983	$	30,850	$	6,133	20	%

Curation Foods

The ~~decrease~~increase in gross profit for the Curation Foods business for the three months ~~and six months~~ ended November ~~24, 2019~~,29, 2020, compared to the same ~~periods~~period last year, was primarily due to ~~(1) weather-related events impacting raw material supply, (2) the sale of higher cost~~an increase in gross profits from avocado products ~~that were~~due to selling products in fiscal 2021 produced ~~during the fourth quarter of fiscal 2019 and first quarter of~~with lower cost avocados compared to fiscal 2020, ~~when~~combined with improved profitability in the ~~costs~~fresh packaged salads and vegetables segment primarily due to restructuring efforts as part of ~~avocados were substantially higher than current costs, and (3) lower~~our project SWIFT initiatives.

The increase in gross profit ~~resulting~~for the Curation Foods business for the six months ended November 29, 2020, compared to the same period last year, was primarily due to an increase in gross profits from avocado products due to selling products in fiscal 2021 produced with lower cost avocados compared to fiscal 2020, which was partially offset by (1) the decrease in gross profits primarily driven by the decrease in revenues from our planned shift away from non-strategic fresh packaged salads and vegetables segment revenue streams, primarily packaged vegetables in bags and trays, ~~revenues.~~

and (2) business interruption insurance recoveries received in fiscal year 2020.

Lifecore

The increase in gross profit for the Lifecore business for the three ~~months~~ and six months ended November ~~24, 2019,~~29, 2020, compared to the same ~~periods~~period last year, was due primarily to the increased ~~development services,~~revenue in both CDMO and fermentation, ~~and aseptic revenues.~~as well as a favorable sales mix.

-28-

Table of Contents

Operating Expenses:

Research and Development ~~(R&D):~~

R&D ~~consists~~expenses consist primarily of product development and commercialization initiatives. R&D ~~efforts~~expenses in our Curation Foods business are primarily focused on innovating our current product lines 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 ~~efforts~~expenses are focused on new products and applications for HA-based and non-HA biomaterials. For Other, the R&D ~~efforts~~expenses are primarily focused on creating and developing new innovative lines of products.


(In thousands)	Three Months Ended				Change					Six Months Ended				Change					(In thousands)	Three Months Ended				Change				Six Months Ended				Change
	November 24, 2019		November 25, 2018		Amount			%		November 24, 2019		November 25, 2018		Amount			%			November 29, 2020		November 24, 2019		Amount		%		November 29, 2020		November 24, 2019		Amount		%
Curation Foods	$	1,485	$	1,117	$	368		33	%	$	2,809	$	2,432	$	377		16	%	Curation Foods	$	1,131	$	1,485	$	(354)	(24)	%	$	2,069	$	2,809	$	(740)	(26)	%
Lifecore	1,337		1,225		112			9	%	2,788		2,430		358			15	%	Lifecore	1,441		1,337		104		8	%	3,011		2,788		223		8	%
Other	—		133		(133		)	(100	)%	46		404		(358		)	(89	)%	Other	—		—		—		—	%	$	—	$	46	(46)		(100)	%
Total R&D	$	2,822	$	2,475	$	347		14	%	$	5,643	$	5,266	$	377		7	%	Total R&D	$	2,572	$	2,822	$	(250)	(9)	%	$	5,080	$	5,643	$	(563)	(10)	%

The ~~increase~~decrease in R&D expenses for the three and six months ended November ~~24, 2019,~~29, 2020, compared to the same periods last year, was primarily due to ~~higher~~lower professional service expenses related to brand restage initiatives and new product development in the salad kit and avocado products product lines at Curation Foods which took place during fiscal year 2020, and decreases in our Other segment primarily due to discontinuation of R&D activities at Corporate. These decreases were partially offset by higher salary and ~~benefit~~benefits expenses ~~due to an increase in headcount~~ at Lifecore ~~partially offset~~driven by ~~decreases at our Other segment from fewer product development activities for our new ventures.~~an increased headcount.

Selling, General, and Administrative ~~(SG&A):~~(“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 Ended				Change				Six Months Ended				Change				(In thousands)	Three Months Ended				Change				Six Months Ended				Change
	November 24, 2019		November 25, 2018		Amount		%		November 24, 2019		November 25, 2018		Amount		%			November 29, 2020		November 24, 2019		Amount		%		November 29, 2020		November 24, 2019		Amount		%
Curation Foods	$	13,179	$	9,292	$	3,887	42	%	$	24,663	$	18,201	$	6,462	36	%	Curation Foods	$	9,523	$	13,179	$	(3,656)	(28)	%	$	20,106	$	24,663	$	(4,557)	(18)	%
Lifecore	1,950		1,647		303		18	%	3,897		3,245		652		20	%	Lifecore	1,961		1,950		11		1	%	3,841		3,897		(56)		(1)	%
Other	3,599		3,461		138		4	%	7,063		6,757		306		5	%	Other	4,622		3,599		1,023		28	%	10,062		7,063		2,999		42	%
Total SG&A	$	18,728	$	14,400	$	4,328	30	%	$	35,623	$	28,203	$	7,420	26	%	Total SG&A	$	16,106	$	18,728	$	(2,622)	(14)	%	$	34,009	$	35,623	$	(1,614)	(5)	%

The ~~increase~~decrease in total SG&A expenses for the three months ended November ~~24, 2019,~~29, 2020, compared to the same period last year, was due to ~~(1)~~ a ~~$3.9~~$3.7 million ~~increase~~decrease in our Curation Foods business primarily due to ~~$1.9 million of SG&A at Yucatan Foods,~~cost savings driven by our restructuring efforts associated with Project SWIFT and lower salary and bonus expenses compared to the same period last year, the decrease was also partly due to a ~~$1.2 million~~ reserve reported in fiscal year 2020 for the note receivable from Pacific ~~Harvest, and~~Harvest. This decrease was partially offset by a $0.4 million increase in consulting fees, most of which was associated with Curation Foods’ cost saving initiatives, (2) a $0.3 million increase in our Lifecore business from higher salary and benefit expenses from employee bonuses, and (3) a $0.1$1.0 million increase at our Other segment, which was primarily due to ~~a $0.6 million~~an increase in legal fees from compliance ~~matters~~ and $0.4 million impairment of the San Rafael asset held for sale, partially offset by lower salary and benefit expenses primarily from the $0.5 million reduction of the earnout liability associated with the O ~~acquisition.~~other litigation matters.

The ~~increase~~decrease in total SG&A expenses for the six months ended November ~~24, 2019,~~29, 2020, compared to the same period last year, was due to~~(1)~~ a ~~$6.5~~$4.6 million ~~increase~~decrease in our Curation Foods business primarily due to ~~$4.0 million of SG&A at Yucatan Foods,~~cost savings driven by our restructuring efforts associated with Project SWIFT and lower salary and bonus expenses compared to the same period last year, the decrease was also partly due to a ~~$1.2 million~~ reserve reported in fiscal year 2020 for the note receivable from Pacific ~~Harvest, and~~Harvest. This decrease was partially offset by a ~~$0.9 million increase in consulting fees, most of which was associated with Curation Foods’ cost saving initiatives, (2) a $0.7~~$3.0 million increase in our ~~Lifecore business from higher salary and benefit expenses from employee bonuses, and (3) a $0.3 million increase at our~~ Other segment primarily due to ~~a $0.6 million~~an increase in legal fees from compliance ~~matters~~ and $0.4 million impairment of the San Rafael asset held for sale, partially offset by lower salary and benefit expenses primarily from the $0.5 million reduction of the earnout liability associated with the O ~~acquisition.~~other litigation matters.

(In thousands) Three Months Ended Change Six Months Ended Change
November 24, 2019 November 25, 2018 Amount % November 24, 2019 November 25, 2018 Amount %
Dividend Income $ 281
$ 412
$ (131 ) (32 )% $ 562
$ 825
$ (263 ) (32 )%
Interest Income $ 25
$ 33
$ (8 ) (24 )% $ 50
$ 79
$ (29 ) (37 )%
Interest Expense $ (2,169 ) $ (746 ) $ (1,423 ) 191 % $ (4,244 ) $ (1,504 ) $ (2,740 ) 182 %
Other Income $ 200
$ 600
$ (400 ) (67 )% $ 200
$ 1,600
$ (1,400 ) (88 )%
Other Expense $ (206 ) $ —
$ (206 ) 100 % $ (206 ) $ —
$ (206 ) 100 %
Income Tax Benefit (Expense) $ 1,165
$ (422 ) $ 1,587
N/M
$ 2,530
$ (532 ) $ 3,062
N/M
Other:


(In thousands)	Three Months Ended				Change				Six Months Ended				Change
	November 29, 2020		November 24, 2019		Amount		%		November 29, 2020		November 24, 2019		Amount		%
Dividend Income	$	281	$	281	$	—	—	%	$	563	$	562	$	1	—%
Interest Income	$	10	$	25	$	(15)	(60)	%	$	18	$	50	$	(32)	(64)	%
Interest Expense	$	(3,039)	$	(2,169)	$	(870)	40	%	$	(6,148)	$	(4,244)	$	(1,904)	45	%
Other Income (Expense)	$	(11,787)	$	(6)	$	(11,781)	N/M		$	(11,808)	$	(6)	$	(11,802)	N/M
Income Tax Benefit	$	2,700	$	1,165	$	1,535	132	%	$	7,009	$	2,530	$	4,479	177	%

Dividend income is derived from the dividends accrued on the Company’s $15.0 million Senior A ~~and $7.0 million Senior B~~ preferred stock investment in Windset, which yields a cash dividend of 7.5% annually. The decrease in dividend income for the three and six months ended November 24, 2019 compared to the same periods last year was due to the sale of the Company's $7.0 million Senior B preferred stock to Windset in the fourth quarter of fiscal year 2019.

The increase in interest expense for the three and six months ended November ~~24, 2019,~~29, 2020, compared to the same ~~periods~~period last year, was aprimarily the result of (i) an increase interest rate expenses, due to the Company's increased Total Leverage Ratio (as defined Credit Agreement) and (ii) an increase in ~~total debt from $81.8 million as of November 25, 2018~~deferred financing costs due to ~~$180.7 million as of~~the expenses incurred in connection with Company's amendments to the Credit Agreement since November 24, 2019. The increase in debt was primarily due to the additional borrowings to fund the acquisition of Yucatan Foods in the third quarter of fiscal 2019, as well as increases in the Company’s line of credit to fund new equipment purchases during the last twelve months.

Other Income (Expense)

The decrease in other income for the three and six months ended November ~~24, 2019,~~29, 2020, compared to the same periods last year, was a result of the change in the fair value of the Company’s investment in Windset, which increased $0.2 million for the three and six months ended November 24, 2019 compared to an increase of $0.6 million and $1.6 million for the three and six months ended November 25, 2018, respectively.

~~The increase in other expense for the three and six months ended November 24, 2019, compared to the same periods last year, was a result of a change~~decrease in fair value of ~~a recorded asset related to the Yucatan Foods acquisition. A portion~~our investment in Windset of the common stock consideration paid for the Yucatan Foods acquisition is maintained in an escrow account with the number of shares reimbursed to Landec at a contractual rate. Increases in the value of the Company's common stock will result in a gain while reductions result in a loss.$11.8 million.

The change in income tax during the three and six months ended November 24, 2019, compared to the same periods last year, was due to the income tax benefit from pre-tax loss for the three and six months ended November 24, 2019 compared to the income tax expense from pre-tax income for the three and six months ended November 25, 2018.

The effective tax rate for the three and six months ended November ~~24, 2019~~29, 2020 was ~~lower~~higher than the statutory federal income tax rate of 21% primarily due to the ~~impact~~generation of ~~state taxes, and stock-based compensation, partially offset by~~ federal & state R&D ~~Credits.~~credits and impact of states taxes, partially offset by the movement of the valuation allowance recorded against certain deferred tax assets.

Liquidity and Capital Resources

As of November ~~24, 2019,~~29, 2020, the Company had cash and cash equivalents of ~~$1.6~~$2.5 million, a net increase of ~~$0.5~~$2.1 million from ~~$1.1~~$0.6 million as of May ~~26, 2019.~~31, 2020. Based on all available current information, the Company believes the combination of its cash and cash equivalents and availability under the New Credit Agreements (defined below) will be sufficient to support its operations for at least the next twelve months.

Cash Flow from Operating Activities

~~The Company used $14.9 million of net~~Net cash inprovided by operating activities during the six months ended November ~~24, 2019,~~29, 2020 was $18.5 million, compared to ~~$4.8~~$14.9 million of net cash ~~provided by~~used in operating activities for the six months ended November ~~25, 2018.~~24, 2019. The primary ~~uses~~sources of net cash inprovided by operating activities during the six months ended November ~~24, 2019~~29, 2020 were ~~from~~ (1) ~~an $11.5~~a $20.4 million net ~~loss,~~decrease in working capital, (2) a ~~$2.6~~$11.8 million ~~reduction~~decrease in ~~deferred taxes,~~the Company's estimated fair value of Windset due to changes in the financial assumptions relating to EBITDA, non productive assets, and debt levels, (3) ~~a net increase of $12.2 million in working capital. These uses of cash were offset by (1) $10.3~~$11.6 million of depreciation/amortization and stock based compensation expense, and ~~(2) $1.6~~(4) $6.0 million from the ~~Pacific Harvest note receivable reserve~~non-cash restructuring and ~~the~~ impairment of ~~San Rafael assets.~~assets charges. These sources of cash were offset by (1) a $24.3 million net loss, and (2) a $7.1 million reduction in deferred taxes.

The primary factors for the ~~increase~~decrease in working capital during the six months ended November ~~24, 2019,~~29, 2020, were (1) a ~~$6.1~~$10.5 million ~~decrease~~increase in accounts payable due primarily to the timing of payments, and (2) a $4.4 million increase in inventory due to an increase of $5.0 million in inventory at Lifecore to meet increasing demand, partially offset by a decrease of $0.6 million in inventory at Curation Foods due primarily to the timing of shipments, (3) a $2.0$9.7 million decrease in accrued compensation primarily related to fiscal year 2019 earned bonuses being paid during the first quarter of fiscal year 2020, and (4) a $0.6 million increase in prepaid expenses and other current assets primarilyaccounts receivable due to the timing of payments for prepaid insurance renewal policies and service agreements. These increases in working capital were partially offset by a $1.1 million increase in accrued liabilities in the current period versus the prior year period.customer payment receipts.

Cash Flow from Investing Activities

Net cash ~~used in~~provided by investing activities during the six months ended November ~~24, 2019~~29, 2020 was ~~$15.6~~$5.5 million compared to ~~$18.4~~$15.6 million used in investing activities for the same period last year. ~~The use of~~Net cash inprovided by investing activities during the six months ended November ~~24, 2019,~~29, 2020, was primarily due to the net proceeds of $12.9 million related to the sale of the Company's Ontario, California and Hanover, Pennsylvania facilities, offset by the purchase of ~~$16.0~~$7.4 million of equipment to support the growth of the Company’s Curation Foods and Lifecore businesses.

Cash Flow from Financing Activities

Net cash ~~provided by~~used in financing activities during the six months ended November ~~24, 2019~~29, 2020 was ~~$31.1~~$22.0 million compared to ~~$12.2~~$31.1 million provided by financing activities for the same period last year. The net cash ~~provided by~~used in financing activities during the six months ended November ~~24, 2019,~~29, 2020, was primarily due to ~~$27.5~~$20.1 million of ~~borrowings~~debt repayment under the Company's term loan ~~and from a $9.5~~combined with $1.2 million ~~net increase in the Company’s line~~payment of ~~credit. The cash provided by these financing activities was primarily used for $16.0 million of capital expenditures, $14.9 million of operating activities, and $5.1 million of long-term~~ debt ~~payments.~~issuance costs.

Capital Expenditures

During the six months ended November ~~24, 2019,~~29, 2020, Landec incurred $7.4 million of capital expenditures, which was primarily represented by facility expansions and purchased equipment to support the growth of the Curation Foods and Lifecore ~~businesses. These~~businesses, compared to capital expenditures ~~represented the majority~~ of ~~the~~ $16.0 million offor the six months ended November 24, 2019. During the six months ended November 29, 2020, capital expenditures ~~in the period.~~for Lifecore and Curation Foods were $4.3 million and $3.1 million, respectively.

On September 23, 2016, the Company entered into a Credit Agreement with JPMorgan Chase Bank (“JPMorgan”), BMO Harris Bank N.A. 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~~$100.0 million revolving line of credit (the “Revolver”) and a ~~$50~~$50.0 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.

On November 30, 2018, the Company entered into the Fourth Amendment to the Credit Agreement, whereby the Term Loan was increased to ~~$100~~$100.0 million and the Revolver was increased to ~~$105~~$105.0 million.

On March 19, 2020, the Company entered into the Seventh Amendment to the Credit Agreement (the "Seventh Amendment"), which among other changes, retroactively increased the maximum Total Leverage Ratio (as defined in the Credit Agreement 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) to 5.75 to 1.00 for the fiscal quarter ended February 23, 2020, which decreases back to 5.00 to 1.00 for the fiscal quarter ending May 31, 2020. The maximum Total Leverage Ratio thereafter decreases by 25 basis points each subsequent fiscal quarter thereafter, until it reaches 3.50 for the fiscal quarter ending November 28, 2021, and then remains fixed through maturity. The Seventh Amendment also introduced additional financial covenants that remain in effect through May 31, 2020, including minimum cumulative monthly Unadjusted EBITDA thresholds and maximum capital expenditures, as well as additional reporting requirements and frequencies. Interest on both the Revolver and the Term Loan continued to be based upon the Company’s Total Leverage Ratio, at a per annum rate of either (i) the prime rate plus a spread of between 0.25% and 3.00% or (ii) the Eurodollar rate plus a spread of between 1.25% and 4.00%. The Seventh Amendment also provided for the acceleration of the maturity of the Term Loan from October 25, 2022 to September 23, 2021 if the Company fails to be in compliance with certain financial covenants.

On July 15, 2020, the Company entered into the Eighth Amendment to the Credit Agreement (the “Eighth Amendment”), which among other things, (i) modified the definition of EBITDA to increase the limit on permitted exclusions for certain unusual, extraordinary or one-time cash items for each fiscal quarter ending on or after February 28, 2021, to a maximum of 20% of EBITDA, and (ii) restricted the Company from making Capital Expenditures over certain thresholds. Interest continues to be based on the Company’s Total Leverage Ratio, now at a revised per annum Applicable Rate of either (i) the prime rate plus a spread of between 0.75% and 3.50% or (ii) the Eurodollar rate plus a spread of between 1.75% and 4.50%, plus, in each case, a commitment fee, as applicable, of between 0.15% and 0.55%, as further described in the Eighth Amendment.

The Credit Agreement provided 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 $10.0 million.

Both the Revolver and the Term Loan were set to mature on ~~October 25, 2022,~~September 23, 2021, with the Term Loan requiring quarterly principal payments of $3.0 million and the remainder continuing to be due at maturity. The Credit Agreement contained customary financial covenants and events of default under which the obligation could be accelerated and/or the interest rate increased. As of November 29, 2020, the Company was in compliance with all financial covenants and events of default under the Credit Agreement.

As of November 29, 2020, $77.0 million was outstanding on the Revolver, at an interest rate of 4.65%.

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 Harris Bank N.A. ("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 will serve 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 ~~primary purpose~~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.

In connection with the New Credit Agreements, the Company estimated debt issuance costs from the lender and third-party of approximately $8.6 million.

Concurrent with the close of the ~~Amendment was~~New Credit Agreements, the Company repaid all outstanding borrowings under the current Credit Agreement, and terminated the Credit Agreement. As of December 31, 2020, the Company had $150.0 million in borrowings outstanding under the Refinance Term Loan, and $36.0 million in borrowings outstanding under the Refinance Revolver. In connection with the repayment of borrowings under the Credit Agreement, the Company expects to ~~provide flexibility and greater liquidity~~recognize a loss in its third quarter of fiscal year 2021 of $1.2 million, primarily as a result of the non-cash write-off of unamortized debt issuance costs related to ~~implement~~ the ~~Company's strategic priorities to improve operating margins at Curation Foods by accelerating investments in cost-out initiatives, while furthering~~refinancing under the ~~Company's investments in growth and capacity at Lifecore to meet increasing customer demand.~~New Credit Agreements.

The Company 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.

-32-

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to the information provided under Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" which is included and described in the Form 10-K for the fiscal year ended May ~~26, 2019~~31, 2020 filed with the ~~Securities and Exchange Commission~~SEC on August ~~1, 2019.~~14, 2020.


(In thousands)	November 24, 2019		May 26, 2019		(In thousands)	November 29, 2020		May 31, 2020
Finished goods					Finished goods	$	36,325	$	35,177
Raw materials	$	27,271	$	23,195	Raw materials	26,983		25,856
Work in progress	4,405		4,189		Work in progress	7,894		5,278
Finished goods	26,887		26,748
Total	$	58,563	$	54,132	Total	$	71,202	$	66,311


(In thousands)	Three Months Ended				Six Months Ended				(In thousands)	Three Months Ended				Six Months Ended
Curation Foods:	November 24, 2019		November 25, 2018		November 24, 2019		November 25, 2018		Curation Foods:	November 29, 2020		November 24, 2019		November 29, 2020		November 24, 2019
Salads	$	48,156	$	41,950	$	99,417	$	91,030
Core vegetables	56,286		64,492		113,634		126,242
Emerging brands	15,309		2,669		33,373		3,890
Fresh packaged salads and vegetables									Fresh packaged salads and vegetables	$	92,423	$	104,912	$	188,601	$	214,743
Avocado products									Avocado products	14,713		14,021		31,730		30,221
Technology									Technology	549		818		1,192		1,460
Total	$	119,751	$	109,111	$	246,424	$	221,162	Total	$	107,685	$	119,751	$	221,523	$	246,424



(In thousands)
Cash consideration	$	59,898
Stock consideration	15,068
	$	74,966



(In thousands)	AOCI
Accumulated OCI, net, as of May 26, 2019	$	64
Unrealized losses on interest rate swap contracts, net of tax effect	(485		)
Accumulated OCI, net, as of November 24, 2019	$	(421	)



	At November 24, 2019	At May 26, 2019
Cost of debt	5.1% to 5.5%	5.1% to 5.5%
Market price of risk adjustment	14%	14%
EBITDA volatility	28%	28%



(In thousands)	Impact on value of investment in Windset as of November 24, 2019
10% increase in revenue growth rates	$	5,400
10% increase in expense growth rates	$	(4,200	)
10% increase in income tax rates	$	(500	)
10% increase in discount rates	$	(3,600	)


(In thousands)	Fair Value at November 24, 2019						Fair Value at May 26, 2019						(In thousands)	Fair Value at November 29, 2020						Fair Value at May 31, 2020
Assets:	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Assets:	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Interest rate swap contracts	$	—	$	161	$	—	$	—	$	644	$	—

Assets held for sale - nonrecurring													Assets held for sale - nonrecurring	$	0	$	0	$	0	$	0	$	0	$	2,607
Investment in non-public company	—		—		61,300		—		—		61,100		Investment in non-public company	0		0		45,100		0		0		56,900
Total assets	$	—	$	161	$	61,300	$	—	$	644	$	61,100	Total assets	$	0	$	0	$	45,100	$	0	$	0	$	59,507
Liabilities:													Liabilities:
Interest rate swap contracts	$	—	$	710	$	—	$	—	$	482	$	—	Interest rate swap contracts	$	0	$	2,646	$	0	$	0	$	3,578	$	0
Contingent consideration liability	—		—		—		—		—		500

Total liabilities	$	—	$	710	$	—	$	—	$	482	$	500	Total liabilities	$	0	$	2,646	$	0	$	0	$	3,578	$	0



(In thousands)	Windset Investment		Contingent Consideration Liability
Balance as of May 26, 2019	$	61,100	$	500
Fair value change	200		(500		)
Balance as of November 24, 2019	$	61,300	$	—



(In thousands)
Cash and cash equivalents	$	26
Accounts receivable	6,310
Inventories	11,384
Prepaid expenses and other current assets	1,573
Other assets	102
Property and equipment	14,083
Trademarks/tradenames	15,900
Customer relationships	11,000
Accounts payable	(4,507		)
Other accrued liabilities	(1,873		)
Deferred tax liabilities	(1,767		)
Net identifiable assets acquired	52,231
Goodwill	22,735
Total fair value purchase consideration	$	74,966



(In thousands)	Operating Leases			Finance Leases			Total
Remainder of 2020	$	2,927		$	246		$	3,173
2021	4,795			455			5,250
2022	4,283			466			4,749
2023	3,612			3,497			7,109
2024	2,946			9			2,955
Thereafter	26,433			2			26,435
Total lease payments	44,996			4,675			49,671
Less: interest	(13,845		)	(1,051		)	(14,896		)
Present value of lease liabilities	31,151			3,624			34,775
Less: current obligation of lease liabilities	(3,859		)	(121		)	(3,980		)
Total long-term lease liabilities	$	27,292		$	3,503		$	30,795



(In thousands)	Operating Leases
Fiscal year 2020	$	5,056
Fiscal year 2021	4,044
Fiscal year 2022	3,589
Fiscal year 2023	3,350
Fiscal year 2024	3,047
Thereafter	9,335
Total	$	28,421



(In thousands)	Capital Leases
Fiscal year 2020	$	486
Fiscal year 2021	489
Fiscal year 2022	460
Fiscal year 2023	3,490
Fiscal year 2024	—
Thereafter	—
Total minimum lease payment	4,925
Less: amounts representing interest and taxes	(1,291		)
Total	3,634
Less: current portion included in other accrued liabilities	(102		)
Long-term capital lease obligation	$	3,532



(In thousands)	Curation Foods⁽¹⁾			Lifecore		Other			Total
Three Months Ended November 24, 2019
Net sales	$	119,751		$	22,842	$	—		$	142,593
Gross profit	6,890			8,624		—			15,514
Net (loss) income from continuing operations	(8,348		)	3,459		(1,851		)	(6,740		)
Depreciation and amortization	3,143			1,248		23			4,414
Dividend income	281			—		—			281
Interest income	11			—		14			25
Interest expense	1,375			—		794			2,169
Income tax (benefit) expense	(1,723		)	919		(361		)	(1,165		)

Six Months Ended November 24, 2019
Net sales	$	246,424		$	34,883	$	—		$	281,307
Gross profit	19,712			11,138		—			30,850
Net (loss) income from continuing operations	(10,519		)	2,064		(3,069		)	(11,524		)
Depreciation and amortization	6,348			2,433		46			8,827
Dividend income	562			—		—			562
Interest income	31			—		19			50
Interest expense	2,751			—		1,493			4,244
Income tax (benefit) expense	(2,309		)	454		(675		)	(2,530		)

Three Months Ended November 25, 2018⁽²⁾
Net sales	$	109,111		$	15,446	$	—		$	124,557
Gross profit	11,207			5,678		—			16,885
Net income (loss) from continuing operations	53			1,298		(1,464		)	(113		)
Depreciation and amortization	2,194			978		141			3,313
Dividend income	412			—		—			412
Interest income	30			—		3			33
Interest expense	276			—		470			746
Income tax expense (benefit)	95			432		(105		)	422

Six Months Ended November 25, 2018⁽²⁾
Net sales	$	221,162		$	28,063	$	—		$	249,225
Gross profit	24,577			8,645		—			33,222
Net income (loss) from continuing operations	1,965			751		(2,495		)	221
Depreciation and amortization	4,234			1,954		270			6,458
Dividend income	825			—		—			825
Interest income	61			—		18			79
Interest expense	863			—		641			1,504
Income tax expense (benefit)	802			250		(520		)	532



Exhibit Number		Exhibit Title
~~31.1+~~3.1		~~CEO~~ Certificate of Incorporation of the Registrant, incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on November 7, 2008.
3.2		Amended and Restated By-Laws of the Registrant, incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on October 16, 2012.
3.3		Amendment No. 1 to By-Laws of the Registrant, incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 7, 2019.
3.4		Amendment No. 2 to By-Laws of the Registrant, incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 24, 2019.
10.1+		Credit and Guaranty Agreement, dated December 31, 2020, by and among Landec Corporation, Curation Foods, Inc. and Lifecore Biomedical, Inc., as borrowers, certain other subsidiary parties thereto, as guarantors, Goldman Sachs Specialty Lending Group, L.P., as lender, administrative agent and collateral agent, and certain affiliates of Guggenheim Credit Services, LLC, as lenders, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on January 5, 2021.
10.2+		Credit Agreement, dated December 31, 2020, by and among Landec Corporation, Curation Foods, Inc. and Lifecore Biomedical, Inc., as borrowers, certain other subsidiary parties thereto, as guarantors, and BMO Harris Bank., N.A., as lender and administrative agent, incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on January 5, 2021.
31.1*		Certification of Principal Executive Officer pursuant to ~~section~~Section 302 of the Sarbanes-Oxley Act of 2002.

~~31.2+~~31.2*		~~CFO~~ Certification of Principal Financial Officer pursuant to ~~section~~Section 302 of the Sarbanes-Oxley Act of 2002.

~~32.1+~~32.1*		~~CEO~~ Certification of Principal Executive Officer pursuant to ~~section~~Section 906 of the Sarbanes-Oxley Act of 2002.

~~32.2+~~32.2*		~~CFO~~ Certification of Principal Financial Officer pursuant to ~~section~~Section 906 of the Sarbanes-Oxley Act of 2002.
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
+		Filed herewith.
+*		~~Filed~~Furnished herewith.

** XBRL	information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.



			LANDEC CORPORATION

			By:			/s/ ~~Gregory S. Skinner~~Brian McLaughlin
						~~Gregory S. Skinner~~Brian McLaughlin
						~~Executive~~Chief Financial Officer and Vice President of Finance and Administration ~~and Chief Financial Officer~~
						(Principal Financial and Accounting Officer)