UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the Fiscal Quarter Ended August ~~29, 2021,~~28, 2022, 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: 000-27446

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)


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

(650) 306-1650

(Registrant's telephone number, including area code)

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


Title of each class	Trading Symbol	Name of each exchange on which registered
Common stock, 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ 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 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

☒

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 ☒

As of October ~~4, 2021,~~3, 2022, there were ~~29,461,710~~29,595,554 shares of common stock outstanding.

Table of Contents

LANDEC CORPORATION

FORM 10-Q

For the Fiscal Quarter Ended August ~~29, 2021~~28, 2022

INDEX


			Page




Part I.	Financial Information

Item 1.	Financial Statements

	a)	Consolidated Balance Sheets as of August 2 8 , 2022 and May 29 , ~~202~~1 ~~and May 3~~0 , 20 212 2	1

	b)	Consolidated Statements of Comprehensive (Loss) Income for the Three Months Ended ~~August~~ 29August 2 8 , ~~202~~2022 and 1August ~~and August~~ 2 309 , 2 02 02021	2

	c)	Consolidated Statement of Changes in Stockholders' Equity for the Three Months Ended ~~August~~ 29August 2 8 , ~~202~~2022 and 1August ~~and August~~ 2 309 , 20 202021	3

	d)	Consolidated Statements of Cash Flows for the Three Months Ended ~~August~~ 29August 2 8 , ~~202~~2022 and 1August ~~and August~~ 2 309 , 2 ~~020~~2021	4

	e)	Notes to Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2019

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		2826

Item 4.	Controls and Procedures		2826

Part II.	Other Information		2928

Item 1.	Legal Proceedings		2928

Item 1A.	Risk Factors		2928

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		2928

Item 3.	Defaults Upon Senior Securities		2928

Item 4.	Mine Safety Disclosures		2928

Item 5.	Other Information		2928

Item 6.	Exhibits		3029

	Signatures		3130

Table of Contents

LANDEC CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)


		August 29, 2021		May 30, 2021			August 28, 2022		May 29, 2022
		(unaudited)					(unaudited)
ASSETS	ASSETS					ASSETS
Current Assets:	Current Assets:					Current Assets:
Cash and cash equivalents	Cash and cash equivalents	$	1,447	$	1,295	Cash and cash equivalents	$	4,222	$	1,643
Accounts receivable, less allowance for credit losses	Accounts receivable, less allowance for credit losses	61,956		70,013		Accounts receivable, less allowance for credit losses	40,934		48,172
Inventories	Inventories	69,415		69,663		Inventories	64,285		66,845
Prepaid expenses and other current assets	Prepaid expenses and other current assets	9,591		7,350		Prepaid expenses and other current assets	7,157		7,052

Total Current Assets	Total Current Assets	142,409		148,321		Total Current Assets	116,598		123,712

Investment in non-public company, fair value		—		45,100

Property and equipment, net	Property and equipment, net	180,460		179,559		Property and equipment, net	129,024		130,435
Operating lease right-of-use assets	Operating lease right-of-use assets	14,299		20,827		Operating lease right-of-use assets	8,229		8,580
Goodwill	Goodwill	69,386		69,386		Goodwill	13,881		13,881
Trademarks/tradenames, net	Trademarks/tradenames, net	25,328		25,328		Trademarks/tradenames, net	8,400		8,400
Customer relationships, net	Customer relationships, net	10,295		10,792		Customer relationships, net	6,875		7,150
Other assets	Other assets	3,442		3,611		Other assets	2,793		3,002

Total Assets	Total Assets	$	445,619	$	502,924	Total Assets	$	285,800	$	295,160

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:	Current Liabilities:					Current Liabilities:
Accounts payable	Accounts payable	$	46,355	$	47,569	Accounts payable	$	16,366	$	15,802
Accrued compensation	Accrued compensation	9,173		12,304		Accrued compensation	6,373		9,238
Other accrued liabilities	Other accrued liabilities	10,855		7,996		Other accrued liabilities	7,832		7,647
Current portion of lease liabilities	Current portion of lease liabilities	4,054		3,889		Current portion of lease liabilities	5,021		5,026
Deferred revenue	Deferred revenue	1,216		1,130		Deferred revenue	803		919
Line of credit	Line of credit	32,000		29,000		Line of credit	44,000		40,000

Current portion of long-term debt, net						Current portion of long-term debt, net	2,704		599

Total Current Liabilities	Total Current Liabilities	103,653		101,888		Total Current Liabilities	83,099		79,231

Long-term debt, net	Long-term debt, net	123,833		164,902		Long-term debt, net	95,865		97,579
Long-term lease liabilities	Long-term lease liabilities	17,072		23,611		Long-term lease liabilities	9,447		9,983
Deferred taxes, net	Deferred taxes, net	4,091		6,140		Deferred taxes, net	291		232
Other non-current liabilities	Other non-current liabilities	3,105		3,599		Other non-current liabilities	199		190

Total Liabilities	Total Liabilities	251,754		300,140		Total Liabilities	188,901		187,215

Stockholders’ Equity:	Stockholders’ Equity:					Stockholders’ Equity:
Common stock, $0.001 par value; 50,000 shares authorized; 29,462 and 29,333 shares issued and outstanding at August 29, 2021 and May 30, 2021, respectively		29		29
Common stock, $0.001 par value; 50,000 shares authorized; 29,593 and 29,513 shares issued and outstanding at August 28, 2022 and May 29, 2022, respectively						Common stock, $0.001 par value; 50,000 shares authorized; 29,593 and 29,513 shares issued and outstanding at August 28, 2022 and May 29, 2022, respectively	30		30
Additional paid-in capital	Additional paid-in capital	165,725		165,533		Additional paid-in capital	168,070		167,352
Retained earnings		29,103		38,580
Retained earnings (accumulated deficit)						Retained earnings (accumulated deficit)	(70,915)		(58,851)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(992)		(1,358)		Accumulated other comprehensive loss	(286)		(586)
Total Stockholders’ Equity	Total Stockholders’ Equity	193,865		202,784		Total Stockholders’ Equity	96,899		107,945
Total Liabilities and Stockholders’ Equity	Total Liabilities and Stockholders’ Equity	$	445,619	$	502,924	Total Liabilities and Stockholders’ Equity	$	285,800	$	295,160

See accompanying notes to the consolidated financial statements.

-1-

Table of Contents

LANDEC CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)

(In thousands, except per share amounts)

Three Months Ended
August 29, 2021 August 30, 2020
Product sales
$ 128,788 $ 135,643
Cost of product sales
111,269 119,296
Gross profit 17,519 16,347
Operating costs and expenses:
Research and development 2,826 2,508
Selling, general and administrative 15,939 17,903
Restructuring costs 2,562 8,404
Total operating costs and expenses 21,327 28,815
Operating loss (3,808) (12,468)
Dividend income — 281
Interest income 27 8
Interest expense (7,917) (3,109)
Other income (expense), net 109 (21)
Net loss before tax (11,589) (15,309)
Income tax benefit 2,112 4,309
Net loss $ (9,477) $ (11,000)
Net loss per common share:
Basic $ (0.32) $ (0.38)
Diluted $ (0.32) $ (0.38)
Shares used in per share computation:
Basic 29,424 29,242
Diluted 29,424 29,242
Other comprehensive income (loss), net of tax:
Net unrealized gain (losses) on interest rate swaps (net of tax effect of $(90) and $(121)) $ 366 $ 304
Other comprehensive income (loss), net of tax 366 304
Total comprehensive loss $ (9,111) $ (10,696)


	Three Months Ended
	August 28, 2022		August 29, 2021
Product sales	$	43,355	$	41,632
Cost of product sales	37,534		31,197
Gross profit	5,821		10,435
Operating costs and expenses:
Research and development	2,048		1,873
Selling, general and administrative	10,883		9,470



Restructuring costs	1,047		1,834
Total operating costs and expenses	13,978		13,177
Operating loss	(8,157)		(2,742)

Interest income	15		27
Interest expense	(3,678)		(6,678)

Other income (expense), net	(180)		109
Net loss before tax	(12,000)		(9,284)
Income tax (expense) benefit	(64)		1,651
Net loss from continuing operations	(12,064)		(7,633)




Loss from discontinued operations, net of tax	—		(1,844)
Net loss	$	(12,064)	$	(9,477)

Basic net loss per share:
Loss from continuing operations	$	(0.41)	$	(0.26)
Loss from discontinued operations	—		(0.06)
Total basic net loss per share	$	(0.41)	$	(0.32)

Diluted net loss per share:
Loss from continuing operations	$	(0.41)	$	(0.26)
Loss from discontinued operations	—		(0.06)
Total diluted net loss per share	$	(0.41)	$	(0.32)

Shares used in per share computation:
Basic	29,577		29,424
Diluted	29,577		29,424

Other comprehensive income (loss), net of tax:
Net unrealized gain (losses) on interest rate swaps (net of tax effect of $(16) and $(90))	$	300	$	366
Other comprehensive income (loss), net of tax	300		366
Total comprehensive loss	$	(11,764)	$	(9,111)

See accompanying notes to the consolidated financial statements.

-2-

Table of Contents

LANDEC CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(In ~~thousands, except per share amounts)~~thousands)


Three Months Ended August 29, 2021
Three Months Ended August 28, 2022																				Three Months Ended August 28, 2022
					Additional Paid-in Capital				Retained Earnings			Accumulated Other Comprehensive Loss					Total Stockholders’ Equity										Additional Paid-in Capital			Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
		Common Stock									Common Stock
		Shares	Amount								Shares									Amount
Balance at May 30, 2021		29,333	$	29			$	165,533							$	38,580					$	(1,358)		$	202,784
Balance at May 29, 2022																				Balance at May 29, 2022	29,513			$	30			$	167,352		$	(58,851)		$	(586)		$	107,945
Issuance of stock under stock plans, net of shares withheld	Issuance of stock under stock plans, net of shares withheld	129	—				—							—					—				—	Issuance of stock under stock plans, net of shares withheld		80			—			—			—			—	—
Taxes paid by Company for employee stock plans	Taxes paid by Company for employee stock plans	—	—		(428)				—			—					(428)			Taxes paid by Company for employee stock plans	—			—			(67)			—			—			(67)
Stock-based compensation	Stock-based compensation	—	—		620				—			—					620			Stock-based compensation	—			—			785			—			—			785
Net loss	Net loss	—	—		—				(9,477)			—					(9,477)			Net loss	—			—			—			(12,064)			—			(12,064)
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—	—		—				—			366					366			Other comprehensive income, net of tax	—			—			—			—			300			300
Balance at August 29, 2021		29,462	$	29	$	165,725			$	29,103		$	(992)				$	193,865
Balance at August 28, 2022																				Balance at August 28, 2022	29,593			$	30		$	168,070		$	(70,915)		$	(286)		$	96,899


Three Months Ended August 30, 2020
Three Months Ended August 29, 2021																				Three Months Ended August 29, 2021
					Additional Paid-in Capital				Retained Earnings			Accumulated Other Comprehensive Loss					Total Stockholders’ Equity												Additional Paid-in Capital				Retained Earnings (Accumulated Deficit)				Accumulated Other Comprehensive Loss				Total Stockholders’ Equity
		Common Stock									Common Stock
		Shares	Amount								Shares									Amount
Balance at May 31, 2020	Balance at May 31, 2020	29,224	$	29			$	162,578							$	71,245					$	(2,808)		$	231,044		Balance at May 31, 2020	29,333				$	29			$	165,533			$	38,580			$	(1,358)		$	202,784
Issuance of stock under stock plans, net of shares withheld	Issuance of stock under stock plans, net of shares withheld	18	—				—							—					—				—	Issuance of stock under stock plans, net of shares withheld		129					—				—				—				—			—
Taxes paid by Company for employee stock plans	Taxes paid by Company for employee stock plans	—	—		(82)				—			—					(82)			Taxes paid by Company for employee stock plans	—			—						(428)				—				—				(428)
Stock-based compensation	Stock-based compensation	—	—		892				—			—					892			Stock-based compensation	—			—					620				—				—				620
Net loss	Net loss	—	—		—				(11,000)			—					(11,000)			Net loss	—			—					—				(9,477)				—				(9,477)
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—	—		—				—			304					304			Other comprehensive income, net of tax	—			—					—				—				366				366
Balance at August 30, 2020		29,242	$	29	$	163,388			$	60,245		$	(2,504)				$	221,158
Balance at August 29, 2021																				Balance at August 29, 2021	29,462			$	29				$	165,725			$	29,103			$	(992)			$	193,865

See accompanying notes to the consolidated financial statements.

-3-

Table of Contents

LANDEC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


		Three Months Ended					Three Months Ended
		August 29, 2021		August 30, 2020			August 28, 2022		August 29, 2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net loss	Net loss	$	(9,477)	$	(11,000)	Net loss	$	(12,064)	$	(9,477)
Adjustments to reconcile net loss to net cash provided by operating activities:
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:						Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Depreciation, amortization of intangibles, debt costs and right-of-use assets	Depreciation, amortization of intangibles, debt costs and right-of-use assets	5,054		5,102		Depreciation, amortization of intangibles, debt costs and right-of-use assets	5,009		5,054
Gain on sale of BreatheWay						Gain on sale of BreatheWay	(2,108)		—
Stock-based compensation expense						Stock-based compensation expense	785		620
Deferred taxes	Deferred taxes	(2,138)		(4,349)		Deferred taxes	43		(2,138)
Stock-based compensation expense		620		892
Gain on disposal of property and equipment related to restructuring, net						Gain on disposal of property and equipment related to restructuring, net	—		(92)
Provision for expected credit losses	Provision for expected credit losses	60		35		Provision for expected credit losses	—		60
Net loss on disposal of property and equipment held and used						Net loss on disposal of property and equipment held and used	—		16

Net loss (gain) on disposal of property and equipment held and used		16		(11)

(Gain) loss on disposal of property and equipment related to restructuring, net		(92)		6,005

Other, net	Other, net	(70)		21		Other, net	(18)		(70)
Changes in current assets and current liabilities:	Changes in current assets and current liabilities:					Changes in current assets and current liabilities:
Accounts receivable, net	Accounts receivable, net	7,997		11,144		Accounts receivable, net	7,238		7,997
Inventories		248		6,313
Inventory						Inventory	2,560		248
Prepaid expenses and other current assets	Prepaid expenses and other current assets	(2,697)		1,353		Prepaid expenses and other current assets	(761)		(2,697)
Accounts payable	Accounts payable	1,517		917		Accounts payable	581		1,517
Accrued compensation	Accrued compensation	(3,131)		(139)		Accrued compensation	(2,865)		(3,131)
Other accrued liabilities	Other accrued liabilities	2,838		613		Other accrued liabilities	183		2,838
Deferred revenue	Deferred revenue	86		125		Deferred revenue	(116)		86
Net cash provided by operating activities		831		17,021
Net cash (used in) provided by operating activities						Net cash (used in) provided by operating activities	(1,533)		831

Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Proceeds from sale of BreatheWay, net						Proceeds from sale of BreatheWay, net	3,135		—

Purchases of property and equipment						Purchases of property and equipment	(2,929)		(7,913)
Sale of Investment in non-public company	Sale of Investment in non-public company	45,100		—		Sale of Investment in non-public company	—		45,100
Purchases of property and equipment		(7,913)		(4,623)

Proceeds from sales of property and equipment	Proceeds from sales of property and equipment	1,082		4,855		Proceeds from sales of property and equipment	—		1,082
Net cash provided by investing activities	Net cash provided by investing activities	38,269		232		Net cash provided by investing activities	206		38,269

Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:

Payments on long-term debt	Payments on long-term debt	(41,388)		(8,030)		Payments on long-term debt	(27)		(41,388)
Proceeds from lines of credit	Proceeds from lines of credit	8,000		11,000		Proceeds from lines of credit	4,000		8,000
Payments on lines of credit	Payments on lines of credit	(5,000)		(19,400)		Payments on lines of credit	—		(5,000)
Taxes paid by Company for employee stock plans						Taxes paid by Company for employee stock plans	(67)		(428)
Payments for debt issuance costs	Payments for debt issuance costs	(132)		(512)		Payments for debt issuance costs	—		(132)

Taxes paid by Company for employee stock plans		(428)		(82)
Net cash used in financing activities		(38,948)		(17,024)
Net increase in cash, cash equivalents and restricted cash		152		229
Cash, cash equivalents and restricted cash, beginning of period		1,295		553
Cash, cash equivalents and restricted cash, end of period		$	1,447	$	782
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	3,906		(38,948)
Net increase in cash and cash equivalents						Net increase in cash and cash equivalents	2,579		152
Cash and cash equivalents, beginning of period						Cash and cash equivalents, beginning of period	1,643		1,295
Cash and cash equivalents, end of period						Cash and cash equivalents, end of period	$	4,222	$	1,447

Supplemental disclosure of non-cash investing and financing activities:	Supplemental disclosure of non-cash investing and financing activities:					Supplemental disclosure of non-cash investing and financing activities:
Purchases of property and equipment on trade vendor credit	Purchases of property and equipment on trade vendor credit	$	1,994	$	978	Purchases of property and equipment on trade vendor credit	$	2,243	$	1,994

See accompanying notes to the consolidated financial statements.

-4-

Table of Contents

LANDEC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Organization

Landec Corporation and its subsidiaries (“Landec” or the “Company”) design, develop, manufacture, and sell differentiated products for food and biomaterials markets, and license technology applications to partners.

Landec’s biomedical company, Lifecore Biomedical, Inc. (“Lifecore”), is a fully integrated contract development and manufacturing organization (“CDMO”) that offers highly differentiated capabilities in the development, fill and finish of sterile, injectable-grade pharmaceutical products in syringes and vials. As a leading manufacturer of premium, injectable grade Hyaluronic Acid, Lifecore brings 3637 years of expertise as a partner for global and emerging biopharmaceutical and biotechnology companies across multiple therapeutic categories to bring their innovations to market. Lifecore recognizes revenue in two different product categories, CDMO and Fermentation.

Landec’s natural food company, Curation Foods, Inc. (“Curation Foods”), is focused on innovating and distributing plant-based foods with 100% clean ingredients to retail, club and foodservice channels throughout North America. ~~Curation Foods is able to maximize product freshness through its geographically dispersed family of growers, refrigerated supply chain and patented BreatheWay packaging technology.~~ Its products are sold in natural food, conventional grocery and mass retail stores, primarily in the United States and Canada. The company categorizes revenue in three ~~categories, fresh packaged salads~~categories: avocado products, olive oil and ~~vegetables, avocado products~~wine vinegars and technology, which reports revenues for BreatheWay patented supply chain solutions. ~~Included in the~~

Eat Smart Sale and Discontinued Operations

On December 13, 2021 (the “Closing Date”), Landec and Curation Foods ~~segment~~(together, the “Sellers”), and ~~fresh packaged salads~~Taylor Farms Retail, Inc. (“Taylor Farms” and ~~vegetables revenue disaggregation is O Olive Oil & Vinegar (“~~O”together with the Sellers, the “Parties”) completed the sale (the “Eat Smart Disposition”) of Curation Foods’ Eat Smart business, including its salad and cut vegetable businesses (the “Business”), ~~which is~~pursuant to the terms of an asset purchase agreement executed by the Parties on December 13, 2021 (the “Asset Purchase Agreement”). Pursuant to the Asset Purchase Agreement, Taylor Farms acquired the Business for a ~~premier producer~~purchase price of ~~California specialty olive oils and wine vinegars. Also included in the Curation Foods segment are the dividends from and Landec’s share~~$73.5 million, subject to post-closing adjustments based upon negotiation of the ~~change in~~net working capital balances at the ~~fair market value~~Closing Date. As part of the Eat Smart Disposition, Taylor Farms acquired, among other assets and liabilities related to the Business, the manufacturing facility and warehouses (and corresponding equipment) located in Bowling Green, Ohio and Guadalupe, California, as well as inventory, accounts receivable, accounts payable, intellectual property and information related to the Business, and assumed certain liabilities and executory obligations under the Company’s ~~26.9% investment~~and Curation Foods’ outstanding contracts related to the Business, in ~~Windset Holdings 2010 Ltd. (“Windset”), until~~each case, subject to the ~~Company sold that investment~~terms of the Asset Purchase Agreement.

The accounting requirements for reporting the Eat Smart business as a discontinued operation were met when the Eat Smart Disposition was completed on ~~June 1, 2021.~~the Closing Date. Accordingly, the consolidated financial statements and notes to the consolidated financial statements reflect the results of the Eat Smart business as a discontinued operation for the periods presented. Refer to Note 9 - Discontinued Operations for additional information.

Basis of Presentation

The accompanying unaudited consolidated financial statements of Landec have been prepared in accordance with 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 August ~~29, 2021,~~28, 2022, 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 (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 ~~30, 2021~~29, 2022 (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.

-5-

Table of Contents

The results of operations for the three months ended August ~~29, 2021~~28, 2022 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, Lifecore and Curation ~~Foods and Lifecore.~~Foods. All material inter-company transactions and balances have been eliminated.

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

~~-5-~~

~~Table of Contents~~

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 equity investment in the non-public company by the Company is not a VIE.

Use of Estimates

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

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 and cash equivalents and ~~restricted~~ cash ~~reported~~and cash equivalents, discontinued operations within the Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows:


(In thousands)	(In thousands)	August 29, 2021		May 30, 2021		August 30, 2020		May 31, 2020		(In thousands)	August 28, 2022		May 29, 2022		August 29, 2021		May 30, 2021
Cash and cash equivalents	Cash and cash equivalents	$	1,447	$	1,295	$	589	$	360	Cash and cash equivalents	$	4,222	$	1,643	$	1,406	$	1,159
Restricted cash		—		—		193		193
Cash and cash equivalents, discontinued operations										Cash and cash equivalents, discontinued operations	—		—		41		136

Cash, cash equivalents and restricted cash		$	1,447	$	1,295	$	782	$	553

Cash and cash equivalents										Cash and cash equivalents	$	4,222	$	1,643	$	1,447	$	1,295

Inventories

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

(In thousands) August 29, 2021 May 30, 2021
Finished goods $ 35,142 $ 39,493
Raw materials 30,344 23,942
Work in progress 3,929 6,228
Total $ 69,415 $ 69,663


(In thousands)	August 28, 2022		May 29, 2022
Finished goods	$	25,266	$	33,029
Raw materials	27,402		24,221
Work in progress	11,617		9,595
Total	$	64,285	$	66,845

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.

-6-

Table of Contents

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.

~~-6-~~

~~Table of Contents~~

The Company uses the loss rate method to estimate its expected credit losses on trade accounts receivable and contract assets. In order to estimate expected credit losses, the Company assessed recent historical experience, current economic conditions and any reasonable and supportable forecasts to identify risk characteristics that are shared within the financial asset. These risk characteristics are then used to bifurcate the loss rate method into risk pools. The risk pools were determined based on the industries in which the Company operates. Historical credit loss for each risk pool is then applied to the current period aging as presented in the identified risk pools to determine the needed reserve allowance. At times when there are no current economic conditions or forecasts that may affect future credit losses, the Company has determined that recent historical experience provides the best basis for estimating credit losses.

The information obtained from assessing historical experience, current economic conditions and reasonable and supportable forecasts were used to identify risk characteristics that can affect future credit loss experience. There were no significant risk characteristics identified in the review of historical experiences or in the review of estimates of current economic conditions and forecasts.

Estimating credit losses based on risk characteristics requires significant judgment by management. Significant judgments include, but are not limited to: assessing current economic conditions and the extent to which they are relevant to the existing characteristics of the Company’s financial assets, the estimated life of financial assets, and the level of reliance on historical experience in light of economic conditions. The Company will continually review and update, when necessary, its historical risk characteristics that are meaningful to estimating credit losses, any new risk characteristics that arise in the natural course of business, and the estimated life of its financial assets.

The changes in the Company’s allowance for sales returns and credit losses are summarized in the following table (in thousands):

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

~~Related Party Transactions~~

The Company sells and licenses its BreatheWay® food packaging technology to Windset, in which, as further described in Note 2, the Company had a 26.9% ownership interest until it sold that interest on June 1, 2021. During the three months ended August 30, 2020, the Company recognized revenues of $0.1 million from product sales to and license fees from Windset. This amount has been included in Product sales in the accompanying Consolidated Statements of Comprehensive (Loss) Income. The receivable balance of $0.1 million is included in Accounts receivable in the accompanying Consolidated Balance Sheets as of May 30, 2021.

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


	Balance at beginning of period		Provision (benefit) for expected credit losses		Write offs, net of recoveries		Balance at end of period
Three months ended August 29, 2021	$	85	$	—	$	—	$	85
Three months ended August 28, 2022	$	65	$	—	$	—	$	65

Debt Issuance Costs

The Company records its line of credit debt issuance costs as an asset, and as such, $0.7 million and ~~$2.3~~$1.7 million were recorded as Prepaid expenses and other current assets, and Other assets in the accompanying Consolidated Balance Sheets, respectively, as of August ~~29, 2021,~~28, 2022, and $0.7 million and ~~$2.4~~$1.9 million, respectively, as of May ~~30, 2021.~~29, 2022. The Company records its term debt issuance costs as a contra-liability, and as such, ~~$1.4~~$1.5 million and ~~$4.8~~$3.6 million was recorded as ~~Other accrued liabilities,~~Current portion of long-term debt, net, and Long-term debt, net in the accompanying Consolidated Balance Sheets, respectively, as of August ~~29, 2021~~28, 2022 and ~~$1.4~~$1.5 million and ~~$5.1~~$4.0 million, respectively, as of May ~~30, 2021.~~29, 2022.

Financial Instruments

The Company’s financial instruments are primarily composed of commercial-term trade payables, ~~grower advances, notes receivable,~~ debt instruments, and 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 their carrying value.

~~-7-~~

~~Table of Contents~~

Cash Flow Hedges

The Company has entered into interest rate swap 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 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. The accounting for changes in the fair value of the derivative instrument depends on the intended use of the derivative instrument and the resulting designation.

-7-

Table of Contents

For derivative instruments that hedge the exposure to variability in expected future cash flows and are designated as cash flow hedges, the entire change in the fair value of the hedging instrument is recorded as a component of Accumulated other comprehensive loss (“AOCL”) in Stockholders’ Equity. Those amounts are subsequently reclassified to earnings in the same line item in the Consolidated Statements of Comprehensive (Loss) Income as impacted when the hedged item affects earnings. To receive hedge accounting treatment, cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions.

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

Accumulated Other Comprehensive Loss

Comprehensive income (loss) consists of two components, net loss and Other comprehensive income (loss) (“OCI”). OCI refers to revenue, expenses, and gains and losses that under GAAP are recorded as a component of stockholders’ equity but are excluded from net ~~(loss) income.~~loss. The Company’s OCI consists of net deferred gains and losses on its interest rate swap derivative instruments. The components of AOCL, net of tax, are as follows:


(In thousands)	AOCL
Balance as of May ~~30, 2021~~29, 2022	$	~~(1,358)~~(586)

Amounts reclassified from OCI	~~366~~300
Other comprehensive income, net	~~366~~$	300
Balance as of August ~~29, 2021~~28, 2022	$	~~(992)~~(286)

The Company expects to reclassify approximately ~~$0.7~~$0.3 million into earnings in the next 12 months.

~~Investment in Non-Public Company~~

On February 15, 2011, the Company made an investment in Windset which is reported as an investment in non-public company, fair value, in the accompanying Consolidated Balance Sheets as of May 30, 2021. The Company has elected to account for its investment in Windset under the fair value option. See Note 2 – Investment in Non-public Company for further information. On June 1, 2021, the Company sold all of its equity interest in Windset to the Newell Capital Corporation and Newell Brothers Investment 2 Corp.

Assets Held for Sale

In January 2020, the Company decided to seek to divest its Curation Foods salad dressing plant in Ontario, California (“Ontario”). During fiscal year 2020, the Company (1) designated the fixed assets of its office and manufacturing space located in Ontario, California, as assets held for sale, and (2) recognized a $10.9 million impairment loss. In the first quarter of fiscal year 2021, the Company sold its interest in Ontario. The Company received net cash proceeds of $4.9 million in connection with the sale, and recorded a gain of $2.8 million during the three months ended August 30, 2020, which is included in Restructuring costs within the Consolidated Statements of Comprehensive (Loss) Income.

In June 2020 the Board of Directors approved a plan to close Curation Foods’ underutilized manufacturing operations in Hanover, Pennsylvania (“Hanover”), sell the building and assets related thereto, and consolidate its operations into its manufacturing facilities in Guadalupe, California and Bowling Green, Ohio. In the first quarter of fiscal year 2021, the Company recognized an $8.8 million impairment loss, which is included in Restructuring costs within the Consolidated Statements of

~~-8-~~

~~Table of Contents~~

~~Comprehensive (Loss) Income. During the second quarter of fiscal year 2021, the Company sold the Hanover building and assets related thereto for net proceeds of $8.0 million, no gain or loss was recorded upon the sale.~~

In May 2021 the Board of Directors approved a plan to sell Curation Foods’ Rock Hill, South Carolina distribution facility. The $0.5 million carrying value of this asset was included in prepaid expenses and other current assets on the Consolidated Balance Sheets as of May 30, 2021, and was classified as an asset held for sale.facility. There was no impairment recorded in fiscal year 2021. The asset was sold on June 9, 2021 for gross proceeds of $1.1 million. A gain of $0.6 million was recorded upon the sale, which is included in ~~Restructuring costs~~loss from discontinued operations within the Consolidated Statements of Comprehensive (Loss) Income.

In May 2022 the Board of Directors approved a plan to sell the assets of Curation Foods’ BreatheWay packaging technology business. The $1.0 million carrying value of these assets ($0.9 million of inventory and $0.1 million net book value of property and equipment) are included in Prepaid expenses and other current assets on the Consolidated Balance Sheets as of May 29, 2022, and were classified as assets held for sale. There was no impairment recorded in fiscal year 2022. These assets were sold during the first quarter of fiscal year 2023 for net proceeds of $3.1 million. A gain of $2.1 million was recorded upon the sale, which is included in Selling, general and administrative within the Consolidated Statements of Comprehensive (Loss) Income.

Leases

Under Topic 842, the Company determines if an arrangement is a lease at inception. Right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of the leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate is a quoted rate based on the understanding of what the Company's credit rating would be. Certain agreements may contain the option to extend the lease term, terminate the lease before the contractual expiration date, or purchase the leased asset. The Company, when reasonably certain to exercise the option, considers these options in determining the measurement of the lease. The Company's lease agreements do not contain any material residual value guarantees.

-8-

Table of Contents

The Company's lease agreements generally contain lease and non-lease components. Non-lease components primarily include payments for maintenance and utilities. The Company combines fixed payments for non-lease components with lease payments and accounts for them together as a single lease component which increases the amount of lease assets and liabilities.

Payments under lease arrangements are primarily fixed; however, certain lease agreements contain variable payments, which are expensed as incurred and are not included in the operating lease assets and liabilities. These amounts primarily include payments affected by changes in price indices.

Intangible Assets

The Company’s intangible assets are comprised of customer relationships with a finite estimated useful life ~~ranging from 11 years to 13~~of 12 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.

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. 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 August ~~29, 2021~~28, 2022 and May ~~30, 2021,~~29, 2022, 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. ~~The investment in Windset was required to be measured at fair value on a recurring basis at May 30, 2021.~~

~~-9-~~

~~Table of Contents~~

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~~Prepaid expenses and other current assets ~~or Other non-current liabilities~~ in the accompanying Consolidated Balance Sheets.

As of May ~~30, 2021,~~29, 2022, related to the assets of Curation Foods’ ~~distribution facility in Rock Hill, South Carolina~~BreatheWay packaging technology business, the Company had ~~$0.5~~$1.0 million in ~~prepaid~~Prepaid expenses and other current assets within the Consolidated Balance Sheet meeting the criteria of ~~assets~~ held for sale. These assets are recognized at the lower of cost or fair value less cost to sell using market approach. The fair value of these assets are classified as level 3 in the fair value hierarchy due to a mix of unobservable inputs utilized such as independent research in the market as well as actual quotes from market participants. ~~See Note 8 for additional information.~~

The Company elected the fair value option of accounting for its investment in Windset. The calculation of fair value utilized significant unobservable inputs, including projected cash flows, growth rates, and discount rates. As a result, the Company’s investment in Windset was considered to be a Level 3 measurement investment. The Company sold its entire investment in Windset on June 1, 2021 for $45.1 million.

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


	August 29, 2021 Range (Weighted Average)	May 30, 2021 Range (Weighted Average)
~~Revenue growth rates~~	~~N/A~~	~~7% (6.9%)~~
~~Expense growth rates~~	~~N/A~~	~~0% to 8% (5.5)%~~

~~Discount rates~~	~~N/A~~	~~10%~~

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:

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

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


~~(In thousands)~~	~~Windset Investment~~
~~Balance as of May 30, 2021~~	$	~~45,100~~
~~Sale of Investment in non-public company~~	~~(45,100)~~
~~Balance as of August 29, 2021~~	$	—


(In thousands)	Fair Value at August 28, 2022						Fair Value at May 29, 2022
Assets:	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Interest rate swap contracts	$	—	$	86	$	—	$	—	$	—	$	—

Assets held for sale - nonrecurring	—		—		—		—		—		1,027


Total assets	$	—	$	86	$	—	$	—	$	—	$	1,027

~~-10-~~-9-

Table of Contents

Revenue Recognition

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 or as the Company satisfies its performance obligations under a contract and control of the product is transferred to the customer.

~~Curation Foods~~

Curation Foods’ standard terms of sale are generally included in its contracts and purchase orders. Revenue is recognized at the time shipment is made or upon delivery as control of the product is transferred to the customer. Shipping and other transportation costs charged to customers are recorded in both revenue and cost of goods sold. Curation Foods has elected to account for shipping and handling as fulfillment activities, and not as a separate performance obligation. Curation Foods’ standard payment terms with its customers generally range from 30 days to 90 days. Certain customers may receive cash-based incentives (including: volume rebates, discounts, and promotions), which are accounted for as variable consideration to Curation Foods’ performance obligations. Curation Foods estimates these sales incentives based on the expected amount to be provided to its customers and reduces revenues recognized towards its performance obligations. The Company has not historically had and does not anticipate significant changes in its estimates for variable consideration.

Lifecore

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

Aseptic

Lifecore provides aseptic formulation and filling of syringes and vials with precisely formulated medical grade HA and non-HA materials for injectable products used for medical purposes. In instances where our customers contract with us to aseptically fill syringes or vials with our HA, the goods are not distinct in the context of the contract. Lifecore recognizes revenue for these products at the point in time when legal title to the product is transferred to the customer, which is at the time that shipment is made or upon delivery of the product.

Development Services

Lifecore provides product development services to assist its customers in obtaining regulatory approval for the commercial sale of their drug product. These services include activities such as technology development, material component changes, analytical method development, formulation development, pilot studies, stability studies, process validation and production of materials for use within clinical studies. The Company’s customers benefit from the expertise of its scientists who have extensive experience performing such tasks.

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

Revenues generated from development services arrangements are recognized over time as Lifecore is creating an asset without an alternate use as it is unique to the customer. Furthermore, the Company has an enforceable right to payment for the performance completed to date for its costs incurred in satisfying the performance obligation plus a reasonable profit margin. For each of the development activities performed by Lifecore as described above, labor is the primary input (i.e., labor costs represent the majority of the costs incurred in the completion of the services). The Company determined that labor hours are the best measure of progress as it most accurately depicts the effort extended to satisfy the performance obligation over time.

Fermentation

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

Curation Foods

Curation Foods’ standard terms of sale, both prior to and following the Eat Smart Disposition, are generally included in its contracts and purchase orders. Revenue is recognized at the time shipment is made or upon delivery as control of the product is transferred to the customer. Shipping and other transportation costs charged to customers are recorded in both revenue and cost of goods sold. Curation Foods has elected to account for shipping and handling as fulfillment activities, and not as a separate performance obligation. Curation Foods’ standard payment terms with its customers generally range from 30 days to 90 days. Certain customers may receive cash-based incentives (including: volume rebates, discounts, and promotions), which are accounted for as variable consideration to Curation Foods’ performance obligations. Curation Foods estimates these sales incentives based on the expected amount to be provided to its customers and reduces revenues recognized towards its

~~-11-~~

-10-

Table of Contents

performance obligations. The Company has not historically had and does not anticipate significant changes in its estimates for variable consideration.

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

(In thousands) Three Months Ended
Curation Foods: August 29, 2021 August 30, 2020
Fresh packaged salads and vegetables $ 89,496 $ 96,179
Avocado products 16,962 17,017
Technology 378 643
Total $ 106,836 $ 113,839

(In thousands) Three Months Ended
Lifecore: August 29, 2021 August 30, 2020
Contact development and manufacturing organization $ 17,789 $ 16,488
Fermentation 4,163 5,316
Total $ 21,952 $ 21,804


(In thousands)	Three Months Ended
Lifecore:	August 28, 2022		August 29, 2021
Contract development and manufacturing organization	$	18,247	$	17,789
Fermentation	5,456		4,163

Total	$	23,703	$	21,952


(In thousands)	Three Months Ended
Curation Foods:	August 28, 2022		August 29, 2021
Avocado products	$	17,093	$	16,962
Olive oil and wine vinegars	2,559		2,340
Technology	—		378
Total	$	19,652	$	19,680

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 August ~~29, 2021~~28, 2022 and May ~~30, 2021,~~29, 2022, were ~~$10.5~~$12.8 million and ~~$10.6~~$10.2 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 August ~~29, 2021~~28, 2022 and May ~~30, 2021,~~29, 2022, were ~~$1.4~~$0.8 million and $0.9 million, respectively. Revenue recognized during the three months ended August ~~29, 2021,~~28, 2022, that was included in the contract liability balance at the beginning of fiscal year ~~2022,~~2023, was ~~$0.2~~$0.3 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 ship product from the processing facility or distribution center to the end consumer markets.

Legal Contingencies

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

The Company makes a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least each fiscal quarter and adjusted to reflect the impacts of negotiations, 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.

Compliance Matters and Related Litigation

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”) and the U.S. Department of Justice (“DOJ”) the conduct under investigation, and these agencies have commenced an investigation. The Company has also disclosed the conduct under investigation to the Mexican Attorney General’s Office, which has commenced an investigation, and to Mexican regulatory agencies. The Company is cooperating in the government investigations and requests for information. The conduct at issue began prior to the Yucatan Acquisition, and the agreement for

-11-

Table of Contents

the Yucatan Acquisition provides the Company with certain indemnification rights that may allow the Company to recover the cost of a portion of the liabilities that have been and may be incurred by the Company in connection with these compliance

~~-12-~~

~~Table of Contents~~

matters. 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 ~~$10.0~~$10 million in damages, including delivery of shares of his stock held in escrow for the indemnification claims described above. On November 3, 2020, the Company filed an answer and cross-complaint against the Plaintiff and other parties for fraud, indemnification, and other claims, and seeking no less than $80 million in damages.

At this stage, the ultimate outcome of these or any other investigations, legal actions, or potential claims that may arise from the matters under investigation is uncertain and the Company cannot reasonably predict the timing or outcomes, or estimate the amount of net loss after indemnification, or its effect, if any, on its financial statements. Separately, there are indemnification provisions in the purchase agreement that may allow the Company to recover costs for fraud or breach of the purchase agreement from the seller. Because recovery of amounts are contingent upon a legal settlement, no amounts have been recorded as recoverable costs ~~through~~for the three months ended August ~~29, 2021.~~28, 2022.

During the third quarter of fiscal year 2021 the Company reached a resolution with its insurance carrier that resulted in a recovery of $1.6 ~~million.~~million which is recorded as a reduction of Selling, general and administrative in the Consolidated Statements of Operations for the fiscal year ended May 30, 2021. Absent further material developments in the investigation, the Company does not expect additional material recovery from the insurance carrier.

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 represented a 26.9% ownership interest in Windset. The Senior A preferred shares yielded a cash dividend of 7.5% annually. The dividend was payable within 90 days of each anniversary of the execution of the Windset Purchase Agreement. The non-voting junior preferred stock did not yield a dividend unless declared by the Board of Directors of Windset and no such dividend has been declared.

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 August 30, 2020, the Company recorded $0.3 million in dividend income. There was no change in the fair market value of the Company’s investment in Windset for the three months ended August 30, 2020.

3. Stock-based Compensation and Stockholders' Equity

Stock-Based Compensation Activity

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

During the three months ended August ~~29, 2021,~~28, 2022, the Company granted ~~703,000~~725,000 options to purchase shares of common stock and awarded ~~83,000~~255,000 RSUs.

As of August ~~29, 2021,~~28, 2022, the Company has reserved ~~4.0~~3.6 million shares of common stock for future issuance under its current and former equity plans.

~~-13-~~-12-

Table of Contents

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 and is recognized over the required service periods, generally the vesting period.

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


		Three Months Ended				Three Months Ended
(In thousands)	(In thousands)	August 29, 2021		August 30, 2020			(In thousands)	August 28, 2022		August 29, 2021
Continuing operations:							Continuing operations:
Cost of product sales	Cost of product sales	$	37	$	123		Cost of product sales	$	101	$	81
Research and development	Research and development	49		64			Research and development	90		49
Selling, general and administrative	Selling, general and administrative	534		705			Selling, general and administrative	594		534
Discontinued Operations:							Discontinued Operations:
Cost of product sales							Cost of product sales	—		(44)
Total stock-based compensation	Total stock-based compensation	$	620	$	892		Total stock-based compensation	$	785	$	620

As of August ~~29, 2021,~~28, 2022, there was ~~$5.0~~$6.9 million of total unrecognized compensation expense related to unvested equity compensation awards granted under the Landec incentive stock plans. Total expense is expected to be recognized over the weighted-average period of ~~2.42~~2.43 years for stock options and ~~1.36~~2.24 years for RSUs.

Stock Repurchase Plan

On July 14, 2010, the Board of Directors of the Company approved the establishment of a stock repurchase plan which allows for the repurchase of up to $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 three months ended August 28, 2022 and August 29, 2021, the Company did not purchase any shares on the open market.

4. Diluted Earnings Per Share

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

Three Months Ended
(In thousands, except per share amounts) August 29, 2021 August 30, 2020
Numerator:
Net loss applicable to common stockholders $ (9,477) $ (11,000)
Denominator:
Weighted average shares for basic net loss per share 29,424 29,242
Effect of dilutive securities:
Stock options and restricted stock units — —
Weighted average shares for diluted net loss per share 29,424 29,242
Diluted net loss per share $ (0.32) $ (0.38)


	Three Months Ended
(In thousands, except per share amounts)	August 28, 2022		August 29, 2021
Numerator:
Net loss	$	(12,064)	$	(9,477)
Denominator:
Weighted average shares for basic net loss per share	29,577		29,424
Effect of dilutive securities:
Stock options and restricted stock units	—		—
Weighted average shares for diluted net loss per share	29,577		29,424

Diluted net loss per share	$	(0.41)	$	(0.32)

-13-

Table of Contents

Due to the Company’s net loss for the three months ended August ~~29, 2021~~28, 2022 and August ~~30, 2020,~~29, 2021, the net loss per share includes only the weighted average shares ~~outstanding. For the three months ended August 29, 2021~~outstanding and ~~August 30, 2020, the computation of the diluted net loss per share~~thus excludes ~~the impact of~~RSUs and stock options, ~~to purchase 1.4 million and 2.2 million shares of common stock, respectively,~~ as such ~~impacts~~impact would be ~~antidilutive~~antidilutive. See Note 3 - Stock Based Compensation and Stockholders' Equity for ~~these periods.~~more information on outstanding RSUs and stock options.

~~-14-~~

~~Table of Contents~~

5. Income Taxes

The provision for income taxes from continuing operations for the three months ended August 28, 2022 and August 29, 2021, was an expense of $0.1 million and ~~August 30, 2020, was~~ a benefit of ~~$2.1 million and $4.3~~$1.7 million, respectively. The effective tax rate for the three months ended August 28, 2022 and August 29, 2021 was 1% and ~~August 30, 2020 was~~ 18% ~~and 28%~~, respectively. The effective tax rate for the three months ended August ~~29, 2021,~~28, 2022, was lower than the statutory federal income tax rate of 21% primarily due to the movement of the valuation allowance recorded against certain deferred tax assets, partially offset by the impact of federal and state ~~taxes,~~research and ~~stock compensation including an adjustment for 162(m) related non-deductible officer’s compensation.~~development tax credits.

As of August ~~29, 2021~~28, 2022 and May ~~30, 2021,~~29, 2022, the Company had unrecognized tax benefits of $1.1 million and ~~$0.9~~$1.0 million, respectively. Included in the balance of unrecognized tax benefits as of August ~~29, 2021~~28, 2022 and May ~~30, 2021,~~29, 2022, is $1.0 million and ~~$0.8~~$0.9 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 August ~~29, 2021~~28, 2022 and May ~~30, 2021.~~29, 2022.

Due to tax attribute carryforwards, the Company is subject to examination for tax years ~~2017~~2013 forward for U.S. tax purposes. The Company is also subject to examination in various state jurisdictions for tax years ~~2015~~2012 forward, none of which were significant.

6. Debt

Long-term debt, net consists of the following:


(In thousands)	(In thousands)	August 29, 2021		May 30, 2021		(In thousands)	August 28, 2022		May 29, 2022
Term loan	Term loan	$	128,647	$	170,000	Term loan	$	103,712	$	103,712
Total principal amount of long-term debt	Total principal amount of long-term debt	128,647		170,000		Total principal amount of long-term debt	103,712		103,712
Less: unamortized debt issuance costs	Less: unamortized debt issuance costs	(4,814)		(5,098)		Less: unamortized debt issuance costs	(5,143)		(5,534)
Total long-term debt, net of unamortized debt issuance costs	Total long-term debt, net of unamortized debt issuance costs	123,833		164,902		Total long-term debt, net of unamortized debt issuance costs	98,569		98,178
Less: current portion of long-term debt, net	Less: current portion of long-term debt, net	—		—		Less: current portion of long-term debt, net	(2,704)		(599)
Long-term debt, net	Long-term debt, net	$	123,833	$	164,902	Long-term debt, net	$	95,865	$	97,579

On December 31, 2020, the Company refinanced its existing Term Loan and Revolver by entering into two separate Credit Agreements (the "New Credit Agreements") with BMO and Goldman Sachs Specialty Lending Group, L.P. (“Goldman”) and Guggenheim Credit Services, LLC ("Guggenheim"), as lenders (collectively, the “Refinance Lenders”). Pursuant to the credit agreement related to the revolving credit facility, BMO has provided the Company, Curation Foods and Lifecore, as co-borrowers, with an up to $75.0 million revolving line of credit (the “Refinance Revolver”) and serves as administrative agent of the Refinance Revolver. Pursuant to the credit agreement related to the term loan, Goldman and Guggenheim have provided the Company, Curation Foods and Lifecore, as co-borrowers, with an up to $170.0 million term loan facility (split equally between Goldman and Guggenheim) (the “Refinance Term Loan”) and Goldman serves as administrative agent of the Refinance Term Loan. The Refinance Revolver and Refinance Term Loan are guaranteed, and secured by, substantially all of the Company’s and the Company's direct and indirect subsidiaries' assets.

The Refinance Term Loan matures on December 31, 2025. The Refinance Revolver matures on December 31, 2025 or, if the Refinance Term Loan remains outstanding on such date, ninety (90) days prior to the maturity date of the Refinance Term Loan (on October 2, 2025).

The Refinance Term Loan provides for principal payments by the Company of 5% per annum, payable quarterly in arrears in equal installments, commencing on March 30, 2023, with the remainder due at maturity.

-14-

Table of Contents

Interest on the Refinance Revolver is based upon the Company’s average availability, at a per annum rate of either (i) LIBOR rate plus a spread of between 2.00% and 2.50% or (ii) base rate plus a spread of between 1.00% and 1.50%, plus a commitment fee, as applicable, of 0.375%. Interest on the Refinance Term Loan is at a per annum rate based on either (i) the base rate plus a spread of 7.50% or (ii) the LIBOR rate plus a spread of 8.50%. The Refinance Term Loan Credit Agreement also ~~states~~provides that in the event of a prepayment of any amount other than the scheduled installments within twelve months after the closing date,

~~-15-~~

~~Table of Contents~~

a penalty will be assessed equal to the aggregate amount of interest that would have otherwise been payable from date of prepayment event until twelve months after the closing date plus 3% of the amount prepaid.

The New Credit Agreements provide the Company the right to increase the revolver commitments under the Refinance Revolver, subject to the satisfaction of certain conditions (including consent from BMO), by obtaining additional commitments from either BMO or another lending institution at an amount of up to $15.0 million.

The New Credit Agreements contain customary financial covenants and events of default under which the obligations thereunder could be accelerated and/or the interest rate increased in specified circumstances.

In connection with the New Credit Agreements, the Company incurred debt issuance costs from the lender and third-parties of $10.3 million.

Concurrent with the close of the New Credit Agreements, the Company repaid all outstanding borrowings under the previous Credit Agreement, and terminated ~~the~~such previous Credit Agreement. In connection with the repayment of borrowings under ~~the~~such previous Credit Agreement, the Company recognized a loss in fiscal year 2021 of $1.1 million, as a result of the non-cash write-off of unamortized debt issuance costs related to the refinancing under the New Credit Agreements.

In April 2022 the Company amended the New Credit Agreement to make available again $20.0 million of term debt that had been previously repaid. In connection with this amendment, the Company incurred debt issuance costs from the lender of $0.7 million.

As of August ~~29, 2021, $32.0~~28, 2022, $44.0 million was outstanding on the Refinance Revolver, at an interest rate of ~~3.00%~~4.1%. As of August ~~29, 2021,~~28, 2022, the Refinance Term Loan had an interest rate of ~~9.5%~~10.1%. As of August ~~29, 2021,~~28, 2022, the Company was in compliance with all financial covenants and had no events of default under the New Credit Agreements.

Derivative Instruments

On November 1, 2016, the Company entered into an interest rate swap contract (the “2016 Swap”) with BMO at a notional amount of $50.0 million. The 2016 Swap had the effect of changing the Company’s previous Term Loan obligation from a variable interest rate to a fixed 30-day LIBOR rate of 1.22%. The 2016 Swap matured in September 2021.

On June 25, 2018, the Company entered into an interest rate swap contract (the “2018 Swap”) with BMO at a notional amount of $30.0 million. The 2018 Swap had the effect on the Company’s previous debt of converting the first $30.0 million of the total outstanding amount of the Company’s 30-day LIBOR borrowings from a variable interest rate to a fixed 30-day LIBOR rate of 2.74%. The 2018 Swap matured in September 2021.

On December 2, 2019, the Company entered into an interest rate swap contract (the "2019 Swap") with BMO at a notional amount of $110.0 million which decreases quarterly. The 2019 Swap had the effect on our previous debt of converting primarily all of the $110.0 million of the total outstanding amount of the Company's 30-day LIBOR borrowings from a variable interest rate to a fixed 30-day LIBOR rate of 1.53%. The 2019 Swap will mature in November 2022.

7. Business Segment Reporting

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

~~The Curation Foods business includes (i) 4 natural food brands, including Eat Smart,~~ O ~~Olive Oil & Vinegar, Yucatan Foods, and Cabo Fresh, (ii) BreatheWay~~® activities, and (iii) activity related to the Company’s previously held investment in Windset. The Curation Foods segment includes activities to market and pack specialty packaged whole and fresh-cut fruit and vegetables, the majority of which incorporate the BreatheWay specialty packaging for the retail grocery, club store and food services industry and are sold primarily under the Eat Smart brand and various private labels. The Curation Foods segment also includes sales of BreatheWay packaging to partners for fruit and vegetable products, sales of olive oils and wine vinegars under the O ~~brand, sales of avocado products under the brands Yucatan Foods and Cabo Fresh, and activity related to the Company’s previously held investment in Windset.~~

The 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 Curation Foods business includes (i) three natural food brands, including O Olive Oil & Vinegar, Yucatan Foods, and Cabo Fresh, and (ii) BreatheWay® activities. The Curation Foods segment includes sales of BreatheWay packaging to partners for fruit and vegetable products, sales of olive oils and wine vinegars under the O brand, and sales of avocado products

-15-

Table of Contents

under the brands Yucatan Foods and Cabo Fresh. In December 2021, the Company completed the Eat Smart Disposition. As a result, the Company met the requirements of ASC 205-20 to report the results of the Eat Smart business as discontinued operations. The operating results for the Eat Smart business, in all periods presented, have been reclassified to discontinued operations and are no longer reported in the Curation Foods business segment. See Note 1 – Organization, Basis of Presentation, and Summary of Significant Accounting Policies – Eat Smart Sale and Discontinued Operations for further discussion.

The Other segment includes corporate general and administrative expenses, non-Lifecore and 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.

~~-16-~~

~~Table of Contents~~

All of the Company's assets are located within the United States of America except for its Yucatan production facility in Mexico.

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


		Three Months Ended				Three Months Ended
(In millions)	(In millions)	August 29, 2021		August 30, 2020			(In millions)	August 28, 2022		August 29, 2021
Switzerland							Switzerland	$	4.0	$	3.4
Canada	Canada	$	15.6	$	16.5		Canada	3.7		3.5
Switzerland		3.4		0.1
Ireland		0.2		0.8
Belgium		—		3.9

All Other Countries	All Other Countries	1.8		1.6			All Other Countries	1.9		1.7

Operations by business segment consisted of the following:

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


(In thousands)	Lifecore		Curation Foods		Other		Total
Three Months Ended August 28, 2022
Net sales	$	23,703	$	19,652	$	—	$	43,355
Gross profit	6,101		(280)		—		5,821
Net (loss) income from continuing operations	502		(3,374)		(9,192)		(12,064)
Loss from discontinued operations, net of tax	—		—		—		—
Depreciation and amortization	1,771		2,820		11		4,602

Interest income	15		—		—		15
Interest expense	—		—		3,678		3,678
Income tax (benefit) expense	158		(1,065)		971		64
Corporate overhead allocation	1,038		334		(1,372)		—













Three Months Ended August 29, 2021
Net sales	$	21,952	$	19,680	$	—	$	41,632
Gross profit	5,764		4,671		—		10,435
Net (loss) income from continuing operations	580		(284)		(7,929)		(7,633)
Loss from discontinued operations, net of tax	—		(1,844)		—		(1,844)
Depreciation and amortization	1,547		881		26		2,454

Interest income	20		—		7		27
Interest expense	—		137		6,541		6,678
Income tax (benefit) expense	183		(218)		(1,616)		(1,651)
Corporate overhead allocation	1,137		1,471		(2,608)		—

During the three months ended August 28, 2022 and August 29, 2021, ~~and August 30, 2020,~~the Company had sales ~~to the Company’s top five customers accounted for 50% and 51%~~concentrations of ~~sales, respectively.~~10% or greater from two customers. The Company’s top two customers ~~Costco Wholesale Corporation and Walmart Stores, Inc., from the Curation Foods segment,~~ accounted for ~~15%~~16% and ~~17%, respectively,~~10% of revenues for the three months ended August ~~29, 2021,~~28, 2022, and ~~19%~~15% and ~~14%, respectively,~~11% for the three months ended August ~~30, 2020.~~

29, 2021. The Company had accounts receivable concentrations of 10% or greater from three customers accounting for 21%, 16%, and 13% of accounts receivable as of August 28, 2022, and two customers as of August 29, 2021 accounting for 12% and 10%.

~~-17-~~-16-

Table of Contents

8. Restructuring Costs

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

(in thousands) Curation Foods Lifecore Other Total
Three Months Ended August 29, 2021
Asset write-off costs $ (567) $ — $ — $ (567)
Employee severance and benefit costs 270 — — 270
Lease costs 468 — — 468
Other restructuring costs 1,025 — 1,366 2,391
Total restructuring costs $ 1,196 $ — $ 1,366 $ 2,562

~~Asset write-off costs~~

Asset write-off costs are costs related to impairment or disposal of property and equipment as part of the Company's restructuring plan to drive enhanced profitability, focus the business on its strategic assets and redesign the organization to be the appropriate size to compete and thrive. These costs are included in restructuring costs within the Consolidated Statements of Statements of (Loss) Income. See the Assets Held for Sale section within Note 1 for additional information.

In the first quarter of fiscal year 2021, the Company sold its interest in Ontario. The Company received net cash proceeds of $4.9 million in connection with the sale and recorded a gain of $2.8 million.

In the first quarter of fiscal year 2021, the Company recognized an $8.8 million impairment loss related to its Hanover building and related assets which were sold in the second quarter of fiscal year 2021.

~~In the first quarter of fiscal year 2022, the Company recognized a $0.6 million gain on sale related to its Rock Hill, South Carolina distribution facility.~~


(in thousands)	Curation Foods		Other		Total
Three Months Ended August 28, 2022

Employee severance and benefit costs	$	208	$	—	$	208
Lease costs	20		—		20
Other restructuring costs	194		625		819
Total restructuring costs	$	422	$	625	$	1,047

Employee severance and benefit costs

Employee severance and benefit costs are costs incurred as a result of reduction-in-force driven by our restructuring plan and closure of offices and facilities. These costs were driven primarily by ~~the closure of~~reduction-in-force related to our San Rafael, California office, Santa Clara, California office, Los Angeles, California office, the sale of our Hanover manufacturing facility, and our transportation management, warehousing, and transportation services agreement with Castellini Company, LLC.Curation Foods segment.

Lease Costs

In August 2020, the Company closed its leased Santa Clara, California office and entered into a sublease agreement. In the fourth quarter of fiscal year 2020 the Company closed its leased Los Angeles, California office and plans to sublease the office. The Company approved a plan to explore opportunities to sub lease its Santa Maria office and expects to complete the sublease plan within the next 12 months.

Other restructuring costs

Other restructuring costs are primarily related to consulting costs incurred in connection with the execution of the Company’s restructuring plan to drive enhanced profitability, focus the business on its strategic assets, and redesign the organization to be the appropriate size to compete and thrive.

~~-18-~~

~~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 three months ended August ~~29, 2021:~~28, 2022, excluding discontinued operations:

Curation Foods Lifecore Other Total
(in thousands)
Asset write-off costs, net $ 20,465 $ — $ 418 $ 20,883
Employee severance and benefit costs 3,503 — 784 4,287
Lease costs 2,634 — 26 2,660
Other restructuring costs 5,910 — 3,728 9,638
Total restructuring costs $ 32,512 $ — $ 4,956 $ 37,468


	Curation Foods		Other		Total
(in thousands)
Asset write-off costs, net	$	7,552	$	418	$	7,970
Employee severance and benefit costs	767		784		1,551
Lease costs	2,238		26		2,264
Other restructuring costs	517		5,523		6,040
Total restructuring costs	$	11,074	$	6,751	$	17,825

The total expected cost related to the restructuring plan is approximately ~~$45.0~~$23.0 million.

-17-

Table of Contents

9. ~~Subsequent Events~~Discontinued Operations

~~COVID-19 Pandemic~~

As discussed in Note 1 – Organization, Basis of Presentation, and Summary of Significant Accounting Policies – Eat Smart Sale and Discontinued Operations, on December 13, 2021, we completed the Eat Smart Disposition. Eat Smart represented a component of the business within the Curation Foods segment and its sale represents a strategic shift in the Company going forward. Accordingly, concurrent with the execution of the Asset Purchase Agreement, Eat Smart meets the accounting requirements for reporting as discontinued operations for all periods presented.

The key components of income from discontinued operations for the three months ended August 28, 2022 and August 29, 2021 were as follows (in thousands):


	Three Months Ended
	August 29, 2021
Product sales	$	87,156
Cost of product sales	80,072
Gross profit	7,084
Operating costs and expenses:
Research and development	953
Selling, general and administrative	6,469


Restructuring costs	728
Total operating costs and expenses	8,150
Operating loss	(1,066)
Dividend income	—
Interest expense	(1,239)

Loss from discontinued operations before taxes	(2,305)
Income tax benefit	461
Loss from discontinued operations, net of tax	$	(1,844)

Cash used in operating activities by the Eat Smart business totaled $0.0 million and $0.2 million for the three months ended August 28, 2022 and August 29, 2021, respectively. Cash provided by investing activities from the Eat Smart business totaled $0.0 million and $45.1 million for the three months ended August 28, 2022 and August 29, 2021, respectively. Depreciation and amortization expense of the Eat Smart business totaled $0.0 million and $2.3 million for the three months ended August 28, 2022 and August 29, 2021, respectively. Capital expenditures of the Eat Smart business totaled $0.0 million and $1.1 million for the three months ended August 28, 2022 and August 29, 2021, respectively.

Interest expense was allocated to discontinued operations based on the interest expense related to the amount of debt required to be paid down under the New Credit Agreements as a result of the Eat Smart Disposition.

There ~~are many uncertainties regarding the current novel coronavirus (“COVID-19”) pandemic, including the scope~~were no assets or liabilities of ~~scientific and health issues, the anticipated duration~~Eat Smart as of the pandemic, and the extent of local and worldwide social, political, and economic disruption it may cause. The COVID-19 pandemic, as well as actions taken in response to the pandemic, have had and we believe will continue to have significant adverse impacts on many aspects of the Company’s operations, directly and indirectly, including with respect to sales, customer behaviors, business and manufacturing operations, inventory, the Company’s employees, and the market generally, and the scope and nature of these impacts continue to evolve each day. The Company expects to continue to assess the evolving impact of the COVID-19 pandemic, and intends to continue to make adjustments to its responses accordingly.August 28, 2022 or May 29, 2022.

~~-19-~~-18-

Table of 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 ~~30, 2021.~~29, 2022.

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results that are subject to the safe harbor created under the Private Securities Litigation Reform Act of 1995 and other safe harbors under the Securities Act of 1933, as amended, and the Securities Exchange Act of 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 are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected. Potential risks and uncertainties include, without limitation, the timing and expenses associated with operations, the ability to achieve acceptance of our new products in the market place, 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~~impact of adverse and uncertain economic conditions in the ~~Curation Foods business,~~U.S. and international markets, the mix between domestic and international sales, and those other risks mentioned in this report and in our Annual Report on Form 10-K for the fiscal year ended May ~~30, 2021.~~29, 2022.

We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Accordingly, our actual results could differ materially from those projected in the forward-looking statements for many reasons, including the risk factors listed in Item 1A. “Risk Factors” and in our Annual Report on Form 10-K for the fiscal year ended May ~~30, 2021.~~29, 2022.

All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements as well as others made in this report, our Annual Report on Form 10-K for the fiscal year ended May ~~30, 2021,~~29, 2022, 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 statement as a result of new information, future events or otherwise, except as otherwise required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

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 ~~30, 2021.~~29, 2022. 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 ~~30, 2021.~~29, 2022.

~~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.

~~-20-~~

~~Table of Contents~~

The Company

Corporate Overview

Landec Corporation and its subsidiaries (“Landec,” the “Company”, "we" or "us") design, develop, manufacture, and sell differentiated products for food and biomaterials markets, and license technology applications to partners.

Landec’s natural food company, Curation Foods, Inc. (“Curation Foods”) is focused on innovating and distributing plant-based foods with 100% clean ingredients to retail, club and foodservice channels throughout North America. Curation Foods is able to maximize product freshness through its geographically dispersed family of growers, refrigerated supply chain and patented BreatheWay® ~~packaging technology.~~

Landec’s biomedical company, Lifecore Biomedical, Inc. (“Lifecore”), is a fully integrated CDMO that offers highly differentiated capabilities in the development, fill and finish of sterile, injectable pharmaceutical products in syringes and vials. As a leading manufacturer of premium, injectable grade Hyaluronic Acid, Lifecore brings 3637 years of expertise as a partner for global and emerging biopharmaceutical and biotechnology companies across multiple therapeutic categories to bring their innovations to market.

-19-

Table of Contents

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 – Lifecore, Curation Foods, ~~Lifecore~~ and Other, which are described 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 its patented BreatheWay® packaging technology and for its portfolio of four natural food brands, including the Company’s legacy and flagship brand Eat Smart® as well as its three more recently acquired natural food brands, O ~~Olive Oil & Vinegar® (“~~O”) products, and Yucatan® and Cabo Fresh® authentic guacamole and avocado products. The major distinguishing characteristics of Curation Foods that provide competitive advantage are insight driven product innovation, diversified fresh food supply chain, refrigerated supply chain and customer reach. We believe that Curation Foods is well positioned as a single source of a broad range of products. Curation Foods also has six processing facilities. In addition to processing, the Company has two distribution centers and a nationwide network of third party providers for nationwide delivery of all of its packaged salads, vegetable products, avocado products and specialty oil and vinegar products. Our products are currently available in over 74% of retail and club stores across North America.

During fiscal 2019, the Company redefined the strategy for its Curation Foods segment in order to improve the Company’s overall profitability by launching Project SWIFT, a value creation program designed to transform the Curation Foods business by simplifying the business, realigning its resources and seeking to improve the Company’s balance sheet through three strategic priorities - optimizing its operations networks, maximizing strategic assets and redesigning the organization to be more competitive.

~~Curation Foods Brands~~

~~Eat Smart:~~ The Company sells specialty fresh packaged Eat Smart branded and private label salads, fresh-cut vegetables and whole produce to retailers, club stores, and food service operators, primarily in the United States and Canada. Within the Eat Smart brand, produce is processed by trimming, washing, sorting, blending, and packaging into bags and 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.

~~-21-~~

~~Table of Contents~~

~~Yucatan & Cabo Fresh Avocado Products:~~ The Company acquired Yucatan Foods on December 1, 2018. Yucatan Foods was founded in 1991. As part of the acquisition of Yucatan Foods, Curation Foods acquired the newly built production facility in Guanajuato, Mexico. The Yucatan Foods business added a double-digit growth platform, a lower-cost infrastructure in Mexico, and higher margin product offerings that generally exhibit less sourcing volatility. The Company manufactures and sells Yucatan and Cabo Fresh guacamole and avocado food products primarily to 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 establishes a beneficial packaging atmosphere adapting to changing fresh product respiration and temperature in order to extend freshness naturally. The BreatheWay supply chain packaging technology extends shelf-life and reduces shrink (waste) for retailers and helps to ensure that consumers receive fresh products. The Company generates revenue from the sale to and/or use of its BreatheWay patented packaging technology and integrated packaging solutions.

~~Windset~~: Until June 1, 2021, the Company held a 26.9% investment in Windset Holding 2010 Ltd. (“Windset”), a leading edge grower of hydroponically-grown produce. 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.

On June 1, 2021, the Company and Curation Foods entered into and closed a Share Purchase Agreement (the “Purchase Agreement”) with Newell Capital Corporation and Newell Brothers Investment 2 Corp., as Purchasers (the “Purchasers”) and Windset, pursuant to which Curation Foods sold all of its equity interests in Windset to the Purchasers in exchange for an aggregate purchase price of $45.1 million. Pursuant to the terms of the Purchase Agreement, Curation Foods also retained certain rights to additional purchase price consideration in the event of certain transactions or equity issuances involving Windset until September 2022. The Purchase Agreement included various representations, warranties and covenants of the parties generally customary for a transaction of this nature.

Lifecore Biomedical

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

Lifecore CDMO provides product development services to its partners for HA-based, as well as non-HA based, aseptically formulated and filled products. These services include activities such as technology development, material component changes, analytical method development, formulation development, pilot studies, stability studies, process validation and production of materials for clinical studies.

Built over many years of experience, Lifecore separates itself from its competition based on its five areas of expertise, including but not limited to Lifecore’s ability to:

Establish strategic relationships with market leaders:

Lifecore continues to develop applications for products with partners who have strong marketing, sales, and distribution capabilities to end-user markets. Through its strong reputation and history of providing pharmaceutical grade HA and products, Lifecore has established long-term relationships with global and emerging biopharmaceutical and biotechnology companies across multiple therapeutic categories, and leverages those partnerships to attract new relationships in other medical markets.

Expand medical applications for HA:

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

~~-22-~~

~~Table of Contents~~

Utilize manufacturing infrastructure to meet customer demand:

Lifecore has made strategic capital investments in its CDMO business focusing on extending its aseptic filling capacity and capabilities to meet increasing partner demand and to attract new contract filling opportunities outside of HA markets. Lifecore is using its manufacturing capabilities to provide contract manufacturing and development services to its partners in the area of sterile pre-filled syringes and vials, as well as fermentation and purification requirements.

Maintain flexibility in product development and supply relationships:

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

-20-

Table of Contents

Deliver consistent quality:

Lifecore has built a world class quality and regulatory system that is demonstrated in ~~their~~its results, processes and customer relationships. With over 3537 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.

Curation Foods

Curation Foods Overview

Based in Santa Maria, California, Curation Foods’ primary business is the processing, marketing and selling of guacamole, avocado products, and olive oils and wine vinegars. Curation Foods serves as the corporate umbrella for its patented BreatheWay® packaging technology and for its portfolio of three natural food brands, O Olive Oil & Vinegar® products, and Yucatan® and Cabo Fresh® authentic guacamole and avocado products. We believe that the major distinguishing characteristics of Curation Foods that provide competitive advantage are insight driven product innovation, diversified fresh food supply chain, refrigerated supply chain and customer reach. We believe that Curation Foods is well positioned as a single source of a broad range of its products.

On December 13, 2021 (the “Closing Date”), Landec and Curation Foods (together, the “Sellers”), and Taylor Farms Retail, Inc. (“Taylor Farms” and together with the Sellers, the “Parties”) completed the sale (the “Eat Smart Disposition”) of Curation Foods’ Eat Smart business, including its salad and cut vegetable businesses (the “Business”), pursuant to the terms of an asset purchase agreement executed by the Parties on December 13, 2021 (the “Asset Purchase Agreement”). Pursuant to the Asset Purchase Agreement, Taylor Farms acquired the Business for a purchase price of $73.5 million in cash, subject to post-closing adjustments based upon net working capital at the Closing Date. As part of the Eat Smart Disposition, Taylor Farms acquired, among other assets related to the Business, the manufacturing facility and warehouses (and corresponding equipment) located in Bowling Green, Ohio and Guadalupe, California, as well as inventory, accounts receivable and accounts payable, intellectual property and information related to the Business, and assumed certain liabilities and executory obligations under the Company’s and Curation Foods’ outstanding contracts related to the Business, in each case, subject to the terms of the Asset Purchase Agreement.

On June 2, 2022, the Company sold its BreatheWay technology business for $3.2 million in cash.

Following the Eat Smart Disposition and BreatheWay Sale, Curation Foods retains its O Olive and Yucatan businesses, and the Company retains its Lifecore business.

As a result of the Eat Smart Disposition, the Company met the requirements of ASC 205-20, to report the results of the Eat Smart business as a discontinued operation. Accordingly, the operating results for the Eat Smart business have therefore been reclassified as a discontinued operation within these consolidated financial statements.

Curation Foods Brands

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.

Yucatan & Cabo Fresh Avocado Products: The Company acquired Yucatan Foods on December 1, 2018. Yucatan Foods was founded in 1991. As part of the acquisition of Yucatan Foods, Curation Foods acquired the newly built production facility in Guanajuato, Mexico. The Yucatan Foods business added a double-digit growth platform, a lower-cost infrastructure in Mexico, and higher margin product offerings that generally exhibit less sourcing volatility. The Company manufactures and sells Yucatan and Cabo Fresh guacamole and avocado food products primarily to the U.S. grocery channel, but also to the U.S. mass retail, Canadian grocery retail and foodservice channels.

The Company intends to continue exploring potential sale opportunities for its remaining Curation Foods assets: Yucatan Foods and O. Subject to market conditions, the Company anticipates completing these sales during fiscal year 2023.

-21-

Table of Contents

Other

Included in the Other segment is Corporate, which includes corporate general and administrative expenses, non-Lifecore and non-Curation ~~Foods and non-Lifecore~~Food 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 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 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”) products and providing contract development and aseptic manufacturing services to customers. Lifecore generates revenues from two integrated activities: (1) CDMO and (2) fermentation.

(In thousands) Three Months Ended Change
August 29, 2021 August 30, 2020 Amount %
Curation Foods $ 106,836 $ 113,839 $ (7,003) (6) %
Lifecore 21,952 21,804 148 1 %
Total Revenues $ 128,788 $ 135,643 $ (6,855) (5) %
Curation Foods revenues for the periods presented consist of revenues generated from sales of (1) Yucatan, Cabo Fresh, and private label branded guacamole and avocado products, (2) O olive oils and wine vinegars, and (3) BreatheWay packaging to license partners. As a result of the Eat Smart Disposition, the Company met the requirements of ASC 205-20, to report the results of the Eat Smart business as a discontinued operation. Accordingly, the operating results for the Eat Smart business have therefore been reclassified as a discontinued operations for the periods presented.

~~-23-~~


(In thousands)	Three Months Ended				Change
	August 28, 2022		August 29, 2021		Amount		%
Lifecore	$	23,703	$	21,952	1,751		8	%
Curation Foods	19,652		19,680		(28)		—	%
Total Revenues	$	43,355	$	41,632	$	1,723	4	%

~~Table of Contents~~

~~Curation Foods~~

The decrease in Curation Foods’ revenues for the three months ended August 29, 2021, compared to the same period last year, was primarily driven by the planned reduction in Curation Foods’ legacy vegetable and tray business in connection with Project SWIFT and COVID-19 pandemic headwinds. The pandemic has delayed customer store resets and the penetration of new product innovations, and continues to pressure the foodservice channel.

Lifecore

The increase in Lifecore’s revenues for the three months ended August ~~29, 2021,~~28, 2022, compared to the same period last year, was due to a $1.3 million increase in fermentation sales primarily due to the timing of shipments within the fiscal year and increased demand from existing customers, as well as a $0.5 million increase in CDMO revenues primarily from an increase in development services activities ~~primarily due to~~resulting in higher sales to new and existing ~~customers, partially offset by a $1.2 million~~customers.

Curation Foods

The slight decrease in ~~fermentation sales~~Curation Foods’ revenues for the three months ended August 28, 2022, compared to the same period last year, was primarily ~~due~~driven by the sale of our BreatheWay packaging technology business on June 2, 2022 which as a result of the sale did not earn any revenue during the three months ended August 28, 2022 compared to ~~timing of shipments.~~

$0.4 million during the three months ended August 29, 2021.

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
August 29, 2021 August 30, 2020 Amount %
Curation Foods $ 11,755 $ 11,345 $ 410 4 %
Lifecore 5,764 5,002 762 15 %
Total Gross Profit $ 17,519 $ 16,347 $ 1,172 7 %

-22-

Table of Contents


(In thousands)	Three Months Ended				Change
	August 28, 2022		August 29, 2021		Amount		%
Lifecore	$	6,101	$	5,764	$	337	6	%
Curation Foods	(280)		4,671		(4,951)		(106)	%
Total Gross Profit	$	5,821	$	10,435	$	(4,614)	(44)	%

~~Curation Foods~~

The increase in gross profit for the Curation Foods business for the three months ended August 29, 2021, compared to the same period last year, was largely due to planned improvements in product mix and operational efficiency.

Lifecore

The increase in gross profit for the Lifecore business for the three months ended August ~~29, 2021,~~28, 2022, compared to the same period last year, was due primarily to increased revenue.

Curation Foods

The decrease in gross profit for the Curation Foods business for the three months ended August 28, 2022, compared to the same period last year, was primarily driven by increased ~~revenue, as well as a favorable sales mix.~~freight costs combined with increased raw product sourcing costs.

Operating Expenses:

Research and Development

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


(In thousands)	(In thousands)	Three Months Ended				Change				(In thousands)	Three Months Ended		Change
		August 29, 2021		August 30, 2020		Amount		%					August 28, 2022		August 29, 2021		Amount		%
Lifecore												Lifecore	$	2,046	$	1,668	$	378	23	%
Curation Foods	Curation Foods	$	1,158	$	938	$	220	23	%			Curation Foods	2		205		(203)		(99)	%
Lifecore		1,668		1,570		98		6	%

Total R&D	Total R&D	$	2,826	$	2,508	$	318	13	%			Total R&D	$	2,048	$	1,873	$	175	9	%

The increase in R&D expenses for the three months ended August ~~29, 2021,~~28, 2022, compared to the same period last year, was primarily due to higher ~~professional service~~salary and benefits expenses, ~~related to new product development~~including increased headcount, in our ~~EatSmart product lines.~~

~~-24-~~

~~Table of Contents~~

Lifecore Segment.

Selling, General, and Administrative (“SG&A”)

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


(In thousands)	(In thousands)	Three Months Ended				Change				(In thousands)	Three Months Ended		Change
		August 29, 2021		August 30, 2020		Amount		%					August 28, 2022		August 29, 2021		Amount		%
Lifecore												Lifecore	$	2,372	$	2,216	$	156	7	%
Curation Foods	Curation Foods	$	9,361	$	10,584	$	(1,223)	(12)	%			Curation Foods	3,444		2,892		552		19	%
Lifecore		2,216		1,880		336		18	%
Other	Other	4,362		5,439		(1,077)		(20)	%			Other	5,067		4,362		705		16	%
Total SG&A	Total SG&A	$	15,939	$	17,903	$	(1,964)	(11)	%			Total SG&A	$	10,883	$	9,470	$	1,413	15	%

The ~~decrease~~increase in total SG&A expenses for the three months ended August ~~29, 2021,~~28, 2022, compared to the same period last year, was due primarily to ~~a $1.2 million decrease in our Curation Foods business primarily due to cost savings driven by our restructuring efforts and a $1.0 million decrease~~an increase at our Other segment primarily due to ~~a decrease~~an increase in legal fees from compliance and other litigation matters, ~~which were partially offset by a $0.3 million increase~~combined with increased salary and benefits expenses in our ~~Lifecore segment due to higher salary and benefit expenses driven by an increase in headcount.~~Curation Foods segment.

-23-

Table of Contents

Restructuring Costs

(In thousands) Three Months Ended Change
August 29, 2021 August 30, 2020 Amount %
Curation Foods $ 1,196 $ 7,757 $ (6,561) (85) %
Other 1,366 647 719 111 %
Total Restructuring Costs $ 2,562 $ 8,404 $ (5,842) (70) %


(In thousands)	Three Months Ended				Change
	August 28, 2022		August 29, 2021		Amount		%
Lifecore	$	—	$	—	$	—	—	%
Curation Foods	422		468		(46)		(10)	%
Other	625		1,366		(741)		(54)	%
Total SG&A	$	1,047	$	1,834	$	(787)	(43)	%

During fiscal year 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. The Company recorded ~~restructuring costs of $2.6~~$1.0 million and ~~$8.4~~$1.8 million induring the ~~first quarter of fiscal years~~three months ended August 28, 2022 and August 29, 2021, respectively, related to the restructuring plan. Restructuring costs for the three months ended August 28, 2022 decreased $0.8 million compared to the prior year period due to decreased restructuring activity in our Other Segment as part of our Project SWIFT initiatives to sell Curation Foods assets and prepare the Company for the transition to Lifecore. Refer to Note 8 - Restructuring Costs in the notes to our consolidated financial statements for more information.

Other:

(In thousands) Three Months Ended Change
August 29, 2021 August 30, 2020 Amount %
Dividend Income $ — $ 281 $ (281) (100) %
Interest Income $ 27 $ 8 $ 19 N/M
Interest Expense $ (7,917) $ (3,109) $ (4,808) 155 %
Other Income (Expense) $ 109 $ (21) $ 130 N/M
Income Tax Benefit $ 2,112 $ 4,309 $ (2,197) (51) %

~~Dividend Income~~

Dividend income is derived from the dividends accrued on the Company’s previously held $15.0 million Senior A preferred stock investment in Windset, which yielded a cash dividend of 7.5% annually. The Company sold its remaining investment in Windset on June 1, 2021, accordingly there was no dividend income in the first quarter of fiscal year 2022.


(In thousands)	Three Months Ended				Change
	August 28, 2022		August 29, 2021		Amount		%

Interest Income	$	15	$	27	$	(12)	(44)	%
Interest Expense	$	(3,678)	$	(6,678)	$	3,000	(45)	%

Other Income (Expense), net	$	(180)	$	109	$	(289)	N/M
Income Tax (Expense) Benefit	$	(64)	$	1,651	$	(1,715)	N/M

Interest Income

The ~~increase~~decrease in interest income for the three months ended August ~~29, 2021,~~28, 2022, compared to the same period last year, was not significant.

~~-25-~~

~~Table of Contents~~

Interest Expense

The ~~increase~~decrease in interest expense for the three months ended August ~~29, 2021,~~28, 2022, compared to the same period last year, was primarily a result of prepaid interest and prepayment penalties incurred related to payments made on our term debt resulting from the sales of our investment in Windset ~~combined with higher~~during the three months ended August 29, 2021.

Other Income (Expense)

The decrease in other income (expense) for the three months ended August 28, 2022, compared to the same period last year, was primarily the result of the change in the fair value of our interest ~~rates and~~rate swap liability that is no longer an ~~increase in deferred financing costs incurred~~effective hedge as a result of our debt refinancing in December 2020.

~~Other Income (Expense)~~

~~The increase in other income for the three months ended August 29, 2021, compared to the same periods last year, was primarily the result of the change in value of our indemnification receivable.~~

Income Taxes

The change in income tax (expense) benefit for the three months ended August ~~29, 2021,~~28, 2022 compared to the same period last year was primarily due to the Company’s ~~effective tax rate decreasing~~increase in net loss before income taxes from ~~28%. to 18%. The~~continuing operations and the Company’s effective tax rate for the three months ended August ~~29, 2021 was lower than~~28, 2022 changed from a tax provision benefit of 18% to a tax provision expense of 0.5% in comparison to the ~~statutory federal income~~same period last year, after adjustment for discontinued operations. The decrease in the effective tax rate ~~of 21%~~for the three months ended August 28, 2022 was primarily due to ~~the movement of the~~an increase in valuation allowance recorded against certain deferred tax assets, partially offset by the impact of federal and state ~~taxes,~~research and ~~stock compensation including an adjustment for 162(m) related non-deductible officer’s compensation. The effective~~development tax rate for the three months ended August 30, 2020, was higher than the statutory federal income tax rate of 21% primarily due to the generation of federal & state R&D credits and movements of the valuation allowance recorded against certain deferred tax assets, partially offset by the impact of state taxes and stock based compensation.credits.

-24-

Table of Contents

Liquidity and Capital Resources

As of August ~~29, 2021,~~28, 2022, the Company had cash and cash equivalents of ~~$1.4~~$4.2 million, a net increase of ~~$0.2~~$2.6 million from ~~$1.3~~$1.6 million as of May ~~30, 2021.~~29, 2022.

Cash Flow from Operating Activities

Net cash ~~provided by~~used in operating activities during the three months ended August ~~29, 2021~~28, 2022 was ~~$0.8~~$1.5 million, compared to ~~$17.0~~$0.8 million of net cash provided by operating activities for the same period last year. The primary ~~sources~~uses of net cash ~~provided by~~in operating activities during the three months ended August ~~29, 2021~~28, 2022 were (1) ~~$6.9~~a $12.1 million net loss and (2) $2.1 million gain on sale of BreatheWay assets. These uses of cash were partially offset by (1) a $6.8 million net decrease in working capital and (2) ~~$5.7~~$5.8 million of depreciation/amortization and stock based compensation expense. ~~These sources of cash were offset by (1) a $9.5 million net loss, and (2) a $2.1 million reduction in deferred taxes.~~

The primary factors for the decrease in working capital during the three months ended August ~~29, 2021,~~28, 2022, was ~~an $8.0~~a $2.6 million decrease in inventory driven by sales of product, a $7.2 million decrease in accounts receivable ~~due to the~~driven by timing of customer ~~payment receipts,~~payments, partially offset by a ~~$1.5~~$2.9 million decrease in ~~accounts payable due primarily to the timing of~~accrued compensation driven by severance payments.

Cash Flow from Investing Activities

Net cash provided by investing activities during the three months ended August ~~29, 2021~~28, 2022 was ~~$38.3~~$0.2 million, compared to ~~$0.2~~$38.3 million ~~provided by investing activities~~ for the same period last year. Net cash provided by investing activities during the three months ended August ~~29, 2021~~28, 2022 was primarily due to the receipt of ~~$45.1~~$3.1 million related to the sale of ~~the Company's investment in Windset,~~our BreatheWay assets, partially offset by the purchase of ~~$7.9~~$2.9 million of equipment to support the growth of the Company’s ~~Curation Foods and~~ Lifecore ~~businesses.~~business.

Cash Flow from Financing Activities

Net cash ~~used in~~provided by financing activities during the three months ended August ~~29, 2021~~28, 2022 was ~~$38.9~~$3.9 million compared to ~~$17.0~~$38.9 million of net cash used in financing activities for the same period last year. The net cash ~~used in~~provided by financing activities during the three months ended August ~~29, 2021~~28, 2022 was primarily due to ~~$41.4 million of debt pay downs under the Company's term loan and from~~ a ~~$3.0~~$4.0 million net increase in the Company’s line of credit.

Capital Expenditures

During the three months ended August ~~29, 2021~~,28, 2022, Landec incurred ~~$7.9~~$2.9 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,~~business, compared to capital expenditures of ~~$4.6~~$7.9 million for the three months ended August ~~30, 2020~~.29, 2021. During the three

~~-26-~~

~~Table of Contents~~

months ended August ~~29, 2021,~~28, 2022, capital expenditures for Lifecore and Curation Foods were ~~$5.7~~$2.8 million and ~~$2.2~~$0.1 million, respectively.

Debt

-25-

Table of Contents

provides that in the event of a prepayment of any amount other than the scheduled installments within twelve months after the closing date, a penalty will be assessed equal to the aggregate amount of interest that would have otherwise been payable from date of prepayment event until twelve months after the closing date plus 3% of the amount prepaid.

In connection with the New Credit Agreements, the Company incurred debt issuance costs from the lender and third-parties of $10.3 million.

Concurrent with the close of the New Credit Agreements, the Company repaid all outstanding borrowings under the ~~current~~previous Credit Agreement, and terminated ~~the~~such previous Credit Agreement. In connection with the repayment of borrowings under ~~the~~such previous Credit Agreement, the Company recognized a loss in fiscal year 2021 of $1.1 million, as a result of the non-cash write-off of unamortized debt issuance costs related to the refinancing under the New Credit Agreements.

Off-Balance Sheet Arrangements and Contractual Obligations

The Company is not a party to any agreements with, or commitments to, any special purpose entities that would constitute material off-balance sheet financing. There have been no material changes to our long-term contractual obligations as reported in our most recent Annual Report filed on Form 10-K for the fiscal year ended May ~~30, 2021.~~29, 2022. See Note 6 – Debt for further information on the Company’s loans.

~~-27-~~

~~Table of Contents~~

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 ~~30, 2021~~29, 2022 filed with the SEC on ~~July 29, 2021.~~September 14, 2022.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) of ~~August 29, 2021, our management~~the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we have evaluated, under the supervision and with the participation of our ~~Chief Executive Officer~~management, including our principal executive officer and ~~our Chief Financial Officer,~~principal financial officer, the effectiveness of the design and operation of our disclosure controls and ~~procedures. Based~~procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on ~~this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that the~~Form 10-Q. Our disclosure controls and procedures are ~~effective in ensuring~~designed to provide reasonable assurance that the information required to be disclosed by us in reports ~~filed~~that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified byin the ~~SEC,~~rules and ~~are~~forms of the SEC. Based upon the evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were not effective ~~in providing reasonable assurance that information required to be disclosed by the Company in such reports is accumulated and communicated~~as of August 28, 2022, due to the ~~Company’s~~material weakness in internal control over financial reporting that was disclosed in our Annual Report on Form 10-K for the fiscal year ended May 29, 2022.

-26-

Table of Contents

Remediation of Previously Disclosed Material Weakness in Internal Control over Financial Reporting

As previously disclosed in Item 9A of our Annual Report on Form 10-K for the year ended May 29, 2022, management ~~including its Chief Executive Officer~~identified a material weakness as of such date. The identified material weakness was due to not designing and ~~Chief Financial Officer,~~operating effective internal controls over the completeness and accuracy of the accounting for non-standard transactions, that would include discontinued operations and restructuring activity. Specifically, we did not design controls for non-standard transactions to ensure the accurate presentation of non-standard transactions, which would include discontinued operations and certain restructuring costs in our financial statements. This material weakness resulted in a material error in our interim financial information as ~~appropriate~~presented in and filed with our Quarterly Report on Form 10-Q for our fiscal third quarter ended February 27, 2022, which was restated in Note 1 to ~~allow timely decisions regarding required disclosure.~~our consolidated financial statements included in Part IV, Item 15 of our Annual Report on Form 10-K for the year ended May 29, 2022.

In response to the material weakness referred to above, with the oversight of the Audit Committee of our Board of Directors, during the three months ended August 28, 2022 we began implementing a remediation plan to address the material weaknesses mentioned above. The material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Changes in Internal Control over Financial Reporting

The change described under “Remediation of Previously Disclosed Material Weakness in Internal Control over Financial Reporting” above represents a change in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) under the Exchange Act) during the three months ended August 28, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. There were no other changes in our internal control over financial reporting ~~identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act~~ that occurred during the ~~first quarter ended August 29, 2021~~period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~-28-~~-27-

Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

In the ordinary course of business, the Company is involved in various legal proceedings and claims. For further discussion, see the disclosures contained in Note 1 - Organization, Basis of Presentation, and Summary of Significant Accounting Policies - Legal Contingencies, which are incorporated herein by reference.

Item 1A. Risk Factors

You should carefully consider the risks described in Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended May ~~30, 2021,~~29, 2022, as supplemented by our Quarterly Report on Form 10-Q for the fiscal period ended August ~~29, 2021,~~28, 2022, as our business, financial condition and results of operations could be adversely affected by any of the risks and uncertainties described therein and herein. There have been no material changes to our risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended May ~~30, 2021,~~29, 2022, as supplemented by our Quarterly Report on Form 10-Q for the fiscal period ended August ~~29, 2021.~~28, 2022.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

~~-29-~~-28-

Table of Contents

Item 6. Exhibits


Exhibit Number			Exhibit Title
3.1			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.
3.53.5			Amendment No. 3 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 October 19, 2020.
10.1			Transition and Separation Agreement, effective August 10, 2022, by and between the Company and Dr. Albert Bolles, Ph.D.
31.1+			Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2+			Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**			Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**			Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS+			XBRL Instance
101.SCH+			XBRL Taxonomy Extension Schema
101.CAL+			XBRL Taxonomy Extension Calculation
101.DEF+			XBRL Taxonomy Extension Definition
101.LAB+			XBRL Taxonomy Extension Labels
101.PRE+			XBRL Taxonomy Extension Presentation
*			~~Furnished herewith.~~The schedules and other attachments to this exhibit have been omitted. The Company agrees to furnish a copy of any omitted schedules or attachments to the SEC upon request.
**			Information is furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.
+			Filed herewith.

~~-30-~~-29-

Table of Contents

SIGNATURES

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


			LANDEC CORPORATION

			By:			/s/ John D. Morberg
						John D. Morberg
						Chief Financial Officer
						(Principal Financial and Accounting Officer)

Date: October ~~5, 2021~~7, 2022

~~-31-~~-30-


(In thousands)	Fair Value at August 29, 2021						Fair Value at May 30, 2021
Assets:	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3

Assets held for sale - nonrecurring	$	—	$	—	$	—	$	—	$	—	$	515
Investment in non-public company	—		—		—		—		—		45,100
Total assets	$	—	$	—	$	—	$	—	$	—	$	45,615
Liabilities:
Interest rate swap contracts	$	—	$	1,274	$	—	$	—	$	1,736	$	—

Total liabilities	$	—	$	1,274	$	—	$	—	$	1,736	$	—