LIFECORE BIOMEDICAL, INC. DE 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures As of May 30, 2021, our management evaluated, with participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission, and are effective in providing reasonable assurance that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework (2013 Framework) . Our management has concluded that we maintained effective internal control over financial reporting as of May 30, 2021. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Our independent registered public accounting firm, Ernst & Young LLP, has issued an audit report on our internal control over financial reporting, which appears below. Changes in Internal Controls over Financial Reporting There were no 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 quarter ended May 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information None 33 Table of Conten ts PART III Item 10. Directors, Executive Officers and Corporate Governance This information required by this item will be contained in the Registrant’s definitive proxy statement or in an amendment to this Annual Report on Form 10-K to be filed with the Securities and Exchange Commission not later than September 27, 2021 (120 days after the Registrant’s fiscal year end covered by this Annual Report on Form 10-K) and is incorporated herein by reference. Item 11. Executive Compensation This information required by this item will be contained in the Registrant’s definitive proxy statement or in an amendment to this Annual Report on Form 10-K to be filed with the Securities and Exchange Commission not later than September 27, 2021 (120 days after the Registrant’s fiscal year end covered by this Annual Report on Form 10-K) and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This information required by this item will be contained in the Registrant’s definitive proxy statement or in an amendment to this Annual Report on Form 10-K to be filed with the Securities and Exchange Commission not later than September 27, 2021 (120 days after the Registrant’s fiscal year end covered by this Annual Report on Form 10-K) and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions and Director Independence This information required by this item will be contained in the Registrant’s definitive proxy statement or in an amendment to this Annual Report on Form 10-K to be filed with the Securities and Exchange Commission not later than September 27, 2021 (120 days after the Registrant’s fiscal year end covered by this Annual Report on Form 10-K) and is incorporated herein by reference. Item 14. Principal Accountant Fees and Services This information required by this item will be contained in the Registrant’s definitive proxy statement or in an amendment to this Annual Report on Form 10-K to be filed with the Securities and Exchange Commission not later than September 27, 2021 (120 days after the Registrant’s fiscal year end covered by this Annual Report on Form 10-K) and is incorporated herein by reference. 34 Table of Conten ts PART IV Item 15. Exhibits and Financial Statement Schedules (a) 1. Consolidated Financial Statements of Landec Corporation Page Report of Independent Registered Public Accounting Firm 36 Consolidated Balance Sheets at May 30, 2021 and May 31, 2020. 39 Consolidated Statements of Operations for the Years Ended May 30, 2021, May 31, 2020 and May 26, 2019. 40 Consolidated Statements of Comprehensive (Loss) Income for the Years Ended May 30, 2021, May 31, 2020 and May 26, 2019. 41 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended May 30, 2021, May 31, 2020 and May 26, 2019. 42 Consolidated Statements of Cash Flows for the Years Ended May 30, 2021, May 31, 2020, and May 26, 2019. 43 Notes to Consolidated Financial Statements 44 2. All schedules provided for in the applicable accounting regulations of the Securities and Exchange Commission have been omitted since they pertain to items which do not appear in the financial statements of Landec Corporation and its subsidiaries or to items which are not significant or to items as to which the required disclosures have been made elsewhere in the financial statements and supplementary notes and such schedules. 3. Index of Exhibits 78 The exhibits listed in the accompanying Index of Exhibits are filed or incorporated by reference as part of this report. 35 Table of Conten ts REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of Landec Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Landec Corporation and subsidiaries (the Company) as of May 30, 2021 and May 31, 2020, and the related consolidated statements of operations, comprehensive (loss) income, stockholders' equity and cash flows for each of the three years in the period ended May 30, 2021, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at May 30, 2021 and May 31, 2020, and the results of its operations and its cash flows for each of the three years in the period ended May 30, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of May 30, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated July 29, 2021 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Valuation of Goodwill and Trademarks/tradenames with Indefinite lives Description of the Matter At May 30, 2021, the Company’s goodwill was $69.3 million and trademarks/tradenames with indefinite lives was $25.3 million. The carrying values of the Company’s Yucatan reporting unit’s goodwill and trademarks/tradenames with indefinite lives were $20.0 million and $12.4 million, respectively at May 30, 2021. As discussed in Note 1 of the consolidated financial statements, goodwill and trademarks/tradenames with indefinite lives are assessed by the Company’s management for impairment at least annually, in the fiscal fourth quarter, unless there are indications of impairment at other points throughout the year. Goodwill is tested for impairment at the reporting unit level. The Company measured the fair value of the goodwill using an income approach and the fair value of trademarks/tradenames using a royalty savings method. 36 Table of Conten ts Auditing the Company’s annual impairment test related to the Yucatan reporting unit’s goodwill and trademarks/tradenames with indefinite lives is complex and highly judgmental and required the involvement of our valuation specialist due to the significant judgment in estimating their fair values. In particular, the fair value estimate of the Yucatan reporting unit’s goodwill is sensitive to assumptions such as net sales growth rates, gross margins and discount rate. The Yucatan reporting unit’s trademarks/tradenames with indefinite lives are sensitive to assumptions such as net sales growth rates, royalty rate and discount rate. These assumptions are forward-looking and sensitive to and affected by expected future market or economic conditions and industry and company-specific qualitative factors. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s impairment review process related to the goodwill and trademarks/tradenames with indefinite lives. This included evaluating controls over the Company’s budgetary and forecasting process used to develop the estimated future earnings and cash flows used in estimating the fair value of the Yucatan reporting unit and trademarks/tradenames with indefinite lives. We also tested controls over management’s review of the data used in their valuation models and review of the significant assumptions described above. To test the estimated fair value of the Yucatan reporting unit and trademarks/tradenames with indefinite lives, we performed audit procedures that included, among others, assessing the methodologies, testing the significant assumptions discussed above used to develop the estimates of future earnings and cash flows and testing the completeness and accuracy of the underlying data. We compared the significant assumptions used by management to current industry and economic trends, the Company’s historical results and other guideline companies within the same industry and evaluated how changes in the Company’s business may affect the significant assumptions. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the change in the fair value of the Yucatan reporting unit and trademarks/tradenames with indefinite lives resulting from changes in these assumptions. We involved our valuation specialists to assist in reviewing the valuation methodology and the royalty and discount rate assumptions. In addition, for goodwill we also tested the Company’s calculation of implied multiples of the reporting units, compared them to guideline companies and evaluated the resulting premium. For trademarks/tradenames with indefinite lives, where applicable, we also assessed whether the assumptions used were consistent with those used in the goodwill impairment review process. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2008. San Francisco, California July 29, 2021 37 Table of Conten ts REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Landec Corporation Opinion on Internal Control over Financial Reporting We have audited Landec Corporation and subsidiaries’ internal control over financial reporting as of May 30, 2021, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Landec Corporation and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of May 30, 2021, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of May 30, 2021 and May 31, 2020, and the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity and cash flows for each of the three years in the period ended May 30, 2021, and the related notes and our report dated July 29, 2021 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP San Francisco, California July 29, 2021 38 Table of Conten ts LANDEC CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except par value) May 30, 2021 May 31, 2020 ASSETS Current Assets: Cash and cash equivalents $ 1,295 $ 360 Accounts receivable, less allowance for credit losses 70,013 76,206 Inventories 69,663 66,311 Prepaid expenses and other current assets 7,350 14,230 Total Current Assets 148,321 157,107 Investment in non-public company, fair value 45,100 56,900 Property and equipment, net 179,559 192,338 Operating lease right-of-use assets 20,827 25,321 Goodwill 69,386 69,386 Trademarks/tradenames, net 25,328 25,328 Customer relationships, net 10,792 12,777 Other assets 3,611 2,156 Total Assets $ 502,924 $ 541,313 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 47,569 $ 51,647 Accrued compensation 12,304 9,034 Other accrued liabilities 7,996 9,978 Current portion of lease liabilities 3,889 4,423 Deferred revenue 1,130 352 Line of credit 29,000 77,400 Current portion of long-term debt, net — 11,554 Total Current Liabilities 101,888 164,388 Long-term debt, net 164,902 101,363 Long-term lease liabilities 23,611 26,378 Deferred taxes, net 6,140 13,588 Other non-current liabilities 3,599 4,552 Total Liabilities 300,140 310,269 Stockholders’ Equity: Common stock, $ 0.001 par value; 50,000 shares authorized; 29,333 and 29,224 shares issued and outstanding at May 30, 2021 and May 31, 2020, respectively 29 29 Additional paid-in capital 165,533 162,578 Retained earnings 38,580 71,245 Accumulated other comprehensive loss ( 1,358 ) ( 2,808 ) Total Stockholders’ Equity 202,784 231,044 Total Liabilities and Stockholders’ Equity $ 502,924 $ 541,313 See accompanying notes to the consolidated financial statements. 39 Table of Conten ts LANDEC CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Year Ended May 30, 2021 May 31, 2020 May 26, 2019 Product sales $ 544,161 $ 590,366 $ 557,559 Cost of product sales 462,687 515,378 476,556 Gross profit 81,474 74,988 81,003 Operating costs and expenses: Research and development 10,222 11,099 11,466 Selling, general and administrative 65,364 72,188 62,062 Impairment of goodwill and intangible assets — 12,953 2,000 Legal settlement charge 1,763 — — Restructuring costs 17,621 17,285 — Total operating costs and expenses 94,970 113,525 75,528 Operating (loss) income ( 13,496 ) ( 38,537 ) 5,475 Dividend income 1,125 1,125 1,650 Interest income 48 103 145 Interest expense, net ( 15,344 ) ( 9,603 ) ( 5,230 ) Loss on debt refinancing ( 1,110 ) — — Other (expense) income, net ( 11,689 ) ( 4,395 ) 1,600 Net (loss) income from continuing operations before taxes ( 40,466 ) ( 51,307 ) 3,640 Income tax benefit (expense) 7,801 13,116 ( 1,518 ) Net (loss) income from continuing operations ( 32,665 ) ( 38,191 ) 2,122 Discontinued operations: Loss from discontinued operations — — ( 2,238 ) Income tax benefit — — 527 Loss from discontinued operations, net of tax — — ( 1,711 ) Net (loss) income ( 32,665 ) ( 38,191 ) 411 Basic net (loss) income per share: (Loss) income from continuing operations $ ( 1.12 ) $ ( 1.31 ) $ 0.07 Loss from discontinued operations — — ( 0.06 ) Total basic net (loss) income per share $ ( 1.12 ) $ ( 1.31 ) $ 0.01 Diluted net (loss) income per share: (Loss) income from continuing operations $ ( 1.12 ) $ ( 1.31 ) $ 0.07 (Loss) from discontinued operations — — ( 0.06 ) Total diluted net (loss) income per share $ ( 1.12 ) $ ( 1.31 ) $ 0.01 Shares used in per share computation: Basic 29,294 29,162 28,359 Diluted 29,294 29,162 28,607 See accompanying notes to the consolidated financial statements. 40 Table of Conten ts LANDEC CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (In thousands) Year Ended May 30, 2021 May 31, 2020 May 26, 2019 Net (loss) income $ ( 32,665 ) $ ( 38,191 ) $ 411 Other comprehensive (loss) income, net of tax: Net unrealized gains (losses) on interest rate swaps, (net of tax effect of ($ 445 ), $ 878 , and $ 282 ) 1,450 ( 2,872 ) ( 1,084 ) Other comprehensive (loss) income, net of tax 1,450 ( 2,872 ) ( 1,084 ) Total comprehensive loss $ ( 31,215 ) $ ( 41,063 ) $ ( 673 ) See accompanying notes to the consolidated financial statements. 41 Table of Conten ts LANDEC CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (In thousands, except per share amounts) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Stockholders’ Equity Shares Amount Balance at May 27, 2018 27,702 $ 28 $ 142,087 $ 109,299 $ 1,148 $ 252,562 Issuance of stock under stock plans, net of shares withheld 197 — 327 — — 327 Issuance of common stock in connection with Yucatan Foods acquisition 1,203 1 15,067 — — 15,068 Taxes paid by Company for employee stock plans — — ( 700 ) — — ( 700 ) Stock-based compensation — — 3,560 — — 3,560 Net income — — — 411 — 411 Other comprehensive loss, net of tax — — — — ( 1,084 ) ( 1,084 ) Balance at May 26, 2019 29,102 29 160,341 109,710 64 270,144 ASC 842 transition adjustment — — — ( 274 ) — ( 274 ) Issuance of stock under stock plans, net of shares withheld 122 — 30 — — 30 Taxes paid by Company for employee stock plans — — ( 212 ) — — ( 212 ) Stock-based compensation — — 2,419 — — 2,419 Net loss — — — ( 38,191 ) — ( 38,191 ) Other comprehensive loss, net of tax — — — — ( 2,872 ) ( 2,872 ) Balance at May 31, 2020 29,224 29 162,578 71,245 ( 2,808 ) 231,044 Issuance of stock under stock plans, net of shares withheld 109 — — — — — Taxes paid by Company for employee stock plans — — ( 405 ) — — ( 405 ) Stock-based compensation — — 3,360 — — 3,360 Net loss — — — ( 32,665 ) — ( 32,665 ) Other comprehensive income, net of tax — — — — 1,450 1,450 Balance at May 30, 2021 29,333 $ 29 $ 165,533 $ 38,580 $ ( 1,358 ) $ 202,784 See accompanying notes to the consolidated financial statements. 42 Table of Conten ts LANDEC CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended May 30, 2021 May 31, 2020 May 26, 2019 Cash flows from operating activities: Net (loss) income $ ( 32,665 ) $ ( 38,191 ) $ 411 Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Depreciation, amortization of intangibles, debt costs and right-of-use assets 19,867 18,838 15,230 Loss on debt refinancing 1,110 — — Stock-based compensation expense 3,360 2,419 3,560 Provision (benefit) for expected credit losses 418 ( 284 ) 421 Deferred taxes ( 7,893 ) ( 5,440 ) 910 Change in investment in non-public company, fair value 11,800 4,200 ( 1,600 ) Net loss on disposal of property and equipment held and used 61 143 188 Loss on disposal of property and equipment related to restructuring, net 10,143 14,802 — Other, net ( 74 ) 195 — Impairment of goodwill and intangible assets — 12,953 2,000 Change in contingent consideration liability — ( 500 ) ( 3,500 ) Pacific Harvest note receivable reserve — 1,202 — Changes in current assets and current liabilities: Accounts receivable, net 5,775 ( 6,357 ) ( 9,281 ) Inventory ( 3,352 ) ( 12,179 ) ( 10,929 ) Prepaid expenses and other current assets 7,941 ( 6,815 ) 1,601 Accounts payable ( 5,982 ) ( 1,249 ) 19,116 Accrued compensation 3,270 ( 1,894 ) 249 Other accrued liabilities 460 1,263 21 Deferred revenue 778 ( 147 ) ( 2,377 ) Net cash provided by (used in) operating activities 15,017 ( 17,041 ) 16,020 Cash flows from investing activities: Purchases of property and equipment ( 23,769 ) ( 26,686 ) ( 44,734 ) Proceeds from sales of property and equipment 12,913 2,434 264 Proceeds from collections of notes receivable — 364 545 Proceeds from sale of investment in non-public company — — 7,000 Acquisition of Yucatan Foods (Note 2), net of cash acquired — — ( 59,872 ) Net cash used in investing activities ( 10,856 ) ( 23,888 ) ( 96,797 ) Cash flows from financing activities: Proceeds from long-term debt 170,000 27,500 60,000 Payments on long-term debt ( 114,130 ) ( 11,125 ) ( 5,092 ) Proceeds from lines of credit 100,000 119,300 59,000 Payments on lines of credit ( 148,400 ) ( 93,900 ) ( 34,000 ) Payments for debt issuance costs ( 10,484 ) ( 1,576 ) ( 509 ) Taxes paid by Company for employee stock plans ( 405 ) ( 212 ) ( 700 ) Proceeds from sale of common stock — 30 327 Net cash (used in) provided by financing activities ( 3,419 ) 40,017 79,026 Net increase (decrease) in cash, cash equivalents and restricted cash 742 ( 912 ) ( 1,751 ) Cash, cash equivalents and restricted cash, beginning of period $ 553 $ 1,465 $ 3,216 Cash, cash equivalents and restricted cash, end of period $ 1,295 $ 553 $ 1,465 Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 13,223 $ 10,130 $ 5,614 Cash paid during the period for income taxes, net of refunds received $ ( 7,680 ) $ ( 1,124 ) $ ( 1,963 ) Supplemental disclosure of non-cash investing and financing activities: Purchases of property and equipment on trade vendor credit $ 4,724 $ 2,820 $ 3,948 See accompanying notes to the consolidated financial statements. 43 Table of Conten ts LANDEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 36 years of expertise as a partner for global and emerging biopharmaceutical and biotechnology companies across multiple therapeutic categories to bring their innovations to market. Lifecore recognizes revenue in two different product categories, CDMO and Fermentation. Landec’s natural food company, Curation Foods, Inc. ("Curation Foods"), is focused on innovating and distributing plant-based foods with 100% clean ingredients to retail, club and foodservice channels throughout North America. Curation Foods is able to maximize product freshness through its geographically dispersed family of growers, refrigerated supply chain and patented BreatheWay packaging technology. Its products are 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 and vegetables, avocado products and technology which reports revenues for BreatheWay patented supply chain solutions. Included in the Curation Foods segment and fresh packaged salads and vegetables revenue disaggregation is O Olive Oil & Vinegar ( “ O ” ), which is a premier producer of California specialty olive oils and wine vinegars. Also included in the Curation Foods segment are the dividends and Landec’s share of the change in the fair market value of the Company’s 26.9 % investment ownership of Windset Holdings 2010 Ltd. (“Windset”), a leading edge grower of hydroponically-grown produce. Basis of Presentation and Consolidation The consolidated financial statements are presented on the accrual basis of accounting in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and include the accounts of Landec Corporation and its subsidiaries, Curation Foods and Lifecore. All material inter-company transactions and balances have been eliminated. The Company’s fiscal year is the 52- or 53-week period that ends on the last Sunday of May with quarters within each year ending on the last Sunday of August, November, and February; however, in instances where the last Sunday would result in a quarter being 12-weeks in length, the Company’s policy is to extend that quarter to the following Sunday. A 14th week is included in the fiscal year every five or six years to realign the Company’s fiscal quarters with calendar quarters. In May 2019, the Company discontinued the Now Planting business. As a result, the Now Planting business, which was launched during the second quarter of fiscal year 2019, was reclassified as a discontinued operation for all periods presented. Arrangements that are not controlled through voting or similar rights are reviewed under the guidance for variable interest entities (“VIEs”). A company is required to consolidate the assets, liabilities and operations of a VIE if it is determined to be the primary beneficiary of the VIE. An entity is a VIE and subject to consolidation, if by design: a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by any parties, including equity holders or b) as a group the holders of the equity investment at risk lack any one of the following three characteristics: (i) the power, through voting rights or similar rights to direct the activities of an entity that most significantly impact the entity’s economic performance, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity. The Company reviewed the consolidation guidance and concluded that the equity investment in the non-public company by the Company is not a VIE. Reclassifications Certain reclassifications have been made to prior year financial statements to conform to the current year presentation. 44 Table of Conten ts Summary of Significant Accounting Policies 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), and inventory; the valuation of investments; and the valuation and recognition of stock-based compensation. These estimates involve the consideration of complex factors and require management to make judgments. The analysis of historical and future trends can require extended periods of time to resolve and are subject to change from period to period. The actual results may differ from management’s estimates. Concentrations of Risk Cash and cash equivalents, trade accounts receivable, grower advances, and notes receivable are financial instruments that potentially subject the Company to concentrations of credit risk. Our Company policy limits, among other things, the amount of credit exposure to any one issuer and to any one type of investment, other than securities issued or guaranteed by the U.S. government. The Company routinely assesses the financial strength of customers and growers and, as a consequence, believes that trade receivables, grower advances and notes receivable credit risk exposure is limited. Credit losses for bad debt are provided for in the consolidated financial statements through a charge to operations. A valuation allowance is provided for known and anticipated credit losses. The recorded amounts for these financial instruments approximate their fair value. Several of the raw materials the Company uses to manufacture its products are currently purchased from a single source, including some monomers used to synthesize Intelimer polymers, substrate materials for its breathable membrane products, and raw materials for its HA products. During the fiscal year ended May 30, 2021, sales to the Company’s top five customers accounted for approximately 49 % of total revenue with the top two customers from the Curation Foods segment, Walmart, Inc. (“Walmart”) and Costco Corporation (“Costco”) accounting for approximately 16 % and 15 %, respectively, of total revenues. During the fiscal year ended May 31, 2020, sales to the Company’s top five customers accounted for approximately 48 % of total revenue with the top two customers from the Curation Foods segment, Walmart and Costco accounting for approximately 18 % and 15 %, respectively, of total revenues. As of May 30, 2021, the top two customers, Walmart and Costco represented approximately 11 % and 8 %, respectively, of total accounts receivable. Lifecore had one customer that represented 11 % of total accounts receivable at the end of fiscal year 2021. As of May 31, 2020, the top two customers, Walmart and Costco represented approximately 13 % and 7 %, respectively, of total accounts receivable. Lifecore had one customer that represented 12 % of total accounts receivable at the end of fiscal year 2020. Impairment of Long-Lived Assets Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Recoverability of assets is measured by comparison of the carrying amount of the asset to the net undiscounted future cash flow expected to be generated from the asset. If the future undiscounted cash flows are not sufficient to recover the carrying value of the assets, the assets’ carrying value is adjusted to fair value. The Company regularly evaluates its long-lived assets for indicators of possible impairment. 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. 45 Table of Conten ts 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. 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 Statement of Operations 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 expense (income), net in the Consolidated Statements of Operations. 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 consists of two components, net (loss) income and Other comprehensive (loss) income (“OCI”). OCI refers to revenue, expenses, and gains and losses that under GAAP are recorded as a component of stockholders’ equity but are excluded from net (loss) income. 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 31, 2020 $ ( 2,808 ) Other comprehensive loss before reclassifications, net of tax effect ( 344 ) Amounts reclassified from OCI 1,794 Other comprehensive (loss) income, net 1,450 Balance as of May 30, 2021 $ ( 1,358 ) The Company expects to reclassify approximately $ 1.1 million into earnings in the next 12 months. Based on these assumptions, management believes the fair market values of the Company’s financial instruments are not significantly different from their recorded amounts as of May 30, 2021 and May 31, 2020. Accounts Receivable, Sales Returns and Allowance for Credit Losses The Company carries its accounts receivable at their face amounts less an allowance for estimated sales returns and credit losses. Sales return allowances are estimated based on historical sales return amounts. The Company uses the loss rate method to estimate its expected credit losses on trade accounts receivable and contract assets. In order to estimate expected credit losses, the Company assessed recent historical experience, current economic conditions and any reasonable and supportable forecasts to identify risk characteristics that are shared within the financial asset. These risk characteristics are then used to bifurcate the loss rate method into risk pools. The risk pools were determined based on the industries in which the Company operates. Historical credit loss for each risk pool is then applied to the current period aging as presented in the identified risk pools to determine the needed reserve allowance. At times when there are 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 46 Table of Conten ts 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 Adjustments resulting from acquisitions Provision (benefit) for expected credit losses Write offs, net of recoveries Balance at end of period Year Ended May 26, 2019 $ 302 $ 881 $ 421 $ ( 588 ) $ 1,016 Year Ended May 31, 2020 $ 1,016 $ — $ ( 284 ) $ ( 294 ) $ 438 Year Ended May 30, 2021 $ 438 $ — $ 418 $ ( 577 ) $ 279 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 May 30, 2021, and May 31, 2020, were $ 10.6 million and $ 9.0 million, respectively. Contract liabilities primarily relate to payments received from customers in advance of performance under the contract. The Company’s contract liabilities as of May 30, 2021, and May 31, 2020, were $ 0.9 million and $ 0.0 million, respectively. No revenue was recognized during fiscal year 2021 that was included in the contract liability balance at the beginning of the fiscal 2021. 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 revenue 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. 47 Table of Conten ts 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. 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): Year Ended Curation Foods: May 30, 2021 May 31, 2020 May 26, 2019 Fresh packaged salads and vegetables $ 380,205 $ 438,083 $ 453,182 Avocado products 63,575 62,194 27,322 Technology 2,294 4,256 1,182 Total $ 446,074 $ 504,533 $ 481,686 Year Ended Lifecore: May 30, 2021 May 31, 2020 May 26, 2019 Contract development and manufacturing organization $ 75,297 $ 64,781 $ 54,439 Fermentation 22,790 21,052 21,434 Total $ 98,087 $ 85,833 $ 75,873 48 Table of Conten ts 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. 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 and Cash as presented on the Statements of Cash Flows The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows (in thousands): May 30, 2021 May 31, 2020 May 26, 2019 Cash and cash equivalents $ 1,295 $ 360 $ 1,080 Restricted cash — 193 385 Cash, cash equivalents and restricted cash $ 1,295 $ 553 $ 1,465 The Company was required to maintain restricted cash of $ 0.0 million as of May 30, 2021, $ 0.2 million as of May 31, 2020, and $ 0.4 million as of May 26, 2019 related to certain collateral requirements for obligations under its workers’ compensation programs. The restricted cash is included in Other assets in the Company’s accompanying Consolidated Balance Sheets. Inventories Inventories are stated at the lower of cost (using the first-in, first-out method) or net realizable value. As of May 30, 2021 and May 31, 2020, inventories consisted of the following (in thousands): Year Ended May 30, 2021 May 31, 2020 Finished goods $ 39,493 $ 35,177 Raw materials 23,942 25,856 Work in progress 6,228 5,278 Total inventories $ 69,663 $ 66,311 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. 49 Table of Conten ts Advertising Expense Advertising expenditures for the Company are expensed as incurred and included in selling, general, and administrative in the accompanying Consolidated Statements of Operations. Advertising expense for the Company for fiscal years 2021, 2020 and 2019 was $ 0.9 million, $ 1.8 million and $ 1.3 million, respectively. Related Party Transactions The Company sold products to and earned license fees from Windset during the last three fiscal years. During fiscal years 2021, 2020 and 2019, the Company recognized revenues of $ 0.5 million, $ 0.6 million, and $ 0.6 million, respectively, from the sale of products to and license fees from Windset. These amounts have been included in product sales in the accompanying Consolidated Statements of Operations. The related receivable balances of $ 0.1 million and $ 0.5 million from Windset are included in accounts receivable in the accompanying Consolidated Balance Sheets as of May 30, 2021 and May 31, 2020, respectively. All related party transactions are monitored quarterly by the Company and approved by the Audit Committee of the Board of Directors. Property and Equipment and Finite-Lived Intangible Assets Property and equipment and finite-lived intangible assets are stated at cost. Expenditures for major improvements are capitalized while repairs and maintenance are charged to expense. Depreciation is expensed on a straight-line basis over the estimated useful lives of the respective assets. Customer relationships are amortized to operating expense on an accelerated basis that reflects the pattern in which the economic benefits are consumed. Leasehold improvements are amortized on a straight-line basis over the lesser of the economic life of the improvement or the life of the lease. The Company capitalizes software development costs for internal use. Capitalization of software development costs begins in the application development stage and ends when the asset is placed into service. The Company amortizes such costs on a straight-line basis over estimated useful lives of three to seven years . Property, plant and equipment and 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. The Company’s impairment review requires significant management judgment including estimating the future success of product lines, future sales volumes, revenue and expense growth rates, alternative uses for the assets and estimated proceeds from the disposal of the assets. The Company conducts quarterly reviews of idle and underutilized equipment, and reviews business plans for possible impairment indicators. Impairment is indicated when the carrying amount of the asset (or asset group) exceeds its estimated future undiscounted cash flows and the impairment is viewed as other than temporary. When impairment is indicated, an impairment charge is recorded for the difference between the asset’s book value and its estimated fair value. Depending on the asset, estimated fair value may be determined either by use of a discounted cash flow model or by reference to estimated selling values of assets in similar condition. The use of different assumptions would increase or decrease the estimated fair value of assets and would increase or decrease any impairment measurement. The Company tests its indefinite-lived intangible assets for impairment at least annually. Application of the impairment tests for indefinite-lived intangible assets requires significant judgment by management, including identification of reporting units, assignment of assets and liabilities to reporting units, assignment of intangible assets to reporting units, which judgments are inherently uncertain. During fiscal year 2020, the Company recorded impairment charges of $ 1.3 million and $ 0.5 million related to O property and equipment, and finite-lived intangible assets (customer relationships), respectively. The impairment was determined using the present value of cash flows method and was primarily a result of the recently updated (lowered) financial outlook for the O reporting unit, related to a recent shift in strategic focus within the Curation Foods business segment. The impairment charge of property and equipment is included in selling, general and administrative in the Consolidated Statements of Operations. The impairment charge of the customer relationships intangible asset impairment charge is included in the line item “impairment of goodwill and intangible assets” on the Consolidated Statements of Operations, and is in the Curation Foods business segment. 50 Table of Conten ts Impairment Review of Goodwill and Indefinite-Lived Intangible Asset The Company tests its goodwill and trademarks with indefinite lives annually for impairment in the fiscal fourth quarter or earlier if there are indications during a different interim period that these assets may have become impaired. On a quarterly basis, the Company considers the need to update its most recent annual tests for possible impairment of its indefinite-lived intangible assets and goodwill, based on management’s assessment of changes in its business and other economic factors since the most recent annual evaluation. Such changes, if significant or material, could indicate a need to update the most recent annual tests for impairment of the indefinite-lived intangible assets during the current period. The results of these tests could lead to write-downs of the carrying values of these assets in the current period. With respect to goodwill, the Company has the option to first assess qualitative factors such as macro-economic conditions, industry and market environment, cost factors, overall financial performance of the Company, cash flow from operating activities, market capitalization, litigation, and stock price. If the result of a qualitative test indicates a potential for impairment of a reporting unit, a quantitative test is performed. The quantitative test compares the carrying amount of a reporting unit that includes goodwill to its fair value. The Company determines the fair value using both an income approach and a market approach. To determine the fair value of a reporting unit as part of its quantitative test, the Company uses a discounted cash flow ("DCF") method under the income approach, as it believes that this approach is the most reliable indicator of the fair value of its businesses and the fair value of their future earnings and cash flows. Under this approach, which requires significant judgments, the Company estimates the future cash flows of each reporting unit and discounts these cash flows at a rate of return that reflects their relative risk and rate of return an outside investor could expect to earn. The cash flows used in the DCF method are consistent with those the Company uses in its internal planning, which gives consideration to actual business trends experienced, and the broader business strategy for the long term. The other key estimates and factors used in the DCF method include, but are not limited to, future volumes, net sales and expense growth rates, and gross margin and gross margin growth rates. Changes in such estimates or the application of alternative assumptions could produce different results. Under the market-based approach, information regarding the Company is utilized along with publicly available industry information to determine earnings multiples that are used to value the Company. A goodwill impairment loss is recognized for the amount that the carrying amount of a reporting unit, including goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit. For trademarks and other intangible assets with indefinite lives, the Company performs a quantitative analysis to test for impairment. When a quantitative test is performed, the estimated fair value of an asset is compared to its carrying amount. If the carrying amount of such asset exceeds its estimated fair value, an impairment charge is recorded for the difference between the carrying amount and the estimated fair value. The Company uses the income approach to estimate the fair value of its trademarks. This approach requires significant judgments in determining the royalty rates and the assets’ estimated cash flows as well as the appropriate discount rates applied to those cash flows to determine fair value. Changes in such estimates or the use of alternative assumptions could produce different results. During fiscal year 2020, the Company recorded an impairment charge of $ 1.1 million and $ 3.5 million related to its O and Yucatan Foods trademarks, respectively. The Company also recorded an impairment charge of $ 5.2 million and $ 2.7 million related to its O and Yucatan Foods goodwill, respectively. The O impairment charges were primarily a result of the recently updated (lowered) financial outlook for the O reporting unit, related to a recent shift in strategic focus within the Curation Foods business segment. The Yucatan Foods impairment charges were primarily a result of an increase in the Yucatan Foods carrying value and an increase in the discount rate, as a result of uncertainty in forecasting the effects of COVID-19 and general economic uncertainties. These impairment charges are included in the line item “impairment of goodwill and intangible assets” on the Consolidated Statements of Operations, and both are in the Curation Foods business segment. During fiscal year 2019, the Company re-packaged its GreenLine branded food service products to the Eat Smart brand, and recorded an impairment charge for the remaining $ 2.0 million trademarks intangible assets. Other than the goodwill write-offs discussed above, there were no other impairment losses for goodwill during fiscal years 2021, 2020 and 2019. 51 Table of Conten ts 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 and May 31, 2020. The Company has elected to account for its investment in Windset under the fair value option. See Note 3 – Investment in Non-public Company for further information. Subsequent to fiscal year end, 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., see Note 15 - Subsequent Events. Business Interruption Insurance Recoveries In the third quarter of fiscal year 2019, the Company recalled five SKUs of Eat Smart single-serve Salad Shake-Ups™. In the fourth quarter of fiscal year 2019, the Company submitted a product recall claim. In fiscal year 2020, the Company recognized $ 3.0 million of business interruption insurance recoveries. Amounts received on insurance recoveries related to business interruption are recorded when amounts are realized and are included as a reduction to cost of product sales and operating cash flows. Deferred Revenue Cash received in advance of services performed are recorded as deferred revenue. Income Taxes The Company accounts for income taxes in accordance with accounting guidance which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities. The Company maintains valuation allowances when it is likely that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances from period to period are included in the Company’s income tax provision in the period of change. In determining whether a valuation allowance is warranted, the Company takes into account such factors as prior earnings history, expected future earnings, unsettled circumstances that, if unfavorably resolved, would adversely affect utilization of a deferred tax asset, carryback and carryforward periods and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset. In addition to valuation allowances, the Company establishes accruals for uncertain tax positions. The tax-contingency accruals are adjusted in light of changing facts and circumstances, such as the progress of tax audits, case law and emerging legislation. The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. The Company’s effective tax rate includes the impact of tax-contingency accruals as considered appropriate by management. A number of years may elapse before a particular matter, for which the Company has accrued, is audited and finally resolved. The number of years with open tax audits varies by jurisdiction. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, the Company believes its tax-contingency accruals are adequate to address known tax contingencies. Favorable resolution of such matters could be recognized as a reduction to the Company’s effective tax rate in the year of resolution. Unfavorable settlement of any particular issue could increase the Company's effective tax rate in the year of resolution. Any resolution of a tax issue may require the use of cash in the year of resolution. The Company’s tax-contingency accruals are recorded in Other accrued liabilities in the accompanying Consolidated Balance Sheets. Per Share Information Accounting guidance requires the presentation of basic and diluted earnings per share. Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities and is computed using the weighted average number of common shares outstanding. Diluted earnings per share reflect the potential dilution as if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted common equivalent shares consist of stock options and restricted stock units, calculated using the treasury stock method. 52 Table of Conten ts The following table sets forth the computation of diluted net (loss) income per share: Year Ended (in thousands, except per share amounts) May 30, 2021 May 31, 2020 May 26, 2019 Numerator: Net (loss) income $ ( 32,665 ) $ ( 38,191 ) $ 411 Denominator: Weighted average shares for basic net (loss) income per share 29,294 29,162 28,359 Effect of dilutive securities: Stock options and restricted stock units — — 248 Weighted average shares for diluted net (loss) income per share 29,294 29,162 28,607 Diluted net (loss) income per share $ ( 1.12 ) $ ( 1.31 ) $ 0.01 Due to the Company’s net loss in fiscal years 2021 and 2020, the net loss per share for fiscal years 2021 and 2020 includes only the weighted average shares outstanding and thus excludes 0.3 million and 0.2 million of outstanding restricted stock unit awards ("RSUs"), respectively, as such impact would be antidilutive. Options to purchase 1.7 million, 1.7 million, and 1.6 million shares of Common Stock at a weighted average exercise price of $ 11.36 , $ 12.71 , and $ 13.74 per share during the fiscal years ended May 30, 2021, May 31, 2020 and May 26, 2019, respectively, were not included in the computation of diluted net (loss) income per share due to the net loss in fiscals years 2021 and 2020, or because the options’ exercise price was greater than the average market price of the common stock and, therefore, their inclusion would be antidilutive. Research and Development Expenses Costs related to both research and development contracts and Company-funded research is included in research and development expenses. Research and development costs are primarily comprised of salaries and related benefits, supplies, travel expenses, consulting expenses and corporate allocations. Accounting for Stock-Based Compensation 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 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. The use of Black-Scholes requires the Company to make estimates and assumptions, such as expected volatility, expected term, and risk-free interest rate. RSUs are valued at the closing market price of the Company’s common stock on the date of grant. The Company uses the straight-line single option method to calculate and recognize the fair value of stock-based compensation arrangements. Employee Savings and Investment Plans The Company sponsors a 401(k) plan (“Landec Plan”), which is available to all full-time Landec employees and allows participants to contribute from 1% to 50 % of their salaries, up to the Internal Revenue Service limitation into designated investment funds. The Company matches 100 % on the first 3 % and 50 % on the next 2 % contributed by an employee. Employee and Company contributions are fully vested at the time of the contributions. The Company retains the right, by action of the Board of Directors, to amend, modify, or terminate the plan. For fiscal years 2021, 2020 and 2019, the Company contributed $ 2.1 million, $ 2.2 million and $ 1.8 million , respectively, to the Landec Plan. 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. 53 Table of Conten ts Applicable accounting guidance establishes 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 May 30, 2021, the Company held certain assets and liabilities that were required to be measured at fair value on a recurring basis, including its interest rate swap, and its minority interest investment in Windset. The fair value of the Company’s interest rate swap contracts is determined based on model inputs that can be observed in a liquid market, including yield curves, and is categorized as a Level 2 fair value measurement and is included in Other assets or Other non-current liabilities in the accompanying Consolidated Balance Sheets. As of May 30, 2021, related to Curation Foods’ distribution facility in Rock Hill, South Carolina we have $ 0.5 million in prepaid expenses and other current assets within the Consolidated Balance Sheets meeting the criteria of assets held for sale. As of May 31, 2020, related to Curation Foods’ salad dressing plant in Ontario, California we have $ 2.6 million of property and equipment, net included in property and equipment, net within the Consolidated Balance Sheets 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 mix of unobservable inputs utilized such as independent research in the market as well as actual quotes from market participants. See Note 4 and Note 14 for additional information. The Company has elected the fair value option of accounting for its investment in Windset. The calculation of fair value utilizes significant unobservable inputs, including projected cash flows, growth rates, and discount rates. As a result, the Company’s investment in Windset is considered to be a Level 3 measurement investment. In determining the fair value of the Company's investment in Windset, the Company utilizes the following significant unobservable inputs in the discounted cash flow models: May 30, 2021 Range (Weighted Average) May 31, 2020 Range (Weighted Average) Revenue growth rates 7 % ( 6.9 )% 6 % to 7 % ( 6.4 )% Expense growth rates 0 % to 8 % ( 5.5 )% 6 % to 8 % ( 6.6 )% Discount rates 10 % 12 % The revenue growth and expense growth rate assumptions are considered the Company’s best estimate of the trends in those items over the discount period. The discount rate assumption takes into account the risk-free rate of return, the market equity risk premium, and the Company’s specific risk premium and then applies an additional discount for lack of liquidity of the underlying securities. The discounted cash flow valuation model used by the Company has the following sensitivity to changes in inputs and assumptions (in thousands): Impact on value of Windset investment as of May 30, 2021 10% increase in revenue growth rates $ 6,000 10% increase in expense growth rates $ ( 3,200 ) 10% increase in discount rates $ ( 1,300 ) 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. 54 Table of Conten ts The following table summarizes the fair value of the Company’s assets and liabilities that are measured at fair value on a recurring and non-recurring basis (in thousands): Fair Value at May 30, 2021 Fair Value at May 31, 2020 Assets: Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Assets held for sale - nonrecurring $ — $ — $ 515 $ — $ — $ 2,607 Investment in non-public company — — 45,100 — — 56,900 Total assets $ — $ — $ 45,615 $ — $ — $ 59,507 Liabilities: Interest rate swap contracts $ — $ 1,736 $ — $ — $ 3,578 $ — Total liabilities $ — $ 1,736 $ — $ — $ 3,578 $ — The following table reflects the fair value roll forward reconciliation of Level 3 assets and liabilities measured at fair value for the twelve months ended May 30, 2021 (in thousands): Windset Investment Balance as of May 31, 2020 $ 56,900 Fair value change ( 11,800 ) Balance as of May 30, 2021 $ 45,100 Recent Accounting Pronouncements Cloud Computing Arrangements In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (“ASU 2018-15”), which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification 350-40 to determine which implementation costs to defer and recognize as an asset. The Accounting Standards Update generally aligns the guidance on recognizing implementation costs incurred in a cloud computing arrangement that is a service contract with that for implementation costs incurred to develop or obtain internal-use software, including hosting arrangements that include an internal-use software license. ASU 2018-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application is permitted. The Company adopted ASU 2018-15 on June 1, 2020, and the adoption of this standard did not have an impact on the Company’s consolidated financial statements. Fair Value Measurement In August 2018, the FASB issued ASU 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The guidance eliminates, adds, and modifies certain disclosure requirements for fair value measurements. Entities will no longer have to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted ASU 2018-13 on June 1, 2020, and the adoption of this standard did not have an impact on the Company’s consolidated financial statements. As required by ASU 2018-13, the Company included additional disclosures in the Fair Value Measurement section related to the range and weighted average rates used to develop significant inputs for the Level 3 investment. Financial Instruments – Credit Losses In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13” or "ASC 326"), which requires measurement and recognition of expected credit losses for financial assets held. Effective June 1, 2020, the Company adopted ASC 326 using the transition method introduced by ASU 2016-13. The adoption of ASC 326 did not have a material impact on our consolidated financial statements. Under ASC 326, the Company changed its policy for assessing credit losses to include consideration of a broader range of information to estimate credit losses over the life of its financial assets. As of May 30, 2021 the financial assets of the 55 Table of Conten ts Company within the scope of the assessment comprised of trade accounts receivable, contract assets, and deposits. See the Accounts Receivable and Sales Returns and Allowance for Credit Losses section within Note 1 for further discussion of the Company's accounting for credit losses. 2. Acquisitions Yucatan Foods Acquisition On December 1, 2018 (the “Acquisition Date”), the Company acquired all of the voting interests and substantially all of the assets of Yucatan Foods, a manufacturer and seller of avocado-based food products. The total consideration paid to acquire Yucatan Foods was $ 75.0 million, consisting of $ 59.9 million in cash and 1,203,360 shares of common stock (“Stock Consideration”) with a fair value of $ 15.1 million. The fair value of the Stock Consideration is based on a per-share value of the Company’s common stock on the Acquisition Date. Given that the holders are restricted from selling the Landec common stock, a discount for lack of marketability was applied to the Stock Consideration. The discount for lack of marketability was based on restricted stock studies, pre-IPO studies, and utilizing the Black-Scholes option pricing model to estimate a discount of 17.5 % and 20.0 % for the 3 -year and 4 -year lockup period, respectively. Pursuant to the terms of the purchase agreement, all 1,203,360 shares issued as Stock Consideration will be held in an escrow account to secure the indemnification rights of Landec with respect to certain matters, including breaches of representations, warranties and covenants such as environmental and tax representations. The Stock Consideration is comprised of two tranches, with 3 -year and 4 -year lock-up provisions, respectively, such that 50 % of the Stock Consideration will be released from lock-up on November 30, 2021, the 3 -year anniversary of the Acquisition Date, and 50 % of the Stock Consideration is released on November 30, 2022, the 4 -year anniversary of the Acquisition Date. Yucatan Foods, founded in 1991, with its headquarters in Los Angeles, California, produces and sells guacamole and other avocado products under its Yucatan and Cabo Fresh brands primarily in the U.S. and Canada. Yucatan Foods’ production facility is located in Guanajuato, Mexico, very near where avocados are grown. Landec acquired Yucatan Foods to grow, strengthen, and stabilize its position in the natural foods market and to improve Curation Foods’ margins over time. Upon acquisition, Yucatan Foods became a wholly-owned subsidiary of Curation Foods. The Acquisition Date fair value of the consideration paid consisted of the following (in thousands): Cash consideration $ 59,898 Stock consideration 15,068 $ 74,966 The excess of the purchase price over the aggregate fair value of identifiable net assets acquired was recorded as goodwill. These preliminary fair values of the assets acquired and the liabilities assumed were determined through established and generally accepted valuation techniques and were subject to change during the measurement period as valuations were finalized. During the fourth quarter of fiscal 2019, the Company recorded measurement period adjustments to deferred income taxes of $ 1.7 million and indemnification provisions for environmental related items of $ 0.7 million, resulting in an increase to goodwill of $ 1.0 million. During the second quarter of fiscal 2020, the Company recorded measurement period adjustments to deferred income taxes of $ 0.5 million, resulting in an increase to goodwill of $ 0.5 million, and completed the acquisition accounting for the Yucatan Foods acquisition. These were non-cash adjustments. The following is a summary of the amounts recognized in accounting for the Yucatan Foods acquisition: 56 Table of Conten ts (In thousands) Cash and cash equivalents $ 26 Accounts receivable, net 6,310 Inventories 11,384 Prepaid expenses and other current assets 1,573 Other assets 102 Property and equipment 14,083 Trademarks/tradenames 15,900 Customer relationships 11,000 Accounts payable ( 4,507 ) Other accrued liabilities ( 1,873 ) Deferred tax liabilities ( 1,767 ) Net identifiable assets acquired 52,231 Goodwill 22,735 Total fair value purchase consideration $ 74,966 Finite-lived Intangible Assets The Company identified one finite-lived intangible asset in connection with the Yucatan Foods acquisition: customer relationships valued at $ 11.0 million which is included in customer relationships in the accompanying Consolidated Balance Sheets. Customer relationships have an estimated useful life of 12 years and will be amortized to operating expenses on an accelerated basis that reflects the pattern in which the economic benefits are consumed. The customer relationships are valued using the excess earnings method. Goodwill and Indefinite-lived Intangible Assets As a result of the Yucatan Foods acquisition, the Company recorded goodwill of $ 22.2 million and trademarks valued at $ 15.9 million, which are included within goodwill and trademarks in the accompanying Consolidated Balance Sheets, respectively. The goodwill recognized from the Yucatan Foods acquisition was primarily attributable to Yucatan Foods’ long history and expected synergies from future growth and expansion of our Curation Foods business segment. Approximately 80 % of the goodwill is expected to be deductible for income tax purposes. Trademarks are considered to be an indefinite lived asset and therefore, will not be amortized. The trademarks are valued using the relief from royalty valuation method. As discussed in Note 1, the Company recognized impairment charges of $ 2.7 million and $ 3.5 million in the Curation Foods business segment (in the Yucatan reporting unit) during the year ended May 31, 2020, related to goodwill and trademarks, respectively. Acquisition Related Transaction Costs For the year ended May 26, 2019, the Company recognized $ 3.3 million of acquisition-related costs that were expensed as incurred and included in the Selling, general and administrative line item in the Consolidated Statements of Operations. These expenses included investment banking fees, legal, accounting and tax service fees and appraisals fees. O Acquisition On March 1, 2017, the Company purchased substantially all of the assets of O for $ 2.5 million in cash plus contingent consideration of up to $ 7.5 million over the next three years based upon O achieving certain EBITDA targets. The potential earn out payment of up to $ 7.5 million was based on O ’s cumulative EBITDA over the Company’s fiscal years 2018 through 2020. Based on this analysis, the Company recorded a contingent consideration liability, included in Other non-current liabilities. The earn out period expired in March 2020, with no payments made under the contractual provisions of the earn out arrangement. As of May 30, 2021 and May 31, 2020, there was no contingent consideration liability. The reduction in the contingent consideration liability was $ 0.5 million and $ 3.5 million for fiscal years 2020 and 2019, respectively, and is recorded as a reduction to selling, general, and administrative expense in the accompanying Consolidated Statements of Operations. The $ 3.5 million reduction during fiscal year 2019 was due to a very poor olive harvest in California during 2018 resulting in 57 Table of Conten ts substantially lower volumes of olive oil available for sale over the next twelve months. This, combined with a slower than anticipated apple cider vinegar sales reduced the current projected EBITDA through fiscal year 2020. 3. Investment in Non-public Company Windset 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 Shareholders’ Agreement between Curation Foods and Windset, as amended on March 15, 2017, included a put and call option (the “Put and Call Option”), which was exercisable on or after March 31, 2022, whereby Curation Foods could exercise the put to sell its common, Senior A preferred shares, and junior preferred shares to Windset, or Windset could exercise the call to purchase those shares from Curation Foods, in either case, at a price equal to 26.9 % of the fair market value of Windset’s common shares, plus the liquidation value of the preferred shares of $ 20.1 million ($ 15.0 million for the Senior A preferred shares and $ 5.1 million for the junior preferred shares). Under the terms of the arrangement with Windset, the Company was entitled to designate one of five members on the Board of Directors of Windset. On October 29, 2014, Curation Foods further increased its investment in Windset by purchasing 70,000 shares of Senior B preferred shares for $ 7.0 million. The Senior B preferred shares paid an annual dividend of 7.5 % on the amount outstanding at each anniversary date of the Windset Purchase Agreement. The Senior B preferred shares purchased by Curation Foods had a put feature whereby Curation Foods could sell back to Windset the Senior B preferred shares for $ 7.0 million at any time after October 29, 2017. During the fourth quarter of fiscal year 2019, the Company exercised its put feature and sold the 70,000 shares of Senior B preferred shares back to Windset for $ 7.0 million. The investment in Windset does not qualify for equity method accounting as the investment does not meet the criteria of in-substance common stock due to returns through the annual dividend on the non-voting senior preferred shares that were not available to the common stock holders. As the put and call options required all of the various shares to be put or called in equal proportions, the Company has deemed that the investment, in substance, should be treated as a single security for purposes of accounting. The fair value of the Company’s investment in Windset was determined utilizing the Windset Purchase Agreement’s put/call calculation for value and a discounted cash flow model based on projections developed by Windset that were reviewed by Landec, and considers the put and call conversion options. These features impact the duration of the cash flows utilized to derive the estimated fair values of the investment. These two discounted cash flow models' estimate for fair value are then weighted. Assumptions included in these discounted cash flow models are evaluated quarterly based on Windset’s actual and projected operating results to determine the change in fair value. The Company recorded $ 1.1 million in dividend income for the fiscal years ended May 30, 2021 and May 31, 2020, respectively, and $ 1.7 million for the fiscal year ended May 26, 2019. The decrease in the fair market value of the Company’s investment in Windset for the fiscal years ended May 30, 2021 and May 31, 2020 was $ 11.8 million and $ 4.2 million, respectively, and is included in Other income (expense) in the accompanying Consolidated Statements of Operations. The increase in the fair market value of the Company’s investment in Windset for the fiscal year ended May 26, 2019 was $ 1.6 million and is included in Other income (expense) in the accompanying Consolidated Statements of Operations. Subsequent to fiscal year end, 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 of Windset to the Purchasers in exchange for an aggregate purchase price of $ 45.1 million. See Note 15 - Subsequent Events. 58 Table of Conten ts 4. Property and Equipment Property and equipment consists of the following (in thousands): Years of Useful Life Year Ended May 30, 2021 May 31, 2020 Land $ 15,027 $ 13,212 Buildings 15 - 40 79,927 89,492 Leasehold improvements 3 - 20 6,879 6,834 Computers, capitalized software, machinery, equipment and autos 3 - 20 141,528 146,659 Furniture and fixtures 3 - 7 2,914 2,603 Construction in process 35,882 28,454 Gross property and equipment 282,157 287,254 Less accumulated depreciation and amortization ( 102,598 ) ( 94,916 ) Property and equipment, net $ 179,559 $ 192,338 Depreciation and amortization expense for property and equipment for the fiscal years ended May 30, 2021, May 31, 2020 and May 26, 2019 was $ 16.0 million, $ 16.3 million and $ 13.1 million, respectively. Amortization related to finance leases, which is included in depreciation expense, was $ 0.1 million for each of the fiscal years ended May 30, 2021, May 31, 2020 and May 26, 2019, respectively. During fiscal years 2021, 2020 and 2019, the Company capitalized $ 1.0 million, $ 3.1 million, and $ 1.0 million in software development costs, respectively. Amortization related to capitalized software was $ 1.1 million, $ 0.8 million, and $ 0.9 million for fiscal years ended May 30, 2021, May 31, 2020 and May 26, 2019, respectively. The unamortized computer software costs as of May 30, 2021 and May 31, 2020 were $ 4.7 million and $ 5.0 million, respectively. Capitalized interest was $ 0.5 million, $ 1.2 million, and $ 0.7 million for fiscal years ended May 30, 2021, May 31, 2020 and May 26, 2019, respectively. As disclosed in Note 1, an impairment of property and equipment related to the O reporting unit of $ 1.3 million was recorded in Selling, general and administrative in the accompanying Consolidated Statements of Operations for the year ended May 31, 2020. Assets Held for Sale In June 2019, the Company designated the Santa Maria office as the Curation Foods headquarters, and decided to close and put up for sale the Curation Foods office in San Rafael, California. During the fiscal year ended May 31, 2020, the Company closed escrow on the San Rafael property and recognized a $ 0.4 million impairment loss, which is included in restructuring costs within the Consolidated Statements of Operations. The Company received net cash proceeds of $ 2.4 million in connection with the sale. In January 2020, the Company decided to seek to divest its Curation Foods salad dressing plant in Ontario, California. During the fiscal year ended May 31, 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, which is included in restructuring costs within the Consolidated Statements of Operations for the Curation Foods segment. The remaining net carrying value of $ 2.6 million is included in property and equipment, net within the Consolidated Balance Sheets as of May 31, 2020. Liabilities of $ 0.3 million and $ 2.9 million related to these assets are included in Current portion of lease liabilities and Long-term lease liabilities, respectively, within the Consolidated Balance Sheet as of May 31, 2020. In the first quarter of fiscal year 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 fiscal year ended May 30, 2021, which is included in restructuring costs within the Consolidated Statements of Operations. On June 25, 2020 the Board of Directors approved a plan to close Curation Foods’ underutilized manufacturing operations in Hanover, Pennsylvania (“Hanover”), sell the building and assets related thereto, and consolidate its operations into its manufacturing facilities in Guadalupe, California and Bowling Green, Ohio. The $ 17.2 million carrying value of these assets was included in property and equipment, net on the consolidated Balance Sheets as of May 31, 2020, and was not classified as assets held for sale as the plan to sell was not finalized until subsequent to fiscal year end 2020. In the first quarter of fiscal year 2021, the Company recognized an $ 8.8 million impairment loss, which is included in Restructuring costs within the Consolidated Statements of Operations. 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 sale. 59 Table of Conten ts 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 is included in prepaid expenses and other current assets on the Consolidated Balance Sheets as of May 30, 2021, and was classified as an asset held for sale. There was no impairment recorded in fiscal year 2021. The asset was sold subsequent to fiscal year end on June 9, 2021 for gross proceeds of $ 1.1 million. 5. Goodwill and Intangible Assets Goodwill The following table presents the changes in goodwill during fiscal 2021 and fiscal 2020 (in thousands): 2021 2020 Balance at beginning of year $ 69,386 $ 76,742 Yucatan Foods measurement period adjustment — 504 Impairment — ( 7,860 ) Balance at end of year $ 69,386 $ 69,386 We have determined that the Eat Smart, Yucatan Foods, O , and Lifecore are the appropriate reporting units for testing goodwill for impairment. As disclosed in Note 1, an impairment charge of $ 5.2 million and $ 2.7 million in O and Yucatan Foods reporting units, respectively, was recorded during the year ended May 31, 2020. As of May 30, 2021, the Eat Smart, Yucatan, and Lifecore reporting unit had $ 35.5 million, $ 20.0 million, and $ 13.9 million of goodwill, respectively. Intangible Assets As of May 30, 2021 and May 31, 2020, the Company's intangible assets consisted of the following (in thousands): May 30, 2021 May 31, 2020 Amortization Period (years) Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Customer relationships Eat Smart (Curation Foods) 13 $ 7,500 $ 5,240 $ 7,500 $ 4,663 Yucatan Foods (Curation Foods) 12 11,000 2,750 11,000 1,650 Lifecore 12 3,700 3,418 3,700 3,110 Total customer relationships $ 22,200 $ 11,408 $ 22,200 $ 9,423 Trademarks/tradenames Eat Smart (Curation Foods) $ 9,100 $ 872 $ 9,100 $ 872 O (Curation Foods) 500 — 500 — Yucatan Foods (Curation Foods) 12,400 — 12,400 — Lifecore 4,200 — 4,200 — Total trademarks/tradenames $ 26,200 $ 872 $ 26,200 $ 872 Total intangible assets $ 48,400 12,280 $ 48,400 $ 10,295 Amortization expense related to finite-lived intangible assets was $ 2.0 million, $ 2.0 million, and $ 1.5 million in fiscal 2021, 2020 and 2019, respectively. 60 Table of Conten ts The amortization expense for each year presented are as follows (in thousands): Fiscal year 2022 $ 1,959 Fiscal year 2023 1,677 Fiscal year 2024 1,677 Fiscal year 2025 1,629 Fiscal year 2026 1,100 Total $ 8,042 As discussed in Note 1, the Company recognized an impairment of the customer relationships in the Curation Foods business segment (in the O reporting unit) of $ 0.5 million during the year ended May 31, 2020. In addition, the Company recognized an impairment of the trademarks in the Curation Foods business segment for O and Yucatan Foods of $ 1.1 million and $ 3.5 million, respectively during the year ended May 31, 2020. 6. Stock-based Compensation and Stockholders’ Equity Common Stock and Stock Option Plans On October 16, 2019, following stockholder approval at the Annual Meeting of Stockholders of the Company, the 2019 Stock Incentive Plan (the “Plan”) became effective and replaced the Company’s 2013 Stock Incentive Plan (the “2013 Plan”). Employees (including officers), consultants and directors of the Company and its subsidiaries and affiliates are eligible to participate in the Plan. The Plan provides for the grant of stock options (both nonstatutory and incentive stock options), stock grants, stock units and stock appreciation rights. Awards under the Plan will be evidenced by an agreement with the Plan participants and 2.0 million shares of the Company’s Common Stock (“Shares”) were initially available for award under the Plan. Under the Plan, no recipient may receive awards during any fiscal year that exceeds the following amounts: (i) stock options covering in excess of 500,000 Shares in the aggregate; (ii) stock grants and stock units covering in excess of 250,000 Shares in the aggregate; or (iii) stock appreciation rights covering more than 500,000 Shares in the aggregate. In addition, awards to non-employee directors are discretionary. However, a non-employee director may not be granted awards in excess of an aggregate fair market value of $ 120,000 during any fiscal year. The exercise price of the options is the fair market value of the Company’s Common Stock on the date the options are granted. As of May 30, 2021, 1,299,808 options to purchase shares and restricted stock units (“RSUs”) were outstanding. On October 10, 2013, following stockholder approval at the Annual Meeting of Stockholders of the Company, the 2013 Plan became effective and replaced the Company’s 2009 Stock Incentive Plan. Employees (including officers), consultants and directors of the Company and its subsidiaries and affiliates were eligible to participate in the 2013 Plan. The 2013 Plan provided for the grant of stock options (both nonstatutory and incentive stock options), stock grants, stock units and stock appreciation rights. Under the 2013 Plan, 2.0 million shares were initially available for awards and as of May 30, 2021, 1,014,605 options to purchase shares and RSUs were outstanding. On October 15, 2009, following stockholder approval at the Annual Meeting of Stockholders of the Company, the 2009 Stock Incentive Plan (the “2009 Plan”) became effective and replaced the Company’s 2005 Stock Incentive Plan. Employees (including officers), consultants and directors of the Company and its subsidiaries and affiliates were eligible to participate in the 2009 Plan. The 2009 Plan provided for the grant of stock options (both nonstatutory and incentive stock options), stock grants, stock units and stock appreciation rights. Under the 2009 Plan, 1.9 million shares were initially available for awards. On October 19, 2017, 1.0 million shares were added to the 2013 Plan following stockholder approval at the 2017 Annual Meeting of Stockholders. As of May 30, 2021, there were options to purchase shares or RSUs outstanding under the 2009 Plan. At May 30, 2021, the Company had 4.2 million common shares reserved for future issuance under Landec stock incentive plans. Convertible Preferred Stock The Company has authorized 2.0 million shares of preferred stock, and as of May 30, 2021 has no outstanding preferred stock. 61 Table of Conten ts Grant Date Fair Value The Company uses the Black-Scholes option pricing model to calculate the grant date fair value of stock option awards. The use of an option pricing model requires the Company to make estimates and assumptions, including the expected stock price volatility, expected life of option awards, risk-free interest rate, and expected dividend yield which have a significant impact on the fair value estimates. As of May 30, 2021, May 31, 2020 and May 26, 2019, the fair value of stock option grants was estimated using the following weighted average assumptions: Year Ended May 30, 2021 May 31, 2020 May 26, 2019 Weighted-average grant date fair value $ 2.37 $ 2.55 $ 2.80 Assumptions: Expected life (in years) 3.36 3.50 3.50 Risk-free interest rate 0.23 % 1.01 % 2.47 % Volatility 33 % 31 % 27 % Dividend yield — % — % — % Stock-Based Compensation Activity A summary of the activity under the Company’s stock option plans as of May 30, 2021 and changes during the fiscal year then ended is presented below: Options Outstanding Weighted-Average Exercise Price Per Share Total Intrinsic Value of Options Exercised Weighted-Average Remaining Contractual Term in Years Aggregate Intrinsic Value Options outstanding at May 27, 2018 1,955,335 $ 13.20 Options granted 368,264 $ 11.85 Options exercised ( 116,834 ) $ 11.82 $ 265,911 Options forfeited ( 71,669 ) $ 13.75 Options expired ( 135,000 ) $ 14.18 Options outstanding at May 26, 2019 2,000,096 $ 12.94 Options granted 435,000 $ 10.42 Options exercised ( 163,333 ) $ 11.16 $ 169,066 Options forfeited ( 55,806 ) $ 13.08 Options expired ( 499,599 ) $ 14.04 Options outstanding at May 31, 2020 1,716,358 $ 12.15 Options granted 682,600 $ 9.66 Options exercised — $ — Options forfeited ( 127,714 ) $ 9.93 Options expired ( 437,227 ) $ 13.42 Options outstanding at May 30, 2021 1,834,017 $ 11.07 4.18 $ 2,446,243 Options exercisable at May 30, 2021 1,011,265 $ 12.02 2.67 $ 747,977 62 Table of Conten ts A summary of the Company’s restricted stock unit award activity as of May 30, 2021 and changes during the fiscal year then ended is presented below: Restricted Stock Units Outstanding Weighted-Average Grant Date Fair Value Per Share Restricted stock units/awards outstanding at May 27, 2018 408,037 $ 12.99 Granted 333,486 $ 13.15 Vested ( 237,946 ) $ 13.27 Forfeited ( 75,150 ) $ 13.92 Restricted stock units/awards outstanding at May 26, 2019 428,427 $ 12.80 Granted 296,527 $ 9.79 Vested ( 124,045 ) $ 11.82 Forfeited ( 131,361 ) $ 12.49 Restricted stock units/awards outstanding at May 31, 2020 469,548 $ 11.24 Granted 188,225 $ 10.13 Vested ( 146,197 ) $ 11.69 Forfeited ( 31,180 ) $ 10.60 Restricted stock units/awards outstanding at May 30, 2021 480,396 $ 10.71 Stock-Based Compensation Expense The following table summarizes the stock-based compensation by statement of operations line item: Year Ended (in thousands) May 30, 2021 May 31, 2020 May 26, 2019 Cost of sales $ 403 $ 162 $ 449 Research and development 223 158 114 Selling, general and administrative 2,734 2,099 2,997 Total stock-based compensation $ 3,360 $ 2,419 $ 3,560 As of May 30, 2021, there was $ 3.0 million of total unrecognized compensation expense related to unvested equity compensation awards granted under the Landec stock incentive plans. Total expense is expected to be recognized over the weighted-average period of 2.03 years for stock options and 1.71 years for restricted stock unit awards. 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 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 fiscal years 2021, 2020 and 2019, the Company did no t purchase any shares on the open market. 7. Debt On September 23, 2016, the Company entered into a Credit Agreement with JPMorgan, BMO, and City National Bank, as lenders (collectively, the “Lenders”), and JPMorgan as administrative agent, pursuant to which the Lenders provided the Company with a $ 100.0 million revolving line of credit (the “Revolver”) and a $ 50.0 million term loan facility (the “Term Loan”), guaranteed by each of the Company’s direct and indirect subsidiaries and secured by substantially all of the Company’s assets, with the exception of the Company’s investment in Windset. 63 Table of Conten ts On November 30, 2018, the Company entered into the Fourth Amendment to the Credit Agreement, which increased the Term Loan to $ 100.0 million and the Revolver to $ 105.0 million. On October 25, 2019, the Company entered into the Sixth Amendment to the Credit Agreement, which increased the Term Loan to $ 120.0 million and decreased the revolver to $ 100.0 million. Both the Revolver and the Term Loan mature on October 25, 2022, with the Term Loan requiring quarterly principal payments of $ 3.0 million and the remainder continuing to be due at maturity. On March 19, 2020, the Company entered into the Seventh Amendment to the Credit Agreement (the “Seventh Amendment”), which among other changes, retroactively increased the maximum Total Leverage Ratio (as defined in the Credit Agreement as the ratio of the Company’s total indebtedness on such date to the Company’s consolidated EBITDA for the period of four consecutive fiscal quarters ended on or most recently prior to such date) to 5.75 to 1.00 for the fiscal quarter ended February 23, 2020, which decreases back to 5.00 to 1.00 for the fiscal quarter ending May 31, 2020. The maximum Total Leverage Ratio thereafter decreases by 25 basis points each subsequent fiscal quarter thereafter, until it reaches 3.50 for the fiscal quarter ending November 28, 2021, and then remains fixed through maturity. The Seventh Amendment also introduced additional financial covenants that remain in effect through May 31, 2020, including minimum cumulative monthly Unadjusted EBITDA thresholds and maximum capital expenditures, as well as additional reporting requirements and frequencies. Interest on both the Revolver and the Term Loan continues to be based upon the Company’s Total Leverage Ratio, at a per annum rate of either (i) the prime rate plus a spread of between 0.25 % and 3.00 % or (ii) the Eurodollar rate plus a spread of between 1.25 % and 4.00 %. On July 15, 2020, the Company entered into the Eighth Amendment to the Credit Agreement (the “Eighth Amendment”), which among other things, (i) modified the definition of EBITDA to increase the limit on permitted exclusions for certain unusual, extraordinary or one-time cash items for each fiscal quarter ending on or after February 28, 2021, to a maximum of 20 % of EBITDA, and (ii) restricted the Company from making Capital Expenditures over certain thresholds. Interest continues to be based on the Company’s Total Leverage Ratio, at a revised per annum Applicable Rate of either (i) the prime rate plus a spread of between 0.75 % and 3.50 % or (ii) the Eurodollar rate plus a spread of between 1.75 % and 4.50 %, plus, in each case, a commitment fee, as applicable, of between 0.15 % and 0.55 %, as further described in the Eighth Amendment. On December 31, 2020, the Company refinanced its existing Term Loan and Revolver by entering into two separate Credit Agreements (the "New Credit Agreements") with BMO and Goldman Sachs Specialty Lending Group, L.P. (“Goldman”) and Guggenheim Credit Services, LLC ("Guggenheim"), as lenders (collectively, the “Refinance Lenders”). Pursuant to the credit agreement related to the revolving credit facility, BMO has provided the Company, Curation Foods and Lifecore, as co-borrowers, with an up to $ 75.0 million revolving line of credit (the “Refinance Revolver”) and serves as administrative agent of the Refinance Revolver. Pursuant to the credit agreement related to the term loan, Goldman and Guggenheim have provided the Company, Curation Foods and Lifecore, as co-borrowers, with an up to $ 170.0 million term loan facility (split equally between Goldman and Guggenheim) (the “Refinance Term Loan”) and Goldman serves as administrative agent of the Refinance Term Loan. The Refinance Revolver and Refinance Term Loan are guaranteed, and secured by, substantially all of the Company’s and the Company's direct and indirect subsidiaries' assets. The Refinance Term Loan matures on December 31, 2025. The Refinance Revolver matures on December 31, 2025 or, if the Refinance Term Loan remains outstanding on such date, ninety (90) days prior to the maturity date of the Refinance Term Loan (on October 2, 2025). The Refinance Term Loan provides for principal payments by the Company of 5 % per annum, payable quarterly in arrears in equal installments, commencing on March 30, 2023, with the remainder due at maturity. Interest on the Refinance Revolver is based upon the Company’s average availability, at a per annum rate of either (i) LIBOR rate plus a spread of between 2.00 % and 2.50 % or (ii) base rate plus a spread of between 1.00 % and 1.50 %, plus a commitment fee, as applicable, of 0.375 %. Interest on the Refinance Term Loan is at a per annum rate based on either (i) the base rate plus a spread of 7.50 % or (ii) the LIBOR rate plus a spread of 8.50 %. The Refinance Term Loan Credit Agreement also states that in the event of a prepayment of any amount other than the scheduled installments within twelve months after the closing date, a penalty will be assessed equal to the aggregate amount of interest that would have otherwise been payable from date of prepayment event until twelve months after the closing date plus 3 % of the amount prepaid. The New Credit Agreements provide the Company the right to increase the revolver commitments under the Refinance Revolver, subject to the satisfaction of certain conditions (including consent from BMO), by obtaining additional commitments from either BMO or another lending institution at an amount of up to $ 15.0 million. The New Credit Agreements contain customary financial covenants and events of default under which the obligations thereunder could be accelerated and/or the interest rate increased in specified circumstances. 64 Table of Conten ts In connection with the New Credit Agreements, the Company incurred debt issuance costs from the lender and third-parties of $ 10.2 million. Concurrent with the close of the New Credit Agreements, the Company repaid all outstanding borrowings under the current Credit Agreement, and terminated the Credit Agreement. In connection with the repayment of borrowings under the Credit Agreement, the Company recognized a loss in fiscal year 2021 of $ 1.1 million, as a result of the non-cash write-off of unamortized debt issuance costs related to the refinancing under the New Credit Agreements. As of May 30, 2021, $ 29.0 million was outstanding on the Refinance Revolver, at an interest rate of 3.00 %. As of May 30, 2021, the Refinance Term Loan had an interest rate of 9.5 %. As of May 30, 2021, the Company was in compliance with all financial covenants and had no events of default under the New Credit Agreements. Long-term debt consists of the following as of May 30, 2021 and May 31, 2020 (in thousands): May 30, 2021 May 31, 2020 Term loan $ 170,000 $ 114,000 Total principal amount of long-term debt 170,000 114,000 Less: unamortized debt issuance costs ( 5,098 ) ( 1,083 ) Total long-term debt, net of unamortized debt issuance costs 164,902 112,917 Less: current portion of long-term debt, net — ( 11,554 ) Long-term debt, net $ 164,902 $ 101,363 The future minimum principal payments of the Company’s debt for each year presented are as follows (in thousands): Term Loan Fiscal year 2022 $ — Fiscal year 2023 2,125 Fiscal year 2024 8,469 Fiscal year 2025 8,422 Fiscal year 2026 150,984 Total $ 170,000 Derivative Instruments On November 1, 2016, the Company entered into an interest rate swap contract (the “2016 Swap”) with BMO at a notional amount of $ 50.0 million. The 2016 Swap had the effect of changing the Company’s previous Term Loan obligation from a variable interest rate to a fixed 30-day LIBOR rate of 1.22 %. On June 25, 2018, the Company entered into an interest rate swap contract (the “2018 Swap”) with BMO at a notional amount of $ 30.0 million. The 2018 Swap had the effect on our previous debt of converting the first $ 30.0 million of the total outstanding amount of the Company’s 30-day LIBOR borrowings from a variable interest rate to a fixed 30-day LIBOR rate of 2.74 %. On December 2, 2019, the Company entered into an interest rate swap contract (the “2019 Swap”) with BMO at a notional amount of $ 110.0 million which decreases quarterly. The 2019 Swap had the effect on our previous debt of converting primarily all of the $ 110.0 million of the total outstanding amount of the Company’s 30-day LIBOR borrowings from a variable interest rate to a fixed 30-day LIBOR rate of 1.53 %. 65 Table of Conten ts 8. Income Taxes The (benefit) provision for income taxes from continuing operations consisted of the following: (in thousands) Year Ended May 30, 2021 May 31, 2020 May 26, 2019 Current: Federal $ ( 38 ) $ ( 7,836 ) $ ( 67 ) State 74 38 63 Foreign 56 56 83 Total 92 ( 7,742 ) 79 Deferred: Federal ( 7,433 ) ( 5,212 ) 1,581 State ( 460 ) ( 162 ) ( 142 ) Total ( 7,893 ) ( 5,374 ) 1,439 Income tax (benefit) expense $ ( 7,801 ) $ ( 13,116 ) $ 1,518 The actual (benefit) provision for income taxes from continuing operations differs from the statutory U.S. federal income tax rate as follows: (in thousands) Year Ended May 30, 2021 May 31, 2020 May 26, 2019 Tax at U.S. statutory rate (1) $ ( 8,498 ) $ ( 10,774 ) $ 764 State income taxes, net of federal benefit ( 1,136 ) ( 1,782 ) 46 Tax reform/CARES Act — ( 2,770 ) — Change in valuation allowance 3,690 2,654 929 Tax credit carryforwards ( 606 ) ( 613 ) ( 771 ) Other compensation-related activity 249 334 618 Impairment of goodwill — 647 — Foreign rate differential ( 1,414 ) ( 863 ) — Other ( 86 ) 51 ( 68 ) Income tax (benefit) expense $ ( 7,801 ) $ ( 13,116 ) $ 1,518 (1) Statutory rate was 21.0% for fiscal year 2021, 2020 and 2019. The effective tax rate for fiscal year 2021 changed from a tax provision benefit of 25.56 % to a tax provision benefit of 19.29 % in comparison to fiscal year 2020. The decrease in the income tax benefit for fiscal year 2021 was primarily due to significant decrease in the Company's loss before tax, and the increase in change in valuation allowance which offsets federal and state research and development credits, and $ 2.8 million of NOL carryback benefit applied only for fiscal year 2020. The effective tax rate for fiscal year 2020 changed from a tax provision expense of 70.66 % to tax provision benefit of 25.56 % in comparison to fiscal year 2019. The decrease in the income tax expense for fiscal year 2020 was primarily due to a decrease in the Company’s profit before tax, carryback of net operating losses, and the benefit of federal and state research and development credits which is offset by the change in valuation allowance, and impairment of goodwill. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act includes, among other items, provisions relating to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. 66 Table of Conten ts The CARES Act allows losses incurred in tax years 2018, 2019, and 2020 to be carried back to each of the five preceding tax years and to offset 100% of regular taxable income. Additionally, the CARES Act accelerates the Company’s ability to receive refunds of alternative minimum tax credits generated in prior tax years. In fiscal year 2020, the Company was able to benefit net operating losses generated in fiscal year 2019 and fiscal year 2020 at the 21% federal statutory rate in effect for those years and carried back to tax years with a 35% federal statutory rate thus recognizing a tax provision benefit of $ 2.8 million during the year ended May 31, 2020. Significant components of deferred tax assets and liabilities reported in the accompanying Consolidated Balance Sheets consisted of the following: (in thousands) Year Ended May 30, 2021 May 31, 2020 Deferred tax assets: Accruals and reserves $ 3,366 $ 4,651 Net operating loss carryforwards 21,916 14,947 Stock-based compensation 1,123 904 Research and AMT credit carryforwards 5,150 4,491 Lease liability 5,902 6,731 Limitations on business interest expense 2,411 2,081 Other 927 426 Gross deferred tax assets 40,795 34,231 Valuation allowance ( 10,460 ) ( 6,770 ) Net deferred tax assets 30,335 27,461 Deferred tax liabilities: Depreciation and amortization ( 16,600 ) ( 19,049 ) Goodwill and other indefinite life intangibles ( 13,406 ) ( 12,204 ) Basis difference in investment in non-public company ( 1,382 ) ( 3,439 ) Right of use asset ( 5,087 ) ( 6,357 ) Deferred tax liabilities ( 36,475 ) ( 41,049 ) Net deferred tax liabilities $ ( 6,140 ) $ ( 13,588 ) The effective tax rates for fiscal year 2021 differ from the blended statutory federal income tax rate of 21% as a result of several factors, including a significant decrease in the Company's loss before tax, the change in valuation allowance related to federal, state and foreign deferred balances, foreign rate differential, change in ending state deferred blended rate, fixed assets, and the benefit of federal and state research and development credits. The effective tax rates for fiscal year 2020 differ from the blended statutory federal income tax rate of 21% as a result of several factors, including a decrease in the Company's profit before tax, carryback of net operating losses, the change in valuation allowance related with state and foreign deferred balances, foreign rate differential, change in ending state deferred blended rate, impairment of goodwill and fixed assets, and the benefit of federal and state research and development credits. The effective tax rates for fiscal year 2019 differ from the statutory federal blended income tax rate of 21% as a result of several factors, including Yucatan acquisition, the change in valuation allowance related with foreign deferred balances, foreign rate differential, change in ending state deferred blended rate, limitation of deductibility of executive compensation, and the benefit of federal and state research and development credits. As of May 30, 2021, the Company had federal, foreign, California, Indiana, and other state net operating loss carryforwards of approximately $ 68.1 million, $ 14.8 million, $ 24.2 million, $ 10.4 million, and $ 16.7 million respectively. These losses expire in different periods through 2042, if not utilized. The Company acquired additional net operating losses through the acquisition of Greenline. Utilization of these acquired net operating losses in a specific year is limited due to the “change in ownership” provision of the Internal Revenue Code of 1986 and similar state provisions. The net operating losses presented above for federal and state purposes is net of any such limitation. 67 Table of Conten ts The Company has federal, California, and Minnesota research and development tax credit carryforwards of approximately $ 2.6 million, $ 2.0 million, and $ 1.2 million, respectively. The research and development tax credit carryforwards have an unlimited carryforward period for California purposes, 20 year carryforward for federal purposes, and 15 year carryforward for Minnesota purposes. Valuation allowances are reviewed each period on a tax jurisdiction by jurisdiction basis to analyze whether there is sufficient positive or negative evidence to support a change in judgment about the realizability of the related deferred tax assets. Based on this analysis and considering all positive and negative evidence, we determined that a valuation allowance of $ 1.4 million, $ 4.2 million, and $ 4.9 million should be recorded as a result of uncertainty around the utilization of federal, state, and foreign net operating losses, and federal capital loss carryforward. The accounting for uncertainty in income taxes recognized in an enterprise’s financial statements prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and the derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure, and transition. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: (in thousands) Year Ended May 30, 2021 May 31, 2020 May 26, 2019 Unrecognized tax benefits – beginning of the period $ 827 $ 616 $ 479 Gross increases – tax positions in prior period — 101 29 Gross decreases – tax positions in prior period — ( 11 ) — Gross increases – current-period tax positions 115 121 133 Lapse of statute of limitations — — ( 25 ) Unrecognized tax benefits – end of the period $ 942 $ 827 $ 616 As of May 30, 2021 the total amount of net unrecognized tax benefits is $ 0.9 million, of which, $ 0.8 million, if recognized, would affect the effective tax rate. The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes. The total amount of penalties and interest is not material as of May 30, 2021. The Company does not expect its unrecognized tax benefits to decrease within the next twelve months. Due to tax attribute carryforwards, the Company is subject to examination for tax years 2013 forward for U.S. tax purposes. The Company was also subject to examination in various state jurisdictions for tax years 2012 forward, none of which were individually material. 9. Leases Operating Leases The Company has entered into various non-cancellable operating lease agreements for manufacturing and distribution facilities, vehicles, equipment and office space. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. Landec leases land, facilities, and equipment under operating lease agreements with various terms and conditions, which expire at various dates through fiscal year 2040. Certain of these leases have renewal options. Finance Leases On September 3, 2015, Lifecore leased an 80,950 square foot building in Chaska, MN, two miles from its current facility. The initial term of the lease is seven years with two five-year renewal options. The lease contains a buyout option at any time after year seven with the purchase price equal to the mortgage balance on the lessor’s loan secured by the building. Gross assets recorded under finance leases, included in property and equipment, net, were $ 3.8 million as of both May 30, 2021 and May 31, 2020. Accumulated amortization associated with finance leases was $ 0.6 million and $ 0.5 million as of May 30, 2021 and May 31, 2020, respectively. The monthly lease payment was initially $ 34,000 and increases by 2.4 % per year. Lifecore and 68 Table of Conten ts the lessor made capital improvements prior to occupancy and thus the lease did not become effective until January 1, 2016. Lifecore is currently using the building for warehousing and final packaging. The components of lease cost were as follows: Year Ended Year Ended (In thousands, except term and discount rate) May 30, 2021 May 31, 2020 Finance lease cost: Amortization of leased assets $ 117 $ 116 Interest on lease liabilities 348 358 Operating lease cost 5,788 6,343 Variable lease cost and other 792 1,951 Sublease income ( 90 ) — Total lease cost $ 6,955 $ 8,768 Weighted-average remaining lease term: Operating leases 11.67 11.06 Finance leases 1.60 2.60 Weighted-average discount rate: Operating leases 4.99 % 5.24 % Finance leases 10.00 % 10.00 % The Company’s leases have original lease periods ending between 2021 and 2040. The Company’s maturity analysis of operating and finance lease liabilities as of May 30, 2021 are as follows: (in thousands) Operating Leases Finance Leases Total Fiscal year 2022 $ 4,850 $ 466 $ 5,316 Fiscal year 2023 4,052 3,497 7,549 Fiscal year 2024 3,263 9 3,272 Fiscal year 2025 2,502 2 2,504 Fiscal year 2026 2,015 — 2,015 Thereafter 16,076 — 16,076 Total lease payments 32,758 3,974 36,732 Less: interest ( 8,685 ) ( 547 ) ( 9,232 ) Present value of lease liabilities 24,073 3,427 27,500 Less: current obligation of lease liabilities ( 3,768 ) ( 121 ) ( 3,889 ) Total long-term lease liabilities $ 20,305 $ 3,306 $ 23,611 Supplemental cash flow information related to leases are as follows: Year Ended Year Ended (in thousands) May 30, 2021 May 21, 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 6,322 $ 7,853 Operating cash flows from finance leases 348 328 Financing cash flows from finance leases 110 118 Lease liabilities arising from obtaining right-of-use assets: Operating leases $ 4,294 $ 3,752 69 Table of Conten ts During May 2021 we entered into a transportation management, warehousing, and transportation services agreement with Castellini Company, LLC to outsource Curation Foods’ fresh packaged salads and vegetables logistics management, including transportation, warehousing and distribution. In connection with this arrangement, during the fiscal year ended May 30, 2021 we recorded a $ 1.7 million impairment of our operating lease right-of-use assets related to certain vehicle leases, which is included in restructuring costs within the Consolidated Statements of Operations. 10. Commitments and Contingencies Purchase Commitments At May 30, 2021, the Company was committed to purchase $ 75.4 million of produce and other materials. For the fiscal years ended May 30, 2021, May 31, 2020 and May 26, 2019, purchases related to long term commitments under take or pay agreements were $ 3.0 million, $ 3.4 million, and $ 0.5 million, respectively. Legal Contingencies In the ordinary course of business, the Company is from time to time involved in various legal proceedings and claims. The Company makes a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least each fiscal quarter and adjusted to reflect the impacts of negotiations, estimate settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. Legal fees are expensed in the period in which they are incurred. Claims Alleging Unfair Labor Practices Curation Foods has been the target of a union organizing campaign which has included three unsuccessful attempts to unionize Curation Foods’ Guadalupe, California processing plant. The campaign has involved a union and over 100 former and current employees of Pacific Harvest, Inc. and Rancho Harvest, Inc. (collectively “Pacific Harvest”), Curation Foods’ former labor contractors at its Guadalupe, California processing facility, bringing legal actions before various state and federal agencies, the California Superior Court, and initiating over 100 individual arbitrations against Curation Foods and Pacific Harvest. The legal actions consisted of various claims, all of which were settled in fiscal year 2017. Under the settlement agreement, the plaintiffs were to be paid in three installments. The Company and Pacific Harvest each agreed to pay one half of the settlement payments. The Company paid the entire first two installments and Pacific Harvest agreed to reimburse the Company for its $ 2.1 million portion. As of May 30, 2021, the outstanding balance of the receivable was $ 1.2 million. The Company makes ongoing estimates relating to the collectability of receivables. A reserve is established for any note when there is reasonable doubt that the principal or interest will be collected in full. The Company may write-off uncollectable receivables after collection efforts are exhausted. During the fiscal year 2020, the Company's review for collectability concluded that a receivable reserve of $ 1.2 million would be recorded. The Company's conclusion regarding collectability changed as a result of Pacific Harvest communicating their refusal to pay combined with their brining claims against the Company. During the fiscal year ended May 30, 2021, the Company agreed to discharge Pacific Harvest from the $ 1.2 million receivable as part of a settlement agreement with Pacific Harvest (see other litigation matters section below for additional information). Compliance Matters 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 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 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 70 Table of Conten ts accounting, and related claims. The Plaintiff seeks over $ 10 million in damages, including delivery of shares of his stock held in escrow for the indemnification 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 May 30, 2021. 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 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. Other Litigation Matters On February 10, 2020, a complaint was filed against Curation Foods in the United States District Court for the Northern District of Georgia, Printpack, Inc. v. Curation Foods, Inc. , alleging breach of contract pertaining to Curation Foods’ purchase of certain poly film packaging from the plaintiff. The plaintiff was seeking an unspecified amount of monetary damages, litigation expenses, and interest. Through several negotiations and discussions between the Company and Printpack, an agreement was reached and a Notice of Voluntary Dismissal was filed on May 29, 2020. This dismisses the case against the Company with no other further legal action required. On February 14, 2020, a complaint was filed against the Company, Curation Foods, the Company's current CEO Albert Bolles, and the Company’s former CFO Gregory Skinner (collectively, the “Landec Parties”), and other defendants in Santa Barbara County Superior Court, entitled Pacific Harvest, Inc., et al. v. Curation Foods, Inc., et al. (No. 20CV00920). The case was brought by Pacific Harvest, Inc. (“Pacific”) and Rancho Harvest, Inc. (“Rancho”), two related companies that have provided labor and employee staffing services to Curation Foods. Among other things, Pacific and Rancho allege that Curation Foods wrongfully decreased its use of Pacific’s staffing services and misappropriated Pacific’s trade secrets when Curation Foods increased its use of another staffing company and transitioned Pacific’s employees to the other staffing company. Pacific and Rancho also allege that Curation Foods breached agreements between the parties related to a loan from Curation Foods, on which Pacific and Rancho have ceased making payments. Pacific Harvest and Rancho asserted claims for breach of contract, breach of the implied covenant of good faith and fair dealing, intentional interference with contracts and potential economic advantage, misappropriation of trade secrets under California’s Uniform Trade Secrets Act, business practices in violation of California Unfair Competition Law, fraud, defamation, violation of California Usury Law, breach of fiduciary duty, and declaratory relief regarding the parties’ rights and obligations under certain of the parties’ contracts. On March 15, 2021, the Company executed a settlement agreement related to this matter. In connection with the settlement agreement, the Company recorded a $ 1.8 million charge after considering the total settlement amount and insurance recoveries, and this amount is included in Legal settlement charge in the Consolidated Statements of Operations for the fiscal year ended May 30, 2021. The final settlement amount was paid to the plaintiffs by Curation Foods, its co-defendants, and insurers on April 14, 2021. Pursuant to the settlement agreement, the case was dismissed with prejudice on April 23, 2021. 11. Business Segment Reporting The Company operates using three 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 segment, the Lifecore segment, and the Other segment. The Curation Foods business includes (i) four natural food brands, including Eat Smart, O Olive Oil & Vinegar, Yucatan Foods, and Cabo Fresh, (ii) BreatheWay® activities, and (iii) activity related to our 26.9 % 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 our previously held investment in Windset. 71 Table of Conten ts The Lifecore segment sells products utilizing hyaluronan, a naturally occurring polysaccharide that is widely distributed in the extracellular matrix of connective tissues in both animals and humans, and non-HA products for medical use primarily in the Ophthalmic, Orthopedic and other markets. The Other segment includes corporate general and administrative expenses, non-Curation Foods and non-Lifecore interest income and income tax expenses. Corporate overhead is allocated between segments based on actual utilization and relative size. All of the Company's assets are located within the United States of America except for the production facility in Mexico, which was acquired by the Company as a result of the Yucatan Foods acquisition. The following table presents our property and equipment, net by geographic region (in millions): Year Ended Property and equipment, net May 30, 2021 May 31, 2020 United States $ 167.7 $ 179.1 Mexico 11.9 13.2 Total property and equipment, net $ 179.6 $ 192.3 The Company’s international sales by geography are based on the billing address of the customer and were as follows (in millions): Year Ended May 30, 2021 May 31, 2020 May 26, 2019 Canada $ 60.9 $ 76.4 $ 83.6 Belgium $ 13.7 $ 13.8 $ 15.1 Switzerland $ 4.7 $ 1.7 $ 1.2 Czech Republic $ 3.5 $ 1.4 $ 0.0 Ireland $ 2.0 $ 4.0 $ 5.0 All Other Countries $ 5.1 $ 4.7 $ 3.9 72 Table of Conten ts Operations by segment consisted of the following (in thousands): Year Ended May 30, 2021 Curation Foods Lifecore Other Total Product sales $ 446,074 $ 98,087 $ — $ 544,161 Gross profit 43,209 38,265 — 81,474 Net income (loss) from continuing operations ( 28,241 ) 14,461 ( 18,885 ) ( 32,665 ) Identifiable assets 197,660 185,417 119,847 502,924 Depreciation and amortization 12,410 5,502 96 18,008 Capital expenditures 7,547 16,222 — 23,769 Dividend income 1,125 — — 1,125 Interest income — — 48 48 Interest expense, net ( 5,502 ) — ( 9,842 ) ( 15,344 ) Income tax (benefit) expense ( 8,918 ) 4,568 ( 3,451 ) ( 7,801 ) Corporate overhead allocation 5,734 4,773 ( 10,507 ) — Year Ended May 31, 2020 Product sales $ 504,533 $ 85,833 $ — $ 590,366 Gross profit 42,105 32,883 — 74,988 Net income (loss) from continuing operations ( 39,088 ) 11,749 ( 10,852 ) ( 38,191 ) Identifiable assets 249,217 165,461 126,635 541,313 Depreciation and amortization 13,240 5,008 96 18,344 Capital expenditures 15,944 10,612 130 26,686 Dividend income 1,125 — — 1,125 Interest income 37 — 66 103 Interest expense, net 5,504 — 4,099 9,603 Income tax (benefit) expense ( 13,028 ) 3,346 ( 3,434 ) ( 13,116 ) Corporate overhead allocation 5,908 4,190 ( 10,098 ) — Year Ended May 26, 2019 Product sales $ 481,686 $ 75,873 $ — $ 557,559 Gross profit 49,305 31,698 — 81,003 Net income (loss) from continuing operations ( 6,229 ) 12,070 ( 3,719 ) 2,122 Identifiable assets 367,352 145,558 6,181 519,091 Depreciation and amortization 10,360 4,140 730 15,230 Capital expenditures 30,583 12,965 1,186 44,734 Dividend income 1,650 — — 1,650 Interest income 112 — 33 145 Interest expense, net 3,278 — 1,952 5,230 Income tax (benefit) expense ( 1,373 ) 4,024 ( 1,133 ) 1,518 Corporate overhead allocation 5,837 3,901 ( 9,738 ) — 73 Table of Conten ts 12. Quarterly Consolidated Financial Information (unaudited) The following is a summary of the unaudited quarterly results of operations for fiscal years 2021 and 2020 (in thousands, except for per share amounts): Fiscal Year 2021 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Annual Product sales $ 135,643 $ 130,904 $ 137,782 $ 139,832 $ 544,161 Gross profit 16,347 20,637 19,689 24,801 81,474 Net (loss) income from continuing operations ( 11,000 ) ( 13,301 ) ( 5,498 ) ( 2,866 ) ( 32,665 ) Net (loss) income per basic share from continuing operations $ ( 0.38 ) $ ( 0.45 ) $ ( 0.19 ) $ ( 0.14 ) $ ( 1.12 ) Net (loss) income per diluted share from continuing operations $ ( 0.38 ) $ ( 0.45 ) $ ( 0.19 ) $ ( 0.14 ) $ ( 1.12 ) Fiscal Year 2020 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Annual Product sales $ 138,714 $ 142,593 $ 152,928 $ 156,131 $ 590,366 Gross profit 15,336 15,514 20,047 24,091 74,988 Net (loss) income from continuing operations ( 4,784 ) ( 6,740 ) ( 11,518 ) ( 15,149 ) ( 38,191 ) Net income (loss) applicable to common stockholders ( 4,784 ) ( 6,740 ) ( 11,518 ) ( 15,149 ) ( 38,191 ) Net (loss) income per basic share from continuing operations $ ( 0.16 ) $ ( 0.23 ) $ ( 0.39 ) $ ( 0.52 ) $ ( 1.31 ) Net (loss) income per diluted share from continuing operations $ ( 0.16 ) $ ( 0.23 ) $ ( 0.39 ) $ ( 0.52 ) $ ( 1.31 ) 13. Discontinued Operations Now Planting During the fourth quarter of fiscal year 2019, the Company discontinued its Now Planting business, which resided in its Curation Foods segment. As a result, the Company met the requirements to report the results of Now Planting as discontinued operations and to classify any assets and liabilities as held for abandonment. As of May 30, 2021 and May 31, 2020 there were no assets or liabilities of the Now Planting business segment included in assets and liabilities of discontinued operations. Once the Now Planting businesses was discontinued, the operations associated with these business qualified for reporting as discontinued operations. Accordingly, the operating results, net of tax, from discontinued operations are presented separately in the Company’s Consolidated Statements of Operations and the Notes to the Consolidated Financial Statements have been adjusted to exclude Now Planting in fiscal year 2019. Components of amounts reflected in (loss) income from discontinued operations, net of tax are as follows (in thousands): Year Ended May 30, 2021 May 31, 2020 May 26, 2019 Product sales $ — $ — $ 548 Cost of product sales — — ( 1,649 ) Research and development — — ( 102 ) Selling, general and administrative — — ( 1,035 ) Loss from discontinued operations before taxes — — ( 2,238 ) Income tax benefit — — 527 Loss from discontinued operations, net of tax $ — $ — $ ( 1,711 ) 74 Table of Conten ts Cash provided by (used in) operating activities by the Now Planting business totaled $ 0.0 million, $ 0.0 million, and $( 1.3 ) million for the fiscal years ended May 30, 2021, May 31, 2020 and May 26, 2019, respectively. 14. Restructuring Costs 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 following table summarizes the restructuring costs recognized in the Company’s Consolidated Statements of Operations, by Business Segment for the fiscal year ended May 30, 2021: (In thousands) Curation Foods Lifecore Other Total Year Ended May 30, 2021 Asset write-off costs $ 8,370 $ — $ — $ 8,370 Employee severance and benefit costs 1,765 — — 1,765 Lease costs 1,774 — — 1,774 Other restructuring costs 3,861 — 1,851 5,712 Total restructuring costs $ 15,770 $ — $ 1,851 $ 17,621 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 Operations. 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 third quarter of fiscal year 2021, the Company recognized a $ 1.9 million impairment loss related to BreatheWay equipment as a result of a strategic shift in our BreatheWay business model driven by our restructuring plan. In the fourth quarter of fiscal year 2021, the Company recognized a $ 0.5 million impairment loss related to nonoperational internal use software as a result of a strategic shift in our logistics strategy driven by our restructuring plan and our transportation management, warehousing, and transportation services agreement with Castellini Company, LLC. Employee severance and benefit costs Employee severance and benefit costs are costs incurred as a result of reduction-in-force driven by our restructuring plan and closure of offices and facilities. These costs were driven primarily by the closure of our San Rafael, California office, Santa Clara, California office, Los Angeles, California office, the sale of our Hanover manufacturing facility, and our transportation management, warehousing, and transportation services agreement with Castellini Company, LLC. Lease Costs In August 2020, the Company closed its leased Santa Clara, California office and entered into a sublease agreement. In the fourth quarter of fiscal year 2020 the Company closed its leased Los Angeles, California office and plans to sublease the office. 75 Table of Conten ts Other restructuring costs For the fiscal year ended May 30, 2021, other restructuring costs primarily related to consulting costs to execute the Company’s restructuring plan to drive enhanced profitability, focus the business on its strategic assets, and redesign the organization to be the appropriate size to compete and thrive. The following table summarizes the restructuring costs recognized in the Company’s Consolidated Statements of Operations by Business Segment, since inception of the restructuring plan in fiscal year 2020 through the fiscal year ended May 30, 2021: Curation Foods Lifecore Other Total (In thousands) Asset write-off costs $ 21,032 $ — $ 418 $ 21,450 Employee severance and benefit costs 3,233 — 784 4,017 Lease costs 2,166 — 26 2,192 Other restructuring costs 4,885 — 2,362 7,247 Total restructuring costs $ 31,316 $ — $ 3,590 $ 34,906 The total expected cost related to the restructuring plan is approximately $ 37.0 million. 76 Table of Conten ts 15. Subsequent Events COVID-19 Pandemic There are many uncertainties regarding the current novel coronavirus (“COVID-19”) pandemic, including the scope of scientific and health issues, the anticipated duration of the pandemic, and the extent of local and worldwide social, political, and economic disruption it may cause. The COVID-19 pandemic has 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. Sale of Windset Investment 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 of Windset to the Purchasers in exchange for an aggregate purchase price of $ 45.1 million (the “Sale”). The Purchase Agreement included various representations, warranties and covenants of the parties generally customary for a transaction of this nature. Concurrent with the consummation of the Sale, the Company used the net proceeds from the Sale, and net of $ 3.6 million of prepaid interest and prepayment penalties (as required by the Refinance Term Loan), to pay down the Company's long-term debt by $ 41.4 million. 77 Table of Conten ts (b) Index of 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. 3.5 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. 4.1+ Description of Capital Stock. 10.1 Form of Indemnification Agreement incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on October 17, 2018. 10.2* Landec Corporation Nonqualified Deferred Compensation Plan, incorporated herein by reference to the Registrant’s Annual Report on Form 10-K filed on August 7, 2013. 10.3* Landec Corporation 2013 Stock Incentive Plan, incorporated herein by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed on October 11, 2013. 10.4* First Amendment to the Landec Corporation 2013 Stock Incentive Plan, incorporated herein by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed on October 23, 2017. 10.5* Form of Stock Grant Agreement for the Landec Corporation 2013 Stock Incentive Plan, incorporated herein by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed on October 11, 2013. 10.6* Form of Notice of Stock Option Grant and Stock Option Agreement for the Landec Corporation 2013 Stock Incentive Plan, incorporated herein by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed on October 11, 2013. 10.7* Form of Stock Unit Agreement for the Landec Corporation 2013 Stock Incentive Plan, incorporated herein by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed on October 11, 2013. 10.8* Form of Notice of Grant of Stock Appreciation Right and Stock Appreciation Right Agreement for the Landec Corporation 2013 Stock Incentive Plan, incorporated herein by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed on October 11, 2013. 10.9* Landec Corporation 2019 Stock Incentive Plan, including the forms of awards attached thereto, incorporated herein by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed on October 21, 2019. 2019 Stock Incentive Plan, incorporated herein by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K dated October 21, 2019. 10.10* Long-Term Incentive Plan for Fiscal Year 2020, incorporated herein by reference to Registrant’s Current Report on Form 8-K filed on July 24, 2017. 10.11* Long-Term Incentive Plan for Fiscal Year 2021, incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed on July 30, 2018. 10.12 Settlement Agreement amongst the Registrant, Apio, Inc., Rancho Harvest, Inc. and Pacific Harvest, Inc. and the plaintiffs named therein and Addendum to the Settlement Agreement effective as of May 5, 2017, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 10, 2017. 78 Table of Conten ts Exhibit Number Exhibit Title 10.13 Purchase Agreement dated as of April 26, 2018, by and between Apio, Inc. Michael R. Mills, San Ysidro Farms, Inc., B&D Farms, Mahoney Brothers, and RCM Farms, LLC, incorporated herein by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on May 2, 2018. 10.14 Letter Agreement dated May 22, 2018 among the Registrant, Nelson Obus and Wynnefield Capital, Inc. incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 25, 2018. 10.15 Capital Contribution and Partnership Interest and Stock Purchase Agreement dated December 1, 2018 by and among Apio, Inc., a Delaware Corporation, Yucatan Foods, L.P., a Delaware limited partnership (“Yucatan”), Camden Fruit Corporation, a California corporation, Landec Corporation, a Delaware corporation, in its capacity as guarantor, Ardeshir Haerizadeh, as an equityholder representative, and the equityholders of Camden and Yucatan, incorporated herein by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on December 6, 2018. 10.16 Landec Corporation Executive Change in Control Severance Plan. 10.17 Credit and Guaranty Agreement, dated December 31, 2020, by and among Landec Corporation, Curation Foods, Inc. and Lifecore Biomedical, Inc., as borrowers, certain other subsidiary parties thereto, as guarantors, Goldman Sachs Specialty Lending Group, L.P., as lender, administrative agent and collateral agent, and certain affiliates of Guggenheim Credit Services, LLC, as lenders, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on January 5, 2021. 10.18 Credit Agreement, dated December 31, 2020, by and among Landec Corporation, Curation Foods, Inc. and Lifecore Biomedical, Inc., as borrowers, certain other subsidiary parties thereto, as guarantors, and BMO Harris Bank., N.A., a slender and administrative agent, incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on January 5, 2021. 10.19 Pledge and Security Agreement, dated December 31, 2020, by and among Landec Corporation, Curation Foods, Inc., Lifecore Biomedical, Inc. and certain other subsidiary parties thereto, as grantors, and Goldman Sachs Specialty Lending Group, L.P., as collateral agent, incorporated herein by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on January 5, 2021 10.2 Pledge and Security Agreement, dated December 31, 2020, by and among Landec Corporation, Curation Foods, Inc., Lifecore Biomedical, Inc. and certain other subsidiary parties thereto, as grantors, and BMO Harris Bank., N.A., as administrative agent, incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on January 5, 2021. 10.21 Employment Agreement, dated January 18, 2021, by and between Landec Corporation and John Morberg, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on January 20, 2021. 10.22 Separation and General Release by and between Landec Corporation and Brian McLaughlin, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 2, 2021. 10.23 Separation and General Release by and between Landec Corporation and Dawn Kimball, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on March 8, 2021 10.24 Share Share Purchase Agreement, dated June 1, 2021, by and among the Company, Curation Foods, Newell Capital Corporation, Newell Brothers Investment 2 Corp., and Windset Holdings 2010 Ltd., incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on June 2, 2021. 10.25 Amended and Restated Employment Agreement between the Registrant and Albert D. Bolles, Ph.D., effective as of July 23, 2020 , incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on October 7, 2020. . 21.1+ Subsidiaries of the Registrant 23.1+ Consent of Independent Registered Public Accounting Firm 79 Table of Conten ts Exhibit Number Exhibit Title 24.1+ Power of Attorney – See signature page 31.1+ CEO Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 31.2+ CFO Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 32.1** CEO Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002 32.2** CFO Certification 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 * Represents a management contract or compensatory plan or arrangement ** 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. 80 Table of Conten ts SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Santa Maria, State of California, on July 29, 2021. LANDEC CORPORATION By: /s/ John Morberg John Morberg Chief Financial Officer (Principal Financial and Accounting Officer) POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Albert D. Bolles and John Morberg, and each of them, as his or her attorney-in-fact, with full power of substitution, for him or her in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorney-in-fact to any and all amendments to said Report on Form 10-K. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report on Form 10-K has been signed by the following persons in the capacities and on the dates indicated: Signature Title Date /s/ Albert D. Bolles, Ph.D. Albert D. Bolles, Ph.D. President and Chief Executive Officer (Principal Executive Officer) and Director July 29, 2021 /s/ John Morberg John Morberg Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) July 29, 2021 /s/ Craig Barbarosh Craig Barbarosh Director July 29, 2021 /s/ Deborah Carosella Deborah Carosella Director July 29, 2021 /s/ Jeffrey Edwards Jeffrey Edwards Director July 29, 2021 /s/ Katrina Houde Katrina Houde Director July 29, 2021 /s/ Nelson Obus Nelson Obus Director July 29, 2021 /s/ Tonia Pankopf Tonia Pankopf Director July 29, 2021 /s/ Andrew K. Powell Andrew K. Powell Director July 29, 2021 /s/ Joshua E Schechter Joshua E. Schechter Director July 29, 2021 /s/ Catherine A. Sohn Catherine A. Sohn Director July 29, 2021 /s/ Patrick D. Walsh Patrick D. Walsh Director July 29, 2021 81