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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Quarter Ended February 28, 2021, or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period for _________ to _________.
Commission file number: 0-27446
LANDEC CORPORATION
(Exact name of registrant as specified in its charter)
Delaware94-3025618
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification Number)

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

(650) 306-1650
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
 Title of each class 
Trading Symbol
 Name of each exchange on which registered
Common stock, par value $0.001 per share
LNDC
The NASDAQ Global Select Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer Accelerated Filer ☒Emerging Growth Company
Non Accelerated Filer Smaller Reporting Company   
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No  ☒
As of April 6, 2021, there were 29,332,832 shares of common stock outstanding.



Table of Contents

LANDEC CORPORATION
FORM 10-Q
For the Fiscal Quarter Ended February 28, 2021

INDEX
Page

i

Table of Contents
LANDEC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
February 28, 2021May 31, 2020
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents$2,248 $360 
Accounts receivable, less allowance for credit losses69,577 76,206 
Inventories76,779 66,311 
Prepaid expenses and other current assets14,323 14,230 
Total Current Assets162,927 157,107 
Investment in non-public company, fair value45,100 56,900 
Property and equipment, net168,693 192,338 
Operating leases23,528 25,321 
Goodwill69,386 69,386 
Trademarks/tradenames, net25,328 25,328 
Customer relationships, net11,288 12,777 
Other assets3,573 2,156 
Total Assets$509,823 $541,313 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable$56,323 $51,647 
Accrued compensation11,218 9,034 
Other accrued liabilities11,186 9,978 
Current portion of lease liabilities 4,027 4,423 
Deferred revenue1,595 352 
Line of credit41,000 77,400 
Current portion of long-term debt, net 11,554 
Total Current Liabilities125,349 164,388 
Long-term debt, net145,051 101,363 
Long-term lease liabilities24,430 26,378 
Deferred taxes, net6,608 13,588 
Other non-current liabilities3,761 4,552 
Total Liabilities305,199 310,269 
Stockholders’ Equity:
Common stock, $0.001 par value; 50,000 shares authorized; 29,323 and 29,224 shares issued and outstanding at February 28, 2021 and May 31, 2020, respectively
29 29 
Additional paid-in capital164,865 162,578 
Retained earnings41,446 71,245 
Accumulated other comprehensive loss(1,716)(2,808)
Total Stockholders’ Equity204,624 231,044 
Total Liabilities and Stockholders’ Equity$509,823 $541,313 

See accompanying notes to the consolidated financial statements.
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Table of Contents
LANDEC CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
(In thousands, except per share amounts)

Three Months EndedNine Months Ended
February 28, 2021February 23, 2020February 28, 2021February 23, 2020
Product sales
$137,782 $152,928 $404,328 $434,235 
Cost of product sales
118,093 132,881 347,657 383,338 
Gross profit
19,689 20,047 56,671 50,897 
Operating costs and expenses:
Research and development
2,562 2,747 7,643 8,390 
Selling, general and administrative
15,220 18,783 49,227 54,000 
Legal settlement charge  1,763  
Restructuring costs2,700 13,528 12,766 13,934 
Total operating costs and expenses
20,482 35,058 71,399 76,324 
Operating loss(793)(15,011)(14,728)(25,427)
Dividend income
281 281 844 843 
Interest income
13 46 31 96 
Interest expense, net(4,178)(2,211)(10,326)(6,455)
Loss on debt refinancing(1,110) (1,110) 
Other income (expense), net72 67 (11,736)61 
Net loss before tax(5,715)(16,828)(37,025)(30,882)
Income tax benefit217 5,310 7,226 7,840 
Net loss$(5,498)$(11,518)$(29,799)$(23,042)
Net loss per common share:
Basic$(0.19)$(0.39)$(1.02)$(0.79)
Diluted$(0.19)$(0.39)$(1.02)$(0.79)
Shares used in per share computation:
Basic 29,323 29,170 29,282 29,155 
Diluted29,323 29,170 29,282 29,155 
Other comprehensive income (loss), net of tax:
Net unrealized gain (loss) on interest rate swaps (net of tax effect of $(99), $124, $(327), and $305)
$387 $(411)$1,092 $(896)
Other comprehensive income (loss), net of tax387 (411)1,092 (896)
Total comprehensive loss$(5,111)$(11,929)$(28,707)$(23,938)

See accompanying notes to the consolidated financial statements.
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Table of Contents
LANDEC CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands, except per share amounts)

Three and Nine Months Ended February 28, 2021
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
 Loss
Total
Stockholders’
Equity
Common Stock
SharesAmount
Balance at May 31, 202029,224 $29 $162,578 $71,245 $(2,808)$231,044 
Issuance of stock under stock plans18 — — — —  
Taxes paid by Company for employee stock plans— — (82)— — (82)
Stock-based compensation— — 892 — — 892 
Net loss— — — (11,000)— (11,000)
Other comprehensive income, net of tax— — — — 304 304 
Balance at August 30, 202029,242 29 163,388 60,245 (2,504)221,158 
Issuance of stock under stock plans81 — — — —  
Taxes paid by Company for employee stock plans— — (215)— — (215)
Stock-based compensation— — 895 — — 895 
Net loss— — — (13,301)— (13,301)
Other comprehensive income, net of tax— — — — 401 401 
Balance at November 29, 202029,323 29 164,068 46,944 (2,103)208,938 
Stock-based compensation— — 797 — — 797 
Net loss— — — (5,498)— (5,498)
Other comprehensive income, net of tax— — — — 387 387 
Balance at February 28, 202129,323 $29 $164,865 $41,446 $(1,716)$204,624 

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Table of Contents
Three and Nine Months Ended February 23, 2020
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
Common Stock
SharesAmount
Balance at May 26, 201929,102$29 $160,341 $109,710 $64 $270,144 
   ASC 842 transition adjustment(274)(274)
   Issuance of stock under stock plans44
   Taxes paid by Company for employee stock plans(55)(55)
  Stock-based compensation528528
   Net loss(4,784)(4,784)
   Other comprehensive loss, net of tax(612)(612)
Balance at August 25, 201929,14629 160,814 104,652 (548)264,947 
   Issuance of stock under stock plans173030
   Taxes paid by Company for employee stock plans(75)(75)
  Stock-based compensation787787
   Net loss(6,740)(6,740)
   Other comprehensive income, net of tax127127
Balance at November 24, 201929,16329 161,556 97,912 (421)259,076 
   Issuance of stock under stock plans19
   Taxes paid by Company for employee stock plans(45)(45)
  Stock-based compensation566566
   Net loss(11,518)(11,518)
   Other comprehensive loss, net of tax(411)(411)
Balance at February 23, 202029,182$29 $162,077 $86,394 $(832)$247,668 

See accompanying notes to the consolidated financial statements.
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Table of Contents
LANDEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
February 28, 2021February 23, 2020
Cash flows from operating activities:
Consolidated net loss(29,799)(23,042)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation, amortization of intangibles, debt costs, and right-of-use assets14,808 13,800 
Loss on debt refinancing1,110  
Stock-based compensation expense2,584 1,881 
Provision (benefit) for expected credit losses451 (225)
Deferred taxes(7,307)(7,881)
Change in investment in non-public company, fair value11,800 (200)
Net loss on disposal of property and equipment held and used39 135 
Loss on disposal of property and equipment related to restructuring, net7,881 11,518 
Other, net(12)139 
Pacific Harvest note receivable reserve 1,202 
Change in contingent consideration liability (500)
Changes in current assets and current liabilities:
Accounts receivable, net6,178 27 
Inventories(10,468)(12,927)
Prepaid expenses and other current assets350 551 
Accounts payable6,372 11,791 
Accrued compensation2,184 (2,230)
Other accrued liabilities3,186 1,504 
Deferred revenue1,243 119 
Net cash provided by (used in) operating activities10,600 (4,338)
Cash flows from investing activities:
Proceeds from sales of property and equipment12,885 2,432 
Purchases of property and equipment(11,383)(22,118)
Proceeds from collections of notes receivable 364 
Net cash provided by (used in) investing activities1,502 (19,322)
Cash flows from financing activities:
Proceeds from long term debt150,000 27,500 
Payments on lines of credit(119,400)(77,900)
Payments on long-term debt(114,095)(8,094)
Proceeds from lines of credit83,000 84,400 
Payments for debt issuance costs(9,615)(766)
Taxes paid by Company for employee stock plans(297)(175)
Proceeds from sale of common stock 30 
Net cash (used in) provided by financing activities(10,407)24,995 
Net increase in cash and cash equivalents1,695 1,335 
Cash and cash equivalents, beginning of period553 1,465 
Cash and cash equivalents, end of period$2,248 $2,800 
Supplemental disclosure of non-cash investing and financing activities:
Purchases of property and equipment on trade vendor credit$1,124 $1,793 

See accompanying notes to the consolidated financial statements.
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LANDEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Unaudited)

1.    Organization, Basis of Presentation, and Summary of Significant Accounting Policies
Organization
Landec Corporation and its subsidiaries (“Landec” or the “Company”) design, develop, manufacture, and sell differentiated products for food and biomaterials markets, and license technology applications to partners.
Landec’s biomedical company, Lifecore Biomedical, Inc. (“Lifecore”), is a fully integrated contract development and manufacturing organization (“CDMO”) that offers highly differentiated capabilities in the development, fill and finish of sterile, injectable pharmaceutical products in syringes and vials. As a leading manufacturer of premium, injectable-grade hyaluronic acid, Lifecore brings 35 years of expertise as a partner for 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 from, and Landec’s share of the change in the fair market value of the Company’s 26.9% investment ownership, of Windset, a leading edge grower of hydroponically grown produce.
Basis of Presentation
The accompanying unaudited consolidated financial statements of Landec have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring accruals) have been made which are necessary to present fairly the financial position of the Company at February 28, 2021, and the results of operations and cash flows for all periods presented. Although Landec believes that the disclosures in these financial statements are adequate to make the information presented not misleading, certain information normally included in financial statements and related footnotes prepared in accordance with GAAP have been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). The accompanying financial data should be reviewed in conjunction with the audited financial statements and accompanying notes included in Landec's Annual Report on Form 10-K for the fiscal year ended May 31, 2020 (the “Annual Report”).
The Company’s fiscal year is the 52- or 53-week period that ends on the last Sunday of May with quarters within each year ending on the last Sunday of August, November, and February; however, in instances where the last Sunday would result in a quarter being 12-weeks in length, the Company’s policy is to extend that quarter to the following Sunday. A 14th week is included in the fiscal year every five or six years to realign the Company’s fiscal quarters with calendar quarters.
The results of operations for the nine months ended February 28, 2021 are not necessarily indicative of the results that may be expected for an entire fiscal year because there is some seasonality in Curation Foods’ business and the order patterns of Lifecore’s customers which may lead to significant fluctuations in Landec’s quarterly results of operations.
Basis of Consolidation
The consolidated financial statements are presented on the accrual basis of accounting in accordance with GAAP and include the accounts of Landec Corporation and its subsidiaries, Curation Foods and Lifecore. All inter-company transactions and balances have been eliminated.
Arrangements that are not controlled through voting or similar rights are reviewed under the guidance for variable interest entities (“VIEs”). A company is required to consolidate the assets, liabilities, and operations of a VIE if it is determined to be the primary beneficiary of the VIE.
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An entity is a VIE and subject to consolidation, if by design: a) 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 is not a VIE.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make certain estimates and judgments that affect the amounts reported in the financial statements and accompanying notes. The accounting estimates that require management’s most significant and subjective judgments include revenue recognition; loss contingencies; allowance for sales returns and credit losses; recognition and measurement of current and deferred income tax assets and liabilities; the assessment of recoverability of long-lived asset (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.

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 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)February 28, 2021May 31, 2020February 23, 2020May 26, 2019
Cash and cash equivalents$2,248 $360 $2,607 $1,080 
Restricted cash 193 193 385 
Cash, cash equivalents and restricted cash$2,248 $553 $2,800$1,465 

The Company was required to maintain $0.0 million and $0.2 million of restricted cash at February 28, 2021 and May 31, 2020, respectively, related to certain collateral requirements for obligations under its workers' compensation programs. The restricted cash is included in Other assets in the Company’s accompanying Consolidated Balance Sheets.

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

(In thousands)February 28, 2021May 31, 2020
Finished goods$41,533 $35,177 
Raw materials26,855 25,856 
Work in progress8,391 5,278 
Total$76,779 $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.

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Accounts Receivable, Sales Returns, and Allowance for Credit Losses
The Company carries its accounts receivable at their face amounts less an allowance for estimated sales returns and credit losses. Sales return allowances are estimated based on historical sales return amounts.
The Company uses the loss rate method to estimate its expected credit losses on trade accounts receivable and contract assets. In order to estimate expected credit losses, the Company assessed recent historical experience, current economic conditions and any reasonable and supportable forecasts to identify risk characteristics that are shared within the financial asset. These risk characteristics are then used to bifurcate the loss rate method into risk pools. The risk pools were determined based on the industries in which the Company operates. Historical credit loss for each risk pool is then applied to the current period aging as presented in the identified risk pools to determine the needed reserve allowance. At times when there are not current economic conditions or forecasts that may affect future credit losses, the Company has determined that recent historical experience provide the best basis for estimating credit losses.
The information obtained from assessing historical experience, current economic conditions and reasonable and supportable forecasts were used to identify risk characteristics that can affect future credit loss experience. There were no significant risk characteristics identified in the review of historical experiences or in the review of estimates of current economic conditions and forecasts.
Estimating credit losses based on risk characteristics requires significant judgment by management. Significant judgments include, but are not limited to: assessing current economic conditions and the extent to which they are relevant to the existing characteristics of the Company’s financial assets, the estimated life of financial assets, and the level of reliance on historical experience in light of economic conditions. The Company will continually review and update, when necessary, its historical risk characteristics that are meaningful to estimating credit losses, any new risk characteristics that arise in the natural course of business, and the estimated life of its financial assets.
The changes in the Company’s allowance for sales returns and credit losses are summarized in the following table (in thousands):
Balance at beginning of periodProvisions for expected credit lossesWrite offs, net of recoveriesBalance at end of period
Nine months ended February 28, 2021$438 $451 $(607)$282 

Related Party Transactions
The Company sells and licenses its BreatheWay® food packaging technology to Windset Holdings 2010 Ltd. (“Windset”), in which, as further described in Note 2, the Company has a 26.9% ownership interest. During the three months ended February 28, 2021 and February 23, 2020, the Company recognized revenues of $0.2 million and $0.2 million, respectively. During the nine months ended February 28, 2021 and February 23, 2020, the Company recognized revenues of $0.4 million and $0.4 million, respectively. These amounts have been included in Product sales in the accompanying Consolidated Statements of Comprehensive (Loss) Income. The related receivable balances of $0.2 million and $0.5 million are included in Accounts receivable in the accompanying Consolidated Balance Sheets as of February 28, 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.
Debt Issuance Costs
The Company records its line of credit debt issuance costs as an asset, and as such, $0.6 million and $2.3 million were recorded as Prepaid expenses and other current assets, and Other assets in the accompanying Consolidated Balance Sheets, respectively, as of February 28, 2021, and $0.3 million and $0.5 million, respectively, as of May 31, 2020. The Company records its term debt issuance costs as a contra-liability, and as such, $1.3 million and $5.0 million were recorded as Current portion of long-term debt, and Long-term debt, net in the accompanying Consolidated Balance Sheets, respectively, as of February 28, 2021 and $0.4 million and $0.6 million, respectively, as of May 31, 2020. See Note 6 - Debt for additional disclosure related to our debt refinancing that closed on December 31, 2020 and the related impact on debt issuance costs.
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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.
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 Statements of Comprehensive (Loss) Income as impacted by the hedged item 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 their hedge accounting prospectively since it was determined that the derivatives are no longer highly effective in offsetting changes in the net investment. The derivatives continue to be carried at fair value in the accompanying Consolidated Balance Sheets with changes in their fair values from the date of discontinued hedge accounting recognized in current period earnings in Other Income (Expense) in the Consolidated Statements of Comprehensive (Loss) Income. Amounts previously accumulated in AOCL during the period of effectiveness will continue to be realized over the remaining term of the underlying forecasted debt payments as a component of AOCL in Stockholders’ Equity.
Accumulated Other Comprehensive Loss
Comprehensive income (loss) consists of two components, net loss and Other comprehensive income (loss) (“OCI”). OCI refers to revenue, expenses, and gains and losses that under GAAP are recorded as a component of stockholders’ equity but are excluded from net loss. The Company’s OCI consists of net deferred gains and losses on its interest rate swap derivative instrument. 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 OCI1,436 
Other comprehensive income, net$1,092 
Balance as of February 28, 2021$(1,716)

The Company expects to reclassify approximately $1.4 million into earnings in the next 12 months.
Investment in Non-Public Company
On February 15, 2011, the Company made its initial investment in Windset which is reported as an Investment in non-public company, fair value, in the accompanying Consolidated Balance Sheets as of February 28, 2021 and May 31, 2020. The Company has elected to account for its investment in Windset under the fair value option. See Note 2 – Investment in Non-public Company, for further information.
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Assets Held for Sale
In January 2020, the Company decided to divest Curation Foods’ salad dressing plant in Ontario, California (“Ontario”). In the third quarter of fiscal year 2020, the Company (1) designated the 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. The remaining fair value of $2.6 million is included in Property and equipment, net within the Consolidated Balance Sheet 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 nine months ended February 28, 2021, which is included in Restructuring costs within the Consolidated Statements of Comprehensive (Loss) Income.
On June 25, 2020 the Board of Directors approved a plan to close Curation Foods’ underutilized manufacturing operations in Hanover, Pennsylvania (“Hanover”), sell the building and assets related thereto, and consolidate its operations into its manufacturing facilities in Guadalupe, California and Bowling Green, Ohio. The $17.2 million carrying value of these assets is included in Property and equipment, net on the consolidated Balance Sheets as of May 31, 2020, and was not classified as assets held for sale as the plan to sell was not finalized until subsequent to fiscal year end 2020. In the first quarter of fiscal year 2021, the Company recognized an $8.8 million impairment loss, which is included in Restructuring costs within the Consolidated Statements of Comprehensive (Loss) Income. During the second quarter of fiscal year 2021, the Company sold the Hanover building and assets related thereto for net proceeds of $8.0 million.
Leases
Under Topic 842, the Company determines if an arrangement is a lease at inception. Right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of the leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate is a quoted rate based on the understanding of what the Company's credit rating would be. Certain agreements may contain the option to extend the lease term, terminate the lease before the contractual expiration date, or purchase the leased asset. The Company, when reasonably certain to exercise the option, considers these options in determining the measurement of the lease. The Company's lease agreements do not contain any material residual value guarantees.
The Company's lease agreements generally contain lease and non-lease components. Non-lease components primarily include payments for maintenance and utilities. The Company combines fixed payments for non-lease components with lease payments and accounts for them together as a single lease component which increases the amount of lease assets and liabilities.
Payments under lease arrangements are primarily fixed; however, certain lease agreements contain variable payments, which are expensed as incurred and are not included in the operating lease assets and liabilities. These amounts primarily include payments affected by changes in price indices.
Intangible Assets
The Company’s intangible assets are comprised of customer relationships with a finite estimated useful life ranging from 11 years to 13 years, and trademarks/tradenames and goodwill with indefinite useful lives.
Finite-lived intangible assets are reviewed for possible impairment whenever events or changes in circumstances occur that indicate that the carrying amount of an asset (or asset group) may not be recoverable. Indefinite lived intangible assets are reviewed for impairment at least annually. For goodwill and other indefinite-lived intangible assets, the Company performs a qualitative impairment analysis in accordance with ASC 350-30-35.
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.
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The accounting guidance established a three-tier hierarchy for fair value measurements, which prioritizes the inputs used in measuring fair value as follows:
Level 1 – observable inputs such as quoted prices for identical instruments in active markets.
Level 2 – inputs other than quoted prices in active markets that are observable either directly or indirectly through corroboration with observable market data.
Level 3 – unobservable inputs in which there is little or no market data, which would require the Company to develop its own assumptions.
As of February 28, 2021 and May 31, 2020, the Company held certain assets and liabilities that are required or it elected to be measured at fair value on a recurring basis, including its interest rate swap contracts and its minority interest investment in Windset.
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 February 28, 2021 and May 31, 2020, the Company held certain assets that were required to be measured at fair value on a non-recurring basis. The fair market value of the assets held for sale, less the costs to sell, was $0.0 million and $2.6 million as of February 28, 2021 and May 31, 2020, respectively. The fair market value of Ontario (classified as an asset held for sale) as of May 31, 2020, was based on third-party valuations, which primarily used the market approach, and the inputs utilized were comparable sales of similar assets, which are generally unobservable and are supported by little or no market data, and therefore were classified within Level 3.
The Company has elected the fair value option of accounting for its investment in Windset. The calculation of fair value utilizes significant unobservable inputs, including projected cash flows, growth rates, and discount rates. As a result, the Company’s investment in Windset is considered to be a Level 3 measurement investment. The change in the fair value of the Company’s investment in Windset for the three and nine months ended February 28, 2021, was due to the Company's 26.9% minority interest in the change in the fair market value of Windset during the period.
In determining the fair value of the investment in Windset, the Company utilizes the following significant unobservable inputs in the discounted cash flow models:
February 28, 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 rates10%12%

The revenue and expense growth rate assumptions are considered to be the Company's best estimate of the trends in those items over the discount period. The discount rate assumption takes into account the risk-free rate of return, the market equity risk premium, and the company’s specific risk premium and then applies an additional discount for lack of liquidity of the underlying securities. The discounted cash flow valuation model used by the Company has the following sensitivity to changes in inputs and assumptions:
(In thousands)Impact on value of investment in Windset as of February 28, 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.
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The following table summarizes the fair value of the Company’s assets and liabilities that are measured at fair value on a recurring and nonrecurring basis:

(In thousands)Fair Value at February 28, 2021Fair Value at May 31, 2020
Assets:Level 1Level 2Level 3Level 1Level 2Level 3
Assets held for sale - nonrecurring$ $ $ $ $ $2,607 
Investment in non-public company  45,100   56,900 
Total assets$ $ $45,100 $ $ $59,507 
Liabilities:
Interest rate swap contracts$ $2,174 $ $ $3,578 $ 
Total liabilities$ $2,174 $ $ $3,578 $ 

The following table reflects the fair value roll forward reconciliation of Level 3 assets and liabilities measured at fair value for the nine months ended February 28, 2021:

(In thousands)Windset Investment
Balance as of May 31, 2020$56,900 
Fair value change(11,800)
Balance as of February 28, 2021$45,100 

Revenue Recognition
The Company follows the five step, principles-based model to recognize revenue upon the transfer of promised goods or services to customers and in an amount that reflects the consideration for which the Company expects to be entitled in exchange for those goods or services. Revenue, net of estimated allowances and returns, is recognized when or as the Company satisfies its performance obligations under a contract and control of the product is transferred to the customer.
Curation Foods
Curation Foods’ standard terms of sale are generally included in its contracts and purchase orders. Revenue is recognized at the time shipment is made or upon delivery as control of the product is transferred to the customer. Shipping and other transportation costs charged to customers are recorded in both revenue and cost of goods sold. Curation Foods’ has elected to account for shipping and handling as fulfillment activities, and not as a separate performance obligation. Curation Foods’ standard payment terms with its customers generally range from 30 days to 90 days. Certain customers may receive cash-based incentives (including: volume rebates, discounts, and promotions), which are accounted for as variable consideration to Curation Foods’ performance obligations. Curation Foods’ estimates these sales incentives based on the expected amount to be provided to its customers and reduces revenues recognized towards its performance obligations. The Company has not historically had and does not anticipate significant changes in its estimates for variable consideration.
Lifecore
Lifecore generates revenue from two integrated activities: Contract development and manufacturing organization ("CDMO") and Fermentation. CDMO is comprised of aseptic and development services. Lifecore’s standard terms of sale are generally included in its contracts and purchase orders. Shipping and other transportation costs charged to customers are recorded in both revenue and cost of goods sold. Lifecore has elected to account for shipping and handling as fulfillment activities, and not as a separate performance obligation. Lifecore’s standard payment terms with its customers generally range from 30 days to 60 days.
Aseptic
Lifecore provides aseptic formulation and filling of syringes and vials with precisely formulated medical grade HA and non-HA materials for injectable products used for medical purposes. In instances where our customers contract with us to aseptically fill syringes or vials with our HA, the goods are not distinct in the context of the contract. Lifecore recognizes revenue for these products at the point in time when legal title to the product is transferred to the customer, which is at the time that shipment is made or upon delivery of the product.
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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):

(In thousands)Three Months EndedNine Months Ended
Curation Foods:February 28, 2021February 23, 2020February 28, 2021February 23, 2020
Fresh packaged salads and vegetables$94,739 $110,884 $283,341 $325,628 
Avocado products15,378 14,517 47,107 44,738 
Technology440 2,081 1,632 3,540 
Total$110,557 $127,482 $332,080 $373,906 

(In thousands)Three Months EndedNine Months Ended
Lifecore:February 28, 2021February 23, 2020February 28, 2021February 23, 2020
Contact development and manufacturing organization$18,628 $14,004 $53,374 $43,118 
Fermentation8,597 11,442 18,874 17,211 
Total$27,225 $25,446 $72,248 $60,329 

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 February 28, 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 February 28, 2021 and May 31, 2020, were $1.1 million and $0.0 million, respectively. Revenue recognized during the three and nine months ended February 28, 2021, that was included in the contract liability balance at the beginning of fiscal year 2021, was $0.0 million.
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Shipping and Handling Costs
Amounts billed to third-party customers for shipping and handling are included as a component of revenues. Shipping and handling costs incurred are included as a component of cost of products sold and represent costs incurred to ship product from the processing facility or distribution center to the end consumer markets.

Legal Contingencies
In the ordinary course of business, the Company is involved in various legal proceedings and claims.
The Company makes a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least each fiscal quarter and adjusted to reflect the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. Legal fees are expensed in the period in which they are incurred.
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. As part of the settlement agreement, Pacific Harvest agreed to pay the Company one half of the required settlement payments. As of May 31, 2020, the outstanding balance of the receivable was $1.2 million. The Company makes ongoing estimates relating to the collectability of receivables. A reserve is established for any note when there is reasonable doubt that the principal or interest will be collected in full. The Company may write-off uncollectable receivables after collection efforts are exhausted. During the 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 bringing claims against the Company. As of February 28, 2021, the reserve balance remained at $1.2 million.
Compliance Matters and Related Litigation
On December 1, 2018, the Company acquired all of the voting interests and substantially all of the assets of Yucatan Foods (the “Yucatan Acquisition”), which owns a guacamole manufacturing plant in Mexico called Procesadora Tanok, S de RL de C.V. (“Tanok”).
On October 21, 2019, the Company retained Latham & Watkins, LLP to conduct an internal investigation relating to potential environmental and Foreign Corrupt Practices Act (“FCPA”) compliance matters associated with regulatory permitting at the Tanok facility in Mexico. The Company subsequently disclosed to the 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 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.
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During the third quarter of fiscal year 2021 the Company reached a resolution with its insurance carrier that resulted in a recovery of approximately $1.6 million which is recorded as a reduction of selling, general and administrative in the Consolidated Statements of Comprehensive (Loss) Income for the three and nine months ended February 28, 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 sought an unspecified amount of monetary damages, litigation expenses, and interest. The lawsuit was dismissed during the first quarter of fiscal year 2021.
On February 14, 2020, a complaint was filed against the Company, Curation Foods, the Company's current CEO Albert Bolles, and the Company’s former CFO Gregory Skinner (collectively, the “Landec Parties”), and other defendants in Santa Barbara County Superior Court, entitled Pacific Harvest, Inc., et al. v. Curation Foods, Inc., et al. (No. 20CV00920). The case was brought by Pacific Harvest, Inc. (“Pacific”) and Rancho Harvest, Inc. (“Rancho”), two related companies that have provided labor and employee staffing services to Curation Foods. Among other things, Pacific and Rancho allege that Curation Foods wrongfully decreased its use of Pacific’s staffing services and misappropriated Pacific’s trade secrets when Curation Foods increased its use of another staffing company and transitioned Pacific’s employees to the other staffing company. Pacific and Rancho also allege that Curation Foods breached agreements between the parties related to a loan from Curation Foods, on which Pacific and Rancho have ceased making payments. Pacific Harvest and Rancho assert claims for breach of contract, breach of the implied covenant of good faith and fair dealing, intentional interference with contracts and potential economic advantage, misappropriation of trade secrets under California’s Uniform Trade Secrets Act, business practices in violation of California Unfair Competition Law, fraud, defamation, violation of California Usury Law, breach of fiduciary duty, and declaratory relief regarding the parties’ rights and obligations under certain of the parties’ contracts. The Landec Parties have not yet responded to the complaint, and the parties have filed stipulations to continue the time for allowing Pacific and Rancho to file an amended complaint. Subsequent to the third quarter of fiscal year 2021, on March 15, 2021, the Company executed a settlement agreement related to this matter. The loss contingency of approximately $1.8 million that was realized is after considering the total settlement amount and insurance recoveries, and this amount is included in Legal settlement charge in the Consolidated Statements of Comprehensive (Loss) Income for the nine months ended February 28, 2021, and is consistent with the estimated amounts recorded during the second quarter of fiscal 2021. The Company expects that the final settlement amount will be paid to the plaintiffs by Curation Foods (and separately by its co-defendants and insurers) by April 14, 2021. Pursuant to the settlement agreement, the plaintiffs are expected to request that the case be dismissed within five days of receiving the payment.

Recent Accounting Guidance
Recently Adopted 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
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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”), 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 February 28, 2021 the financial assets of the 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.    Investment in Non-public Company
On February 15, 2011, Curation Foods entered into a share purchase agreement (the “Windset Purchase Agreement”) with Windset. Pursuant to the Windset Purchase Agreement, Curation Foods purchased from Windset 150,000 Senior A preferred shares for $15.0 million and 201 common shares for $201. On July 15, 2014, Curation Foods increased its investment in Windset by purchasing from the Newell Capital Corporation an additional 68 common shares and 51,211 junior preferred shares of Windset for $11.0 million. After this purchase, the Company’s common shares represent a 26.9% ownership interest in Windset. The Senior A preferred shares yield a cash dividend of 7.5% annually. The dividend is payable within 90 days of each anniversary of the execution of the Windset Purchase Agreement. The non-voting junior preferred stock does not yield a dividend unless declared by the Board of Directors of Windset and no such dividend has been declared.
The Shareholders’ Agreement between Curation Foods and Windset, as amended on March 15, 2017, includes a put and call option (the “Put and Call Option”), which can be exercised on or after March 31, 2022, whereby Curation Foods can exercise the put to sell its common, Senior A preferred shares, and junior preferred shares to Windset, or Windset can exercise the call to purchase those shares from Curation Foods, in either case, at a price equal to 26.9% of the fair market value of Windset’s common shares, plus the liquidation value of the preferred shares of $20.1 million ($15.0 million for the Senior A preferred shares and $5.1 million for the junior preferred shares). Under the terms of the arrangement with Windset, the Company is entitled to designate one of five members on the Board of Directors of Windset.
The investment in Windset does not qualify for equity method accounting as the investment does not meet the criteria of in-substance common stock due to returns through the annual dividend on the non-voting senior preferred shares that are not available to the common stockholders. As the put and call options require all of the various shares to be put or called in equal proportions, the Company has deemed that the investment, in substance, should be treated as a single security for purposes of accounting.
The fair value of the Company’s investment in Windset was determined utilizing the Windset Purchase Agreement’s put and call calculation for value and a discounted cash flow model based on projections developed by Windset that were reviewed by Landec, and considers the put and call conversion options. These features impact the duration of the cash flows utilized to derive the estimated fair values of the investment. These two discounted cash flow models’ estimate for fair value are then weighted. Assumptions included in these discounted cash flow models will be evaluated quarterly based on Windset’s actual and projected operating results to determine the change in fair value.

During the three months ended February 28, 2021 and February 23, 2020, the Company recorded $0.3 million and $0.3 million, respectively, in dividend income. During the nine months ended February 28, 2021 and February 23, 2020, the Company recorded $0.8 million and $0.8 million, respectively, in dividend income. The change in the fair market value of the Company’s investment in Windset for the three months ended February 28, 2021 and February 23, 2020, was $0.0 million and $0.0 million, respectively. The change in the fair market value of the Company’s investment in Windset for the nine months ended February 28, 2021 and February 23, 2020, was a decrease of $11.8 million and an increase of $0.2 million, respectively, and is included in Other income (expense) in the accompanying Consolidated Statements of Comprehensive (Loss) Income. The change in the fair market value of the Company's investment in Windset for the nine months ended February 28, 2021 was primarily due to changes in the financial assumptions relating to EBITDA, non-productive assets, and debt levels.


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3.    Stock-based Compensation and Stockholders' Equity
Stock-Based Compensation Activity
The estimated fair value for stock options, which determines the Company’s calculation of stock-based compensation expense, is based on the Black-Scholes option pricing model. Restricted stock units (“RSUs”) are valued at the closing market price of the Company’s common stock on the grant date. The Company uses the straight-line method to recognize the fair value of stock-based compensation arrangements.
During the three months ended February 28, 2021, the Company granted 100,000 options to purchase shares of common stock and awarded 17,500 RSUs. During the nine months ended February 28, 2021, the Company granted 672,600 options to purchase shares of common stock and awarded 188,225 RSUs.
As of February 28, 2021, the Company has reserved 4.1 million shares of common stock for future issuance under its current and former equity plans.
Stock-Based Compensation Expense
The Company’s stock-based awards include stock option grants and RSUs. The Company records compensation expense for stock-based awards issued to employees and directors in exchange for services provided based on the estimated fair value of the awards on their grant date and is recognized over the required service period, generally the vesting period.
The following table summarizes stock-based compensation by income statement line item:

Three Months EndedNine Months Ended
(In thousands)February 28, 2021February 23, 2020February 28, 2021February 23, 2020
Cost of sales$107 $(14)$289 $42 
Research and development49 10 175 88 
Selling, general and administrative641 570 2,120 1,751 
Total stock-based compensation $797 $566 $2,584 $1,881 

As of February 28, 2021, there was $4.1 million of total unrecognized compensation expense related to unvested equity compensation awards granted under the Landec incentive stock plans. Total expense is expected to be recognized over the weighted-average period of 2.24 years for stock options and 1.56 years for RSUs.
Stock Repurchase Plan
On July 14, 2010, the Board of Directors of the Company approved the establishment of a stock repurchase plan, which allows for the repurchase of up to $10.0 million of the Company’s common stock. The Company may still repurchase up to $3.8 million of the Company’s common stock under the Company’s stock repurchase plan. The Company may repurchase its common stock from time to time in open market purchases or in privately negotiated transactions. The timing and actual number of shares repurchased is at the discretion of management of the Company and will depend on a variety of factors, including stock price, corporate and regulatory requirements, market conditions, the relative attractiveness of other capital deployment opportunities and other corporate priorities. The stock repurchase program does not obligate Landec to acquire any amount of its common stock and the program may be modified, suspended or terminated at any time at the Company's discretion without prior notice. During the nine months ended February 28, 2021, the Company did not purchase any shares on the open market.

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4.    Diluted Earnings Per Share 
The following table sets forth the computation of diluted earnings per share:

Three Months EndedNine Months Ended
(In thousands, except per share amounts)
February 28, 2021February 23, 2020February 28, 2021February 23, 2020
Numerator:
Net loss applicable to Common Stockholders$(5,498)$(11,518)$(29,799)$(23,042)
Denominator:
Weighted average shares for basic net loss per share29,323 29,170 29,282 29,155 
Effect of dilutive securities: