Landec(LFCR) - 2021 Q4 - Annual Report

Cautionary Note About Forward-Looking Statements The Annual Report contains forward-looking statements subject to risks and uncertainties, which may cause actual results to differ Summary of Forward-Looking Statements This section summarizes forward-looking statements, noting inherent risks and uncertainties that could cause actual results to vary - Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from expectations[12] - Potential risks include timing and expenses of operations, market acceptance of new products, weather conditions, government regulations, COVID-19 impacts, regulatory approvals, and successful integration of Yucatan Foods[12] - The company's actual results could differ materially from projections due to various factors, including those listed in Item 1A. 'Risk Factors'[13] PART I Item 1. Business Landec Corporation designs, develops, manufactures, and sells differentiated products for food and biomaterials markets through Curation Foods and Lifecore Biomedical - Landec Corporation operates in food and biomaterials markets, licensing technology and selling differentiated products[17] - Curation Foods focuses on plant-based foods with 100% clean ingredients, utilizing BreatheWay® packaging technology for freshness[18] - Lifecore Biomedical is a CDMO specializing in sterile, injectable pharmaceutical products and Hyaluronic Acid (HA) manufacturing[18] Corporate Overview Landec Corporation, incorporated in California in 1986 and reincorporated in Delaware in 2008, is listed on The NASDAQ Global Select Market under the symbol 'LNDC' - Landec Corporation, incorporated in California in 1986 and reincorporated in Delaware in 2008, is listed on The NASDAQ Global Select Market under the symbol 'LNDC'[19] Reportable Segments Landec operates through Curation Foods (plant-based foods), Lifecore Biomedical (CDMO), and an 'Other' segment for corporate expenses - Landec has three reportable business segments: Curation Foods, Lifecore, and Other[20] - Curation Foods includes brands like Eat Smart®, O Olive Oil & Vinegar®, Yucatan®, and Cabo Fresh® avocado products, leveraging BreatheWay® packaging technology[21][23][24][25][26] - Lifecore Biomedical is a CDMO manufacturing pharmaceutical-grade sodium hyaluronate (HA) and offering development, fill, and finish services for sterile injectable products[29] - The 'Other' segment includes corporate general and administrative expenses, non-Curation Foods and non-Lifecore interest income, and income tax expenses[37] - Curation Foods sold its 26.9% investment ownership in Windset Holding 2010 Ltd. for $45.1 million on June 1, 2021[28] COVID-19 Pandemic The COVID-19 pandemic has significantly impacted sales, customer behaviors, operations, inventory, and employees - The COVID-19 pandemic has had and is expected to continue to have significant adverse impacts on sales, customer behaviors, business and manufacturing operations, inventory, employees, and the market generally[38] Sales and Marketing Curation Foods uses dedicated sales teams, while Lifecore relies on name recognition and referrals with minimal marketing - Curation Foods uses dedicated sales and marketing teams across the U.S. and Canada[39] - Lifecore relies on name recognition and referrals for its biomedical CDMO and manufacturing services, with minimal marketing infrastructure[39] Manufacturing and Processing Curation Foods' operations are affected by seasonal weather, with production across multiple U.S. and Mexico facilities, while Lifecore produces HA in Minnesota - Curation Foods' operations are affected by seasonal weather, leading to potential higher sourcing and processing costs[40] - Eat Smart products are processed in Guadalupe, CA, and Bowling Green, OH. O Olive Oil & Vinegar uses third parties for crushing/bottling and its Petaluma, CA facility for vinegar production. Yucatan and Cabo Fresh guacamole is primarily produced in Guanajuato, Mexico[41][42][43] - Lifecore produces HA through bacterial fermentation at its Chaska, Minnesota facilities, which also handle non-HA manufacturing, formulation, aseptic filling, and distribution[45][46] Competition The company faces intense competition from larger, better-resourced companies in rapidly evolving food and biomedical markets - The company operates in highly competitive and rapidly evolving fields, facing competition from large food-products, industrial, medical, and pharmaceutical companies with greater resources[47] - Curation Foods' principal competitors include Taylor Farms, Fresh Express, and Dole. Increased competition and e-commerce growth can reduce sales and restrict pricing power[48][49] Patents and Proprietary Rights Success relies on obtaining patents, maintaining trade secret protection, and avoiding infringement, with 19 active U.S. patents as of May 2021 - The company's success relies on obtaining patents, maintaining trade secret protection, and avoiding infringement. As of May 30, 2021, it held 19 active U.S. patents expiring between 2021 and 2035[50] Government Regulation Products are subject to extensive regulation by foreign, federal, state, and local agencies, including the FDA, FTC, OSHA, and SAGARPA - Curation Foods' products are regulated by various foreign, federal, state, and local agencies, including the FDA, FTC, and OSHA in the U.S., and SAGARPA in Mexico[51][52][53] - Lifecore's medical devices and drug products are subject to extensive regulation by the FDA and foreign agencies, requiring approvals (PMA, NDA, Pre-Market Notifications) and compliance with quality control procedures[54][55] Human Capital Landec had 905 full-time employees as of May 2021, focusing on attraction, development, and retention through equitable hiring and training - As of May 30, 2021, Landec had 905 full-time employees, with 675 in R&D, manufacturing, quality control, and regulatory affairs, and 230 in sales, marketing, and administration[56] - The company focuses on attracting, developing, and retaining employees through an equitable hiring process, a COVID-19 Taskforce for safety, and training programs in Food Safety, Human Safety, and Human Resources[57][58][59] Available Information Landec makes its SEC filings, including Annual Reports on Form 10-K, available free of charge on its website and the SEC's website - Landec makes its SEC filings, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, available free of charge on its website (www.landec.com) and the SEC's website (www.sec.gov)[62](index=62&type=chunk) Item 1A. Risk Factors Significant risks include operational challenges, COVID-19 impacts, financial constraints, adverse weather, customer concentration, competition, and regulatory compliance - Project SWIFT, a shareholder value creation program for Curation Foods, may not achieve anticipated results, incur additional restructuring costs, and face negative market perception[64] - The COVID-19 pandemic continues to pose significant adverse impacts on sales, customer behavior, manufacturing, supply chains, and overall economic stability, affecting both Curation Foods and Lifecore[65][66][67] - Credit facilities impose financial covenants and liens on assets, potentially limiting operational flexibility, cash flow for investments, and increasing default risk[68][69][70] - Adverse weather conditions can substantially decrease sales and increase costs for the packaged fresh salads and vegetables business[71] - Sales to the top five customers accounted for approximately 49% of total revenue in fiscal year 2021, with Costco and Walmart representing 16% and 15% respectively, posing a risk of order cancellations or delays[72] - The company faces intense competition from larger, better-resourced companies in both food and biomedical sectors, exacerbated by e-commerce growth[77][78][79] - Operations are subject to extensive governmental regulations (FDA, FTC, OSHA, SAGARPA