Crediblock.com LLC – Second Sight Markets Analysis 7/1/2020 — Largely unknown CA based Landec Corporation (LNDC) develops foods and products that advance health, including biomedical products. This opportunity is a short that requires patience and research, as most of the stock analyst missed the most important thing in their most recent press release.
Among other things, there is this footnote in a press release which was so buried, the stocks’ leading analysts have missed this massive impairment issue.
https://finance.yahoo.com/news/landec-corporation-provides-curation-foods-200510469.html
Here’s a summary of why we think this stock is going lower.
In late October they hired Latham and Watkins ( a major law firm ) who are over $1000 an hour. Between then and late February they spent over $4 million on a compliance issue — that’s $4 million over four months or $1 million a month! SEC, DOJ are investigating a company that apparently had some bad behavior before they bought it so why are they spending this much money if there is no issue. Market doesn’t buy it either.
Then there’s the write down in goodwill, trademark, clients, etc.
Those are just a few issues, and when DOJ and SEC is involved, no one is lending them money, no one will buy the shares etc unless it becomes a non issue….so why are they spending 1 million a month if they had nothing to do with this and it’s all about issues that pre-date their purchase of this Yucatán Mexico company.
Then their is the loan covenant violations relating to minimum EBIDTA. How many more waivers will they get?
If they did raise money it would have to be at such a discount, and we must also consider all of these red flags.
Our research notes
FOOTNOTE
(1) The Company is in the preliminary stages of analyzing its goodwill and intangible assets for impairment.
The initial analysis indicates impairment to Curation Foods’ goodwill, trademarks and tradenames, and customer relationships with respect to its O Olive Oil and Vinegar and Yucatan brands.
The Company will provide further information when it completes its goodwill and intangible impairment analysis and reports its actual results for the fiscal 2020 fourth quarter and full fiscal year.
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HERE’s what’s going on and why…
Landec Corporation: investigation into its Yucatan Foods unit that it acquired in late 2018.
Conduct predates acquisition.
The conduct in question relates to regulatory permitting at the Tanok facility in Mexico.
Landec retained Latham & Watkins in October 2019 for an internal investigation.
LNDC claims it subsequently disclosed to the DOJ and SEC the conduct under investigation, and these agencies have commenced an investigation.
Principal Financial and Accounting Officer Changes
On December 27, 2019, the Company announced that Greg Skinner was resigning from his position as Executive Vice President of Finance and Administration and Chief Financial Officer of the Company, effective as of January 8, 2020.
Named Executive Officer Termination
On January 2, 2020, Parker Javid was terminated from his positions as Chief Customer and Sales Officer for Curation Foods and Vice President of the Company.
https://www.sec.gov/Archives/edgar/data/1005286/000162828020000013/lndc-20191124x8k.htm
https://www.barchart.com/stocks/quotes/LNDC/overview
Compliance Matters
As previously disclosed, 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 is cooperating in the government investigations. The conduct at issue began prior to the Yucatan Acquisition, and the agreement for the Yucatan Acquisition provides the Company with certain indemnification rights that may allow the Company to recover the cost of all or a portion of the liabilities that have been and may be incurred by the Company in connection with these compliance matters. With these indemnification rights, we do not believe that the effects of these compliance matters will have a material impact on the financial statements. However, at this stage, the ultimate outcome of these or any other investigations or potential claims that may arise from the matters under investigation is uncertain and we cannot reasonably predict the timing or outcomes, or estimate the amount of loss, if any, or their effect, if any, on our financial statements.
https://www.sec.gov/Archives/edgar/data/1005286/000162828020000015/0001628280-20-000015-index.htm
Further Research
https://www.landec.com/company-overview/about-us/
https://www.curationfoods.com/our-brands/
Conclusion – Sell Short or Sell to close
We don’t know what this ‘conduct’ is but apparently it was inherited from their purchase of Yucatan brands. Their vague and well thought out legal wording of the issue indicates that there is a bigger problem than one might notice on the surface. Menlo Park, CA based Landec has been around since 1986 so it’s not their first Rodeo. But the world is changing rapidly and unknown regulatory liabilities in Mexico are not something that a US based firm can easily deal with during a trade war and now COVID. Stay tuned.
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