Welcome to the Landec Corporation first quarter fiscal year 2009 earnings conference call. (Operator Instructions) I would now like to introduce your host for today’s conference, Gary Steele, Chairman and Chief Executive Officer of Landec Corporation.

I have Greg Skinner, Landec's Chief Financial Officer, with me today. This call is being web cast by Thomson/CCBN and can be accessed at Landec's Web site at www.landec.com on the Investor Relations page. The web cast will be available for 30 days through October 31, 2008. A replay of the teleconference will be available for one week by calling 888-266-2081 or 703-925-2533. The access code for the replay is 1281686. During today's call, we may make forward-looking statements that involve certain risks and uncertainties that could cause actual results to differ materially. These risks are outlined in our filings with the Securities and Exchange Commission including the Company's Form 10-K for fiscal year 2008. As reported in yesterday’s press release for the first quarter fiscal 2009, revenues increased 15% to $71.8 million and operating income increased 26% to $4.6 million compared to the first quarter last year. Notably during our first quarter revenues from our food technology business which consists of Apio’s value added, specialty packaged vegetable business plus Apio’s separate packaging technology business grew $4.2 million to $43.8 million, increasing 11% while gross profits increased 17% compared to the same period last year. In addition, revenues from Apio’s commission trading business increased by $4.8 million to $26.3 million and contributed $1.2 million to the gross profit line. Overall, Landec generated $2.2 million in operating cash flow during the first quarter of fiscal year 2009 and ended the quarter with $62 million in cash and marketable securities with no debt, continuing to strengthen our positive financial position. Based on the results of our first quarter we are on track so far for achieving our revenue and net income goals for fiscal 2009. Accordingly, at this point in time we are not changing our original guidance for fiscal year 2009…

As outlined in yesterdays news release, Landec reported total revenues for the first quarter fiscal year 2008 (sic) of $71.8 million versus revenues of $62.7 million for the same period a year ago. The increase in total revenues during the first quarter was due to; first, a 9% or $3.6 million increase in revenues from Apio’s value-added vegetable produce business; second, an over five-fold or $659,000 increase in revenues from Apio packaging; and third, a 23% or $4.8 million increase in revenues from Apio’s commission trading business. For the first quarter of fiscal year 2009 the company reported a net income of $2.8 million or $0.11 per share compared to net income of $3.1 million and also $0.11 per share for the same period last year. This decrease in income during the first quarter of fiscal year 2009 compared to the same period last year was primarily due to; first, a $729,000 or 62% increase in our income tax expense due to an increase in Landec’s effective tax rate for fiscal year 2009 to 40%. It should be noted that the percentage increase in our income tax expense for this year’s first quarter compared to last year’s first quarter is less than what is anticipated for all of fiscal year 2009 because the reported tax rate for the first quarter last year was 28% instead of the final adjusted tax rate of 20% for all of fiscal year 2008. Of the anticipated income tax expense for fiscal year 2009 we are estimating that we will be paying only 10% of our income tax expense in cash for an effective cash tax rate of 4% because of the benefits of net operating losses primarily from the repurchase of subsidiary options in fiscal year 2008 and the tax credit carry-forwards from prior years. The second reason net income decreased was due to a decrease in interest income of $424,000 or 54% due to the company’s decision to invest only in FDIC insured certificates of deposit, U.S. backed instruments, AAA rated commercial paper and money market funds, all of which have yields that are considerably lower than those the company realized from its investments in the same period last year. These two decreases in net income were almost entirely offset by the $1 million increase in operating income from the first quarter fiscal year 2009 compared to the first quarter of fiscal year 2008. Turning to Landec’s financial position, during first quarter fiscal year 2009 the company generated $2.2 million of positive cash flow from operations including a 7% increase in working capital and $56.9 million during the quarter. Cash and marketable securities increased $3 million during the first quarter of fiscal year 2009 to $62 million in total. That concludes my formal presentation.

Looking ahead, we are focused on five priorities for building Landec’s shareholder value over the next several years. First, continue to grow revenues, pre-tax profits and cash flow. Second, extend the commercialization of our BreatheWay packaging programs in bananas, avocados and new applications. Third, strongly support our technology licensing partner launches of new products. Fourth, continue to seek acquisition targets that use our technology and are synergistic. Fifth, expand our R&D activities to develop new business opportunities. In support of our business plan and goals in fiscal year 2009 we expect to spend roughly $3.7 million in R&D, up from $3.3 million last year and we expect to invest $7 million in capital expenditures in fiscal year 2009 for further expansion of our value-added vegetable processing facility, up from $4.2 million invested in fiscal year 2008. We expect fiscal year 2009 to have several challenges, one of which is continuing raw material cost increases which require us to pass on some of these costs to our customers. We are in the process of passing on some of these increased costs to our customers as we speak. In addition, we are well aware that consumers are tightening their belts and the latest market data shows little growth in the fresh cut produce category this past quarter. To be successful we will need to continue to offer innovative products of good value which are high in nutrition and flavor. A direct result of building a profitable business is an increasing income tax expense. Landec is transitioning to a full tax rate business model. As a result, net income in fiscal year 2009 is projected to decrease 5-10% because our effective tax rate is projected to double from 20% in fiscal year 2008 to a 40% tax rate in fiscal year 2009. The incremental book income tax expense is expected to be approximately $4.4 million to $4.8 million or $0.16 to $0.18 per share in fiscal year 2009. More importantly, as mentioned earlier by Greg, we are estimating that we will be only paying 10% of our book income tax expense for cash and in cash for fiscal year 2009, resulting in the preservation of cash and a favorable impact on our cash balances. Although all of our goals could be adversely effected by a continuing downturn in the economy and corresponding consumer demand as well as further increases in raw materials and fuel costs, operationally we expect progress in each of our businesses including: First, the continued expansion of Chiquita products which use our BreatheWay packaging technology; Second, continued advances in research with Monsanto for seed coatings; Third, initiation of human clinical trials for aesthetic science dermal fillers which have just started and fourth, increased sales by air products in both the personal care and catalyst arenas. Lastly, advances in new applications for our Intelimer polymers for current and future R&D activities. We are ready for your questions.

(Operator Instructions) The first question comes from Tony Brenner – Roth Capital Partners.

As I recall, one of the factors in your governance that was originally offered was that various cost pressures including energy would be sustained through fiscal 2009 and I doubt that you have got much benefit in the first quarter from the declining energy prices but as we go through the year shouldn’t this be beneficial for both your packaging and raw material costs?

We would like to think so. We certainly haven’t seen that so far, Tony. As you know there is a long lead time in those transitions. All we have seen is costs going up so far and as I said in our comments looking forward we are not sure what is going to happen in the next couple of quarters but certainly nothing has gone down in our mind. Some of our produce contracts are feeling the pressure from some of our suppliers for further increases but we are really trying to hold the line there. So we are just pointing out that those are things we are going to watch very closely. Certainly no declines or returns to some of the more favorable pricing of the past. We have been passing on some of these costs to our customers and for the most part it is sticking so far.

On a different topic, is there any chance that some of these new products that produce is taking out of the laboratory will actually hit the markets this year?

They will be what I call hitting the market from the view of customer testing and the customer testing in the personal care area goes through a fairly elaborate toxicology and what is called coating, a coating process in which becomes accepted within the mainstream of the target customer. So, I would call that pre-commercialization this year and commercialization the following year. I wouldn’t expect new products to be a substantive part of growth this year although we are seeing growth with existing customers with existing products at L’Oreal and a company called Akzo Nobel.

Can you quantify that to some degree? What kind of growth are you seeing? Is it double-digit growth?

Yes we are going to double our growth but this is primarily with existing products that have been in the works for some time. You were asking me about will there be some new products launched this year and the answer is they will be launched from a pre-commercial testing point of view.

Last question. Is there any chance do you believe that the McDonalds banana program might be rolled out nationally in the current fiscal year?

I don’t know. I think that if you have ever watched a rollout of new products at McDonalds they are very methodical and it is painfully long. All I am hearing is I am hearing positive results, whatever that means, and I would think that you would probably start to see if it continues to be positive I would guess it is going to be more of a regional rollout and then a national rollout, if it were to occur, it would begin I would think early next year. That is my speculation, Tony. It is not on direct observation. They are pretty hush-hush.

The next question comes from Steven Denault – Northland Securities.

My first question would be on the Apio value-added what do you think now that you are several months into the fiscal year? It sounds like you have got some of the incremental sourcing costs passed through to the customers. Is there any reason to believe the gross margin on that segment can be comparable to what it was in the prior year?

I don’t think so. I think we are not able to pass all these costs along. There were some substantial cost increases. I think there are some competitive pressures out there especially as the category is slowing. This category’s slow down is most likely the consumer hunkering down and in many cases saying I don’t need to have it pre-cut, pre-washed, pre-packaged, etc., etc. So the combination of some competitive pressures and the fact we are only capturing some portion of these cost increases and price increases I think it would be unrealistic for us to say that we can return to the good old days, at least for this year. So that is my best shot at it.

Okay. What do you think realistic segment growth rates would be for this year?

Wow, if you had asked me three months ago I would have a totally different answer. Right now the Nielsen reported zero growth in the category this last quarter. That is the first time we have seen that since we have been in business. So you tell me. Is that an overreaction from the consumer that is temporary? Is that going to persist during the year? So in terms of category growth that is a crap shoot. I really have a hard time knowing. I’d love to have another quarter of Nielsen data to be able to answer your question but let’s just assume that category growth is going to be somewhere between flat and 5% for the year as just my best guess. Therefore for us to obtain our growth target we’d have to be taking share. It is a tough business out there right now with competitor pricing.

Do you have any update in terms of the Chiquita program as it relates to points of distribution on the convenience store side?

They are getting away from the number of sites methodology of looking at how to measure success. But they have publicly stated they want to be in 18,000 sites or more this calendar year. Our understanding is they are on track for that. The last conference call Chiquita’s CEO was asked about this program. He said it is a marathon. It is not a sprint. We really like the program. It is a profitable program for us. We are devoting more sales force to it. They certainly are pleased with the way the Starbucks Vivanno Banana Smoothie program is rolling out. So I think it is going well, Steve, and I think from everything we can hear from Chiquita it is tracking according to their plan.

Your products, I don’t know if I heard you correct, did you think the business there doubles this year? You said something about 2X the growth rate.

Yes, on the…remember there are two components to it. There is a licensing fee. That has three quarters to run so that will be $600,000 this year versus the previous years of $800,000. What Gary was mentioning was the gross profit sharing will double this fiscal year.

What is going on there is our partner, Air Products, when we got together with them a couple of years ago has a division called a High Performance Materials Division and in that they wanted to find new growth opportunities. They identified personal care cosmetic products as a higher growth, high margin business. They desire to be in this business. They saw Landec as providing a technology platform to springboard themselves into this business but they were new to the business. It is not as though they are seasoned veterans of supplying the cosmetic and personal care business and as a result there was a learning curve for both of us. I think we are getting up on that learning curve pretty well and we have established a good relationship with L’Oreal and now the question is how do we expand that to other targets. That is why we are starting to feel bullish about expanding the bulk of that business because we are up the learning curve and we now have some pretty innovative products in the pipeline which, as I mentioned earlier with Tony, will start to get in the hands of people for testing.

One final question, the Apio trading the last couple of quarters the growth has been pretty significant. How much do we think about that going forward? In addition to that the gross margin on that business seems to be contracting a bit. How should we think about that?

Well, this quarter because you are comparing the first quarter of this year to the first quarter of last year, there is a fairly big timing component between the first and second quarters in this business. Some years the harvest is early and you ship in the first quarter. Other years it is a little later. It just so happens that this year in the buy/sell side, we have a small domestic piece that represents about 10% of the trading business, it was front-loaded this year so a lot of the sales that occurred in the second quarter a year ago, and this is a 2% margin business by the way, occurred in the first quarter. That is why you are seeing a rather sizeable increase in revenues and somewhat of a depression on the gross margin percentage. It all had to do with the timing of the buy/sell this year.

On these businesses, Steve, if you look at them year-over-year they are pretty consistently steady. You are talking about 5% year-over-year growth typically and you are talking about typically 5% margins. So it is just that there are these quarterly swings that we have to pay attention to.

So then that maybe suggests your 10% top line growth is at this point in time based on where the economy is might be a little bit of a push?

We’re going to have to work hard to get there. We have three quarters to get there but I would not disagree with what you just said. The concern, of course, is a consumer demand issue and what is going on with the category growth because we have had the luxury, as you know, in past years of having not only the ability to take share but also the ability to grow the category.

I can tell you I haven’t seen a single consumer category where there hasn’t been absolute consumer paralysis over the course of this summer.

I don’t think we’ll be any exception to that.

The next question comes from Bill Gibson – Nollenberger Capital.

I just wanted to zero in on bananas and Chiquita’s round of retail tests. It sounds like it is still a little fuzzy as to exactly what they are attempting to do. I just wanted to get your read on your sense of their enthusiasm for moving forward with this project.

I think the enthusiasm is high. I wouldn’t use the word fuzzy, but I think they have in their mind certain objectives they want to try and achieve in these trials that require a certain type of retail partner initially before they go into broader commercialization and I think those requirements that they are seeking in these trials, and I am being intentionally a little vague here, will cause them to take a little time to pick the partner. So I think you are right in the sense that it is taking them some time. The package design is ready. The types of price points that we would test are ready. The merchandising approach is ready. It is just that they want a certain type of testing partner that is unique to help them determine some of the marketing mix issues that are questions for them. So it takes awhile, Bill, and I think you are right to say it.

The next question comes from Sal Kamalodine – B. Riley & Company.

Could we get capital expenditures and D&A for the quarter?

CapEx for the quarter, I’m trying to think exactly what it was. It was around $1 million.

And D&A?

D&A about the same. It runs around $3.5 for the year and it is pretty flat. So it is almost a replacement in the quarter.

As you know, Sal, we normally run about $3-5 million a year in CapEx. Every so often we take a year and say okay it is really time to expand for the next round of growth in our VA business and we also try to improve and automate some portions of our plant to bring in efficiencies. This $7 million year is that year.

What do you expect your capital expenditures to be in the year behind that, in 2010? Do we get back to $4-5 million in CapEx?

Yes.

Going to the technology licensing business, can you just take this $1.6 million revenue number and break that down between the products that you currently have in place with Monsanto and their products?

When you break it down, $1.35 million is [inaudible]. The $5.4 divided by 4. So that will be recognized every quarter. You get $200,000 in there for Air Product license and the rest is gross profit sharing at Air Products and Nitta royal.

The Air Products licensing revenue, the $200,000, you said that was going to stay in place for another three quarters and then that drops off in 2010?

It has two more quarters to run this year. So we’ll recognize 600 in total this year. 200 in the first, second and third quarter and then it goes away. That is the original $2.5 million and it will be done this year. Then we’ll be to only sharing profits at that point.

Likewise, with Chiquita can you just refresh my memory on what the minimums are going to be and how they break out between the quarters for the next couple of years?

It is $2.2 million for this year and it is even. Then next year we haven’t really disclosed it but it goes back to the original minimums that had ratcheted up over a three year period in the beginning. So, if you look back you can probably figure it out pretty quick. But it will go down next year but then it stays flat for the duration of the contract.

Right. And it will be recognized ratably throughout the year as well? Or do we go back to the big Q3?

No. It is now a quarterly minimum from here on out.

Finally, I wanted to get some commentary on what your licensing pipeline looks like as far as maybe getting into some new verticals. Can you discuss what you have in the works there?

First of all let me get to the post line. I would not anticipate us announcing another licensing partner this year. That doesn’t mean we aren’t working on it, but our licensing focus which usually have long lead times is more in the coatings and non-food packaging arena. A lot of what we do here at Landec is provide unique polymers that are interesting in coating applications. As you know we coat seeds. We actually coat the porous membrane that goes into our packaging technology. These coatings can be in the form of a thin film or the form of a micro sphere where the temperature is the switch or it can be time. So those are general areas we are looking at. We are also, I will say for the first time, beginning to look…we have stated publicly we have been interested in M&A in the food arena. We are starting to turn additionally our focus and interest in non-food M&A areas that would absolutely piggyback on our polymer technology and we are about to engage someone into that M&A area outside of food to help us in this arena. So we are looking more broadly than we were a quarter or two ago and we have got the wherewithal to make a selective acquisition that could help us in our growth plans.

The next question comes from [Peter Moore – Moore Capital]. [Peter Moore: I just had a quick question regarding some competition, if you can call it that. On TV infomercials just recently I’ve seen these green bags. You use with bananas or whatever. Is that a legitimate technology there? Do you know anything about it?

We know a lot about it. We are asked this question a lot. It is called the Debbie Meyers Green Bag. It is mostly marketed over television. What it is, it is a thin polypropylene film that has little clay particles embedded in it. I would be happy to send you three or four university research studies on it. Its claim is that the particles in the film act as absorbers of ethylene gas. Ethylene gas is the gas that helps fruits and vegetables ripen. Produce would normally produce it itself. So if you can absorb the ethylene gas molecules the theory is you are going to slow down the….you are going to extend the shelf life and slow down the ripening process. That is the theory. What the research articles show is that there is enough ethylene gas in the earth’s atmosphere to tie up those ethylene particles in the green bags since that effectively does not work for that purpose. I’m going to let the articles speak for themselves. I’m not trying to slam this company but they basically say they don’t work. Then there was a Consumer Reports article that came out recently saying they don’t work. What does work is that you are putting produce in a plastic bag and then you either seal it or fold it over and so it is retaining moisture. It helps you retain moisture in your produce. In our own laboratory experiments when we have looked at the green bag it does retain that moisture and that is good for most produce but the little grocery bag you pull off the rack in the produce section would do the same thing? So, what we have concluded from our own laboratory experiments and what we have seen in the literature is…

We would have to…we are looking, but we would have to find a zip lock or some type of a closure device that is more effective and is a hermetic seal. We haven’t found those yet in commerce but we are looking. Right now it is not out there. So we’re going to go with the way we do it now. Thank you.

The next question comes from Will Lauber – Sterling Capital.

You had touched on the M&A strategy and I had two questions on it. With the markets the way they are now are you seeing any increased interest from people you have been talking with?

That is a fabulous question because I don’t need to tell you that in the past when folks had…here is the answer, we probably will. We are in that transition. But, I think that what you are finding is that people who are even remotely thinking about selling or being approached about selling are having to recalibrate on their value or the perception of their own value. Let’s face it; everybody’s value has been going down. Somebody has thought that their business is worth, and I’m picking these numbers out of the air, 10X EBITDA and the reality is it is now 7X EBITDA. There is adjustment time that has to go on for these people to get the reality check. I don’t think we have got those folks through that reality check quite yet. I think you’ve got maybe a couple of more quarters of this pretty nasty situation to convince folks that if they have any interest in selling or they have a need to sell they better get recalibrated. I think your comment is astute. I think you’ll see in the next few quarters that people are getting adjusted to the fact that there are very few buyers, if any, out there. Certainly financial buyers are sitting on the sidelines. They are going to have to deal with the reality of adjustments in value. We’ll see but that is my hypothesis. We are a couple of quarters away from that.

For your financing, if a good, attractive acquisition came along at the right price and for some reason you guys needed to access the debt markets have you guys explored that at all? Can you get financing at attractive terms or somewhat attractive terms?

Believe it or not, yes. If you look at our cash flow, if you look at our cash balances and if you look at our last five years of history we have a pretty darn good profile and we have a very good banking relationship with our bank and so far we are told that we are bankable at reasonable cost.

My next question is kind of I guess on longer-term strategy issue. It seems like from a lot of what I’m reading that produce is gearing more towards locally grown produce and I guess you probably have a couple of different factors; the environmentalists are pushing that along with the higher fuel costs. I don’t see either of those kinds of trends changing in the longer-term. How does that affect your business? Is it something where you would think about licensing out your technology for growers that are in different areas? I know broccoli and cauliflower about 90% of it is grown in California. Is that not possible to grow those in any great quantity in other parts of the country?

The answer is no. Your point is still a valid one in that you have that convergence of gee I’d like to buy locally and would like to support the local farmer and fuel costs and transportation costs. The reality is that most of the inputs that we use, the major product we use such as cauliflower and I’m just picking on these but cauliflower and broccoli and carrots and things like that 96% are grown in California. You have got very sporadic, seasonal kinds of areas. You can grow broccoli in Maine in the summertime and that kind of thing. But in our kind of business you have got to be a viable supplier 12 months out of the year. You can’t be coming in and out of the marketplace. You are not telling WalMart that gee I can get it to you in July and August but call me next year when you need it again. You’ve got to be there every day, every week. That is why I think that this issue, to be honest with you, even though it has that kind of sex appeal is not a very practical issue for us. It is not a realistic thing to be supplying much volume in the types of commodities that we work with year around. It just isn’t happening and it won’t happen.

My final question was I know you guys were talking about the McDonalds national rollout. I know a few weeks ago and probably a lot has changed in two weeks, but the McDonalds COO at the Bank of America conference mentioned they were going to start rolling out nationally mid-2009 to 2010 for the smoothies. Since then I’ve seen things in papers that some of the McDonalds franchisees are having trouble accessing credit and that might slow down their coffee and I’m sure the smoothie initiative. Have you guys talked with anyone there or Chiquita about more particulars on that?

The short answer is no. We have not talked with them directly. We have not heard anything further from Chiquita other than what you just said was in the public domain that the COO or CEO did announce. I think they have got these smoothies that do require specialized equipment that does require purchase and I would expect it will have some effect for some of the store sites, not all, in terms of the rollout.

Have you gotten any feedback, I know Dole is a supplier to that as well. Have you gotten any feedback as to your bananas holding up a lot better?

It is anecdotal and I worry that it is true that our looking glass, what we are hearing is our bananas hold up better and as you would expect we are using technology they are not. I’d ask that question next quarter when we’ve had a little bit more time under our belt. I just don’t want to throw out anecdotal remarks that are probably through our own biased view of the world. But we would expect over time that trying to support, as you know McDonalds hates the thought of having one supplier. They have always been that way. They want to have somebody out there that could be a second source and so they have let McDonalds do some of these trials but they are not using technology. I don’t see how that is going to work day in and day out. Give us another quarter to actually see some data.

I’m showing no further questions.

It was a good first quarter. Thank you for being on this conference call today. We will keep you apprised and posted on not only our corporate partnerships progress but also as we get a better handle on margins in the next few quarters and the continued growth. We do appreciate your support and thanks for being on this call today.