Good day, ladies and gentlemen, and welcome to the Landec second quarter fiscal year 2011 earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator instructions) As a reminder, this program is being recorded. I would now like to introduce your host for today's program, Mr. Gary Steele, Chairman and CEO of Landec Corporation. Please go ahead, Sir.

Good morning, and welcome to Landec's second quarter fiscal year 2011 earnings call and I have with me today, Greg Skinner, Landec's Chief Financial Officer. This call is being webcast by Thomson Reuters and can be accessed at Landec's website at www.landec.com on the Investor Relations page. The webcast will be available for 30 days through February 4, 2011. A replay of the teleconference will be available for one week until midnight Eastern Time Wednesday, January 12, 2011 by calling 888-266-2081 or 703-925-2533. The access code for the replay is 1501183. 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 2010. As announced in our second quarter earnings release, we increased revenues 15% and net income 34% during our second quarter 2011. Our Lifecore Biomedical subsidiary had a very good quarter with revenues of $8.4 million generating $5.4 million of gross profit resulting in gross margin of 64%. Overall, in the second quarter our gross margin increased to 16.9% from 12.2% in the year ago quarter. In our Apio food business, prolonged cold and wet weather adversely impacted produce sourcing. For those on the West Coast you know that Northern California, Southern California, Arizona and Mexico have experienced torrential downpours and flooding as well as unusually cold weather during the months of November and December. Fields are flooded. Produce shields are way down as produce quality is down. We project that negative weather related variances overall for the full fiscal year will be roughly $3.5 million with two-thirds of these variances recognized in the second quarter just ended. The timing was not good for consumers, retailers or for us, since November through January is the high season for many of our produce products, as families gather for the holidays and for ball games. To add to the problem retailers have had difficulty getting their trucks to and from the West Coast due to severe snowstorms in the Mid-west and on the East Coast. We last experienced adverse weather of this magnitude during the winter of 2006. Fortunately, we have a number of positive offsets to the financial impact of produce sourcing issues, which Greg will cover in his comments. In our press release of December 13, we provided updated guidance based on our knowledge of the produce supply and retailer demand issues in November and December. Hopefully, the weather will return to a more normal pattern during the remaining five months of this fiscal year and our updated guidance assumes this. Let me turn the discussion of financial results over to Greg.

Thank you, Gary. And good morning, everyone. In yesterday’s news release, Landec reported that for the second quarter of fiscal year 2011, revenues increased 15% to $70.2 million versus revenues of $60.9 million for the second quarter of last year. The increase in total revenues during this year’s second quarter compared to last year’s second quarter was primarily due to the $8.4 million in Lifecore revenues, and from a $2.6 million or 15% increase in Apio's export revenues. This growth was partially offset by $1.6 million or 4% decrease in revenues from Apio's valued added fresh cut vegetable business as a result of weather related produce sourcing issues and from Apio exiting some low margin business during the second half of fiscal year 2010. For the second quarter of fiscal year 2011, Landec's net income increased 34% to $2.1 million or $0.08 per share compared to $1.5 million or $0.06 per share for the second quarter of last year. The increase in net income during the second quarter of fiscal year 2011 compared to the second quarter last year was due to the $2.8 million of net income before taxes from Lifecore. This increase was partially offset by first, a $909,000 decrease in gross profit from Apio's valued added fresh customer vegetable business, due to produce sourcing issues, which were partially offset by lower promotional costs and reduced packaging costs. And second, from a $768,000 increase in operating costs at Corporate and Landec Ag, due primarily to an increase in stock-based compensation expenses and as a result of the amendment to our agreement with Monsanto, wherein beginning in the third quarter of last year, Landec is now responsible for paying for all of Landec Ag's operating expenses. For the first six months of fiscal year 2011, revenues increased 11% to…

Thanks, Greg. Let's discuss the substantial progress achieved in the second quarter and let's discuss our outlook for the company overall. Lifecore and the management team continue to perform well and exceed plans. Lifecore's materials are directed towards ophthalmologic, orthopedic and veterinary medical applications, which tend to result in high margin sales. There has been substantial productivity yield gains made in the HA manufacturing process at our Lifecore facilities in Chaska, Minnesota. We are expanding our customer base at Lifecore and we have identified new investment opportunities in the HA Biomaterials arena. We're beginning to see the strategic financial and operational synergies of joining Landec's capabilities together with those of Lifecore. And we are pleased with Lifecore's recently updated five years strategic and operating plan. In the licensing area Chiquita's finding success for the rollout of it’s fresh and ready avocados using Landec's BreatheWay packaging, which are providing substantial reductions and retailer shrink in double-digit sale increases for the retail stores now in the program. As word spreads and as retailers begin to see the economic benefits this program is expected to gain momentum. In our work with Monsanto, the program has moved beyond the bench top chemistry labwork to initial biological experiments using our IntelliCoat seed coatings as a controlled release delivery system for seed protection. The business of applying crop protection chemicals to seeds is rapidly growing and now represents $1.5 billion in annual sales as more and more company's in the Ag fieldwork to apply fungicides and insecticides directly to the surface of seeds. Neither Monsanto nor Landec know of any program outside of our program that has the proprietary control release system capabilities that are anywhere close to commercialization. The stakes are high. The next big milestone will be the Springfield trials in North America. Our…

(Operator Instructions) Our first question comes from the line of Tony Brenner from Roth Capital Partners. Your question please?

Good morning, Tony.

Good morning. A couple of questions. Gary, the $3.5 million weather related impact that you mentioned at the beginning of the call, is that the revenue impact or the cost impact of the weather?

Cost. It's a cost impact comprised of volume variances, price variances and what we call manufacturing variances Tony. So it's the cost impact during the months of November to December and some in January.

Okay. But the most recent wet weather at the end of December, doesn't affect you since you've now moved to the desert for sourcing, is that correct?

No, that's not correct. The desert is flooded also. I just saw a picture in the last two days of some of the fields, Tony that look like lakes. So it's affected Salinas Valley, San Joaquin Valley, San Ria [ph] Valley, The Yuma area and the Imperial Valley. All of the primary growing areas so it's pervasive.

I know that you front ended a lot of packaging or pack shipments to Chiquita for the avocado business. The fact that it's been successful, does that mean that will contribute to second half sales? Are you still shipping those packages at the moment to Chiquita?

That's a good question. I think that third quarter; they're still going to be running down some of that inventory Tony. They're well over a thousand and moving to 1,500 stores and I think there's some good momentum there but I don't think you're going to start to see any substantial new purchases until the fourth quarter.

Okay and last question. The comment regarding your collaboration agreement. Do you mean to imply there's no licensing agreement likely to come from this at the end of that agreement?

I'd give it a coin toss and that's why I want to be cautious about this. We're excited about what we're going to learn in this technical collaboration. We think it's a good technical fit. We have the ability to do about four or five things that seem to be useful to the pharmaceutical industry. We can reduce the burst effect. We can start with the active being a very high loading amounts. We can tune the system for delivering a good delivery and good response, I'm sorry, good dosage response (inaudible). We can work within solubles. We are helpful in terms of easier processing. All in all, all those type of things technically. But I'm not sure how close you are to the FDA but it's gone from really difficult to brutal. And the pharmaceutical industry is reeling and quite cautious about anything especially a new polymer material platform that would require clinical trials and a new FDA process. So I don't know how to handicap but other than tell you it's probably a coin toss.

Okay, so if there is a licensing agreement, presumably you would need an upfront payment for it to make any sense at all? Right?

Yes.

Okay. Thank you

Thank you. Our next question comes from the line of Daniel Rizzo from Sidoti & Company. Your question please?

Good morning, Dan.

How is everything? You said that retailers in the Chiquita Banana who are in that business are you enjoying double-digit growth? How many retailers are we talking about?

Avocado's Dan, not bananas. We're talking about avocados.

I'm sorry, avocados. I beg your pardon.

Just avocados. How many?

Yes.

I think. Well, I just know the store amount. It's somewhere between one thousand and 1,500 stores so far. And so I'm guessing that's got to be about four chains but I am guessing a little bit here so take that with a grain of salt.

Okay and what you're working on with Monsanto and the Springfield trials. Assuming the Springfield trials are successful what would be the next step after that?

I would guess they'd go to South America for another round of trials. I think you want to get two bites of the apple. Monsanto certainly has the capability of doing that so in the spring you would do the field trials in North America. You would learn some things to do some optimization of formulations. Then you would go to field trials in South America with the, hopefully the more optimized formulated systems and then make a decision on where you go from there. Now at that point that point you would certainly have to start scaling the coating process, which is a continuous process, but it's at a small scale right now so you would have to start doing some periodical processing of getting that coating operation so that you could really think about some high volumes.

All right. Thanks, guys.

Thank you, Daniel.

Thank you. Our next question comes from the line of Morris Ajzenman from Griffin Securities. Your question please?

Good morning, Morris.

Good morning, guys. How are you guys doing? I'm going to read right from, back in the year you released your item two and Lifecore BioMedical we had really good results. You have a statement here, I presume its (inaudible) but I just want to read it. Quarterly results can vary depending on specifics weeks of business and customer order patterns. Are you, is this below the point or is there any reason that can be concerned that this next quarter, whatever, we can see a big down draft in revenues based on fluctuations of incoming orders?

Morris, this is Greg. What we're really trying to signal here is while they had a fantastic quarter, 64% margins are just not sustainable. I mean it was one of those quarters where the stars aligned from a mix standpoint, from a customer order pattern. And as a result, the margins were unusually high. So we just wanted to emphasize that Lifecore has a pretty lumpy order pattern and dependent on that mix you can have swings in the margins quarter to quarter. But on a full year basis we expect margins to average around 50%, maybe up to 55% but somewhere in that range and so it was more than a signal. Don't expect another 64% quarter.

Morris also we are signaling that as we've got into understanding the Lifecore business, we do better understand the lumpiness of order patterns so I'd like to tell you that it's just going to be a real smooth four quarters but that's not the nature of the business.

I think when you made the acquisition, I'm trying to recollect, you guided us to about 26 to 27 million for this year? Is that correct?

That was our original guidance and I can tell you that we should definitely beat that.

Okay, I mean we shouldn't annualize this quarter but it will be more than 26, 27 million?

Yes.

Okay just, you mentioned earlier on cash generation. I think you said the first six months was $2.1 million?

Yes.

Do you have it for the most recent quarter, for second quarter?

Honestly, I don't. I don't have the first quarter in front of me but take the difference. The second quarter was a pretty big quarter from a working capital used standpoint. And with the addition of Lifecore this year, it was even more pronounced during the second quarter and we'll be filing our Q but I'll just tell you that in the six months ended this year working capital used was about $4.4 million versus last year it was basically flat so the big thing here was working capital.

Okay, so fine. That's the answer; cash flow being down year-over-year was because business picked up Lifecore Biomedical fund working capital?

Exactly

Okay and give us some more granularities on the Chiquita avocado? Anything else? I mean are the new chains that might be coming on. You guess the four. Any other data points you can give us on what's happening here and how it's ramping up from what you've given us?

It's ramping up nicely but Chiquita does not want us to disclose anything until it happens. So all I can tell you is what we know so far which was the number of stores sites and number of chains and the fact that they are seeing significant, I mean material reductions in shrink and increases in velocity. So, and I will tell you that the store chains want to see trials. They want to see it before they actually make a switch. So you've got to go through that process but I'd say the indicators are pretty positive.

Thank you.

Thank you.

Thanks, Morris.

Thank you. Our next question comes from the line of Chris Krueger from Northland Capital. Your question please?

Good morning, Chris.

Good morning. Had a few questions on your core veggie business. First, do you have any sort of industry data for the last quarter or two? Whether there's been growth in the industry or how your market share has been?

The industry is down three, the industry of fresh cut produce in our category is down 3.4% in volume over the last six months. So certainly it's not turned around. Now you've got, you also have some weather related noise in there Chris so you've got to be a little careful with that but it's down. Our market share is roughly one third-market share and our mix between bags and trades is 65% bag sales and 35% trade sales. And that's different than a couple of years ago where it was more 60-40.

Okay. The new East Coast facility. I haven't heard anything about that. How has that gone? Have you gained any new next day business, et cetera?

I'd say we do. We have some business there and I'd call it modest and what we've found is that by the time we got it started in the October, November time frame some of the key customer that are targets for us said, we don't want to change during the holidays. Remember this is prime time for them, so come back to us after the holidays and let's talk. So, I think what you'll find is over the next couple of quarters; we'll have more to talk about. It's up and running. Its modest sales and our sales force focus is now to start calling on targeted customers who will be receptive to this next day delivery now that the holidays are done. So we had to wait for the holidays really to get this going.

Okay. On a couple of the other newer initiatives. How about the Windset cucumber launch and the other related launches related to that agreement and you’re on the go cup products? Any update on those areas?

Cup products have not done well. A lot of shrink and to be honest with you I don't know whether we just needed to promote it better or what. But just didn't seem to get picked up very well. So that's been very limited in terms of impact. And then on the Windset line, a lot of excitement, a lot of enthusiasm. We really like the Windset people. We've been working on, as you know we provide the breathable membrane and we've been working on getting a film that has certain what's called high vapor, moisture rate transfer properties so that with cucumbers, and peppers and tomatoes, we can get some of the moisture out. And that's been a little bit of a rate-limiting step. I think we're very close to having that film selected and for us to be starting with Windset. But they're really solid people and now that we have the film and the membrane I think we can get start doing something.

Do you have an idea if something will happen in the next quarter or two?

I do and they're a market leader in hydroponically grown products that they grow primarily up in Canada so really good people.

Okay and moving over to the Lifecore area. First, can you provide a sales growth rate for the quarter versus what it did before you acquired it last year?

You know, no. I mean I can but do I have that readily available. No I don't. Sorry, Chris. I can give it to you offline.

Chris, let me make sure I understand the question. You're saying what was this quarter over quarter growth prior to us acquiring them versus what they're doing with us now together with us, you mean?

Yes.

Yes, see we'd have to restate, remember they were on a calendar basis so that's why we haven’t' looked at it.

But in general Chris it was relatively flat pre-us but some of this was in the works. So I don't want it to sound like we've worked magic here. They were working on the magic themselves so I think when we get that information to you; you'll see that it's been a really good increase in the last couple of quarters.

Okay and the last question on Lifecore, and you indicate how is, like the pipeline of potential new business for Lifecore? Is that continuing to get bigger or how should we think about that?

One word. Solid. Looks solid to us. I mean that's what we were finding in our due diligence and knock on wood so far so good but it looks to us as though they're on a roll.

Okay so what I was getting at there is beyond knowing you had some contracts in hand when you acquired it that was going to lead to a nice year you were having. There's hopefully more and more of them? Okay, that's all I've got.

Thanks, Chris.

(Operator Instructions) Our next question comes from the line of Walter Schenker from Moss Partners. Your question please?

Good morning, Walter.

Good morning. A couple of things. First of which is just comments one of which is good to see you've bought some stock in and disclosed it. Secondly, having you guys have done it too looked at being old thousands and thousands of acquisitions they usually look good interest he first year so let's not declare victory yet although hopefully it will continue to do very well and exceed expectations on Lifecore since it seems to be a very nice business, one would not expect it to (inaudible) but rarely does someone buy something within six months say, oh my god. That happens too. I was somewhat surprised that Apio export was up year-over-year meaningfully I would have thought that given the shortage of vegetables, I realize some of it is not the same stuff that you would have normally have moved some stuff that would be exported into domestic application?

I think some of this Walter is that some of the, by the way a lot of this export was fruit and a fair amount of it were sales that we thought we were going to get in the first quarter that were delayed to the second quarter. There was some stone fruit delays in terms of maturing of the fruit that got delayed from the first quarter to the second quarter so without stealing any of the thunder there, I think some of that, it was just a timing issue. So it may be a year-over-year timing issue because of the delay.

Okay and just one other question. On 12/31, with Monsanto you said the end of the year, so I'm assuming its 12/31.

12/1 actually.

Okay, 12/1 with Monsanto. If they do not do anything, then all of the rights of technology come back to you, including their rights to repurchase and everything else?

Walter this is Greg Skinner. Yes, what would happen if they do not exercise their option is we would receive $4 million termination fee and at that time all of the technology that is currently licensed to them, which is one specific field would revert back to us and we would own it and they would have no future rights and we'd be able to go out and potentially license that to another partner.

Okay and in a related question so that really was not my lat question. When you restructured Monsanto, part of the reason was to give you more flexibility in other areas in the seed plant area. Is anything happening there?

Fair question. We have identified over the last four months, three company's, three to four company's that are leaders in the, what you would call the crop protection and genetics area that are interested in receiving our materials, sampling them, testing them, evaluating them, giving us feedback and that's what we're doing right now and that process has begun. And it's a process that requires some lab experiments and then they test it in the field this spring. This spring is an important area of time for us to get some of these materials that represent what we think value outside of our collaboration with Monsanto and that was one of the benefits of us reconstructing the field definition with Monsanto so that is starting.

Okay good. Thanks, guys.

Thank you, Walter.

Thank you. Our next question comes from the line of William Lauber from Sterling Capital Management. Your question please?

Good morning, Will.

Good morning. My first question is kind of following up on the previous caller on the Landec Ag, I guess he answered that or you answered that question pretty well sorry. But Monsanto this is, I guess pretty short timeline for them. It's taken quite a while to evolve. Do you think that's enough time for them to make an informed decision as to whether to go ahead or not with this?

Will, it's interesting you ask that. We ask that same question. Among us friends here we thought well if they needed a little bit more time, I mean keep in mind that they only decided about 20 months ago to get into the seed treatment business and they've really put a lot of effort into it so that decision wasn't that long ago. And so that's when we really turned our sights on the program that we're working on now. They have informed us that they think that's enough time. So let's go with that response. So, we're hopeful that it is but boy it's sure says a lot of works got to be done in the next four quarters.

Being here in the San Jose area I've noticed these last couple of years that it's been pretty rough for Monsanto. As you know they were laying a lot of people off and I notice its looks like they're starting to hire up again. Have you noticed any kind of switch in their business that would, I know one of the reasons they wanted to restructure the deal. They were laying off a lot of people at the same time as they were funding Landec Ag and some other things? Have you noticed any kind of change in their posture?

We have. We've noticed that they are putting more people on this joint program. Some of whom have been hired from the outside so it seems to be indicative, if nothing else it certainly is indicative of their interest in the collaboration that we have underway with them and the strategic importance. So you're right. A year ago it was pretty grim in St. Louis and that was partly why we restructured our agreement and it looks as though through reallocation, resources and some hiring, they're really putting some emphasis on the seed treatment area.

And my last area was Chiquita and the avocado business. I guess kind of more of a long-term bigger picture issue but with the success that Chiquita has seen in that program, do you think longer term, they'd be more willing to do the same thing with bananas and grocery stores? I guess I'm trying to look at it from their perspective, obviously stuff at the grocery store is thrown away doesn't necessarily immediately affect their profit line with this increase that they're seeing on avocados and how does the balance in increased orders and?

I understand your question. The honest answer is don't know. My experience and I'm sure in yours, success breeds confidence and this is the first really demonstration in retail stores. Remember the banana program is in convenience stores and 711's and coffee chains and things like that and what we call alternative sites. So this is the first real broad application of the breathway technology in the retail stores and it gives people exposure talk this technology. So, we're not giving up but I think we need to get some success with the avocado program. We need to continue to work with Chiquita on several other programs, which we haven’t announced yet, but outside of bananas and avocados. Each time we meet with them we bring up this question where we don't let it die and I'm hopeful that consumers have told us that their greatest issue with bananas is the waste issue. How much is thrown away but they also told us during the recession that they don't want to pay more for technology. So to make a long story short, don't know how to answer your question. We're certainly not letting up on it and let's see how it goes. But I would think a store that is having success with avocados would be more likely to consider some type of approach with our packaging in bananas over time.

You're saying that more from the store perspective rather than Chiquita's perspective?

Right. From the store perspective. Yes.

All right. Thank you very much.

Thank you. Our next question comes from the line of John Mulhouse [ph] from Mulhouse and Company [ph]. Your question please? John Mulhouse [ph]: Yes good morning. Yes I wanted to follow-up a little bit on Lifecore and the success that you're reporting there. If I remember correctly you've primarily been in the ophthalmic but had a lot of other opportunities, are some of those actually gelling in terms of real sales or are they still in the trial phase?

Ophthalmics still dominates their focus in sales. They work with market leaders. It really is, if you look at the applications for HA or how you run (inaudible) across the board it tends to be the higher margin opportunity. It's, for example one of the applications is cataract surgery, which is a large market and you have an aging population, et cetera so it still dominates the sales of Lifecore. But I will tell you that we've hired a new VP of Business Development, Ray Curtis who’s a seasoned veteran. We have a very capable staff there and I'd say that much of the new programs that they're considering evaluating are outside of ophthalmology. But that's not going to be this year or next years revenues so it's going to take us a little while to develop those. They do have smaller businesses in the orthopedic area and they have a nice niche business in the veterinary medicine area. Once again, ophthalmology is still the mainstay of Lifecore. John Mulhouse [ph]: And the maiden driver of the growth we've seen this year?

It is. Yes. John Mulhouse [ph]: Okay. Great, thanks.

Thank you.

Thank you. (Operator Instructions) And our next question is a follow-up question from William Lauber from Sterling Capital Management. Your question please?

Yes. Just a quick question. As far as your VP of Business Development there. What is, I kind of take it that this announcement of hiring an investment bank that probably most of her time is being spent on acquisitions and I guess with the Lifecore as well as opposed to licensing fields, can you give just kind of a breakdown of her time between those two categories?

Well, I'm going to probably surprise you a tad bit here. We've thought about how we can use her many talents and a good part of what's she going to be doing in the next year is working with our CEO at Apio and looking for new growth opportunities at Apio and in her food business and you recall that we are looking for opportunities to diversify from some of our core product lines at Apio and look for new growth opportunities. And Apio tends to be a business that's a little bit closer to what I'd call consumer marketing and consumer types of orientations and Molly brings a lot of experience there so she's going to be spending a fair amount of time looking at growth opportunities at Apio. In addition she will be quite involved as you surmised with the acquisition search which is primarily focused outside the food business so I'd say those are the two main things and then where appropriate and where possible, we will continue to do some licensing searches but as I mentioned in my comments, we just seem to do better when we own and operate an enterprise that has a marketing sales capability, a customer base and we infused technology. Walter made some good comments about you've got to be careful in the preliminary area but we've done particularly well in that area. So Molly will be involved in M&A, licensing and particularly focus on growing Apio.

So by growing Apio, are you talking introducing new product items or new SKU's or is that?

Yes. All the above, acquisitions, partnering, new product, new product additions to our current product line. Obviously, if we can find anything that can help us, not eliminate but minimize some of our other related risks we'd be all over that. So we're looking at that as well.

Okay. Thank you.

Thank you.

Thank you. Our next question comes from the line of Craig Peter from Wells Capital Management. Your question please?

Good morning, Craig.

Good morning. How are you? So absent from the discussion thus far was the much mentioned banana business. I'd love to have an update on the Chiquita banana business as well as any impression of the success of the avocado roll out might return mass retailers, grocery retailers to the banana industry?

I cannot tell you that that's true. The latter question we had a little bit of a discussion on that earlier. I have no knowledge from Chiquita or directly that the success of avocados will lead to a return of revisiting the consumer bag for retailers for bananas but I can just tell you from Landec's point of view we're going to keep encouraging that look, that evaluation and that point of view and I'd like to see with some more success in the avocado area, us to re visit that and we will, we are specifically discussing this with Chiquita but Craig to go beyond that I can’t tell you anything about timelines or whether it will happen but certainly there is a thought process that we're all having on this phone all that says, shoot if it works for avocados and retailers why can't we bring back this issue of bananas and retailers. So I can tell you we're very much for that.

That was my thought exactly. That it might return some interest to the mass retail channels?

Well, we have a lot of interest in this subject. A lot, and regarding the alternative sales, the alternative site sales it's pretty much as steady as you go. Pretty steady state. More conversions, gas station sites, more conversions of Starbucks sites, et cetera so no dramatic changes, there just kind of steady as you go.

Okay. Thanks.

Thank you.

Thank you. This does conclude the question-and-answer session for today's program. I'd like to turn the program back to management for any further remarks.

We just want to thank you again for being on our call and thanks for your good questions and we look forward to keeping you updated. All the best.

Thank you ladies and gentlemen for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.