Welcome to the Landec third quarter fiscal year 2010 earnings release conference call. (Operator Instructions) I would now like to introduce your host for today’s program, Mr. Gary Steel, Chairman and CEO of Landec Corporation. Please go ahead, Sir.

Good morning and welcome to Landec’s third quarter fiscal year 2010 earnings call. I have Greg Skinner with me today, Landec’s Chief Financial Officer. This call is being webcast by Thompson CCBN 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 April 30, 2010. A reply 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 1441598. 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 2009. As reported in yesterday’s press release for the third quarter of fiscal year 2010 revenues increased 8% to $58.1 million from $53.9 million during last year’s third quarter and net income increased 13% to $1.7 million or $0.07 per share compared to net income of $1.5 million or $0.06 per share in the third quarter last year. For the first nine months of fiscal year 2010 revenues decreased 2% to $180 million compared to revenues of $183.7 million for the same period a year ago. Net income for the first nine months decreased 7% to $5.5 million or $0.20 per diluted share compared to net income of $5.9 million or $0.22 per diluted share the same period last year. Overall, Landec generated $7.1 million in operating cash flow during the first nine months of fiscal year 2010 and ended the quarter with $69.6 million of cash and marketable securities and no debt, continuing to maintain our positive financial position. Importantly, revenues from Apio’s value added fresh cut vegetable business which accounted for 82% of…

Thank you Gary and good morning everyone. In yesterday’s news release Landec reported total revenues for the third quarter of fiscal year 2010 of $58.1 million versus revenues of $53.9 million for the third quarter of last year. The increase in total revenues during this year’s third quarter compared to last year’s third quarter was primarily due to a $3.5 million increase in revenues from Apio’s value added fresh cut vegetable business primarily due to an increase in market share and from an $839,000 or 11% increase in revenues from Apio’s trading business due to exporting higher priced produce products during this year’s third quarter compared to last year’s third quarter. For the third quarter of fiscal year 2010 the company reported net income of $1.7 million or $0.07 per share compared to net income of $1.5 million or $0.06 per share in the third quarter last year. Net income increased due to a $763,000 increase in gross profit in Apio’s value added fresh cut vegetable business primarily due to gross profit on increased revenues and from improved operational performance. This increase in net income was partially offset by first a $207,000 increase in operating expenses at Landec Ag as a result of the modified agreement with Monsanto. Second, a $101,000 decrease in gross profit for Apio packaging due to the contractually planned decrease in Chiquita minimums. Third, a $140,000 decrease in gross profit in the technology licensing business primarily due to the completion of the Air Product licensing payments during the third quarter of fiscal year 2009. Fourth, a $78,000 decrease in interest income due to lower yields on investments compared to yields for investments in the same period last year. For the first nine months of fiscal year 2010 Landec reported total revenues of $180 million versus revenues…

Thanks Greg. So where are we heading in the next 18 months? Our focus is on strengthening and sharpening our programs with our existing corporate partners, defining and staffing projects to develop new applications for our Intelimer Polymer materials technology, identifying new corporate partners in select areas and identifying acquisitions or joint venture growth opportunities. Let me just discuss these. First sharpening our focus with existing corporate partners. You may recall during our second fiscal quarter we modified our agreement with Monsanto allowing Monsanto to focus on specific seed treatment applications which are strategically important to Monsanto using our technology. At the same time, the modification gives us the flexibility to pursue on our own or with other partners applications of our Intelicoat Polymer technology in seed coatings outside of the exclusive field license to Monsanto. Monsanto will focus on specific target areas for seed treatments that use our technology to deliver chemicals on seeds in a way that improves the effectiveness of the active ingredients. In making this transition from a broad but not well defined field of seed applications to a highly focused development program we see applications and opportunities where Monsanto and Landec can both benefit. We now have the full rights either on our own or working with others to make and sell Intelicoat products for applications in seed coatings and other seed treatments outside of Monsanto’s exclusive field. In return, Landec is self funding the R&D work that supports the specific application for Monsanto’s program. We have recently delivered samples to Monsanto. We should be advancing our work with Monsanto from the labs to the greenhouses to field trials over the next 6-12 months. In addition we are planning to identify one additional strategic Ag partner that can benefit from our proprietary Intelicoat Polymer capabilities.…

(Operator Instructions) The first question comes from the line of Anton Brenner – Roth Capital Partners.

First of all with fresh cut vegetable sales turning up industry wide is your mix changing as well?

Not really. The tray sales are still weaker than in the past. I don’t know when that turn is going to come. It is hard for us to say but most of our growth is coming in the back product area. So we haven’t seen that change in mix yet.

My impression is that you have been in some form of discussion with big pharma companies for quite some time. You said negotiations are at an early stage. Is it fair to conclude then that some companies have moved on and others have become interested?

Yes. That is a good way of describing it.

Is this area one in which licenses might be very narrow for a particular drug allowing you to issue multiple licenses for this technology?

That is a terrific question. Our preference would be to have numerous licenses along therapeutic classes for types of materials we would be providing rather than one broad license. We are at a state where I am not really sure how to answer that question. It is still early stage. Pharma if you have been watching big pharma they are skittish. They have drastically cut back R&D budgets. Business development people have been coming and going. It is in flux. Our preference would be to do what we have done with other partners in the past. That is to have well defined fields. Be exclusive in those fields but not do it so broadly that you can’t work with others. That is our preference.

The next question comes from the line of Peter Black – Winfield Capital.

A follow-up on what Tony was talking about regarding a potential pharmaceutical partner. There are a lot of drugs obviously out on the market that highlight their controls, is there anything in your own clinical data right now that suggests your Polymer technology increases bioavailability or has some kind of new value that would differentiate it between what is already out there in terms of…

Excellent question. There are some standard work horses in the industry. One is called PLGA. It is a standard work horse. It is Polymer base that is used in lots of drugs. It has some severe limitations. The good news is that everybody knows it is safe. It has been tried and used for years and years. The problem with the delivery systems is they tend to have what is called a bolus or burst effect in that most of the active is released immediately when given intravenously or swallowed, etc. Our animal data so far and our in vitro data suggests we don’t have that burst effect allowing more active material to be available for dispensing over longer periods of time when that is useful to the patient. Number one, we think we have a release profile at least in the early results that looks advantageous. Secondly, we also think we can work with some hard to deliver molecules that tend to be insoluble. They are hard to process. We think we have an advantage there as well. The third area that looks promising to us, and remember it is still early stuff, we can load higher amounts of drug in our delivery vehicles than most people or all people. So we are looking at those attributes. On the other hand, compared to these other systems that have been out there for quite awhile you have to be asking the question what is the safety and toxicology profile, how much work have you done in vitro and in vivo. We have no intention of going into human trials ourselves so we will need partners. Early on we see some advantages that are attractive so we want to exploit those.

Just turning to the improvement in the entire fresh cut vegetable market do you think that and the fact that Chiquita is willing to roll out the avocado program this summer might suggest they are themselves becoming more optimistic on consumer spending for higher value, higher priced items and that there is a potential for them to revisit the banana program at retail sometime in the future? Or is that still…

Excellent question and I don’t have an answer for you. We are meeting with them in a couple of weeks and that will be one of our most important discussions. I don’t know and I don’t know how optimistic they are. I think we have to be a little cautious here about declaring victory on the consumer coming back. There is still a lot of unemployment. Indicators are positive and we will discuss that with them in a couple of weeks. I will have more information next quarter.

The next question comes from the line of Morris Ajzenman – Griffin Securities.

You talked about the 9 month industry and company unit volume gains. Do you have them for the most recent quarter?

The most recent quarter?

The third quarter. You talked about 9 months the industry being up 7% and you being up 21% for the 9 months.

I have that but off the top of my head I don’t remember.

Can we get back to you on that?

No problem. A second quick one. Assuming your earnings come in flat for the year, your cash flow was $7.1 million positive for 9 months. What would that be for the full-year? Would it be approaching $10 million or so?

Approximately yes.

The next question comes from the line of William Lauber – Sterling Capital Management.

First of all I would like to commend you for your practice of releasing those questions and answers with your quarterly releases. We find them very helpful. Today I was wondering if you could expand on that idea sort of and looking back over the last few quarters could you share with us a few things from an operational standpoint you could have done differently? Looking back with obviously 20/20 hindsight and realizing certain things are beyond your control such as the economy and the focus of your partners and what they do?

Well, first I would say we should have hired our head of business development several years ago as opposed to a few quarters ago. I will fall on my sword on that one. There is only so much that Greg and myself could do and David could have done. So in retrospect I think it would have been wise for us to bring in that senior role earlier. Secondly, I think it would have been good for us to have our modification in the Monsanto agreement somewhat earlier if we could have done that to give us flexibility to work with others. There were quite a few…since you are in St. Louis you know very well there were a lot of changes going on in Monsanto and we weren’t quite sure who we were working with there for awhile because there were so many changes. It would have been nice to have the modification to that agreement a few quarters earlier. I would have liked that as well. In terms of other changes I think it would have been great to have some of this identification of internal projects, as mentioned that we have identified five projects or more that we want to fund internally. I would have loved to have had that done a year ago. There are a number of things we would have done differently in retrospect. On the other hand we have a full plate here. We are very engaged. There are a number of things that as you know that are a work in progress that we want to report on in the next few quarters from a business development point of view. I hope I am addressing your question.

Fair enough. On the seed side of the business with your modification with Monsanto you indicated in your opening remarks you were pursuing at least one other arrangement with an ag company. Can you share with us how far along you are?

It is early but let me give you a couple of choices we face. One is outside of the Monsanto exclusive field we could work with a number of companies in what I call project areas. So we could work with Company A in project area one and work with Company B in project area two, etc. Or we could find one broader strategic partner who could really provide the marketing and the customer eyes and ears, have access to farmers and to seed companies we don’t currently have. Our strong preference would be to pick one broader partner that is a strategic partner where we become the functional polymer developer and supplier which is what we do well and so our strong preference would be to find one strategic partner outside of the Monsanto agreement rather than what I call the one-off situation. That is the direction of our focus right now.

The next question comes from the line of Chris Krueger – Northland Securities.

Can you talk a little bit about new products you have introduced in your fresh cut veggie category and what stage they are at and how it is going?

Yes. We have a cup line that is for on the go people who are about 12 different products. What I like about it is that not only is it a retail product but it could be a convenience store product which would help us put our foot in the door for a market we don’t currently serve directly ourselves. We have launched a number of products that are doing well for us in club stores. I am going to mention one and I am going to laugh because I don’t like the product personally but you would be surprised how well our Brussels sprouts are selling and our squash products. Our new slaw products are doing very well in club stores and are beginning to take hold in retail chains as well. We are also looking at some new potential channels we haven’t had before and one that would be of great interest to us and we are exploring in its early stage is school districts. I think you may be following very carefully the plight this country has in terms of diabetes, obesity and things like that and we are starting to see school districts really taking their child food programs seriously in terms of having much more control and command over what is served to kids. So we are starting to make some inroads in that arena as well. Those are examples of new things we are doing. We also had some very positive trials here recently with some shipment to some Asian markets and European markets and we did a control study where these were in what I call case liner packages where we were shipping products by surface ship to Asia and Europe. It was a control where it is open air shipment and there was a control where the shipper actually pumped in oxygen and CO2 using gas bottles and those types of things which is called controlled atmosphere and then our packaging. We blew away the controls. It was a very significant demonstration of how our technology could allow produce to be shipped and stay fresh for long periods of time by surface shipping.

How has the sourcing environment been for veggies in recent months and what is the outlook there?

March was really, really tough. California we are building arks out here, floating away. I don’t need to tell you about Florida. Tomatoes just got hammered with freezes and Mexico wasn’t doing much better. So March was a real tough sourcing month. I suspect April will be tough as well. For us we were looking at March, April and May as maybe real upside opportunities given the rebound in the category and given the market share we were taking we were feeling pretty optimistic about our fourth quarter. We are constrained by sourcing. It is not catastrophic. The sky is not falling but it has been a limitation for us to really keep that headwind we have and keep going.

Obviously these conditions would be factored into your updated guidance?

Yes. I have to tell you our updated guidance is assuming some of this really nasty weather is going to subside here pretty soon. It usually does in California by mid-April but we are certainly counting on that.

As far as the potential supply agreement of Monsanto what would be the rough timeline on that? Could you go over that again?

It was a five-year arrangement. I think the agreement comes to a decision point in December of 2011. I would expect them…who knows, but I would expect them to take the full time of testing and then with the parties sit down and decide if we go forward. It we go forward they buy us out…think of it as an option. They buy us out and we enter into a negotiated supply agreement or they choose to pass. I would expect that not to happen until a little bit before December 2011.

The next question comes from the line of Walter Sheckner – Titan Capital.

Since you brought it up in the press release as opposed to the call, you made reference to a number of potentially negative factors going forward in the fresh vegetable business relating to raw material costs. I don’t believe it was just one month. Increased land costs in California, margin pressure due to the ability to pass along increased costs, increased promotional expenses. Can you give us a general sense as to magnitude of those different issues, specifically or maybe in the aggregate?

As far as the impact it will have on our margins? Is that the question?

Yes.

You can see over the course of a few years our margins have compressed and it has been a result of the factors we mentioned in our press release. There are concerns as Gary just mentioned that those particular pressures could continue going forward. We need to continue our operating performance efficiencies in order to try and offset some of those. It is a challenge to offset it. You have competitive pressures out there. You have costs going up. You have a margin squeeze and the way you offset that is by new product introduction and by operational performance.

Let me just add a couple of thoughts here. Over the last year or two and getting more specific to answer your question what has been driving cost increases out here is land cost increases for available land that is dedicated to growing high value vegetable products which is what we are interested in. Over the last couple of years there was a fairly marked shift in land going into strawberries. There were some new varieties developed. Strawberries was the new wave. A lot of farms were diverting to planting strawberries. In typical farming fashion they went overboard and they planted too many strawberries and now you are starting to see some reasonableness coming back in terms of land being appropriately applied to vegetables as well as strawberries. So I think there are some countervailing forces here that might be beneficial to us. The proof will be in the pudding here in the next six months when we start to negotiate our new farm contracts. Strawberries were really driving some of these price increases number one. Number two, Tony mentioned earlier in the call he asked about the mix in trades and bags. I think in the economy, if and as the economy snaps back we can start to see a more positive change in mix whereby our trade products start to rebound that really helps our gross margins as well. There are some countervailing forces here we will work with. Plus we are just finishing phase one of our build out and we are always looking to get more efficient in our plant. We have good operating people that really do a good job of that. So we fight all the time to offset some of these forces that tend to reduce margins. So we have some good opportunities here.

Going back to Monsanto and the ag market over the years you have worked with Monsanto and you have obviously advanced the intellectual property a fair amount. You continue to have full access to the full breadth of your signings as long as it does not go into the same applications that Monsanto and you have identified?

Yes. There is a well defined field with Monsanto which we have not publicly disclosed. They would have from the exercise of their option they would have exclusive rights to benefit from that intellectual property which includes patent and know-how and we would be providing to them any improvements and modifications over the life of our agreement. Outside of that field, first of all we own all the patents. We don’t turn patents over to folks. Outside of that field we have the full freedom to work with anybody we want to including working on our own.

But since you haven’t disclosed it obviously it creates some basis for discussion. If I was XYZ at major Ag company so this is your master agreement and assuming my application is different from that of Monsanto I pretty much would have a very broad capability of utilizing your technology?

Yes. Looking for a broad strategic partner there was a broad field of applications we can license to a new partner.

The next question comes from the line of Rick Fetterman – Fetterman Investments.

Can you expand a bit on the Air Products collaboration? It seems like it is sort of business the stage that is currently described, it seems like before rock and roll, I know it hasn’t been that long.

I like to say before flushed toilets. You are right. It has been a long haul. The state, just to remind you, they have exclusive rights in the personal care field. They are our eyes and ears and arms to market and sell products globally to the personal care industry and the value we add is our materials have unique properties in terms of what is called viscosity modification. We can change the flow of various types of ingredients that are in gels, lotions and creams and things like that. We also have the ability from a deposition point of view to keep the actives that a L’Oreal or Estee Lauder may be interested. We can keep it on the skin longer because we can do some things with our materials to make them hydrophobic which is oil loving versus hydrophilic, water loving. We also have some unique properties in terms of sensory feel, texture and those types of things. The way it works is Air Products is the exclusive marketer and seller of these products. By the way we just won some prestigious award and the name of that award escapes me and I apologize for innovation in this field. The way it works is they fund all of the marketing and sales on their own nickel and then when we sell products to a personal care company such as L’Oreal they get 60% of the gross profit and we get 40% of the gross profit. We have been increasing sales gradually each year and Air Products has been gearing up its capabilities for marketing and selling products. They didn’t have that capability before. They are a new player in the industry. So it has been taking some patience on everybody’s side. We are hopeful as we develop new products which that is our focus, developing the new products they will sell, that this will begin to expand especially beyond the 10-12 products we currently are in with L’Oreal. We need new customers as well as expansion of L’Oreal purchases. So I agree with you. It has been a little bit in a slow state for awhile. All I can tell you is our role is to develop new products and that is what we are doing.

Along the second line you said the sales to Air Products have been growing, albeit slowly but still growing. Is that for use by them or their clients in R&D?

No. Those are actually in twelve L’Oreal products. These are in creams, lotions and things like that where we are a component in products. This is actual in-product sales, not R&D sales.

Would you expect in fiscal 2011 there would be sufficient revenue to break that out in this particular area?

Break it out as a separate line item you mean?

Release what that number was either as a line item or just in two Air Products we have done X number of dollar worth of business?

Would you settle for “I don’t know” as an answer?

That is the one I am going to get so I guess so.

Let me think about that a bit. I don’t know. I don’t think we have done that in the past but maybe we will. I would like to think about that one if you don’t mind.

There are no further questions in the queue at this time. I would like to turn the program back to Mr. Gary Steele for any closing remarks.

We very much appreciate your being on our call today. Thank you for joining us. We look forward to continuing to update you on our progress and plans.

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