Good day, ladies and gentlemen, and welcome to the Landec first quarter fiscal year 2012 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 first quarter fiscal year 2012 earnings call. I have Greg Skinner, our Chief Financial Officer with me. This call is being webcast by Thomson, 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 November 4, 2011. 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 1551099. 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 2011. As reported in yesterday’s press release, for the first quarter of our fiscal year 2012, revenues increased 13% to $73.3 million up from $65 million during last year’s first quarter and net income was $1.8 million compared to $2.3 million during the first quarter last year. Notably during the first quarter, Apio our technology food business, increased revenues by 13% driven by an 8% increase in revenues from Apio’s value-added fresh-cut vegetable business and a 30% increase in our export revenues. Overall, during the first quarter and fiscal year 2012, Landec’s financial position continued to improve and strengthen. We generated $4.4 million in operating cash flow, paid down $1 million in debt and added $3.1 million to cash and marketable securities, which ended the quarter at $39.4 million in cash and marketable securities. In addition, between September 22, 2011 and October 3, 2011, the company purchased on the open market under its stock buyback plan, 604,768 shares of common stock at a total cost of $3.3 million. While net income was lower during the first…

Thank you, Gary, and good morning, everyone. In yesterday’s news release, Landec reported total revenues for the first quarter of fiscal year 2012 of $73.3 million versus revenues of $65 million for the first quarter of last year. The increase in total revenues during this year’s first quarter, compared to last year’s first quarter was due to a $3.2 million increase in value-added fresh-cut vegetable revenues at Apio, primarily driven by the growth of the overall produce category and new product introductions, and a $4.9 million increase in Apio export revenues due to greater availability of fruit to export. For the first quarter of fiscal year 2012, the company reported net income of $1.8 million or $0.07 per share, compared to net income of $2.3 million or $0.09 per share for the first quarter of last year, this decrease in net income during the first quarter of fiscal year 2012 compared to the first quarter of fiscal year 2011 was primarily due to first, a $348,000 decrease in gross profit for Apio Packaging because of lower BreatheWay packaging sales to Chiquita compared to the initial large orders of BreatheWay packaging for avocados to build inventory that occurred during the first quarter of last year. Second a $280,000 decrease in gross profit for Lifecore from a product mix change resulting from the timing of shipments of aseptically filled products versus fermentation products, which reduced Lifecore's gross margin to 38% for the quarter compared to Lifecore's expected gross margin of approximately 50% for all of fiscal year 2012. And third a $493,000 decrease in operating income due to higher operating expenses, these decreases in operating income were partially offset by $281,000 in accrued dividend income from our preferred stock investment in Windset Farms, and a $242,000 reduction in income tax expense due to lower pre-tax income. Turning to Landec’s financial position. During the first quarter of fiscal year 2012, the company generated $4.4 million of positive cash flow from operations. Overall cash and marketable securities increased $3.1 million during the first quarter of fiscal year 2012 to $39.4 million. Gary?

Let’s talk about our priorities for this year and next year. The first priority is to grow Lifecore revenues and earnings by adding new customers and expanding product sales to existing customers based on Lifecore’s strength and ophthalmology and the production of viscoelastic materials along with our new sterile filling capabilities. Plus we investing new applications for hyaluronic acid in the form of new medical devices, and/or as additional adjuvant therapies. Lifecore is adding several new customers and introducing several new products to existing customers this year. Lifecore has a track record of retaining customers as our biomaterials are specified into customer FDA filings and their manufacturing processes. We see Lifecore continuing to realize in overall gross margin of 50% or more and EBITDA margins of around 30%. So both may fluctuate quarter-to-quarter. Second priority is to grow our Apio food business and maintain Apio’s margins by demonstrating superior product quality and customer service while continuing to develop new innovative products and enhancing operating efficiencies. We are developing several new specially package product platforms for launch beginning in the spring of 2012 which will significantly broaden our product line and help increase margins overtime. The future growth of our Apio food business will come from continuing to increase market share, introducing new products and from increasing sales of BreatheWay Packaging to fruit partners similar to what we were doing in bananas, avocados mangos and greenhouse grown cucumbers, peppers and tomatoes. Third we want to support Chiquita with its rollout plans for avocados and with the shipping container program, which is currently in testing. We estimate they were 7 million produce ship container trips each year globally, and roughly 0.5 million of those trips are attempting to use expensive and logistically difficult to handle controlled atmosphere approaches, which involve installing bottles…

(Operator Instructions) And our first question comes from the line of Tony Brenner, from Roth Capital Partners. You question please.

Thank you. First of all, I wonder if you could breakout the Apio packaging revenues within that Apio value-added category?

They are relatively small this quarter. I think it’s slightly over half million. Last year they were about double for the quarter. It was the initial launch of avocados.

Okay

You’re talking about for the quarter, right, Tony?

Yes.

Okay.

And on the new Chiquita license agreement, you mentioned there were minimum payments, is that minimum payment in excess of the previous agreement?

No.

I’m sorry, no?

No.

Okay. And is it constant for five years or does it increased or declined?

It’s constant. It’s an extension of what we currently have at an option to expand and extend our current agreement five years unilateral to exercise that out or they told us they're going to exercise…

Okay. Are sales currently in excess of that schedule or lagging?

Well, kind of I think it depends a lot on the new addition of the container concept, on whether it will exceed the minimums in the banana area. I mean it’s historically or at least since it’s kicked off, they’ve exceeded the minimums in avocados almost from day one.

Okay. And second; SG&A as a percent of sales and sequentially has declined despite what is cited in the release as higher sales commissions for Apio as well as various bonus accruals. I’m wondering, what the reason for that is and might that be true for the full year?

Might be true for the full year, but the majority of that expense is G&A, which has no correlation to revenues. So even if revenues go down and your G&A is going to have really no correlation. The correlation to revenues is really commissions and brokerage.

Okay. So it was 8.2% in the quarter, which is the lowest it’s been in a while as a percent of sales and you are suggesting that $6 million figure or 8.2% of revenues is in a reasonable projection?

Yeah, it’s not unreasonable. Just as you know there is really no correlation between G&A and revenues. We had a very good revenue quarter and our G&A is pretty much on tracking the plan.

Okay. And also the tax rate was a little lower than expected, 36% is a good number for the year?

You got a factor in the non-controlling interest, that’s also – that’s factored in before you calculate your taxes.

Yeah, I understand. But 36%...

38% is what we booked it.

Okay. Okay, thank you.

Thanks Tony.

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

Hi, Dan.

Hi guys. How are you doing?

All right.

With the new agreement with Chiquita in terms of the shipping container using your technology for that. Are you going to be trailing that for a while? I mean is there a number of years before it gets commercialized or how does that work?

I think its probably trailing for another three to four quarters. I don’t think it’s years. We’ve actually been working with them for a while. And basically we are using our membrane technology and there is various, there is two different configurations that we’re testing. So as we speak, they’re doing shipping trials from South America up to and Central America up to the States. The focus initially will be bananas obviously, that’s their sweet spot. We will also discuss with them the possibility of transport of other types of produce, but right now, their main interest and our interest is the movement of banana. So I think it’s quarters, not years.

There’s another company I follow that’s indicated they have an agreement with another banana producer to seal a container. And basically what they are trying to do is pump in ethane oxide and cut down the supply chain. Is there some thing along those lines, I mean is that same type of sales?

No, ethylene is the gas that ripens fruit and vegetables. What we do is, we’ll control the levels of oxygen and CO2 and we can slow down the respiration rate of produce, thus extending its shelf life. We can work with these ethylene oxide approaches or not. They can be additive or they can be separate, we don’t care, it’s not directly competitive.

Okay.

So and let me just mention; Chiquita has a separate business called TransFresh, which is in the container technology business. So it’s a real business, it’s been around for sometime and that’s a group we’re working with.

Okay. And then finally, with the acquisitions you guys said you’re actually looking, is there a particular area that’s looks exciting to you or particular, I mean is it more in produce or is it something completely different? Could you just elaborate?

Well, our primary focus has been in the biomedical materials arena.

Right.

If we could replicate and find another Lifecore, we’d like to do that, that may not be possible because our criteria is for immediate accretion. We're not interested in companies that are one or two years away from earnings that kind of things. But you know we’ve really think the biomaterial space is the place for us to invest going forward. We would not rule out, if something selectively comes around in the food sector, where we can really see some operating and or sales synergies, we wouldn’t rule that out at all, just as we did with the Windset investment, that’s in the produce space. And it met all the needs that we were looking for in terms of having an investment that was immediately accretive year-round growing, we think hydroponic growing is the wave of the future, and we want to be part of that technology, but most of our focus, so far has been in the biomedicals and biomaterials area, which is outside of food, so far.

All right. Thank, you guys.

Thank you, Daniel.

Thank you. Our next question comes from the line of Peter Black from Winfield Capital, your question please.

Hey, good morning guys.

Good morning, Peter.

Good morning, Peter.

How are you doing?

Good.

Good.

A quick question on the, basically the last page of the press release where you breakout the lines of business. If you look at the Apio value-added gross margin, the decline from 15.7% to about a little under 14% this quarter, was the majority of that due to the gross profit hit you mentioned from the lower inventory build of BreatheWay packaging for avocados? Or did you see any kind of like price erosion as well on the tray side?

It was all the packaging, Peter.

All packaging…

I am sorry, extremely high margin business.

Yeah.

And they were loading up for their initial launch last year in avocados, Peter so it’s all about that.

Okay, okay. Good to know. All right, thanks.

Thanks, Peter,

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

Hi guys.

Good morning Morris.

The earlier questions Chiquita going forward a five-year extension renewal, same minimum payments; what about all the other terms outside of the shipping which you probably are negotiating, are those all the same terms?

Yes, they are. We have a agreed upon transfer price in terms of our packaging products as you know they are good margin, so its pretty much they had the right to extend and they exercise that right, and are the same terms, and also we have been working with them in the shipping container area, and we felt they were the horse to attach to ride. So that’s really the main difference.

Okay. You mentioned operating cash flow $4.4 million, I presume is that after CapEx or not?

No.

No.

Okay. So…

Counting operating cash flow and then CapEx for the quarter due..

I want to say, hold on I can to look it up real fast.

We have a 41.6.

41.6.

1.6, yeah.

1.6. And should we annualize that for the full year CapEx plan…

The CapEx plan for the year is $6 million in total.

$6 million. Okay. And so let's look at the – let's took at the operating cash flow $4.4 million, if you look at the midpoint of your guidance, do the quick calculation is that $4.4 million is that going to be more than four times the amount, I presumed and is the free cash flow going to be an excess of, if I annualize that, that would be 16 what $17.6 million I presume, we are going to be well north of that based on your midpoint of guidance?

Yeah. Well, remember this was our low quarter this was…

I understand.

Our net income was going to be half what it is for the second and third, and that the fourth quarter should be 50% higher. Now there is a caveat in here that a chunk of that income is associated with our Windset investment which is non-cash, so we got to take that into accounts. The biggest swing are in the numbers not necessarily net income as we reiterated our guidance, but rather working capital which you know can swing fairly, substantially, quickly, but right now we are tracking to our guidance.

Okay. And yeah the CapEx what about the D&A for the quarter and what do you think it will be for the year?

About $1.4 million for the quarter, and you can pretty much times that by four.

Okay, and I think that’s it. All right, thank you.

Okay. Thanks Morris.

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

Yeah. Hi, Will.

Hi. I had a question on those containers with Chiquita I am just trying to understand where does Chiquita benefit out of this, and do a lot of bananas go bad before they even get to the stores or…

There are a number of issues going on here. First of all, we – the answer is yes there are. They lose about 9% I believe in terms of weight and perishability, but also allows them to go longer distances, and that’s one of the key things that they are looking for is that they can ship out of by example Costa Rica and get to Antwerp and get to the Far East and et cetera et cetera. So it’s just a number of reasons. And then the – and plus this controlled atmosphere approach where you’re moving these big bottles around and having to adjust the valves and all that is pretty costly, and it’s just – it’s the logistically a nightmare. So it’s just a number of reasons. So its perishability, its shipping distances and it’s also cost that play into their interest.

All right. Can you give an update you know on the synergy between Landec and Lifecore. I mean are you guys working on any kind of products that where you are going to be using the Landec technology for a Lifecore product?

It’s – first let me just tell you that we’re still looking at it and it’s not crystal clear exactly where that’s going to turn out, but it’s more – remember I referenced the fact that we’re looking at some interesting approaches using Hyaluronan gas that has either a drug and/or as an adjuvant in combination with drugs and it’s there where HA Hyaluronan gas in the Lifecore materials and our delivery system where we can help release something overtime probably has the most synergistic interest. We’re talking to several leading institutions, non-profit institutions, academic institutions that are leaders in the field with HA and drug delivery. And we will most likely enter into licensing and/or collaborative agreements with him in the next several quarters, but this synergistic approach is going to take some time Will, it’s not a – it’s not going to happen right away.

Okay. And my last question. You guys are still spend a lot on R&D and not being reflected in the stock price and can tell you from some of our other companies that you are not alone in that matter, but I think at some point stock market will reflect that, but can you talk about how you look at the research and development and the return on investment or do you from the top give the scientist kind of areas to look in, do they have freedom to look at things that they are interested, and just how you approach that?

Yeah. It’s generally about 80% to 90% of our R&D is very much directed that’s again specific milestones and objectives, it’s clear that we are directing them to areas that have to differ. Example Lifecore, lot of the R&D is process improvements and it has to do with meeting development needs of partners et cetera et cetera so it’s very directed, but about 10% to 20% is follow your nose, investigate areas that are of curiosity and interest to you because that’s the lifeblood of future products and so you have to have both. But the vast majority is very directed and here in Menlo Park it’s directed right now. We – for example one of the programs is in the aftermath of our transition with Monsanto. We were getting very close to actual biological studies, but we didn’t get quite there. We have reviewed all the science and all the experiments that we were doing with Monsanto. And we feel that they are worth continuing, and the reason they’re worth continuing is the need is still out there. And what we’re finding is that when we go to these crop protection companies and fertilizer and micro nutrient companies, they really want to meet, they really want to talk. So we’ll know in several quarters whether that work that we started is really worthy of continuing and whether or not there’s partnering opportunity. So that’s one example of a directed R&D program.

I guess a couple follow-up question on that. As far as your business development priorities, could you kind of go through those or what’s the top couple priorities right now for the business development side?

Yeah. The top business development is to in Lifecore and an Apio is very top is to build on our core business. And so up in Lifecore our top priority is finding one or two or three new customers for our existing products, because remember some of these have to go through lengthy development and nor in FDA reviews. But if they’re already approved that helps our costs. So Lifecore, it’s very clear business development is build a bit core business and expand customer base and product base. And Apio, the business development focus is – number one is these new product platforms that we will begin launching in the spring and we’re doing a lot of consumer and produce manager, purchasing manager, market testing. We’re laying out the product portfolio, the number of SKUs we want to launch, the price points et cetera, et cetera. So for both our core businesses Lifecore and Apio the number one priority is expansion of our existing core business. Number two priority in business development is to find another Lifecore or opportunistically if there is something that just really make sense from a bolt-on to Apio we would consider that as well. So that’s a number two priority. Number three priority, is in business development is where do we go next with Windset Farms. We’ve got the first phase essentially built and they’re growing it out, they are start to sell products here in the next month or two, where do we go next with them? And we think the whole hydroponic area is a real good opportunity for us with a market leader to expand. The fourth priority is to – in business developments is to figure out life after Monsanto and is there value there that we’ve created, is there a partner that we want to work with and can we get to field trial so we can really validate that the control release technology does allow for and active to be released overtime and to sustain the protection of the plan. So that’s number four. Number five is any new licensing deals. The environment I’ve said in the last couple quarters is really pretty sour on the historical way we’ve tried to do licensing deals, which is big upfront license fees et cetera, et cetera. So we have to change the model. So those are the five priorities and that’s the order in which we’re doing it.

Okay. Thanks a lot.

Thank you.

Thank you. Our next question comes from the line of Rick Fetterman from Fetterman Investments. Your question please.

Hi, Rick.

Good morning. I noticed a there was no comment on regarding air products in this discussion. Is there any thing new there that you would with either them or L’Oreal; that you’d care to comment on?

Well, they just – we continue to add products. The big announcement in Milan for a perm called Deposilk, which they believe is the most attractive product line that we’ve launched with them. When you announce those things and announcement was in April I believe, you go through about a year of testing. You send out samples, you work with people and their formulations. They have to take it and formulated into their creams and lotions and hairsprays and things like that. So you’ve got about a one year lag where you’re just, you’re supporting testing. And so that’s why you’ll probably not hear much on that for few quarters. It just – it’s in that phase.

Do you have any feel as to whether some time in fiscal ‘13 there is going to start to be some meaningful revenue from that in terms of the profit sharing from that joint venture or that licensing agreement?

The honest answer is I don’t have a good feeling for that. And the reason is, I don’t know how well this Deposilk will take off, since it’s new and it’s different. The attribute seem to be very positively received, and your products is pretty high on it. But I am frankly not able to tell you, I just don’t know what kind of profile that we’ll have in terms of build up, I would be misleading you to tell you if I thought I knew. I just don't know.

All right, thank you.

Thank you.

Thank you. Our next question is a follow-up question from the line of Will Lauber from Sterling Capital Management. Your question please.

Hi Will.

If you guys can give an update on the Clearly Fresh bags, it’s something I have kind of noticed, have been reading about is a lot of innovation and new product introductions are going on at the private label on stage, and whether you guys have thought about go into a some of the big grocery store chains and helping them out in that area?

Yes, we understand. And private-label is, you're right, it’s for real and it’s here. Just so you know over in our Apio business, we do some private-label with our specialty package products such as with Trader Joe's and Albertson's, and there is one more who I'm forgetting right now; Kroger. But in the Clearly Fresh, it's now in the Internet. We're getting the standard, the typical kind of responses which is like 3% or 4% of people who inquire, purchase something. And that was just to get it out there, and we’d started some trials down in Texas, and I don't have anything to report to you about those trials yet but hopefully we'll have something to tell you next quarter. But the key is, how do you get this thing so there is a million hits on the Internet, and how do you get a couple retailers just saying, hey, this is good stuff and we're going to, and by and by the way, one of the questions is, should this go in the center aisle of the grocery store along with regular packaging or should it be over in the produce side? Our position is it should be in the produce side, and that’s one of the things we are testing. So, we are in that mode. And Will, I hope you buy some over the Internet and try them. I think you will find that it works really well. And we're getting a lot of good feedback from people, who are starting to use it.

Yeah, we had them in the office and we put some bananas in the bag and then some outside and it definitely works. I'm just thinking on the grocery store side of right on the top of the banana display that we put three bananas in the bag, and then three next in just, so when people look at that they are going to see the big difference. And I think that could be a way to sell it.

We’re going to hire you as our merchandising guy. That’s a really good idea and that’s the kind of thing we’re looking at doing in Texas.

All right. Thanks.

Thank you.

Thank you. (Operator Instructions) Our next question comes from the line of Craig Pieringer from Wells Capital Management. Your question, please.

Good morning.

Good morning, Craig.

Hi. Can you briefly update us on drug delivery away from HA? In prior year calls there has been some discussion of drug delivery and specifically the encapsulation of a protein for controlled release. And some firm was taking a look at that and I understand that from either encountered financial difficulties or for some other reason it is not proceeding forward. Could you update us there?

Yeah. Thanks, Craig. In our work with that collaborative company who is selling its business basically, we learn that, they learnt and we learned together that probably the best most exciting application for our control release drug delivery technology is for the deliver of proteins and peptides. The short reason for that, there is a long reason, but the short reason is that we can put high loadings of the drug in our materials and when you combine a polymer system, which is typically done when you want to deliver a drug either by pill or intravenous or whatever that have to be processed at high temperatures to get the polymer in the right form. And that degrades the proteins and peptides, that deactivates it. And our materials can be processed at low temperatures. So between the high loadings the control release and the fact that it’s not denaturing or deactivating the proteins and peptides that appear to be a real exciting area for us. But that partner was having its own issues. So what we are doing is we’ve picked one or two protein and peptide models and we are doing the internal work ourselves to build the database to say, hey, at all works; it makes sense, so that we can go to the big pharma and have some real true data. And so to us right now it’s a data building mode, Craig. We have a group of some advisors, who would advising us on the right dosage forms and the right approach. There is some centers of excellence of people that have come out of the Genentech’s and the Amgen’s of the world. And there is also centers of excellence in MIT and other places that we are associating with. So that’s the mode we’re in, so its data building, so that we really have a strong case to go to big pharma.

Is that firm return to you any of the research they had done?

No, that’s the problem. Is that it’s we can’t use that data, that’s why we are doing this.

Just kind of back to square one, but still long-term potential?

Not square one in that we benefited from the collaboration in that we know where to focus, we know the experiments to do which is that under the agreement that data is theirs and we have to build our own.

Okay.

Not quite back to square no not square one, but certainly we would we have to generate this data ourselves.

Okay. Great, thanks for answering that.

Thank you.

Thank you. I’m not showing any further questions in the queue at this time.

Let me just summarize by saying in a nutshell, we are on plan for our first quarter. And we are looking forward to keeping you posted on our progress in the second quarter. So thanks for joining us today.

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