The following discussion should be read in conjunction with the unaudited consolidated financial statements and accompanying notes included in Part I--Item 1 of this Form 10-Q and the audited consolidated financial statements and accompanying notes and Management's Discussion and Analysis of Financial Condition and Results of Operations included in Landec's Annual Report on Form 10-K for the fiscal year ended May 25, 2008.

Except for the historical information contained herein, the matters discussed in this report are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Potential risks and uncertainties include, without limitation, those mentioned in this report and, in particular the factors described below under "Additional Factors That May Affect Future Results," and those mentioned in Landec's Annual Report on Form 10-K for the fiscal year ended May 25, 2008. Landec undertakes no obligation to update or revise any forward-looking statements in order to reflect events or circumstances that may arise after the date of this report.

Critical Accounting Policies and Use of Estimates

There have been no material changes to the Company's critical accounting policies which are included and described in the Form 10-K for the fiscal year ended May 25, 2008 filed with the Securities and Exchange Commission on August 8, 2008.

The Company

Landec Corporation and its subsidiaries ("Landec" or the "Company") design, develop, manufacture and sell temperature-activated and other specialty polymer products for a variety of food products, agricultural products, and licensed partner applications. This proprietary polymer technology is the foundation, and a key differentiating advantage, upon which Landec has built its business.

Landec's core polymer products are based on its patented proprietary Intelimer polymers, which differ from other polymers in that they can be customized to abruptly change their physical characteristics when heated or cooled through a pre-set temperature switch. For instance, Intelimer polymers can change within the range of one or two degrees Celsius from a non-adhesive state to a highly tacky, adhesive state; from an impermeable state to a highly permeable state; or from a solid state to a viscous state. These abrupt changes are repeatedly reversible and can be tailored by Landec to occur at specific temperatures, thereby offering substantial competitive advantages in Landec's target markets.

Following the sale of Landec's former direct marketing and sales seed corn company, FCD, to Monsanto in fiscal year 2007, Landec now has three core businesses - Food Products Technology, Commodity Trading and Technology Licensing (see note 11 of the unaudited financial statements).

Our Food Products Technology business is operated through a subsidiary, Apio, Inc., and combines our proprietary food packaging technology with the capabilities of a large national food supplier and value-added produce processor. Value-added processing incorporates Landec's proprietary packaging technology with produce that is processed by washing, and in some cases cutting and mixing, resulting in packaged produce to achieve increased shelf life and reduced shrink (waste) and to eliminate the need for ice during the distribution cycle. This combination was consummated in 1999 when the Company acquired Apio, Inc. and certain related entities (collectively, "Apio").

Our Commodity Trading business is operated through Apio and combines Apio's export company, Cal Ex Trading Company ("Cal-Ex") with Apio's domestic buy-sell commodity business that purchases and sells whole fruit and vegetable products to Asia and domestically to Wal-Mart.

Our Technology Licensing business includes our proprietary Intellicoat seed coating technology which we have licensed to Monsanto and our Intelimer polymer business that licenses and/or supplies products outside of our Food Products Technology business to companies such as Air Products and Chemicals, Inc. ("Air Products") and Nitta Corporation ("Nitta").

Landec was incorporated on October 31, 1986. We completed our initial public offering in 1996 and our Common Stock is listed on The NASDAQ Global Select Market under the symbol "LNDC." Our principal executive offices are located at 3603 Haven Avenue, Menlo Park, California 94025 and our telephone number is
(650) 306-1650.

Description of Core Business

Landec participates in three core business segments- Food Products Technology, Commodity Trading and Technology Licensing.

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Food Products Technology Business

The Company began marketing its proprietary Intelimer-based BreatheWay® membranes in 1996 for use in the fresh-cut produce packaging market, one of the fastest growing segments in the produce industry. Landec's proprietary BreatheWay packaging technology when combined with fresh-cut or whole produce results in packaged produce with increased shelf life and reduced shrink (waste) without the need for ice during the distribution cycle. The resulting products are referred to as "value-added" products. In 1999, the Company acquired Apio, its then largest customer in the Food Products Technology business and one of the nation's leading marketers and packers of produce and specialty packaged fresh-cut vegetables. Apio utilizes state-of-the-art fresh-cut produce processing technology and year-round access to specialty packaged produce products which Apio distributes to the top U.S. retail grocery chains, major club stores and to the foodservice industry. The Company's proprietary BreatheWay packaging business has been combined with Apio into a subsidiary that retains the Apio, Inc. name. This vertical integration within the Food Products Technology business gives Landec direct access to the large and growing fresh-cut and whole produce market. During the fiscal year ended May 25, 2008, Apio shipped more than nineteen million cartons of produce to leading supermarket retailers, wholesalers, foodservice suppliers and club stores throughout the United States and internationally, primarily in Asia.

There are four major distinguishing characteristics of Apio that provide competitive advantages in the Food Products Technology market:

· Value-Added Supplier: Apio has structured its business as a marketer and seller of fresh-cut and whole value-added produce. It is focused on selling products under its Eat Smart® brand and other brands for its fresh-cut and whole value-added products. As retail grocery and club store chains consolidate, Apio is well positioned as a single source of a broad range of products.

· Reduced Farming Risks: Apio reduces its farming risk by not taking ownership of farmland, and instead, contracts with growers for produce. The year-round sourcing of produce is a key component to the fresh-cut and whole value-added processing business.

· Lower Cost Structure: Apio has strategically invested in the rapidly growing fresh-cut and whole value-added business. Apio's 96,000 square foot value-added processing plant is automated with state-of-the-art vegetable processing equipment. Virtually all of Apio's value-added products utilize Apio's proprietary BreatheWay packaging technology. Apio's strategy is to operate one large central processing facility in one of California's largest, lowest cost growing regions (Santa Maria Valley) and use packaging technology to allow for the nationwide delivery of fresh produce products.

· Expanded Product Line Using Technology: Apio, through the use of its BreatheWay packaging technology, is introducing on average fifteen new value-added products each year. These new product offerings range from various sizes of fresh-cut bagged products, to vegetable trays, to whole produce, to vegetable salads and snack packs. During the last twelve months, Apio has introduced 23 new products.

Apio established its Apio Packaging division of the Food Products Technology business in 2005 to advance the sales of BreatheWay packaging technology for shelf-life sensitive vegetables and fruit. The technology also includes unique packaging solutions for produce in large packages including shipping and pallet-sized containers.

Apio Packaging's first program has concentrated on bananas and was formally consummated when Apio entered into an agreement to supply Chiquita Brands International, Inc. ("Chiquita") with its proprietary banana packaging technology on a worldwide basis for the ripening, conservation and shelf-life extension of bananas for most applications on an exclusive basis and for other applications on a non-exclusive basis. In addition, Apio provides Chiquita with ongoing research and development and process technology support for the BreatheWay membranes and bags, and technical service support throughout the customer chain in order to assist in the development and market acceptance of the technology.

For its part, Chiquita provides marketing, distribution and retail sales support for Chiquita® bananas sold worldwide in BreatheWay packaging. To maintain the exclusive license, Chiquita must meet quarterly minimum purchase thresholds of BreatheWay banana packages.

The initial market focus for the BreatheWay banana packaging technology using Chiquita bananas has been commercial outlets that normally do not sell bananas because of their short shelf-life - outlets such as quick serve restaurants, convenience stores and coffee chain outlets. Chiquita is currently developing packaging designs for bananas packaged with Landec's BreatheWay technology for sale in quick serve restaurants and retail grocery chains.

During fiscal year 2008, the Company expanded the use of its BreatheWay technology to avocados under an expanded licensing agreement with Chiquita. Commercial sales of avocados into the food service industry began in the fall of 2008 and retail grocery store trials recently began.

In May 2007, Apio entered into an 18-month research and development agreement with Natick Soldier Research, Development & Engineering Center, a branch of the U.S. Military, to develop commercial uses for Landec's BreatheWay packaging technology within the U.S. Military by significantly increasing the shelf life of produce for overseas shipments.

In June 2008, Apio entered into a collaboration agreement with Seminis Vegetable Seeds, Inc., a wholly-owned subsidiary of Monsanto, to develop novel broccoli and cauliflower products for the exclusive sale by Apio in the North American market. These novel products will be packaged in Landec's proprietary BreatheWay packaging and will be sold to retail grocery chains, club stores and the food service industry. Field trials for the initial target varieties began in the fall of 2008.

In addition, the Company has commercialized new lines of fresh cut vegetable side dishes, vegetable salads and vegetable snacks.

Commodity Trading Business

Commodity Trading revenues consist of revenues generated from the purchase and sale of primarily whole commodity fruit and vegetable products to Asia through Apio's export company, Cal-Ex and from the purchase and sale of whole commodity fruit and vegetable products domestically to Wal-Mart. The Commodity Trading business is a buy/sell business that realizes a commission-based margin on average in the 5-6% range.

Technology Licensing Businesses

The Technology and Market Opportunity: Intellicoat Seed Coatings

Following the sale of FCD, our strategy has been to work closely with Monsanto to further develop our patented, functional polymer coating technology that can be broadly sold and/or licensed to the seed industry. In accordance with our license, supply and R&D agreement with Monsanto, we are currently focused on commercializing products for the seed corn market and then plan to broaden the technology to other seed crop applications.

Landec's Intellicoat seed coating applications are designed to control seed germination timing, increase crop yields, reduce risks and extend crop-planting windows. These coatings are currently available on hybrid corn, soybeans and male inbred corn used for seed production. In fiscal year 2000, Landec Ag launched its first commercial product, Pollinator Plus† coatings, which is a coating application used by seed companies as a method for spreading pollination to increase yields and reduce risk in the production of hybrid seed corn. There are approximately 650,000 acres of seed production in the United States and in 2008 Pollinator Plus was used by 25 seed companies on approximately 17% of the seed corn production acres in the U.S.

In 2003, Landec commercialized Early Plant† corn by selling the product directly to farmers through the Fielder's Choice Direct† brand. This application allows farmers to plant into cold soils without the risk of chilling injury, and enables farmers to plant as much as four weeks earlier than normal. With this capability, farmers are able to utilize labor and equipment more efficiently, provide flexibility during the critical planting period and avoid yield losses caused by late planting. In 2008, five seed companies offered Intellicoat on their hybrid seed corn offerings.

Monsanto has formed a new business called the Seed Treatment Business which will allow Monsanto to develop its seed treatment requirements internally. The concept of seed treatments is to place an insecticide or fungicide directly onto the seed surface in order to protect the seed and the seedling as it emerges. Landec's Intellicoat seed coating technology could be an integral and proprietary part of Monsanto's commitment to building a major position in seed treatments worldwide by using Landec's seed coatings as a "carrier" of insecticides/fungicides which can be dispensed at the appropriate time based on time or soil temperature.

The Technology and Market Opportunity: Intelimer Polymer Applications

We believe our technology has commercial potential in a wide range of industrial, consumer and medical applications beyond those identified in our core businesses. For example, our core patented technology, Intelimer materials, can be used to trigger catalysts, insecticides or fragrances just by changing the temperature of the Intelimer materials or to activate adhesives through controlled temperature change. In order to exploit these opportunities, we have entered into and will enter into licensing and collaborative corporate agreements for product development and/or distribution in certain fields. However, given the infrequency and unpredictability of when the Company may enter into any such licensing and research and development arrangements, the Company is unable to disclose its financial expectations in advance of entering into such arrangements.

Industrial Materials and Adhesives

Landec's industrial product development strategy is to focus on coatings, catalysts, resins, additives and adhesives in the polymer materials market. During the product development stage, the Company identifies corporate partners to support the ongoing development and testing of these products, with the ultimate goal of licensing the applications at the appropriate time.

Intelimer Polymer Systems

Landec has developed latent catalysts useful in extending pot-life, extending shelf life, reducing waste and improving thermoset cure methods. Some of these latent catalysts are currently being distributed by Akzo-Nobel Chemicals B.V. through a licensing agreement with Air Products. The Company has also developed Intelimer polymer materials useful in enhancing the formulating options for various personal care products. The rights to develop and sell Landec's latent catalysts and personal care technologies were licensed to Air Products in March 2006.

Personal Care and Cosmetic Applications

Landec's personal care and cosmetic applications strategy is focused on supplying Intelimer materials to industry leaders for use in lotions and creams, and potentially color cosmetics, lipsticks and hair care. The Company's partner, Air Products, is currently shipping products to L'Oreal for use in lotions and creams.

Medical Applications

On December 23, 2005, Landec entered into a licensing agreement with Aesthetic Sciences Corporation ("Aesthetic Sciences") for the exclusive rights to use Landec's Intelimer materials technology for the development of dermal fillers worldwide. In exchange for the exclusive right to use Landec's Intelimer technology, the Company received shares of preferred stock valued at $1.8 million which as of November 30, 2008 represented a 16.4% ownership interest in Aesthetic Sciences. At this time, the Company is unable to predict the ultimate outcome of the collaboration with Aesthetic Sciences and the timing or amount of future revenues, if any.

Results of Operations

Revenues (in thousands):

                                Three months        Three months                            Six months           Six months
                              ended 11/30/08      ended 11/25/07       Change           ended 11/30/08       ended 11/25/07       Change
Apio Value Added             $        37,314     $        39,264              (5 )%   $         80,316     $         78,658               2 %
Apio Packaging                           657                 177             271 %               1,469                  330             345 %
Technology Subtotal                   37,971              39,441              (4 )%             81,785               78,988               4 %
Apio Trading                          18,355              17,855               3 %              44,651               39,306              14 %
Total Apio                            56,326              57,296              (2 )%            126,436              118,294               7 %
Tech. Licensing                        1,712               1,665               3 %               3,354                3,326               1 %
Total Revenues               $        58,038     $        58,961              (2 )%   $        129,790     $        121,620               7 %

Apio Value Added

Apio's value-added revenues consist of revenues generated from the sale of specialty packaged fresh-cut and whole value-added processed vegetable products that are washed and packaged in our proprietary packaging and sold under Apio's Eat Smart brand and various private labels. In addition, value-added revenues include the revenues generated from Apio Cooling, LP, a vegetable cooling operation in which Apio is the general partner with a 60% ownership position.

The decrease in Apio's value-added revenues for the three months ended November 30, 2008 compared to the same period last year was primarily due to a decrease in value-added unit sales volumes of 7%. The increase in value-added revenues for the six months ended November 30, 2008 compared to the same period last year was primarily due to an increase in value-added unit sales volumes of 1%.

Apio Packaging

Apio packaging revenues consist of Apio's packaging technology business using its BreatheWay membrane technology. The first commercial application included in Apio packaging is our banana packaging technology.

The increase in Apio packaging revenues for the three and six months ended November 30, 2008 compared to the same periods last year was primarily due to the timing of contractual minimum payments from Chiquita as a result of amending the Chiquita license agreement.

Apio Trading

Apio trading revenues consist of revenues generated from the purchase and sale of primarily whole commodity fruit and vegetable products to Asia through Apio's export company, Cal-Ex, and from the purchase and sale of whole commodity fruit and vegetable products domestically to Wal-Mart. The export portion of trading revenues for the three and six months ended November 30, 2008 was $17.9 million and $39.6 million, or 98% and 89%, respectively, of total trading revenues.

The increase in revenues in Apio's trading business for the three months ended November 30, 2008 compared to the same period last year was primarily due to higher per unit sales prices resulting from product mix changes on flat unit sales volumes. The increase in revenues in Apio's trading business for the six months ended November 30, 2008 compared to the same period last year was due to a 6% increase in trading business sales volumes coupled with higher per unit sales prices due to product mix changes.

Technology Licensing

Technology licensing revenues consist of revenues generated from the licensing agreements with Monsanto, Air Products and Nitta.

The increase in Technology Licensing revenues for the three and six months ended November 30, 2008 compared to the same periods of the prior year was not significant to consolidated Landec revenues.

Gross Profit (in thousands):

                                 Three months         Three months                           Six months          Six months
                               ended 11/30/08       ended 11/25/07       Change          ended 11/30/08      ended 11/25/07       Change
Apio Value Added             $          4,084     $          6,029             (32 )%   $        10,665     $        12,132             (12 )%
Apio Packaging                            623                  146             327 %              1,326                 265             400 %
Technology Subtotal                     4,707                6,175             (24 )%            11,991              12,397              (3 )%
Apio Trading                            1,138                1,017              12 %              2,335               2,108              11 %
Total Apio                              5,845                7,192             (19 )%            14,326              14,505              (1 )%
Tech. Licensing                         1,712                1,665               3 %              3,354               3,326               1 %
Total Gross Profit           $          7,557     $          8,857             (15 )%   $        17,680     $        17,831              (1 )%

General

There are numerous factors that can influence gross profit including product mix, customer mix, manufacturing costs, volume, sale discounts and charges for excess or obsolete inventory, to name a few. Many of these factors influence or are interrelated with other factors. Therefore, it is difficult to precisely quantify the impact of each item individually. The Company includes in cost of sales all the costs related to the sale of products in accordance with U.S. generally accepted accounting principles. These costs include the following: raw materials (including produce, seeds and packaging), direct labor, overhead (including indirect labor, depreciation, and facility related costs) and shipping and shipping related costs. The following discussion surrounding gross profit includes management's best estimates of the reasons for the changes for the three and six months ended November 30, 2008, compared to the same periods last year as outlined in the table above.

Apio Value-Added

The decrease in gross profit for Apio's value-added specialty packaging vegetable business for the three months ended November 30, 2008 compared to the same period last year was primarily due the 5% decrease in revenues coupled with increased costs for raw materials and greater overhead absorption per unit due to lower sales volumes. The gross margin for Apio's value-added business for the second quarter of fiscal year 2009 was 11% compared to a gross margin of 15% during the second quarter of last year. The decrease in gross profit for Apio's value-added specialty packaged vegetable business for the six months ended November 30, 2008 compared to the same period last year was primarily due to increased costs for raw materials and greater overhead absorption per unit due to lower sales volumes. The gross margin for Apio's value-added business for the first six months of fiscal year 2009 was 13% compared to a gross margin of 15% during the first six months of fiscal year 2008.

Apio Packaging

The increase in gross profit for Apio Packaging for the three and six months ended November 30, 2008 compared to the same periods last year was primarily due to the timing of contractual minimum payments from Chiquita as a result of amending the Chiquita license agreement.

Apio Trading

Apio's trading business is a buy/sell business that realizes a commission-based margin in the 4-6% range. The increase in Apio trading gross profit for the three months ended November 30, 2008 compared to the same period last year was due to an increase in revenues coupled with a shift during the quarter to higher margin vegetable export products from lower margin fruit export products during the second quarter of fiscal year 2008 primarily due to a higher quantity of vegetable products available for export during the second quarter of this year compared to the same period last year. The increase in Apio trading gross profit during the six months ended November 30, 2008 compared to the same period last year was primarily due to increased trading revenues of 14%. The increase in revenues during the first six months of fiscal year 2009 was greater than the increase in gross profit because the revenues from domestic commodity sales, which is a 2% margin business, increased 82% whereas revenues from the higher margin export business increased 8%.

Technology Licensing

The decrease in Technology Licensing gross profit for the three and six months ended November 30, 2008 compared to the same period of the prior year was not significant to consolidated Landec gross profit.

Operating Expenses (in thousands):

                                   Three months         Three months                             Six months           Six months
                                 ended 11/30/08       ended 11/25/07        Change           ended 11/30/08       ended 11/25/07        Change
Research and Development:
Apio                           $            322     $            286               13 %    $            673     $            656                3 %
Tech. Licensing                             545                  502                9 %               1,083                  954               14 %
Total R&D                      $            867     $            788               10 %    $          1,756     $          1,610                9 %

Selling, General and
Administrative:
Apio                           $          3,136     $          3,340               (6 )%   $          6,636     $          6,701               (1 )%
Corporate                                 1,313                  899               46 %               2,489                2,084               19 %
Total S,G&A                    $          4,449     $          4,239                5 %    $          9,125     $          8,785                4 %

Research and Development

Landec's research and development expenses consist primarily of expenses involved in the development and process scale-up initiatives. Research and . . .