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 31, 2009.

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 Form 10-Q and, in particular the factors described below in Part II-Item 1A of the Form 10-Q and those mentioned in Landec's Annual Report on Form 10-K for the fiscal year ended May 31, 2009. 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 31, 2009 filed with the Securities and Exchange Commission on August 4, 2009.

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 12 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 31, 2009, Apio shipped nearly sixteen 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 13 new products.

Apio established its Apio Packaging division in 2005 to advance the sales of BreatheWay packaging technology for shelf-life sensitive vegetables and fruit.

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.

In 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 packaged in Landec's BreatheWay packaging into the food service industry began late in fiscal year 2008 and market trials are currently underway for retail applications.

The Company's specialty packaging for case liner products reduces freight expense up to 50% for certain produce commodities by eliminating the weight and space consumed by ice. In addition to reducing the cost of freight, the removal of ice from the distribution system offers additional benefits.

Product enhancements in the fresh-cut vegetable line include fresh-cut vegetable trays designed to look like they were freshly made in the retail grocery store or at home. The rectangular tray design is convenient for storage in consumers' refrigerators and expands the Company's wide-ranging vegetable tray line.

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. Apio is now an approved vendor for its BreatheWay packaging technology to the U.S. Military.

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, Landec Ag's strategy has been to work closely with Monsanto to further develop our patented, functional polymer coating technology for sale and/or licensing to the seed industry. In accordance with its license, supply and R&D agreement with Monsanto, Landec Ag is currently focused on commercializing products for the seed corn market and then plans 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 2009 Pollinator Plus was used by 18 seed companies on approximately 22% of the seed corn production acres in the U.S.

Monsanto announced last year that it 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. During fiscal year 2009, we focused on validating the use of Landec's coating technology for these applications.

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 our 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. To date, the sales of Landec materials used in L'Oreal products have not been material to the Company's financial results

Medical Applications

In December 2005, Landec entered into an exclusive licensing agreement with Aesthetic Sciences Corporation ("Aesthetic Sciences"). Aesthetic Sciences paid Landec an upfront license fee of $250,000 for the exclusive rights to use Landec's Intelimer materials technology for the development of dermal fillers worldwide. Landec will also receive royalties on the sale of products incorporating Landec's technology. In addition, the Company has received shares of preferred stock valued at $1.8 million which as of May 31, 2009 represented a 17.3% 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
                               ended 8/30/09       ended 8/31/08       Change
         Apio Value Added      $        41,292     $        43,002           (4 )%
         Apio Packaging                    564                 812          (31 )%
         Apio Tech. Subtotal            41,856              43,814           (4 )%
         Commodity Trading              17,702              26,297          (33 )%
         Total Apio                     59,558              70,111          (15 )%
         Tech. Licensing                 1,385               1,642          (16 )%
         Total Revenues        $        60,943     $        71,753          (15 )%

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 August 30, 2009 compared to the first quarter of last year was primarily due to the fact that the first quarter of fiscal year 2009 included 14 weeks of revenue compared to 13 weeks during the first quarter of fiscal year 2010.

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 decrease in Apio packaging revenues for the three months ended August 30, 2009 compared to the same period last year was primarily due to the reduction in contractual minimum payments received from Chiquita under the amended Chiquita license agreement.

Commodity Trading

Apio trading revenues consist of revenues generated from the purchase and sale of primarily whole commodity fruit and vegetable products to Asia by 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 first quarter of fiscal year 2010 was $16.0 million or 90% of total trading revenues.

The decrease in revenues in Apio's trading business for the three months ended August 30, 2009 compared to the same period last year was due to a 26% decrease in export sales volumes as a result of a decreased supply of produce to export, primarily fruit, and a $2.9 million decrease in domestic commodity sales to Wal-Mart due to the planned exiting of most of our domestic buy/sell business with Wal-Mart. In addition, the first quarter of fiscal year 2009 included 14 weeks of revenue compared to 13 weeks during the first quarter of fiscal year 2010.

Technology Licensing

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

The decrease in Technology Licensing revenues for the three months ended August
30, 2009 compared to the same period of the prior year was not significant to
consolidated Landec revenues.

Gross Profit (in thousands):

                               Three months        Three months
                               ended 8/30/09       ended 8/31/08       Change
         Apio Value Added      $         5,865     $         6,580          (11 )%
         Apio Packaging                    516                 703          (27 )%
         Apio Tech. Subtotal             6,381               7,283          (12 )%
         Commodity Trading               1,104               1,198           (8 )%
         Total Apio                      7,485               8,481          (12 )%
         Tech. Licensing                 1,385               1,642          (16 )%
         Total Gross Profit    $         8,870     $        10,123          (12 )%

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 generally accepted accounting principles. These costs include the following: raw materials (including produce 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 first quarter of fiscal year 2010 compared to the same period last year as outlined in the table above.

Apio Value-Added

The decrease in gross profit for Apio's value-added specialty packaged vegetable business for the three months ended August 30, 2009 compared to the same period last year was primarily due to the decrease in revenues of 4% during the first quarter of fiscal year 2010 compared to the first quarter of last year coupled with an increase in the cost of produce during this year's first quarter compared to last year's first quarter. In addition, the first quarter of fiscal year 2009 included 14 weeks of gross profit compared to 13 weeks during the first quarter of fiscal year 2010.

Apio Packaging

The decrease in gross profit for Apio Packaging for the three months ended August 30, 2009 compared to the same period last year was primarily due to the reduction of contractual minimum payments received from Chiquita under the amended Chiquita license agreement.

Commodity Trading

Apio's commodity trading business is a buy/sell business that realizes a commission-based margin in the 5-6% range. The decrease in gross profit for Apio's commodity trading business during the three months ended August 30, 2009 compared to the same period last year was primarily due to a 33% decrease in revenues. In addition, the first quarter of fiscal year 2009 included 14 weeks of gross profit compared to 13 weeks during the first quarter of fiscal year 2010. The decrease in revenues was greater than the decrease in gross profit because the decrease in revenues was primarily due to decreased domestic commodity volume sales which is a 2% margin business and decreased export of fruit which realizes lower gross margins than the gross margins realized from the export of vegetables.

Technology Licensing

The decrease in Technology Licensing gross profit for the three months ended
August 30, 2009 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
                                        ended 8/30/09       ended 8/31/08       Change
 Research and Development:
 Apio                                   $           294     $           351          (16 )%
 Tech. Licensing                                    645                 537           20 %
 Total R&D                              $           939     $           888            6 %

 Selling, General and Administrative:
 Apio                                   $         3,063     $         3,500          (12 )%
 Corporate                                        1,507               1,176           28 %
 Total S,G&A                            $         4,570     $         4,676           (2 )%

Research and Development

Landec's research and development expenses consist primarily of expenses involved in the development and process scale-up initiatives. Research and development efforts at Apio are focused on the Company's proprietary BreatheWay membranes used for packaging produce, with recent focus on extending the shelf life of bananas and other shelf-life sensitive vegetables and fruit. In the Technology Licensing business, the research and development efforts are focused on the Company's proprietary Intellicoat coatings for seeds, primarily corn seed and on uses for our proprietary Intelimer polymers outside of food and agriculture.

The increase in research and development expenses for the three months ended August 30, 2009 compared to the same period last year was not significant.

Selling, General and Administrative

Selling, general and administrative expenses consist primarily of sales and
marketing expenses associated with Landec's product sales and services, business
development expenses and staff and administrative expenses.

The decrease in selling, general and administrative expenses for the three
months ended August 30, 2009 compared to the same period last year was not
significant.

Other (in thousands):

                                 Three months        Three months
                                 ended 8/30/09       ended 8/31/08       Change
       Interest Income           $           288     $           357          (19 )%
       Interest Expense          $            (1 )   $            (2 )        (50 )%
       Income Taxes              $         1,282     $         1,911           33 %
       Noncontrolling interest   $           182     $           164           11 %

Interest Income

The decrease in interest income for the three months ended August 30, 2009 compared to the same period last year was primarily due to lower yields on investments due to declines in interest rates.

Interest Expense

The decrease in interest expense during the three months ended August 30, 2009 . . .