UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For the Fiscal Quarter Ended November
28, 2010, or




 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For the
Transition period from _____ to _________.




Commission
file number:  0-27446




LANDEC
CORPORATION


(Exact
name of registrant as specified in its charter)





Delaware
            94-3025618(State
      or other jurisdiction of
            (IRS
      Employerincorporation
      or organization)
            Identification
      Number)





3603
Haven Avenue


Menlo
Park, California 94025


(Address
of principal executive offices)





Registrant's
telephone number, including area code:


(650)
306-1650





Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days.





Yes  x           No   ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T  during
the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).


Yes  ̈  No  ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See definition of “large accelerated filer” and “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.





Large
      Accelerated Filer   ̈
                Accelerated
      Filer  xNon
      Accelerated Filer   ̈
                Smaller
      Reporting Company  ̈





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes ̈
                      Nox




As of
December 21, 2010, there were 26,591,582 shares of Common Stock
outstanding.





LANDEC
CORPORATION


FORM 10-Q
For the Fiscal Quarter Ended November 28, 2010


INDEX





PageFacing
      sheet
                                    1Index
                                    2Part
      I.
                                    Financial
      InformationItem
      1.
                                    a)
                                    Consolidated
      Balance Sheets as of November 28, 2010 and May 30, 2010
                                    3b)
                                    Consolidated
      Statements of Income for the Three Months and Six Months Ended November
      28, 2010 and November 29, 2009
                                    4c)
                                    Consolidated
      Statements of Cash Flows for the Six Months Ended November 28, 2010 and
      November 29, 2009
                                    5d)
                                    Notes
      to Consolidated Financial Statements
                                    6Item
      2.
                                    Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                    19Item
      3.
                                    Quantitative
      and Qualitative Disclosures About Market Risk
                                    28Item
      4
                                    Controls
      and Procedures
                                    29Part
      II.
                                    Other
      Information
                                    30Item
      1.
                                    Legal
      Proceedings
                                    30Item
      1A.
                                    Risk
      Factors
                                    30Item
      2.
                                    Unregistered
      Sales of Equity Securities and Use of Proceeds
                                    30Item
      3.
                                    Defaults
      Upon Senior Securities
                                    31Item
      4.
                                    Submission
      of Matters to a Vote of Security Holders
                                    31Item
      5.
                                    Other
      Information
                                    31Item
      6.
                                    Exhibits
                                    31Signatures
                                    32


-2-


PART
I.  FINANCIAL INFORMATION


Item
1.  Financial Statements


LANDEC
CORPORATION


CONSOLIDATED
BALANCE SHEETS


(In
thousands, except share and per share amounts)


November 28,
                  2010
              
              
              May 30,
                  2010(Unaudited)
              
              
              (1)ASSETSCurrent
      Assets:Cash
      and cash equivalents
              
              $
              5,447
              
              
              $
              27,817Marketable
      securities
              
              
              39,593
              
              
              
              20,421Accounts
      receivable, less allowance for doubtful accounts of $250 and $189 at
      November 28, 2010 and May 30, 2010, respectively
              
              
              24,670
              
              
              
              18,637Accounts
      receivable, related party
              
              
              461
              
              
              
              729Income
      taxes receivable
              
              
              642
              
              
              
              739Inventories,
      net
              
              
              19,744
              
              
              
              16,107Notes
      and advances receivable
              
              
              1,169
              
              
              
              241Deferred
      taxes
              
              
              1,363
              
              
              
              1,262Prepaid
      expenses and other current assets
              
              
              1,459
              
              
              
              2,989Total
      Current Assets
              
              
              94,548
              
              
              
              88,942Property,
      plant and equipment, net
              
              
              51,130
              
              
              
              50,161Goodwill,
      net
              
              
              41,189
              
              
              
              41,154Trademarks/tradenames,
      net
              
              
              12,428
              
              
              
              12,428Customer
      relationships, net
              
              
              3,519
              
              
              
              3,674Other
      assets
              
              
              4,214
              
              
              
              3,838Total
      Assets
              
              $
              207,028
              
              
              $
              200,197LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      Liabilities:Accounts
      payable
              
              $
              18,928
              
              
              $
              14,354Related
      party accounts payable
              
              
              122
              
              
              
              349Accrued
      compensation
              
              
              2,147
              
              
              
              2,043Other
      accrued liabilities
              
              
              2,909
              
              
              
              3,277Deferred
      revenue
              
              
              2,241
              
              
              
              3,391Current
      portion of long-term debt
              
              
              4,329
              
              
              
              4,521Total
      Current Liabilities
              
              
              30,676
              
              
              
              27,935Long-term
      debt
              
              
              17,501
              
              
              
              19,249Deferred
      revenue
              
              
              —
              
              
              
              1,000Deferred
      taxes
              
              
              9,639
              
              
              
              8,801Other
      non-current liabilities
              
              
              11,240
              
              
              
              10,737Total
      Liabilities
              
              
              69,056
              
              
              
              67,722Stockholders’
      Equity:Common
      stock, $0.001 par value; 50,000,000 shares authorized; 26,329,841 and
      26,490,259 shares issued and outstanding at November 28, 2010 and May 30,
      2010, respectively
              
              
              27
              
              
              
              27Additional
      paid-in capital
              
              
              119,154
              
              
              
              117,730Accumulated
      other comprehensive loss
              
              
              (331
              )
              
              
              (179
              )Retained
      earnings
              
              
              17,565
              
              
              
              13,206Total
      Stockholders’ Equity
              
              
              136,415
              
              
              
              130,784Noncontrolling
      interest
              
              
              1,557
              
              
              
              1,691Total
      Equity
              
              
              137,972
              
              
              
              132,475Total
      Liabilities and Stockholders’ Equity
              
              $
              207,028
              
              
              $
              200,197


(1)
Derived from audited financial statements.


See
accompanying notes.


-3-


LANDEC
CORPORATION


CONSOLIDATED
STATEMENTS OF INCOME


(Unaudited)


(In
thousands, except per share amounts)





Three Months Ended
              
              
              Six Months EndedNovember 28,
              
              
              November 29,
              
              
              November 28,
              
              
              November 29,2010
              
              
              2009
              
              
              2010
              
              
              2009Revenues:Product
      sales
              
              $
              67,720
              
              
              $
              58,490
              
              
              $
              129,980
              
              
              $
              116,882Services
      revenue, related party
              
              
              986
              
              
              
              914
              
              
              
              2,051
              
              
              
              2,080License
      fees
              
              
              1,350
              
              
              
              1,350
              
              
              
              2,700
              
              
              
              2,700Research,
      development and royalty revenues
              
              
              112
              
              
              
              179
              
              
              
              389
              
              
              
              213Total
      revenues
              
              
              70,168
              
              
              
              60,933
              
              
              
              135,120
              
              
              
              121,875Cost
      of revenue:Cost
      of product sales
              
              
              56,478
              
              
              
              52,009
              
              
              
              107,202
              
              
              
              102,115Cost
      of product sales, related party
              
              
              960
              
              
              
              755
              
              
              
              2,522
              
              
              
              1,820Cost
      of services revenue
              
              
              875
              
              
              
              752
              
              
              
              1,725
              
              
              
              1,653Total
      cost of revenue
              
              
              58,313
              
              
              
              53,516
              
              
              
              111,449
              
              
              
              105,588Gross
      profit
              
              
              11,855
              
              
              
              7,417
              
              
              
              23,671
              
              
              
              16,287Operating
      costs and expenses:Research
      and development
              
              
              2,255
              
              
              
              942
              
              
              
              4,487
              
              
              
              1,881Selling,
      general and administrative
              
              
              6,072
              
              
              
              4,182
              
              
              
              11,725
              
              
              
              8,752Total
      operating costs and expenses
              
              
              8,327
              
              
              
              5,124
              
              
              
              16,212
              
              
              
              10,633Operating
      income
              
              
              3,528
              
              
              
              2,293
              
              
              
              7,459
              
              
              
              5,654Interest
      income
              
              
              117
              
              
              
              266
              
              
              
              224
              
              
              
              554Interest
      expense
              
              
              (209
              )
              
              
              (4
              )
              
              
              (435
              )
              
              
              (5
              )Other
      expense
              
              
              (44
              )
              
              
              —
              
              
              
              (102
              )
              
              
              —Net
      income before taxes
              
              
              3,392
              
              
              
              2,555
              
              
              
              7,146
              
              
              
              6,203Income
      tax expense
              
              
              (1,209
              )
              
              
              (895
              )
              
              
              (2,561
              )
              
              
              (2,176
              )Consolidated
      net income
              
              
              2,183
              
              
              
              1,660
              
              
              
              4,585
              
              
              
              4,027Noncontrolling
      interest
              
              
              (128
              )
              
              
              (126
              )
              
              
              (226
              )
              
              
              (309
              )Net
      income available to common stockholders
              
              $
              2,055
              
              
              $
              1,534
              
              
              $
              4,359
              
              
              $
              3,718Basic
      net income per share
              
              $
              0.08
              
              
              $
              0.06
              
              
              $
              0.17
              
              
              $
              0.14Diluted
      net income per share
              
              $
              0.08
              
              
              $
              0.06
              
              
              $
              0.16
              
              
              $
              0.14Shares
      used in per share computation:Basic
              
              
              26,324
              
              
              
              26,360
              
              
              
              26,412
              
              
              
              26,355Diluted
              
              
              26,560
              
              
              
              26,676
              
              
              
              26,639
              
              
              
              26,670





See
accompanying notes.


-4-


LANDEC
CORPORATION


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)


(In
thousands)


Six Months EndedNovember 28,
              
              
              November 29,2010
              
              
              2009Cash
      flows from operating activities:Net
      income applicable to Common Stockholders
              
              $
              4,359
              
              
              $
              3,718Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
              
              
              2,602
              
              
              
              1,541Stock-based
      compensation expense
              
              
              962
              
              
              
              412Tax
      benefit from stock-based compensation expense
              
              
              (1,585
              )
              
              
              (1,341
              )Increase
      in long-term receivable
              
              
              (400
              )
              
              
              (400
              )Noncontrolling
      interest
              
              
              227
              
              
              
              309Deferred
      taxes
              
              
              737
              
              
              
              474Changes
      in current assets and current liabilities:Accounts
      receivable, net
              
              
              (6,033
              )
              
              
              (1,409
              )Accounts
      receivable, related party
              
              
              268
              
              
              
              264Income
      taxes receivable
              
              
              1,682
              
              
              
              —Inventories,
      net
              
              
              (3,637
              )
              
              
              (953
              )Issuance
      of notes and advances receivable
              
              
              (1,565
              )
              
              
              (1,363
              )Collection
      of notes and advances receivable
              
              
              637
              
              
              
              333Prepaid
      expenses and other current assets
              
              
              1,530
              
              
              
              364Accounts
      payable
              
              
              4,574
              
              
              
              3,310Related
      party accounts payable
              
              
              (227
              )
              
              
              (230
              )Income
      taxes payable
              
              
              —
              
              
              
              1,421Accrued
      compensation
              
              
              104
              
              
              
              (52
              )Other
      accrued liabilities
              
              
              (17
              )
              
              
              230Deferred
      revenue
              
              
              (2,150
              )
              
              
              (2,420
              )Net
      cash provided by operating activities
              
              
              2,068
              
              
              
              4,208Cash
      flows from investing activities:Purchases
      of property and equipment
              
              
              (3,450
              )
              
              
              (3,159
              )Purchase
      of marketable securities
              
              
              (41,784
              )
              
              
              (60,495
              )Proceeds
      from maturities and sales of marketable securities
              
              
              22,612
              
              
              
              17,234Net
      cash used in investing activities
              
              
              (22,622
              )
              
              
              (46,420
              )Cash
      flows from financing activities:Repurchase
      of outstanding common stock
              
              
              (1,184
              )
              
              
              —Taxes
      paid by Company for stock swaps to cover taxes on RSUs
              
              
              (49
              )
              
              
              (53
              )Proceeds
      from sale of common stock
              
              
              109
              
              
              
              17Tax
      benefit from stock-based compensation
              
              
              1,585
              
              
              
              1,341Payments
      on long-term debt
              
              
              (1,940
              )
              
              
              —Decrease
      in other assets
              
              
              24
              
              
              
              —Payments
      to minority interest holders
              
              
              (361
              )
              
              
              (330
              )Net
      cash (used in) provided by financing activities
              
              
              (1,816
              )
              
              
              975Net
      decrease in cash and cash equivalents
              
              
              (22,370
              )
              
              
              (41,237
              )Cash
      and cash equivalents at beginning of period
              
              
              27,817
              
              
              
              43,459Cash
      and cash equivalents at end of period
              
              $
              5,447
              
              
              $
              2,222Supplemental
      schedule of noncash operating activities:Income
      tax expense not payable
              
              $
              1,585
              
              
              $
              1,341Long-term
      receivable from Monsanto for guaranteed termination fee
              
              $
              400
              
              
              $
              400Unrealized
      loss from interest rate swap
              
              $
              152
              
              
              $
              —


See accompanying
notes.


-5-


LANDEC
CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)




1.
            Organization,
      Basis of Presentation and Summary of Significant Accounting
      Policies




Organization




Landec
Corporation and its subsidiaries (“Landec” or the “Company”) design, develop,
manufacture and sell polymer products for food and agricultural products,
medical devices and licensed partner applications that incorporate Landec’s
patented polymer technologies. The Company has two proprietary polymer
technology platforms: 1) Intelimer® polymers, and 2) hyaluronan (“HA”)
biopolymers. The Company’s proprietary polymer technologies are the foundation,
and a key differentiating advantage, upon which Landec has built its business.
The Company sells specialty packaged fresh-cut vegetables and whole produce to
retailers and club stores, primarily in the United States and Asia through its
Apio, Inc. (“Apio”) subsidiary, Hyaluronan-based biomaterials through its
Lifecore Biomedical, Inc. (“Lifecore”) subsidiary, and Intellicoat® coated seed
products through its Landec Ag LLC (“Landec Ag”) subsidiary.




Basis
of Presentation




The
accompanying unaudited consolidated financial statements of Landec have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions for
Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all
adjustments (consisting of normal recurring accruals) have been made which are
necessary to present fairly the financial position at November 28, 2010 and the
results of operations and cash flows for all periods presented. Although Landec
believes that the disclosures in these financial statements are adequate to make
the information presented not misleading, certain information normally included
in financial statements and related footnotes prepared in accordance with
accounting principles generally accepted in the United States have been
condensed or omitted per the rules and regulations of the Securities and
Exchange Commission. The accompanying financial data should be reviewed in
conjunction with the audited financial statements and accompanying notes
included in Landec's Annual Report on Form 10-K for the fiscal year ended May
30, 2010.




The results of operations for the six
months ended November 28, 2010 are not necessarily indicative of the results
that may be expected for an entire fiscal year due to some seasonality in Apio’s
food business, particularly, Apio’s Export business.




Basis
of Consolidation




The
consolidated financial statements are presented on the accrual basis of
accounting in accordance with U.S. generally accepted accounting principles and
include the accounts of Landec Corporation and its subsidiaries, Apio, Lifecore
and Landec Ag. All material inter-company transactions and balances have been
eliminated.





The
Company follows accounting guidance which addresses the consolidation of
variable interest entities ("VIEs"). Under the accounting guidance, arrangements
that are not controlled through voting or similar rights are accounted for as
VIEs. An enterprise is required to consolidate a VIE if it is the primary
beneficiary of the VIE.





Under
accounting guidance, a VIE is created when (i) the equity investment at risk is
not sufficient to permit the entity to finance its activities without additional
subordinated financial support from other parties, or (ii) the entity's equity
holders as a group either: (a) lack direct or indirect ability to make decisions
about the entity through voting or similar rights, (b) are not obligated to
absorb expected losses of the entity if they occur, or (c) do not have the right
to receive expected residual returns of the entity if they occur. If an entity
is deemed to be a VIE, the enterprise that is deemed to absorb a majority of the
expected losses or receive a majority of expected residual returns of the VIE is
considered the primary beneficiary and must consolidate the VIE.





Use
of Estimates




The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make certain estimates and
judgments that affect the amounts reported in the financial statements and
accompanying notes. The accounting estimates that require management’s most
significant, difficult and subjective judgments include revenue recognition;
sales returns and allowances; recognition and measurement of current and
deferred income tax assets and liabilities; the assessment of recoverability of
long-lived assets; the valuation of intangible assets and inventory; the
valuation and nature of impairments of investments; and the valuation and
recognition of stock-based compensation.


-6-




These
estimates involve the consideration of complex factors and require management to
make judgments. The analysis of historical and future trends, can require
extended periods of time to resolve, and are subject to change from period to
period. The actual results may differ from management’s estimates.




Cash,
Cash Equivalents and Marketable Securities





The Company records all highly liquid
securities with three months or less from date of purchase to maturity as cash
equivalents. These securities consist mainly of certificate of deposits (CDs),
money market funds and U.S. Treasuries. Short-term marketable securities consist
of CDs that are FDIC insured and single A or better rated municipal bonds with
original maturities of more than three months at the date of purchase regardless
of the maturity date as the Companyviews its portfolio
as available
for use in its current operations. The aggregate amount of CDs included
in marketable securities at November 28, 2010 and May 30, 2010 was $755,000 and
$1.5 million, respectively. The Company classifies all debt securities with
readily determined market values as “available for sale”. The contractual maturities
of the Company's marketable securities that are due in less than one year
represent $28.8 million of its marketable securities and those due in one to two
years represent the remaining $10.8 million of the Company’s marketable
securities as of November 28, 2010. These investments are classified as
marketable securities on the consolidated balance sheet as of November 28, 2010
and May 30, 2010 and are carried at fair market value. Unrealized gains and
losses are reported as a component of stockholders’ equity. The cost of debt
securities is adjusted for amortization of premiums and discounts to maturity.
This amortization is recorded to interest income. Realized gains and losses on
the sale of available-for-sale securities are also recorded to interest income
and were not significant for the three and six months ended November 28, 2010
and November 29, 2009. During the three and six months ended November 28, 2010,
the Company received proceeds of $5.0 million and $9.9 million, respectively,
from the sale of marketable securities. The cost of securities sold is based on
the specific identification method.





Financial
Instruments





The Company’s financial instruments are
primarily composed of marketable debt securities, commercial-term trade
payables, grower advances, and notes receivable, as well as long-term notes
receivables and debt instruments. For short-term instruments, the historical
carrying amount is a reasonable estimate of fair value. Fair values for
long-term financial instruments not readily marketable are estimated based upon
discounted future cash flows at prevailing market interest rates. Based on these
assumptions, management believes the fair market values of the Company’s
financial instruments are not materially different from their recorded amounts
as of November 28, 2010.





Investment
in Non-Public Company





The
Company’s investment in Aesthetic Sciences Corporation (“Aesthetic Sciences”), a
medical device company, is carried at cost and adjusted for impairment losses.
Since there is no readily available market value information, the Company
periodically reviews this investment to determine if any other than temporary
declines in value have occurred based on the financial stability and viability
of Aesthetic Sciences. Aesthetic Sciences sold the rights to its SmartfilTM
Injector System on July 16, 2010. Landec has evaluated its cost method
investment for impairment, using a discounted cash flow analysis which included
the terms of the purchase agreement. Based on the terms of the agreement, the
Company had determined that its investment in Aesthetic Sciences was other than
temporarily impaired and therefore recorded an impairment loss of $1.0 million
as of May 30, 2010. The Company’s carrying value of its investment in Aesthetic
Sciences of $792,000 at November 28, 2010 is reported as a component of other
non current assets.





Fair
Value Measurements




The
Company adopted fair value measurement accounting guidance on May 26, 2008 for
financial assets and liabilities and for financial instruments and certain other
items at fair value. The Company did not elect the fair value option for any of
its eligible financial assets or liabilities.




The
accounting guidance established a three-tier hierarchy for fair value
measurements, which prioritizes the inputs used in measuring fair value as
follows:


-7-




Level 1–
observable inputs such as quoted prices for identical instruments in active
markets.




Level 2–
inputs other than quoted prices in active markets that are observable either
directly or indirectly through corroboration with observable market
data.




Level 3–
unobservable inputs in which there is little or no market data, which would
require the Company to develop its own assumptions.




As of
November 28, 2010, the Company held certain assets that are required to be
measured at fair value on a recurring basis. These included the Company’s cash
equivalents and marketable securities for which the fair value is determined
based on observable inputs that are readily available in public markets or can
be derived from information available in publicly quoted markets. Therefore, the
Company has categorized its cash equivalents and marketable securities as Level
1. As of November 28, 2010, the Company recorded to Other Comprehensive Loss on
the Consolidated Balance Sheets an unrealized loss of $331,000, net of taxes of
$210,000, as a result of an interest rate swap agreement entered into during
fiscal year 2010. The unrealized loss was based on a Level 2 hierarchy for fair
value measurements. If the interest rate swap is terminated or the debt borrowed
is paid off prior to April 30, 2015, the amount of unrealized loss or gain
included in Other Comprehensive Income (Loss) would be reclassified to earnings.
The Company has no intentions of terminating the interest rate swap or prepaying
the debt in the next twelve months. The interest rate swap liability is included
in other non-current liabilities as of November 28, 2010 and May 30, 2010. The
Company has no other financial assets or liabilities for which fair value
measurement has been adopted.





New
Accounting Pronouncements





Recently Adopted
Pronouncements





Variable
Interest Entities





In June
2009, the FASB issued new guidance which amends the evaluation criteria to
identify the primary beneficiary of a VIE. Additionally, the new guidance
requires ongoing reassessments of whether an enterprise is the primary
beneficiary of the VIE. The Company adopted the new guidance on May 31, 2010 and
such adoption did not have an impact on the Company’s results of operations or
financial position for the three and six months ended November 28,
2010.





Revenue
Recognition





In October 2009, the FASB issued new
guidance in relation to "Multiple-Deliverable Revenue Arrangements". The new
standard changes the requirements for establishing separate units of accounting
in a multiple element arrangement and requires the allocation of arrangement
consideration to each deliverable to be based on the relative selling price. The
Company early adopted these standards as of May 31, 2010. There have been no
materially modified agreements since the adoption of the standard. The adoption
did not have an impact on the Company’s results of operations or financial
position for the three and six months ended November 28, 2010.





2.
            Acquisition
      of Lifecore Biomedical, Inc.




On April
30, 2010 (the “Acquisition Date”), the Company acquired all of the common stock
of Lifecore Biomedical, Inc. (“Lifecore”) under a Stock Purchase Agreement
(“Purchase Agreement”) in order to expand its product offerings and enter into
new markets. Located in Chaska, Minnesota, Lifecore was a privately-held
hyaluronan-based biomaterials company located in Chaska, Minnesota. Lifecore is
principally involved in the development and manufacture of products utilizing
hyaluronan, a naturally occurring polysaccharide that is widely distributed in
the extracellular matrix of connective tissues in both animals and humans. In
addition, Lifecore has licensed a sodium hyaluronate cross-linking technology
from The Cleveland Clinic Foundation designed to provide a development vehicle
for a product platform to introduce new products for the existing medical
segments, as well as potentially new market segments. Furthermore, Lifecore is
pursuing other development activities to utilize its fermentation and aseptic
filling capabilities for non-hyaluronan based products.


-8-


Under the
Purchase Agreement, the aggregate consideration payable by the Company to the
former Lifecore stockholder at closing consisted of $40.0 million in cash, which
included $6.6 million that is held in an escrow account to secure the
indemnification rights of Landec and other indemnities with respect to certain
matters, including breaches of representations, warranties and covenants
included in the Purchase Agreement. The escrow account is in the name of the
seller and Landec’s right under the escrow agreement consist solely of its
ability to file a claim against the escrow.In addition, the Company
may be required to pay in cash up to an additional $10.0 million in earnout
payments in the event that Lifecore achieves certain revenue targets in calendar
years 2011 and 2012.





The
acquisition date fair value of the total consideration transferred was $49.65
million, which consisted of the following (in thousands):





Cash
                    
                    $
                    40,000Contingent
      consideration
                    
                    
                    9,650Total
                    
                    $
                    49,650




The
assets and liabilities of Lifecore were recorded at their respective estimated
fair values as of the date of the acquisition using generally accepted
accounting principles for business combinations. The excess of the purchase
price over the fair value of the net identifiable assets acquired has been
allocated to goodwill. Goodwill represents a substantial portion of the
acquisition proceeds because the Lifecore trade name provides the Company with
entry into the growing, higher margin hyaluronan product market. Management
believes that there is further growth potential by extending Lifecore’s product
lines into new channels.





The
following table summarizes the estimated fair values of Lifecore’s assets
acquired and liabilities assumed and related deferred income taxes, effective
April 30, 2010, the date the Company obtained control of Lifecore (in
thousands).





Cash
      and cash equivalents
                
                $
                318Accounts
      receivable, net
                
                
                1,860Inventories,
      net
                
                
                9,009Property
      and equipment
                
                
                25,529Other
      tangible assets
                
                
                1,455Intangible
      assets
                
                
                7,900Total
      identifiable assets acquired
                
                
                46,071Accounts
      payable and other liabilities
                
                
                (2,983
                )Long-term
      debt
                
                
                (4,157
                )Deferred
      taxes
                
                
                (3,109
                )Total
      liabilities assumed
                
                
                (10,249
                )Net
      identifiable assets acquired
                
                
                35,822Goodwill
                
                
                13,828Net
      assets acquired
                
                $
                49,650





The
Company used a combination of the market and cost approaches to estimate the
fair values of the Lifecore assets acquired and liabilities
assumed.





Inventory





A step-up
in the value of inventory of $523,000 was recorded in the allocation of the
purchase price based on valuation estimates. During the three and six months
ended November 28, 2010, $132,000 and $294,000, respectively, of this step-up
was charged to cost of products sold as the inventory was sold. As of November
28, 2010, $137,000 of the step-up remained in inventory.





Intangible
Assets




The
Company identified two intangible assets in connection with the Lifecore
acquisition: trade names valued at $4.2 million, which is considered to be an
indefinite life asset and therefore will not be amortized; and customer base
valued at $3.7 million with a twelve year useful life. The trade name intangible
asset was valued using the relief from royalty valuation method and the customer
relationship intangible asset was valued using the multi-period excess earnings
method.


-9-





Goodwill




The
excess of the consideration transferred over the fair values assigned to the
assets acquired and liabilities assumed was $13.8 million, which represents the
goodwill amount resulting from the acquisition which can be attributable to its
long history and future prospects. None of the goodwill is expected to be
deductible for income tax purposes. The Company will test goodwill for
impairment on an annual basis or sooner, if deemed necessary. As of November 28,
2010, there were no changes in the recognized amount of goodwill resulting from
the acquisition of Lifecore.





Liability for
Contingent Consideration




In
addition to the cash consideration paid to the former shareholder of Lifecore,
the Company may be required to pay up to an additional $10.0 million in earnout
payments based on Lifecore achieving certain revenue targets in calendar years
2011 and 2012. The fair value of the liability for the contingent consideration
recognized on the acquisition date was $9.75 million and $9.65 million, as of
November 28, 2010 and May 30, 2010, respectively, and is classified as a non
current liability in the Consolidated Balance Sheets. The Company determined the
fair value of the liability for the contingent consideration based on a
probability-weighted discounted cash flow analysis. This fair value measurement
is based on significant inputs not observed in the market and thus represents a
Level 3 measurement. The Company projects that it will pay the entire $10
million earn out during the third quarter of fiscal year
2012.





3.
            License
      Agreement with Monsanto Company





On
December 1, 2006, Landec sold its direct marketing and sales seed company,
Fielder’s Choice Direct (“FCD”), which included the Fielder’s Choice Direct®and
Heartland Hybrid®brands,
to American Seeds, Inc., a wholly owned subsidiary of Monsanto Company
(“Monsanto”). The acquisition price for FCD was $50 million in cash paid at the
close. During fiscal year 2007, Landec recorded income from the sale, net of
direct expenses and bonuses, of $22.7 million. The income that was recorded is
equal to the difference between the fair value of FCD of $40 million and its net
book value, less direct selling expenses and bonuses. In accordance with
generally accepted accounting principles, the portion of the $50 million of
proceeds in excess of the fair value of FCD, or $10 million, was allocated to
the technology license agreement described below and is being recognized as
revenue ratably over the five year term of the technology license agreement or
$2 million per year beginning December 1, 2006. The fair value was determined by
management.





On
December 1, 2006, Landec also entered into a five-year co-exclusive technology
license and polymer supply agreement (“the Monsanto Agreement”) with Monsanto
for the use of Landec’s Intellicoatpolymer
seed coating technology. Under the terms of the Monsanto Agreement, Monsanto
agreed to pay Landec Ag $2.6 million per year. The Monsanto Agreement was
amended in November 2009. Under the terms of the amended Monsanto Agreement,
Monsanto continues to have an exclusive license to use Landec’s Intellicoat
polymer technology for specific seed treatment applications. Over the remaining
two-year term of the amended Monsanto Agreement, Monsanto will investigate uses
of Landec’s Intellicoat technology in a variety of seed categories in the field
exclusively licensed to Monsanto.





Along
with regaining the use of the Intellicoat technology outside of the specific
applications licensed to Monsanto under the amended Monsanto Agreement, Landec
has assumed responsibility for Landec Ag’s operating expenses and realizes all
the revenues and profits from the sales of existing and new Intellicoat seed
coating products.





The
Monsanto Agreement also provides for a fee payable to Landec Ag of $4 million if
Monsanto elects to terminate the Monsanto Agreement or $10 million if Monsanto
elects to purchase the rights to the exclusive field. If the purchase option is
exercised before December 2011, or if Monsanto elects to terminate the Monsanto
Agreement, all annual license fees and supply payments that have not been paid
to Landec Ag will become due upon the purchase or termination. If Monsanto does
not exercise its purchase option by December 2011 Landec Ag will receive the
termination fee and all rights to the Intellicoatseed
coating technology will revert to Landec. Accordingly, we will receive aggregate
minimum guaranteed payments of $17 million for license fees and polymer supply
payments over five years or $23 million in aggregate maximum payments if
Monsanto elects to purchase the rights to the exclusive field. The minimum
guaranteed payments and the deferred gain of $2 million per year described above
will result in Landec recognizing revenue and operating income of $5.4 million
per year for fiscal years 2008 through 2011 and $2.7 million per year for fiscal
years 2007 and 2012. The incremental $6 million to be received in the event
Monsanto exercises the purchase option has been deferred and will be recognized
upon the exercise of the purchase option. The fair value of the purchase option
was determined by management to be less than the amount of the deferred
revenue.


-10-




If
Monsanto elects to purchase the rights to the exclusive field, a gain or loss on
the sale will be recognized at the time of purchase. If Monsanto exercises its
purchase option, we expect to enter into a new long-term supply agreement with
Monsanto pursuant to which Landec would continue to be the exclusive supplier of
Intellicoat polymer materials to Monsanto.





For each
of the three and six months ended November 28, 2010 and November 29, 2009,
Landec recognized $1.35 million and $2.7 million, respectively, in revenues from
the Monsanto Agreement.





4.
            Other
      License Agreements





In
December 2005, Landec entered into an exclusive licensing agreement with
Aesthetic Sciences whereby Aesthetic Sciences paid Landec an upfront license fee
of $250,000 for the exclusive rights to use Landec's IntelimerÒ materials technology for
the development of dermal fillers worldwide under the agreement. Landec would
also receive royalties on the sale of products incorporating Landec’s
technology. In addition, the Company received shares of preferred stock
originally valued at $1.3 million which represented a 19.9% ownership interest
in Aesthetic Sciences as of December 2005.





As part
of the original agreement with Aesthetic Sciences, Landec was to receive
additional shares upon the completion of a specific milestone. In November 2006,
that milestone was met and as a result Landec received an additional 800,000
shares of preferred stock originally valued at $481,000. The receipt of the
additional 800,000 preferred shares did not change Landec’s 19.9% ownership
interest in Aesthetic Sciences. During fiscal year 2009, Aesthetic Sciences
completed a second preferred stock offering in which Landec did not participate
and as a result Landec’s ownership interest in Aesthetic Sciences was 17.3% as
of November 28, 2010 and May 30, 2010. Aesthetic Sciences sold the rights to its
SmartfilTM Injector System on July 16, 2010. Landec has evaluated its investment
in Aesthetic Sciences for impairment, utilizing a discounted cash flow analysis
under the terms of the purchase agreement. Based on the terms of the recent
sale, the Company had determined that its investment was other than temporarily
impaired and therefore recorded an impairment charge of $1.0 million as of May
30, 2010. The Company’s carrying value of its investment in Aesthetic Sciences
of $792,000 is included in other non current assets.





In March
2006, Landec entered into an exclusive license and research and development
agreement with Air Products and Chemicals, Inc. (“Air Products”). Landec will
provide research and development support to Air Products for three years with a
mutual option for two additional years. The license fees were recognized as
license revenue over a three year period beginning March 2006. In addition, in
accordance with the agreement, Landec receives 40% of the gross profit generated
from the sale of products by Air Products occurring after April 1, 2007, that
incorporate Landec’s Intelimer materials.





In
September 2007, the Company amended its licensing and supply agreement with
Chiquita Brands International, Inc. (“Chiquita”). Under the terms of the
amendment, the license for bananas was expanded to include additional exclusive
fields using Landec’s BreatheWay® packaging technology, and a new exclusive
license was added for the sale and marketing of avocados and mangos using
Landec’s BreatheWay packaging technology. The agreement with Chiquita, which
terminates in December 2011 (Chiquita has a five year renewal option), requires
Chiquita to pay annual gross profit minimums to Landec in order for Chiquita to
maintain its exclusive license for bananas, avocados and mangos. Under the terms
of the agreement, Chiquita must notify Landec before December 1st of each
year whether it is going to maintain its exclusive license for the following
calendar year and thus agree to pay the minimums for that year. Landec was
notified by Chiquita in November 2010 that Chiquita wanted to maintain its
exclusive license for calendar year 2011 and thus agreed at that time to pay the
minimum gross profit for calendar year 2011.




In June 2010, Apio entered into an
exclusive license agreement with Windset Farms (“Windset”) for Windset to
utilize Landec’s proprietary breathable packaging to extend the shelf life of
greenhouse grown cucumbers, peppers and tomatoes (“exclusive products”). In
accordance with the agreement,Apioreceivedand recordeda one-time upfront research and
development fee of $100,000 andwill receivelicense fees equal to 3% of net revenue
of the exclusive products utilizing theproprietary breathable
packagingtechnology, with
or without the BreatheWay® trademark. The ongoing license fees are subject to
annual minimums of $150,000 foreach of the three types of exclusive
product as each is added to the agreement.As of November 28, 2010 only one
product has been added to the agreement and the first year minimum payment
period ends June 2011.


-11-




5.
            Stock-Based
      Compensation





In the threeand six months ended November 28,
2010, the Company
recognized stock-basedcompensation expenseof$457,000 and $962,000or $0.02 and $0.04perbasic and diluted share, respectively,
which included$210,000 and $454,000 for restricted stock unit awards
and$247,000 and
$508,000 for
stockoption grants,
respectively.In the threeand six months ended November 29,
2009, the Company
recognized stock-basedcompensation expenseof$192,000 and $412,000 or$0.01 and $0.02 perbasic and diluted share, respectively,
which included$83,000 and
$202,000 for restricted
stock unit awards and$109,000 and $210,000 for stock option grants,
respectively.




The
following table summarizes the stock-based compensation expense by income
statement line item:




Three Months
                    Ended
                    November 28,
                    2010
                  
                  
                  Three Months
                    Ended
                    November 29,
                    2009
                  
                  
                  Six Months
                    Ended
                    November 28,
                    2010
                  
                  
                  Six Months
                    Ended
                    November 29,
                    2009Research
      and development
                  
                  $
                  108,000
                  
                  
                  $
                  45,000
                  
                  
                  $
                  228,000
                  
                  
                  $
                  94,000Selling,
      general and administrative
                  
                  $
                  349,000
                  
                  
                  $
                  147,000
                  
                  
                  $
                  734,000
                  
                  
                  $
                  318,000Total
      stock-based compensation expense
                  
                  $
                  457,000
                  
                  
                  $
                  192,000
                  
                  
                  $
                  962,000
                  
                  
                  $
                  412,000




As of
November 28, 2010, there was $3.8 million of total unrecognized
compensation expense related to unvested equity compensation awards granted
under the Company’s incentive stock plans. Total expense is expected to be
recognized over the weighted-average period of 2.3 years for stock options and
2.2 years for restricted stock unit awards.




6.
              Net
      Income Per Diluted Share





The following table sets forth the
computation of diluted net income per share (in thousands, except per share
amounts):


Three Months
                  Ended
                  November 28,
                  2010
              
              
              Three Months
                  Ended
                  November 29,
                  2009
              
              
              Six Months
                  Ended
                  November 28,
                  2010
              
              
              Six Months
                  Ended
                  November 29,
                  2009Numerator:Net
      income available to common stockholders
              
              $
              2,055
              
              
              $
              1,534
              
              
              $
              4,359
              
              
              $
              3,718Denominator:Weighted
      average shares for basic net income per share
              
              
              26,324
              
              
              
              26,360
              
              
              
              26,412
              
              
              
              26,355Effect
      of dilutive securities:Stock
      options and restricted stock units
              
              
              236
              
              
              
              316
              
              
              
              227
              
              
              
              315Weighted
      average shares for diluted net income per share
              
              
              26,560
              
              
              
              26,676
              
              
              
              26,639
              
              
              
              26,670Diluted
      net income per share
              
              $
              0.08
              
              
              $
              0.06
              
              
              $
              0.16
              
              
              $
              0.14




-12-





For the
three months ended November 28, 2010 and November 29, 2009, the computation of
the diluted net income per share excludes the impact of options to purchase 1.1
million shares and 1.1 million shares of Common Stock, respectively, as such
impacts would be antidilutive for these periods.





For the
six months ended November 28, 2010 and November 29, 2009, the computation of the
diluted net income per share excludes the impact of options to purchase 2.0
million shares and 1.1 million shares of Common Stock, respectively, as such
impacts would be antidilutive for these periods.





7.
              Income
      Taxes





The
estimated annual effective tax rate for fiscal year 2011 is currently expected
to be approximately 37%. The provision for income taxes for the three and six
months ended November 28, 2010 was $1.2 million and $2.6 million,
respectively.





As of May
30, 2010, the Company had unrecognized tax benefits of approximately
$868,000.  Included in the balance of unrecognized tax benefits as of
May 30, 2010 is approximately $708,000 of tax benefits that, if recognized,
would result in an adjustment to the Company’s effective tax rate. The
Company does not expect that the amounts of unrecognized tax benefits will
change significantly within the next twelve months.




In
accordance with accounting guidance, the Company has decided to classify
interest and penalties related to uncertain tax positions as a component of its
provision for income taxes.  The Company did not accrue interest and
penalties relating to the income tax on the unrecognized tax benefits as of
November 28, 2010 and May 30, 2010 as the amounts were not
significant.





Due to
tax attribute carryforwards, the Company is subject to examination for tax years
1994 forward for U.S. tax purposes.  The Company was also subject to
examination in various state jurisdictions for tax years 1998 forward, none of
which were individually significant.





8.
              Goodwill
      and Other Intangibles





The
Company’s intangible assets are comprised of customer relationships with an
estimated useful life of twelve years and trademarks/trade names and goodwill
with indefinite lives (collectively, “intangible assets”), which the Company
recognized in accordance with accounting guidance (i) upon the acquisition of
Lifecore in April 2010, our HA-based Biomaterials reporting unit, (ii) upon the
acquisition of Apio in December 1999, which consists of our Food Products
Technology and Export reporting units and (iii) from the repurchase of all non
controlling interests in the common stock of Landec Ag in December
2006.  Accounting guidance defines goodwill as “the excess of the cost
of an acquired entity over the net of the estimated fair values of the assets
acquired and the liabilities assumed at date of acquisition.”  All
intangible assets, including goodwill, associated with the acquisitions of
Lifecore and Apio were allocated to our HA-based Biomaterials reporting unit and
our Food Products Technology reporting unit, respectively, pursuant to
accounting guidance based upon the allocation of assets and liabilities acquired
and consideration paid for each reporting unit.  The consideration
paid for the Export reporting unit approximated its fair market value at the
time of acquisition, and therefore no intangible assets were recorded in
connection with the Company’s acquisition of this reporting
unit.  Goodwill associated with the Technology Licensing reporting
unit consists entirely of goodwill resulting from the repurchase of the Landec
Ag non controlling interests.





The
Company tests its intangible assets for impairment at least annually, in
accordance with accounting guidance.  When evaluating indefinite-lived
intangible assets for impairment, accounting guidance requires the Company to
compare the fair value of the asset to its carrying value to determine if there
is an impairment loss. When evaluating goodwill for impairment, accounting
guidance requires the Company to first compare the fair value of the reporting
unit to its carrying value to determine if there is an impairment
loss.  If the fair value of the reporting unit exceeds its carrying
value, goodwill is not considered impaired; thus application of the second step
of the two-step approach under accounting guidance is not
required.  Application of the intangible assets impairment tests
requires significant judgment by management, including identification of
reporting units, assignment of assets and liabilities to reporting units,
assignment of intangible assets to reporting units, and the determination of the
fair value of each indefinite-lived intangible asset and reporting unit based
upon projections of future net cash flows, discount rates and market multiples,
which judgments and projections are inherently uncertain.


-13-





Property,
plant and equipment and finite-lived intangible assets are reviewed for possible
impairment whenever events or changes in circumstances occur that indicate that
the carrying amount of an asset (or asset group) may not be recoverable. The
Company’s impairment review requires significant management judgment including
estimating the future success of product lines, future sales volumes, revenue
and expense growth rates, alternative uses for the assets and estimated proceeds
from the disposal of the assets. The Company conducts quarterly reviews of idle
and underutilized equipment, and reviews business plans for possible impairment
indicators. Impairment occurs when the carrying amount of the asset (or asset
group) exceeds its estimated future undiscounted cash flows and the impairment
is viewed as other than temporary. When impairment is indicated, an impairment
charge is recorded for the difference between the asset’s book value and its
estimated fair value. Depending on the asset, estimated fair value may be
determined either by use of a discounted cash flow model or by reference to
estimated selling values of assets in similar condition. The use of different
assumptions would increase or decrease the estimated fair value of assets and
would increase or decrease any impairment measurement.





The
Company tested its indefinite-lived intangible assets and goodwill for
impairment as of July 25, 2010 and determined that no adjustments to the
carrying values of the intangible assets were necessary as of that
date.  As of November 28, 2010, there were no impairment indicators
identified by the Company in its analysis of impairment associated with the
acquired indefinite-lived intangible assets.  On a quarterly basis,
the Company considers the need to update its most recent annual tests for
possible impairment of its intangible assets, based on management’s assessment
of changes in its business and other economic factors since the most recent
annual evaluation.  Such changes, if significant or material, could
indicate a need to update the most recent annual tests for impairment of the
intangible assets during the current period.  The results of these
tests could lead to write-downs of the carrying values of the intangible assets
in the current period.





The
Company uses the discounted cash flow (“DCF”) approach to develop an estimate of
fair value.  The DCF approach recognizes that current value is
premised on the expected receipt of future economic
benefits.  Indications of value are developed by discounting projected
future net cash flows to their present value at a rate that reflects both the
current return requirements of the market and the risks inherent in the specific
investment.  The market approach was not used to value the Food
Products Technology, Hyaluronan-based Biomaterials and Technology Licensing
reporting units (the “Reporting Units”) because insufficient market comparables
exist to enable the Company to develop a reasonable fair value of its intangible
assets due to the unique nature of each of the Company’s Reporting
Units.





The DCF
approach requires the Company to exercise judgment in determining future
business and financial forecasts and the related estimates of future net cash
flows. Future net cash flows depend primarily on future product sales, which are
inherently difficult to predict. These net cash flows are discounted at a rate
that reflects both the current return requirements of the market and the risks
inherent in the specific investment.





The DCF
associated with the Technology Licensing reporting unit is based on the Monsanto
Agreement with Monsanto.  Under the Monsanto Agreement, Monsanto has
agreed to pay Landec Ag a license fee of $2.6 million in cash per year for five
years beginning in December 2006, and a fee of $4.0 million if Monsanto elects
to terminate the Agreement, or $10.0 million if Monsanto elects to purchase the
rights to the exclusive field.  If the purchase option is exercised
before December 2011, or if Monsanto elects to terminate the Monsanto Agreement,
all annual license fees that have not been paid to Landec Ag will become due
upon the purchase or termination.





The DCF
associated with the Food Products Technology reporting unit is based on
management’s five-year projection of revenues, gross profits and operating
profits by fiscal year and assumes a 37% effective tax rate for each
year.  Management takes into account the historical trends of Apio and
the industry categories in which Apio operates along with inflationary factors,
current economic conditions, new product introductions, cost of sales, operating
expenses, capital requirements and other relevant data when developing its
projection.





The fair
value of indefinite and finite-lived intangible assets associated with our
acquisition of Lifecore on April 30, 2010, was determined using a DCF model
based on management’s five-year projections of revenues, gross profits and
operating profits by fiscal year and assumes a 33% effective tax rate for each
year.  Management takes into account the historical trends of Lifecore
and the industry categories in which Lifecore operates along with inflationary
factors, current economic conditions, new product introductions, cost of sales,
operating expenses, capital requirements and other relevant data when developing
its projection. The trade name intangible asset was valued using the relief from
royalty valuation method and the customer relationship intangible asset was
valued using the multi-period excess earnings method. The fair value of goodwill
was calculated as the excess of consideration paid, including the fair value of
contingent consideration under the terms of the purchase agreement, over the
fair value of the tangible and intangible assets acquired less liabilities
assumed.  The Company updated its analysis of the fair value of the
indefinite-lived intangible assets and goodwill as of its annual impairment
analysis date, concluding that the fair value of the Hyaluronan-based
Biomaterials reporting unit, as determined by the DCF approach, exceeded its
book value, and therefore, no intangible asset impairment was deemed to
exist.


-14-





9.
            Inventories





Inventories are stated at the lower of
cost (first-in, first-out method) or market and consisted of the following (in
thousands):





November 28,
                    2010
                  
                  
                  May 30,
                    2010Raw
      materials
                  
                  $
                  7,339
                  
                  
                  $
                  6,868Work
      in progress
                  
                  
                  3,524
                  
                  
                  
                  2,013Finished
      goods
                  
                  
                  8,881
                  
                  
                  
                  7,226Total
                  
                  $
                  19,744
                  
                  
                  $
                  16,107





10.
            Debt





On April
30, 2010 in conjunction with the acquisition of Lifecore, Lifecore entered into
a new $20 million Credit Agreement with Wells Fargo Bank N.A. (“Wells Fargo”)
with a five year term that provides for equal monthly principal payments plus
interest.   All of Lifecore’s assets, valued at approximately $81
million as of November 28, 2010, have been pledged to secure the debt incurred
pursuant to the Credit Agreement.  Landec is the guarantor of the
debt.




On August
19, 2004, Lifecore issued variable rate industrial revenue bonds (“IRB”). 
These bonds were assumed by Landec in the acquisition of Lifecore (see Note
2).  The bonds are collateralized by a bank letter of credit which is
secured by a first mortgage on the Company’s facility in Chaska,
Minnesota.   In addition, the Company pays an annual remarketing
fee equal to 0.125% and an annual letter of credit fee of 0.50%.




The
Credit Agreement and the IRB contain certain restrictive covenants, which
require Lifecore to meet certain financial tests, including minimum levels of
net income, minimum quick ratio, minimum fixed coverage ratio and maximum
capital expenditures.




On August
9, 2010 and September 14, 2010, the Company amended its Credit Agreement with
Wells Fargo to modify certain financial covenants.  As of November 28,
2010, the Company was in compliance with all covenants.




Long-term
debt consists of the following (in thousands):




November 28,
                    2010
                  
                  
                  May 30,
                    2010Credit
      agreement with Wells Fargo; due in monthly payments of $333,333 through
      April 30, 2015 with interest payable monthly at Libor plus 2% per
      annum
                  
                  $
                  18,000
                  
                  
                  $
                  19,667Industrial
      revenue bond issued by Lifecore; due in annual payments through 2020 with
      interest at a variable rate set weekly by the bond remarketing agent
      (0.48% and 2.56% at November 28, 2010 and May 30, 2010,
      respectively)
                  
                  
                  3,830
                  
                  
                  
                  4,103Total
                  
                  
                  21,830
                  
                  
                  
                  23,770Less
      current portion
                  
                  
                  (4,329
                  )
                  
                  
                  (4,521
                  )Long-term
      portion
                  
                  $
                  17,501
                  
                  
                  $
                  19,249




The maturities on the IRB are held in a
sinking fund account, recorded in Prepaid expenses and other current assets in
the accompanying Consolidated Balance Sheets and is paid out each year on
September 1st.


-15-




11.
            Derivative
      Financial Instruments




The
Company is exposed to interest rate risks primarily through borrowings under its
Credit Agreement with Wells Fargo (see Note 10).  Interest on all of
the Company’s borrowings under its Credit Agreement is based upon variable
interest rates.  As of November 28, 2010, the Company had borrowings
of $18.0 million outstanding under its Credit Agreement which bear interest at a
rate equal to the one-month LIBOR plus 2%.  As of November 28, 2010,
the interest rate on borrowings under the Credit Agreement was accruing at
2.375%.




In May
2010, the Company entered into a five-year interest rate swap agreement under
the Company’s Credit Agreement which expires on April 30, 2015.  The
interest rate swap was designated as a cash flow hedge of future interest
payments of LIBOR and has a notional amount of $20 million. As a result of the
interest rate swap transaction, the Company fixed for a five-year period the
interest rate at 4.24% subject to market based interest rate risk on $20 million
of borrowings under its Credit Agreement.  The Company’s obligations
under the interest rate swap transaction as to the scheduled payments were
guaranteed and secured on the same basis as is its obligations under the Credit
Agreement.   As of November 28, 2010, the Company recorded to
Other Comprehensive Loss on the Consolidated Balance Sheets an unrealized loss
of $331,000, net of taxes of $210,000, as a result of the interest rate
swap.  The unrealized loss was based on Level 2 hierarchy for fair
value measurements.  If the interest rate swap is terminated or the
debt borrowed is paid off prior to April 30, 2015, the amount of unrealized loss
or gain included in Other Comprehensive Income (Loss) would be reclassified to
earnings.  The Company has no intentions of terminating the interest
rate swap or prepaying the debt in the next twelve months.  The
interest rate swap liability is included in other non current liabilities as of
November 28, 2010 and May 30, 2010.




12.
            Related
      Party




Apio
provides cooling and distributing services for farms in which the Chairman of
Apio (the “Apio Chairman”) has a financial interest and purchases produce from
those farms.  Apio also purchases produce from Beachside Produce LLC
for sale to third parties.  Beachside Produce is owned by a group of
entities and persons, including the Apio Chairman, that supply produce to
Apio.  Revenues and the resulting accounts receivable and cost of
product sales and the resulting accounts payable are classified as related party
items in the accompanying financial statements as of November 28, 2010 and May
30, 2010 and for the three and six months ended November 28, 2010 and November
29, 2009.





Apio's
domestic commodity vegetable business was sold to Beachside Produce in
2003.  The Apio Chairman is a 12.5% owner in Beachside
Produce.  During the three and six months ended November 28, 2010, the
Company recognized revenues of $173,000 and $356,000, respectively, from the
sale of products to Beachside Produce.  During the three and six
months ended November 29, 2009, the Company recognized revenues of $213,000 and
$422,000, respectively, from the sale of products to Beachside
Produce.  The related accounts receivable from Beachside Produce are
classified as related party in the accompanying financial statements as of
November 28, 2010 and May 30, 2010.





All
related party transactions are monitored quarterly by the Company and approved
by the Audit Committee of the Board of Directors.





13.
            Comprehensive
      Income (Loss)





Comprehensive
income (loss) consists of net income and other comprehensive income which for
Landec includes changes in unrealized gains and losses on marketable securities
and changes in unrealized gains and losses on its interest rate swap with Wells
Fargo Bank, N.A.  Accumulated other comprehensive loss is reported as
a component of stockholders’ equity.   For the three and six
months ended November 28, 2010, the net comprehensive loss from the unrealized
loss on the interest rate swap and from unrealized gains on marketable
securities, net of income taxes, was a net loss of $0 and $331,000,
respectively.  For both the three and six months ended November 29,
2009, the comprehensive income from unrealized gains on marketable securities,
net of income taxes, was $92,000.  Accumulated other comprehensive
income is reported as a component of stockholders’ equity.


-16-





14.
              Stockholders’
      Equity





During the three and six months ended
November 28, 2010, 37,747 and 55,266 shares of Common Stock, respectively, were
issued upon the vesting of RSUs and upon the exercise of options under the
Company’s equity plans.





During
the three and six months ended November 28, 2010, the Company granted options to
purchase 26,000 and 36,000 shares, respectively, of common stock and 8,667 and
12,000, respectively, of restricted stock unit awards.




As of
November 28, 2010 the Company has reserved 3.6 million shares of Common Stock
for future issuance under its current and former equity plans.




On July
14, 2010, the Company announced that the Board of Directors of the Company had
approved the establishment of a stock repurchase plan which allows for the
repurchase of up to $10 million of the Company’s Common
Stock.   The Company may repurchase its common stock from time to
time in open market purchases or in privately negotiated
transactions.  The timing and actual number of shares repurchased is
at the discretion of management of the Company and will depend on a variety of
factors, including stock price, corporate and regulatory requirements, market
conditions, the relative attractiveness of other capital deployment
opportunities and other corporate priorities.  The stock repurchase
program does not obligate Landec to acquire any amount of its common stock and
the program may be modified, suspended or terminated at any time at the
Company's discretion without prior notice.  During the three and six
months ended November 28, 2010, the Company repurchased on the open market
150,000 and 216,000 shares, respectively, of its Common Stock for $822,000 and
$1.2 million, respectively.





15.
              Business
      Segment Reporting





Landec
operates in four business segments: the Food Products Technology segment, the
Export segment, the HA-based Biomaterials segment and the Technology Licensing
segment.  The Food Products Technology segment markets and packs
specialty packaged whole and fresh-cut vegetables that incorporate the
BreatheWay specialty packaging for the retail grocery, club store and food
services industry.  In addition, the Food Products Technology segment
sells BreatheWay packaging to partners for non-vegetable
products.  The Export segment consists of revenues generated from the
purchase and sale of primarily whole commodity fruit and vegetable products to
Asia.  The HA-based Biomaterials segment sells products utilizing
hyaluronan, a naturally occurring polysaccharide that is widely distributed in
the extracellular matrix of connective tissues in both animals and humans for
medical use in the ophthalmic, orthopedic and veterinary markets.  The
Technology Licensing segment licenses Landec’s patented Intellicoat seed
coatings to the farming industry and licenses the Company’s Intelimer polymers
for personal care products and other industrial products.  Corporate
includes corporate general and administrative expenses, non Food Products
Technology interest income and Company-wide income tax expenses.  All
of the assets of the Company are located within the United States of
America.  The Company’s international sales are primarily to Europe,
Canada, Taiwan, Indonesia, China and Japan.  Operations and
identifiable assets by business segment consisted of the following (in
thousands):


-17-




Three Months Ended November
28,
                    2010
                  
                  Food Products
                    Technology
                  
                  
                  Export
                  
                  
                  HA-based Biomaterials
                  
                  
                  Technology
                    Licensing
                  
                  
                  Corporate
                  
                  
                  TOTALNet
      sales
                  
                  $
                  40,649
                  
                  
                  $
                  19,635
                  
                  
                  $
                  8,422
                  
                  
                  $
                  1,462
                  
                  
                  $
                  —
                  
                  
                  $
                  70,168International
      sales
                  
                  $
                  4,166
                  
                  
                  $
                  19,571
                  
                  
                  $
                  6,325
                  
                  
                  $
                  3⁄4
                  
                  
                  $
                  3⁄4
                  
                  
                  $
                  30,062Gross
      profit
                  
                  $
                  3,752
                  
                  
                  $
                  1,230
                  
                  
                  $
                  5,411
                  
                  
                  $
                  1,462
                  
                  
                  $
                  —
                  
                  
                  $
                  11,855Net
      income (loss)
                  
                  $
                  853
                  
                  
                  $
                  607
                  
                  
                  $
                  2,841
                  
                  
                  $
                  544
                  
                  
                  $
                  (2,790
                  )
                  
                  $
                  2,055Depreciation
      and amortization
                  
                  $
                  777
                  
                  
                  $
                  2
                  
                  
                  $
                  478
                  
                  
                  $
                  38
                  
                  
                  $
                  —
                  
                  
                  $
                  1,295Interest
      income
                  
                  $
                  45
                  
                  
                  $
                  —
                  
                  
                  $
                  36
                  
                  
                  $
                  —
                  
                  
                  $
                  36
                  
                  
                  $
                  117Interest
      expense
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  209
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  209Income
      tax expense
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  1,209
                  
                  
                  $
                  1,209




Three Months Ended November
29,
                  2009Net
      sales
                
                $
                42,326
                
                
                $
                17,074
                
                
                $
                ―
                
                
                $
                1,533
                
                
                $
                —
                
                
                $
                60,933International
      sales
                
                $
                3,571
                
                
                $
                16,480
                
                
                $
                ―
                
                
                $
                3⁄4
                
                
                $
                3⁄4
                
                
                $
                20,051Gross
      profit
                
                $
                4,755
                
                
                $
                1,129
                
                
                $
                ―
                
                
                $
                1,533
                
                
                $
                —
                
                
                $
                7,417Net
      income (loss)
                
                $
                1,983
                
                
                $
                479
                
                
                $
                ―
                
                
                $
                898
                
                
                $
                (1,826
                )
                
                $
                1,534Depreciation
      and amortization
                
                $
                735
                
                
                $
                4
                
                
                $
                ―
                
                
                $
                40
                
                
                $
                —
                
                
                $
                779Interest
      income
                
                $
                63
                
                
                $
                —
                
                
                $
                ―
                
                
                $
                —
                
                
                $
                203
                
                
                $
                266Interest
      expense
                
                $
                4
                
                
                $
                —
                
                
                $
                ―
                
                
                $
                —
                
                
                $
                —
                
                
                $
                4Income
      tax expense
                
                $
                —
                
                
                $
                —
                
                
                $
                ―
                
                
                $
                —
                
                
                $
                895
                
                
                $
                895




Six Months Ended November 28,
                2010Net
      sales
              
              $
              81,207
              
              
              $
              36,118
              
              
              $
              14,806
              
              
              $
              2,989
              
              
              $
              —
              
              
              $
              135,120International
      sales
              
              $
              8,771
              
              
              $
              36,017
              
              
              $
              10,758
              
              
              $
              3⁄4
              
              
              $
              3⁄4
              
              
              $
              55,546Gross
      profit
              
              $
              10,115
              
              
              $
              2,161
              
              
              $
              8,406
              
              
              $
              2,989
              
              
              $
              —
              
              
              $
              23,671Net
      income (loss)
              
              $
              4,456
              
              
              $
              984
              
              
              $
              3,535
              
              
              $
              1,116
              
              
              $
              (5,732
              )
              
              $
              4,359Depreciation
      and amortization
              
              $
              1,561
              
              
              $
              4
              
              
              $
              962
              
              
              $
              75
              
              
              $
              —
              
              
              $
              2,602Interest
      income
              
              $
              74
              
              
              $
              —
              
              
              $
              62
              
              
              $
              —
              
              
              $
              88
              
              
              $
              224Interest
      expense
              
              $
              2
              
              
              $
              —
              
              
              $
              433
              
              
              $
              —
              
              
              $
              —
              
              
              $
              435Income
      tax expense
              
              $
              —
              
              
              $
              —
              
              
              $
              ―
              
              
              $
              —
              
              
              $
              2,561
              
              
              $
              2,561





Six Months Ended November 29,
                2009Net
      sales
              
              $
              84,181
              
              
              $
              34,776
              
              
              $
              ―
              
              
              $
              2,918
              
              
              $
              —
              
              
              $
              121,875International
      sales
              
              $
              7,007
              
              
              $
              32,431
              
              
              $
              ―
              
              
              $
              3⁄4
              
              
              $
              3⁄4
              
              
              $
              39,438Gross
      profit
              
              $
              11,136
              
              
              $
              2,233
              
              
              $
              ―
              
              
              $
              2,918
              
              
              $
              —
              
              
              $
              16,287Net
      income (loss)
              
              $
              5,381
              
              
              $
              1,057
              
              
              $
              ―
              
              
              $
              1,638
              
              
              $
              (4,358
              )
              
              $
              3,718Depreciation
      and amortization
              
              $
              1,452
              
              
              $
              7
              
              
              $
              ―
              
              
              $
              82
              
              
              $
              —
              
              
              $
              1,541Interest
      income
              
              $
              95
              
              
              $
              —
              
              
              $
              ―
              
              
              $
              —
              
              
              $
              459
              
              
              $
              554Interest
      expense
              
              $
              5
              
              
              $
              —
              
              
              $
              ―
              
              
              $
              —
              
              
              $
              —
              
              
              $
              5Income
      tax expense
              
              $
              —
              
              
              $
              —
              
              
              $
              ―
              
              
              $
              —
              
              
              $
              2,176
              
              
              $
              2,176




During the six months ended November
28, 2010 and November 29, 2009, sales to the Company’s top five customers
accounted for 43% and 47%, respectively, of revenues with the Company’s top
customer from the Food Products Technology segment, Costco Wholesale Corp.,
accounting for 15% and 19% for the six months ended November 28, 2010 and
November 29, 2009, respectively.  The Company expects that, for the
foreseeable future, a limited number of customers may continue to account for a
significant portion of its net revenues.




13.
              Subsequent
      Events




The
Company has evaluated and disclosed subsequent events through the date of the
issuance of the financial statements.


-18-




Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations




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 30, 2010.





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 those
mentioned in Landec’s Annual Report on Form 10-K for the fiscal year ended May
30, 2010.  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
30, 2010 filed with the Securities and Exchange Commission on August 12,
2010.





The
Company





Landec Corporation and its subsidiaries
(“Landec” or the “Company”) design, develop, manufacture and sell polymer
products for food and agricultural products, medical devices and licensed
partner applications that incorporate Landec’s patented polymer
technologies.  The Company has two proprietary polymer technology
platforms:  1) Intelimer® polymers, and 2) Hyaluronan (“HA”)
biopolymers.  The Company’s proprietary polymer technologies are the
foundation, and a key differentiating advantage, upon which Landec has built its
business.





After the acquisition of Lifecore
Biomedical, Inc. (“Lifecore”) on April 30, 2010, Landec now has four core
businesses – Food Products Technology, Export, HA-based Biomaterials and
Technology Licensing, each of which is described below.





Our
wholly-owned subsidiary, Apio, operates our Food Products Technology business,
combining Landec’s proprietary food packaging technology with the capabilities
of a large national food supplier and value-added produce
processor.  In Apio’s value-added operations, produce is processed by
trimming, washing, mixing, and packaging into bags and trays that incorporate
Landec’s BreatheWay® membrane
technology.  The BreatheWay membrane increases shelf life and reduces
shrink (waste) for retailers and, for certain products, eliminates the need for
ice during the distribution cycle and helps to ensure that consumers receive
fresh produce by the time the product makes its way through the supply
chain.  Apio also licenses the BreatheWay technology to ChiquitaBrands
International, Inc. (“Chiquita”) for packaging and distribution of bananas and
avocados and to Windset Farms for packaging of greenhouse grown cucumbers,
peppers and tomatoes.





Apio also operates the Export business
through its Cal Ex Trading Company (“Cal-Ex”).  The Export business
purchases and sells whole fruit and vegetable products to predominantly Asian
markets.





Our newly acquired wholly-owned
subsidiary, Lifecore, operates our HA-based Biomaterials business and is
principally involved in the development and manufacture of products utilizing
hyaluronan, a naturally occurring polysaccharide that is widely distributed in
the extracellular matrix of connective tissues in both animals and
humans.  Lifecore’s products are primarily sold to three medical
segments: (1) Ophthalmic, (2) Orthopedic and (3) Veterinary.  Lifecore
also supplies hyaluronan to customers pursuing other medical applications, such
as aesthetic surgery, medical device coatings, tissue engineering and
pharmaceuticals.  Lifecore leverages its proprietary fermentation
process to manufacture premium, pharmaceutical-grade hyaluronan, and its
proprietary aseptic filling capabilities to deliver HA finished goods to its
customers.  Lifecore also manufactures and sells its own HA-based
finished goods.  Lifecore is known in the medical segments as a
premium supplier of HA.  Its name recognition allows Lifecore to
acquire new customers and sell new products with only a small marketing or sales
capability.


-19-




Landec’s Technology Licensing business
develops proprietary polymer technologies and applies them in a wide range of
applications including seed coatings and treatments, temperature indicators,
controlled release systems, drug delivery, pressure sensitive adhesives and
personal care products.  These applications are commercialized through
partnerships with third parties resulting in licensing and royalty
revenues.  For example, Monsanto Company (“Monsanto”) has an exclusive
license to our Intellicoat® seed coating technology for specific seed treatment
applications, Air Products and Chemicals, Inc. (“Air Products”) has an exclusive
license to our Intelimer polymers for personal care products and Nitta
Corporation (“Nitta”) licenses Landec’s proprietary pressure sensitive adhesives
for use in the manufacture of electronic components by their
customers.





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 four core
business segments:  Apio, Inc. with the Food Products Technology and
Export businesses, Lifecore Biomedical, Inc., with Hyaluronan-based Biomaterials
business and Landec’s Technology Licensing business.











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 BreatheWaypackaging 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.  During the fiscal year ended May 30, 2010,
Apio shipped nearly seventeen million cartons of produce to leading supermarket
retailers, wholesalers, foodservice suppliers and club stores throughout the
United States and internationally, primarily in Canada.





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.


-20-


Lower Cost Structure: Apio has
strategically invested in the rapidly growing fresh-cut and whole value-added
business.  Apio’s 136,000 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 packagingtechnology.  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 packagingtechnology, 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 10 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.
The Company’s specialty packaging for case liner products extends the shelf life
of certain produce commodities up to 50%.  This shelf life extension
can enable the utilization of alternative distribution strategies to gain
efficiencies or reach new markets while maintaining product quality to the end
customer.




Apio
Packaging’s first program has concentrated on bananas and was formally
consummated when Apio entered into an agreement to supply 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.




In fiscal
year 2008, the Company expanded the use of its BreatheWay technology to include
avocados and mangos 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 commercial retail sales began in fiscal year 2010.





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 and will take several years to develop and
initial commercial test markets are scheduled to begin in the Spring of
2011.





In June
2010, Apio entered into an exclusive license agreement with Windset Farms for
Windset to utilize Landec’s proprietary breathable packaging to extend the shelf
life of greenhouse grown cucumbers, peppers and tomatoes.





Export
Business





Export
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.  The Export business is a buy/sell business that
realizes a commission-based margin on average in the 6-7% range.





Hyaluronan-based
Biomaterials Business





Our
HA-based Biomaterials business, operated through our Lifecore subsidiary, was
acquired by Landec on April 30, 2010.


-21-





Lifecore intends to use its proprietary
fermentation process and aseptic formulation and filling expertise to be a
leader in the development of HA-based products for multiple applications and to
take advantage of non-HA device and drug opportunities which leverage our
expertise in HA manufacture and syringe filling
capabilities.  Elements of Lifecore’s strategy include the
following:





●           Establish strategic relationships
with market leaders.  Lifecore will continue to develop
applications for products with partners who have strong marketing, sales and
distribution capabilities to end-user markets.  Lifecore through its
strong reputation and history of providing premium HA products has been able to
establish long-term relationships with the market leading companies such as
Alcon and Abbott Medical Optics in ophthalmology, and Musculoskeletal Transplant
Foundation (MTF) and Novartis AG in orthopedics.





●           Expand medical applications for
hyaluronan.  Due to the growing knowledge of the unique
characteristics of HA and the role it plays in normal physiology, Lifecore
continues to identify and pursue further uses for HA in other medical
applications, such as wound care, aesthetic surgery, adhesion prevention, drug
delivery, device coatings and pharmaceuticals. Further applications may involve
expanding process development activity and/or additional licensing of
technology.





●           Utilize manufacturing infrastructure
to pursue contract aseptic filling and fermentation opportunities. Lifecore will continue
to evaluate providing contract services for opportunities that are suited for
the capital and facility investment related to aseptic filling equipment,
fermentation and purification.





●           Maintain flexibility in product
development and supply relationships.Lifecore’s vertically
integrated development and manufacturing capabilities allow it to establish a
variety of relationships with global corporate partners. Lifecore’s role in
these relationships extends from supplying HA raw materials to manufacturing of
aseptically-packaged, finished sterile products to developing and manufacturing
its own proprietary products.





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
and supply 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 Plusâ 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 2010 Pollinator Plus was used by 10 seed companies on
approximately 18% of the seed corn production acres in the U.S.





Monsanto
announced in 2008 that it had 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 2010 we
amended our agreement with Monsanto and as a result our development activities
are focused on a specific technology of interest to
Monsanto.


-22-


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 other
segments.  For example, our core patented technology, Intelimer
materials, can be used to trigger release of 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
Latent Catalyst 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 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, as well
as color cosmetics, lipsticks and hair care.  The Company's partner,
Air Products, is currently shipping products to L’Oreal, The Mentholatum Company
and other companies for use in lotions and creams.  The rights to
develop and sell Landec’s polymers for personal care products were licensed to
Air Products in March 2006 along with the latent catalyst rights.





Intelimer
Drug Delivery Polymers





Landec
has been developing both biodegradable and non-biodegradable polymers for use in
drug delivery applications targeting the use of its highly crystalline polymers
and the tunable physical properties to minimize or eliminate burst, extend drug
release profiles and deliver novel valuable properties to the pharma
industry.





Results
of Operations





Revenues(in
thousands):





Three months
                  ended 11/28/10
                
                
                Three months
                  ended 11/29/09
                
                
                Change
                
                
                Six months
                  ended 11/28/10
                
                
                Six months
                  ended 11/29/09
                
                
                ChangeApio
      Value Added
                
                $
                40,179
                
                
                $
                41,733
                
                
                
                (4
                )%
                
                $
                79,824
                
                
                $
                83,024
                
                
                
                (4
                )%Apio
      Packaging
                
                
                470
                
                
                
                593
                
                
                
                (21
                )%
                
                
                1,383
                
                
                
                1,157
                
                
                
                20
                %Technology
      Subtotal
                
                
                40,649
                
                
                
                42,326
                
                
                
                (4
                )%
                
                
                81,207
                
                
                
                84,181
                
                
                
                (4
                )%Apio
      Export
                
                
                19,635
                
                
                
                17,074
                
                
                
                15
                %
                
                
                36,118
                
                
                
                34,776
                
                
                
                4
                %Total
      Apio
                
                
                60,284
                
                
                
                59,400
                
                
                
                1
                %
                
                
                117,325
                
                
                
                118,957
                
                
                
                (1
                )%HA
                
                
                8,422
                
                
                
                ―
                
                
                
                N/M
                
                
                
                14,806
                
                
                
                ―
                
                
                
                N/MTech.
      Licensing
                
                
                1,462
                
                
                
                1,533
                
                
                
                (5
                )%
                
                
                2,989
                
                
                
                2,918
                
                
                
                2
                %Total
      Revenues
                
                $
                70,168
                
                
                $
                60,933
                
                
                
                15
                %
                
                $
                135,120
                
                
                $
                121,875
                
                
                
                11
                %





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 and six months ended
November 28, 2010 compared to the same periods last year was primarily due to a
decrease in value-added unit sales volumes of 10% and 9%, respectively,
partially offset by a year over year mix change to greater sales of higher
priced tray products from lower priced bag products compared to the same periods
last year.


-23-





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 November 28, 2010
compared to the same period last year and the increase in Apio packaging
revenues for the six months ended November 28, 2010 compared to the same period
last year was primarily due to the timing of the sale of BreatheWay membranes to
Chiquita for use on avocado applications.  Chiquita purchased a
sizable quantity of BreatheWay membranes during the first quarter of fiscal year
2011 and therefore purchased less during the second quarter of fiscal year
2011.





Apio
Export





Apio
export revenues consist of revenues generated from the purchase and sale of
primarily whole commodity fruit and vegetable products to Asia by
Cal-Ex.  Apio records revenue equal to the sale price to third parties
because it takes title to the product while in transit.





The
increase in revenues in Apio’s export business for the three and six months
ended November 28, 2010 compared to the same periods last year was primarily due
to an 18% and 5%, respectively, increase in export sales volumes as a result of
an increased supply of fruit to export.





Hyaluronan-based
(“HA”) Biomaterials





The
Company’s Lifecore subsidiary principally generates revenue through the sale of
products containing HA.  Lifecore was acquired on April 30,
2010.





Technology
Licensing





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





The
change in Technology Licensing revenues for the three and six months ended
November 28, 2010 compared to the same periods of the prior year was not
significant to consolidated Landec revenues.





Gross Profit(in
thousands):





Three months
                  ended 11/28/10
                
                
                Three months
                  ended 11/29/09
                
                
                Change
                
                
                Six months
                  ended 11/28/10
                
                
                Six months
                  ended 11/29/09
                
                
                ChangeApio
      Value Added
                
                $
                3,341
                
                
                $
                4,250
                
                
                
                (21
                )%
                
                $
                8,952
                
                
                $
                10,115
                
                
                
                (11
                )%Apio
      Packaging
                
                
                411
                
                
                
                505
                
                
                
                (19
                )%
                
                
                1,163
                
                
                
                1,021
                
                
                
                14
                %Technology
      Subtotal
                
                
                3,752
                
                
                
                4,755
                
                
                
                (21
                )%
                
                
                10,115
                
                
                
                11,136
                
                
                
                (9
                )%Apio
      Export
                
                
                1,230
                
                
                
                1,129
                
                
                
                9
                %
                
                
                2,161
                
                
                
                2,233
                
                
                
                (3
                )%Total
      Apio
                
                
                4,982
                
                
                
                5,884
                
                
                
                (15
                )%
                
                
                12,276
                
                
                
                13,369
                
                
                
                (8
                )%HA
                
                
                5,411
                
                
                
                ―
                
                
                
                N/M
                
                
                
                8,406
                
                
                
                ―
                
                
                
                N/MTech.
      Licensing
                
                
                1,462
                
                
                
                1,533
                
                
                
                (5
                )%
                
                
                2,989
                
                
                
                2,918
                
                
                
                2
                %Total
      Gross Profit
                
                $
                11,855
                
                
                $
                7,417
                
                
                
                60
                %
                
                $
                23,671
                
                
                $
                16,287
                
                
                
                45
                %





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
of 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, casein, 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 28, 2010 compared to the
same periods last year as outlined in the table above.


-24-


Apio Value-Added





The
decrease in gross profit for Apio’s value-added specialty packaging vegetable
business for the three and six months ended November 28, 2010 compared to the
same periods last year was primarily due to (1) the decrease in revenues for
both periods, (2) shortages of produce due to cold and wet weather in California
during November which resulted in the Company buying produce on the open market
at prices above contracted prices coupled with production
inefficiencies.  These decreases were partially offset by a year over
year mix change to greater sales of higher margin tray products from lower
margin bag products compared to the same periods last year.





Apio Packaging





The
decrease in Apio packaging gross profits for the three months ended November 28,
2010 compared to the same period last year and the increase in Apio packaging
gross profits for the six months ended November 28, 2010 compared to the same
period last year was primarily due to the timing of the sale of BreatheWay
membranes to Chiquita for use on avocado applications.  Chiquita
purchased a sizable quantity of BreatheWay membranes during the first quarter of
fiscal year 2011 and therefore purchased less during the second quarter of
fiscal year 2011.





Apio Export





Apio’s export business is a buy/sell
business that realizes a commission-based margin in the 6-7%
range.  The increase in gross profit for Apio’s Export business during
the three months ended November 28, 2010 compared to the same period last year
was due to a 15% increase in revenues in lower margin fruit
exports.  The decrease in gross profit for Apio’s Export business
during the six months ended November 28, 2010 compared to the same period last
year was due to a decrease in average margins due to higher sales volumes which
tend to lower the margins on commissioned-based products.





HA-based
Biomaterials





Lifecore
was acquired on April 30, 2010.





Technology
Licensing





The
decrease in Technology Licensing gross profit for the three and six months ended
November 28, 2010 compared to the same periods of the prior year was not
significant to consolidated Landec revenues.





Operating Expenses(in
thousands):





Three months
                  ended 11/28/10
                
                
                Three months
                  ended 11/29/09
                
                
                Change
                
                
                Six months
                  ended 11/28/10
                
                
                Six months
                  ended 11/29/09
                
                
                ChangeResearch
      and Development:Apio
                
                $
                246
                
                
                $
                307
                
                
                
                (20
                )%
                
                $
                469
                
                
                $
                601
                
                
                
                (22
                )%HA
                
                
                1,091
                
                
                $
                ―
                
                
                
                N/M
                
                
                
                2,145
                
                
                $
                ―
                
                
                
                N/MTech.
      Licensing
                
                
                918
                
                
                
                635
                
                
                
                45
                %
                
                
                1,873
                
                
                
                1,280
                
                
                
                46
                %Total
      R&D
                
                $
                2,255
                
                
                $
                942
                
                
                
                139
                %
                
                $
                4,487
                
                
                $
                1,881
                
                
                
                139
                %Selling,
      General and Administrative:Apio
                
                $
                3,190
                
                
                $
                3,048
                
                
                
                5
                %
                
                $
                6,211
                
                
                $
                6,111
                
                
                
                2
                %HA
                
                
                1,263
                
                
                $
                ―
                
                
                
                N/M
                
                
                
                2,252
                
                
                $
                ―
                
                
                
                N/MCorporate
                
                
                1,619
                
                
                
                1,134
                
                
                
                43
                %
                
                
                3,262
                
                
                
                2,641
                
                
                
                24
                %Total
      S,G&A
                
                $
                6,072
                
                
                $
                4,182
                
                
                
                45
                %
                
                $
                11,725
                
                
                $
                8,752
                
                
                
                34
                %




-25-


Research and Development





Landec’s research and development
expenses consist primarily of expenses involved in product development and
commercialization 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 HA business,
the research and development efforts are focused on new products and
applications for HA-based biomaterials.  In the Technology Licensing
business, the research and development efforts are focused on uses for the
proprietary Intelimer polymers outside of food and HA.





The increase in research and
development expenses for the three and six months ended November 28, 2010
compared to the same periods last year was primarily due to the research and
development expenses from Lifecore and from an increase in scientific staff at
Corporate to support the development of new product applications.





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 increase in selling, general and
administrative expenses for the three and six months ended November 28, 2010
compared to the same periods last year was primarily due to the selling, general
and administrative expenses for Lifecore.





Other(in
thousands):





Three months
                  ended 11/28/10
                
                
                Three months
                  ended 11/29/09
                
                
                Change
                
                
                Six months
                  ended 11/28/10
                
                
                Six months
                  ended 11/29/09
                
                
                ChangeInterest Income
                
                $
                117
                
                
                $
                266
                
                
                
                (56
                )%
                
                $
                224
                
                
                $
                554
                
                
                
                (60
                )%Interest
      Expense
                
                $
                (209
                )
                
                $
                (4
                )
                
                
                N/M
                
                
                $
                (435
                )
                
                $
                (5
                )
                
                
                N/MOther
      Expense
                
                $
                (44
                )
                
                $
                ―
                
                
                
                N/M
                
                
                $
                (102
                )
                
                $
                ―
                
                
                
                N/MIncome
      Taxes
                
                $
                (1,209
                )
                
                $
                (895
                )
                
                
                35
                %
                
                $
                (2,561
                )
                
                $
                (2,176
                )
                
                
                18
                %Noncontrolling
      Interest
                
                $
                (128
                )
                
                $
                (126
                )
                
                
                2
                %
                
                $
                (226
                )
                
                $
                (309
                )
                
                
                (27
                )%





Interest
Income





The decrease in interest income for the
three and six months ended November 28, 2010 compared to the same periods last
year was primarily due to less cash to invest because of the cash used to
acquire Lifecore and from lower yields on investments due to declines in
interest rates.





Interest Expense





The increase in interest expense during
the three and six months ended November 28, 2010 compared to the same periods
last year was due to payments in connection with the facility entered into on
April 30, 2010 in conjunction with the acquisition of Lifecore.





Other Expenses





The other expense is for the
amortization of the discount on Lifecore’s earnout obligation (see Note
2).





Income Taxes





The increase in the income tax expense
for the three and six months ended November 28, 2010 is due to a 33% and 15%
increase, respectively, in net income before taxes compared to the same periods
last year.





Noncontrolling Interest





The noncontrolling interest consists of
the limited partners’ equity interest in the net income of Apio Cooling,
LP.


-26-


The increase in the noncontrolling
interest for the three and six months ended November 28, 2010 compared to the
same periods last year was not significant.





Liquidity
and Capital Resources





As of November 28, 2010, the Company
had cash and cash equivalents of $5.4 million, a net decrease of $22.4 million
from $27.8 million at May 30, 2010.





Cash Flow from Operating
Activities





Landec generated $2.1 million of cash
flow from operating activities during the six months ended November 28, 2010
compared to generating $4.2 million of cash flow from operating activities for
the six months ended November 29, 2009.The primary sources of
cash from operating activities during the six months ended November 28, 2010
were from generating $4.4 million of net income and non-cash related net
expenses of $2.5 million, partially offset by a net decrease of $4.8 million in
working capital.  The primary changes in working capital were (a) a
$5.8 million increase in accounts receivable due to an increase in accounts
receivable at Lifecore as a result of the timing of shipments during the quarter
of which over half occurred in November and an increase in accounts receivable
at Apio due to increased export sales during the month of November, (b) a $3.6
million increase in inventories due to an increase in inventories at Apio in
advance of its busy holiday season and an increase in inventories at Lifecore
due to the build up of inventory for new expected business during the second
half of fiscal year 2011, (c) a $1.5 million decrease in prepaid expenses
primarily due to amortization of prepaid insurance and taxes and collection of
our advances on produce, (d) a $4.6 million increase in accounts payable
resulting from the timing of payments and the increase in cost of sales due to
produce shortages during November 2010, and (e) a $2.2 million decrease in
deferred revenue primarily due to recognizing $2.3 million of revenue associated
with deferred revenue from the Monsanto licensing agreement during the first six
months of fiscal year 2011.




Cash Flow from Investing
Activities





Net cash used in investing activities
for the six months ended November 28, 2010 was $22.6 million compared to $46.4
million for the same period last year.  The primary uses of cash in
investing activities during the first six months of fiscal year 2011 were from
the purchase of $3.5 million of property, plant and equipment primarily for the
further expansion of Apio’s value-added processing facility and the further
automation of Apio’s value-added processing facility and the purchase of
equipment at Lifecore to support the addition of new customers and from the net
purchase of $19.2 million of marketable securities.





Cash Flow from Financing
Activities





Net cash used in financing activities
for the six months ended November 28, 2010 was $1.8 compared to net cash
provided by financing activities of $1.0 million for the same period last
year.  The use of cash from financing activities during the first six
months of fiscal year 2011 was primarily from $1.9 million of long-term debt
payments and the repurchase of $1.2 million of the Company’s outstanding Common
Stock, partially offset by the tax benefit from stock-based compensation of $1.6
million.





Capital
Expenditures





During the six months ended November
28, 2010, Landec continued its expansion of Apio’s value-added processing
facility and purchased vegetable processing equipment to support the further
automation of Apio’s value added processing facility and it purchased equipment
to support the addition of new customers at Lifecore.  These
expenditures represented the majority of the $3.5 million of capital
expenditures.





Debt




On April 30, 2010 in conjunction with
the acquisition of Lifecore, Lifecore entered into a $20 million Credit
Agreement with Wells Fargo Bank N.A. (“Wells Fargo”) with a five year term that
provides for equal monthly principal payments plus interest.  The
Credit Agreement contains certain restrictive covenants, which require Lifecore
to meet certain financial tests, including minimum levels of net income, minimum
quick ratio, minimum fixed coverage ratio and maximum capital
expenditures.  All of Lifecore’s assets have been pledged to secure
the debt incurred pursuant to the Credit Agreement.  Landec is the
guarantor of the debt.  On August 9, 2010 and September 14, 2010, the
Company amended its Credit Agreement with Wells Fargo to amend certain financial
covenants.  As of November 28, 2010, $18 million was outstanding under
the Credit Agreement.  The Company was in compliance with all
financial covenants as of November 28, 2010.


-27-




On May 4,
2010, the Company entered into an interest rate swap agreement that has the
economic effect of modifying the variable interest obligations associated with
the $20 million Credit Agreement so that the interest payable is effectively
fixed at a rate of 4.24% (see Note 11).




On August
19, 2004, Lifecore issued variable rate industrial revenue bonds (“IRB”). 
These bonds were assumed by Landec in the acquisition of Lifecore (see Note
2).  The bonds are collateralized by a bank letter of credit which is
secured by a first mortgage on the Company’s facility in Chaska,
Minnesota.   In addition, the Company pays an annual remarketing
fee equal to 0.125% and an annual letter of credit fee of 0.50%.





Landec is not a party to any agreements
with, or commitments to, any special purpose entities that would constitute
material off-balance sheet financing other than the operating lease
commitments.





Landec’s future capital requirements
will depend on numerous factors, including the progress of its research and
development programs; the continued development of marketing, sales and
distribution capabilities; the ability of Landec to establish and maintain new
collaborative and licensing arrangements; any decision to pursue additional
acquisition opportunities; weather conditions that can affect the supply and
price of produce, the timing and amount, if any, of payments received under
licensing and research and development agreements; the costs involved in
preparing, filing, prosecuting, defending and enforcing intellectual property
rights; the ability to comply with regulatory requirements; the emergence of
competitive technology and market forces; the effectiveness of product
commercialization activities and arrangements; and other factors.  If
Landec’s currently available funds, together with the internally generated cash
flow from operations are not sufficient to satisfy its capital needs, Landec
would be required to seek additional funding through other arrangements with
collaborative partners, additional bank borrowings and public or private sales
of its securities.  There can be no assurance that additional funds,
if required, will be available to Landec on favorable terms, if at
all.





Landec believes that its cash from
operations, along with existing cash, cash equivalents and marketable securities
will be sufficient to finance its operational and capital requirements for at
least the next twelve months.





Item
      3.
            Quantitative and Qualitative
      Disclosures about Market
Risk




None.


-28-


Item
      4.
            Controls and
      Procedures





Evaluation
of Disclosure Controls and Procedures





Our
management evaluated, with participation of our Chief Executive Officer and our
Chief Financial Officer, the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this Quarterly Report on Form
10-Q.  Based on this evaluation, our Chief Executive Officer and our
Chief Financial Officer have concluded that our disclosure controls and
procedures are effective in ensuring that information required to be disclosed
in reports filed under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified by the Securities and Exchange
Commission, and are effective in providing reasonable assurance that information
required to be disclosed by the Company in such reports is accumulated and
communicated to the Company’s management, including its Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.





Changes
in Internal Control over Financial Reporting





There were no changes in our internal
controls over financial reporting during the quarter ended November 28, 2010
that have materially affected, or are reasonably likely to materially affect,
our internal controls over financial reporting.


-29-


PART
II.  OTHER INFORMATION





Item
      1.
            Legal
      Proceedings





The
Company is involved in litigation arising in the normal course of
business.  The Company is currently not a party to any legal
proceedings which management believes could result in the payment of any amounts
that would be material to the business or financial condition of the
Company.





Item
1A. Risk Factors





There
have been no material changes to the Company's risk factors which are included
and described in the Form 10-K for the fiscal year ended May 30, 2010 filed with
the Securities and Exchange Commission on August 12, 2010.





Item
      2.
            Unregistered
      Sales of Equity Securities and Use of
Proceeds





(c)  The
following table contains the Company’s stock repurchases of equity securities
for the second quarter of the fiscal year 2011:




Issuer
Purchases of Equity Securities




Period (1)
                
                (a)
                  Total Number of
                  Shares (or Units)
                  Purchased
                
                
                (b)
                  Average Price
                  Paid per Share (or
                  Unit)
                
                
                (c)
                  Total Number of
                  Shares (or Units)
                  Purchased as Part
                  of Publicly
                  Announced Plans
                  or Programs
                
                
                (d)
                  Maximum Number (or
                  Approximate Dollar
                  Value) of Shares (or
                  Units) that May Yet
                  Be Purchased Under
                  the Plans or ProgramsMonth
      #1
                  
                  August
      30, 2010 to September 26, 2010
                
                
                149,248
                
                
                $
                5.49
                
                
                
                149,248
                
                
                $
                8,818,000Month
      #2
                  
                  September
      27, 2010 to October 24, 2010
                
                
                400
                
                
                $
                5.50
                
                
                
                400
                
                
                $
                8,816,000Month
      #3
                  
                  October
      25, 2010 to November 28, 2010
                
                
                -0-
                
                
                
                -0-
                
                
                
                -0-
                
                
                $
                8,816,000TOTAL
                
                
                149,648
                
                
                $
                5.50
                
                
                
                149,648
                
                
                $
                8,816,000





(1)  The
reported periods conform to the Company’s fiscal calendar composed of thirteen
weeks under a 4 week, 4 week and 5 week structure.


-30-


On July
14, 2010, the Company announced that the Board of Directors of the Company had
approved the establishment of a stock repurchase plan which allows for the
repurchase of up to $10 million of the Company’s Common Stock.  The
Company may repurchase its Common Stock from time to time in open market
purchases or in privately negotiated transactions.  The timing and
actual number of shares purchased is at the discretion of management of the
Company and will depend on a variety of factors, including stock price,
corporate and regulatory requirements, market conditions, the relative
attractiveness of other capital deployment opportunities and other corporate
priorities.  The stock repurchase program does not obligate Landec to
acquire any amount of its Common Stock and the program may be modified,
suspended or terminated at any time at the Company’s discretion without prior
notice.




Item
      3.
            Defaults
      Upon Senior Securities





None.





Item
      4.
            {Removed
      and Reserved}





Item
      5.
            Other
      Information





None.





Item
      6.
            Exhibits





ExhibitNumber
                            
                            Exhibit Title:31.1+
                            
                            CEO Certification pursuant to section 302 of the
      Sarbanes-Oxley Act of 2002.31.2+
                            
                            CFO Certification pursuant to section 302 of the
      Sarbanes-Oxley Act of  2002.32.1+
                            
                            CEO Certification pursuant to section 906 of the
      Sarbanes-Oxley Act of 2002.32.2+
                            
                            CFO Certification pursuant to section 906 of the
      Sarbanes-Oxley Act
of  2002.





+     Filed
herewith.


-31-


SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.




LANDEC
      CORPORATIONBy:
              /s/                            Gregory
      S. SkinnerGregory
      S. SkinnerVice
      President, Finance and Chief Financial Officer(Principal
      Financial and Accounting
Officer)





Date:      January
6, 2011


-32-