0-27446

94-3025618

(Commission File Number)

(IRS Employer Identification No.)

LANDEC CORPORATION

/s/ Gregory S. Skinner

Gregory S. Skinner

Vice President of Finance and

Chief Financial Officer

Exhibit No.

Description

LANDEC CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

(In thousands)

May 25, 2008

May 27, 2007

(unaudited)

ASSETS

LIABILITIES AND SHAREHOLDERS' EQUITY

LANDEC CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(In thousands, except per-share data)

(unaudited)

—

—

—

LANDEC CORPORATION

FISCAL YEAR ENDED MAY 25, 2008

QUESTIONS AND ANSWERS

1.

What results account for the change in net income in fiscal year 2008 compared to fiscal year 2007, taking into account the one-time non-recurring events in fiscal year 2007?

(In Thousands)

Adjusted net income for fiscal year 2007

Excluding the non-recurring operating income recognized in fiscal year 2007, Landec’s net income increased 30% in fiscal year 2008 compared to fiscal year 2007.

2.

What would Landec’s diluted EPS have been in fiscal year 2007 based on the adjusted net income for fiscal year 2007 as outlined in Question #1 above?

During the fourth quarter, we experienced the following non-recurring G&A expenses:

1)

Accounting, legal and consulting fees associated with the transition from our previous independent registered public accounting firm, McGladrey & Pullen LLP, including efforts spent on previously reported accounting questions raised by them.

2)

Tax consulting fees associated with determining cumulative R&D credits, cumulative export product sales tax deductions, cumulative option expense deductions and the FIN 48 reserve against our tax positions.

3)

A contractual expense related to our agreement with Air Products.

These non-recurring G&A expenses amounted to $1.5 million, or $0.05 per share, and were all recorded during the fourth quarter of fiscal year 2008.

There were two primary drivers that reduced our tax expense which we could not have accurately estimated earlier in fiscal year 2008:

1)

The final R&D credits, the export related tax deductions and the reversal of our valuation allowance reduced our tax expense for fiscal year 2008 by approximately $1.3 million and the amount could not be determined until we had completed the tax work and the FIN 48 work concerning these items. This work was completed during our fourth quarter.

2)

As a result of the non-recurring G&A expenses outlined in Question #3 above, and the sizable reduction in our interest income during our fourth quarter as a result of investing in high quality, lower-yielding instruments, our pre-tax income ended up being lower than we had been estimating throughout the year.

We have reviewed the issues raised by our previous independent registered public accounting firm and we have confirmed in our own review, in reviews with Ernst & Young LLP and in reviews with a nationally recognized third party expert that our accounting for the Monsanto transaction and the repurchase of subsidiary stock and options not owned by Landec is reasonable and in accordance with generally accepted accounting principles. Accordingly, we plan to complete the audit for our 2008 financials and file our Form 10-K with the SEC in a timely manner.

Our goal is to grow revenues by 10% in fiscal year 2009 and grow pre-tax income 15% to 20% compared to fiscal year 2008.

Net income is projected to decrease 5% to 10% because our effective tax rate is projected to double from 20% in fiscal year 2008 to 40% in fiscal year 2009. This increase in our effective tax rate will result in an increase in our book income tax expense of approximately $4.4 million to $4.8 million or $0.16 to $0.18 per share in fiscal year 2009. However, because of substantial net operating losses and tax credits for cash tax purposes, we are estimating that Landec will only be paying 10% of our book income tax expense in cash for fiscal year 2009 resulting in the preservation of cash and a favorable impact on our cash balance.

The revenue and pre-tax income goals include continued growth at Apio as well as significant advances that we expect in most, if not all, of our licensed partner arrangements with Monsanto, Chiquita, Seminis, Air Products, Nitta and Aesthetic Sciences. These goals could be adversely affected by a further downturn in the economy and corresponding consumer demand, as well as further increases in raw materials and fuel costs.

Landec's growth opportunities

a)

Increase Apio's value-added revenues by 10% from customer expansion and new product introductions while managing gross margins pressures.

b)

Increase the sale of our BreatheWay(R) packaging by (i) continuing to work closely with Chiquita on bananas and avocados, and (ii) commercializing new uses of Apio's BreatheWay packaging technology with Chiquita or other partners.

c)

Continue to work closely with Air Products to expand the use of our Intelimer(R) polymer technology in the personal care and catalyst fields.

d)

Advance our Intellicoat(R) seed coating technology program with Monsanto in its newly formed Seed Treatment business.

e)

Continue to explore further licensing and partnering collaborative agreements for our Intelimer temperature-activated polymer technology.

f)

Begin our collaboration with Monsanto's Seminis Vegetable Seed business with the goal of identifying initial product targets, performing field trials and planning for initial commercial launch beginning in late fiscal year 2009.

Landec's challenges and risks

a)

Raw material costs for produce, materials and freight are expected to increase in fiscal year 2009 compared to fiscal year 2008 primarily due to increased energy costs which means we need to selectively increase prices where we can and continue to improve operating efficiencies in order to minimize the impact on gross margins.

b)

Market share growth in our value-added vegetable business, particularly in our tray line, will continue to be difficult since we are the market share leader in vegetable trays. In addition, consumers may view tray purchases as more discretionary purchases during a slow economy.

c)

Contractual minimums in our banana and avocado programs with Chiquita will decrease from $2.9 million in fiscal year 2008 to $2.2 million in fiscal year 2009. To exceed minimums in fiscal year 2009, we would need (i) the Chiquita-To-Go program for food service and Quick Serve Restaurants ("QSR") customers to rapidly expand, (ii) the market trials for the retail grocery store program to be completed, and (iii) an initial commercial launch of the retail grocery store program to start by fiscal year end 2009. For planning purposes, we are assuming only minimums will be achieved in fiscal year 2009.

Yes. In January we were somewhat concerned after Chiquita announced a significant reorganization and layoff of personnel, some of whom were involved in our collaboration. Excellent people are now in place at Chiquita and are making our joint programs a high priority. Our program is progressing well on four fronts:

a)

In the Chiquita-To-Go program, Chiquita bananas in our packaging are being sold to coffee chains, convenience stores and mini-mart gas stations. Chiquita is a major supplier of bananas to Starbucks who has recently begun to roll out its new Vivanno(TM) banana smoothie program throughout the United States. In addition, the Chiquita-To-Go program has been launched in three European countries.

b)

In the QSR arena, McDonald's has initiated regional market tests for banana products, including banana smoothies, using Chiquita(R) bananas delivered in Landec's BreatheWay packaging. We are quite enthusiastic about the expansion into QSRs and we will provide more information about this new expansion during fiscal year 2009.

c)

Retail grocery store advanced trials are scheduled to begin this fall with the goal of measuring and testing consumer demand, price points, package size, configuration and merchandising approaches. This program is several quarters later than we had originally expected but is now progressing with high priority.

d)

In our avocado program with Chiquita, Chiquita is beginning to sell avocadoes packaged in our BreatheWay packaging technology to food service customers and Chiquita is developing a retail grocery store application for which trials should begin before the end of this calendar year.

We have concerns about the U.S. economy and rising consumer expenditures for non-food items. We believe these trends could adversely impact the growth of the fresh-cut vegetable category which has historically grown over 10% per year on average. Even with the economic pressures, we believe we have a 10% per year growth opportunity in our fresh-cut vegetable business by capturing new customers and expanding our BreatheWay technology to new markets and application areas.

Our longer-term growth plans for our food technology business include five major initiatives:

a)

Access unique produce with consumer traits that bring discernible differentiation in nutrition, taste, color, aroma and/or texture. We will do this through our new exclusive licensing arrangement announced in June with Monsanto Seminis, the world's largest vegetable seed trait developer and supplier. We expect initial field trials to begin this fall.

b)

Expand the use of our BreatheWay technology internationally. We recently announced a new distribution agreement in June for our packaging technology for South America.

c)

Develop and launch new, innovatively designed products such as those we are developing in our vegetable salad line.

d)

Expand our BreatheWay technology in new markets in North America such as food service and delis. Our Apio food business now has these efforts underway using our BreatheWay packaging technology.

e)

Look for synergistic acquisition partners that can benefit from our BreatheWay technology and channels of distribution, as well as from our expertise in post harvest physiology, sourcing, and processing.

In summary, we have a plan in place for continuing to profitably grow our specialty packaged fresh-cut value-added business.

We have five priorities: (1) continue to grow revenues, pre-tax profits and free cash flow, (2) extend the commercialization of our BreatheWay packaging programs in bananas, avocados and new applications, (3) provide strong technology support to our licensing corporate partners in launching new products, (4) seek synergistic acquisition opportunities that use our technology or expand our technology base, and (5) expand our Intelimer(R) polymer materials R&D activities in order to develop new business opportunities.

Until recently, Monsanto has purchased all of its seed treatments from outside suppliers. Monsanto announced several months ago that it has formed a new business called the Seed Treatment Business which will allow Monsanto to develop its seed treatment requirements internally. As a reminder, Monsanto has over a 30% market share in corn, soybeans and cotton and is also a major player in canola and vegetable seeds.

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. It is our hope that Landec's Intellicoat seed coating technology can 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. We are excited about this program and in fiscal year 2009 we will be focused on validating the use of Landec's coating technology for these applications.

The progress has been slow in the first two years, but momentum is now building as new product applications and formulations are emerging from the laboratory. Landec and Air Products have agreed to focus on two areas -- personal care and catalysts. Accordingly, Air Products and Landec have negotiated the return of two formerly licensed fields -- coatings and electronic material applications. We are hopeful that with Air Products we can continue to expand our relationships with key customers this year, such as L'Oreal in personal care and Akzo Nobel in catalysts.

As part of the agreement, Apio and Seminis will work together to identify and develop unique varieties of broccoli and cauliflower for the North American market for use in Apio's proprietary value-added packaged bags and trays for retail grocery chains, club stores and the foodservice industry. The companies will focus on developing and commercializing broccoli and cauliflower varieties that possess unique, desirable consumer traits such as improved nutrition, flavor, color, texture, taste, and/or aroma to improve the value of these vegetable offerings in Apio's products.

Seminis will apply its expertise to breed broccoli and cauliflower qualities using proven techniques that improve the speed and accuracy of new and beneficial trait identification and selection. For its part, Apio will apply its expertise in sourcing, manufacturing, packaging and marketing of vegetable products to provide definition and guidance of market needs, packaging solutions and commercialization strategies for these novel consumer trait products. All products that reach commercialization will be packaged using Apio's proprietary Intelimer BreatheWay packaging. We believe this collaboration further supports our position in the marketplace as the technology and innovation leader in fresh-cut vegetable products.

Aesthetic Sciences is making good progress and has demonstrated safety in initial clinical studies for products in which Landec's polymer materials would be used as dermal fillers for the rapidly growing facial cosmetics market. Aesthetic Sciences plans to start human clinical trials next quarter for testing its dermal filler materials using Landec's polymer technology. Landec expects to benefit in the future from the agreement with Aesthetic Sciences by receiving royalties on the sale of products using Landec's technology as well as from being a 19.9% owner of Aesthetic Sciences' stock.

In addition to supporting our existing license partners, we are examining several areas to broaden applications for our Intelimer polymer technology. For example, we have been studying how our technology can selectively dispense (both large and small molecule) active ingredients either evenly over time or "triggered" by rapid release of active ingredients with changes in temperature, moisture and pH. We are filing numerous patent applications to extend our patent estate in this area. We believe there is a large formulation potential for this technology in the pharmaceutical industry which is looking for new ways to extend patent life for existing drugs and novel ways to deliver new drugs. In addition, with the return of the coatings and electronics fields of use for our technology from Air Products, we will be exploring potential uses for Intelimer polymers in these application areas as well.

16.

How do the pre-tax results by line of business for the three and twelve months ended May 25, 2008 compare with the same periods last year, excluding the fiscal year 2007 activity for Landec Ag through December 1, 2006 and excluding the non-recurring insurance settlement and milestone payment in fiscal year 2007 (see Question #1 above for the details)?

The results are as follows (unaudited and in thousands):

Revenues:

ended 5/25/08

ended 5/27/07

$

2,828

$

4,778

$

16,896

$

12,836

a) Apio’s value-added business includes revenues and gross profit from Apio Cooling LP.

b) Apio Packaging includes the BreatheWay trademark for banana packaging, packaging technology for other shelf life sensitive vegetables and fruit, plus other unique packaging solutions.

c) Apio’s trading business includes its commission-based commodity export business and its commission-based domestic commodity buy/sell business.

d) Included in Tech. Licensing are the Intellicoat license fees from Monsanto.

e) Included in Other are net interest income and non-operating income/(expense).