SecProbe.io

CORRESP
1
filename1.htm

  February 22, 2005

  Geoffrey P.
  Leonard

  (650)
  614-7470

  gleonard@orrick.com

VIA
EDGAR

Mr. Rufus Decker

Accounting Branch Chief

United States Securities
and Exchange Commission

Division of Corporate
Finance

450 Fifth Street, N.W.

Washington, D.C.  20549

  Re:

  Landec Corporation

  Form 10-K for the fiscal year ended May 30, 2004

  Forms 10-Q for the period ended August 29, 2004 and
  November 28, 2004

  File No. 0-27446

Dear
Mr. Decker:

On
behalf of Landec Corporation (“Landec or the “Company”), we are responding to
the staff’s letter dated February 10, 2005, relating to Landec’s Form 10-K
for the fiscal year ended May 30, 2004 and Forms 10-Q for the period ended
August 29, 2004 and November 28, 2004.  For the staff’s convenience, we have repeated
the staff’s comments below in bold face type before each of our responses.

FORM 10-K FOR THE YEAR ENDED MAY 20, 2004

Comments applicable to your overall filing

1.              Comment:
Where a comment below requests additional disclosures or other revisions
to be made, please show us in your supplemental response what the revisions
will look like.  These revisions should
be included in your future filings.

Response:  Where a comment requests
additional disclosures or other revisions the Company will show in its
supplemental response what the revisions will look like in the Company’s future
filings.

Item 7.  Management’s
Discussion and Analysis of Financial Condition and Results of Operation

Critical Accounting Policies and Use of Estimates

Revenue Recognition, page 23

2.              Comment:
Please expand your disclosure to define what you refer to as “recycled”
revenue.

Response:  The Company will add the
following definition to its next filing.
“Recycled” revenue refers to revenue that had previously been recognized
as licensing revenue in the Company’s financial statements, but, as a result of
the Company’s adoption of SAB 101, was reversed through a cumulative effect of
a change in accounting in fiscal year 2000 and is now being recognized as
revenue over the research and development period and/or supply period
commitment of the agreement, whichever is longer.

Results
of Operations

Revenues

Apio
Trading, page 25

3.              Comment:
Please expand your disclosure here and in footnote 12 to include further
information regarding the concentration of your international sales in Asia and
any other material geographies.

Response:  The disclosure on page 25
for Apio Trading specifies that Landec’s international sales are to Asia.  The Company supplementally advises that
virtually all of Landec’s international sales are to Asia and the Company does
not have any other significant sales to any other geographical areas.  In the Company’s future filings it will
clarify in the “Business Segment Reporting” footnote to the financial
statements that its international sales are to Asia.

Corporate,
page 26

4.              Comment:
You have disclosed the reason for the decrease in revenue is due to a
decrease in licensing revenue with UCB and a decrease in research and
development revenue associated with a medical device company.  Please expand your disclosure to include
further details regarding the closing of these agreements.  Please include in your disclosure whether the
product licensed to UCB can and will be licensed to other potential customers;
whether any additional revenue from royalties or licensing is expected as a
result of the research and development work performed for the

2

medical
device company; and what your expectations are for the coming year relating to
licensing and research and development revenue.

Response:  As noted on page 12 of the
Form 10-K, the UCB Chemicals Corporation agreement terminated in December
2002.  The UCB agreement provides for a
perpetual, exclusive, paid-up royalty in a specific technology field and no
further revenues will be recognized under this agreement.  Given these facts, Landec does not anticipate
further disclosure of this agreement in its future filings.

The research and
development agreement with a medical device company terminated in June
2003.  There are potential future
licensing revenues based on the milestones of filing a 510-K with the FDA and
the commercialization of the underlying product.  The achievement of each of these milestones
will result in licensing revenues of $333,000 each and, as disclosed on page 13
of the Form 10-K, the total potential payments will not exceed $1.35 million
and, if the product is commercialized, the Company will receive 8% royalties on
the sale of products.  At this time, the
Company is unable to predict the ultimate outcome of this collaboration and the
timing or amount of revenues, if any, but the Company will make appropriate
disclosure at such time as the likelihood of future revenues is probable.

As to the Company’s expectations
for the coming year relating to licensing and research and development
revenues, the Company will make appropriate disclosure of any such
arrangements, but given the infrequency and unpredictability of the Company
receiving payments under any licensing arrangements, the Company is unable to
disclose its expectations in advance of entering into such arrangements.

Gross
Profit

Apio
Trading, page 27

5.              Comment:
You have disclosed on page 26 a change in certain export contracts.  Please expand your disclosure to include any
impact these contract changes had or will have on gross profit, if any.

Response:  The Company supplementally
advises that the change in export contracts was a one-time change that only
impacted the comparability of export revenues between fiscal year 2003 and
fiscal year 2004 and had no impact on gross profits.  Therefore, for future filings there will be
no differences in gross profits as a result of the change in export contract
terms.

3

Liquidity
and Capital Resources, page 32

6.              Comment:
You have disclosed on page 12 you are currently shipping products to L’Oreal
of Paris.  You have also disclosed you
will receive royalty payments from Alcon on sales of the PORT™ device through
2012.  You have further disclosed on page
39, that you may not receive royalties on future sales of QuickCast™ and PORT™
because you no longer have control over the sales of these products.  Please expand your disclosure to include your
expectations regarding revenue from these products and any other new products,
product lines, or licensing and research and development agreements.  Also, please include in your disclosure how
not having control of these products may affect your ability to receive
royalties on these products.

Response:  L’Oreal of Paris:  As noted on page 12, the Company is currently
shipping materials used in a single product for L’Oreal.  To date sales of these materials have not
been material to the Company’s financial results and given the Company’s
limited history with L’Oreal the Company is unable to predict future revenues
for this product or for any other products sold by L’Oreal that may contain
Landec materials.

Alcon PORT™:  PORT™ was licensed to Alcon in 1997.  To date Alcon has not commercialized and may
never commercialize this product and therefore the Company may not receive
royalties on any future sales.

QuickCast™:  QuickCast™ was sold to Bissel Healthcare in
1997.  The Company has not received any
royalty revenues associated with this product for over three years.  In future filings, the Company will eliminate
any reference to QuickCast™.

In future filings, the
Company will clarify that its lack of control over the sales of products under
agreements in which the Company has surrendered control over the
commercialization of such products means that the Company has no ability to
ensure the commercialization of these products or any revenue resulting from
such products.

7.              Comment:
You have disclosed on page 13 information regarding potential milestone
payments relating to an exclusive licensing and one year research and
development collaboration with a medical device company.  Please expand your disclosure to discuss the
terms and status of this agreement and whether or not you expect to meet any of
these milestones.  Please also disclose
the timing on if and when you anticipate revenue will be earned through
royalties.

4

Response:  Please see the Company’s
response to comment 4.

Contractual
Obligations, page 34

8.              Comment:
Please revise your table of contractual cash obligations to include
estimated interest payments on your debt.
Because the table is aimed at increasing transparency of cash flow, we
believe these payments should be included in the table.  Please also disclose any assumptions you made
to derive these amounts.

Response:  In future filings, the
Company will disclose estimated interest payments in its table of contractual
obligations and disclose any assumptions made to derive those amounts.

Additional
Factors That May Affect Future Results

Our
Indebtedness Could Limit Our Financial and Operating Flexibility, page 35

9.              Comment:
You have disclosed you may be obligated to make future payments to the
former shareholders of Apio of up to $1.2 million for the future supply of
produce.  Please expand your disclosure
to include the terms and conditions that would cause you to incur this additional
liability.  Please include in your
disclosure any amounts that were accrued for the periods presented and where
these amounts were recorded in the balance sheet and statement of
operations.  Please also indicate when
payments on these amounts are expected to be paid, if applicable.

Response:  These obligations were
originally recorded as part of the purchase price accounting for Apio in fiscal
year 2000 and the liability is included in the current portion of long term
debt on the balance sheet at May 30, 2004.
These obligations were fully paid during the third quarter of fiscal
year 2005 and will be so noted in the Company’s upcoming third quarter Form
10-Q filing.

Financial
Statements

Statements
of Operations, page 49

10.       Comment:  Please
revise your statements of operations to breakout separately the cost of service
revenue, related party.

5

Response:  The cost of service
revenues associated with the Apio Fresh (a related party) service revenues are
not segregated within the Company’s accounting system because the costs are
directly related to the overall operations of the Company’s cooling facility.

Statements
of Cash Flows, page 51

11.       Comment:  Please tell
us which of the cash outflows and inflows related to your notes and advances
receivable are included in operating activities and which are included in
investing activities.  Please explain to
us how you determined which amounts belonged in each classification.  In providing us a response, please also tell
us where the cash flows related to each of the loans shown in Note 4 are
included and explain why each loan was classified where it was.  Naturally, we understand that interest earned
on these notes and advances receivable would be included in operating
activities, regardless of where the principal amounts are classified.  In the event the repayments you receive
exceed the original principal amounts, for reasons other than stated interest
payments, please tell us how these amounts are treated in your cash flow
statement as well.  If a portion of the
repayments on these receivables occurs with consideration other than cash,
please disclose how this works and how you take into account these non-cash
payments in preparing your statement of cash flows.  If all of the cash flows related to your
investments in farming activities are not included in the notes and advances
receivable cash flows, please separately address your classification for these
cash flows as well.  Refer to paragraphs
16, 17, 22 and 23 of SFAS 95.

Response:  In future filings, the
Company will separate any notes and advances receivable not associated with the
procurement of produce from suppliers between investing activities and
operating activities.  The remainder of
the notes and advances receivable are directly associated with procuring
produce from suppliers for the Company’s food technology subsidiary and are
appropriately included as operating cash flow.
The presentation of the Apio Fresh cash flow activity as operating
activities was and will be immaterial to overall cash flow from
operations.  The notes and advances
receivable that are not directly associated with the procurement of produce
from suppliers had a net cash flow impact of $282,000 for fiscal year 2004.  Because of the immaterial nature of this amount
it was combined with the net activity of the produce supplier notes and
advances receivable and included in cash flow from operations.  The Company supplementally advises that for
all periods presented, no repayment of notes and advances receivable exceeded
the original principal amounts or were for consideration other than cash.  The Company further supplementally advises
that investments in farming activities are not included in notes and

6

advances receivable and
due to their immaterial nature are included in other current assets in the
balance sheet.  Because these amounts
relate to the procurement of produce from suppliers, the related cash flows are
included in cash flow from operations as part of the change in other current
assets.  See Footnote 1.

12.       Comment:  Please
present the cash inflows and outflows related to your notes and advances
receivable on a gross basis.  Otherwise,
please explain to us how they meet the criteria in SFAS 95 for netting.  Only cash flows stemming from investments,
loans and debt with original maturities of three months or less may be reported
on a net basis.

Response:  In future filings, the
Company will show any significant cash inflows and outflows relating to notes
and advances receivable on a gross basis.

13.       Comment:  Please
present cash flows related to the change in other assets separately from those
related to the change in other liabilities.
Please also present these cash flows on a gross basis, rather than a net
one.  Please supplementally tell us how
you determined that these cash flows represented investing cash flows.  Refer to paragraphs 16 and 17 of SFAS 95.

Response:  In future filings the
Company will separate the “change in other assets” from the “change in other
liabilities” and present it on a gross basis, if material.  The Company supplementally states that due to
the immaterial nature of other assets and liabilities and because historically
the change in other assets and liabilities was primarily for non-operating
activities such as deposits, loan fees and deferred charges, the Company has
consistently shown the net change in investment activities.  In future filings, the Company will classify
the change between operating, investing and financing activities, if material.

14.       Comment:  Please
present sales of common stock and repurchases of common stock on a gross
basis.  Please also present your stock
repurchases separately in your statement of changes in shareholders’
equity.  Please disclose in a footnote
the timing, nature and terms of your stock repurchases.  If these stock repurchases occurred under a
stock repurchase program, please discuss it as well.

Response:  The Company supplementally
advises that for the periods presented there were no repurchases of common
stock and in future filings the Company will delete the reference to “net of
repurchases” if in fact there are no repurchases during the relevant
period.  The Company does not currently
have a stock repurchase program.

7

Notes
to Financial Statements

15.       Comment:  Please
disclose the types of expenses that you include in the cost of sales line item
and the types of expenses that you include in the selling, general and
administrative exp