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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2011

or

For the transition period from              to             

Commission File Number: 0-261

Alico, Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: 863-675-2966

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 the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) 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 the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

There were 7,346,137 shares of common stock, par value $1.00 per share, outstanding as of May 4, 2011.

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Part I. Financial Information

Item 1. Financial Statements

ALICO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands except per share data)

See accompanying notes to condensed consolidated financial statements (unaudited).

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ALICO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

See accompanying notes to condensed consolidated financial statements (unaudited).

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ALICO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

See accompanying notes to condensed consolidated financial statements (unaudited).

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ALICO, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands except for per share data)

Note 1. Description of Business and Basis of Presentation:

Description of Business

Alico Inc. ( “Alico”) and its wholly owned subsidiaries, (together with Alico, collectively, the “Company”) is a land management company primarily engaged in a variety of agribusiness pursuits in addition to land leasing and rentals, rock and sand mining and real estate sales operating in Central and Southwest Florida.

Basis of Presentation

The accompanying unaudited condensed consolidated interim financial statements (the “Financial Statements”) of the Company have been prepared in accordance with the accounting principles generally accepted in the United States of America (“GAAP”). The Financial Statements include all adjustments, consisting of normal and recurring adjustments, which in the opinion of management were necessary for a fair presentation of financial condition, results of operations and cash flows for such periods presented. Footnote presentation of dollar values are in thousands.

The Financial Statements have been presented according to the rules and regulations of the Securities and Exchange Commission (“SEC”), instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The Company believes that the disclosures made are adequate to make the information not misleading. The Financial Statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2010.

Principles of Consolidation

The Financial Statements include the accounts of Alico, and its wholly owned subsidiaries, Alico Land Development, Inc. (“ALDI”), Agri-Insurance Company, Ltd. (“Agri”), Alico-Agri, Ltd., Alico Plant World, LLC and Bowen Brothers Fruit, LLC (“Bowen”). The Company’s Agri-Insurance subsidiary was liquidated in September 2010. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. Actual results could differ from those estimates based upon future events. The Company periodically evaluates the estimates. The estimates are based on current and expected economic conditions, historical experience, and various other specific assumptions that the Company believes to be reasonable.

Seasonality

The Company is primarily engaged in agriculture, which is of a seasonal nature and subject to the influence of natural phenomena and wide price fluctuations. The results of the reported period herein are not necessarily indicative of the results for any other interim period or an entire year.

Reclassifications

Certain amounts in the prior year have been reclassified to conform to the current year presentation.

Recent Accounting Pronouncements

The Company does not believe that any recently issued, but not effective, accounting standards, if currently adopted, will have a material effect on its financial position, results of operations, or cash flows.

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Note 2. Inventories

A summary of the Company’s inventories is presented below:

Note 3. Investment in Magnolia Fund

In May 2010, Alico invested $12.2 million to obtain a 39% equity interest in Magnolia TC 2, LLC (“Magnolia”) a Florida Limited Liability Company whose primary business activity is acquiring tax certificates issued by various counties in the State of Florida on properties which have property tax delinquencies. In the State of Florida, such certificates are sold at general auction based on a bid interest rate. If the property owner does not redeem such certificate within two years, which requires the payment of delinquent taxes plus the bid interest, a tax deed can be obtained by the winning bidder who can then force an auctioned sale of the property. Tax certificates hold a first priority lien position on these properties.

Magnolia recognizes revenue when the interest obligation under the tax certificates it holds becomes a fixed amount. In order to redeem a tax certificate in Florida, a minimum of 5% of the face amount of the certificate (delinquent taxes) must be paid to the certificate holder regardless of the amount of time the certificate has been outstanding. Magnolia has recognized the minimum 5% earnings on its tax certificate portfolio. Expenses of the fund include an acquisition fee of 1.0%, interest expense, a monthly management fee and other administrative costs.

Alico is accounting for its investment in the fund according to the equity method of accounting, whereby Alico will record its 39% interest in the reported income or loss of the fund each quarter. Based on the March 31, 2011 unaudited internal financial statements of Magnolia, Alico recorded investment income of $95 thousand and loss of $74 thousand for the three and six months ended March 31, 2011, respectively. Magnolia made certain distributions during the six months ended March 31, 2011; the Company’s share of those distributions was $950 thousand.

Note 4. Income taxes:

Alico’s effective tax rate was 38.0% and 28.6% for the six months ended March 31, 2011 and 2010, respectively.

The Company applies a “more likely than not” threshold to the recognition and non-recognition of tax positions. A change in judgment related to prior years’ tax positions is recognized in the quarter of such change. The Company had no reserve for uncertain tax positions as of March 31, 2011. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense and in the liability for uncertain tax positions.

On March 9, 2011, October 28, 2010 and September 9, 2010, the Internal Revenue Service “(IRS”) issued Revenue Agent Reports (“RARs”) pursuant to its examinations of Alico, Agri-Insurance and Alico-Agri for the tax years 2005 through 2007 (the “Dispute Period”). These RARs principally challenge (i) Agri-Insurance’s ability to elect to be treated as a United States taxpayer during the years under examination; and (ii) Alico-Agri’s ability to recognize income from real estate sales under the installment method by asserting that Alico-Agri was a dealer in real estate during the years under examination. The March 9, 2011 RAR pertains to withholding taxes that would be due by Alico-Agri if the IRS is successful in the assertion that Agri-Insurance and Alico-Agri are required to file separate tax returns during the Dispute Period. Based on positions taken in the RARs, the IRS has calculated additional taxes and penalties due of $29.8 million consisting of $14.5 million in taxes and $15.3 million in penalties. The RARs did not quantify the interest on the taxes.

The Company maintains that Agri-Insurance was eligible to make the election to be treated as a United States taxpayer and that Alico did not meet the criteria for classification as a dealer in real estate during the years under examination. Alico submitted a rebuttal to IRS Appeals on December 14, 2010 for the September 9, 2010 and October 28, 2010 RARs and on April 6, 2011 for the March 9, 2011 RAR and intends to vigorously defend the tax positions it has taken.

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If the Company were required to pay a substantial portion of the taxes, penalties and interest calculated by the IRS, it could materially affect the Company’s liquidity between the time that such payments were made and the realization of any refunds on amended or subsequent period tax returns. Specifically, with respect to the issue of classification as a dealer in real estate and the resulting inability to use the installment sales method of gain recognition on the deferred portion of the sales price for “Installment Sale Property,” an adverse determination could have a significant adverse effect on Alico’s liquidity and financial condition. In such event, Alico would be liable for taxes, penalties and interest. However, during the fiscal year ended September 30, 2010, the purchaser of the Installment Sale Property defaulted on its deferred payment obligation and Alico-Agri recovered the property through foreclosure. The timing difference that would result from the payment of claimed taxes and the subsequent receipt of refunds or credits realized against future taxes would be reflected in the Company’s deferred tax accounts. The Company will record expenses for penalties and interest incurred in the period in which any settlement is reached with the IRS.

Note 5. Indebtedness:

The outstanding debt under the Company’s various loan agreements is presented in the table below:

Alico has a revolving line of credit and term note with Rabo AgriFinance, Inc. (“Rabo”) for $100.0 million, and a mortgage with Farm Credit of Florida (formerly known as Farm Credit of Southwest Florida) (“Farm Credit”). The line of credit is collateralized by 44,277 acres of farmland, and the term note is collateralized by 12,280 acres of property containing approximately 8,600 acres of producing citrus groves. The mortgage is collateralized by 7,680 acres of real estate in Hendry County used for farm leases, sugarcane and citrus production.

The Term Note requires quarterly payments of interest at a floating rate of LIBOR plus 250 basis points beginning October 1, 2010. Quarterly principal payments of $500 thousand, together with accrued interest, begin on October 1, 2011 and continue until October 1, 2020, when the remaining principal balance and accrued interest will be due and payable. The mortgage note requires monthly principal payments of $106 thousand plus accrued interest until maturity. At March 31, 2011, Alico was in compliance with all of its covenants under the various loan agreements.

Maturities of the Company’s debt at March 31, 2011 were as follows:

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Interest costs expensed and capitalized to property, buildings and equipment were as follows:

As an agricultural credit cooperative, Farm Credit is owned by the member-borrowers who purchase stock and earn participation certificates which represent member shares of the allocated surplus in the cooperative. Allocations of the surplus are made to members on an annual basis according to the proportionate amount of interest paid by the member. Allocations are made in cash and non-cash participation certificates.

During the second quarter of 2011, the Company wrote-off $1.7 million in allocated surplus it had recorded, based on its patronage allocation with Farm Credit. Farm Credit did not make any distributions of allocated surplus during 2010 and subsequently announced in 2011 the indefinite suspension of any future distributions of members’ allocated surplus; therefore, the Company determined that the entire amount was uncollectible as no future revolvement plan has been established. The write-off of the $1.7 million is included in interest and investment income, net in the accompanying Condensed Consolidated Statements of Operations Unaudited.

Note 6. Disclosures about reportable segments:

Alico has six reportable segments: Bowen, Citrus Groves, Sugarcane, Cattle, Real Estate and Leasing. Alico’s operations are located in Florida. Alico accounts for intersegment sales and transfers as if the sales or transfers were to third parties at current market prices.

Bowen’s operations include harvesting, hauling and marketing citrus for both Alico and other outside growers in the State of Florida. Bowen’s operations also include the purchase and resale of citrus fruit. Alico’s Citrus Grove operations consist of cultivating citrus trees in order to produce citrus for delivery to the fresh and processed citrus markets in the State of Florida. Alico’s sugarcane operations consist of cultivating sugarcane for sale to a sugar processor. Alico’s cattle operation is engaged primarily in the production of beef cattle and the raising of replacement heifers. The goods and services produced by these segments are sold to wholesalers and processors in the United States who prepare the products for consumption.

Alico’s real estate segment is engaged in the planning and strategic positioning of all Company owned land, which include seeking entitlement of Alico’s land assets in order to preserve rights should Alico choose to develop the property in the future. The real estate segment is also responsible for negotiating and renegotiating sales contracts. Alico’s leasing segment rents land to others on a tenant-at-will basis for grazing, farming, oil and mineral exploration and recreational uses.

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The following table summarizes the performance of the Company’s segments and the related depreciation for the three and six month periods ended March 31, 2011 and 2010, and the related assets as of March 31, 2011 and September 30, 2010:

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Note 7. Treasury Stock

The Company’s Board of Directors has authorized the repurchase of up to 350,000 shares of the Company’s common stock through November 1, 2013 for the purpose of funding restricted stock grants under its 2008 Incentive Equity Plan in order to provide restricted stock to eligible Directors and Senior Managers and align their interests with those of the Company’s shareholders.

The stock repurchases began in November 2005 and will be made on a quarterly basis until November 1, 2013 through open market transactions, at times and in such amounts as the Company’s broker determines subject to the provisions of SEC Rule 10b-18.

The following table provides the Company’s treasury stock transactions during the six months ended March 31, 2011:

In accordance with the approved plan, the Company may purchase an additional 281,232 shares.

Note 8. Fair Value Measurements

The carrying amounts in the balance sheets for accounts receivable, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these items. When stated interest rates are below market, Alico discounts mortgage notes receivable to reflect their estimated fair value. Alico carries its investments and securities available for sale at fair value. The carrying amounts reported for Alico’s long-term debt approximates fair value because they are transactions with commercial lenders at interest rates that vary with market conditions and fixed rates that approximate market rates for comparable loans.

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Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation. Assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. The fair value hierarchy is defined as follows:

Level 1- Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2- Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant inputs are observable, either directly or indirectly.

Level 3- Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date.

There were no gains or losses included in earnings attributable to changes in non-realized gains or losses relating to assets held at March 31, 2011 and September 30, 2010.

Note 9 – Litigation and Settlements

Shareholder Derivative Actions

On October 29, 2008 Alico was served with a shareholder derivative action complaint filed by Baxter Troutman against JD Alexander and John R. Alexander which names Alico as a nominal defendant. Mr. Troutman is the cousin and nephew of the two defendants, respectively, and is a shareholder in Atlantic Blue Group, Inc. (formerly Atlantic Blue Trust, Inc.) (“Atlanticblue”) a 51% shareholder of Alico. From February 26, 2004 until January 18, 2008 Mr. Troutman was a director of Alico. The complaint alleges that JD Alexander and John R. Alexander committed breaches of fiduciary duty in connection with a proposed merger of Atlanticblue into Alico which was proposed in 2004 and withdrawn by Atlanticblue in 2005. The suit also alleges, among other things, that the merger proposal was wrongly requested by defendants JD Alexander and John R. Alexander and improperly included a proposed special dividend; and that the Alexanders’ sought to circumvent the Board’s nominating process to ensure that they constituted a substantial part of Alico’s senior management team and these actions were contrary to the position of Alico’s independent directors at the time causing a waste of Alico’s funds and the resignations of the independent directors in 2005. As a result the complaint is seeking damages to be paid to Alico by the Alexanders’ in excess of $1,000,000. The complaint concedes that Mr. Troutman has not previously made demand upon Alico to take action for the alleged wrongdoing as required by Florida law alleging that he believed such a demand would be futile. A copy of the Complaint may be obtained from the Clerk of the Circuit Court in Polk County, Florida.

On June 3, 2009 a Special Committee of Alico’s Board of Directors, comprised entirely of Independent Directors and which was constituted to investigate the shareholder derivative action filed by Mr. Troutman, completed its investigation with the assistance of independent legal counsel, and determined that it would not be in Alico’s best interest to pursue such litigation. Alico has filed a motion to dismiss the litigation based upon the findings of the Special Committee. A hearing on this motion was held on December 7, 2010, and as of the date of filing this report, the Court had not yet ruled on the motion to dismiss. A copy of the report was filed with the Court and the report and other pleadings in the case are available from the Clerk of Circuit Court in Polk County, Florida by reference to the matter of Baxter G. Troutman, Plaintiff vs. John R. Alexander, John D. Alexander, Defendants and Alico, Inc. Nominal Defendant, Case No. 08-CA-10178 Circuit Court, 10th Judicial Circuit, Polk County, Florida.

The Company is also involved from time to time in routine legal matters incidental to its business. Based upon available information, the Company believes that the resolution of such matters will not have a material adverse effect on its financial position or results of operations.

Note 10. Related Party Transaction

Atlantic Blue Group, Inc.

Atlanticblue owns approximately 51% of Alico’s common stock. By virtue of its ownership percentage, Atlanticblue is able to elect all the directors and, consequently, to control Alico. Directors who also serve on Atlanticblue’s board are referred to as “affiliated directors”. Atlanticblue issued a letter dated December 3, 2009 reaffirming its commitment to maintaining a majority of independent directors (which may include affiliated directors) on Alico’s board.

John R. Alexander, a major shareholder in Atlanticblue, serves on the Company’s Board of Directors as Chairman.

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Mr. Alexander’s son, JD Alexander, serves as President and Chief Executive Officer of Atlanticblue and in February 2010, was appointed as Alico’s President and Chief Executive Officer. JD Alexander serves on Alico’s Board of Directors. Robert E. Lee Caswell, Mr. John R. Alexander’s son-in-law, serves on the Alico Board of Directors, as does Robert J. Viguet, Jr., who is also a Director of Atlanticblue (the “Affiliated Directors”).

On January 18, 2008 the Company’s Board of Directors approved an unaccountable expense allowance of $5 thousand per month to Scenic Highlands Enterprises LLC. The Company’s former Chief Executive Officer and current Chairman of the Board, John R. Alexander, serves as the owner and Chief Executive Officer of Scenic Highlands Enterprises. Per the Board’s Action by Written Consent, payments are to be used for office space, an administrative assistant’s salary, and utilities. Alico paid $15 thousand and $30 thousand for each of the three and six months ended March 31, 2011 and 2010, respectively, pursuant to this agreement. The agreement will continue to be in effect throughout Mr. Alexander’s tenure as Chairman.

Effective June 30, 2008 the Board approved a transition, consulting, severance and non-compete agreement with John R. Alexander providing for total payments of $600,000 over a three year period. Alico paid $38 thousand and $75 thousand to Mr. Alexander during the three and six months ended March 31, 2011, respectively, pursuant to this agreement and $50 thousand and $100 thousand during the comparable period of 2010.

Former director Baxter Troutman has filed suit against John R. and JD Alexander. The Company is reimbursing Messrs.’ Alexander for legal fees to defend the suit in accordance with the Board’s indemnification agreement. All reimbursements are being approved by the Special Committee of the Board comprised of an independent director. Reimbursements pursuant to the litigation were $40 thousand and $68 thousand on behalf of John R. Alexander and $29 thousand and $48 thousand on behalf of JD Alexander during the three and six months ended March 31, 2011, respectively. For the three and six months ended March 31, 2010, no reimbursements for litigation were made on behalf of John R. Alexander and $5 thousand and $28 thousand on behalf of JD Alexander.

During the three and six months ended March 31, 2011, Bowen marketed no boxes and 1,454 boxes of fruit from Alexander Properties at no value and $17 thousand, respectively. During the three and six months ended March 31, 2010, Bowen marketed 1,502 and 1,701 boxes of fruit for Alexander Properties at a total value of $9 thousand and $11 thousand, respectively. Alexander Properties is a company owned by Mr. John R. Alexander and Mr. JD Alexander.

Bowen is currently marketing citrus fruit from Tri County Groves, a wholly owned subsidiary of Atlanticblue. During the three and six months ended March 31, 2011, Bowen marketed 32,726 and 147,740 boxes of fruit, respectively, at a gross value of $0.3 million and $1.3 million, respectively. During the three and six months ended March 31, 2010, Bowen marketed 49,560 and 175,051 boxes of fruit, respectively, at a gross value of $0.4 million and $1.6 million, respectively.

Ben Hill Griffin, Inc.

Citrus revenues of $171 thousand and $892 thousand were recognized for a portion of citrus crops sold under a marketing agreement with Ben Hill Griffin, Inc. (Griffin) for the three and six months ended March 31, 2011, respectively. For the three and six months ended March 31, 2010, citrus revenues for Ben Hill Griffin under the marketing agreement were $146 thousand and $325 thousand, respectively. Griffin and its subsidiaries are controlled by Ben Hill Griffin, III, the brother-in-law of John R. Alexander, Alico’s Chairman and former Chief Executive Officer. Accounts receivable, resulting from citrus sales, include amounts due from Griffin of $39 thousand and $90 thousand at March 31, 2011 and September 30, 2010, respectively. These amounts represent estimated revenues to be received periodically under pooling agreements as the sale of pooled products is completed.

Harvesting, marketing and processing costs for fruit sold through Griffin totaled $60 thousand and $228 thousand for the three and six months ended March 31, 2011 and $71 thousand and $140 thousand for the comparable period in 2010, respectively. The accompanying consolidated balance sheets include accounts payable to Griffin for citrus production, harvesting and processing costs and supplies totaling $227 thousand and $44 thousand at March 31, 2011 and September 30, 2010, respectively.

Alico purchases fertilizer and other miscellaneous supplies, services, and operating equipment from Griffin, on a competitive bid basis, for use in its cattle, sugarcane, sod and citrus operations. Such purchases totaled $0.5 million and $0.7 million for the three and six months ended March 31, 2011, and $0.4 million and $0.8 million for the three and six months ended March 31, 2010, respectively.

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

Forward –Looking Statements

We make forward-looking statements in this Quarterly Report, particularly in this Management’s Discussion and Analysis, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any statements in this Quarterly Report that are not historical facts are forward-looking statements. Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on our current expectations, estimates and projections about our business based, in part, on assumptions made by our management. These assumptions are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those risks factors described in our Annual Report on Form 10-K for the year ended September 30, 2010 and our Quarterly Reports on Form 10-Q.

Overview

We are a land management company operating in Central and Southwest Florida. Our primary asset is 139,607 acres of land located in Collier, Glades, Hendry, Lee and Polk Counties. We are involved in a variety of agribusiness pursuits including citrus groves, sugarcane production, cattle ranching, forestry, land leasing and rentals, rock and sand mining and real estate sales activities.

We have six reportable segments: Bowen Brothers Fruit (“Bowen”), Citrus Groves, Sugarcane, Cattle, Real Estate and Leasing.

We will relocate our principal offices to 10070 Daniels Interstate Court, Fort Myers, FL 33913, during the third quarter of fiscal 2011.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We base these estimates on historical experience, available current market information and on various other assumptions that management believes are reasonable under the circumstances. Additionally we evaluate the results of these estimates on an on-going basis. Management’s estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

There have been no material changes to the disclosures set forth in Part II, Item 7 in our Form 10-K for the fiscal year ended September 30, 2010 during this reporting period.

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Recently Issued Accounting Standards

See Note 1- Description of Business and Basis of Presentation in the Notes to Condensed Consolidated Financial Statements Unaudited included in this report for recently issued accounting standards.

Results from Operations

The following table sets forth a comparison of results of operations for the three and six months ended March 31, 2011 and 2010:

N/M – variance is not meaningful.

The increase in operating revenue of $4.8 million and $7.3 million for the three and six months ended March 31, 2011, respectively, as compared to three and six months ended March 31, 2010 is due primarily to favorable market pricing in our citrus and sugarcane operations and, to a lesser extent, the increase in sugarcane production due to the additional planting of approximately 3,000 acres. Revenues from our citrus operations increased by $3.1 million quarter-over-quarter and by $3.6 million year-over- year due to favorable market pricing. The freezing weather in December 2010 and January 2011 caused damage to the citrus crop in the State of Florida, reducing the overall crop yields; however, the damage to our crop was minimal. Revenues from our sugarcane operations increased by $1.6 million or 75.5% for the three months ended March 31, 2011 as compared to three months ended March 31, 2010 and $3.5 million or 89.5% for the six months ended March 31, 2011 as compared to the same period in 2010. See Segment Results for further discussion of our revenues from agricultural and nonagricultural operations.

Gross profit increased as a result of favorable market pricing for our agricultural products and the discontinuation of our vegetable operations in June 2010 by 95.7% and 136.1% for the three and six months ended March 31, 2011, respectively, as compared to gross profits for the three and six months ended March 31, 2010. See Segment Results for further discussion of our revenues from agricultural and nonagricultural operations.

General and administrative expenses decreased by $0.2 million or 11.1%, quarter-over-quarter, primarily due to a reduction in legal fees. The increase in general and administrative expenses of $0.4 million or 11.9% for the six months ended March 31, 2011 as compared to the six months ended March 31, 2010 is due to an increase in professional fees.

Interest and Investment Income

Interest and investment income is generated principally from mortgages held on real estate sold on the installment basis, investments in corporate and municipal bonds, mutual funds, and U.S. Treasury securities.

During the second quarter of fiscal 2011, we wrote-off $1.7 million in allocated surplus we had recorded, based on the patronage allocation from our participation with Farm Credit of Florida (formerly known Farm Credit of Southwest Florida) (“Farm Credit”). Because Farm Credit had not made any distributions during 2010, and subsequently announced in 2011 the indefinite suspension of any future distributions of member’s allocated surplus, we determined that the asset was uncollectible and future collections of the allocated surplus were indeterminable. See Note 5 – Indebtedness in the Notes to Condensed Consolidated Financial Statements Unaudited.

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During the quarter ended March 31, 2010, Alico negotiated the sale of a previously impaired auction rate security resulting in a gain of $250 thousand which was recognized during the quarter.

In May 2010, Alico invested $12.2 million to obtain a 39% equity interest in the Magnolia Fund. Alico is accounting for its investment in the fund according to the equity method of accounting whereby Alico will record its 39% interest in the reported income or loss of the fund each quarter. For the three and six months ended March 31, 2011, we recorded income of $95 thousand and a loss of $74 thousand, respectively. See Note 3- Investment in Magnolia Fund in the Notes to Condensed Consolidated Financial Statements Unaudited.

Interest Expense

Interest expense decreased by $0.2 million and $0.7 million for the three and six months ended March 31, 2011 as compared with the three and six months ended March 31, 2010, respectively, primarily due to lower interest rates obtained through the refinancing of our term note facility with Rabo in September 2010, and to a lesser extent, the reduction of outstanding debt. Average interest rates for the three and six months ended March 31, 2011 were 2.76% as compared to 6.79% for the three and six months ended March 31, 2010. See Note 5 - Indebtedness in the Notes to Condensed Consolidated Financial Statements Unaudited.

Provision for Income taxes

Our effective tax rate is impacted by IRS adjustments including penalties and interest, state income taxes, including penalties and interest, income reported for financial statement purposes but not taxable under current statutes, such as earnings from tax exempt bonds, expenses reported for financial statement purposes but not deductible under current statutes, such as lobbying expenses and non-qualified retirement plans, and the expiration of otherwise allowable deductions that do not meet recognition thresholds such as expired net operating losses and contribution carry forwards.

On March 9, 2011, October 28, 2010 and September 9, 2010, the Internal Revenue Service (“IRS”) issued Revenue Agent Reports (“RARs”) pursuant to its examinations of Alico, Agri-Insurance and Alico-Agri for the tax years 2005 through 2007 (the “Dispute Period”). These RARs principally challenge (i) Agri-Insurance’s ability to elect to be treated as a United States taxpayer during the years under examination; and (ii) Alico-Agri’s ability to recognize income from real estate sales under the installment method by asserting that Alico-Agri was a dealer in real estate during the years under examination. The March 9, 2011 RAR pertains to withholding taxes that would be due by Alico-Agri if the IRS is successful in the assertion that Agri-Insurance and Alico-Agri are required to file separate tax returns during the Dispute Period. Based on positions taken in the RARs, the IRS has calculated additional taxes and penalties due of $29.8 million. The RARs did not quantify the interest on the taxes.

We maintain that Agri-Insurance was eligible to make the election to be treated as a United States taxpayer and that Alico did not meet the criteria for classification as a dealer in real estate during the years under examination. Alico submitted a rebuttal to IRS Appeals and intends to vigorously defend the tax positions it has taken. Because the earnings of Agri-Insurance were included in Alico’s consolidated returns during the years under audit, and because the purchaser subsequently defaulted on the real estate transactions for which the installment method was utilized, the issues raised by the IRS (except with respect to $15.3 million in penalties claimed by the IRS) are primarily timing related and would be recorded in the Company’s deferred tax accounts as of the date any final settlement with the IRS is reached.

Alico’s effective tax rate was 38.0% for the three and six months ended March 31, 2011 and 29.4% and 28.6% for the three and six months ended March 31, 2010, respectively. The March 2010 rate differed from the expected combined Federal and State blended rate of 38.0% primarily due to an increase in the cash surrender value of life insurance contracts which was recognized as a gain for book purposes, but is not taxable.

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Segment Results

Operating Revenue