Landec Corporation (Nasdaq:LNDC), a developer and marketer of technology-based polymer products for food, agricultural and licensed partner applications, today reported results for the second quarter ended November 30, 2003. Unless otherwise noted, all financial statement amounts are stated on a basis consistent with accounting principles generally accepted in the United States ("GAAP basis").

"Landec's second quarter and year-to-date financial results are in line with our plan for fiscal year 2004. Due to the overall seasonality of our business, we expect the first half of the year to show losses, and the second half and the full year to be profitable," stated Gary Steele, President and CEO of Landec.

The following key milestones were completed in the first six months of this fiscal year:

• Increased value-added specialty packaging vegetable revenues by 18% and gross profits by 26% compared to the same period in the prior year.

• Exited the business of selling domestic commodity vegetable products in June.

• Entered into an exclusive marketing agreement with Dole Fresh Vegetables, Inc., for our food subsidiary, Apio, Inc., to sell and distribute a line of fresh cut produce under the Dole(R) brand in the United States.

• Completed the first round of new banana market trials utilizing our technology.

• Reduced long-term debt by $1.2 million to $5.0 million from $6.2 million at May 25, 2003.

• Increased Landec Ag's working capital line of credit by $4.5 million to $7.5 million.

• Established for Apio a new $12 million working capital line of credit and a $3 million equipment line of credit with better terms and more favorable financial covenants.

• Received coverage from one additional financial analyst.

Total revenues for the quarter were $43.3 million versus revenues of $39.8 million for the same period a year ago. The Company reported a net loss for the quarter of $1.6 million or $0.08 per diluted share compared to a net loss of $2.7 million, or $0.15 per diluted share, for the same period last year. The net loss from continuing operations during the second quarter of fiscal year 2004 was $1.6 million or $0.08 per diluted share compared to a net loss from continuing operations of $1.1 million or $0.06 per diluted share in the same quarter last year.

Revenues for the first six months of fiscal year 2004 were $85.1 million versus revenues of $84.7 million a year ago. The Company reported a net loss for the first six months of fiscal year 2004 of $2.2 million or $0.11 per diluted share compared to a net loss of $3.3 million or $0.18 per diluted share in the first six months of the prior year. The net loss from continuing operations for the first six months of fiscal year 2004 was $2.2 million or $0.11 per diluted share compared to a net loss from continuing operations of $1.7 million or $0.09 per diluted share in the same period last year.

"The results for the second quarter and the first six months of fiscal year 2004 are in line with achieving our goal of continuing to grow Apio's technology-based specialty packaging produce business, while at the same time reducing Company-wide operating costs," stated Steele. "During the first six months of fiscal year 2004, Apio's net income nearly doubled to $2.1 million while Company-wide operating expenses were reduced by $2.0 million or 14%."

"We continue to focus on our four primary objectives for our fiscal year ending May 30, 2004: (1) continue to grow our food and ag technology revenues, (2) increase profits, (3) expand commercial sales of our banana packaging technology to retail and food service companies and, (4) continue to strengthen our balance sheet. Based on our year-to-date results, we are on our way to achieving each of these goals," commented Steele.

"During the second quarter, sales of our value-added specialty packaging vegetable products grew to $22.8 million compared to $19.3 million for the same period last year and gross margins increased to 16% from 14% during the same period a year ago," stated Steele. "For the first six months of fiscal year 2004, sales of our value-added specialty packaging vegetable products grew to $45.1 million compared to $38.2 million for the same period a year ago and gross margins increased to 17% from 16% during the same period last year. Notably, sales of our Eat Smart(R) 12-ounce specialty packaged retail product line grew 30% and 41%, respectively, during the three and six month periods ended November 30, 2003 compared to the same periods last year. In addition, sales of our Eat Smart vegetable tray product line grew 51% and 88%, respectively, during the three and six month periods ended November 30, 2003 compared to the same periods last year. According to A.C. Nielsen, Apio increased its position as the number one supplier of vegetable trays to retail grocery stores in the United States, capturing 29% of the vegetable tray market for the three months ended September 30, 2003, an increase of six percentage points from 23% for the three months ended June 30, 2003. This market share was based on sales for retail grocery stores that report to A.C. Nielsen with average annual revenues over $2 million during the three months ended June 30, 2003 and September 30, 2003."

The results for the second quarter and first six months of fiscal year 2004 reflect the Company's decision to exit the domestic commodity vegetable business which culminated in the sale of that business in June 2003. As a result of the sale of the domestic commodity vegetable business, there were no revenues or gross profits from selling domestic commodity vegetable products during the second quarter of fiscal year 2004, compared to $5.3 million and $1.6 million, respectively, for the same period last year. For the six months ended November 30, 2003, revenues and gross profits from the sale of domestic commodity vegetable products were $1.6 million and $571,000, respectively, compared to $10.3 million and $2.5 million, respectively, for the six months ended December 1, 2002. Offsetting the reductions in gross profits from the sale of domestic commodity vegetable products was a reduction of operating expenses for the three and six-month periods ended November 30, 2003 of $1.2 million and $2.0 million, respectively, versus the same periods in the prior year.

The results for the prior year three and six month periods ended December 1, 2002 included a loss from discontinued operations as a result of the sale of Dock Resins Corporation of $1.7 million or $0.09 per diluted share. In addition, included in the loss from continuing operations for the six months ended December 1, 2002 was a gain from the sale of Apio's fruit processing facility of $436,000 or $0.02 per diluted share.

"The increase in the net loss from continuing operations for the quarter and the first six months of fiscal year 2004 of $533,000 and $549,000, respectively, compared to the same periods last year is primarily due to 1) a reduction in Corporate gross profits from license fees and research and development activities of $784,000 for the second quarter and $1.5 million for the first six months of fiscal year 2004 as the Company shifts its focus to supply and royalty agreements, 2) a reduction in gross profits from service revenues of $1.5 million for the second quarter and $1.8 million for the first six months of fiscal year 2004 due to the sale of Apio's domestic vegetable business in June 2003 and 3) a reduction in gross profits from the sale of Eat Smart bananas of $392,000 during the second quarter and $476,000 for the first six months of fiscal year 2004 compared to the same periods a year ago. These reductions in gross profits were partially offset by 1) increases in gross profits from Apio's value added specialty packaging vegetable business during the three and six month periods ended November 30, 2003 of $953,000 and $1.6 million, respectively, compared to the same periods of the prior year and 2) reduced operating expenses of $1.2 million for the second quarter and $2.0 million for the first six months of fiscal year 2004 compared to the same periods last year. In addition, the prior year six-month loss was reduced by the $436,000 gain from the sale of Apio's fruit processing facility," commented Steele.

"As announced during our conference call in June, we have entered into an exclusive packaging and marketing agreement with Dole Fresh Vegetables, Inc., for Apio to sell and distribute a line of fresh-cut produce under the Dole(R) brand in the United States. This agreement should expand Apio's presence in the fresh-cut vegetable category through the sales and distribution of both the Dole brand and our existing Eat Smart brand. We have recently launched our Dole branded pre-cut vegetable products, and examples of the products and packaging designs were displayed at the Produce Marketing Association (PMA) Fresh Summit Convention October 19-21, 2003," added Steele.

"For the banana packaging technology program, our R&D and trial work continues to be focused on retail and food service market trials and on developing new package sizes for customers that will allow bananas to be sold in ways that are unique to the industry," noted Steele. "Our first round of new market trials were completed last month and results were positive. The second round of new trials are planned to begin next month and should be completed during our fourth fiscal quarter. Although we expect to expand commercial sales in the next six months, we do not expect any significant commercial sales of our banana packaging technology during the remainder of this fiscal year. Based on continued successful market trials, we plan to begin the commercial marketing of our consumer-size packaging format early next fiscal year."

"Turning to our seed business, Landec Ag's Early Plant(TM) hybrid corn program progressed very well during 2003. Current testimonials from farmers with recent harvest information show that Early Plant corn delivers yield increases, on average, when compared to corn planted at normal planting times. Progress is also indicated by the fact that the Company estimates that the acres planted with Early Plant corn could double from 40,000 acres in 2003 to 80,000 acres in 2004," added Steele.

Commenting on the financial condition of the Company, Steele said, "During the six month period ended November 30, 2003, we continued to pay down long-term debt. We reduced our long-term debt $1.2 million from $6.2 million at May 25, 2003 to $5.0 million at the end of the second quarter of fiscal year 2004. The cash decrease of $1.4 million during the first six months of fiscal year 2004 was primarily due to (a) the purchase of $1.7 million of property, plant and equipment, (b) the net reduction of long-term debt of $1.2 million and, (c) the net reduction of payables of $5.6 million, partially offset by (a) net borrowings under the Company's lines of credit of $5.9 million and (b) a $657,000 reduction in restricted cash. As of November 30, 2003, the cash balance was $2.3 million and we had availability under our lines of credit of $2.9 million. In addition, the $1.7 million of restricted cash should become available for use within the next four months as we pay off a capital lease and upon the release of funds held in escrow pursuant to the Dock Resins Stock Purchase Agreement. During our third fiscal quarter, Landec Ag will collect a majority of its annual cash flow from seed sales, a portion of which will be used to payoff its line of credit and pay for its remaining seed inventory."

The significant increases in inventory, deferred revenue and the amount outstanding under the Company's lines of credit during the six months ended November 30, 2003 are due to the seasonal nature of our Landec Ag seed business. Deposits on future seed shipments are recognized as deferred revenue when collected and payments for seed corn using funds borrowed under Landec Ag's line of credit are recorded as inventory. As the seed corn is shipped, which begins in February, the deferred revenue will be recognized as revenue and the inventory as cost of sales. The significant decreases in accounts receivable and payables during the six months ended November 30, 2003 are directly attributable to the Company exiting the selling of domestic commodity vegetable products.

"Landec's proprietary temperature-activated Intelimer(R) polymers solutions are patent protected and are changing the economics and the quality of the food and seed products we have targeted. In addition, our technology is opening up new solutions in the medical, consumer and industrial markets. We have numerous technology-driven applications in our pipeline and look forward to developing several new products during the upcoming year," concluded Steele.

Operating Highlights and Outlook

Apio's Intelimer Based Packaging Products Business Continues to Grow

During the last twelve months, Apio has introduced twenty-seven new value-added produce product offerings, including sixteen new Dole branded products. In addition, Apio has expanded its retail and club store presence to over 9,900 stores, an increase of 1,200 stores during the last twelve months.

The success of Landec's Intelimer-based food packaging technology allows the Company to convert not only fresh-cut produce but also whole produce into value added products that bring real differentiation to retailers and to growers. As a result, Apio's Eat Smart vegetable products using our proprietary specialty packaging grew to 53% of Apio's revenues during the first six months of fiscal year 2004 from 46% during the same period last year.

During the first six months of fiscal year 2004, Apio continued to grow its value-added business. Sales from the three fastest-growing product lines, which include vegetable trays, 12-ounce retail packages, and iceless case liner products, collectively grew 54% compared to the same period of the prior year.

In addition, Apio recently launched the Dole branded pre-cut vegetable products, and examples of the products and packaging designs were displayed at the Produce Marketing Association (PMA) Fresh Summit Convention October 19-21, 2003.

Landec Ag's Intellicoat(R) Seed Coating Product Sales Accelerate

Landec Ag, the Company's Intellicoat seed coating subsidiary, commercially launched its Early Plant hybrid corn during 2003. Early Plant hybrid corn joins the existing line-up of Landec Ag commercial products which include Pollinator Plus(R) coatings for inbred corn seed, Relay(TM) Intercropping of wheat and Intellicoat coated soybean, Fielder's Choice Direct(R) hybrid corn and the Harvestar(TM) product line, which offers high performance alfalfa and nutrient enhanced hybrid corn seed.

Early Plant hybrid corn is designed to allow corn farmers to safely and reliably plant hybrid corn three to four weeks earlier than normal, by using Landec Ag's proprietary Intellicoat coating which prevents germination until the soil reaches the optimal soil germination temperature. Otherwise, planting earlier in cold, wet soil could cause poor or no germination to occur. Allowing the farmer to have a wider planting window lowers costs, reduces risks associated with late planting and potentially increases yields across the entire farming operation. The program for Early Plant hybrid corn increased three-fold to over 40,000 acres in the spring of 2003 from 13,000 acres in 2002, and the Company estimates that the acres to be planted in the spring of 2004 could more than double the acres planted in 2003.

In Early Plant corn trials conducted in 2002, the Intellicoat coated seeds showed better, more uniform emergence and higher stand counts for improved yield potential when compared to uncoated corn seeds. Landec Ag's commercial launch of its Intellicoat Early Plant corn seed coating technology included its Fielder's Choice Direct brand of hybrid seed corn and the hybrid corn seeds of two regional seed companies. Current testimonials from farmers with recent harvest information for 2003 show that Early Plant corn yielded on average an increase in bushels per acres compared to corn planted at normal planting times. In addition, during 2003 34 U.S. seed companies conducted separate evaluations of the Intellicoat Early Plant hybrid corn technology on their own hybrids, up from eight seed companies conducting similar trials in 2002.

Landec Ag's first Intellicoat-based commercial product is called Pollinator Plus. Pollinator Plus seed coatings are applied to inbred seed corn to delay seed germination and extend the pollination window thus reducing risks and increasing yields for seed companies. Pollinator Plus is already being used by 30 major seed companies in the production of hybrid seed corn. This product line has been planted on over 60,000 acres in 2003. Also in 2003, Landec Ag has entered into a joint licensing agreement with Incotec International BV, a recognized world leader in seed coating enhancement technologies, which will make Pollinator Plus coatings available to the European Union market starting this fiscal year.

Landec Ag, headquartered in Monticello, Indiana, combines its proprietary Intellicoat seed coating technology products with its unique electronic, direct marketing and consultative selling approach - eDC(TM), which is supported by its sophisticated telephonic and electronic call center.

Landec Corporation designs, develops, manufactures and sells temperature-activated and other specialty polymer products for a variety of food, agricultural and licensed partner applications. The Company's temperature-activated polymer products are based on its proprietary Intelimer polymers which differ from other polymers in that they can be customized to abruptly change their physical characteristics when heated or cooled through a pre-set temperature switch.

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