Landec Corporation Reports Second Quarter Fiscal Year 2007 Results.

MENLO PARK, Calif. -- Landec Corporation (Nasdaq:LNDC), today reported results for the second quarter ended November 26, 2006. Revenues for the second quarter were $55.2 million versus revenues of $53.7 million for the same period a year ago. Net income for the quarter improved to $108,000 or $0.00 per diluted share compared to a net loss of $1.0 million or $0.04 per share for the same period last year.

Revenues for the first six months of fiscal year 2007 were $106.3 million versus revenues of $103.4 million a year ago. The Company reported net income for the first six months of fiscal year 2007 of $122,000 compared to a net loss of $1.6 million in the first six months of the prior year.

"We are very pleased with our progress in fiscal year 2007," stated Gary Steele, President and Chief Executive Officer of Landec. "During the first six months we have (1) grown our core specialty packaged vegetable business by 18%, up from the 13% growth in fiscal year 2006, (2) sold our direct marketing and sales seed business for $50 million in cash, (3) increased our future license fees revenues and income by $5.4 million per year over the next five years, (4) added an important strategic partner in Monsanto Company and (5) initiated shipments of our BreatheWay[R] packaging technology to Chiquita Brands International, Inc. for retail grocery store trials."

"Included in net income during the second quarter and the first six months of fiscal year 2007 were seasonal operating losses at Landec Ag of $3.1 million and $5.5 million, respectively," continued Steele. "These losses will not be recurring in the future due to the sale of Fielder's Choice Direct (FCD) to American Seeds, Inc. (ASI), a wholly owned subsidiary of Monsanto, on December 1, 2006."

"We have five primary objectives for the remainder of fiscal year 2007: (1) continue to grow our value-added specialty packaging food business, (2) expand our banana packaging technology sales to Chiquita, (3) assist Air Products and Chemicals, Inc. in increasing the sales of our Intelimer[R] polymer products for personal care and latent catalyst applications through our strategic collaboration (4) continue to add strategic partner and customer relationships and (5) grow overall revenues by 10% to 15%, excluding Landec Ag and Apio's commission trading business, while increasing net income by 65% to 75% compared to fiscal year 2006 results, after excluding the income, net of expenses and estimated taxes, from the sale of FCD and after excluding the results of Landec Ag from the beginning of fiscal year 2007 through the close of the sale of FCD on December 1, 2006," stated Steele. "We are currently on track to achieve all of these objectives."

Operating Highlights

Apio, Inc. - Landec's Food Subsidiary

Nick Tompkins, President and CEO of Apio reported, "During the second quarter, sales of our value-added specialty packaging vegetable products grew 17% to $35.8 million compared to $30.5 million in the same period last year. For the first six months of fiscal year 2007, sales of our value-added specialty packaging vegetable products grew 18% to $70.8 million compared to $60.1 million in the same period last year. Partially offsetting the growth in Apio's value added business was a decrease in revenues from Apio's commission trading business of 18% and 19%, respectively, for the second quarter and first six months of fiscal year 2007 compared to the same periods last year. Trading revenues were significantly impacted by the planned decrease in volume sales from Apio's marginally profitable domestic buy/sell commodity business."

"Apio's gross profits from value-added vegetable products increased 17% in the second quarter to $6.4 million compared to $5.5 million in the same period in the prior year. For the first six months of fiscal year 2007, Apio's gross profits from value-added vegetable products decreased 1% to $10.9 million compared to $11.0 million in the same period last year. This slight decrease in gross profits was attributable to weather related shortages of contracted product during the first quarter of fiscal year 2007 which required Apio to procure supplemental product on the open market at costs significantly above contracted prices. The increases in produce sourcing cost, however, were substantially mitigated by a more profitable mix of products sold and improved operational efficiencies," said Tompkins.

Landec Ag, Inc. - Landec's Seed Subsidiary

On December 1, 2006, Landec sold its direct marketing and sales seed company Fielder's Choice Direct, which included the Fielder's Choice Direct([R])and Heartland Hybrid([R])brands, to ASI, a wholly owned subsidiary of Monsanto. The acquisition price for FCD was $50 million in cash paid at the close with an additional earn-out amount of up to $5 million based on FCD results for the twelve months ended May 31, 2007. Landec will record during its fiscal third quarter income from the sale, net of expenses and estimated taxes, of approximately $20 million to $21 million. The gain on the sale of FCD, which will be included in the income recorded, is equal to the difference between the fair value of FCD and its net book value. In accordance with generally accepted accounting principles, any portion of the $50 million of proceeds in excess of the fair value of FCD will be allocated to the Intellicoat[R] technology license agreement described below and will be recognized as revenue ratably over the five year term of the technology license agreement. The determination of fair value was provided by an independent appraiser. Based on the appraisal, it was determined that the fair market value of FCD was $40 million which is $10 million less than the $50 million received at close. Therefore, the $10 million will be recognized as revenue and income ratably over the term of the technology license agreement or $2 million per year for five years.

On December 1, 2006, Landec also entered into a five-year co-exclusive technology license and polymer supply agreement with Monsanto for the use of Landec's Intellicoatpolymer seed coating technology. Included in the agreement, Monsanto will pay all of the operating costs, including research and development funding, over the term of the agreement. The minimum guaranteed payments will result in Landec recognizing revenue and operating income of $3.4 million per year for five years. This $3.4 million, when combined with the $2 million per year due to the appraised value of FCD, will result in Landec recognizing revenue and operating income of $5.4 million per year for five years. If Monsanto elects to purchase the technology, an additional $4 million of license fee revenue will be recognized at the time of payment.

If the purchase option is exercised before the fifth anniversary of the Intellicoat agreement, all annual license fees and supply payments that have not been paid to Landec will become due upon the purchase. If Monsanto does not exercise its purchase option by the fifth anniversary of the Intellicoatagreement, Landec will receive the termination fee and all rights to the Intellicoatseed coating technology will revert to Landec. If Monsanto exercises its purchase option, Landec and Monsanto will enter into a new long-term supply agreement in which Landec will continue to be the exclusive supplier of Intellicoatpolymer materials to Monsanto.

Landec's Intelimer Supply and Licensing Business

The Company is working with a number of existing and potential customers to expand the use of Intelimer polymers in cosmetic and personal care products, as well as industrial non-food and non-agricultural products.

On March 14, 2006, the Company entered into an exclusive license and research and development agreement with Air Products providing Air Products with the exclusive right to use Landec's Intelimer materials technology in specific fields worldwide. The license fees for this agreement will be recognized as license revenue over a three year period beginning March 2006. Landec received an upfront licensing fee of $900,000 at close and will receive up to an additional $1.6 million of license payments that will be paid in quarterly installments of $200,000 each during years two and three of the agreement. Additionally, in accordance with the agreement, Landec will receive 40% of the gross profits that are generated from the sale of products by Air Products that incorporate Landec's Intelimer materials beginning March 14, 2007.

In December 2005, Landec entered into an exclusive licensing agreement with Aesthetic Sciences Corporation. At that time Landec received cash and preferred stock in Aesthetic Sciences. As part of the original agreement, 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 valued at $481,000. Landec currently has a 19.9% ownership interest in Aesthetic Sciences.

Landec Consolidated Net Income

For the second quarter of fiscal year 2007, net income was $108,000, which is $1.1 million higher than the same period last year due to several factors. Items increasing net income included: (1) a $932,000 increase in gross profit from Apio's value-added specialty packaging vegetable business and (2) $481,000 of license fees from the receipt of an additional 800,000 shares of preferred stock in Aesthetic Sciences Corporation. Net income was decreased by (1) increased losses at Landec Ag of $370,000 and (2) stock option expenses of $136,000.

For the first six months of fiscal year 2007, net income was $122,000, which is $1.7 million higher than the same period last year due to several factors. Items increasing net income included: (1) a decrease in selling, general and administrative expenses at Apio of $784,000 due primarily to lower sales and marketing expenses during this year's first quarter compared to the same period last year, (2) a $427,000 increase in non-operating income due to an increase in net interest income and reduced minority interest expenses, (3) $481,000 of license fees from the receipt of an additional 800,000 shares of preferred stock in Aesthetic Sciences Corporation and (4) a $1.5 million settlement of insurance claims related to a fire that occurred at Landec's former Dock Resins' facility in 2000 which was recognized as a reduction in Corporate selling, general and administrative expenses. Net income was decreased by (1) increased losses at Landec Ag of $1.1 million and (2) stock option expenses of $382,000.

Landec Second Quarter 2007 Earnings Conference Call

A conference call will follow this release at 8:00 a.m. Pacific Time on Wednesday, January 3, 2007, during which senior management of Landec will present an overview of results for the second quarter of fiscal year 2007. Interested parties have the opportunity to listen to the conference call live on the Internet at www.landec.com on the Investor Relations web page. A replay of the webcast will be available for 30 days. Additionally, investors can listen to the call by dialing 866-793-1301 or 703-639-1307 at least 5 minutes prior to the start. A replay of the call will be available through Wednesday, January 10th by calling 888-266-2081 or 703-925-2533, code #1011356.

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 patented 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.

Except for the historical information contained herein, the matters discussed in this news release are forward-looking statements that involve certain risks and uncertainties that could cause actual results to differ materially. These risk factors are listed in the Company's Form 10-K for the fiscal year ended May 28, 2006 (See item 1A: Risk Factors). As a result of these and other factors, the Company expects to continue to experience fluctuations in quarterly operating results and there can be no assurance that the Company will remain consistently profitable. The Company undertakes no obligation to update or revise any forward-looking statements whether as a result of new developments or otherwise.

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