Sales up 38% compared with fourth quarter of 1999

— Monterey Pasta Company Reports 15th Consecutive Profitable Quarter: Fourth Quarter Operating Income Increases 88%, Vs. Q4 1999

— Annual Net Income Up Nearly 71% From Year Ago Results, Excluding One-time Positive 1999 Impact of $ 3.4 Million Reversal of Tax

Asset Valuation Allowance

Monterey Pasta Company (Nasdaq:PSTA) today reported net income for the quarter ended December 31, 2000 of $1,910,000, or $0.14 per share, on net revenues of $13,600,000 based on 13.3 million primary and 14.1 million diluted shares outstanding. This compares with a net income of $934,000 for the quarter ended December 26, 1999, excluding the one-time positive impact of a $3.43 million reversal of a deferred tax asset valuation account, which resulted in adjusted earnings of $0.07 per share, based on 12.9 million primary and 13.5 million diluted shares outstanding.

For the twelve months ended December 31, 2000, the Company reported net revenues of $47,962,000, yielding net income of $6,141,000 and earnings of $0.46 per share on 13.2 million primary shares outstanding, and $0.44 per share on 13.8 million diluted shares outstanding.

This compares with net revenues for the twelve months ended December 26, 1999, of $36,902,000, with net income of $3,597,000, after adjusting for the $3.43 million reversal of deferred tax asset valuation account, or adjusted earnings of $0.28 per share on 12.7 million primary and 13.1 million diluted shares outstanding.

Commenting on the results, Lance Hewitt, chief executive officer and president, said, “We are delighted to report the fifteenth consecutive profitable quarter for Monterey Pasta and the most profitable year in the history of the Company. The 30% annual increase in sales once again solidifies the Company’s position as a growth company. Few companies in the food business can make that claim. This performance points to a continuing acceptance of our distinctive gourmet quality products. During the fourth quarter we also invested heavily in the launch of our fresh stuffed pizza and calzone line, and the development of other new items yet to be released. This investment reflects our ongoing commitment to innovation, leading to the frequent introduction of attractive gourmet products. In the fourth quarter we also added another gourmet item to our line with the acquisition of the Nate’s polenta business in early December. This acquisition continues our thrust to diversify our product offerings in the refrigerated section of the supermarket and club store.”

Steve Brinkman, chief financial officer, commented “We are very happy with our record 2000 results, which exceeded all of our financial goals. Our balance sheet is strong with no bank debt and excellent financial ratios, including a current ratio of 3.9 to 1, and a return on equity of 35%. Sales, General, and Administrative expenses decreased as a percent of sales for the fourth straight year, to 25.8% in 2000, from 27.7% in 1999, while gross profit improved slightly from 38.4% in 1999 to 38.6% in 2000. Our commitment to increase stockholder value is as unwavering as our commitment to quality and product innovation. We look forward to the continued support of our loyal stockholders.”

Founded as a regional brand, Monterey Pasta now has national distribution in over 6,000 retail and club stores throughout the United States and selected regions of Canada. Monterey Pasta manufactures USDA inspected, healthy, fresh gourmet refrigerated food products at its integrated 43,680 square foot corporate headquarters and manufacturing facility in Salinas, (Monterey County) Calif.

This press release contains forward-looking statements that involve a number of uncertainties and risks that could cause actual results to differ materially from those discussed in the forward-looking statements. Risks that could cause actual results to differ materially from those discussed in the forward-looking statements, include risks associated with accomplishing the anticipated results of the Company’s 2000 capital expansion program, risks associated with timely and cost-effective introduction of new products in the coming months, retention of key personnel and retention of key management, the risks inherent in food production, and intense competition in the market in which the Company competes. Future projections are based on the assumption that we will continue to sell in existing retail and club stores and will continue to add new stores. For additional information regarding these and other risks, please read the Company’s Annual Report on Form 10-K, for the year ended December 26, 1999, its Forms 10-Q for First, Second, and Third Quarters of 2000, and its 2000 Proxy.

                            CHART TO FOLLOW


(000’s $ except earnings per share numbers and share totals)

Fourth Quarter Ended Year Ended
———————- ———————–
December December December December
31, 2000 26, 1999 31, 2000 26, 1999
———- ———- ———- ———-

Net revenues 13,600 9,886 47,962 36,902
Cost of sales 8,294 6,222 29,475 22,749
———- ———- ———- ———-
Gross profit 5,306 3,664 18,487 14,153
Selling, general
and administrative
expenses 3,433 2,668 12,366 10,220
———- ———- ———- ———-
Operating income 1,873 996 6,121 3,933

Loss on disposition
of assets (37) — (37) (13)

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Other Income (4) 1 (11) 2

Interest expense,
net 19 (21) (41) (156)
———- ———- ———- ———-
Income before
provision for
income taxes 1,851 976 6,032 3,766
Provision for
income taxes 59 3,388(a) 109 3,261(a)
———- ———- ———- ———-

Net income 1,910 4,364 6,141 7,027
———- ———- ———- ———-
Basic Income
per share 0.14 0.34 0.46 0.55

Diluted income
per share 0.14 0.32 0.44 0.54

Primary shares
outstanding 13,300,258 12,933,107 13,222,062 12,711,801

Diluted shares
outstanding 14,060,680 13,455,078 13,835,384 13,074,776

(a) Includes one-time reversal of deferred tax asset valuation allowance in the amount of $3,430,000; Earnings per share net of this recovery would be $.07 for both basic and diluted for the quarter, and $.28 for both basic and diluted for the year.