##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2005
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For
the transition period from ___ to ___
 Commission File Number 0-4136
 Lifecore Biomedical, Inc.
  Minnesota
    
    41-0948334(State or other jurisdiction of
    
    (IRS Employer Identification No.)incorporation or organization)3515 Lyman BoulevardChaska, Minnesota
    
    55318(Address of principal executive
    
    (Zip Code)offices)
 952-368-4300
 Not Applicable
  þ o
  þ o
  o þ




---



LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
 FORM 10-Q
 TABLE OF CONTENTS
  
 PagePart I. Financial InformationItem 1. Financial StatementsCondensed Consolidated Balance Sheets at
September 30, 2005 and June 30, 2005
    
    
    2Condensed Consolidated Statements of Operations for Three
Months Ended September 30, 2005 and 2004
    
    
    3Condensed Consolidated Statements of Cash Flows for
Three Months Ended September 30, 2005 and 2004
    
    
    4Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    5-11Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    12-18Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    19Part II. Other InformationItem 1. Legal Proceedings
    
    
    20Item 6. Exhibits
    
    
    21Signatures
    
    
    22Exhibit Index
    
    
    23Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  1




---



##### Table of Contents



LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
 
 PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
  September 30,
    
    
    June 30,2005
    
    
    2005ASSETSCurrent AssetsCash and cash equivalents
    
    $
    18,504,000
    
    
    $
    18,508,000Accounts receivable, less allowances
    
    
    9,739,000
    
    
    
    10,171,000Inventories
    
    
    11,234,000
    
    
    
    9,456,000Deferred income taxes
    
    
    4,560,000
    
    
    
    4,190,000Prepaid expenses
    
    
    1,026,000
    
    
    
    780,000Total current assets
    
    
    45,063,000
    
    
    
    43,105,000Property, plant and equipmentLand, building and equipment
    
    
    47,877,000
    
    
    
    47,400,000Less accumulated depreciation
    
    
    (24,657,000
    )
    
    
    (24,211,000
    )23,220,000
    
    
    
    23,189,000Other AssetsIntangibles
    
    
    5,270,000
    
    
    
    4,799,000Inventories
    
    
    2,265,000
    
    
    
    2,409,000Deferred income taxes
    
    
    5,207,000
    
    
    
    6,062,000Other
    
    
    343,000
    
    
    
    302,00013,085,000
    
    
    
    13,572,000$
    81,368,000
    
    
    $
    79,866,000LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesCurrent maturities of long-term obligations
    
    $
    285,000
    
    
    $
    285,000Accounts payable
    
    
    3,443,000
    
    
    
    3,418,000Accrued compensation
    
    
    1,355,000
    
    
    
    1,920,000Accrued expenses
    
    
    1,396,000
    
    
    
    1,293,000Total current liabilities
    
    
    6,479,000
    
    
    
    6,916,000Long-term obligations
    
    
    5,019,000
    
    
    
    5,089,000Shareholders equity
    
    
    69,870,000
    
    
    
    67,861,000$
    81,368,000
    
    
    $
    79,866,000
  2




---



##### Table of Contents



LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS (continued)
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
  Three months ended September 30,2005
    
    
    2004Net sales
    
    $
    13,425,000
    
    
    $
    12,305,000Cost of goods sold
    
    
    5,063,000
    
    
    
    5,096,000Gross profit
    
    
    8,362,000
    
    
    
    7,209,000Operating expensesResearch and development
    
    
    999,000
    
    
    
    848,000Marketing and sales
    
    
    4,009,000
    
    
    
    3,215,000General and administrative
    
    
    1,787,000
    
    
    
    1,467,0006,795,000
    
    
    
    5,530,000Operating income
    
    
    1,567,000
    
    
    
    1,679,000Other income (expense)Interest income
    
    
    135,000
    
    
    
    10,000Interest expense
    
    
    (56,000
    )
    
    
    (113,000
    )Bond retirement expense
    
    
    
    
    
    
    (290,000
    )Currency transaction gains (losses)
    
    
    (24,000
    )
    
    
    85,000Other
    
    
    (14,000
    )
    
    
    2,00041,000
    
    
    
    (306,000
    )Income before income taxes
    
    
    1,608,000
    
    
    
    1,373,000Income tax expense
    
    
    563,000
    
    
    
    94,000Net income
    
    $
    1,045,000
    
    
    $
    1,279,000Net income per shareBasic
    
    $
    0.08
    
    
    $
    0.10Diluted
    
    $
    0.08
    
    
    $
    0.10Weighted average shares outstandingBasic
    
    
    13,059,567
    
    
    
    12,932,606Diluted
    
    
    13,460,056
    
    
    
    12,965,549
  3




---



##### Table of Contents



LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS (continued)
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
  Three months ended September 30,2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    1,045,000
    
    
    $
    1,279,000Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    473,000
    
    
    
    523,000Allowance for doubtful accounts
    
    
    10,000
    
    
    
    139,000Deferred income taxes
    
    
    485,000
    
    
    
    Stock compensation
    
    
    230,000
    
    
    
    Accumulated currency translation adjustment
    
    
    28,000
    
    
    
    92,000Changes in operating assets and liabilities, net of effects
of acquisitions:Accounts receivable
    
    
    140,000
    
    
    
    78,000Inventories
    
    
    (1,533,000
    )
    
    
    (354,000
    )Prepaid expenses
    
    
    (245,000
    )
    
    
    (219,000
    )Accounts payable
    
    
    13,000
    
    
    
    (573,000
    )Accrued liabilities
    
    
    (474,000
    )
    
    
    (275,000
    )Net cash provided by operating activities
    
    
    172,000
    
    
    
    690,000Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (445,000
    )
    
    
    (493,000
    )Acquisitions, net of cash acquired
    
    
    (322,000
    )
    
    
    Refunds of security deposits
    
    
    
    
    
    
    830,000Increase in other assets
    
    
    (45,000
    )
    
    
    (81,000
    )Net cash provided by (used in) investing activities
    
    
    (812,000
    )
    
    
    256,000Cash flows from financing activities:Payments on long-term obligations
    
    
    (70,000
    )
    
    
    (23,000
    )Issuance of industrial revenue bonds
    
    
    
    
    
    
    5,630,000Retirement of industrial revenue bonds
    
    
    
    
    
    
    (5,986,000
    )Proceeds from stock options exercised
    
    
    706,000
    
    
    
    6,000Net cash provided by (used in) financing activities
    
    
    636,000
    
    
    
    (373,000
    )Net increase (decrease) in cash and cash equivalents
    
    
    (4,000
    )
    
    
    573,000Cash and cash equivalents at beginning of period
    
    
    18,508,000
    
    
    
    8,553,000Cash and cash equivalents at end of period
    
    $
    18,504,000
    
    
    $
    9,126,000Supplemental disclosure of cash flow information:Cash paid during the period for:Interest
    
    $
    56,000
    
    
    $
    156,000Taxes
    
    
    21,000
    
    
    
    68,000
  4




---



##### Table of Contents



LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS (continued)
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
         September 30,
    
    
    June 30,2005
    
    
    2005Raw materials
    
    $
    4,351,000
    
    
    $
    3,102,000Work-in-process
    
    
    554,000
    
    
    
    426,000Finished goods-current
    
    
    6,329,000
    
    
    
    5,928,00011,234,000
    
    
    
    9,456,000Finished goods-long term
    
    
    2,265,000
    
    
    
    2,409,000$
    13,499,000
    
    
    $
    11,865,000
 5




---



##### Table of Contents



LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
       September 30,
    
    June 30,2005
    
    2005Goodwill
    
    $
    4,847,000
    
    
    $
    4,352,000Patents
    
    
    387,000
    
    
    
    387,000Distribution rights and licenses
    
    
    350,000
    
    
    
    350,000Accumulated amortization
    
    
    (314,000
    )
    
    
    (290,000
    )$
    5,270,000
    
    
    $
    4,799,000
      6




---



##### Table of Contents



LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
    Three months endedSeptember 30, 2004Reported net income
    
    $
    1,279,000Stock-based employee compensation determined under
the fair value based method, net of related tax
effects
    
    
    (207,000
    )Pro forma net income
    
    $
    1,072,000Income per common equivalent share:Basic  as reported
    
    $
    0.10Diluted  as reported
    
    $
    0.10Basic  pro forma
    
    $
    0.08Diluted  pro forma
    
    $
    0.08
  Three Months EndedSeptember 30,2005
    
    2004Risk-free interest rate
    
    
    4.27
    %
    
    
    3.9
    %Expected volatility
    
    
    69.5
    %
    
    
    69.6
    %Expected life (in years)
    
    
    5.6
    
    
    
    5.4Dividend yield
    
    
    
    
    
    
    
 7




---



##### Table of Contents



LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
    Number of
    
    
    Weighted AverageShares
    
    
    Exercise PriceOutstanding at June 30, 2005
    
    
    1,720,706
    
    
    $
    10.19Granted
    
    
    41,300
    
    
    
    10.86Exercised
    
    
    (101,100
    )
    
    
    7.00Canceled
    
    
    (12,750
    )
    
    
    9.35Outstanding at September 30, 2005
    
    
    1,648,156
    
    
    $
    10.41
 Number of
    
    Weighted AverageShares
    
    Exercise PriceOptions exercisable at September 30, 2005
    
    
    1,309,856
    
    
    
    $10.83
  Options OutstandingRange of

    
    Number
    
    Weighted Average Remaining
    
    Weighted AverageExercise Price
    
    Outstanding
    
    Contractual Life
    
    Exercise Price$
    3.55
    
    
    
    
    
    
    
    5.82
    
    
    
    87,750
    
    6.27 years
    

    $
        5.235.83
    
    
    
    
    
    
    
    8.75
    
    
    
    708,563
    
    6.79 years
    
    
    
    7.298.76
    
    
    
    
    
    
    
    13.12
    
    
    
    394,800
    
    6.48 years
    
    
    
    10.1513.13
    
    
    
    
    
    
    
    19.68
    
    
    
    426,043
    
    2.34 years
    
    
    
    16.0919.69
    
    
    
    
    
    
    
    23.38
    
    
    
    31,000
    
    2.26 years
    
    
    
    21.551,648,156
    
    
    
    
    

    $
    
    10.41
 8




---



##### Table of Contents



LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
   Options ExercisableRange of
    
    Number
    
    Weighted AverageExercise Price
    
    Exercisable
    
    Exercise Price$
    3.55
    
    
    
    
    
    
    
    5.82
    
    
    
    65,125
    

    $
    
    5.355.83
    
    
    
    
    
    
    
    8.75
    
    
    
    551,938
    
    
    7.238.76
    
    
    
    
    
    
    
    13.12
    
    
    
    242,750
    
    
    10.1313.13
    
    
    
    
    
    
    
    19.68
    
    
    
    424,043
    
    
    16.1019.69
    
    
    
    
    
    
    
    23.38
    
    
    
    26,000
    
    
    21.581,309,856
    

    $
        10.83
 Issuance of Restricted Stock
       9




---



##### Table of Contents



LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
       Three months ended September 30,2005
    
    
    2004Net salesHyaluronan products
    
    $
    4,661,000
    
    
    $
    4,644,000Oral restorative products
    
    
    8,764,000
    
    
    
    7,661,000$
    13,425,000
    
    
    $
    12,305,000Income from operationsHyaluronan products
    
    $
    1,116,000
    
    
    $
    1,319,000Oral restorative products
    
    
    451,000
    
    
    
    360,000$
    1,567,000
    
    
    $
    1,679,000
    10




---



##### Table of Contents



LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
        11




---



##### Table of Contents



LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Critical Accounting Policies
  Revenue Recognition:
  Allowance for Uncollectible Accounts Receivable:
  Inventories:
  Goodwill, Intangibles and Other Long-Lived Assets:
    Accounting for Income Taxes:
  12




---



##### Table of Contents



LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
   Overview
    13




---



##### Table of Contents



LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
   Ô
  Acquisition of Bardo-Biotech SAS
   14




---



##### Table of Contents



LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
 Results of Operations
  Hyaluronan
    
    
    Oral RestorativeDivision
    
    
    Division
    
    
    Consolidated2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    $
    4,661,000
    
    
    $
    4,644,000
    
    
    $
    8,764,000
    
    
    $
    7,661,000
    
    
    $
    13,425,000
    
    
    $
    12,305,000Cost of goods sold
    
    
    2,052,000
    
    
    
    2,093,000
    
    
    
    3,011,000
    
    
    
    3,003,000
    
    
    
    5,063,000
    
    
    
    5,096,000Gross profit
    
    
    2,609,000
    
    
    
    2,551,000
    
    
    
    5,753,000
    
    
    
    4,658,000
    
    
    
    8,362,000
    
    
    
    7,209,000Operating expensesResearch and development
    
    
    607,000
    
    
    
    604,000
    
    
    
    392,000
    
    
    
    244,000
    
    
    
    999,000
    
    
    
    848,000Marketing and sales
    
    
    176,000
    
    
    
    92,000
    
    
    
    3,833,000
    
    
    
    3,123,000
    
    
    
    4,009,000
    
    
    
    3,215,000General and administrative
    
    
    710,000
    
    
    
    536,000
    
    
    
    1,077,000
    
    
    
    931,000
    
    
    
    1,787,000
    
    
    
    1,467,0001,493,000
    
    
    
    1,232,000
    
    
    
    5,302,000
    
    
    
    4,298,000
    
    
    
    6,795,000
    
    
    
    5,530,000Operating income
    
    $
    1,116,000
    
    
    $
    1,319,000
    
    
    $
    451,000
    
    
    $
    360,000
    
    
    $
    1,567,000
    
    
    $
    1,679,000
 Net Sales
   Gross profit
  15




---



##### Table of Contents



LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
 Research and development
 Marketing and sales
 General and administrative
  Other income (expense)
 Provision for income taxes.
  16




---



##### Table of Contents



LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
 Liquidity and Capital Resources
 Form 10-Q.
      Seasonality
  17




---



##### Table of Contents



LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
 Cautionary Statement
  18




---



##### Table of Contents



LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
 ITEM 4. CONTROLS AND PROCEDURES
     19




---



##### Table of Contents



LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
 
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  Renee Contratto v. Ethicon, Inc., d/b/a
Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc Contratto
    20




---



##### Table of Contents



LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART II  OTHER INFORMATION
 
 ITEM 6. EXHIBITS
 3.1
    
    Restated Articles of Incorporation, as amended (incorporated by reference to
Exhibit 19(a) to Amendment No. 1 on Form 8, dated July 13, 1988, to Form 10-Q for the
quarter ended December 31, 1987), as amended by Amendment No. 2 (incorporated by
reference to Exhibit 3.1 to Form 10-K for the year ended June 30, 1997)3.2
    
    Amended Bylaws (incorporated by reference to Exhibit 3.2 to Form 10-K/A for
the year ended June 30, 1995)4.1
    
    Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to
1987 S-2 Registration Statement [File No. 33-12970])4.2
    
    Form of Rights Agreement, dated as of May 23, 1996, between the Company and
Norwest Bank Minnesota, National Association (incorporated by reference to Exhibit 1
to the Companys Form 8-A Registration Statement dated May 31, 1996)31.1
    
    Certification of the Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 200231.2
    
    Certification of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification of the Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    Certification of the Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 21




---



##### Table of Contents



SIGNATURES
  LIFECORE BIOMEDICAL, INC.By:Dated: November 9, 2005
    
    /s/ Dennis J. AllinghamDennis J. AllinghamPresident, Chief Executive Officer, Secretary and Director(duly authorized officer)Dated: November 9, 2005
    
    /s/ David M. NoelDavid M. NoelVice President of Finance and Chief Financial Officer(principal financial and accounting officer)
 22




---



##### Table of Contents



Exhibit Index
 3.1
    
    Restated Articles of Incorporation, as amended (incorporated by reference to
Exhibit 19(a) to Amendment No. 1 on Form 8, dated July 13, 1988, to Form 10-Q for the
quarter ended December 31, 1987), as amended by Amendment No. 2 (incorporated by
reference to Exhibit 3.1 to Form 10-K for the year ended June 30, 1997)3.2
    
    Amended Bylaws (incorporated by reference to Exhibit 3.2 to Form 10-K/A for
the year ended June 30, 1995)4.1
    
    Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to
1987 S-2 Registration Statement [File No. 33-12970])4.2
    
    Form of Rights Agreement, dated as of May 23, 1996, between the Company and
Norwest Bank Minnesota, National Association (incorporated by reference to Exhibit 1
to the Companys Form 8-A Registration Statement dated May 31, 1996)31.1
    
    Certification of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification of the Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    Certification of the Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 23