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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, 2006
 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
  
 
  þ o
  o þ o
  o þ




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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
 FORM 10-Q
 TABLE OF CONTENTS
 PagePart I.
    
    Financial InformationItem 1.
    
    Financial Statements  UnauditedCondensed Consolidated Balance Sheets at September 30, 2006 and June 30, 2006
    
    
    2Condensed Consolidated Statements of Operations for Three Months Ended September 30, 2006 and 2005
    
    
    3Condensed Consolidated Statements of Cash Flows for Three Months Ended September 30, 2006 and 2005
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5-10Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11-17Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4.
    
    Controls and Procedures
    
    
    18Part II.
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    19Item 6.
    
    Exhibits
    
    
    20Signatures
    
    
    
    
    21Exhibit Index
    
    
    22Stock Option PlanCertification 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




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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
 
 PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
  September 30,
    
    
    June 30,2006
    
    
    2006ASSETSCurrent AssetsCash and cash equivalents
    
    $
    28,110,000
    
    
    $
    26,638,000Accounts receivable, less allowances
    
    
    12,065,000
    
    
    
    12,564,000Inventories
    
    
    12,912,000
    
    
    
    12,217,000Deferred income taxes, net
    
    
    5,640,000
    
    
    
    4,865,000Prepaid expenses
    
    
    1,154,000
    
    
    
    1,084,000Total current assets
    
    
    59,881,000
    
    
    
    57,368,000Property, plant and equipmentLand, building and equipment
    
    
    49,680,000
    
    
    
    49,388,000Less accumulated depreciation
    
    
    (26,643,000
    )
    
    
    (26,138,000
    )23,037,000
    
    
    
    23,250,000Other AssetsIntangibles, net
    
    
    5,173,000
    
    
    
    5,201,000Inventories
    
    
    1,315,000
    
    
    
    1,406,000Deferred income taxes, net
    
    
    354,000
    
    
    
    1,694,000Other
    
    
    308,000
    
    
    
    319,0007,150,000
    
    
    
    8,620,000$
    90,068,000
    
    
    $
    89,238,000LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesCurrent maturities of long-term obligations
    
    $
    290,000
    
    
    $
    290,000Accounts payable
    
    
    2,835,000
    
    
    
    3,212,000Accrued compensation
    
    
    1,283,000
    
    
    
    1,847,000Accrued expenses
    
    
    1,602,000
    
    
    
    1,549,000Total current liabilities
    
    
    6,010,000
    
    
    
    6,898,000Long-term obligations
    
    
    4,734,000
    
    
    
    4,804,000Shareholders equity
    
    
    79,324,000
    
    
    
    77,536,000$
    90,068,000
    
    
    $
    89,238,000
  2




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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS (continued)
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
  Three months ended September 30,2006
    
    
    2005Net sales
    
    $
    15,010,000
    
    
    $
    13,425,000Cost of goods sold
    
    
    5,572,000
    
    
    
    5,074,000Gross profit
    
    
    9,438,000
    
    
    
    8,351,000Operating expensesResearch and development
    
    
    1,096,000
    
    
    
    1,014,000Marketing and sales
    
    
    4,912,000
    
    
    
    4,064,000General and administrative
    
    
    1,924,000
    
    
    
    1,706,0007,932,000
    
    
    
    6,784,000Operating income
    
    
    1,506,000
    
    
    
    1,567,000Other income (expense)Interest income
    
    
    331,000
    
    
    
    135,000Interest expense
    
    
    (64,000
    )
    
    
    (56,000
    )Currency transaction gains (losses)
    
    
    73,000
    
    
    
    (24,000
    )Other
    
    
    6,000
    
    
    
    (14,000
    )346,000
    
    
    
    41,000Income before income tax expense
    
    
    1,852,000
    
    
    
    1,608,000Income tax expense
    
    
    713,000
    
    
    
    563,000Net income
    
    $
    1,139,000
    
    
    $
    1,045,000Net income per shareBasic
    
    $
    0.09
    
    
    $
    0.08Diluted
    
    $
    0.08
    
    
    $
    0.08Weighted average shares outstandingBasic
    
    
    13,223,448
    
    
    
    13,059,567Diluted
    
    
    13,672,260
    
    
    
    13,460,056
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS (continued)
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
  Three months ended September 30,2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    1,139,000
    
    
    $
    1,045,000Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    535,000
    
    
    
    473,000Allowance for doubtful accounts
    
    
    48,000
    
    
    
    10,000Deferred income taxes
    
    
    565,000
    
    
    
    485,000Stock-based compensation
    
    
    385,000
    
    
    
    230,000Accumulated currency translation adjustment
    
    
    70,000
    
    
    
    28,000Changes in operating assets and liabilities, net of
effects of acquisition:Accounts receivable
    
    
    451,000
    
    
    
    140,000Inventories
    
    
    (604,000
    )
    
    
    (1,533,000
    )Prepaid expenses
    
    
    (70,000
    )
    
    
    (245,000
    )Accounts payable
    
    
    (377,000
    )
    
    
    13,000Accrued liabilities
    
    
    (511,000
    )
    
    
    (474,000
    )Net cash provided by operating activities
    
    
    1,631,000
    
    
    
    172,000Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (292,000
    )
    
    
    (445,000
    )Acquisition, net of cash acquired
    
    
    
    
    
    
    (322,000
    )Change in other assets
    
    
    8,000
    
    
    
    (45,000
    )Net cash used in investing activities
    
    
    (284,000
    )
    
    
    (812,000
    )Cash flows from financing activities:Payments on long-term obligations
    
    
    (70,000
    )
    
    
    (70,000
    )Proceeds from stock options exercised
    
    
    195,000
    
    
    
    706,000Net cash provided by financing activities
    
    
    125,000
    
    
    
    636,000Net increase (decrease) in cash and cash equivalents
    
    
    1,472,000
    
    
    
    (4,000
    )Cash and cash equivalents at beginning of period
    
    
    26,638,000
    
    
    
    18,508,000Cash and cash equivalents at end of period
    
    $
    28,110,000
    
    
    $
    18,504,000Supplemental disclosure of cash flow information:Cash paid during the period for:Interest
    
    $
    64,000
    
    
    $
    56,000Taxes
    
    
    141,000
    
    
    
    21,000
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS (continued)
 
 NOTES TO CONDENSED CONSOLIDATED STATEMENTS  UNAUDITED
         September 30,
    
    
    June 30,2006
    
    
    2006Raw Materials
    
    $
    4,340,000
    
    
    $
    3,973,000Work-in-process
    
    
    920,000
    
    
    
    708,000Finished goods-current
    
    
    7,652,000
    
    
    
    7,536,00012,912,000
    
    
    
    12,217,000Finished goods-long term
    
    
    1,315,000
    
    
    
    1,406,000$
    14,227,000
    
    
    $
    13,623,000
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED (continued)
       September 30,
    
    
    June 30,2006
    
    
    2006Goodwill
    
    $
    4,783,000
    
    
    $
    4,783,000Patents
    
    
    387,000
    
    
    
    387,000Distribution rights and licenses
    
    
    350,000
    
    
    
    350,000Customer List
    
    
    80,000
    
    
    
    80,000Accumulated amortization
    
    
    (427,000
    )
    
    
    (399,000
    )$
    5,173,000
    
    
    $
    5,201,000
     6




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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED (continued)
    Three months ended September 30,2006
    
    
    2005Cost of goods sold
    
    $
    17,000
    
    
    $
    11,000Research and development
    
    
    65,000
    
    
    
    14,000Marketing and sales
    
    
    118,000
    
    
    
    55,000General and administrative
    
    
    113,000
    
    
    
    110,000Total stock-based compensation expense
    
    $
    313,000
    
    
    $
    190,000Effect on earnings per share, net of tax effects:Basic
    
    $
    0.02
    
    
    $
    0.01Diluted
    
    $
    0.02
    
    
    $
    0.01
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED (continued)
       Three months ended September 30,2006
    
    
    2005Net salesHyaluronan products
    
    $
    4,779,000
    
    
    $
    4,661,000Dental products
    
    
    10,231,000
    
    
    
    8,764,000$
    15,010,000
    
    
    $
    13,425,000Income from operationsHyaluronan products
    
    $
    996,000
    
    
    $
    1,138,000Dental products
    
    
    510,000
    
    
    
    429,000$
    1,506,000
    
    
    $
    1,567,000
      8




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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED (continued)
          9




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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED (continued)
      10




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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:
    11




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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
 Accounting for Income Taxes:
  Stock-based compensation:
  Overview
     12




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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
   13




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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
    
    
    DentalDivision
    
    
    Division
    
    
    Consolidated2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    4,779,000
    
    
    $
    4,661,000
    
    
    $
    10,231,000
    
    
    $
    8,764,000
    
    
    $
    15,010,000
    
    
    $
    13,425,000Cost of goods sold
    
    
    2,122,000
    
    
    
    2,059,000
    
    
    
    3,450,000
    
    
    
    3,015,000
    
    
    
    5,572,000
    
    
    
    5,074,000Gross profit
    
    
    2,657,000
    
    
    
    2,602,000
    
    
    
    6,781,000
    
    
    
    5,749,000
    
    
    
    9,438,000
    
    
    
    8,351,000Operating expensesResearch and
development
    
    
    716,000
    
    
    
    620,000
    
    
    
    380,000
    
    
    
    394,000
    
    
    
    1,096,000
    
    
    
    1,014,000Marketing and sales
    
    
    196,000
    
    
    
    183,000
    
    
    
    4,716,000
    
    
    
    3,881,000
    
    
    
    4,912,000
    
    
    
    4,064,000General and
administrative
    
    
    749,000
    
    
    
    661,000
    
    
    
    1,175,000
    
    
    
    1,045,000
    
    
    
    1,924,000
    
    
    
    1,706,0001,661,000
    
    
    
    1,464,000
    
    
    
    6,271,000
    
    
    
    5,320,000
    
    
    
    7,932,000
    
    
    
    6,784,000Operating income
    
    $
    996,000
    
    
    $
    1,138,000
    
    
    $
    510,000
    
    
    $
    429,000
    
    
    $
    1,506,000
    
    
    $
    1,567,000
 Net Sales
  TM
 Gross profit
   Research and development
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
 Marketing and sales
 General and administrative
 Other income (expense)
 Provision for income taxes.
  15




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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
  Cash Provided by Operating Activities.
  Cash Used in Investing Activities
 Cash Provided by Financing Activities
   16




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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
   Seasonality
  Cautionary Statement
  17




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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
 ITEM 4. CONTROLS AND PROCEDURES
     18




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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
 
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  Brandy R. Kreifel and Tammy Lyden v. Gynecare, Inc., Ethicon, Inc., Lifecore Biomedical, Inc.
and Johnson & Johnson Company Stephanie and Michael Stibor and Wisconsin Physicians
Service Insurance Corporation v. Ethicon, Inc., Lifecore Biomedical, Inc. and Krista Jacobson
     19




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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART II  OTHER INFORMATION
 
 ITEM 6. EXHIBITS
 3.1
    
    Amended and Restated Articles of Incorporation, as adopted on January 18, 2006
(incorporated by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K filed
on January 24, 2006)3.2
    
    Amended Bylaws, as adopted on January 18, 2006 (incorporated by reference to Exhibit 3.2
to the Companys Current Report on Form 8-K filed on January 24, 2006)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)10.1
    
    1996 Stock Option Plan, as amended to date.10.2
    
    Fiscal Year 2007 Bonus Plan, effective July 1, 2006 (incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K filed on September 19, 2006)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
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SIGNATURES
  LIFECORE BIOMEDICAL, INC.
By:Dated: November 9, 2006
    /s/ Dennis J. AllinghamDennis J. AllinghamPresident, Chief Executive Officer, Secretary and Director
(duly authorized officer)Dated: November 9, 2006
    /s/ David M. NoelDavid M. NoelVice President of Finance and Chief Financial Officer
(principal financial and accounting officer) 21




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Exhibit Index
 3.1
    
    Amended and Restated Articles of Incorporation, as adopted on January 18, 2006
(incorporated by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K filed
on January 24, 2006)3.2
    
    Amended Bylaws, as adopted on January 18, 2006 (incorporated by reference to Exhibit 3.2
to the Companys Current Report on Form 8-K filed on January 24, 2006)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)10.1
    
    1996 Stock Option Plan, as amended to date.10.2
    
    Fiscal Year 2007 Bonus Plan, effective July 1, 2006 (incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K filed on September 19, 2006)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 200232.2
    
    Certification of the Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 22