##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 
 þ
    
    Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the fiscal year ended June 30, 2006
 Commission file number: 0-4136
 
 LIFECORE BIOMEDICAL, INC.
  Minnesota
    
    41-0948334(State or other jurisdiction
    
    (IRS Employerof incorporation or organization)
    
    Identification No.)
 3515 Lyman Boulevard
Chaska, Minnesota 55318-3051
 (952) 368-4300
  Title of each class
    
    Name of each exchange on which registeredCommon Stock ($.01 par value)
    
    The NASDAQ Stock Market LLC
 None
 
 o þ
 o þ
 þ o
 o
  o þ o
 o þ
   
 DOCUMENTS INCORPORATED BY REFERENCE




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TABLE OF CONTENTS  PART IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesItem 6. Selected Financial DataItem 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPART IIIItem 10. Directors and Executive Officers of the RegistrantItem 11. Executive CompensationItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related TransactionsItem 14. Principal Accounting Fees and ServicesPART IVItem 15. Exhibits and Financial Statement SchedulesSIGNATURESNoncompetition and Nonsolicitation Agreement - Benjamin C. BeckhamNoncompetition and Nonsolicitation Agreement - James G. HallSubsidiaries of the CompanyConsent of Independent Registered Public Accounting FirmCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906    Table of Contents  
 PART I
 
 Item 1. Business
 General
 www.lifecore.com
     ®
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Trademarks
 ® ® ® ® ® ® ® ® ® ® ®
 ® ® ® ® ®
 Hyaluronan Division
 Background
   Strategy
       Utilize manufacturing infrastructure to pursue contract aseptic filling and fermentation
opportunities.The Company will continue to evaluate providing contract services for opportunities
that are suited for the capital and facility investment related to aseptic filling equipment,
fermentation and purification.     Establish strategic relationships with market leaders.The Company will continue to develop
applications for products with partners who have strong marketing, sales and distribution
capabilities to end-user markets. The Company currently has established relationships with the
market leading companies Alcon and Advanced Medical Optics in ophthalmology; Novartis AG in generic
devices and drugs; and MTF, the worlds largest bone tissue procurement and distribution service.     Expand medical applications for hyaluronan.Due to the growing knowledge of the unique
characteristics of hyaluronan and the role it plays in normal physiology, the Company continues to
identify and pursue further uses for hyaluronan in other medical applications, such as wound care,
aesthetic surgery, adhesion prevention, drug delivery, device coatings and pharmaceuticals. Further
applications may involve expanding process development activity and/or licensing of technology.
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     Maintain flexibility in product development and supply relationships.The Companys
vertically integrated development and manufacturing capabilities allow it to establish a variety of
relationships with global corporate partners. Lifecores role in these relationships extends from
supplier of hyaluronan raw materials to manufacturer of aseptically-packaged, finished sterile
products. In addition, the Company may develop its own proprietary products.
 Hyaluronan Division Products
  PRODUCT
    
    DESCRIPTION
    
    MARKET
    
    STATUS+OPHTHALMICViscoat® 
Intraocular
Viscoelastic
    
    Lifecore supplies hyaluronan
powder for
inclusion in Alcons
Viscoat® 
Intraocular
viscoelastic
    
    Cataract surgery
    
    Commercial sales since 1986LUROCOAT®
Ophthalmic
Viscoelastic
    
    Lifecore supplies
its private label
product for
marketing on a
non-exclusive
basis.
    
    Cataract surgery
    
    Commercial sales since June 1997ORTHOPEDICHyaluronan Solution
for DBX®
Demineralized Bone
Matrix
    
    Lifecore supplies a
sterile hyaluronan
solution to MTF for
use as a carrier
vehicle for its
allogeneic
demineralized,
freeze-dried bone.
    
    Grafting material for
restoration of bone
defects
    
    Commercial sales since 2000Hyaluron HEXAL®
Orthopedic
Viscosupplement
    
    Lifecore supplies a
finished orthopedic
viscosupplement for
Novartis AGs
distribution
network.
    
    Injections for the local
treatment of pain
associated
with osteoarthritis
    
    Commercial sales began in fiscal 2005VETERINARYHY-50®
    
    Lifecore supplies a
finished veterinary
viscosupplement to
Bexco Pharma, Inc.
for use as a
veterinary
orthopedic
injectible drug or
device.
    
    Veterinary drug/device
    
    Commercial sales since 1993
 
 +
    
    For many of the products listed above, government regulatory approvals are required before
commercial sales can commence in the United States or elsewhere. See Government Regulation. No
assurance can be given that such products will be successfully approved in new markets. Ophthalmic Applications
 Cataract Surgery. Ò ®
  4




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®
   Orthopedic Applications
 Ò
 Veterinary Applications
   Adhesion Prevention Opportunities
  Product Development
   5




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Oral Restorative Division
 Background
  ® ® ® ®
 Strategy
  
    
    Development or acquisition of a broad line of dental implants, technology and
related dental surgery support products that facilitate the transition from competitive
systems to the Lifecore system.
    
    Development and delivery of unique customer support programs and materials
concentrating on the principles of tooth replacement therapy, practice management
techniques, and marketing and consulting skills training to foster higher patient
acceptance of dental implants.
    
    Increased penetration of markets by expanded direct selling efforts.
    
    Expansion of international markets and additional distribution agreements.
 Dental Division Products
  PRODUCT
    
    BENEFIT / APPLICATION
    
    STATUSIMPLANTSPRIMA Implant System
with TiLobe Technology
    
    A unique, proprietary
implant system.
PRIMACONNEX incorporates
TiLobe Technology, a 6
lobed internal
connection. PRIMASOLO is
a one-piece implant that
incorporates the surgical
and restorative
components in one unit.
Both implants are
available in either
straight or tapered
configurations and are
placed using one surgical
kit.
    
    Commercial salesRENOVA®
Internal Hex Dental
Implant System
    
    Major clinical segment
utilizing internal hex
connection providing
increased stability;
available in both
straight and tapered
implant systems offering
flexibility of clinical
treatment.
    
    Commercial sales
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PRODUCT
    
    BENEFIT / APPLICATION
    
    STATUSRESTORE® External Hex Dental
Implant Systems
    
    Time proven
external hex
implants with
industry leading
prosthetic fit and
familiar
surgical/restorative
procedures.
    
    Commercial salesSTAGE-1® Single Stage
Implant System
    
    Provides the
timesaving benefits
of a one-stage
surgical procedure
with the
restorative
simplicity and
reliability of a
Morse taper
prosthetic
connection.
    
    Commercial salesQuick-Cap® Impression System
    
    Increases the ease
and efficiency of
the implant
restoration
process.
    
    Commercial salesBONE
REGENERATIONCALMATRIX® Calcium Sulfate
Bone Graft Binder
    
    Combined with bone
graft material,
CALMATRIX® forms a
putty-like
composite that
fills osseous or
periodontal defects
to regenerate bone.
    
    Commercial salesCALFORMA® Calcium Sulfate
Bone Graft Barrier
    
    CALFORMA®
is a shapeable
putty-like
containment barrier
that covers
intra-oral defects
and provides
protection and
undisturbed space
for regeneration.
    
    Commercial salesCAPSET®Calcium Sulfate Bone
Graft Barrier, including SlowSet
Version
    
    For use with
natural and
synthetic bone
graft materials as
a resorbable
barrier cap and/or
binding agent.
    
    Commercial salesTefGen® Regenerative Membrane
    
    Non-resorbable
membrane for
assisting the
regeneration of
bone defects.
    
    Commercial sales
 Implant Products
  ®
 ®
 ®
 ® ®
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®
 Bone Regeneration Products
  ® ® ®
 ®
 Product Development
  Sales and Marketing
 Hyaluronan Division Products
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Oral Restorative Division Products
   Manufacturing
       9




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®
 Competition
  Hyaluronan Products
    Oral Restorative Products
    10




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Patents and Proprietary Rights
 ®
   Government Regulation
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Product Liability
  Seasonality
  Employees
  Executive Officers of the Registrant
  Dennis J. Allingham.
 Larry D. Hiebert.
 David M. Noel.
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Kipling Thacker, Ph.D.
 Ben C. Beckham
 James G. Hall.
 
 Item 1A. Risk Factors
  The Companys business could be adversely affected if it is not able to successfully compete
against the competitors in the human health care products industry.
     If Lifecore is unable to successfully protect its proprietary technology or if it is unable to
maintain a competitive technological position in its product areas, its business will be adversely
affected
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The Companys business will be adversely affected if it is unable to obtain regulatory approval for
new product introductions or to expand sales of existing products into new markets.
   The Company is exposed to the risks of operating a global business, including risks associated with
exchange rate fluctuations, legal and regulatory changes and the impact of regional and global
economic disruptions, which could have an adverse effect on the Companys business.
  
    
    Periodic local or geographic economic downturns and unstable political conditions;
    
    Price and currency exchange controls;
    
    Fluctuation in the relative values of currencies;
    
    Difficulties protecting intellectual property;
    
    Local labor disputes;
    
    Shipping delays and disruptions;
    
    Increases in shipping costs, caused by
increased fuel costs or otherwise, which we
may not be able to pass on to our
customers;
    
    Unexpected changes in trading policies, regulatory requirements, tariffs and other barriers; and
    
    Difficulties in managing a global
enterprise, including staffing, collecting
accounts receivable, managing suppliers,
distributors and representatives, and
repatriation of earnings.
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
    
    The risk of more frequent instances of shipping delays; and
    
    The risk that demand for our products may not increase or may decrease.
 The development of new hyaluronan products entails substantial risk of failure and uncertainty
related to timing, and a significant amount of the Companys anticipated growth is dependent on its
ability to develop, manufacture and market new product applications for hyaluronan.
  The Company is dependent on the marketing and development support from corporate partners for the
sales growth of the Hyaluronan Division, and the Companys business could be adversely affected if
the Companys strategic alliances fail to develop or market products as planned.
    If the Company is unable to scale up manufacturing operations in the event of a significant
increase in customer demand, the Companys business could be adversely affected.
  16




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An interruption in the Companys manufacturing activities could adversely affect the Companys
relations with its customers.
  There is uncertainty and risk that FeHA will not be returned to the market, which would negatively
impact the Companys future revenue potential.
  The markets for the Companys dental products are very competitive, and the Companys results
of operations and financial condition could be adversely affected if it cannot maintain or increase
the market share of these products.
  The Company may be subject to product liability claims and other legal proceedings which could have
a material adverse effect on the Companys business, financial condition and results of operations.
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Failure to maintain effective internal controls could have a material adverse effect on the
Companys business, operating results and stock price.
  The Companys tax rates are subject to fluctuation, which could impact its financial position, and
its estimates of tax liabilities may be subject to audit, which could result in additional
assessments.
   The Companys business could be adversely affected if it were to lose the services of its key
management employees.
  Market prices for securities of medical technology companies are highly volatile, and the trading
price of the Companys Common Stock is subject to significant fluctuations.
  
 Item 1B. Unresolved Staff Comments
  18




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Item 2. Properties
  
 Item 3. Legal Proceedings
   Shumbo-Poissant v. ETHICON, Inc., et al.
   
 Item 4. Submission of Matters to a Vote of Security Holders
  19




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
  Fiscal year
    
    Low
    
    High2006First Quarter
    
    $
    10.60
    
    
    $
    13.97Second Quarter
    
    
    11.65
    
    
    
    16.51Third Quarter
    
    
    11.36
    
    
    
    15.99Fourth Quarter
    
    
    11.69
    
    
    
    16.162005First Quarter
    
    $
    4.86
    
    
    $
    7.14Second Quarter
    
    
    6.98
    
    
    
    11.59Third Quarter
    
    
    10.13
    
    
    
    18.09Fourth Quarter
    
    
    10.07
    
    
    
    17.20
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Item 6. Selected Financial Data
 SELECTED CONSOLIDATED FINANCIAL DATA
  Years Ended June 30,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Statements of Operations Data:Net sales
    
    $
    63,097
    
    
    $
    55,695
    
    
    $
    47,424
    
    
    $
    42,800
    
    
    $
    39,139Costs of goods sold
    
    
    23,892
    
    
    
    22,387
    
    
    
    20,871
    
    
    
    20,738
    
    
    
    22,461Gross profit
    
    
    39,205
    
    
    
    33,308
    
    
    
    26,553
    
    
    
    22,062
    
    
    
    16,678Operating expensesResearch and development
    
    
    3,814
    
    
    
    4,212
    
    
    
    4,519
    
    
    
    4,067
    
    
    
    4,865Marketing and sales
    
    
    17,454
    
    
    
    14,851
    
    
    
    13,782
    
    
    
    12,353
    
    
    
    10,774General and administrative
    
    
    7,061
    
    
    
    6,175
    
    
    
    6,372
    
    
    
    5,543
    
    
    
    5,035Restructuring charges
    
    
    
    
    
    
    
    
    
    
    1,136
    
    
    
    
    
    
    
    28,329
    
    
    
    25,238
    
    
    
    25,809
    
    
    
    21,963
    
    
    
    20,674Operating income (loss)
    
    
    10,876
    
    
    
    8,070
    
    
    
    744
    
    
    
    99
    
    
    
    (3,996
    )Other income (expense), net
    
    
    544
    
    
    
    312
    
    
    
    130
    
    
    
    (367
    )
    
    
    (684
    )Income (loss) before income taxes
    
    
    11,420
    
    
    
    8,382
    
    
    
    874
    
    
    
    (268
    )
    
    
    (4,680
    )Provision (benefit) for income taxes
    
    
    4,380
    
    
    
    (9,129
    )
    
    
    167
    
    
    
    87
    
    
    
    37Net income (loss)
    
    $
    7,040
    
    
    $
    17,511
    
    
    $
    707
    
    
    $
    (355
    )
    
    $
    (4,717
    )Net income (loss) per common shareBasic
    
    $
    0.54
    
    
    $
    1.35
    
    
    $
    0.05
    
    
    $
    (0.03
    )
    
    $
    (0.37
    )Diluted
    
    $
    0.52
    
    
    $
    1.31
    
    
    $
    0.05
    
    
    $
    (0.03
    )
    
    $
    (0.37
    )Weighted average common and common
equivalent shares outstandingBasic
    
    
    13,150
    
    
    
    12,975
    
    
    
    12,898
    
    
    
    12,882
    
    
    
    12,802Diluted
    
    
    13,562
    
    
    
    13,345
    
    
    
    12,958
    
    
    
    12,882
    
    
    
    12,802
 As of June 30,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Balance Sheet Data:Working capital
    
    $
    50,470
    
    
    $
    36,189
    
    
    $
    21,692
    
    
    $
    18,511
    
    
    $
    17,783Total assets
    
    
    89,238
    
    
    
    79,866
    
    
    
    60,318
    
    
    
    58,352
    
    
    
    60,096Long-term obligations, less current maturities
    
    
    4,804
    
    
    
    5,089
    
    
    
    5,809
    
    
    
    5,969
    
    
    
    6,114Shareholders equity
    
    
    77,536
    
    
    
    67,861
    
    
    
    48,826
    
    
    
    48,394
    
    
    
    48,548
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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Critical Accounting Policies
  Revenue Recognition:
  Allowance for Uncollectible Accounts Receivable:
  Inventories:
  Goodwill, Intangible and Other Long-Lived Assets:
    Accounting for Income Taxes:
  22




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Stock-based compensation:
  Recent Accounting Pronouncements
  General
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®
  Acquisition of Bardo-Biotech SAS
   Results of Operations
 Year ended June 30, 2006 compared with year ended June 30, 2005
 Hyaluronan
    
    
    Oral RestorativeDivision
    
    
    Division
    
    
    Consolidated2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    20,151,000
    
    
    $
    18,528,000
    
    
    $
    42,946,000
    
    
    $
    37,167,000
    
    
    $
    63,097,000
    
    
    $
    55,695,000Cost of goods sold
    
    
    9,204,000
    
    
    
    9,159,000
    
    
    
    14,688,000
    
    
    
    13,228,000
    
    
    
    23,892,000
    
    
    
    22,387,000Gross profit
    
    
    10,947,000
    
    
    
    9,369,000
    
    
    
    28,258,000
    
    
    
    23,939,000
    
    
    
    39,205,000
    
    
    
    33,308,000Operating expensesResearch and development
    
    
    2,301,000
    
    
    
    3,073,000
    
    
    
    1,513,000
    
    
    
    1,139,000
    
    
    
    3,814,000
    
    
    
    4,212,000Marketing and sales
    
    
    670,000
    
    
    
    512,000
    
    
    
    16,784,000
    
    
    
    14,339,000
    
    
    
    17,454,000
    
    
    
    14,851,000General and administrative
    
    
    2,692,000
    
    
    
    2,299,000
    
    
    
    4,369,000
    
    
    
    3,876,000
    
    
    
    7,061,000
    
    
    
    6,175,0005,663,000
    
    
    
    5,884,000
    
    
    
    22,666,000
    
    
    
    19,354,000
    
    
    
    28,329,000
    
    
    
    25,238,000Operating income
    
    $
    5,284,000
    
    
    $
    3,485,000
    
    
    $
    5,592,000
    
    
    $
    4,585,000
    
    
    $
    10,876,000
    
    
    $
    8,070,000
 Net Sales.
  24




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®
 Gross profit.
  Research and development.
 Marketing and sales.
 General and administrative.
 Other income (expense).
 Provision (benefit) for income taxes.
  25




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Year ended June 30, 2005 compared with year ended June 30, 2004
 Hyaluronan
    
    
    Oral RestorativeDivision
    
    
    Division
    
    
    Consolidated2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    $
    18,528,000
    
    
    $
    15,741,000
    
    
    $
    37,167,000
    
    
    $
    31,683,000
    
    
    $
    55,695,000
    
    
    $
    47,424,000Cost of goods sold
    
    
    9,159,000
    
    
    
    9,205,000
    
    
    
    13,228,000
    
    
    
    11,666,000
    
    
    
    22,387,000
    
    
    
    20,871,000Gross profit
    
    
    9,369,000
    
    
    
    6,536,000
    
    
    
    23,939,000
    
    
    
    20,017,000
    
    
    
    33,308,000
    
    
    
    26,553,000Operating expensesResearch and development
    
    
    3,073,000
    
    
    
    3,467,000
    
    
    
    1,139,000
    
    
    
    1,052,000
    
    
    
    4,212,000
    
    
    
    4,519,000Marketing and sales
    
    
    512,000
    
    
    
    508,000
    
    
    
    14,339,000
    
    
    
    13,274,000
    
    
    
    14,851,000
    
    
    
    13,782,000General and administrative
    
    
    2,299,000
    
    
    
    2,417,000
    
    
    
    3,876,000
    
    
    
    3,955,000
    
    
    
    6,175,000
    
    
    
    6,372,000Restructuring charges
    
    
    
    
    
    
    523,000
    
    
    
    
    
    
    
    613,000
    
    
    
    
    
    
    
    1,136,0005,884,000
    
    
    
    6,915,000
    
    
    
    19,354,000
    
    
    
    18,894,000
    
    
    
    25,238,000
    
    
    
    25,809,000Operating income (loss)
    
    $
    3,485,000
    
    
    $
    (379,000
    )
    
    $
    4,585,000
    
    
    $
    1,123,000
    
    
    $
    8,070,000
    
    
    $
    744,000
 Net Sales.
  ® ®
 Gross profit.
  26




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Research and development.
 Marketing and sales.
 General and administrative.
 Other income (expense).
 Provision (benefit) for income taxes
   Liquidity and Capital Resources
  Cash Provided by Operating Activities.
 27




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Cash Used in Investing Activities
 Cash Provided by Financing Activities.
    Off-Balance Sheet Arrangements
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Contractual Obligations
  Payments due by periodLess than
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    1 Year
    
    1-3 Years
    
    3-5 Years
    
    5 YearsLong-term debt
    
    $
    5,094,000
    
    
    $
    290,000
    
    
    $
    618,000
    
    
    $
    654,000
    
    
    $
    3,532,000Interest on long-term debt (1)
    
    
    2,431,000
    
    
    
    298,000
    
    
    
    555,000
    
    
    
    497,000
    
    
    
    1,081,000Operating leases
    
    
    466,000
    
    
    
    213,000
    
    
    
    228,000
    
    
    
    25,000
    
    
    
    Purchase obligations
    
    
    4,699,048
    
    
    
    4,699,048
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    12,690,048
    
    
    $
    5,500,048
    
    
    $
    1,401,000
    
    
    $
    1,176,000
    
    
    $
    4,613,000
 
 (1)
    
    Long-term debt bears interest at a variable rate set weekly by the bond remarketing
agent. A rate of 4.5% was used for the variable portion for the above table. See Note C to the
Companys Consolidated Financial Statements. Seasonality
  Cautionary Statement
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
 Item 8. Financial Statements and Supplementary Data
  Quarter (Unaudited)First
    
    
    Second
    
    
    Third
    
    
    FourthYear ended June 30, 2006Net sales
    
    $
    13,425,000
    
    
    $
    15,209,000
    
    
    $
    16,775,000
    
    
    $
    17,688,000Gross profit
    
    
    8,362,000
    
    
    
    9,101,000
    
    
    
    10,567,000
    
    
    
    11,175,000Net income
    
    
    1,045,000
    
    
    
    1,391,000
    
    
    
    2,193,000
    
    
    
    2,411,000Net income per shareBasic
    
    $
    0.08
    
    
    $
    0.11
    
    
    $
    0.17
    
    
    $
    0.18Diluted
    
    $
    0.08
    
    
    $
    0.10
    
    
    $
    0.16
    
    
    $
    0.18Weighted average common and common
equivalent shares outstandingBasic
    
    
    13,059,567
    
    
    
    13,163,429
    
    
    
    13,180,859
    
    
    
    13,195,771Diluted
    
    
    13,460,056
    
    
    
    13,685,687
    
    
    
    13,572,205
    
    
    
    13,652,548Year ended June 30, 2005Net sales
    
    $
    12,305,000
    
    
    $
    14,218,000
    
    
    $
    14,247,000
    
    
    $
    14,925,000Gross profit
    
    
    7,209,000
    
    
    
    8,763,000
    
    
    
    8,660,000
    
    
    
    8,676,000Net income
    
    
    1,279,000
    
    
    
    2,380,000
    
    
    
    2,108,000
    
    
    
    11,744,000
    (1)Net income per shareBasic
    
    $
    0.10
    
    
    $
    0.18
    
    
    $
    0.16
    
    
    $
    0.90
    (1)Diluted
    
    $
    0.10
    
    
    $
    0.18
    
    
    $
    0.15
    
    
    $
    0.87
    (1)Weighted average common and common
equivalent shares outstandingBasic
    
    
    12,932,606
    
    
    
    12,945,903
    
    
    
    12,993,379
    
    
    
    13,028,016Diluted
    
    
    12,965,549
    
    
    
    13,270,519
    
    
    
    13,670,465
    
    
    
    13,544,347
 
 (1)
    
    Includes the effect of reversing the domestic deferred tax asset valuation allowance of
$11.9 million. 30




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls
  Managements Responsibility for Financial Information
    Managements Report on Internal Control over Financial Reporting
  Internal Control  Integrated
Framework
  31




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
 Internal Control  Integrated Framework
    Internal Control 
Integrated Framework Internal Control  Integrated
Framework
   
 
 Item 9B. Other Information
  32




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##### Table of Contents



PART III
 
 Item 10. Directors and Executive Officers of the Registrant
   
 Item 11. Executive Compensation
   
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  Securities authorized for issuance under equity compensation plans
  Number of securitiesremaining available forfuture issuance underNumber of securities to
    
    
    Weighted-average
    
    
    equity compensationbe issued upon exercise
    
    
    exercise price of
    
    
    plans (excludingof outstanding options,
    
    
    outstanding options,
    
    
    securities reflected inwarrants and rights
    
    
    warrants and rights
    
    
    column (a))Plan Category
    
    ( a )
    
    
    ( b )
    
    
    ( c )Equity compensation plans approved by
security holders:
    
    
    1,678,806
    (1)
    
    $
    10.73
    
    
    
    3,260,861
    (2)Equity compensation plans not approved by
security holders:
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,678,806
    
    
    $
    10.73
    
    
    
    3,260,861
 
 (1)
    
    Includes the Companys 1990 Stock Plan and 1996 Stock Plan.(2)
    
    Excludes 60,333 shares of restricted stock granted by the Company under the 1996 Stock Plan. 33




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##### Table of Contents



Item 13. Certain Relationships and Related Transactions
  
 Item 14. Principal Accounting Fees and Services
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
  1.
    
    Consolidated Financial Statements
 Form 10-KPage ReferenceReport of Independent Registered Public Accounting Firm
    
    F-1Consolidated Balance Sheets  June 30, 2006 and 2005
    
    F-2 and F-3Consolidated Statements of Operations  years ended June 30, 2006,
2005 and 2004
    
    F-4Consolidated Statements of Shareholders Equity  years ended June 30, 2006,
2005 and 2004
    
    F-5Consolidated Statements of Cash Flows  years ended June 30, 2006,
2005 and 2004
    
    F-6Notes to Consolidated Financial Statements
    
    F-7 through F-192.
    
    Consolidated Financial Statement ScheduleSchedule II  Valuation and Qualifying Accounts
    
    S-13.
    
    Exhibits
 Description2.1+
    
    Stock Purchase Agreement between ISS and Lifecore dated July 28, 1993 (includes $2 million 5% Promissory Note
dated July 28, 1993 as Exhibit A and Security Agreement as Exhibit B) (incorporated by reference to Exhibit 2.1 to
Form 8-K dated July 8, 1993)3.1
    
    Amended and Restated Articles of Incorporation, as adopted on January 18, 2006 (incorporated by reference to
Exhibit 3.1 to 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 Form 8-K filed on
January 24, 2006)
 34




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##### Table of Contents



Description4.1
    
    Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to 1987 S-2 Registration Statement
[File No. 33-12970])4.2
    
    Indenture of Trust, dated as of August 1, 2004, between City of Chaska, Minnesota and Wells Fargo Bank, National
Association (incorporated by reference to Exhibit 4.2 to Form 10-K for the year ended June 30, 2004)10.1+
    
    Hyaluronan Purchase Agreement dated March 28, 1990 between the Company and Alcon (incorporated by reference to
Exhibit 10 to Form 8-K dated April 10, 1990, as amended on Form 8 dated May 23, 1990) as amended on July 17, 1992
(incorporated by reference to Exhibit 10.5 to Form 10-K for the year ended June 30, 1992)10.2*
    
    Form of Indemnification Agreement entered into between the Company and directors and officers (incorporated by
reference to Exhibit 10.7 to Form 10-K for the year ended June 30, 1995)10.3*
    
    1990 Stock Plan (incorporated by reference to Exhibit 4(a) to S-8 Registration Statement [File No. 33-38914]) as
amended by Amendment No. 1 (incorporated by reference to Exhibit 10.13 to Form 10-K for the year ended June 30,
1994), as amended by Amendment No. 2 (incorporated by reference to Exhibit 10.11 to Form 10-K for the year ended
June 30, 1997)10.4+
    
    Conveyance, License, Development and Supply Agreement dated August 8, 1994 between Lifecore Biomedical, Inc. and
ETHICON, INC. (incorporated by reference to Exhibit 10.14 to Form 10-K for the year ended June 30, 1994)10.5*
    
    1996 Stock Option Plan, as amended to date (incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter
ended December 31, 2005)10.6*
    
    2003 Stock Incentive Plan (incorporated by reference to Exhibit 10.6 to Form 10-K for the year ended June 30, 2004)10.7
    
    Revolving Credit and Security Agreement dated December 18, 2002 between M & I Marshall & Ilsley Bank and the
Company (incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended December 31, 2002)10.8
    
    Amendment No. 1 to Revolving Credit and Security Agreement dated June 27, 2003 between M & I Marshall & Ilsley
Bank and the Company (incorporated by reference to Exhibit 10.21 to Form 10-K for the year ended June 30, 2003)10.9
    
    Loan Agreement, dated as of August 1, 2004, between City of Chaska, Minnesota and the Company (incorporated by
reference to Exhibit 10.9 to Form 10-K for the year ended June 30, 2004)10.10
    
    Remarketing Agreement, dated as of August 1, 2004, between the Company and Northland Securities, Inc.
(incorporated by reference to Exhibit 10.10 to Form 10-K for the year ended June 30, 2004)10.11
    
    Tax Exemption Agreement, dated as of August 1, 2004, between City of Chaska, Minnesota, the Company and Wells
Fargo Bank, National Association (incorporated by reference to Exhibit 10.11 to Form 10-K for the year ended June
30, 2004)10.12
    
    Irrevocable Letter of Credit, dated as of August 19, 2004, from M&I Marshall & Ilsley Bank to Wells Fargo Bank,
National Association (incorporated by reference to Exhibit 10.12 to Form 10-K for the year ended June 30, 2004)10.13
    
    Reimbursement Agreement, dated as of August 1, 2004, between the Company and M&I Marshall & Ilsley Bank
(incorporated by reference to Exhibit 10.13 to Form 10-K for the year ended June 30, 2004)10.14
    
    Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Financing Statement, dated as of August
1, 2004, from the Company to M&I Marshall & Ilsley Bank (incorporated by reference to Exhibit 10.14 to Form 10-K
for the year ended June 30, 2004)10.15
    
    Security Agreement, dated as of August 1, 2004, from the Company to M&I Marshall & Ilsley Bank (incorporated by
reference to Exhibit 10.15 to Form 10-K for the year ended June 30, 2004)10.16
    
    Pledge and Security Agreement, dated as of August 1, 2004, between the Company, M&I Marshall & Ilsley Bank and
Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.16 to Form 10-K for the year ended
June 30, 2004)10.17
    
    Bond Purchase Agreement, dated as of August 19, 2004, by and between City of Chaska, Minnesota, the Company and
Northland Securities, Inc. (incorporated by reference to Exhibit 10.17 to Form 10-K for the year ended June 30,
2004)
 35




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##### Table of Contents



Description10.18*
    
    Form of Restricted Stock Agreement for participants under the Lifecore Biomedical, Inc. 1996 Stock Plan
(incorporated by reference to Exhibit 10.1 to Form 8-K filed on November 1, 2004)10.19*
    
    Form of Option Agreement for employees under the Lifecore Biomedical, Inc. 1996 Stock Plan (incorporated by
reference to Exhibit 10.1 to Form 10-Q for the quarter ended September 30, 2004)10.20*
    
    Form of Option Agreement for directors under the Lifecore Biomedical, Inc. 1996 Stock Plan (incorporated by
reference to Exhibit 10.2 to Form 10-Q for the quarter ended September 30, 2004)10.21*
    
    Form of Change of Control Agreement between the Company and certain executive officers (incorporated by reference
to Exhibit 10.3 to Form 10-Q for the quarter ended September 30, 2004)10.22*
    
    Change of Control Agreement, dated as of June 17, 2004, between the Company and Dennis J. Allingham (incorporated
by reference to Exhibit 10.4 to Form 10-Q for the quarter ended September 30, 2004)10.23*
    
    Form of Noncompetition Agreement between the Company and certain executive officers (incorporated by reference to
Exhibit 10.5 to Form 10-Q for the quarter ended September 30, 2004)10.24
    
    Amendment No. 2 dated November 17, 2004 to the Revolving Credit and Security Agreement between the Company and M&I
Marshall & Ilsley Bank (incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended December 31,
2004)10.25+
    
    Supply Agreement, dated December 22, 2004, between the Company and Alcon Pharmaceuticals Ltd., a subsidiary of
Alcon, Inc. (incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter ended December 31, 2004)10.26*
    
    Noncompetition and Nonsolicitation Agreement, dated January 7, 2005, between the Company and Kipling Thacker,
Ph.D. (incorporated by reference to Exhibit 10.3 to Form 10-Q for the quarter ended December 31, 2004)10.27*
    
    Separation Agreement, dated May 10, 2005, between the Company and Andre P. Decarie (incorporated by reference to
Exhibit 10.27 to Form 10-K for the year ended June 30, 2005)10.28*
    
    Noncompetition and Nonsolicitation Agreement, dated January 3, 2006, between the Company and Benjamin C. Beckham10.29*
    
    Noncompetition and Nonsolicitation Agreement, dated July 10, 2006, between the Company and James G. Hall10.30*
    
    Description of the Companys program permitting directors to receive monthly retainer fees in the form of the
Companys common stock (incorporated by reference to the program description set forth under Item 1.01 in Form 8-K
filed on December 13, 2005)21.1
    
    Subsidiaries of the Company23.1
    
    Consent of Independent Registered Public Accounting Firm31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 +
    
    Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, confidential portions of these exhibits
have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.*
    
    Denotes management contract or compensatory plan, contract or arrangement. 36




---



##### Table of Contents



SIGNATURES
  LIFECORE BIOMEDICAL, INC.Dated: September 13, 2006
    
    /s/ Dennis j. allinghamDennis J. AllinghamPresident, Chief Executive Officerand Secretary
  Dated: September 13, 2006
    
    /s/ Dennis j. allinghamDennis J. AllinghamPresident, Chief Executive Officer, Secretary and Director(principal executive officer)Dated: September 13, 2006
    
    /s/ David m. noelDavid M. NoelVice President of Finance and Chief Financial Officer(principal financial and accounting officer)Dated: September 13, 2006
    
    /s/ Orwin L. CarterOrwin L. CarterDirectorDated: September 13, 2006
    
    /s/ Martin J. EmersonMartin J. EmersonDirectorDated: September 13, 2006
    
    /s/ Joan L. GardnerJoan L. GardnerDirectorDated: September 13, 2006
    
    /s/ Thomas H. GarrettThomas H. GarrettDirectorDated: September 13, 2006
    
    /s/ luther t. griffithLuther T. GriffithDirectorDated: September 13, 2006
    
    /s/ Richard W. PerkinsRichard W. PerkinsDirectorDated: September 13, 2006
    
    /s/ John e. RunnellsJohn E. RunnellsDirector
 37




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##### Table of Contents



Exhibit Index
 Description2.1+
    
    Stock Purchase Agreement between ISS and Lifecore dated July 28, 1993 (includes $2 million 5% Promissory Note
dated July 28, 1993 as Exhibit A and Security Agreement as Exhibit B) (incorporated by reference to Exhibit 2.1 to
Form 8-K dated July 8, 1993)3.1
    
    Amended and Restated Articles of Incorporation, as adopted on January 18, 2006 (incorporated by reference to
Exhibit 3.1 to 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 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
    
    Indenture of Trust, dated as of August 1, 2004, between City of Chaska, Minnesota and Wells Fargo Bank, National
Association (incorporated by reference to Exhibit 4.2 to Form 10-K for the year ended June 30, 2004)10.1+
    
    Hyaluronan Purchase Agreement dated March 28, 1990 between the Company and Alcon (incorporated by reference to
Exhibit 10 to Form 8-K dated April 10, 1990, as amended on Form 8 dated May 23, 1990) as amended on July 17, 1992
(incorporated by reference to Exhibit 10.5 to Form 10-K for the year ended June 30, 1992)10.2*
    
    Form of Indemnification Agreement entered into between the Company and directors and officers (incorporated by
reference to Exhibit 10.7 to Form 10-K for the year ended June 30, 1995)10.3*
    
    1990 Stock Plan (incorporated by reference to Exhibit 4(a) to S-8 Registration Statement [File No. 33-38914]) as
amended by Amendment No. 1 (incorporated by reference to Exhibit 10.13 to Form 10-K for the year ended June 30,
1994), as amended by Amendment No. 2 (incorporated by reference to Exhibit 10.11 to Form 10-K for the year ended
June 30, 1997)10.4+
    
    Conveyance, License, Development and Supply Agreement dated August 8, 1994 between Lifecore Biomedical, Inc. and
ETHICON, INC. (incorporated by reference to Exhibit 10.14 to Form 10-K for the year ended June 30, 1994)10.5*
    
    1996 Stock Option Plan, as amended to date (incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter
ended December 31, 2005)10.6*
    
    2003 Stock Incentive Plan (incorporated by reference to Exhibit 10.6 to Form 10-K for the year ended June 30, 2004)10.7
    
    Revolving Credit and Security Agreement dated December 18, 2002 between M & I Marshall & Ilsley Bank and the
Company (incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended December 31, 2002)10.8
    
    Amendment No. 1 to Revolving Credit and Security Agreement dated June 27, 2003 between M & I Marshall & Ilsley
Bank and the Company (incorporated by reference to Exhibit 10.21 to Form 10-K for the year ended June 30, 2003)10.9
    
    Loan Agreement, dated as of August 1, 2004, between City of Chaska, Minnesota and the Company (incorporated by
reference to Exhibit 10.9 to Form 10-K for the year ended June 30, 2004)10.10
    
    Remarketing Agreement, dated as of August 1, 2004, between the Company and Northland Securities, Inc.
(incorporated by reference to Exhibit 10.10 to Form 10-K for the year ended June 30, 2004)10.11
    
    Tax Exemption Agreement, dated as of August 1, 2004, between City of Chaska, Minnesota, the Company and Wells
Fargo Bank, National Association (incorporated by reference to Exhibit 10.11 to Form 10-K for the year ended June
30, 2004)10.12
    
    Irrevocable Letter of Credit, dated as of August 19, 2004, from M&I Marshall & Ilsley Bank to Wells Fargo Bank,
National Association (incorporated by reference to Exhibit 10.12 to Form 10-K for the year ended June 30, 2004)10.13
    
    Reimbursement Agreement, dated as of August 1, 2004, between the Company and M&I Marshall & Ilsley Bank
(incorporated by reference to Exhibit 10.13 to Form 10-K for the year ended June 30, 2004)10.14
    
    Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Financing Statement, dated as of August
1, 2004, from the Company to M&I Marshall & Ilsley Bank (incorporated by reference to Exhibit 10.14 to Form 10-K
for the year ended June 30, 2004)
 38




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##### Table of Contents



Description10.15
    
    Security Agreement, dated as of August 1, 2004, from the Company to M&I Marshall & Ilsley Bank (incorporated by
reference to Exhibit 10.15 to Form 10-K for the year ended June 30, 2004)10.16
    
    Pledge and Security Agreement, dated as of August 1, 2004, between the Company, M&I Marshall & Ilsley Bank and
Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.16 to Form 10-K for the year ended
June 30, 2004)10.17
    
    Bond Purchase Agreement, dated as of August 19, 2004, by and between City of Chaska, Minnesota, the Company and
Northland Securities, Inc. (incorporated by reference to Exhibit 10.17 to Form 10-K for the year ended June 30,
2004)10.18*
    
    Form of Restricted Stock Agreement for participants under the Lifecore Biomedical, Inc. 1996 Stock Plan
(incorporated by reference to Exhibit 10.1 to Form 8-K filed on November 1, 2004)10.19*
    
    Form of Option Agreement for employees under the Lifecore Biomedical, Inc. 1996 Stock Plan (incorporated by
reference to Exhibit 10.1 to Form 10-Q for the quarter ended September 30, 2004)10.20*
    
    Form of Option Agreement for directors under the Lifecore Biomedical, Inc. 1996 Stock Plan (incorporated by
reference to Exhibit 10.2 to Form 10-Q for the quarter ended September 30, 2004)10.21*
    
    Form of Change of Control Agreement between the Company and certain executive officers (incorporated by reference
to Exhibit 10.3 to Form 10-Q for the quarter ended September 30, 2004)10.22*
    
    Change of Control Agreement, dated as of June 17, 2004, between the Company and Dennis J. Allingham (incorporated
by reference to Exhibit 10.4 to Form 10-Q for the quarter ended September 30, 2004)10.23*
    
    Form of Noncompetition Agreement between the Company and certain executive officers (incorporated by reference to
Exhibit 10.5 to Form 10-Q for the quarter ended September 30, 2004)10.24
    
    Amendment No. 2 dated November 17, 2004 to the Revolving Credit and Security Agreement between the Company and M&I
Marshall & Ilsley Bank (incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended December 31,
2004)10.25+
    
    Supply Agreement, dated December 22, 2004, between the Company and Alcon Pharmaceuticals Ltd., a subsidiary of
Alcon, Inc. (incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter ended December 31, 2004)10.26*
    
    Noncompetition and Nonsolicitation Agreement, dated January 7, 2005, between the Company and Kipling Thacker,
Ph.D. (incorporated by reference to Exhibit 10.3 to Form 10-Q for the quarter ended December 31, 2004)10.27*
    
    Separation Agreement, dated May 10, 2005, between the Company and Andre P. Decarie (incorporated by reference to
Exhibit 10.27 to Form 10-K for the year ended June 30, 2005)10.28*
    
    Noncompetition and Nonsolicitation Agreement, dated January 3, 2006, between the Company and Benjamin C. Beckham10.29*
    
    Noncompetition and Nonsolicitation Agreement, dated July 10, 2006, between the Company and James G. Hall10.30*
    
    Description of the Companys program permitting directors to receive monthly retainer fees in the form of the
Companys common stock (incorporated by reference to the program description set forth under Item 1.01 in Form 8-K
filed on December 13, 2005)21.1
    
    Subsidiaries of the Company23.1
    
    Consent of Independent Registered Public Accounting Firm31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 +
    
    Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, confidential portions of these exhibits
have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for
 confidential treatment.*
    
    Denotes management contract or compensatory plan, contract or arrangement. 39




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     Internal ControlIntegrated
Framework
  
 F - 1




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##### Table of Contents



Lifecore Biomedical, Inc. and Subsidiaries
 CONSOLIDATED BALANCE SHEETS
June 30,
  ASSETS2006
    
    
    2005CURRENT ASSETSCash and cash equivalents
    
    $
    26,638,000
    
    
    $
    18,508,000Accounts receivable, less allowances
    
    
    12,564,000
    
    
    
    10,171,000Inventories
    
    
    12,217,000
    
    
    
    9,456,000Deferred income taxes, net
    
    
    4,865,000
    
    
    
    4,190,000Prepaid expenses
    
    
    1,084,000
    
    
    
    780,000Total current assets
    
    
    57,368,000
    
    
    
    43,105,000PROPERTY, PLANT AND EQUIPMENT  AT COSTLand
    
    
    249,000
    
    
    
    249,000Building
    
    
    23,970,000
    
    
    
    23,970,000Equipment
    
    
    21,657,000
    
    
    
    19,669,000Land and building improvements
    
    
    3,512,000
    
    
    
    3,512,00049,388,000
    
    
    
    47,400,000Less accumulated depreciation
    
    
    (26,138,000
    )
    
    
    (24,211,000
    )23,250,000
    
    
    
    23,189,000OTHER ASSETSIntangibles, net
    
    
    5,201,000
    
    
    
    4,799,000Inventories
    
    
    1,406,000
    
    
    
    2,409,000Deferred income taxes, net
    
    
    1,694,000
    
    
    
    6,062,000Other
    
    
    319,000
    
    
    
    302,0008,620,000
    
    
    
    13,572,000$
    89,238,000
    
    
    $
    79,866,000
 F - 2




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##### Table of Contents



Lifecore Biomedical, Inc. and Subsidiaries
 CONSOLIDATED BALANCE SHEETS   (continued)
June 30,
 LIABILITIES AND SHAREHOLDERS EQUITY
    
    2006
    
    
    2005
    





CURRENT LIABILITIESCurrent maturities of long-term obligations
    
    $
    290,000
    
    
    $
    285,000Accounts payable
    
    
    3,212,000
    
    
    
    3,418,000Accrued compensation
    
    
    1,847,000
    
    
    
    1,920,000Accrued expenses
    
    
    1,549,000
    
    
    
    1,293,000Total current liabilities
    
    
    6,898,000
    
    
    
    6,916,000LONG-TERM OBLIGATIONS, LESS CURRENT MATURITIES
    
    
    4,804,000
    
    
    
    5,089,000COMMITMENTS AND CONTINGENCIES
    
    
    
    
    
    
    SHAREHOLDERS EQUITYPreferred stock  authorized, 25,000,000 shares of $1.00 stated
value; none issued
    
    
    
    
    
    
    Preferred stock, Series A Junior Participating  authorized,
500,000 shares of $1.00 par value; none issued
    
    
    
    
    
    
    Common stock  authorized, 50,000,000 shares of
$.01 stated value; issued and outstanding, 13,228,355 and
13,054,312 shares at June 30, 2006 and 2005
    
    
    132,000
    
    
    
    130,000Accumulated currency translation adjustment
    
    
    (452,000
    )
    
    
    (656,000
    )Additional paid-in capital
    
    
    93,302,000
    
    
    
    91,194,000Deferred stock-based compensation
    
    
    
    
    
    
    (321,000
    )Accumulated deficit
    
    
    (15,446,000
    )
    
    
    (22,486,000
    )77,536,000
    
    
    
    67,861,000$
    89,238,000
    
    
    $
    79,866,000
  F - 3




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##### Table of Contents



Lifecore Biomedical, Inc. and Subsidiaries
 CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30,
 2006
    
    
    2005
    
    
    2004Net sales
    
    $
    63,097,000
    
    
    $
    55,695,000
    
    
    $
    47,424,000Cost of goods sold
    
    
    23,892,000
    
    
    
    22,387,000
    
    
    
    20,871,000Gross profit
    
    
    39,205,000
    
    
    
    33,308,000
    
    
    
    26,553,000Operating expensesResearch and development
    
    
    3,814,000
    
    
    
    4,212,000
    
    
    
    4,519,000Marketing and sales
    
    
    17,454,000
    
    
    
    14,851,000
    
    
    
    13,782,000General and administrative
    
    
    7,061,000
    
    
    
    6,175,000
    
    
    
    6,372,000Restructuring charges
    
    
    
    
    
    
    
    
    
    
    1,136,00028,329,000
    
    
    
    25,238,000
    
    
    
    25,809,000Operating income
    
    
    10,876,000
    
    
    
    8,070,000
    
    
    
    744,000Other income (expense)Interest income
    
    
    753,000
    
    
    
    217,000
    
    
    
    52,000Interest expense
    
    
    (251,000
    )
    
    
    (280,000
    )
    
    
    (642,000
    )Bond retirement expense
    
    
    
    
    
    
    (290,000
    )
    
    
    Currency transaction gains
    
    
    25,000
    
    
    
    299,000
    
    
    
    650,000Other, net
    
    
    17,000
    
    
    
    366,000
    
    
    
    70,000544,000
    
    
    
    312,000
    
    
    
    130,000Income before income taxes
    
    
    11,420,000
    
    
    
    8,382,000
    
    
    
    874,000Provision (benefit) for income taxes
    
    
    4,380,000
    
    
    
    (9,129,000
    )
    
    
    167,000Net income
    
    $
    7,040,000
    
    
    $
    17,511,000
    
    
    $
    707,000Net income per common shareBasic
    
    $
    0.54
    
    
    $
    1.35
    
    
    $
    0.05Diluted
    
    $
    0.52
    
    
    $
    1.31
    
    
    $
    0.05Weighted average common and common equivalent
shares outstandingBasic
    
    
    13,149,611
    
    
    
    12,974,730
    
    
    
    12,897,737Diluted
    
    
    13,561,852
    
    
    
    13,344,642
    
    
    
    12,957,726
  F - 4




---



##### Table of Contents



Lifecore Biomedical, Inc. and Subsidiaries
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 AccumulatedCommon Stock
    
    
    Currency
    
    
    Additional
    
    
    DeferredShares
    
    
    
    
    
    
    Translation
    
    
    Paid-In
    
    
    Stock-based
    
    
    AccumulatedIssued
    
    
    Amount
    
    
    Adjustment
    
    
    Capital
    
    
    Compensation
    
    
    Deficit
    
    
    TotalBalances at June 30, 2003
    
    
    12,885,417
    
    
    $
    129,000
    
    
    $
    87,000
    
    
    $
    88,882,000
    
    
    $
    
    
    
    $
    (40,704,000
    )
    
    $
    48,394,000Exercise of stock options and stock awards
    
    
    46,341
    
    
    
    
    
    
    
    
    
    
    
    234,000
    
    
    
    
    
    
    
    
    
    
    
    234,000Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    707,000
    
    
    
    707,000Accumulated currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    (509,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (509,000
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    198,000Balances at June 30, 2004
    
    
    12,931,758
    
    
    
    129,000
    
    
    
    (422,000
    )
    
    
    89,116,000
    
    
    
    
    
    
    
    (39,997,000
    )
    
    
    48,826,000Exercise of stock options and stock awards
    
    
    102,554
    
    
    
    1,000
    
    
    
    
    
    
    
    768,000
    
    
    
    
    
    
    
    
    
    
    
    769,000Restricted stock activity
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    512,000
    
    
    
    (321,000
    )
    
    
    
    
    
    
    191,000Tax benefits from exercise of
stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    798,000
    
    
    
    
    
    
    
    
    
    
    
    798,000Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,511,000
    
    
    
    17,511,000Accumulated currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    (234,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (234,000
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,277,000Balances at June 30, 2005
    
    
    13,054,312
    
    
    
    130,000
    
    
    
    (656,000
    )
    
    
    91,194,000
    
    
    
    (321,000
    )
    
    
    (22,486,000
    )
    
    
    67,861,000Exercise of stock options and stock awards
    
    
    152,675
    
    
    
    2,000
    
    
    
    
    
    
    
    1,152,000
    
    
    
    
    
    
    
    
    
    
    
    1,154,000Restricted stock activity
    
    
    21,368
    
    
    
    
    
    
    
    
    
    
    
    (94,000
    )
    
    
    321,000
    
    
    
    
    
    
    
    227,000Stock options vested
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    844,000
    
    
    
    
    
    
    
    
    
    
    
    844,000Tax benefits from exercise of
stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    206,000
    
    
    
    
    
    
    
    
    
    
    
    206,000Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,040,000
    
    
    
    7,040,000Accumulated currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    204,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    204,000Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,244,000Balances at June 30, 2006
    
    
    13,228,355
    
    
    $
    132,000
    
    
    $
    (452,000
    )
    
    $
    93,302,000
    
    
    $
    
    
    
    $
    (15,446,000
    )
    
    $
    77,536,000
  F - 5




---



##### Table of Contents



Lifecore Biomedical, Inc. and Subsidiaries
 CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30,
 2006
    
    
    2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    7,040,000
    
    
    $
    17,511,000
    
    
    $
    707,000Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    2,048,000
    
    
    
    2,087,000
    
    
    
    2,520,000Deferred income taxes
    
    
    3,693,000
    
    
    
    (10,252,000
    )
    
    
    Stock-based compensation
    
    
    1,071,000
    
    
    
    191,000
    
    
    
    Tax benefits from stock options
    
    
    104,000
    
    
    
    798,000
    
    
    
    Allowance for doubtful accounts
    
    
    9,000
    
    
    
    90,000
    
    
    
    (7,000
    )Currency translation adjustment
    
    
    204,000
    
    
    
    (234,000
    )
    
    
    (509,000
    )Changes in operating assets and liabilities, net of effects of
acquisition:Accounts receivable
    
    
    (2,685,000
    )
    
    
    (1,635,000
    )
    
    
    (823,000
    )Inventories
    
    
    (1,656,000
    )
    
    
    1,517,000
    
    
    
    985,000Prepaid expenses
    
    
    (303,000
    )
    
    
    (74,000
    )
    
    
    61,000Accounts payable
    
    
    (218,000
    )
    
    
    951,000
    
    
    
    587,000Accrued liabilities
    
    
    171,000
    
    
    
    174,000
    
    
    
    1,086,000Net cash provided by operating activities
    
    
    9,478,000
    
    
    
    11,124,000
    
    
    
    4,607,000Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (1,956,000
    )
    
    
    (2,002,000
    )
    
    
    (666,000
    )Acquisition, net of cash acquired
    
    
    (338,000
    )
    
    
    
    
    
    
    Purchases of intangibles
    
    
    
    
    
    
    (200,000
    )
    
    
    Decrease in security deposits
    
    
    
    
    
    
    830,000
    
    
    
    6,000(Increase) decrease in other assets
    
    
    (30,000
    )
    
    
    47,000
    
    
    
    300,000Net cash used in investing activities
    
    
    (2,324,000
    )
    
    
    (1,325,000
    )
    
    
    (360,000
    )Cash flows from financing activities:Payments on long-term obligations
    
    
    (280,000
    )
    
    
    (256,000
    )
    
    
    (139,000
    )Issuance of industrial revenue bonds
    
    
    
    
    
    
    5,630,000
    
    
    
    Retirement of industrial revenue bonds
    
    
    
    
    
    
    (5,986,000
    )
    
    
    Excess tax benefits from stock options
    
    
    102,000
    
    
    
    
    
    
    
    Proceeds from stock options exercised
    
    
    1,154,000
    
    
    
    768,000
    
    
    
    234,000Net cash provided by financing activities
    
    
    976,000
    
    
    
    156,000
    
    
    
    95,000Net increase in cash and cash equivalents
    
    
    8,130,000
    
    
    
    9,955,000
    
    
    
    4,342,000Cash and cash equivalents at beginning of year
    
    
    18,508,000
    
    
    
    8,553,000
    
    
    
    4,211,000Cash and cash equivalents at end of year
    
    $
    26,638,000
    
    
    $
    18,508,000
    
    
    $
    8,553,000Supplemental disclosure of cash flow information:Cash paid during the year for:Interest
    
    $
    251,000
    
    
    $
    330,000
    
    
    $
    645,000Taxes
    
    
    458,000
    
    
    
    494,000
    
    
    
    87,000
  F - 6




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##### Table of Contents



Lifecore Biomedical, Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    Consolidation
  Cash and Cash Equivalents
  Accounts Receivable
  F - 7




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##### Table of Contents



Lifecore Biomedical, Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (continued)
 Inventories
  As of June 30,2006
    
    
    2005Raw materials
    
    $
    3,973,000
    
    
    $
    3,102,000Work-in-process
    
    
    708,000
    
    
    
    426,000Finished goods-current
    
    
    7,536,000
    
    
    
    5,928,00012,217,000
    
    
    
    9,456,000Finished goods-long term
    
    
    1,406,000
    
    
    
    2,409,000$
    13,623,000
    
    
    $
    11,865,000
 Depreciation
  Number ofyearsBuilding
    
    
    7-40Equipment
    
    
    3-7Land and building improvements
    
    
    7-40
 Intangibles
   F - 8




---



##### Table of Contents



Lifecore Biomedical, Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (continued)
   2006
    
    
    2005Goodwill
    
    $
    4,783,000
    
    
    $
    4,352,000Patents
    
    
    387,000
    
    
    
    387,000Distribution rights and licenses
    
    
    350,000
    
    
    
    350,000Customer List
    
    
    80,000
    
    
    
    Less accumulated amortization
    
    
    (399,000
    )
    
    
    (290,000
    )$
    5,201,000
    
    
    $
    4,799,000
 Revenue Recognition
  Shipping & Handling
   . Income taxes
  Comprehensive Income
  F - 9




---



##### Table of Contents



Lifecore Biomedical, Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (continued)
 Net Income Per Common Share
   Stock-Based Compensation
   2006Cost of goods sold
    
    $
    45,000Research and development
    
    
    61,000Marketing and sales
    
    
    305,000General and administrative
    
    
    433,000Total stock-based compensation expense
    
    $
    844,000Effect on earnings per share, net of tax effects:Basic
    
    $
    0.05Diluted
    
    $
    0.04
   F - 10




---



##### Table of Contents



Lifecore Biomedical, Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (continued)
  2006
    
    
    2005
    
    
    2004Net income, as reported
    
    $
    7,040,000
    
    
    $
    17,511,000
    
    
    $
    707,000Deduct: Total stock-based employee compensation expense
determined under fair value method for awards, net of
related tax effects (no tax effect in 2004)
    
    
    
    
    
    
    (834,000
    )
    
    
    (1,978,000
    )Pro forma net income (loss)
    
    $
    7,040,000
    
    
    $
    16,677,000
    
    
    $
    (1,271,000
    )Net income (loss) per common equivalent share:Basic  as reported
    
    $
    0.54
    
    
    $
    1.35
    
    
    $
    0.05Diluted  as reported
    
    $
    0.52
    
    
    $
    1.31
    
    
    $
    0.05Basic  pro-forma
    
    $
    0.54
    
    
    $
    1.29
    
    
    $
    (0.10
    )Diluted  pro-forma
    
    $
    0.52
    
    
    $
    1.25
    
    
    $
    (0.10
    )
  2006
    

2005
    

2004Risk-free interest rate
    
    
    4.6
    %
    
    
    3.9
    %
    
    
    3.8
    %Expected volatility
    
    
    61.7
    %
    
    
    69.6
    %
    
    
    81.6
    %Expected life (in years)
    
    
    5.6
    
    
    
    5.4
    
    
    
    6.2Dividend yield
    
    
    
    
    
    
    
    
    
    
    
  13. R ecent Accounting Pronouncements
  F - 11




---



##### Table of Contents



Lifecore Biomedical, Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 NOTE B  LINE OF CREDIT
  NOTE C  LONG-TERM OBLIGATIONS
    As of June 30,2006
    
    
    2005Industrial development revenue bonds
    
    $
    5,094,000
    
    
    $
    5,374,000Less current maturities
    
    
    (290,000
    )
    
    
    (285,000
    )$
    4,804,000
    
    
    $
    5,089,000
  2007
    
    $
    290,0002008
    
    
    304,0002009
    
    
    314,0002010
    
    
    324,0002011
    
    
    330,000Thereafter
    
    
    3,532,000$
    5,094,000
 F - 12




---



##### Table of Contents



Lifecore Biomedical, Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 NOTE D  INCOME TAXES
  2006
    
    
    2005
    
    
    2004CurrentFederal
    
    $
    407,000
    
    
    $
    129,000
    
    
    $
    23,000State
    
    
    137,000
    
    
    
    57,000
    
    
    
    Foreign
    
    
    143,000
    
    
    
    139,000
    
    
    
    144,000Deferred
    
    
    3,693,000
    
    
    
    2,468,000
    
    
    
    Benefit from release of
valuation allowance
    
    
    
    
    
    
    (11,922,000
    )
    
    
    $
    4,380,000
    
    
    $
    (9,129,000
    )
    
    $
    167,000
  2006
    
    
    2005Current deferred tax assets:Net operating loss carryforward
    
    $
    4,000,000
    
    
    $
    3,000,000Inventories
    
    
    611,000
    
    
    
    798,000Other
    
    
    420,000
    
    
    
    461,000Current deferred tax asset
    
    
    5,031,000
    
    
    
    4,259,000Current deferred tax liabilities:Prepaid expenses
    
    
    (166,000
    )
    
    
    (69,000
    )Current deferred tax liabilities
    
    
    (166,000
    )
    
    
    (69,000
    )Net current deferred tax asset
    
    $
    4,865,000
    
    
    $
    4,190,000Long-term deferred tax assets:Net operating loss carryforward
    
    $
    3,628,000
    
    
    $
    7,550,000Tax credit carryforward
    
    
    1,380,000
    
    
    
    1,213,000Stock option expense
    
    
    160,000
    
    
    
    Intangibles
    
    
    17,000
    
    
    
    15,000Long-term deferred tax assets before valuation allowance
    
    
    5,185,000
    
    
    
    8,778,000Long-term deferred tax liabilities:Depreciation
    
    
    (1,249,000
    )
    
    
    (1,042,000
    )Long-term deferred tax liabilities before valuation
allowance
    
    
    (1,249,000
    )
    
    
    (1,042,000
    )Net long-term deferred tax asset before valuation allowance
    
    
    3,936,000
    
    
    
    7,736,000Valuation allowance
    
    
    (2,242,000
    )
    
    
    (1,674,000
    )Net long-term deferred tax asset
    
    $
    1,694,000
    
    
    $
    6,062,000
 F - 13




---



##### Table of Contents



Lifecore Biomedical, Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 NOTE D  INCOME TAXES  (continued)
      F - 14




---



##### Table of Contents



Lifecore Biomedical, Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 NOTE D  INCOME TAXES  (continued)
  2006
    
    
    2005
    
    
    2004Statutory income tax rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %State taxes, net of federal benefit
    
    
    2.8
    %
    
    
    2.3
    %
    
    
    1.1
    %Research and development credits
    
    
    (0.3
    )%
    
    
    (0.8
    )%
    
    
    (13.7
    )%Foreign sales deduction
    
    
    (5.2
    )%
    
    
    (7.9
    )%
    
    
    (30.5
    )%Other permanent differences
    
    
    1.7
    %
    
    
    0.8
    %
    
    
    7.8
    %Benefit from release of valuation allowance
    
    
    0.0
    %
    
    
    (142.2
    )%
    
    
    0.0
    %Change in valuation allowance
    
    
    5.0
    %
    
    
    7.3
    %
    
    
    24.1
    %Other
    
    
    0.4
    %
    
    
    (2.4
    )%
    
    
    (3.7
    )%38.4
    %
    
    
    (108.9
    )%
    
    
    19.1
    %
 NOTE E  SHAREHOLDERS EQUITY
 Stock Options
   Number of
    
    
    Weighted AverageShares
    
    
    Exercise PriceOutstanding at June 30,
2003
    
    
    2,938,303
    
    
    $
    11.66Granted
    
    
    342,000
    
    
    
    6.48Exercised
    
    
    (46,341
    )
    
    
    5.07Canceled
    
    
    (482,322
    )
    
    
    10.48Outstanding at June 30,
2004
    
    
    2,751,640
    
    
    
    11.28Granted
    
    
    189,000
    
    
    
    9.84Exercised
    
    
    (102,554
    )
    
    
    7.51Canceled
    
    
    (1,117,380
    )
    
    
    13.06Outstanding at June 30,
2005
    
    
    1,720,706
    
    
    
    10.19Granted
    
    
    200,800
    
    
    
    13.55Exercised
    
    
    (152,675
    )
    
    
    7.56Canceled
    
    
    (90,025
    )
    
    
    12.03Outstanding at June 30,
2006
    
    
    1,678,806
    
    
    $
    10.73
 F - 15




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##### Table of Contents



Lifecore Biomedical, Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 NOTE E  SHAREHOLDERS EQUITY  (continued)
 Number of
    
    
    Weighted AverageShares
    
    
    Exercise PriceOptions exercisable at June 30:2006
    
    
    1,322,381
    
    
    $
    10.602005
    
    
    1,395,106
    
    
    
    10.662004
    
    
    2,329,865
    
    
    
    11.62
  Range of
    
    
    Number
    
    
    Weighted Average Remaining
    
    
    Weighted AverageExercise Price
    
    
    Outstanding
    
    
    Contractual Life
    
    
    Exercise Price$
    3.55 -  $5.82
    
    
    
    70,875
    
    
    5.96 years
    
    $
    5.215.83    -     8.75
    
    
    
    676,763
    
    
    6.03 years
    
    
    7.298.76    -    13.12
    
    
    
    396,000
    
    
    6.22 years
    
    
    10.2313.13    -    19.68
    
    
    
    504,668
    
    
    3.65 years
    
    
    15.8619.69    -    23.38
    
    
    
    30,500
    
    
    1.54 years
    
    
    21.571,678,806
    
    
    5.28 years
    
    $
    10.73
  Range of
    
    
    Number
    
    
    Weighted AverageExercise Price
    
    
    Exercisable
    
    
    Exercise Price$
    3.55  - $5.82
    
    
    
    57,250
    
    
    $
    5.275.83    -         8.75
    
    
    
    602,388
    
    
    
    7.288.76    -      13.12
    
    
    
    250,575
    
    
    
    10.0613.13    -      19.68
    
    
    
    381,668
    
    
    
    16.1019.69    -      23.38
    
    
    
    30,500
    
    
    
    21.571,322,381
    
    
    $
    10.60
  Restricted Stock Awards
  F - 16




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##### Table of Contents



Lifecore Biomedical, Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 NOTE E  SHAREHOLDERS EQUITY  (continued)
  Number of
    
    
    Weighted AverageShares
    
    
    Fair ValueOutstanding at June 30, 2004
    
    
    
    
    
    $
    Granted
    
    
    60,000
    
    
    
    9.55Vested
    
    
    (20,000
    )
    
    
    9.55Forfeited
    
    
    (6,667
    )
    
    
    9.30Outstanding at June 30, 2005
    
    
    33,333
    
    
    
    9.60Granted
    
    
    8,203
    
    
    
    15.84Vested
    
    
    (21,368
    )
    
    
    10.95Outstanding at June 30, 2006
    
    
    20,168
    
    
    $
    10.71
 Shareholder Rights Plan
  NOTE F  COMMITMENTS AND CONTINGENCIES
 Royalty Agreements
  Severance Agreements
  Legal Proceedings
 Shumbo-Poissant v. ETHICON, Inc., et al.
  F - 17




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##### Table of Contents



Lifecore Biomedical, Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 NOTE G  EMPLOYEE BENEFIT PLAN
  NOTE H  SEGMENT INFORMATION
   Year ended June 30,2006
    
    
    2005
    
    
    2004Net salesHyaluronan products
    
    $
    20,151,000
    
    
    $
    18,528,000
    
    
    $
    15,741,000Oral restorative products
    
    
    42,946,000
    
    
    
    37,167,000
    
    
    
    31,683,000$
    63,097,000
    
    
    $
    55,695,000
    
    
    $
    47,424,000Operating income (loss)Hyaluronan products
    
    $
    5,284,000
    
    
    $
    3,485,000
    
    
    $
    (379,000
    )Oral restorative products
    
    
    5,592,000
    
    
    
    4,585,000
    
    
    
    1,123,000$
    10,876,000
    
    
    $
    8,070,000
    
    
    $
    744,000Capital expendituresHyaluronan products
    
    $
    1,339,000
    
    
    $
    1,316,000
    
    
    $
    369,000Oral restorative products
    
    
    617,000
    
    
    
    686,000
    
    
    
    297,000$
    1,956,000
    
    
    $
    2,002,000
    
    
    $
    666,000Depreciation and amortization expenseHyaluronan products
    
    $
    1,135,000
    
    
    $
    1,172,000
    
    
    $
    1,823,000Oral restorative products
    
    
    913,000
    
    
    
    915,000
    
    
    
    697,000$
    2,048,000
    
    
    $
    2,087,000
    
    
    $
    2,520,000
 As
of June 30,2006
    
    
    2005
    
    
    2004Identifiable assetsHyaluronan products
    
    $
    34,944,000
    
    
    $
    35,838,000
    
    
    $
    31,899,000Oral restorative products
    
    
    28,186,000
    
    
    
    25,878,000
    
    
    
    20,847,000General corporate
    
    
    26,108,000
    
    
    
    18,150,000
    
    
    
    7,572,000$
    89,238,000
    
    
    $
    79,866,000
    
    
    $
    60,318,000
 F - 18




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##### Table of Contents



Lifecore Biomedical, Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 NOTE I  ACQUISITION OF BARDO-BIOTECH SAS
   NOTE J  AGREEMENTS
   NOTE K  RESTRUCTURING PLAN
   EmployeeSeverance
    
    
    OutplacementCosts
    
    
    Fees
    
    
    TotalBalances at June 30, 2003
    
    $
    
    
    
    $
    
    
    
    $
    Restructuring charges
    
    
    1,072,000
    
    
    
    64,000
    
    
    
    1,136,000Amounts utilized
    
    
    (621,000
    )
    
    
    (38,000
    )
    
    
    (659,000
    )Balances at June 30, 2004
    
    
    451,000
    
    
    
    26,000
    
    
    
    477,000Amounts utilized
    
    
    (451,000
    )
    
    
    (26,000
    )
    
    
    (477,000
    )Balances at June 30, 2005
    
    $
    
    
    
    $
    
    
    
    $
    
 NOTE L  RECLASSIFICATIONS
  F - 19




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##### Table of Contents



Lifecore Biomedical, Inc. and Subsidiaries
 SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
 Balance at
    
    Charged to
    
    Charged toBeginning
    
    Costs and
    
    Other
    
    
    
    
    
    Balance at EndDescription
    
    of Period
    
    Expenses
    
    Accounts
    
    Deductions
    
    of PeriodYear ended June 30, 2006Accounts receivable
allowance
    
    $
    496,000
    
    
    $
    238,000
    
    
    $
    
    
    
    $
    (229,000
    ) (A)
    
    $
    505,000Year ended June 30, 2005Accounts receivable
allowance
    
    
    407,000
    
    
    
    227,000
    
    
    
    
    
    
    
    (138,000
    ) (A)
    
    
    496,000Year ended June 30, 2004Accounts receivable
allowance
    
    
    414,000
    
    
    
    194,000
    
    
    
    
    
    
    
    (201,000
    ) (A)
    
    
    407,000
 
 (A)
    
    Deductions represent accounts receivable balances written-off during the year.
 S - 1