##### 



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, 2007
 Commission file number: 0-4136
 
 LIFECORE BIOMEDICAL, INC.
  Minnesota
(State or other jurisdiction 
of incorporation or organization)
    
    41-0948334
(IRS Employer
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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PART I
 Item 1. Business
 General
 www.lifecore.com.
       2




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##### 



Trademarks
 ® ® ® ® ® ® ® ® ® ® ®
 ® ® ® ® ®
 Hyaluronan Division
 Background
   Strategy
  
    
    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 additional licensing of
technology.
 3




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
    
    License Hyaluronan Technology from Third Parties.As part of this strategy, Lifecore
entered into a world-wide exclusive license and development agreement with CCF to develop and
commercialize hyaluronan-based products and related applications. The license is for patented
hyaluronan-based cross-linking technology that can be used for products in aesthetics, orthopedics,
ophthalmology and other medical fields. Given the broad number of applications, Lifecore
anticipates that it will sublicense the technology for certain applications while retaining
manufacturing rights.
    
    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.
    
    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
supplying hyaluronan raw materials to manufacturers of aseptically-packaged, finished sterile
products to developing and manufacturing our own proprietary products.
 Hyaluronan Division Products
  PRODUCT
    
    DESCRIPTION
    
    MARKET
    
    STATUS+OPHTHALMICViscoat® Intraocular 
Viscoelastic
    
    Lifecore supplies
hyaluronan powder
for inclusion in
Alcons Viscoat®
Opthalmic
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
injectable 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.
 4




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Ò ®
   ®
   Orthopedic Applications
 Ò
  Veterinary Applications
 ®
  Product Development
    5




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Dental 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
six-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
 6




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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
  ®
 ®
 ®
 ® ®
  7




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Bone Regeneration Products
  ® ® ®
 ®
 Product Development
  Sales and Marketing
 Hyaluronan Division Products
   Dental Division Products
   8




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##### 



Manufacturing
       ®
 Competition
  9




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##### 



Hyaluronan Products
   Dental Products
    Patents and Proprietary Rights
 ®
   10




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##### 



Government Regulation
      11




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##### 



Product Liability
  12




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##### 



Seasonality
  Employees
  Executive Officers of the Registrant
  Dennis J. Allingham.
 James G. Hall.
 Larry D. Hiebert.
 David M. Noel.
 Kipling Thacker, Ph.D.
 Item 1A. Risk Factors
  13




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##### 



The Companys business could be adversely affected if it is not able to successfully compete
against 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 could be adversely
affected
   The Companys business could 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.
  14




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##### 



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.
  
    
    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.
  15




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##### 



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.
  An interruption in the Companys manufacturing activities could adversely affect the Companys
relations with its customers.
  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.
  16




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##### 



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.
    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.
   17




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##### 



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
  Item 2. Properties
  Item 3. Legal Proceedings
  Brandy R. Kreifel and Tammy Lynder v. Gynecare, Inc., Ethicon, Inc., Lifecore Biomedical, Inc.
and Johnson & Johnson Company Margaret S. Madden v. Gynecare Worldwide, et al.
  18




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##### 



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
  Low
    
    HighFiscal year2007First Quarter
    
    $
    13.32
    
    
    $
    17.19Second Quarter
    
    
    14.01
    
    
    
    17.83Third Quarter
    
    
    16.18
    
    
    
    18.99Fourth Quarter
    
    
    15.79
    
    
    
    19.752006First Quarter
    
    
    10.60
    
    
    
    13.97Second Quarter
    
    
    11.65
    
    
    
    16.51Third Quarter
    
    
    11.36
    
    
    
    15.99Fourth Quarter
    
    
    11.69
    
    
    
    16.16
   STOCK PRICE PERFORMANCE GRAPH
  
 6/30/02
    
    6/30/03
    
    6/30/04
    
    6/30/05
    
    6/30/06
    
    6/30/07Lifecore Biomedical, Inc.
    
    $
    100.00
    
    
    $
    49.91
    
    
    $
    54.14
    
    
    $
    96.20
    
    
    $
    138.45
    
    
    $
    139.95NASDAQ Medical Equipment Index
    
    
    100.00
    
    
    
    107.78
    
    
    
    154.69
    
    
    
    155.51
    
    
    
    168.32
    
    
    
    204.52NASDAQ Market Index
    
    
    100.00
    
    
    
    111.20
    
    
    
    141.42
    
    
    
    141.27
    
    
    
    150.36
    
    
    
    180.25
 20




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##### 



Item 6. Selected Financial Data
 SELECTED CONSOLIDATED FINANCIAL DATA
  Years Ended June 30,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Statements of Operations Data:Net sales
    
    $
    69,629
    
    
    $
    63,097
    
    
    $
    55,695
    
    
    $
    47,424
    
    
    $
    42,800Costs of goods sold
    
    
    26,008
    
    
    
    23,892
    
    
    
    22,387
    
    
    
    20,871
    
    
    
    20,738Gross profit
    
    
    43,621
    
    
    
    39,205
    
    
    
    33,308
    
    
    
    26,553
    
    
    
    22,062Operating expensesResearch and development
    
    
    4,630
    
    
    
    3,814
    
    
    
    4,212
    
    
    
    4,519
    
    
    
    4,067Marketing and sales
    
    
    20,251
    
    
    
    17,454
    
    
    
    14,851
    
    
    
    13,782
    
    
    
    12,353General and administrative
    
    
    7,589
    
    
    
    7,061
    
    
    
    6,175
    
    
    
    6,372
    
    
    
    5,543Restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,136
    
    
    
    32,470
    
    
    
    28,329
    
    
    
    25,238
    
    
    
    25,809
    
    
    
    21,963Operating income
    
    
    11,151
    
    
    
    10,876
    
    
    
    8,070
    
    
    
    744
    
    
    
    99Other income (expense), net
    
    
    1,428
    
    
    
    544
    
    
    
    312
    
    
    
    130
    
    
    
    (367
    )Income (loss) before income taxes
    
    
    12,579
    
    
    
    11,420
    
    
    
    8,382
    
    
    
    874
    
    
    
    (268
    )Provision (benefit) for income taxes
    
    
    4,860
    
    
    
    4,380
    
    
    
    (9,129
    )
    
    
    167
    
    
    
    87Net income (loss)
    
    $
    7,719
    
    
    $
    7,040
    
    
    $
    17,511
    
    
    $
    707
    
    
    $
    (355
    )Net income (loss) per common shareBasic
    
    $
    0.58
    
    
    $
    0.54
    
    
    $
    1.35
    
    
    $
    0.05
    
    
    $
    (0.03
    )Diluted
    
    $
    0.56
    
    
    $
    0.52
    
    
    $
    1.31
    
    
    $
    0.05
    
    
    $
    (0.03
    )Weighted average common and common
equivalent shares outstandingBasic
    
    
    13,322
    
    
    
    13,150
    
    
    
    12,975
    
    
    
    12,898
    
    
    
    12,882Diluted
    
    
    13,784
    
    
    
    13,562
    
    
    
    13,345
    
    
    
    12,958
    
    
    
    12,882As of June 30,2007
        
    2006
        
    2005
        
    2004
        
    2003Balance Sheet Data:Working capital
    
    $
    64,614
    
    
    $
    50,470
    
    
    $
    36,189
    
    
    $
    21,692
    
    
    $
    18,511Total assets
    
    
    102,271
    
    
    
    89,238
    
    
    
    79,866
    
    
    
    60,318
    
    
    
    58,352Long-term obligations, less current maturities
    
    
    4,496
    
    
    
    4,804
    
    
    
    5,089
    
    
    
    5,809
    
    
    
    5,969Shareholders equity
    
    
    89,470
    
    
    
    77,536
    
    
    
    67,861
    
    
    
    48,826
    
    
    
    48,394
 21




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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
     23




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##### 



General
       24




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##### 



Acquisition of Bardo-Biotech SAS
   Results of Operations
 Year ended June 30, 2007 compared with year ended June 30, 2006
 Hyaluronan
    
    
    DentalDivision
    
    
    Division
    
    
    Consolidated2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    21,552,000
    
    
    $
    20,151,000
    
    
    $
    48,077,000
    
    
    $
    42,946,000
    
    
    $
    69,629,000
    
    
    $
    63,097,000Cost of goods sold
    
    
    9,568,000
    
    
    
    9,204,000
    
    
    
    16,440,000
    
    
    
    14,688,000
    
    
    
    26,008,000
    
    
    
    23,892,000Gross profit
    
    
    11,984,000
    
    
    
    10,947,000
    
    
    
    31,637,000
    
    
    
    28,258,000
    
    
    
    43,621,000
    
    
    
    39,205,000Operating expensesResearch and development
    
    
    3,220,000
    
    
    
    2,301,000
    
    
    
    1,410,000
    
    
    
    1,513,000
    
    
    
    4,630,000
    
    
    
    3,814,000Marketing and sales
    
    
    680,000
    
    
    
    670,000
    
    
    
    19,571,000
    
    
    
    16,784,000
    
    
    
    20,251,000
    
    
    
    17,454,000General and administrative
    
    
    2,847,000
    
    
    
    2,692,000
    
    
    
    4,742,000
    
    
    
    4,369,000
    
    
    
    7,589,000
    
    
    
    7,061,0006,747,000
    
    
    
    5,663,000
    
    
    
    25,723,000
    
    
    
    22,666,000
    
    
    
    32,470,000
    
    
    
    28,329,000Operating income
    
    $
    5,237,000
    
    
    $
    5,284,000
    
    
    $
    5,914,000
    
    
    $
    5,592,000
    
    
    $
    11,151,000
    
    
    $
    10,876,000
 Net Sales.
   Gross profit.
  Research and development.
 25




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##### 



Marketing and sales.
 General and administrative.
 Other income (expense).
 Provision (benefit) for income taxes.
   Year ended June 30, 2006 compared with year ended June 30, 2005
 Hyaluronan
    
    
    DentalDivision
    
    
    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.
  26




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##### 



®
 Gross profit.
  Research and development.
 Marketing and sales.
 General and administrative.
 Other income (expense).
 Provision (benefit) for income taxes.
   27




---



##### 



Liquidity and Capital Resources
  Cash Provided by Operating Activities.
   Cash Used in Investing Activities
 Cash Provided by Financing Activities.
    28




---



##### 



Off-Balance Sheet Arrangements
  Contractual Obligations
  Payments due by periodLess than
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    1 Year
    
    1-3 Years
    
    3-5 Years
    
    5 YearsLong-term debt
    
    $
    4,799,000
    
    
    $
    303,000
    
    
    $
    637,000
    
    
    $
    667,000
    
    
    $
    3,192,000Interest on long-term debt (1)
    
    
    2,030,000
    
    
    
    268,000
    
    
    
    495,000
    
    
    
    440,000
    
    
    
    827,000Operating leases
    
    
    660,000
    
    
    
    317,000
    
    
    
    261,000
    
    
    
    82,000
    
    
    
    Purchase obligations
    
    
    4,894,000
    
    
    
    4,894,000
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    12,383,000
    
    
    $
    5,782,000
    
    
    $
    1,393,000
    
    
    $
    1,189,000
    
    
    $
    4,019,000
 
 (1)
    
    Long-term debt bears interest at a variable rate set weekly by the bond remarketing
agent. A rate of 4.25% was used for the variable portion for the above table. See Note C to the
Companys Consolidated Financial Statements. Seasonality
  Cautionary Statement
  29




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##### 



Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    30




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##### 



Item 8. Financial Statements and Supplementary Data
  Quarter (Unaudited)First
    
    Second
    
    Third
    
    FourthYear ended June 30, 2007Net sales
    
    $
    15,010,000
    
    
    $
    16,552,000
    
    
    $
    18,865,000
    
    
    $
    19,202,000Gross profit
    
    
    9,438,000
    
    
    
    10,054,000
    
    
    
    11,676,000
    
    
    
    12,453,000Net income
    
    
    1,139,000
    
    
    
    1,366,000
    
    
    
    2,333,000
    
    
    
    2,881,000Net income per shareBasic
    
    $
    0.09
    
    
    $
    0.10
    
    
    $
    0.17
    
    
    $
    0.21Diluted
    
    $
    0.08
    
    
    $
    0.10
    
    
    $
    0.17
    
    
    $
    0.21Weighted average common and common
equivalent shares outstandingBasic
    
    
    13,223,448
    
    
    
    13,262,975
    
    
    
    13,383,088
    
    
    
    13,421,200Diluted
    
    
    13,672,260
    
    
    
    13,734,547
    
    
    
    13,859,948
    
    
    
    13,886,966Year ended June 30, 2006Net sales
    
    $
    13,425,000
    
    
    $
    15,209,000
    
    
    $
    16,775,000
    
    
    $
    17,688,000Gross profit
    
    
    8,351,000
    
    
    
    9,092,000
    
    
    
    10,567,000
    
    
    
    11,195,000Net 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
    
    
    
    13,652,548
 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
  31




---



##### 



Managements Responsibility for Financial Information
    Managements Report on Internal Control over Financial Reporting
  Internal Control  Integrated
Framework
  32




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
       
 
 Item 9B. Other Information
  33




---



##### 



PART III
 Item 10. Directors, Executive Officers and Corporate Governance
   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 securitiesNumber of securities to
    
    
    
    
    
    
    remaining available forbe issued upon
    
    
    Weighted-average
    
    
    future issuance underexercise of outstanding
    
    
    exercise price of
    
    
    equity compensation plansoptions, warrants
    
    
    outstanding options,
    
    
    (excluding securitiesand rights
    
    
    warrants and rights
    
    
    reflected in column (a))Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders:
    
    
    1,277,888
    (1)
    
    $
    10.34
    
    
    
    3,659,834
    (2)Equity compensation
plans not approved
by security
holders:
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,277,888
    
    
    $
    10.34
    
    
    
    3,659,834
 
 (1)
    
    Includes the Companys 1990 Stock Plan and 1996 Stock Plan.(2)
    
    Excludes 62,278 shares of restricted stock granted by the Company under the 1996 Stock Plan. 34




---



##### 



Item 13. Certain Relationships and Related Transactions, and Director Independence
  Item 14. Principal Accounting Fees and Services
  35




---



##### 



PART IV
 Item 15. Exhibits and Financial Statement Schedules
   
 Form 10-KPage Reference1.
    
    Consolidated Financial StatementsReport of Independent Registered Public Accounting Firm
    
    F-1Consolidated Balance Sheets  June 30, 2007 and 2006
    
    F-2 and F-3Consolidated Statements of Operations  years ended June 30, 2007,
2006 and 2005
    
    F-4Consolidated Statements of Shareholders Equity  years ended June 30, 2007,
2006 and 2005
    
    F-5Consolidated Statements of Cash Flows  years ended June 30, 2007,
2006 and 2005
    
    F-6Notes to Consolidated Financial Statements
    
    F-7 through F-212.
    
    Consolidated Financial Statement ScheduleSchedule II  Valuation and Qualifying Accounts
    
    S-13.
    
    Exhibits
  Description3.1
    
    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 April 19, 2007 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on
April 25, 2007)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)10.2*
    
    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 8-K filed on
November 22, 2006)
 36




---



##### 



Description10.6*
    
    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)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)
 37




---



##### 



Description10.26*
    
    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. Beckham
(incorporated by reference to Exhibit 10.28 to Form 10-K for the year ended June 30, 2006)10.29*
    
    Noncompetition and Nonsolicitation Agreement, dated July 10, 2006, between the Company and James G. Hall
(incorporated by reference to Exhibit 10.29 to Form 10-K for the year ended June 30, 2006)10.30*
    
    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)10.31
    
    Amendment No. 1, dated as of November 20, 2006, to Non-Qualified Stock Option Agreement (for Directors) between
the Company and Martin J. Emerson (incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter ended
December 31, 2006)10.32*
    
    Form of Incentive Stock Option Agreement for employees under the Lifecore Biomedical, Inc. 2003 Stock Incentive
Plan10.33*
    
    Fiscal Year 2007 Bonus Plan (incorporated by reference to Exhibit 10.1 to Form 8-K filed on September 19, 2006)10.34*
    
    Fiscal Year 2008 Bonus Plan10.35*
    
    Amendment No. 3, dated December 19, 2006, 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 8-K filed on December 22, 2006)10.36
    
    Separation Agreement between the Company and Benjamin C. Beckham dated May 21, 2007.21.1
    
    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. 38




---



##### 



SIGNATURES
  LIFECORE BIOMEDICAL, INC.Dated: September 13, 2007
    /s/ Dennis j. allinghamDennis J. AllinghamPresident, Chief Executive Officer
and Secretary  Dated: September 13, 2007
    /s/ Dennis j. allinghamDennis J. AllinghamPresident, Chief Executive Officer, Secretary and Director
(principal executive officer)Dated: September 13, 2007
    /s/ David m. noelDavid M. NoelVice President of Finance and Chief Financial Officer
(principal financial and accounting officer)Dated: September 13, 2007
    /s/ Orwin L. CarterOrwin L. CarterDirector Dated: September 13, 2007
    /s/ Martin J. EmersonMartin J. EmersonDirectorDated: September 13, 2007Thomas H. GarrettDirectorDated: September 13, 2007
    /s/ luther t. griffithLuther T. GriffithDirectorDated: September 13, 2007
    /s/ Richard W. PerkinsRichard W. PerkinsDirectorDated: September 13, 2007
    /s/  John e. RunnellsJohn E. RunnellsDirector 39




---



##### 



Exhibit Index
 Description3.1
    
    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 April 19, 2007 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on April 25, 2007)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)10.2*
    
    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 8-K filed on November 22,
2006)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)
 40




---



##### 



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. Beckham
(incorporated by reference to Exhibit 10.28 to Form 10-K for the year ended June 30, 2006)10.29*
    
    Noncompetition and Nonsolicitation Agreement, dated July 10, 2006, between the Company and James G. Hall (incorporated by
reference to Exhibit 10.29 to Form 10-K for the year ended June 30, 2006)10.30*
    
    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)10.31
    
    Amendment No. 1, dated as of November 20, 2006, to Non-Qualified Stock Option Agreement (for Directors) between the Company
and Martin J. Emerson (incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter ended December 31, 2006)10.32*
    
    Form of Incentive Stock Option Agreement for employees under the Lifecore Biomedical, Inc. 2003 Stock Incentive Plan10.33*
    
    Fiscal Year 2007 Bonus Plan (incorporated by reference to Exhibit 10.1 to Form 8-K filed on September 19, 2006)10.34*
    
    Fiscal Year 2008 Bonus Plan10.35*
    
    Amendment No. 3, dated December 19, 2006, 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 8-K filed on December 22, 2006)10.36
    
    Separation Agreement between the Company and Benjamin C. Beckham dated May 21, 2007.21.1
    
    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 2002
 41




---



##### 



Description32.2
    
    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. 42




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      
 
 F-1




---



##### 



Lifecore Biomedical, Inc. and Subsidiaries
 CONSOLIDATED BALANCE SHEETS
June 30,
 2007
    
    
    2006ASSETSCURRENT ASSETCash and cash equivalents
    
    $
    39,105,000
    
    
    $
    26,638,000Accounts receivable, less allowances
    
    
    15,555,000
    
    
    
    12,564,000Inventories
    
    
    12,145,000
    
    
    
    12,217,000Deferred income taxes, net
    
    
    3,684,000
    
    
    
    4,865,000Prepaid expenses
    
    
    1,448,000
    
    
    
    1,084,000Total current assets
    
    
    71,937,000
    
    
    
    57,368,000PROPERTY, PLANT AND EQUIPMENT  AT COSTLand
    
    
    249,000
    
    
    
    249,000Building
    
    
    24,195,000
    
    
    
    23,970,000Equipment
    
    
    23,426,000
    
    
    
    21,657,000Land and building improvements
    
    
    3,512,000
    
    
    
    3,512,00051,382,000
    
    
    
    49,388,000Less accumulated depreciation
    
    
    (28,277,000
    )
    
    
    (26,138,000
    )23,105,000
    
    
    
    23,250,000OTHER ASSETSIntangibles, net
    
    
    5,454,000
    
    
    
    5,201,000Inventories
    
    
    1,491,000
    
    
    
    1,406,000Deferred income taxes, net
    
    
    
    
    
    
    1,694,000Other
    
    
    284,000
    
    
    
    319,0007,229,000
    
    
    
    8,620,000$
    102,271,000
    
    
    $
    89,238,000
 F-2




---



##### 



Lifecore Biomedical, Inc. and Subsidiaries
 CONSOLIDATED BALANCE SHEETS  (continued)
June 30,
 2007
    
    
    2006LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESCurrent maturities of long-term obligations
    
    $
    303,000
    
    
    $
    290,000Accounts payable
    
    
    3,354,000
    
    
    
    3,212,000Accrued compensation
    
    
    1,769,000
    
    
    
    1,847,000Accrued expenses
    
    
    1,897,000
    
    
    
    1,549,000Total current liabilities
    
    
    7,323,000
    
    
    
    6,898,000LONG-TERM OBLIGATIONS, LESS CURRENT MATURITIES
    
    
    4,496,000
    
    
    
    4,804,000LONG-TERM DEFERRED INCOME TAXES, NET
    
    
    982,000
    
    
    
    COMMITMENTS 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, 13,482,216 and
13,228,355 shares at June 30, 2007 and 2006
    
    
    135,000
    
    
    
    132,000Accumulated currency translation adjustment
    
    
    (277,000
    )
    
    
    (452,000
    )Additional paid-in capital
    
    
    97,339,000
    
    
    
    93,302,000Accumulated deficit
    
    
    (7,727,000
    )
    
    
    (15,446,000
    )89,470,000
    
    
    
    77,536,000$
    102,271,000
    
    
    $
    89,238,000
  F-3




---



##### 



Lifecore Biomedical, Inc. and Subsidiaries
 CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30,
 2007
    
    
    2006
    
    
    2005Net sales
    
    $
    69,629,000
    
    
    $
    63,097,000
    
    
    $
    55,695,000Cost of goods sold
    
    
    26,008,000
    
    
    
    23,892,000
    
    
    
    22,387,000Gross profit
    
    
    43,621,000
    
    
    
    39,205,000
    
    
    
    33,308,000Operating expensesResearch and development
    
    
    4,630,000
    
    
    
    3,814,000
    
    
    
    4,212,000Marketing and sales
    
    
    20,251,000
    
    
    
    17,454,000
    
    
    
    14,851,000General and administrative
    
    
    7,589,000
    
    
    
    7,061,000
    
    
    
    6,175,00032,470,000
    
    
    
    28,329,000
    
    
    
    25,238,000Operating income
    
    
    11,151,000
    
    
    
    10,876,000
    
    
    
    8,070,000Other income (expense)Interest income
    
    
    1,515,000
    
    
    
    753,000
    
    
    
    217,000Interest expense
    
    
    (269,000
    )
    
    
    (251,000
    )
    
    
    (280,000
    )Bond retirement expense
    
    
    
    
    
    
    
    
    
    
    (290,000
    )Currency transaction gains
    
    
    158,000
    
    
    
    25,000
    
    
    
    299,000Other, net
    
    
    24,000
    
    
    
    17,000
    
    
    
    366,0001,428,000
    
    
    
    544,000
    
    
    
    312,000Income before income taxes
    
    
    12,579,000
    
    
    
    11,420,000
    
    
    
    8,382,000Provision (benefit) for income taxes
    
    
    4,860,000
    
    
    
    4,380,000
    
    
    
    (9,129,000
    )Net income
    
    $
    7,719,000
    
    
    $
    7,040,000
    
    
    $
    17,511,000Net income per common shareBasic
    
    $
    0.58
    
    
    $
    0.54
    
    
    $
    1.35Diluted
    
    $
    0.56
    
    
    $
    0.52
    
    
    $
    1.31Weighted average common and common equivalent
shares outstandingBasic
    
    
    13,322,077
    
    
    
    13,149,611
    
    
    
    12,974,730Diluted
    
    
    13,783,743
    
    
    
    13,561,852
    
    
    
    13,344,642
  F-4




---



##### 



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, 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
    )
    
    
    77,536,000Exercise of stock options and stock awards
    
    
    232,950
    
    
    
    3,000
    
    
    
    
    
    
    
    2,345,000
    
    
    
    
    
    
    
    
    
    
    
    2,348,000Restricted stock activity
    
    
    20,911
    
    
    
    
    
    
    
    
    
    
    
    230,000
    
    
    
    
    
    
    
    
    
    
    
    230,000Stock options vested
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,190,000
    
    
    
    
    
    
    
    
    
    
    
    1,190,000Tax benefits from exercise of
stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    272,000
    
    
    
    
    
    
    
    
    
    
    
    272,000Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,719,000
    
    
    
    7,719,000Accumulated currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    175,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    175,000Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,894,000Balances at June 30, 2007
    
    
    13,482,216
    
    
    $
    135,000
    
    
    $
    (277,000
    )
    
    $
    97,339,000
    
    
    $
    
    
    
    $
    (7,727,000
    )
    
    $
    89,470,000
  F-5




---



##### 



Lifecore Biomedical, Inc. and Subsidiaries
 CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30,
 2007
    
    
    2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    7,719,000
    
    
    $
    7,040,000
    
    
    $
    17,511,000Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    2,267,000
    
    
    
    2,048,000
    
    
    
    2,087,000Deferred income taxes
    
    
    3,856,000
    
    
    
    3,693,000
    
    
    
    (10,252,000
    )Stock-based compensation
    
    
    1,421,000
    
    
    
    1,071,000
    
    
    
    191,000Tax benefits from stock options
    
    
    44,000
    
    
    
    104,000
    
    
    
    798,000Allowance for doubtful accounts
    
    
    29,000
    
    
    
    9,000
    
    
    
    90,000Currency translation adjustment
    
    
    98,000
    
    
    
    204,000
    
    
    
    (234,000
    )Changes in operating assets and liabilities, net of effects of
acquisition:Accounts receivable
    
    
    (3,120,000
    )
    
    
    (2,685,000
    )
    
    
    (1,635,000
    )Inventories
    
    
    61,000
    
    
    
    (1,656,000
    )
    
    
    1,517,000Prepaid expenses
    
    
    (350,000
    )
    
    
    (303,000
    )
    
    
    (74,000
    )Accounts payable
    
    
    257,000
    
    
    
    (218,000
    )
    
    
    951,000Accrued liabilities
    
    
    236,000
    
    
    
    171,000
    
    
    
    174,000Net cash provided by operating activities
    
    
    12,518,000
    
    
    
    9,478,000
    
    
    
    11,124,000Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (1,993,000
    )
    
    
    (1,956,000
    )
    
    
    (2,002,000
    )Acquisition, net of cash acquired
    
    
    
    
    
    
    (338,000
    )
    
    
    Purchases of intangibles
    
    
    (369,000
    )
    
    
    
    
    
    
    (200,000
    )Decrease in security deposits
    
    
    
    
    
    
    
    
    
    
    830,000(Increase) decrease in other assets
    
    
    31,000
    
    
    
    (30,000
    )
    
    
    47,000Net cash used in investing activities
    
    
    (2,331,000
    )
    
    
    (2,324,000
    )
    
    
    (1,325,000
    )Cash flows from financing activities:Payments on long-term obligations
    
    
    (295,000
    )
    
    
    (280,000
    )
    
    
    (256,000
    )Issuance of industrial revenue bonds
    
    
    
    
    
    
    
    
    
    
    5,630,000Retirement of industrial revenue bonds
    
    
    
    
    
    
    
    
    
    
    (5,986,000
    )Excess tax benefits from stock options
    
    
    228,000
    
    
    
    102,000
    
    
    
    Proceeds from stock options exercised
    
    
    2,347,000
    
    
    
    1,154,000
    
    
    
    768,000Net cash provided by financing activities
    
    
    2,280,000
    
    
    
    976,000
    
    
    
    156,000Net increase in cash and cash equivalents
    
    
    12,467,000
    
    
    
    8,130,000
    
    
    
    9,955,000Cash and cash equivalents at beginning of year
    
    
    26,638,000
    
    
    
    18,508,000
    
    
    
    8,553,000Cash and cash equivalents at end of year
    
    $
    39,105,000
    
    
    $
    26,638,000
    
    
    $
    18,508,000Supplemental disclosure of cash flow information:Cash paid during the year for:Interest
    
    $
    269,000
    
    
    $
    251,000
    
    
    $
    330,000Taxes
    
    
    415,000
    
    
    
    458,000
    
    
    
    494,000
  F-6




---



##### 



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




---



##### 



Lifecore Biomedical, Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (continued)
 Inventories
  As of June 30,2007
    
    
    2006Raw materials
    
    $
    4,609,000
    
    
    $
    3,973,000Work-in-process
    
    
    361,000
    
    
    
    708,000Finished goods-current
    
    
    7,175,000
    
    
    
    7,536,00012,145,000
    
    
    
    12,217,000Finished goods-long term
    
    
    1,491,000
    
    
    
    1,406,000$
    13,636,000
    
    
    $
    13,623,000
 Depreciation
  Number ofyearsBuilding
    
    
    7-40Equipment
    
    
    3-10Land and building improvements
    
    
    7-40
 Intangibles
   F-8




---



##### 



Lifecore Biomedical, Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (continued)
   2007
    
    
    2006
    
    
    Useful LivesGoodwill
    
    $
    4,783,000
    
    
    $
    4,783,000
    
    
    IndefinitePatents and license fees
    
    
    756,000
    
    
    
    387,000
    
    
    15  18 yearsDistribution rights and licenses
    
    
    350,000
    
    
    
    350,000
    
    
    8 yearsCustomer List
    
    
    80,000
    
    
    
    80,000
    
    
    5 yearsLess accumulated amortization
    
    
    (515,000
    )
    
    
    (399,000
    )$
    5,454,000
    
    
    $
    5,201,000
 Revenue Recognition
  Shipping & Handling
   . Income taxes
  Comprehensive Income
  F-9




---



##### 



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
   2007
    
    
    2006Cost of goods sold
    
    $
    68,000
    
    
    $
    45,000Research and development
    
    
    298,000
    
    
    
    61,000Marketing and sales
    
    
    349,000
    
    
    
    305,000General and administrative
    
    
    475,000
    
    
    
    433,000Total stock-based compensation expense
    
    $
    1,190,000
    
    
    $
    844,000Effect on earnings per share, net of tax effects:Basic
    
    $
    0.06
    
    
    $
    0.05Diluted
    
    $
    0.06
    
    
    $
    0.04
   F-10




---



##### 



Lifecore Biomedical, Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (continued)
  2005Net income, as reported
    
    $
    17,511,000Deduct: Total stock-based employee compensation expense
determined under fair value method for awards, net of
related tax effects
    
    
    (834,000
    )Pro forma net income
    
    $
    16,677,000Net income per common equivalent share:Basic  as reported
    
    $
    1.35Diluted  as reported
    
    $
    1.31Basic  pro-forma
    
    $
    1.29Diluted  pro-forma
    
    $
    1.25
  2007
    
    2006
    
    2005Risk-free interest rate
    
    
    4.6
    %
    
    
    4.6
    %
    
    
    3.9
    %Expected volatility
    
    
    55.2
    %
    
    
    61.7
    %
    
    
    69.6
    %Expected life (in years)
    
    
    5.3
    
    
    
    5.6
    
    
    
    5.4Dividend yield
    
    
    
    
    
    
    
    
    
    
    
  13. R ecent Accounting Pronouncements
  F-11




---



##### 



Lifecore Biomedical, Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (continued)
        F-12




---



##### 



Lifecore Biomedical, Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 NOTE B  LINE OF CREDIT
  NOTE C  LONG-TERM OBLIGATIONS
    As of June 30,2007
    
    
    2006Industrial development revenue bonds
    
    $
    4,799,000
    
    
    $
    5,094,000Less current maturities
    
    
    (303,000
    )
    
    
    (290,000
    )$
    4,496,000
    
    
    $
    4,804,000
  2008
    
    $
    303,0002009
    
    
    313,0002010
    
    
    324,0002011
    
    
    329,0002012
    
    
    338,000Thereafter
    
    
    3,192,000$
    4,799,000
 F-13




---



##### 



Lifecore Biomedical, Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 NOTE D  INCOME TAXES
  2007
    
    
    2006
    
    
    2005CurrentFederal
    
    $
    230,000
    
    
    $
    407,000
    
    
    $
    129,000State
    
    
    152,000
    
    
    
    137,000
    
    
    
    57,000Foreign
    
    
    344,000
    
    
    
    143,000
    
    
    
    139,000Deferred
    
    
    4,134,000
    
    
    
    3,693,000
    
    
    
    2,468,000Benefit from release of valuation allowance
    
    
    
    
    
    
    
    
    
    
    (11,922,000
    )$
    4,860,000
    
    
    $
    4,380,000
    
    
    $
    (9,129,000
    )
  2007
    
    
    2006Current deferred tax assets:Tax credit carryforward
    
    $
    1,510,000
    
    
    $
    Net operating loss carryforward
    
    
    1,200,000
    
    
    
    4,000,000Inventories
    
    
    631,000
    
    
    
    611,000Accrued compensation
    
    
    231,000
    
    
    
    201,000Other
    
    
    258,000
    
    
    
    219,000Current deferred tax asset
    
    
    3,830,000
    
    
    
    5,031,000Current deferred tax liabilities:Prepaid expenses
    
    
    (146,000
    )
    
    
    (166,000
    )Current deferred tax liabilities
    
    
    (146,000
    )
    
    
    (166,000
    )Net current deferred tax asset
    
    $
    3,684,000
    
    
    $
    4,865,000Long-term deferred tax assets:Net operating loss carryforward
    
    $
    2,797,000
    
    
    $
    3,628,000Tax credit carryforward
    
    
    351,000
    
    
    
    1,380,000Stock option expense
    
    
    159,000
    
    
    
    160,000Other
    
    
    19,000
    
    
    
    17,000Long-term deferred tax assets before
valuation allowance
    
    
    3,326,000
    
    
    
    5,185,000Valuation allowance
    
    
    (2,797,000
    )
    
    
    (2,242,000
    )Net Long-term deferred tax asset
    
    
    529,000
    
    
    
    2,943,000Long-term deferred tax liabilities:Depreciation
    
    
    (1,440,000
    )
    
    
    (1,249,000
    )Other
    
    
    (71,000
    )
    
    
    Long-term deferred tax liabilities
    
    
    (1,511,000
    )
    
    
    (1,249,000
    )Net long-term deferred tax asset (liability)
    
    $
    (982,000
    )
    
    $
    1,694,000
 F-14




---



##### 



Lifecore Biomedical, Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 NOTE D  INCOME TAXES  (continued)
      F-15




---



##### 



Lifecore Biomedical, Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 NOTE D  INCOME TAXES  (continued)
  2007
    
    2006
    
    2005Statutory income tax rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %State taxes, net of federal benefit
    
    
    2.5
    %
    
    
    2.8
    %
    
    
    2.3
    %Research and development credits
    
    
    (1.4
    )%
    
    
    (0.3
    )%
    
    
    (0.8
    )%Foreign sales deduction
    
    
    (3.2
    )%
    
    
    (5.2
    )%
    
    
    (7.9
    )%Other permanent differences
    
    
    1.4
    %
    
    
    1.7
    %
    
    
    0.8
    %Benefit from release of valuation allowance
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    (142.2
    )%Change in valuation allowance
    
    
    4.4
    %
    
    
    5.0
    %
    
    
    7.3
    %Other
    
    
    0.9
    %
    
    
    0.4
    %
    
    
    (2.4
    )%38.6
    %
    
    
    38.4
    %
    
    
    (108.9
    )%
 NOTE E  SHAREHOLDERS EQUITY
 Stock Options
   Number of
    
    
    Weighted AverageShares
    
    
    Exercise PriceOutstanding 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
    
    
    
    10.73Granted
    
    
    107,800
    
    
    
    15.77Exercised
    
    
    (232,950
    )
    
    
    10.07Canceled
    
    
    (275,768
    )
    
    
    15.13Outstanding at June 30, 2007
    
    
    1,277,888
    
    
    $
    10.34
 F-16




---



##### 



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 30:2007
    
    
    1,009,363
    
    
    $
    9.592006
    
    
    1,322,381
    
    
    
    10.602005
    
    
    1,395,106
    
    
    
    10.66
  Weighted AverageRange of
    
    Number
    
    
    Remaining
    
    
    Weighted Average
    
    
    AggregateExercise Price
    
    Outstanding
    
    
    Contractual Life
    
    
    Exercise Price
    
    
    Intrinsic Value$  3.55  $  5.82
    
    
    55,300
    
    
    4.82 years
    
    $
    5.21
    
    
    $
    288,0005.83        8.75
    
    
    578,313
    
    
    5.17 years
    
    
    7.26
    
    
    
    4,200,0008.76    13.12
    
    
    261,725
    
    
    5.67 years
    
    
    10.24
    
    
    
    2,679,00013.13    19.68
    
    
    358,550
    
    
    5.43 years
    
    
    15.42
    
    
    
    5,531,00019.69    23.38
    
    
    24,000
    
    
    0.61 years
    
    
    21.68
    
    
    
    520,0001,277,888
    
    
    5.24 years
    
    $
    10.34
    
    
    $
    13,218,000The following table summarizes information concerning currently exercisable stock options:Weighted AverageRange of
    
    Number
    
    Remaining
    
    Weighted Average
    
    AggregateExercise Price
    
    Exercisable
        
    Contractual Life
    
    Exercise Price
    
    Intrinsic Value$  3.55  $  5.82
    
    
    54,050
    
    
    4.92 years
    
    $
    5.20
    
    
    $
    281,0005.83        8.75
    
    
    552,813
    
    
    5.20 years
    
    
    7.25
    
    
    
    4,006,0008.76    13.12
    
    
    177,875
    
    
    5.70 years
    
    
    10.14
    
    
    
    1,804,00013.13    19.68
    
    
    200,625
    
    
    5.43 years
    
    
    15.31
    
    
    
    3,071,00019.69    23.38
    
    
    24,000
    
    
    0.61 years
    
    
    21.68
    
    
    
    520,0001,009,363
    
    
    4.47 years
    
    $
    9.59
    
    
    $
    9,682,000
  Restricted Stock Awards
  F-17




---



##### 



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
    
    
    
    10.71Granted
    
    
    4,243
    
    
    
    15.95Vested
    
    
    (20,911
    )
    
    
    10.89Forfeited
    
    
    (3,500
    )
    
    
    15.99Outstanding at June 30, 2007
    
    
    
    
    
    $
    
 Shareholder Rights Plan
  NOTE F  COMMITMENTS AND CONTINGENCIES
 Royalty Agreements
  Severance Agreements
  Legal Proceedings
  F-18




---



##### 



Lifecore Biomedical, Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 NOTE F  COMMITMENTS AND CONTINGENCIES  (continued)
     License Agreement
  NOTE G  EMPLOYEE BENEFIT PLAN
  F-19




---



##### 



Lifecore Biomedical, Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 NOTE H  SEGMENT INFORMATION
   Year ended June 30,2007
    
    
    2006
    
    
    2005Net salesHyaluronan segment
    
    $
    21,552,000
    
    
    $
    20,151,000
    
    
    $
    18,528,000Dental segment
    
    
    48,077,000
    
    
    
    42,946,000
    
    
    
    37,167,000$
    69,629,000
    
    
    $
    63,097,000
    
    
    $
    55,695,000Operating incomeHyaluronan segment
    
    $
    5,237,000
    
    
    $
    5,284,000
    
    
    $
    3,485,000Dental segment
    
    
    5,914,000
    
    
    
    5,592,000
    
    
    
    4,585,000$
    11,151,000
    
    
    $
    10,876,000
    
    
    $
    8,070,000Capital expendituresHyaluronan segment
    
    $
    1,181,000
    
    
    $
    1,339,000
    
    
    $
    1,316,000Dental segment
    
    
    812,000
    
    
    
    617,000
    
    
    
    686,000$
    1,993,000
    
    
    $
    1,956,000
    
    
    $
    2,002,000Depreciation and amortization expenseHyaluronan segment
    
    $
    1,297,000
    
    
    $
    1,135,000
    
    
    $
    1,172,000Dental segment
    
    
    970,000
    
    
    
    913,000
    
    
    
    915,000$
    2,267,000
    
    
    $
    2,048,000
    
    
    $
    2,087,000
 As of June 30,2007
    
    
    2006
    
    
    2005Identifiable assetsHyaluronan segment
    
    $
    34,553,000
    
    
    $
    34,944,000
    
    
    $
    35,838,000Dental segment
    
    
    29,300,000
    
    
    
    28,186,000
    
    
    
    25,878,000General corporate
    
    
    38,418,000
    
    
    
    26,108,000
    
    
    
    18,150,000$
    102,271,000
    
    
    $
    89,238,000
    
    
    $
    79,866,000
 F-20




---



##### 



Lifecore Biomedical, Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 NOTE I  ACQUISITION OF BARDO-BIOTECH SAS
   NOTE J  AGREEMENTS
  
 *
    
    Trademark of ETHICON NOTE K  RECLASSIFICATIONS
  F-21




---



##### 



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, 2007
Accounts receivable
allowance
    
    $
    505,000
    
    
    $
    238,000
    
    
    $
    
    
    
    $
    (209,000
    )(A)
    
    $
    534,000Year ended June 30, 2006
Accounts receivable
allowance
    
    
    496,000
    
    
    
    238,000
    
    
    
    
    
    
    
    (229,000
    )(A)
    
    
    505,000Year ended June 30, 2005
Accounts receivable
allowance
    
    
    407,000
    
    
    
    227,000
    
    
    
    
    
    
    
    (138,000
    )(A)
    
    
    496,000
 
 (A)
    
    Deductions represent accounts receivable balances written-off during the year. S-1