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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
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<TABLE>
<S> <C>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1995
COMMISSION FILE NUMBER: 0-4136
</TABLE>
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LIFECORE BIOMEDICAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MINNESOTA 41-0948334
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
</TABLE>
3515 LYMAN BOULEVARD
CHASKA, MINNESOTA 55318-3051
(Address of principal executive offices)
Registrant's telephone number, including area code: (612) 368-4300
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK ($.01 STATED VALUE)
(Title of Class)
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Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $95,000,000 at August 28, 1995 when the last sale
price of such stock, as reported by the Nasdaq National Market, was $12.25.
The number of shares outstanding of the Registrant's Common Stock, $.01
stated value, as of August 28, 1995 was 7,985,292 shares.
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DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
ITEM 1. BUSINESS
GENERAL
Lifecore Biomedical, Inc. ("Lifecore" or the "Company") develops,
manufactures and markets surgically implantable materials and devices through
its two divisions, the Hyaluronate Division and the Oral Restorative Division.
The Company's Hyaluronate Division is principally involved in the
development and manufacture of products utilizing hyaluronate, a
naturally-occurring carbohydrate which moisturizes or lubricates the soft
tissues of the body. Due to its widespread presence in body tissues and its high
degree of biocompatibility, the Company believes that hyaluronate can be used
for a wide variety of medical applications. The Company produces hyaluronate
synthetically through a proprietary fermentation process. Currently, the primary
commercial use for the Company's hyaluronate is as a component in ophthalmic
surgical solutions for cataract surgery. The Company is involved in a major
development project with Ethicon, Inc., a wholly owned subsidiary of Johnson &
Johnson ("Ethicon"), for a product to reduce the incidence of post-surgical
adhesions. Lifecore is pursuing the development of several other synthesized
versions of hyaluronate through its strategic alliances with a number of
corporate partners for a variety of veterinary, drug delivery, wound care and
urology applications. The Company also leverages its specialized hyaluronate
manufacturing skills to produce non-hyaluronate products for medical
applications.
The Company's Oral Restorative Division designs and markets a comprehensive
line of titanium-based dental implants for the replacement of lost or extracted
teeth. In May 1992, the Company acquired the Sustain Dental Implant System from
Bio-Interfaces, Inc. ("BII") and subsequently, in July 1993, acquired Implant
Support Systems, Inc. ("ISS"), the manufacturer of the Restore Dental Implant
System and the ISS line of compatible components. The Company has enhanced and
expanded these product lines since their acquisition. The Oral Restorative
Division also manufactures and markets synthetic bone graft substitute products
for the restoration of bone tissue deterioration resulting from periodontal
disease and tooth loss. This Division's products are marketed in the United
States through the Company's direct sales force, in Italy through the Company's
subsidiary, Lifecore Biomedical SpA, and in other countries through
distributors.
HYALURONATE DIVISION
BACKGROUND
Hyaluronate is a critical, naturally-occurring carbohydrate component of the
physiological fluids that lubricate, moisturize or otherwise protect the body's
soft tissues. Due to its widespread presence in tissues and its high degree of
biocompatibility, the Company believes that hyaluronate can be used for a wide
variety of medical applications.
Hyaluronate (also referred to as hyaluronan, hyaluronic acid and sodium
hyaluronate) was first demonstrated to have commercial medical utility as a
viscoelastic (elastic yet fluid) solution in cataract surgery. In this
application, its use for coating and lubricating during the implantation of
intraocular lenses dramatically improved then existing surgical success rates.
An ophthalmic hyaluronate product, produced by extraction from rooster comb
tissue, initially became commercially available in the United States in 1981.
Hyaluronate-based products, produced both by rooster comb extraction and by
fermentation processes such as the Company's, have since gained widespread
acceptance among ophthalmologists and are currently used in the majority of
cataract procedures in the United States.
Other hyaluronate applications currently being investigated include general
surgery (prevention of post-surgical adhesions), cardiovascular (coating of
catheters), drug delivery (as a vehicle to carry
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antibiotics and wound healing agents), orthopedic (treatment of traumatic
arthritis), urology (treatment of interstitial cystitis) and veterinary (storage
of fertilized embryos; orthopedics). The Company believes that the use of
hyaluronate for post-surgical adhesion prevention currently represents the most
significant potential application for hyaluronate.
STRATEGY
The Company intends to use its proprietary large scale fermentation process
to be a leader in the development of hyaluronate based products for multiple
applications. The Company's strategies for achieving this goal are as follows:
- ESTABLISH STRATEGIC ALLIANCES WITH MARKET LEADERS. The Company will
continue to develop applications for products with partners which have
strong marketing, sales and distribution capabilities to end-user markets.
The Company currently has established relationships with Alcon
Laboratories, Inc. ("Alcon"), Ethicon and Chiron Vision, Inc., market
leaders in the fields of ophthalmics and surgical products.
- EXPAND MEDICAL APPLICATIONS FOR HYALURONATE. The Company is currently
pursuing a broad range of applications in general surgery, veterinary,
drug delivery, wound care and urology. Due to the growing knowledge of the
unique characteristics of hyaluronate, the Company intends to continue to
identify and pursue further uses for hyaluronate in medical applications.
- 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 large corporate
partners, ranging from its role as a supplier of raw materials to the
development of its own proprietary finished aseptically packaged products.
- LEVERAGE SPECIALIZED HYALURONATE MANUFACTURING SKILLS. The Company uses
its viscous fluid handling and aseptic packaging skills gained in
producing hyaluronate to manufacture non-hyaluronate products for new
customers.
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HYALURONATE DIVISION PRODUCTS
The following chart summarizes the principal products and development
projects of the Hyaluronate Division, along with their applications and the
companies with which the Company has related strategic alliances:
<TABLE>
<CAPTION>
APPLICATION STRATEGIC ALLIANCE MARKET STATUS*
<S> <C> <C> <C>
GENERAL SURGERY
- ----------------------------
Lubricoat-Registered Trademark- Lifecore's proprietary product Adhesion Human clinical trials
0.5% Ferric Hyaluronate Gel under development; Ethicon has prevention commenced in May 1995
exclusive marketing rights
OPHTHALMIC
- ----------------------------
Viscoat-Registered Trademark- Lifecore supplies proprietary Cataract surgery Commercial sales since
Ophthalmic Viscoelastic hyaluronate powder for 1983
Solution inclusion in Alcon
Laboratories' Viscoat
viscoelastic solution
Amvisc-Registered Trademark- Lifecore supplies viscoelastic Cataract surgery Lifecore export
and Amvisc solution syringes to Chiron shipments to commence
Plus-Registered Trademark- Vision, Inc., which owns in fourth quarter 1995;
Ophthalmic Solutions rights to, and markets, Chiron's PMA supplement
products in progress
Lurocoat-Registered Trademark- Lifecore's proprietary Cataract surgery IDE approved
Ophthalmic Solution viscoelastic solution
syringes; negotiating private
label relationships
Ophthalmic gel Lifecore supplies syringes of Refractive surgery Storz preparing IDE
non-hyaluronate gel to Storz application
Ophthalmics, Inc., which owns
rights to, and will market,
product
Caprogel-TM- Topical Lifecore to supply syringes of Ocular bleeding Orphan Medical's human
Aminocaproic Acid aminocaproic acid to Orphan (hyphema) clinical trials
Medical, Inc., which owns commenced in 1994
rights to, and will market,
product
OTHER APPLICATIONS
- ----------------------------
MAP-5-TM- Embryo Lifecore supplies hyaluronate Veterinary Commercial sales since
Cryopreservation Solution solution in vials to cryopreservation 1994
Vetrepharm, Inc., which owns
rights to, and markets,
product
Cystistat-TM- Urological Lifecore supplies proprietary Urological Bioniche's human
Irrigation Solution hyaluronate powder for irrigation clinical trials
inclusion in Bioniche's commenced in Canada in
Cystistat product 1995
</TABLE>
* For many of the products or projects listed above, government regulatory
approvals and significant development work are required before commercial
sales can commence in the United States or elsewhere. See "Government
Regulation." No assurance can been given that such products will be
successfully developed or marketed.
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ADHESION PREVENTION DEVELOPMENT PROJECT WITH ETHICON
The Company is developing a hyaluronate product, Lubricoat-TM- 0.5% Ferric
Hyaluronate Gel, for potential application in reducing the incidence of
post-surgical adhesions. Ethicon has world-wide, exclusive distribution rights
for Lubricoat Gel.
Following surgical procedures, fibrous tissue, or adhesions, commonly form
as part of the body's natural healing process resulting from trauma to tissues
or organs during surgery. Particularly with respect to abdominal,
cardiovascular, orthopedic, reproductive tract, and thoracic surgeries, these
adhesions may cause internal complications that can require costly follow-up
surgical intervention. For example, adhesions following reproductive tract
surgery can cause infertility, while adhesions following abdominal surgery can
cause life threatening bowel obstructions.
Of the approximately 20 million surgical procedures estimated by government
sources to be performed annually in the United States, the Company believes that
there are at least eight million procedures where patients could benefit from
the use of an anti-adhesion product. The Company believes an equal or greater
number of surgical procedures are performed outside the United States. The
Company is initially focusing on the development of Lubricoat Gel for use in
abdominal surgeries, due to the frequency and severity of resulting adhesions.
Industry sources indicate that 5.7 million abdominal procedures are performed in
the United States each year. The reported incidence of resulting adhesions
ranges from 35 to 90 percent.
In 1989, the Company began working with Ethicon on anti-adhesion products
being developed by Ethicon using the Company's Tenalure-TM- Sodium Hyaluronate
formulation. Starting in 1990, Ethicon conducted a series of human clinical
studies with Tenalure hyaluronate, designed to demonstrate the effectiveness of
a hyaluronate solution in the reduction of post-surgical adhesions. These
double-blinded, placebo-controlled, multi-center studies involved over 300
patients. In these clinical studies, Tenalure hyaluronate demonstrated the
ability to reduce the incidence of adhesions, but the degree of adhesion
reduction fell short of Ethicon's efficacy goals. Tenalure hyaluronate was
observed to have a greater effect in areas where the hyaluronate pooled after
the completion of surgery. With that knowledge, the companies re-formulated
Tenalure hyaluronate into a second generation product, Lubricoat Gel, designed
to coat and remain in contact with tissues for a longer time after surgery. This
reformulation involved the ionic cross-linking of hyaluronate with an iron
compound to enhance coating properties. The companies then tested Lubricoat Gel
in animal models designed to pose a greater adhesion challenge by employing a
more severe surgical wound than the studies using Tenalure hyaluronate. The
results of the animal trials using Lubricoat Gel showed significant improvement
over those of Tenalure hyaluronate.
In order to accelerate development of the anti-adhesion project, the
companies, at that time, decided to shift responsibility for completion of this
project to Lifecore. Lifecore subsequently completed the preclinical studies and
submitted an application to the United States Food and Drug Administration
("FDA") for an Investigational Device Exemption ("IDE") to begin human clinical
trials to evaluate the safety and efficacy of Lubricoat Gel. In April 1995, the
FDA approved the IDE. The first phase of human clinical trials, involving
approximately 25 patients, commenced in May 1995 and is expected to be completed
by late 1995. Assuming successful completion of the first phase, and following
consultation with the FDA regarding the design of the subsequent pivotal trial,
the Company expects to begin the pivotal trial in late 1995 or early 1996. The
pivotal phase is expected to involve up to 200 patients in a blinded study at
multiple clinical sites. If the pivotal trial is successful, a Pre-Market
Approval ("PMA") will be required from the FDA prior to commercialization. There
can be no assurance that the results of these clinical trials will be positive
or that a PMA will be obtained. See "Government Regulation."
To carry out the shift of responsibility for development of this project to
Lifecore, the Company and Ethicon entered into a Conveyance, License,
Development and Supply Agreement (the "Ethicon Agreement") in August 1994. The
Ethicon Agreement transferred to the Company the intellectual property developed
to date from the anti-adhesion project, including pending patent rights and data
from research, product development, clinical safety and efficacy, and marketing
evaluations. The
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Company assumed responsibility for continuing the development project, including
conducting human clinical trials with Lubricoat Gel. Furthermore, the Company
granted Ethicon exclusive world-wide marketing rights to Lubricoat Gel for
post-surgical adhesion prevention and orthopedic applications in return for an
exclusive supply contract through 2008 with provisions for renewal. The Company
currently receives certain technical support from Ethicon for a specified annual
fee under the provisions of an associated consulting agreement. Under this
agreement, the primary Ethicon scientist responsible for supervising the
anti-adhesion project since its inception dedicates 100% of his time to the
project as a consultant and reports directly to Lifecore management.
Concurrently with the execution of the Ethicon Agreement, Johnson & Johnson
Development Corporation ("JJDC"), an affiliate of Ethicon, purchased 757,396
unregistered shares of the Company's Common Stock for $4 million in total
consideration, including $2.6 million in cash and $1.4 million in conversion of
previous product advances. In addition, another affiliate of Johnson & Johnson
has provided lease financing for certain of the Company's equipment, which is
primarily related to the Lubricoat Gel project.
OPHTHALMIC APPLICATIONS
CATARACT SURGERY. Currently, the primary commercial application for the
Company's hyaluronate is in cataract surgery. During the process of cataract
surgery, hyaluronate in a viscoelastic solution is used to coat and lubricate
the anterior chamber of the eye during the implantation of an intraocular lens.
These solutions have been shown to reduce surgical trauma and thereby contribute
to more rapid recovery with fewer complications than were experienced prior to
the use of viscoelastics. The Company currently sells hyaluronate for this
application to two customers, Alcon and Chiron Vision, Inc., a subsidiary of
Chiron Corporation ("Chiron Vision"). Lifecore also is developing its own
proprietary product, Lurocoat-Registered Trademark- Ophthalmic Solution, for
this application. The Company believes Alcon and Chiron Vision are the two
leading producers of ophthalmic surgical products in the world, and are two of
the three leading producers of viscoelastic solutions in the world.
Hyaluronate based products are used in the majority of cataract surgeries in
the United States. The Company estimates that the world-wide market for
hyaluronate for cataract surgery, on a patient cost basis, is approximately $160
million per year and is relatively stable. However, the market share of products
using fermented hyaluronate has increased relative to the market share of
products using hyaluronate extracted from rooster combs.
Alcon purchases the Company's hyaluronate for inclusion in
Viscoat-Registered Trademark- Ophthalmic Viscoelastic Solution, which is used
during cataract surgery. The Company's relationship with Alcon and its
predecessors commenced in 1983, when the Company's hyaluronate was specified as
a raw material component of the Viscoat product, which the FDA approved in 1986.
Until 1990, Alcon's predecessors had the exclusive rights to purchase the
Company's hyaluronate for ophthalmic applications. In 1990, the arrangement with
Alcon became non-exclusive. Since that time, sales of hyaluronate to Alcon have
continued to be made pursuant to supply agreements. The current Alcon supply
agreement, as renewed in November 1994, is for a term of four years through
December 31, 1998. The agreement contains minimum purchase requirements
totalling $10.4 million, consisting of $3.2 million in calendar year 1995 and
$2.4 million in each of calendar years 1996 through 1998. At the time the
agreement was renewed, the Company received a $6.3 million cash advance from
Alcon against future purchases.
In December 1994, the Company entered into a supply agreement with Chiron
Vision. Under the agreement, the Company has been selling its hyaluronate to
Chiron Vision in packaged syringes in connection with two of Chiron Vision's
ophthalmic viscoelastic surgical products, Amvisc-Registered Trademark- and
Amvisc Plus-Registered Trademark- Ophthalmic Solutions. The Company has
validated its manufacturing facility to produce these products, and Chiron
Vision is in the process of supplementing its FDA filings to seek approval of
the Company's facility for these products. The sale by Chiron Vision in the
United States of Amvisc and Amvisc Plus syringes supplied by the Company is
dependent upon such FDA approval. In August 1995, the Company received orders
from Chiron Vision for shipments of finished products to
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Europe commencing in fourth quarter 1995. The Company had not anticipated
commercial sales of these products until 1997. The Company believes this
acceleration was due to Chiron Vision's strategic acceleration of plans for
these products and the Company's receipt of ISO 9001 certification.
The Company is in the process of independently developing its own
viscoelastic solution, Lurocoat Solution, and has received an IDE from the FDA
to clinically evaluate that product for ophthalmic surgical use. The Company is
currently negotiating private label agreements with potential distributors
outside the United States. Clinical evaluation is not expected to begin until
private label agreements have been completed.
NON-HYALURONATE OPHTHALMIC APPLICATIONS
In its work with hyaluronate, the Company developed specialized skills in
filling syringes and vials with materials that, due to their perishable nature
or complex viscous handling properties, often could not be sterilized and
required rigorous aseptic manufacturing and packaging protocols. The Company is
leveraging these skills to initiate development projects for the manufacture of
non-hyaluronate products in the areas of refractive surgery and hyphema.
REFRACTIVE SURGERY. The Company is developing a manufacturing process with
Storz Ophthalmics, Inc., a subsidiary of American Home Products, Inc. ("Storz"),
to produce a non-hyaluronate gel product currently under development for use in
refractive surgery for myopia (near-sightedness). Industry sources estimate that
the current world-wide refractive surgery market, on a patient cost basis,
exceeds $900 million.
The current refractive surgery procedure for correcting myopia involves a
surgical incision of the cornea which weakens and relaxes the outer curvature
and achieves a corresponding correction of the eye's focusing mechanism. This
approach permanently weakens the eye, reduces long-term visual acuity due to
corneal scarring, has limited effectiveness with astigmatism, and can be
painful. Storz is developing a gel to be injected into the peripheral region of
the cornea, between the inner and outer layers, thereby changing the corneal
curvature to achieve vision correction without weakening the eye's structure.
Other potential advantages of this approach are the opportunity for reversing
the procedure, as well as using repeat injections to adjust the vision
correction over the patient's lifetime. In June 1995, the Company began
providing process development, manufacturing scale-up, validation and clinical
trial samples to Storz for the gel product. Storz must successfully complete
clinical trials and receive a PMA from the FDA prior to commercial sales of its
product in the United States. If successfully developed, the Company expects to
continue to provide manufacturing services to Storz.
TREATMENT OF OCULAR HYPHEMA. In January 1995, the Company signed an
agreement with Orphan Medical, Inc. ("OMI") to provide OMI's Caprogel-TM-
Topical Aminocaproic Acid in aseptically packaged syringes. Caprogel is a
non-hyaluronate product for the topical treatment of ocular hyphema (internal
bleeding of the eye), which can lead to retinal damage and blindness.
Aminocaproic acid has been administered in other areas of the body to alleviate
the side effects of bleeding, but has not been successfully developed for the
eye. OMI received orphan drug status from the FDA in 1994 and is proceeding with
its development. Orphan drug status entitles a manufacturer to exclusive
marketing rights for certain products that serve a limited patient population.
The Company is providing contract product development and aseptic packaging for
Caprogel and expects that a subsequent commercial supply phase with a three-year
term will commence upon OMI's commercial introduction of Caprogel. The Company
believes that the world-wide market for ocular hyphema applications, on a
patient cost basis, is approximately $125 million.
OTHER APPLICATIONS
The Hyaluronate Division undertakes its own product development activities
for both hyaluronate based and non-hyaluronate based applications, as well as on
a contract basis with certain clients. The majority of outside projects are
initiated by a client to demonstrate that the Company's hyaluronate is suitable
for a particular medical application. Suitability is often measured by detailed
specifications for product characteristics such as purity, stability, viscosity,
and molecular weight, as well as efficacy for a particular medical application.
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The Company currently manufactures Vetrepharm, Inc.'s MAP-5-TM- Embryo
Cryopreservation Solution, an aseptically packaged hyaluronate solution, for the
cryopreservation of fertilized animal embryos. MAP-5 Solution is used to
preserve the embryos for transportation to local veterinarians. Sales to
Vetrepharm, Inc. have been made since 1994 pursuant to annual purchase orders
which specify the quantity and unit price.
One current area of development involves the use of hyaluronate for
urological irrigation applications. Hyaluronate is being investigated for its
ability to treat an intermittent urination disorder, interstitial cystitis.
Bioniche, Inc., a Canadian medical company, commenced human clinical trials in
1995 for regulatory approval in Canada for Cystistat-TM- Urological Irrigation
Solution, a solution containing the Company's hyaluronate. This product would
require FDA approval prior to commercialization in the United States.
Another area of development activity involves the potential use of
hyaluronate in various drug delivery vehicles. Independent studies conducted by
organizations other than the Company have yielded animal and human data that
indicate hyaluronate has the potential to enhance the delivery of antibiotics,
pain killers, chemotherapeutic agents, and other drugs. For example, a drug
delivery project is being conducted by Johnson & Johnson Medical, Inc., a
subsidiary of Johnson & Johnson, to evaluate Lifecore's hyaluronate as a drug
delivery vehicle to enhance topical wound healing.
There can be no assurance that products which are currently under
development by the Company or others will be successfully developed or, if so
developed, will be successfully and profitably marketed.
ORAL RESTORATIVE DIVISION
BACKGROUND
Dental implants are increasingly used to replace missing or extracted teeth
and to serve as supports for dentures, crowns, and bridges. In comparison to
conventional restorative procedures, dental implants are surgically placed
directly into the jawbone in a manner simulating the anchoring of a tooth by its
root. This better maintains underlying bone structure and provides superior
fixation of restorations, minimizing loosening of fixtures against surrounding
teeth and gingiva. Typically constructed of titanium in a cylindrical or
flattened shape, dental implants generally are categorized by shape and method
of implantation. For example, the threaded cylinder implant is screwed into the
jawbone, while an alternate form, the press-fit cylinder, is placed into a
precision-drilled hole with a friction fit. Additionally, various implant styles
may be spray-coated with hydroxylapatite or metal to enhance bone fixation. The
Company believes the current dental implant market is approximately $110 million
in the United States and $275 million world-wide.
Bone graft substitute products are used for the restoration of bone
deterioration resulting from periodontal disease and tooth loss. Historically,
when bone was needed to fill holes or restore bone loss in a patient, the only
available sources have been bone from cadavers, live donor bone or autologous
bone (from another part of the patient's body). These sources have limitations
related to quality and convenience. The Company has developed a patented process
for the synthetic production of hydroxylapatite, the major inorganic constitute
of natural bone. The Company's hydroxylapatite products provide surgeons with a
readily available synthetic bone substitute of consistent quality at a
competitive cost for periodontal and oral surgery applications. While the
current market for these products is limited (approximately $5 million annually
in the United States), the market is expected to expand with the development of
new products, such as the Company's Capset-TM- Calcium Sulfate Bone Graft
Barrier, for additional applications.
STRATEGY
The Company intends to be a leader in the oral restorative surgical products
industry. The Company's strategies for achieving this goal are as follows:
- Acquire, enhance, and expand a broad line of dental implants and related
support products.
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- Employ aggressive quality control and materials resource planning
techniques to achieve higher efficiencies, resulting in cost-competitive
products.
- Establish an advanced direct sales and marketing network, emphasizing the
integration of information systems technology with superior customer
service.
ORAL RESTORATIVE DIVISION PRODUCTS
The following chart summarizes the principal products of the Company's Oral
Restorative Division:
<TABLE>
<S> <C> <C>
PRODUCT MARKET STATUS
Sustain-Registered Trademark- Replacement of lost or Commercial sales
and extracted teeth
Restore-Registered Trademark-
Dental Implant Systems
Implant Support Systems Precision oral restorative Commercial sales
components compatible with
implants
Repair of jawbone structure Commercial sales
Orthomatrix-Registered Trademark-
Non-resorbable Hydroxylapatite
Bone
Graft Substitute
Hapset-Registered Trademark- Repair of jawbone structure Commercial sales
Hydroxylapatite Bone Graft
Plaster
Capset-TM- Calcium Sulfate Bone Cap for bone graft materials 510(k) granted
Graft Barrier
</TABLE>
IMPLANT PRODUCTS
The Company offers two dental implant systems, the Restore Close Tolerance
Dental Implant System and the Sustain Dental Implant System. The Restore System
is based on a classic threaded titanium implant design that pioneered the
commercialization of these devices in general oral restorative surgery. In July
1993, the Company acquired this system in connection with its acquisition of
Implant Support Systems, Inc., a manufacturer of dental implant products. The
Company has since enhanced and expanded the original ISS line into a broad range
of implant options, marketed under the Restore System name. Included in the ISS
acquisition was a line of dental implant prosthetic components that the Company
continues to market under the Implant Support Systems brand. These components
are compatible and interchangeable with several other dental implant
manufacturers' systems, as well as miscellaneous dental implant support
products, permitting the Company to market its products to dental offices that
currently use competitors' implant systems.
The Sustain System is based on a newer innovative design that embraces a
press-fit cylinder format with an added "bone-like" hydroxylapatite coating. In
May 1992, the Company acquired the Sustain System from Bio-Interfaces, Inc.
after serving as an exclusive distributor for the Sustain System since 1990. The
Sustain System is complemented by a proprietary drilling system and a complete
line of prosthetic components.
Lifecore has enhanced and expanded both of these lines, creating new
products with a combination of innovative features from both systems. This gives
the Company one of the broadest lines in the oral restorative industry, offering
practitioners maximum flexibility in choice of treatment modalities with over
900 products.
BONE GRAFT SUBSTITUTE PRODUCTS
The Company offers three bone graft substitute materials which address
varying degrees of resorbability. The Company's
Orthomatrix-Registered Trademark- Non-resorbable Hydroxylapatite Bone Graft
Substitute is a non-resorbable bone graft substitute used in jawbone repair.
Hapset-Registered Trademark- Hydroxylapatite Bone Graft Plaster is a moldable,
partially resorbable form of hydroxylapatite that can be contoured into
desirable
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shapes prior to or during implantation. Hapset Plaster is a combination of the
Company's hydroxylapatite and a proprietary form of calcium sulfate which has
been patented by United States Gypsum Company ("USG"). Under a license agreement
with USG, the Company pays a royalty to USG based on certain sales of Hapset
Plaster. The Company has also entered into a supply agreement under which USG
furnishes its calcium sulfate to the Company for world-wide use in Hapset
Plaster.
The Company recently obtained FDA 510(k) clearance of Capset Barrier, a bone
graft barrier that is fully resorbable and also made from proprietary calcium
sulfate supplied by USG. Capset Barrier serves as a cap placed over the site of
a bone defect to inhibit the migration of bone graft materials used in the
underlying repair.
PRODUCT DEVELOPMENT
The Oral Restorative Division is also involved in product development
activities to improve existing components and packaging and to add new
components to the dental implant systems. These development activities enhance
the suitability and ease of use of the products for specific surgical
applications and reflect changing trends in dental implant technology. In
addition, the Division hopes to expand the market for its family of bone graft
substitutes. There can be no assurance, however, that products which are
currently under development by the Company will be successfully developed, or if
so developed, will be successfully and profitably marketed.
SALES AND MARKETING
HYALURONATE DIVISION PRODUCTS
The Company generally markets and distributes its hyaluronate products to
end-users through corporate partners. The Company sells hyaluronate to these
partners in a variety of forms, including powders, gels and solutions which are
packaged either in bulk jars, vials, or syringes. The Company sells its
ophthalmic grade hyaluronate powder to Alcon for Alcon's Viscoat solution and
has commenced the supply of Chiron Vision's Amvisc and Amvisc Plus products with
purchase orders that call for shipments to Europe beginning in fourth quarter
1995. In addition, the Company manufactures and packages a non-hyaluronate
ophthalmic gel for Storz pursuant to a development agreement and anticipates
entering into a supply relationship upon the completion of successful clinical
testing. The Company also sells vials of hyaluronate solution for embryo
cryopreservation to Vetrepharm, Inc.
The Company has an agreement with Ethicon for exclusive distribution of
Lubricoat Gel. The Company believes that Ethicon is the worldwide market leader
in the area of surgical products and has one of the largest marketing and sales
forces in the industry. Commercialization of Lubricoat Gel is dependent on
completion of clinical trials, receipt of FDA marketing approval, successful
manufacturing of commercial quantities, and the efforts of Ethicon to develop
the market for the product. No assurance can be given that any or all of these
conditions will be met.
The Company also sells various forms of medical grade hyaluronate directly
to third parties for development and evaluation of new applications to be
marketed and distributed through those companies' distribution systems or a
jointly developed distribution system.
ORAL RESTORATIVE DIVISION PRODUCTS
The Company is focused on expanding its product line in the Oral Restorative
Division, improving product quality, and developing an appropriate
infrastructure to support sales growth. Management of the Company believes that
the dental implant market is highly specialized and that its sales force must
have extensive knowledge about the products. The products are marketed to oral
surgeons, periodontists, implantologists, prosthodontists, general dental
practitioners, and dental laboratories. Accordingly, the Company believes that
for proper distribution of these products, it must maintain a direct sales force
in major markets in the United States. The Company believes that its sales force
offers better customer service and a higher level of quality and regulatory
control than could be achieved through an independent distributor network in the
United States. The Company employs thirteen direct salespersons in the United
States and four U.S.-based salespersons dedicated to
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international sales. The Oral Restorative Division products are marketed
internationally through 18 distributors. In addition, the products are marketed
in Italy through its subsidiary, Lifecore Biomedical SpA, which currently
utilizes five sales agents.
The Company's marketing activities are designed to support its direct sales
force and include advertising and product publicity in trade journals, direct
mail catalogs, newsletters, continuing education programs, telemarketing, and
attendance at trade shows and professional association meetings.
MANUFACTURING
The commercial production of hyaluronate by the Company requires
fermentation, separation and purification capabilities, and aseptic packaging of
product in a variety of formats. In addition, the production of the Lubricoat
Gel formulation requires high volume precision mixing of viscous fluids.
The Company produces its hyaluronate through a proprietary process of
fermentation. Until the introduction of the Company's medical grade hyaluronate,
the only commercial source for medical hyaluronate was through an animal
rendering process of extraction from rooster combs. The Company believed that
the rooster comb extraction method would not be capable of producing large
quantities of hyaluronate in an efficient manner if the use of medical grade
hyaluronate greatly increased. Consequently, the Company developed its
proprietary fermentation process for hyaluronate using existing knowledge of
other successful fermentation manufacturing processes. The Company believes that
the fermentation manufacturing approach is superior to rooster comb extraction
because of greater efficiency, flexibility, and better economies of scale in
producing large commercial quantities.
The Company has invested approximately $9 million in the construction of a
66,000 square foot facility primarily for the Company's proprietary hyaluronate
manufacturing process. The Company currently uses only a fraction of its
fermentation manufacturing capacity. The Company has purposely built excess
capacity because it believes that the potential applications for hyaluronate, if
substantiated, could require significant volumes of product. In addition,
several corporate partners have required that the Company validate its
manufacturing capability to fulfill forecasted production requirements by
creating additional capacity and periodically operating at higher capacity
levels. Lifecore believes its flexible, expandable capacity has been a critical
factor in attracting strategic relationships.
The Company's modular facility provides versatility in the simultaneous
manufacturing of various types of finished products. Currently the Company
supplies several different formulations of hyaluronate (e.g., varied molecular
weight fractions) in powders, solutions and gels, and in a variety of finished
packages, including bulk jars, vials and syringes. The Hyaluronate Division is
continuously conducting development work relating to the techniques utilized in
hyaluronate manufacturing. Such development activity is designed to improve
production efficiencies and expand the Company's capabilities to achieve a wider
range of hyaluronate product specifications. The Company's specialized fluid
handling and aseptic packaging capabilities also provide the opportunity for the
Company to offer contract packaging for other technically challenging
non-hyaluronate fluids.
The Company's facility was designed to meet applicable regulatory
requirements and has been approved by the FDA for the manufacture of both drug
and device products. The FDA periodically inspects the Company's manufacturing
systems, and requires conformance to the FDA's Good Manufacturing Practices
("GMP") regulations. In addition, the Company's corporate partners are required
by the FDA to conduct intensive regulatory audits of its facilities. The Company
also regularly contracts with independent regulatory consultants to conduct
audits of the Company's operations. The Company has received certification of
conformance to ISO 9001 Standards and Medical Device Directives, as well as the
COMMISSION EUROPEEN (CE) Mark of Conformity from TUV Product Services of Munich,
Germany. These approvals represent international symbols of quality system
assurance and compliance with applicable European Medical Device Directives,
which greatly assist in the marketing of the Company's products in the European
Union.
11
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The Company uses outside metal finishing vendors to produce its finished
dental implant devices and related components. The Company conducts its own
inspection of vendors and quality assurance functions related to the implant
devices and components and performs its own finished packaging.
The Company purchases materials for its production of hyaluronate and
hydroxylapatite from outside vendors. While these materials are available from a
variety of sources, the Company principally uses limited sources for some of its
key materials to better monitor quality and achieve cost efficiencies. Raw
materials for the Company's bone graft products are supplied exclusively by
United States Gypsum Company, and the Company believes such supplier is able to
provide adequate amounts of the raw materials for such product.
COMPETITION
The competitors of the Company include major chemical, dental, medical, and
pharmaceutical companies, as well as smaller specialized firms. Many of these
companies have significantly greater financial, manufacturing, marketing, and
research and development resources than the Company.
HYALURONATE PRODUCTS
A number of companies produce hyaluronate products and thus directly or
indirectly compete with Lifecore or its corporate partners. Genzyme Corporation
currently sells a high molecular weight hyaluronate which is manufactured
through a fermentation process to the Company's ophthalmic customer, Alcon, for
use in its Provisc-Registered Trademark- solution. Genzyme is developing several
hyaluronate based formulations for surgical anti-adhesion applications and has
received export approval to market an anti-adhesion product in certain European
countries. If Genzyme receives a PMA and the product obtains commercial
acceptance, the Company's prospects for Lubricoat Gel, if and when approved, may
be adversely affected. In addition, there are other companies working on the
development of competitive anti-adhesion products.
In addition to Genzyme, several companies produce hyaluronate through a
fermentation process, including Bio-Technology General Corporation, Kyowa Hakko,
Nippon, and Miles Laboratories. The Company believes that it and Genzyme are the
only fermentation manufacturers with the current capability to produce large
commercial quantities of medical grade hyaluronate under GMP conditions. In
addition, several companies manufacture hyaluronate by using rooster comb
extraction methods. These companies primarily include Anika Research, Inc.,
Biomatrix, Inc., Chesapeake Biological Labs, Fidia SpA, and Kabi Pharmacia AB.
The Company believes that its patented fermentation process may offer production
and regulatory advantages over the traditional rooster comb extraction method.
The Company's competitors have filed or obtained patents covering aspects of
fermentation production or uses of hyaluronate. These patents may cover the same
applications as the Company's. Although there can be no assurance, the Company
believes that it does not infringe the patents of its competitors. See "Patents
and Proprietary Rights."
The Company believes that competition in the ophthalmic and medical grade
hyaluronate market is primarily based on product performance and manufacturing
capacity, as well as product development capabilities. Future competition may be
based on the existence of established supply relationships, regulatory
approvals, intellectual property, and product price. After a manufacturer has
taken a product through the FDA marketing approval process, a change in
suppliers can involve significant cost and delay because significant
manufacturing issues may be encountered and supplemental FDA review may be
required.
ORAL RESTORATIVE PRODUCTS
The dental implant market is also highly competitive. Major market
competitors include Calcitek, Inc. (a subsidiary of Intermedics, Inc.),
Dentsply, Inc., Implant Innovations, Inc., Interpore, Inc., Nobelpharma AB and
Steri-Oss (a Bausch & Lomb Company). A number of these competitors are
established companies with dominant market shares. The Company believes that
competition in the dental implant market is primarily based on product
performance, supply of a broad product line, field sales support, customer
service, innovation and price.
The Company believes that its primary advantage is in an expanding product
line of over 900 products centered around the Restore and Sustain Systems that
address the breadth of current and
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<PAGE>
developing dental implant treatment modalities. In addition, to ensure quality,
the Company distinguishes itself from its competitors by inspecting all critical
tolerances on every implant. Also, the FDA has in recent years increased its
scrutiny of dental implant products. The Company believes its internal
regulatory capabilities enhance its ability to deal with the regulatory process,
which may give the Company a competitive advantage. No assurance can be given,
however, that the Company can effectively compete with manufacturers of dental
implant systems having larger, established distribution networks.
The market for the Company's bone graft substitute products is also
competitive. The major competitors include synthetic product manufacturers such
as Calcitek, Inc., Interpore, Inc., Ceramed Corporation and Miter, Inc., as well
as natural bone tissue banks, such as Pacific Coast Tissue Bank. The Company
believes that competition in this market is primarily based on product
performance and price.
PATENTS AND PROPRIETARY RIGHTS
The Company pursues a policy of obtaining patent protection for patentable
subject matter in its proprietary technology. In May 1985, the Company received
a United States patent covering certain aspects of its hyaluronate fermentation
process. The Company has also licensed a 1991 patent for the recombinant DNA
encoding of hyaluronate synthase, exclusively in the United States and non-
exclusively outside the United States. In August 1994, in connection with the
Ethicon Agreement, the Company was assigned a pending patent covering the
composition of Lubricoat Gel, with applications filed in the United States,
Australia, Brazil, Canada, Europe, Greece, and Japan. The patent has issued in
Australia. The Company also has a United States patent covering the processes
used in the manufacture of hydroxylapatite and a second patent covering the
hydroxylapatite product produced by that process. The Company also licenses
patented technology used in the production of hydroxylapatite from USG.
The Company believes that patent protection is significant to its business.
However, if other manufacturers were to infringe on its patents, there can be no
assurance that the Company would be successful in challenging, or would have
adequate resources to challenge, such infringement. The Company also relies upon
trade secrets, proprietary know-how and continuing technological innovation to
develop and maintain its competitive position. There can be no assurance that
others will not obtain or independently develop technologies which are the same
as or similar to the Company's technologies. The Company pursues a policy of
requiring employees, temporary staff, consultants and customers (which have
access to some of its proprietary information) to sign confidentiality
agreements. There can be no assurance that the Company will be able to
adequately protect its proprietary technology through patents or other means.
The Company is aware that one or more of its competitors have obtained, or
are attempting to obtain, patents covering fermentation and other processes for
producing hyaluronate. Other patents have been, or may be, issued in the future
in product areas of interest to the Company. Although the Company is not aware
of any claims that its current or anticipated products infringe on patents held
by others, no assurance can be given that there will not be an infringement
claim against the Company in the future. The costs of any Company involvement in
legal proceedings could be substantial, both in terms of legal costs and the
time spent by management of the Company in connection with such proceedings. It
is also possible that the Company, to manufacture and market some of its
products, may be required to obtain additional licenses, which may require the
payment of initial fees, minimum annual royalty fees and ongoing royalties on
net sales. There can be no assurance that the Company would be able to license
technology developed by others, on favorable terms or at all, that may be
necessary for the manufacture and marketing of its products.
GOVERNMENT REGULATION
Government regulation in the United States and other countries is a
significant factor in the marketing of the Company's products and in the
Company's ongoing research and development activities. The Company's products
are subject to extensive and rigorous regulation by the FDA, which regulates the
products as medical devices and which, in some cases, requires a PMA, and by
13
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foreign countries, which regulate the products as medical devices or drugs.
Under the Federal Food, Drug, and Cosmetic Act ("FDC Act"), the FDA regulates
clinical testing, manufacturing, labeling, distribution, sale, and promotion of
medical devices in the United States.
Following the enactment of the Medical Device Amendments of 1976 to the FDC
Act, the FDA classified medical devices in commercial distribution at the time
of enactment ("old devices") into one of three classes -- Class I, II, or III.
This classification is based on the controls necessary to reasonably ensure the
safety and effectiveness of medical devices. Class I devices are those whose
safety and effectiveness can reasonably be ensured through general controls,
such as labeling, premarket notification (the "510(k) Notification"), and
adherence to FDA-mandated current GMP requirements for devices. Class II devices
are those whose safety and effectiveness can reasonably be ensured through the
use of special controls, such as performance standards, post-market
surveillance, patient registries, and FDA guidelines. Class III devices are
devices that must receive a PMA from the FDA to ensure their safety and
effectiveness. Ordinarily, a PMA requires the performance of at least two
independent, statistically significant clinical trials that demonstrate the
device's safety and effectiveness. Class III devices are generally
life-sustaining, life-supporting, or implantable devices, and also include most
devices that were not on the market before May 28, 1976 ("new devices") and for
which the FDA has not made a finding of substantial equivalence based upon a
510(k) Notification. An old Class III device does not require a PMA unless and
until the FDA issues a regulation requiring submission of a PMA application for
the device.
The FDA invariably requires clinical data for a PMA application and has the
authority to require such data for a 510(k) Notification. If clinical data are
necessary, the manufacturer or distributor is ordinarily required to obtain an
IDE authorizing the conduct of human studies. Once in effect, an IDE permits
evaluation of devices under controlled clinical conditions. After a clinical
evaluation process, the resulting data may be included in a PMA application or a
510(k) Notification. The PMA may be approved, or the 510(k) Notification cleared
by the FDA, only after a review process which may include requests for
additional data, sometimes requiring further studies.
If a manufacturer or distributor of medical devices can establish to the
FDA's satisfaction that a new device is substantially equivalent to what is
called a "predicate device," i.e., a legally marketed Class I or Class II
medical device or a legally marketed Class III device for which the FDA has not
required a PMA, the manufacturer or distributor may market the new device. In
the 510(k) Notification, a manufacturer or distributor makes a claim of
substantial equivalence, which the FDA may require to be supported by various
types of information, including data from clinical studies, showing that the new
device is as safe and effective for its intended use as the predicate device.
Following submission of the 510(k) Notification, the manufacturer or
distributor may not place the new device into commercial distribution until an
order is issued by the FDA finding the new device to be substantially
equivalent. The FDA has no specific time limit by which it must respond to a
510(k) Notification. The 510(k) Notification process can take up to eighteen
months or more. The FDA may agree with the manufacturer or distributor that the
new device is substantially equivalent to a predicate device, and allow the new
device to be marketed in the United States. The FDA may, however, determine that
the new device is not substantially equivalent and require the manufacturer or
distributor to submit a PMA or require further information, such as additional
test data, including data from clinical studies before it is able to make a
determination regarding substantial equivalence. Although the PMA process is
significantly more complex, time-consuming, and expensive than the 510(k)
Notification process, the latter process can also be expensive and substantially
delay the market introduction of a product.
Hyaluronate products are generally Class III devices. In cases where the
Company is supplying hyaluronate to a corporate partner as a raw material or
producing a finished product under a license for the partner, the corporate
partner will be responsible for obtaining the appropriate FDA clearance or
approval. Export of the Company's hyaluronate products requires FDA's
permission, in the form of an export permit, and the approval of the importing
country.
The Sustain System and the Restore System, along with other dental implants,
are categorized as old Class III devices and are eligible for marketing through
510(k) Notifications. The FDA, however,
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has proposed to require PMAs for dental implants, and by law must confirm such
implants as Class III devices and require PMAs for them or reclassify them into
Class II or Class I. The FDA is expected to make this decision by December 1,
1995. The Company began clinical trials of its Sustain System under an IDE in
1990 in anticipation of the possibility that the FDA would require submission of
PMAs for dental implants. The Company's bone graft products are Class II
devices.
Other regulatory requirements are placed on a medical device's manufacture
and the quality control procedures in place, such as the FDA's device GMP
regulations. Manufacturing facilities are subject to periodic inspections by the
FDA to ensure compliance with device GMP requirements. The Company's facility is
subject to inspections as both a device and a drug manufacturing operation.
Other applicable FDA requirements include the medical device reporting
regulation, which requires that the Company provide information to the FDA on
deaths or serious injuries alleged to have been associated with the use of its
devices, as well as product malfunctions that would likely cause or contribute
to death or serious injury if the malfunction were to recur.
If the Company is not in compliance with FDA requirements, the FDA or the
federal government can order a recall, detain the Company's devices, withdraw or
limit 510(k) Notification clearances or PMA approvals, institute proceedings to
seize the Company's devices, prohibit marketing and sales of the Company's
devices, and assess civil money penalties and impose criminal sanctions against
the Company, its officers, or its employees.
There can be no assurance that any of the Company's clinical studies will
show safety or effectiveness; that 510(k) Notifications or PMA applications will
be submitted or, if submitted, accepted for filing; that any of the Company's
products that require clearance of a 510(k) Notification or approval of a PMA
application will obtain such clearance or approval on a timely basis, on terms
acceptable to the Company for the purpose of actually marketing the products, or
at all; or that following any such clearance or approval previously unknown
problems will not result in restrictions on the marketing of the products or
withdrawal of clearance or approval.
PRODUCT LIABILITY
Product liability claims may be asserted with respect to the Company's
products. In addition, the Company may be subject to claims for products of its
customers which incorporate Lifecore's materials. The Company maintains product
liability insurance coverage of $1.0 million per claim, with an aggregate
maximum of $2.0 million. The Company also carries a $2.0 million umbrella
insurance policy which also covers product liability claims. Lifecore Biomedical
SpA also carries product liability insurance in the amount of $1.0 million per
claim with an aggregate maximum of $2.0 million. The Company carries product
liability insurance for all of its products. However, there can be no assurance
that the Company will have sufficient resources to satisfy product claims if
they exceed available insurance coverage.
EMPLOYEES
As of July 31, 1995, the Company employed 114 persons on a full-time basis,
one part-time employee and 13 temporary employees. None of the Company's
employees is represented by a labor organization, and the Company has never
experienced a work stoppage or interruption due to labor disputes. Management
believes its relations with employees are good.
ITEM 2. PROPERTIES
The Company's operations are all conducted in its 66,000 square foot
building in Chaska, Minnesota. The facility was financed primarily from the
proceeds of the sale of $7 million in industrial development revenue bonds
issued by the City of Chaska.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol LCBM. The following table sets forth for each quarter of fiscal 1995 and
1994 the range of high and low closing sale prices of the Common Stock on the
Nasdaq National Market. These quotations represent prices between dealers and do
not include retail mark-ups, markdowns or commissions and may not represent
actual transactions.
<TABLE>
<CAPTION>
FISCAL YEAR LOW HIGH
- ------------------------------------------------------------------------------ --------- ---------
<S> <C> <C>
1995
First Quarter............................................................... $ 4 3/4 $ 6
Second Quarter.............................................................. 3 3/8 5 1/2
Third Quarter............................................................... 3 3/4 6 3/8
Fourth Quarter.............................................................. 4 7/8 8 7/8
1994
First Quarter............................................................... $ 6 1/4 $ 8 1/2
Second Quarter.............................................................. 7 1/4 10 7/8
Third Quarter............................................................... 6 5/8 10 1/8
Fourth Quarter.............................................................. 3 7/8 7 7/8
</TABLE>
The Company has not paid cash dividends on its Common Stock and does not
plan to pay cash dividends in the near future. The Company expects to retain any
future earnings to finance its business. The Company has a loan agreement which
restricts its ability to pay dividends. See Note D to Consolidated Financial
Statements.
At August 28, 1995, the Company had 886 shareholders of record.
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ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share amounts)
The following sets forth selected historical financial data with respect to
the Company and its subsidiaries. The data given below as of and for the five
years ended June 30, 1995 has been derived from the Company's Consolidated
Financial Statements audited by Grant Thornton LLP, independent certified public
accountants. Such data should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included elsewhere herein
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales.............................................. $ 5,884 $ 4,482 $ 7,485 $ 10,430 $ 10,018
Costs of goods sold.................................... 3,401 3,267 3,767 6,004 7,900
--------- --------- --------- --------- ---------
Gross profit........................................... 2,483 1,215 3,718 4,426 2,118
Operating expenses
Research and development............................. 622 1,555 1,706 1,072 1,381
Marketing and sales.................................. 1,853 2,579 2,764 2,645 3,038
General and administrative........................... 1,411 1,715 2,198 2,100 2,382
Write-down of building and equipment................. 1,200 -- -- -- --
Manufacturing relocation............................. -- 714 1,331 -- --
--------- --------- --------- --------- ---------
5,086 6,563 7,999 5,817 6,801
--------- --------- --------- --------- ---------
Loss from operations................................... (2,603) (5,348) (4,281) (1,391) (4,683)
Other income (expense)................................. 34 45 554 (1,406) (532)
--------- --------- --------- --------- ---------
Net loss............................................... $ (2,569) $ (5,303) $ (3,727) $ (2,797) $ (5,215)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net loss per common share.............................. $ (.49) $ (.81) $ (.53) $ (.39) $ (.66)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares outstanding.................... 5,227 6,539 7,048 7,176 7,880
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
<CAPTION>
AS OF JUNE 30,
-----------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................ $ 2,203 $ 9,568 $ 7,756 $ 3,618 $ 3,987
Total assets........................................... 15,744 27,807 23,786 24,063 25,522
Long-term obligations.................................. 7,748 8,136 7,398 9,051 7,888
Shareholders' equity................................... 4,500 15,029 13,453 11,328 10,188
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company develops, manufactures and markets surgically implantable
materials and devices through its two divisions, the Hyaluronate Division and
the Oral Restorative Division.
The Company has a number of relationships with corporate partners relating
to the development and marketing of hyaluronate based products for a variety of
medical applications, as well as certain non-hyaluronate based applications that
utilize the Company's specialized manufacturing capabilities. Currently, the
primary commercial application for the Company's hyaluronate is as a component
in an ophthalmic surgical product marketed by Alcon for cataract surgery. Sales
to Alcon are made under a supply agreement which, as most recently renewed in
November 1994, has a term through December 31, 1998. The agreement contains
minimum purchase requirements totalling $10.4 million, consisting of $3.2
million in calendar year 1995 and $2.4 million in each of calendar years 1996
through 1998. At the time the agreement was renewed, the Company received a $6.3
million cash advance from Alcon against future purchases. This advance covers
Alcon's payment for $3.2 million in hyaluronate shipments ordered for calendar
1995 and will be applied to shipments subsequent to calendar 1995 until fully
utilized.
The Company has other products and applications for hyaluronate under
various stages of development, as well as a number of non-hyaluronate products
under development for which the Company provides manufacturing services.
Currently, the Company's major development project involves Lubricoat Gel, a
hyaluronate based surgical anti-adhesion product. For a product under
development with a corporate partner the Company may realize revenues as it
ships hyaluronate powder or hyaluronate in finished packages to these corporate
partners for development, evaluation and testing.
The Company's Oral Restorative Division designs and markets a comprehensive
line of titanium-based dental implants for the replacement of lost or extracted
teeth. In May 1992, the Company acquired the Sustain System from BII and
subsequently, in July 1993, acquired ISS, the manufacturer of the Restore System
and the ISS line of compatible components. The Company has enhanced and expanded
these product lines since their acquisition. The Oral Restorative Division also
manufactures and markets synthetic bone graft substitute products for the
restoration of bone tissue deterioration resulting from periodontal disease and
tooth loss. This Division's products are marketed in the United States through
the Company's direct sales force, in Italy through the Company's subsidiary,
Lifecore Biomedical SpA, and in other countries through distributors.
RESULTS OF OPERATIONS
NET SALES. Net sales decreased $412,000 or 4% in fiscal 1995 from fiscal
1994, due to a $1,680,000 decrease in sales of hyaluronate products, partially
offset by a $1,268,000 increase in sales of oral restorative products.
Hyaluronate sales decreased to $5,223,000 in fiscal 1995 from $6,903,000 in
fiscal 1994 due to a decrease in sales to Alcon in fiscal 1995. Sales to Alcon
were $3,182,000, $5,996,000 and $5,094,000 for fiscal years 1995, 1994 and 1993.
Sales to Alcon in late fiscal 1993 and early fiscal 1994 were favorably impacted
when the Company was required to produce large quantities of hyaluronate to
validate its Chaska facility. Alcon agreed to purchase a majority of the
hyaluronate inventory produced as a result of this validation process. The
Company believes that these purchases exceeded Alcon's inventory requirements in
these periods. Thus, sales to Alcon since late fiscal 1994 have been at contract
minimums. The required minimum purchase under the Alcon agreement for the last
six months of calendar 1995 is $1,580,000, and the required contract minimum for
calendar 1996 is $2,418,000; as a result, sales to Alcon are expected to decline
further in fiscal 1996. Net sales to other hyaluronate customers increased
$1,134,000 or 125% in fiscal 1995 from fiscal 1994.
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<PAGE>
Oral restorative product sales increased 36% to $4,795,000 in fiscal 1995
from $3,527,000 in fiscal 1994. The increase in oral restorative product sales
primarily reflected the expanding product lines and the effect of increased
marketing and sales activities.
Net sales increased $2,945,000 or 39% in fiscal 1994 from fiscal 1993. The
sales increase was due to a $1,319,000 increase in sales of hyaluronate products
and a $1,626,000 increase in sales of oral restorative products. The increase in
sales of hyaluronate products was primarily attributable to a $900,000 increase
in the quantity of hyaluronate sold to Alcon, principally in the first two
quarters of fiscal 1994. Oral restorative product sales increased 86% to
$3,527,000 in fiscal 1994 from $1,901,000 in fiscal 1993, reflecting the broader
product line resulting from the July 1993 ISS acquisition and an increase in
unit sales of the Sustain System.
COST OF GOODS SOLD. Cost of goods sold, as a percentage of net sales,
increased to 79% for fiscal 1995 from 58% for fiscal 1994 and 50% for fiscal
1993. The increases resulted principally from direct charges for idle capacity
relating to hyaluronate products, resulting from the lower utilization of the
Company's manufacturing facility in the second half of fiscal 1994 and
throughout fiscal 1995. In the fourth quarter of fiscal 1993 and the first two
quarters of fiscal 1994, the Company had produced hyaluronate in large
quantities to validate its facility, resulting in higher levels of inventory in
fiscal 1994 and leading to lower production levels in the second half of fiscal
1994 and throughout fiscal 1995. The anticipated level of utilization of the
Company's manufacturing capacity will continue to cause direct charges for idle
capacity through at least fiscal 1996. Cost of goods sold, as a percentage of
net sales for oral restorative products, decreased to 49% in fiscal 1995 from
68% in fiscal 1994 and 75% in fiscal 1993. The decreases resulted principally
from spreading fixed expenses over increased oral restorative product sales in
fiscal 1994 and 1995, as well as from lower material costs.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
$309,000 or 29% in fiscal 1995 from fiscal 1994 and decreased $634,000 or 37% in
fiscal 1994 from fiscal 1993. The increase in fiscal 1995 reflected the
assumption by the Company in August 1994 of the research and development of
Lubricoat Gel, which was previously the responsibility of Ethicon. Research and
development expenses decreased in fiscal 1994 principally because of higher
costs in fiscal 1993 connected with initial human clinical trials on the Sustain
Dental Implant System. Research and development expenses are expected to
increase in 1996 due principally to the funding of human clinical trials for
Lubricoat Gel.
MARKETING AND SALES. Marketing and sales expenses are primarily costs
incurred by the Company in support of its Oral Restorative Division. Marketing
and sales expenses increased $393,000 or 15% in fiscal 1995 from fiscal 1994 and
decreased $119,000 or 4% in fiscal 1994 from fiscal 1993. The major components
of the increase in fiscal 1995 were $281,000 related to compensation costs,
primarily associated with additional sales personnel, and $40,000 related to
increased advertising and sales literature costs. The decrease in marketing and
sales expenses in fiscal 1994 resulted principally from a decrease of $105,000
in advertising and sales literature costs. The timing of advertising and sales
literature costs can be expected to cause marketing and sales expenses to
fluctuate from period to period. Marketing and sales expenses are expected to
increase in fiscal 1996 due principally to the further addition of sales
personnel, costs associated with updated sales literature, and a full year of
expenses related to the direct sales force at Lifecore Biomedical SpA, which has
been in operation since April 1995.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$282,000 or 13% in fiscal 1995 from fiscal 1994 and decreased $98,000 or 4% in
fiscal 1994 from fiscal 1993. These fluctuations principally resulted from a
litigation expense accrual recorded in fiscal 1993 and reversed in fiscal 1994.
In fiscal 1993, a class action lawsuit was filed in which allegations of
securities law violations were made against the Company. At that time, an
accrual for legal expenses was recorded in anticipation of the defense of the
lawsuit. In early fiscal 1994, the lawsuit was dismissed, and the accrual was
reversed, reducing general and administrative expense significantly in fiscal
1994. As a result, general and administrative expenses were lower in fiscal 1994
than in fiscal 1993 or 1995. The
19
<PAGE>
increase in fiscal 1995 also resulted from an increase in bad debt expense
relating to the account of a single customer. Without the fluctuations resulting
from the litigation expense accrual and the increased bad debt expense, general
and administrative expenses would have been relatively unchanged over these
periods.
MANUFACTURING RELOCATION. Manufacturing relocation costs in fiscal 1993
reflect the expenses, principally related to the installation and validation of
new equipment, incurred by the Company to relocate its manufacturing capability
to its newly constructed Chaska, Minnesota facility.
OTHER INCOME (EXPENSE). In December 1993, the Company sold the building
which served as a manufacturing facility prior to the present Chaska location.
The sale resulted in a gain of $274,000 in fiscal 1994.
During fiscal 1994, the Company invested its excess cash in a fund rated AAA
by Standard and Poors. The fund invested in various bonds and other obligations
issued or guaranteed as to payment of principal and interest by the U.S.
government. Included in the investments of the fund were mortgage-related
securities and their derivatives, such as interest-only and principal-only
securities and inverse floating rate securities. During the first quarter of
calendar 1994, the fund's value declined and, in April 1994, the Company sold
its investment and realized a loss of $1,047,000. Prior to fiscal 1994, the
Company's investment in the same fund had yielded gains in excess of the fiscal
1994 loss.
Interest expense increased in fiscal 1995 from fiscal 1994 and in fiscal
1994 from fiscal 1993 due to the debt related to the acquisition of the ISS
dental implant business. Interest income increased in fiscal 1995 from fiscal
1994 and decreased in fiscal 1994 from fiscal 1993. The increase in interest
income in fiscal 1995 reflected the additional cash available to invest from the
August 1994 sale of stock to Johnson & Johnson Development Corporation and the
November 1994 cash advance received from Alcon. The decrease in fiscal 1994
interest income reflected lower levels of cash available to invest.
LIQUIDITY AND CAPITAL RESOURCES
Inventories consist mainly of finished hyaluronate and oral restorative
products and related raw materials. The portion of finished hyaluronate
inventory that is not expected to be consumed within the next twelve months is
classified as long-term. The finished hyaluronate inventory is maintained in a
frozen state and has a shelf life in excess of five years. Total inventory
increased $862,000 or 16% in fiscal 1995 from fiscal 1994 principally due to
expansion of the oral restorative product inventory.
The Company incurred losses in each of the three years in the period ended
June 30, 1995, reflecting the significant costs incurred in validating and
operating the Company's facilities, research and development and marketing.
Historically, the Company has financed its operations with debt and lease
obligations and the sale of its Common Stock. In August 1994, the Company
received $2,600,000 in cash as part of the consideration for its Common Stock
sold to Johnson & Johnson Development Corporation. The Company has conserved its
cash resources by negotiating amendments to certain of its financial
obligations. Beginning in 1991, the Company and Johnson & Johnson Finance
Corporation entered into an operating lease agreement (the "JJFC Lease") for
$7,900,000 of equipment. Under the terms of the agreement and subsequent
amendments, lease payments were deferred until April 1994. In addition, in
October 1992, the Company issued its Common Stock as the form of payment to
satisfy $2,050,000 in notes payable in connection with the Company's acquisition
of BII's Sustain Dental Implant System. In connection with the terms of the
agreements with the note holder, the Company satisfied the $2,050,000 obligation
and received $521,000 in cash as settlement of the value assigned to the Common
Stock. The loan agreement between the Company and the holder of the industrial
development revenue bonds utilized to finance the Company's Chaska facility was
amended in July 1995 to waive the fixed charge coverage ratio, the cash flow
coverage ratio, the minimum current ratio and the maximum debt to net worth
limitation through June 30, 1996. With respect to certain of these covenants,
the Company anticipates that it will be required to obtain further waivers
20
<PAGE>
in fiscal 1997. There can be no assurance that future waivers will be available.
If waivers cannot be obtained and these obligations are accelerated, the Company
may require additional financing. See Note D to the Consolidated Financial
Statements.
The Company has had significant operating cash flow deficits for the last
three fiscal years, and it continues to have significant fixed obligations in
future periods. Obligations under the JJFC Lease and other leases, the
industrial development revenue bonds and the ISS note total $3,016,000 for
fiscal 1996 and $2,445,000 for fiscal 1997. In addition, the Company received a
$6.3 million advance on product purchases from Alcon in November 1994, which the
Company used for working capital in fiscal 1995. In fiscal 1995, the Company
shipped $1.6 million of products due under this advance to Alcon. Accordingly,
the remaining $4.7 million of product shipments due to Alcon in fiscal 1996 and
1997 will not generate additional cash. The Company from time to time has
obtained other cash advances and has also obtained permission from its corporate
partners to defer scheduled payments for cash management purposes. While the
Company expects to make such requests in the future, there can be no assurance
that its requests will be granted.
Due to the Company's fixed obligations and anticipated operating cash flow
deficits through fiscal 1997, the Company expects its cash requirements to
significantly exceed the cash generated from anticipated operations. On October
18, 1995, the Company received net proceeds of approximately $19,900,000 from
the sale of 2,200,000 shares of its Common Stock through a public offering. An
additional 330,000 shares of common stock are registered and available for
public sale related to the underwriters' over-allotment option. The future sale
of these shares is not assured. The net proceeds and shares sold include
$2,000,000 received from Johnson & Johnson Development Corporation (see Notes F
and M to the Company's Consolidated Financial Statements) for the purchase of
205,128 shares at the same price per share as to the public. Due to the
uncertainties involved in development, regulatory approval and market acceptance
of its new products and adequate growth in its existing products, no assurance
can be given that these resources will be sufficient to allow the Company to
attain and maintain positive cash flow. If the Company exhausts the net proceeds
of the offering prior to achieving and maintaining positive cash flow,
additional financing will be necessary. If additional financing is needed, no
assurance can be given that such financing will be available and, if available,
will be on terms favorable to the Company and its shareholders. See Note B to
the Company's Consolidated Financial Statements.
The Company's ability to generate positive cash flow from operations and
achieve profitability is dependent upon the continued expansion of revenue from
its hyaluronate and oral restorative businesses. In the Hyaluronate Division,
future revenue growth is unpredictable due to the complex governmental
regulatory environment for new medical products and the early stage of certain
of these markets. Similarly, expansion of the Company's Oral Restorative
Division revenues is also dependent on increased revenue from new and existing
customers, as well as successfully attending to market competition issues
commensurate with that more mature field. Current or future regulatory approval
requirements also affect the timing of future new products in the Oral
Restorative Division. As a result of these factors, the Company does not
currently anticipate commercial sales sufficient to generate positive cash flow
through fiscal 1997.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements are listed under Item 14 of this
report.
Summarized unaudited quarterly financial data for 1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
QUARTER
--------------------------------------------------------------
FIRST SECOND THIRD FOURTH
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Year ended June 30, 1995
Net sales....................................... $ 1,842,000 $ 2,189,000 $ 2,885,000 $ 3,102,000
Gross profit.................................... 102,000 629,000 683,000 704,000
Net loss........................................ (1,658,000) (1,141,000) (1,137,000) (1,279,000)
Net loss per share.............................. $ (.22) $ (.14) $ (.14) $ (.16)
Weighted average shares outstanding............. 7,632,015 7,953,206 7,962,294 7,970,935
Year ended June 30, 1994
Net sales....................................... $ 3,367,000 $ 3,165,000 $ 1,770,000 $ 2,128,000
Gross profit.................................... 1,827,000 1,768,000 683,000 148,000
Net earnings (loss)............................. 356,000 217,000 (776,000) (2,594,000)
Net earnings (loss) per share................... $ .05 $ .03 $ (.11) $ (.36)
Weighted average shares outstanding............. 7,155,938 7,161,267 7,174,200 7,195,615
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
22
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth the names of the executive officers and directors
of Lifecore, in addition to certain other information regarding such
individuals:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
James W. Bracke, Ph.D..................... 48 President, Chief Executive Officer, Secretary and Director
Brian J. Kane............................. 42 Vice President of New Business Development
Mark J. McKoskey.......................... 44 Vice President and General Manager, Oral Restorative Division
Colleen M. Olson.......................... 42 Vice President of Corporate Administrative Operations
Nancy J. Teasdale......................... 39 Vice President and General Manager, Hyaluronate Division
Orwin L. Carter........................... 53 Director
Joan L. Gardner........................... 50 Director
John C. Heinmiller........................ 41 Director
Robert P. Hickey.......................... 49 Director
Donald W. Larson.......................... 66 Director
Richard W. Perkins........................ 64 Director
</TABLE>
JAMES W. BRACKE, PH.D. Dr. Bracke was appointed President and Chief
Executive Officer and a director in August 1983 and Secretary in March 1995. He
joined the Company in February 1981 as Senior Research Scientist. The Company
has an employment agreement with Dr. Bracke that extends through June 1998. Dr.
Bracke's employment agreement prohibits him from competing with the Company for
three years after termination of employment. In the event of termination upon a
change in control of the Company, the employment agreement provides that Dr.
Bracke will receive a sum equal to 300% of his base salary.
BRIAN J. KANE. Mr. Kane has been Vice President of New Business Development
for the Company since July 1991. He joined the Company as Vice President of
Marketing in June 1986.
MARK J. MCKOSKEY. Mr. McKoskey has been Vice President and General Manager
of the Oral Restorative Division since July 1994. He became Vice President of
Operations in June 1990. He joined the Company in June 1985 as engineering
manager.
COLLEEN M. OLSON. Ms. Olson has been Vice President of Corporate
Administrative Operations of the Company since May 1991. Prior to that time, she
was Vice President of Human Resources and Administration from June 1990 to May
1991, and Director of Human Resources and Administration from October 1984 to
June 1990. She joined the Company in January 1980 as Office Manager.
NANCY J. TEASDALE. Ms. Teasdale has been Vice President and General Manager
of the Hyaluronate Division since September 1994. She joined the Company in
August 1991 as Manager of Quality Assurance. From January 1989 through July
1991, she was Manager of Quality Assurance and Technical Support for Michael
Foods, Inc., a diversified food processor.
ORWIN L. CARTER. Dr. Carter is currently a private consultant to the
diagnostic device industry. From December 1989 through September 1994, he served
as President and Chief Executive Officer of INCSTAR Corporation. He then served
as Chairman until March 1995. INCSTAR Corporation manufactures and markets test
kits and related products used by major hospitals, clinical reference
laboratories and researchers involved in diagnosing and treating immunological
conditions. He has been a director of the Company since 1989 and is also a
director of Theragenics Corporation.
23
<PAGE>
JOAN L. GARDNER. Ms. Gardner has had a career in community service. She is
currently serving on the Board of Children's Health Care, the newly merged
entity of Saint Paul Children's Hospital and Minneapolis Children's Medical
Center, and chairs its Quality Committee. She formerly chaired the Boards of
Trustees of the Biomedical Research Institute and The Children's Hospital
Incorporated and served on the board of the National Association of Children's
Hospitals and Related Institutes and chaired its Education Council. Ms. Gardner
joined the Company's Board in November 1992.
JOHN C. HEINMILLER. Mr. Heinmiller is currently Vice President of Finance
and Administration and a director of Daig Corporation, which designs,
manufactures and markets medical devices for cardiovascular applications. He was
Vice President of Finance and Chief Financial Officer of the Company from
October 1991 to February 1995. Prior to October 1991, Mr. Heinmiller was an
employee of Grant Thornton LLP, a national CPA firm and he was a partner of that
firm from 1986 to 1991. He became a director of the Company in November 1994.
ROBERT P. HICKEY. Mr. Hickey has been President of Roberts Healthcare
Resources, a consulting firm focused on management support to small companies
and venture funds, since 1994. From 1975 to 1994, he was with Johnson & Johnson
Companies in various capacities, most recently as Vice President of Marketing
and a director of Ethicon, Inc. He has been a director of Lifecore since January
1995.
DONALD W. LARSON. Mr. Larson is a self-employed business publisher and
editor. He has been editor and publisher of BUSINESS NEWSLETTER since 1980.
Prior to 1980, he was editor and publisher of the magazine CORPORATE REPORT
MINNESOTA. He has been a director of the Company since 1983.
RICHARD W. PERKINS. Mr. Perkins is President, Chief Executive Officer and a
director of Perkins Capital Management, Inc., Wayzata, Minnesota, where he has
held those positions since January 1985. Mr. Perkins is a director of the
following public companies: Bio-Vascular, Inc., Celox Corporation, Children's
Broadcasting Corporation, CNS, Inc., Discus Acquisition Corporation, Eagle
Pacific Industries, Inc., Garment Graphics, Inc., Nortech Systems, Inc., and
Quantech Ltd. He has been a director of Lifecore since 1983.
All executive officers named are elected or appointed by the Board of
Directors for a term of office from the time of election or appointment until
the next annual meeting of directors (held following the annual meeting of
shareholders) and until their respective successors are elected and have
qualified. Pursuant to the Company's Articles of Incorporation, the Board of
Directors is divided into three classes of directors, with each director serving
a three-year term. Each year only one class of directors is subject to a
shareholder vote, and approximately one-third of the directors (presently, two
directors in each of two classes and three directors in one class) belong to
each class.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid during each of the Company's last three fiscal years to the Company's Chief
Executive Officer. No other executive officers of the Company had cash
compensation that exceeded $100,000, based on salary earned during fiscal 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------
NAME AND FISCAL ------------------------ STOCK
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(1)
- --------------------------------------------------------------------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
James W. Bracke...................................................... 1995 $ 189,073 -- 10,000
President and Chief 1994 188,171 -- 25,000
Executive Officer 1993 153,116 -- 5,000
<FN>
- ------------------------
(1) Number of shares of common stock purchasable under option grants.
</TABLE>
24
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to the Chief
Executive Officer, concerning stock options granted to that individual during
the last fiscal year:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
% OF TOTAL STOCK PRICE
OPTIONS EXERCISE OR APPRECIATION FOR
GRANTED TO BASE PRICE OPTION TERM(4)
OPTIONS EMPLOYEES IN PER EXPIRATION --------------------
NAME GRANTED LAST YEAR SHARE(2) DATE(3) 5% 10%
- ----------------------------------------- ------------ ------------- ----------- ---------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
James W. Bracke.......................... 10,000(1) 6.0 $ 3.88 Oct. 19, 2004 $ 24,370 $ 61,758
<FN>
- ------------------------
(1) Exercisable in cumulative 25% annual installments commencing one year from
date of grant (October 19, 1994), with full vesting occurring on the fourth
anniversary date.
(2) All options were granted at the market value of the Company's common stock
based upon the last reported price on date preceding the date of grant. The
exercise price and tax withholding obligations related to exercise may be
paid by delivery of already owned shares or by offset of the underlying
shares, subject to certain conditions.
(3) All options have a ten year term, subject to termination of employment.
(4) Gains are reported net of the option exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation only. Actual gains, if any, on stock option exercises are
dependent on the future performance of the common stock, overall stock
market conditions, as well as the optionholder's continued employment
through the vesting period. The amounts reflected in this table may not
necessarily be achieved.
</TABLE>
OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table sets forth information with respect to the Chief
Executive Officer, concerning the exercise of options during the last fiscal
year and unexercised options held as of the end of the fiscal year:
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
IN-THE-MONEY
OPTIONS
NUMBER OF UNEXERCISED AT
SHARES OPTIONS AT YEAR-END YEAR-END(2)
ACQUIRED ON VALUE -------------------------- -----------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE
- --------------------------------------------- ------------- --------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
James W. Bracke.............................. -- -- 67,250 30,417 $ 37,085
<CAPTION>
NAME UNEXERCISABLE
- --------------------------------------------- -------------
<S> <C>
James W. Bracke.............................. $ 55,000
<FN>
- ------------------------
(1) Market value on the date of exercise of shares covered by options
exercised, less option exercise price.
(2) The closing price for the Company's common stock on June 30, 1995 was
$7.75. Value is calculated on the basis of the difference between the
option exercise price and $7.75 multiplied by the number of shares of
common stock underlying the options.
</TABLE>
EMPLOYMENT AND SEVERANCE AGREEMENT. Dr. James W. Bracke, the President,
Chief Executive Officer, Secretary and a Director of the Company, entered into
an Employment Agreement with the Company dated June 1, 1991, as amended on
August 14, 1995, which provides for a term of employment through June 30, 1998
and contains customary confidential disclosure and non-compete provisions. The
Agreement provides for a severance payment equal to 300% of Dr. Bracke's base
salary paid during the year preceding a termination which is made as a result of
a merger or acquisition of the Company or as a result of a change in control of
the Company. Dr. Bracke's base salary is currently $183,000 per year and,
accordingly, in the event the severance provision of his Employment Agreement
were triggered by a merger, acquisition or change in control, the Company or its
successor would be obligated to pay him approximately $549,000.
REMUNERATION OF DIRECTORS. Directors who are not officers of the Company
receive a fee of $500 per month.
25
<PAGE>
The 1990 Stock Plan (the "1990 Plan") provides for the automatic granting of
a defined number of options to non-employee directors. Such options are granted
to each person who is not an employee of the Company and who (i) was serving as
a director on the date the 1990 Plan was approved by shareholders, or (ii) was
elected a director (whether by vote of shareholders or directors) subsequent to
September 27, 1990 and who was not serving as a director at such date. Each such
person automatically receives, as of the date of such election, a non-qualified
option to purchase 10,000 shares of common stock with the option price equal to
the fair market value of the Company's common stock on such date. The options
have ten-year terms and are exercisable, as to one-third of the shares subject
to the option, beginning one year after the date of option grant; as to the
second third, beginning two years after the date of option grant; and as to the
last third, beginning three years after the date of option grant. At the third
anniversary date of an option grant, a non-employee director who continues to
serve as a member of the Board shall automatically be granted an option to
purchase an additional 10,000 shares of stock with the option price equal to the
fair market value of the Company's common stock on such date. Any vested portion
of these options will not expire upon termination of service as a director. No
stock appreciation rights may be granted in connection with options to
non-employee directors. Under the 1990 Plan, the maximum number of shares as to
which options may be granted to all non-employee directors is 200,000 shares,
and the maximum number of shares as to which options may be granted to any one
non-employee director is 20,000 shares. Pursuant to the automatic grant feature
of the 1990 Plan, Mr. Hickey was granted an option to purchase 10,000 shares at
$3.875 on January 2, 1995 and Mr. Heinmiller was granted an option to purchase
10,000 shares at $5.25 on March 23, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of August 28, 1995, the number and
percentage of outstanding shares of Common Stock beneficially owned by: (i) each
person who is known by the Company to be the beneficial owner of more than 5% of
its outstanding Common Stock, (ii) each director of the Company, and (iii) all
directors and officers of the Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF
BENEFICIAL OWNER SHARES PERCENT(1)
- --------------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Johnson & Johnson Development Corporation
One Johnson & Johnson Plaza
New Brunswick, NJ 08933.............................................................. 757,396(2) 9.5%
Perkins Capital Management, Inc.
730 East Lake Street
Wayzata, MN 55391.................................................................... 588,760(3) 7.4
James W. Bracke, Ph.D.................................................................. 195,280(4) 2.4
Orwin L. Carter, Ph.D.................................................................. 23,666(5) *
Joan L. Gardner........................................................................ 14,750(6) *
John C. Heinmiller..................................................................... 2,000 *
Robert P. Hickey....................................................................... -- --
Donald W. Larson....................................................................... 29,966(7) *
Richard W. Perkins..................................................................... 70,666(8) *
Directors and officers as a group (11 persons)......................................... 473,332(9) 5.8
<FN>
- ------------------------
* Indicates less than one percent.
(1) Based on 7,985,292 shares outstanding as of August 28, 1995.
(2) Based upon the content of a statement filed as of August 8, 1994 pursuant
to Section 13(g) of the Exchange Act.
</TABLE>
26
<PAGE>
<TABLE>
<S> <C>
(3) Based upon the content of a statement filed as of July 31, 1995 pursuant to
Section 13(g) of the Securities Exchange Act of 1934. Excludes shares
beneficially owned by Richard W. Perkins, the controlling shareholder of
Perkins Capital Management, Inc. and a director of the Company.
(4) Includes 61,391 shares held by Dr. Bracke's wife, 50,056 shares held
jointly by Dr. Bracke and his wife, 7,000 shares held by Dr. Bracke's
children and 76,833 shares which Dr. Bracke has the right to purchase
pursuant to stock options which are or will become exercisable within sixty
days of the date hereof.
(5) Includes 22,666 shares which Dr. Carter has the right to purchase pursuant
to stock options which are or will become exercisable within sixty days of
the date hereof.
(6) Includes 4,250 shares held by a partnership in which Ms. Gardner is a
partner and 10,000 shares which Ms. Gardner has the right to purchase
pursuant to stock options which are or will become exercisable within sixty
days of the date hereof.
(7) Includes 19,666 shares which Mr. Larson has the right to purchase pursuant
to stock options which are or will become exercisable within sixty days of
the date hereof.
(8) Includes 45,000 shares held by various trusts of which Mr. Perkins is the
sole trustee, 6,000 shares held by a foundation created by Mr. Perkins and
19,666 shares which Mr. Perkins has the right to purchase pursuant to stock
options which are or will become exercisable within sixty days of the date
hereof. Excludes 588,760 shares held for the accounts of clients of Perkins
Capital Management, Inc. ("PCM"), a registered investment advisor of which
Mr. Perkins is the controlling shareholder. PCM has the right to sell the
shares but does not have voting power over the shares. Mr. Perkins and PCM
disclaim beneficial interest in the shares held for the account of PCM
clients.
(9) Includes 251,783 shares which certain directors and officers have the right
to purchase pursuant to stock options which are or will become exercisable
within sixty days of the date hereof.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable.
27
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C>
(a) Documents filed as a part of the report:
1. Consolidated Financial Statements
<CAPTION>
FORM 10-K PAGE
REFERENCE
----------------
<S> <C> <C>
Report of Independent Certified Public Accountants................... F-1
Consolidated Balance Sheets -- June 30, 1994 and 1995................ F-2
Consolidated Statements of Operations -- years ended June 30, 1993,
1994 and 1995........................................................ F-3
Consolidated Statements of Cash Flows -- years ended June 30, 1993,
1994 and 1995........................................................ F-4
Consolidated Statements of Shareholders' Equity -- years ended June
30, 1993, 1994, and 1995............................................. F-5
Notes to Consolidated Financial Statements........................... F-6 through F-15
2. Consolidated Financial Statement Schedules
<CAPTION>
FORM 10-K
DESCRIPTION PAGE REFERENCE
- -------------------------------------------------------------------------------- ----------------
<S> <C> <C>
Schedule II -- Valuation and Qualifying Accounts..................... S-1
(b) Reports on Form 8-K
None.
(c) Exhibits and Exhibit Index
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
2.1 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) (Pursuant to Rule 24b-2,
certain portions of this Exhibit have been deleted and filed separately with the Commission)
(incorporated by reference to Exhibit 2.1 to Form 8-K dated July 8, 1993)
3.1 Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit 19(a) to Amendment
No. 1 on Form 8, dated July 13, 1988, to Form 10-Q Report for the quarter ended December 31, 1987)
3.2 Amended Bylaws, filed herewith
4.1 Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to 1987 S-2 Registration
Statement [File No. 33-12970])
10.1 Loan Agreement dated as of September 1, 1990 between the City of Chaska and the Company (incorporated by
reference from Exhibit 4.2 to the Registrant's Form 10-K for the year ended June 30, 1990, as amended on
Form 8 dated October 12, 1990) as amended on June 10, 1991 and July 24, 1991 (incorporated by reference
from Exhibit 10.2 to the Registrant's Amendment No. 1 to Form 1991 S-2 Registration Statement [File No.
33-41291]) as amended on August 3, 1992 (incorporated by reference to Exhibit 10.1 to Form 10-K for the
year ended June 30, 1992) as amended on July 28, 1994 (incorporated by reference to Exhibit 10.1 to Form
10-K for the year ended June 30, 1994), as amended on July 27, 1995*
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
10.2 Trust Indenture dated as of September 1, 1990 from the City of Chaska to Norwest Bank Minnesota, N.A.,
as Trustee (incorporated by reference from Exhibit 4.3 to the Registrant's Form 10-K for the year ended
June 30, 1990, as amended on Form 8 dated October 12, 1990)
10.3 Combination Mortgage, Security Agreement and Fixture Financing Statement dated as of September 1, 1990
from the Company to Norwest Bank Minnesota, N.A., as Trustee (incorporated by reference from Exhibit 4.4
to the Registrant's Form 10-K for the year ended June 30, 1990, as amended on Form 8 dated October 12,
1990)
10.4 Contract for Private Redevelopment dated as of September 1, 1990 between the Company and Chaska Economic
Development Authority (incorporated by reference from Exhibit 4.5 to the Registrant's Form 10-K for the
year ended June 30, 1990, as amended on Form 8 dated October 12, 1990)
10.5 Hyaluronate 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, (Certain information has been deleted from this exhibit and filed separately
with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule
24b-2) (incorporated by reference to Exhibit 10.5 to Form 10-K for the year ended June 30, 1992)
10.6 Employment Agreement dated June 10, 1991 with James W. Bracke (incorporated by reference to Exhibit
10.11 to 1991 S-2 Registration Statement [File No. 33-41291]), as amended by letter agreement dated on
August 14, 1995*
10.7 Form of Indemnification Agreement entered into between the Company and directors and officers*
10.8 1987 Stock Option Plan (incorporated by reference to Exhibit 4(a) to S-8 Registration Statement [File
No. 33-26065])
10.9 1987 Employee Stock Purchase Savings Plan (incorporated by reference to Exhibit 4(a) to S-8 Registration
Statement [File No. 33-19288])
10.10 1990 Employee Stock Purchase Savings Plan (incorporated by reference to Exhibit 4(a) to S-8 Registration
Statement [File No. 33-32984])
10.11 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)
10.12 Conveyance, License, Development and Supply Agreement dated August 8, 1994 between Lifecore Biomedical,
Inc. and Ethicon, Inc. (pursuant to Rule 24b-2, certain portions of this Exhibit have been omitted and
filed separately with the Commission), (incorporated by reference to Exhibit 10.14 to Form 10-K for the
year ended June 30, 1994)
10.13 Equipment Lease dated May 28, 1991 between the Registrant and Johnson & Johnson Finance Corporation
(incorporated herein by reference from Exhibit 10.20 to 1991 S-2 Registration Statement [File No.
33-12970]) as amended in May 1992 (incorporated by reference to Exhibit 10.15 to Form 10-K for the year
ended June 30, 1992) as amended in January 1993 (incorporated by reference to Exhibit 10.15 to Form 10-K
for the year ended June 30, 1993) as amended in January 1994 and March 1994 (incorporated by reference
to Exhibit 10.15 to Form 10-Q for the quarter ended March 31, 1994)
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
10.14 Master Lease, Supplement to Master Lease and Assignment of Time/Savings Account between Norwest
Equipment Finance, Inc., and the Registrant dated June 28, 1991 (incorporated by reference to Exhibit
10.21 to Form 10-K for the year ended June 30, 1991)
10.15 Amendment No. 2 to Hyaluronate Purchase Agreement dated December 4, 1992 between Lifecore Biomedical,
Inc. and Alcon Surgical, Inc. (pursuant to Rule 24b-2, certain portions of this Exhibit have been
omitted and filed separately with the Commission) (incorporated by reference to Exhibit 28 to Form 8-K
dated December 4, 1992)
10.16 Amendment No. 3 to Hyaluronate Purchase Agreement dated May 12, 1993 Between Lifecore Biomedical, Inc.
and Alcon Surgical, Inc., filed herewith (pursuant to Rule 24b-2, certain portions of this Exhibit have
been omitted and filed separately with the Commission) (incorporated by reference to Exhibit 10.18 to
Form 10-K for the year ended June 30, 1993 as amended on Form 10-K/A dated December 15, 1994)
10.17 Letter Agreement dated October 28, 1992 between the Company and Bio-Interfaces (incorporated by
reference to Exhibit 28.1 to Form 8-K dated October 5, 1992)
10.18 Stock Purchase Agreement dated August 8, 1994 between Lifecore Biomedical, Inc. and Johnson and Johnson
Development Corporation, (incorporated by reference to Exhibit 10.20 to Form 10-K for the year ended
June 30, 1994)
10.19 Amendment No. 4 to Hyaluronate Purchase Agreement dated November 29, 1994, between Lifecore Biomedical,
Inc. and Alcon Laboratories, Inc. (pursuant to Rule 24b-2, certain portions of this Exhibit have been
omitted and filed separately with the Commission) (incorporated by reference to Exhibit 10.21 to Form
10-Q for the quarter ended December 31, 1994)
10.20 Supply Agreement dated December 7, 1994 between Lifecore Biomedical, Inc. and IOLAB Corporation
(pursuant to Rule 24b-2, certain portions of this Exhibit have been omitted and filed separately with
the Commission)*
23.1 Consent of Grant Thornton LLP
27 Financial Data Schedule*
</TABLE>
- ------------------------
*Filed previously with Form 10-K
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: October 18, 1995
LIFECORE BIOMEDICAL, INC.
By /s/ JAMES W. BRACKE
-----------------------------------
James W. Bracke, Ph.D.
PRESIDENT AND CHIEF EXECUTIVE
OFFICER (PRINCIPAL EXECUTIVE AND
FINANCIAL OFFICER) AND SECRETARY
31
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
Lifecore Biomedical, Inc.
We have audited the accompanying consolidated balance sheets of Lifecore
Biomedical, Inc. (a Minnesota corporation) and Subsidiaries as of June 30, 1995
and 1994, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended June 30,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
Our previously issued report, dated July 31, 1995, included an explanatory
paragraph that disclosed that there was substantial doubt about the Company's
ability to continue as a going concern due to insufficient cash on hand at June
30, 1995 to fund projected losses from operations and fixed debt and lease
obligations through June 30, 1996. As discussed in Note B, on October 18, 1995,
the Company completed a public offering of its common stock. Accordingly, our
explanatory paragraph describing the uncertainty about the Company's ability to
continue as a going concern is no longer required.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Lifecore
Biomedical, Inc. and Subsidiaries as of June 30, 1995 and 1994, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended June 30, 1995, in conformity with
generally accepted accounting principles.
We have also audited Schedule II of Lifecore Biomedical, Inc. and
Subsidiaries for each of the three years in the period ended June 30, 1995. In
our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
GRANT THORNTON LLP
Minneapolis, Minnesota
July 31, 1995 (except for Note B, as to
which the date is October 18, 1995)
F-1
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30,
ASSETS
<TABLE>
<CAPTION>
1994 1995
-------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (note A2)............................................ $ 2,275,000 $ 2,726,000
Accounts receivable, less allowances (notes A3 and A9)......................... 1,382,000 1,598,000
Inventories (note A4).......................................................... 3,383,000 4,753,000
Prepaid expenses............................................................... 262,000 404,000
-------------- --------------
Total current assets......................................................... 7,302,000 9,481,000
PROPERTY, PLANT AND EQUIPMENT -- AT COST
(notes A5 and D)
Land........................................................................... 249,000 249,000
Building....................................................................... 6,711,000 6,711,000
Equipment...................................................................... 3,969,000 4,418,000
Land and building improvements................................................. 1,406,000 1,406,000
-------------- --------------
12,335,000 12,784,000
Less accumulated depreciation.................................................. (4,088,000) (4,642,000)
-------------- --------------
8,247,000 8,142,000
OTHER ASSETS
Intangibles (notes A6 and C)................................................... 4,997,000 4,634,000
Security deposits (note D)..................................................... 925,000 1,022,000
Inventories (note A4).......................................................... 1,913,000 1,405,000
Other (note A7)................................................................ 679,000 838,000
-------------- --------------
8,514,000 7,899,000
-------------- --------------
$ 24,063,000 $ 25,522,000
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations (note D)........................... $ 969,000 $ 1,139,000
Accounts payable............................................................... 575,000 746,000
Accrued compensation........................................................... 314,000 417,000
Accrued expenses............................................................... 406,000 404,000
Customers' deposits (notes E and M)............................................ 1,420,000 2,788,000
-------------- --------------
Total current liabilities.................................................... 3,684,000 5,494,000
LONG-TERM OBLIGATIONS (note D)................................................... 9,051,000 7,888,000
CUSTOMERS' DEPOSITS (notes E and M).............................................. -- 1,952,000
COMMITMENTS AND CONTINGENCIES (notes E, F, J and M).............................. -- --
SHAREHOLDERS' EQUITY (notes B, C, H, I and M)
Preferred stock -- authorized, 25,000,000 shares of $1.00 stated value; none
issued........................................................................ -- --
Common stock -- authorized, 25,000,000 shares of $.01 stated value; issued and
outstanding, 7,195,689 and 7,972,167 shares at June 30, 1994 and 1995,
respectively.................................................................. 72,000 80,000
Additional paid-in capital..................................................... 33,149,000 37,216,000
Accumulated deficit............................................................ (21,893,000) (27,108,000)
-------------- --------------
11,328,000 10,188,000
-------------- --------------
$ 24,063,000 $ 25,522,000
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
1993 1994 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Net sales (notes A9 and L)....................................... $ 7,485,000 $ 10,430,000 $ 10,018,000
Cost of goods sold............................................... 3,767,000 6,004,000 7,900,000
-------------- -------------- --------------
Gross profit................................................. 3,718,000 4,426,000 2,118,000
Operating expenses
Research and development....................................... 1,706,000 1,072,000 1,381,000
Marketing and sales............................................ 2,764,000 2,645,000 3,038,000
General and administrative..................................... 2,198,000 2,100,000 2,382,000
Manufacturing relocation....................................... 1,331,000 -- --
-------------- -------------- --------------
7,999,000 5,817,000 6,801,000
-------------- -------------- --------------
Loss from operations......................................... (4,281,000) (1,391,000) (4,683,000)
Other income (expense)
Gain on sale of building....................................... -- 274,000 --
Gain (loss) on sale of short-term investments.................. 838,000 (1,047,000) --
Interest expense............................................... (805,000) (835,000) (854,000)
Interest income................................................ 521,000 202,000 322,000
-------------- -------------- --------------
554,000 (1,406,000) (532,000)
-------------- -------------- --------------
NET LOSS..................................................... $ (3,727,000) $ (2,797,000) $ (5,215,000)
-------------- -------------- --------------
-------------- -------------- --------------
Net loss per common share (note A10)......................... $ (.53) $ (.39) $ (.66)
-------------- -------------- --------------
-------------- -------------- --------------
Weighted average shares outstanding.............................. 7,048,474 7,175,674 7,879,538
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................................................. $(3,727,000) $(2,797,000) $(5,215,000)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization........................................................... 874,000 943,000 939,000
Allowance for doubtful accounts......................................................... 11,000 23,000 141,000
Loss (gain) on short-term investments................................................... (838,000) 1,047,000 --
Gain on sale of building................................................................ -- (274,000) --
Deferred rent........................................................................... -- 966,000 --
Changes in operating assets and liabilities
Accounts receivable................................................................... 206,000 (669,000) (357,000)
Inventories........................................................................... (553,000) (2,408,000) (862,000)
Prepaid expenses...................................................................... (69,000) (87,000) (142,000)
Other assets.......................................................................... (673,000) -- --
Accounts payable...................................................................... 1,000 163,000 171,000
Accrued liabilities................................................................... 696,000 (146,000) 101,000
Customers' deposits................................................................... -- (106,000) 3,320,000
----------- ----------- -----------
Total adjustments................................................................... (345,000) (548,000) 3,311,000
----------- ----------- -----------
Net cash used in operating activities....................................................... (4,072,000) (3,345,000) (1,904,000)
Cash flows from investing activities:
Proceeds from sale of building............................................................ -- 435,000 --
Purchases of property, plant and equipment................................................ (261,000) (395,000) (449,000)
Purchases of intangibles.................................................................. (182,000) (44,000) (51,000)
Purchases of short-term investments....................................................... (541,000) (5,063,000) --
Sales of short-term investments........................................................... 9,863,000 4,016,000 --
Increase in security deposits............................................................. (10,000) (10,000) (97,000)
Business acquisition, net of cash acquired................................................ -- (754,000) --
Decrease (increase) in other assets....................................................... 67,000 47,000 (130,000)
----------- ----------- -----------
Net cash provided by (used in) investing activities......................................... 8,936,000 (1,768,000) (727,000)
Cash flows from financing activities:
Payments of long-term obligations......................................................... (405,000) (176,000) (993,000)
Proceeds from issuance of common stock.................................................... -- -- 3,985,000
Proceeds from stock options exercised..................................................... 101,000 151,000 90,000
Excess value received from common stock issued for payment of debt........................ -- 521,000 --
----------- ----------- -----------
Net cash provided by (used in) financing activities......................................... (304,000) 496,000 3,082,000
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents........................................ 4,560,000 (4,617,000) 451,000
Cash and cash equivalents at beginning of year.............................................. 2,332,000 6,892,000 2,275,000
----------- ----------- -----------
Cash and cash equivalents at end of year.................................................... $ 6,892,000 $ 2,275,000 $ 2,726,000
----------- ----------- -----------
----------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest................................................................................ $ 805,000 $ 810,000 $ 835,000
Liabilities assumed in business acquisition............................................. -- 219,000 --
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
During 1993, the Company issued 330,000 shares of its common stock as
payment of certain notes payable (see note I).
During 1994, the Company issued a $2,000,000 note payable relating to the
acquisition of Implant Support Systems, Inc. (see note C).
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- ADDITIONAL
SHARES PAID-IN ACCUMULATED
ISSUED AMOUNT CAPITAL DEFICIT
----------- --------- -------------- ---------------
<S> <C> <C> <C> <C>
Balances at July 1, 1992............................... 6,805,572 $ 68,000 $ 30,330,000 $ (15,369,000)
Exercise of stock options and employee stock purchase
savings plan........................................ 19,166 -- 101,000 --
Issuance of common stock as payment of debt (note
I).................................................. 330,000 4,000 2,046,000 --
Net loss for the year ended June 30, 1993............ -- -- -- (3,727,000)
----------- --------- -------------- ---------------
Balances at June 30, 1993.............................. 7,154,738 72,000 32,477,000 (19,096,000)
Exercise of stock options and employee stock purchase
savings plan, net of 5,888 shares surrendered in
payment............................................. 40,951 -- 151,000 --
Excess value received from common stock issued for
payment of debt (note I)............................ -- -- 521,000 --
Net loss for the year ended June 30, 1994............ -- -- -- (2,797,000)
----------- --------- -------------- ---------------
Balances at June 30, 1994.............................. 7,195,689 72,000 33,149,000 (21,893,000)
Exercise of stock options and employee stock purchase
savings plan........................................ 19,082 -- 90,000 --
Proceeds from sale of common stock................... 757,396 8,000 3,977,000 --
Net loss for the year ended June 30, 1995............ -- -- -- (5,215,000)
----------- --------- -------------- ---------------
Balances at June 30, 1995.............................. 7,972,167 $ 80,000 $ 37,216,000 $ (27,108,000)
----------- --------- -------------- ---------------
----------- --------- -------------- ---------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Lifecore Biomedical, Inc. ("the Company"), develops, manufactures, or
markets sterile medical products for a variety of surgical and pharmaceutical
applications through direct sales, OEM or contract manufacturing alliances. The
Company's products currently have applications in the fields of dentistry,
ophthalmology, veterinary and wound care management. In April 1995, the Company
began direct sales operations in Italy through a newly formed subsidiary,
Lifecore Biomedical SpA, in Verona, Italy.
A summary of significant accounting policies applied in the preparation of
the financial statements follows:
1. CONSOLIDATION POLICY
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Implant Support Systems, Inc. and Lifecore
Biomedical SpA. All intercompany balances and transactions have been eliminated
in consolidation.
2. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid temporary investments with original
maturities of three months or less to be cash equivalents. At June 30, 1995 and
1994, principally all of the Company's cash and cash equivalents are invested in
a money market fund.
The Company implemented Financial Accounting Standards Board (FASB)
Statement of Financial Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" effective July 1, 1993. The effect of adopting this
statement did not have a material impact on the consolidated financial
statements.
3. ACCOUNTS RECEIVABLE
The Company grants credit to customers in the normal course of business, but
generally does not require collateral or any other security to support amounts
due. The Company's customers are located primarily throughout the United States
and Europe. Management performs on-going credit evaluations of its customers.
The Company maintains allowances for potential credit losses which were $78,000
and $219,000 at June 30, 1994 and 1995.
4. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. The Company's reserve for obsolescence and rework was $332,000 and
$307,000 at June 30, 1994 and 1995. Inventory not expected to be consumed within
one year is classified as a long-term asset. Inventories consist of the
following:
<TABLE>
<CAPTION>
AS OF JUNE 30,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
Raw materials..................................... $1,235,000 $1,551,000
Work-in-process................................... 100,000 95,000
Finished goods.................................... 3,961,000 4,512,000
---------- ----------
$5,296,000 $6,158,000
---------- ----------
---------- ----------
</TABLE>
F-6
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
5. DEPRECIATION
Depreciation is provided in amounts sufficient to charge the cost of
depreciable assets to operations over their estimated service lives principally
on a straight-line method for financial reporting purposes and on straight-line
and accelerated methods for income tax reporting purposes. Lives used in
straight-line depreciation for financial reporting purposes are as follows:
<TABLE>
<CAPTION>
NUMBER OF
YEARS
---------
<S> <C>
Building.......................................... 18-25
Equipment......................................... 3-15
Land and building improvements.................... 18
</TABLE>
6. INTANGIBLES
Intangibles consist primarily of the cost of the technology and regulatory
rights related to the Sustain Dental Implant System product line acquired in May
1992 and the goodwill related to the July 1993 acquisition of Implant Support
Systems, Inc.
On an ongoing basis, the Company reviews the valuation and amortization of
intangibles to determine possible impairment by comparing the carrying value to
projected undiscounted future cash flows of the related assets. The cost of the
technology and regulatory rights and the goodwill are being amortized on the
straight-line method over 15 years, their estimated useful lives. Accumulated
amortization of intangibles was $527,000 and $891,000 at June 30, 1994 and 1995.
7. OTHER ASSETS
Included within other assets are costs incurred to register patents and
trademarks which are capitalized as incurred. Amortization of these costs
commences when the related patent or trademark is granted. The costs are
amortized over the estimated useful life of the patent or trademark, not to
exceed 17 years. Patents and trademarks consist of the following:
<TABLE>
<CAPTION>
AS OF JUNE 30,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Patents............................................................. $ 104,000 $ 134,000
Trademarks.......................................................... 32,000 53,000
----------- -----------
136,000 187,000
Less amortization................................................... (60,000) (71,000)
----------- -----------
$ 76,000 $ 116,000
----------- -----------
----------- -----------
</TABLE>
8. INCOME TAXES
The Company follows the liability method of computing deferred taxes. The
liability method provides that deferred tax assets and liabilities are recorded
based on the difference between the tax basis of assets and liabilities and
their carrying amounts for financial reporting purposes.
9. REVENUE RECOGNITION AND PRODUCT WARRANTY
The Company recognizes revenue when product is shipped or otherwise accepted
by the customer. Under the terms of a contract covering sales of ophthalmic
hyaluronate, the Company's product is under warranty against non-compliance with
product specifications. A provision is made for the estimated cost of replacing
or re-working any product not complying with the warranted product
specifications.
10. NET LOSS PER COMMON SHARE
Net loss per common share is based upon the weighted average outstanding
common shares.
F-7
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
11. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has issued Statement No. 107
"Disclosures about Fair Value of Financial Instruments." The FASB has also
issued Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of." The adoption of these standards is not
expected to have a material effect on the consolidated financial statements of
the Company.
NOTE B -- OFFERING OF COMMON STOCK
On October 18, 1995, the Company received net proceeds of approximately
$19,900,000 from the sale of 2,200,000 shares of its common stock through a
public offering. An additional 330,000 shares of common stock are registered and
available for public sale related to the underwriters' over-allotment option.
The future sale of these shares is not assured. The net proceeds and shares sold
include $2,000,000 received from Johnson & Johnson Development Corporation
("JJDC") (see Notes F and M) for the purchase of 205,128 shares at the same
price per share as to the public. Management believes the proceeds from this
offering, together with its existing capital resources, will enable the Company
to meet its financial obligations and continue as a going concern during 1996.
NOTE C -- ACQUISITION OF IMPLANT SUPPORT SYSTEMS, INC.
On July 28, 1993, the Company acquired all of the outstanding shares of
common stock of Implant Support Systems, Inc. ("ISS"). The Company paid $682,000
in cash, issued a $2,000,000 note payable and assumed certain liabilities. The
payment terms of the note payable were amended in September 1994. This note as
amended bears interest at 5% payable quarterly beginning October 15, 1993 with
principal payments of $700,000 paid during fiscal 1995, $850,000 due October 15,
1995 and $450,000 due December 15, 1996. The principal payments may be made in
cash or the Company's common stock at the Company's option. If the Company
chooses its common stock as the form of payment, the note holder has certain
registration rights. The note is secured by the assets of ISS. The acquired
goodwill of approximately $2,754,000 is being amortized on a straight-line basis
over 15 years.
At the time of the acquisition, the Company also entered into a six-month
consulting agreement and a three-year non-compete agreement with the former
owner of ISS and entered into a six-month consulting agreement and an
eighteen-month non-compete agreement with one of ISS' employees. These
agreements provide for aggregate compensation of $125,000 in fiscal 1995 and
$120,000 in fiscal 1996.
Consolidated results of operations on a pro forma basis, as if the
acquisition of ISS had occurred on July 1, 1993, would not be materially
different than the reported consolidated results for the year ended June 30,
1994.
NOTE D -- LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
AS OF JUNE 30,
------------------------------
1994 1995
-------------- --------------
<S> <C> <C>
Industrial development revenue bonds.......................... $ 6,954,000 $ 6,895,000
Note payable.................................................. 2,000,000 1,300,000
Real estate special assessments............................... 399,000 294,000
Deferred lease payments....................................... 667,000 538,000
-------------- --------------
10,020,000 9,027,000
Less current maturities....................................... (969,000) (1,139,000)
-------------- --------------
$ 9,051,000 $ 7,888,000
-------------- --------------
-------------- --------------
</TABLE>
F-8
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- LONG-TERM OBLIGATIONS (CONTINUED)
INDUSTRIAL DEVELOPMENT REVENUE BONDS
On September 28, 1990, the Company completed a $7,000,000 transaction to
finance its manufacturing and administrative facility through the issuance of
30-year industrial development revenue bonds by the municipality where the
facility is located. The bonds are collateralized by a first mortgage on the
facility and bear interest at 10.25%. The Company is required to make debt
service payments on the bonds of approximately $775,000 per year for fiscal
years 1995 through 2021. The payments are required to be made monthly to a
sinking fund. At June 30, 1995, the Company has approximately $700,000 on
deposit with the bond trustee to cover the reserve fund requirement.
The terms of the loan agreement require the Company to comply with various
financial covenants including minimum current ratio, fixed charges coverage and
cash flow coverage requirements and maximum debt to net worth limitation. These
covenants have been waived by the bondholder through fiscal 1996. The debt to
net worth ratio covenant has the effect of restricting the payment of cash
dividends or repurchases of common stock.
NOTE PAYABLE
In July 1993, the Company issued its promissory note payable as part of the
consideration paid to the seller of Implant Support Systems, Inc. (see Note C).
REAL ESTATE SPECIAL ASSESSMENTS
In connection with special land improvements added during and after the
construction of the Company's manufacturing and administrative facility the
property has been assessed a total of $869,000 in special assessments. The
special assessments bear interest at 8.5% with principal and interest payments
due semi-annually. Approximately $164,000 of the total is due over a five year
term with the balance due over a ten year term.
DEFERRED RENT
The Company has recorded deferred rent to reflect the expense on a
straight-line basis for rent due under its equipment leases (see Note F).
At June 30, 1995, aggregate minimum annual principal payments of long-term
obligations for the years ending June 30 are as follows:
<TABLE>
<S> <C>
1996................................................ $1,139,000
1997................................................ 698,000
1998................................................ 253,000
1999................................................ 263,000
2000................................................ 165,000
Thereafter.......................................... 6,509,000
----------
$9,027,000
----------
----------
</TABLE>
NOTE E -- CUSTOMERS' DEPOSITS
In November 1994, Lifecore renewed its current supply contract with Alcon
Laboratories, Inc., an indirect subsidiary of Nestle S.A. ("Alcon") through
December of 1998. The agreement contains minimum annual purchase requirements
totalling $10,400,000 for calendar years 1995 through 1998. Lifecore received a
$6,300,000 cash advance from Alcon against future contract purchases.
Approximately $1,952,000 of the cash advance is classified as long-term as it is
expected to be realized during the fiscal year ended June 30, 1997.
F-9
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- CUSTOMERS' DEPOSITS (CONTINUED)
As security for the cash advance, the Company granted Alcon a right to
accelerate delivery of certain finished hyaluronate inventory. The amount of
inventory that is subject to acceleration is limited to the amount purchasable
by the outstanding cash advance based upon the contract price.
NOTE F -- OPERATING LEASES
In May 1991, the Company entered into an operating lease agreement with
Johnson & Johnson Finance Corporation ("JJFC"), an affiliate of the Company's
customers, Ethicon, Inc. and Johnson & Johnson Medical, Inc. JJFC is also an
affiliate of Johnson & Johnson Development Corporation who is a shareholder of
the Company (see Note M). From May 1991 to March 1993 equipment subject to the
lease was installed and validated at the Company's Chaska facility. The Company
began recording operating lease expense on a straight line basis in April 1993.
Minimum monthly lease payments of $152,000 commenced in April 1994 for a term of
66 months. At the end of this initial lease term, the Company has the option to
either renew for an additional 18 month period or purchase the leased equipment
at a predetermined fair value. Additionally, the Company has entered into 60
month operating leases with a financial institution for approximately $900,000
of furniture and fixtures. Operating lease expense was approximately $572,000,
$1,774,000 and $1,911,000 for the years ended June 30, 1993, 1994 and 1995. At
June 30, 1995, the future aggregate minimum annual lease payments due under
these operating leases for the years ending June 30 are as follows:
<TABLE>
<S> <C>
1996................................................ $2,007,000
1997................................................ 1,877,000
1998................................................ 1,824,000
1999................................................ 1,820,000
2000................................................ 304,000
----------
$7,832,000
----------
----------
</TABLE>
F-10
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- INCOME TAXES
The Company implemented Financial Accounting Standards Board Statement of
Financial Standards No. 109, "Accounting for Income Taxes" effective July 1,
1993. Under the new standard, deferred tax assets and liabilities represent the
tax effects, based on current tax law, of future deductible or taxable amounts
attributable to events that have been recognized in the financial statements. In
connection with this implementation, the Company recorded a net deferred tax
asset of $6,604,000 and a valuation allowance of $6,604,000 as of July 1, 1993.
Deferred tax assets (liabilities) consist of the following at June 30:
<TABLE>
<CAPTION>
1994 1995
-------------- --------------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforward............................. $ 6,762,000 $ 8,064,000
Capital loss carryforward................................... 377,000 377,000
Tax credit carryforward..................................... 248,000 253,000
Inventories................................................. 798,000 1,200,000
Other....................................................... 107,000 178,000
-------------- --------------
Total deferred tax assets................................... 8,292,000 10,072,000
Deferred tax liabilities
Deferred lease payments..................................... (720,000) (572,000)
Depreciation................................................ (430,000) (528,000)
-------------- --------------
Total deferred tax liability................................ (1,150,000) (1,100,000)
-------------- --------------
Net deferred tax asset before valuation allowance............. 7,142,000 8,972,000
Valuation allowance........................................... (7,142,000) (8,972,000)
-------------- --------------
Net deferred tax asset........................................ $ -- $ --
-------------- --------------
-------------- --------------
</TABLE>
The deferred tax asset valuation allowance increased $1,830,000 during 1995,
since these benefits may not be realized.
At June 30, 1995, the Company had approximately $22,800,000 of net operating
loss carryforwards for tax reporting purposes, which expire in 1999 through 2010
and income tax credit carryforwards of approximately $253,000 which expire in
1996 through 2007.
NOTE H -- STOCK OPTIONS
STOCK OPTION PLANS
In November 1987, the shareholders adopted the 1987 Stock Plan (the "1987
Plan") to provide for options to be granted to certain eligible salaried
employees and non-employee members of the Board of Directors. A total of 300,000
shares of common stock are reserved for issuance under the Plan. All outstanding
options under two prior plans were exchanged for options under the 1987 Plan.
All future options granted under the 1987 Plan will be granted at an exercise
price equal to the fair market value of the common stock at the date of grant.
Each grant awarded specifies the period for which the options are exercisable
and provides that the options shall expire at the end of such period.
F-11
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE H -- STOCK OPTIONS (CONTINUED)
Option transactions under the 1987 Plan during the three years ended June
30, 1995 are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF
1987 PLAN SHARES OPTION PRICE RANGE
- ------------------------------------------------------------------------ ----------- ------------------
<S> <C> <C>
Outstanding at July 1, 1992............................................. 90,650 $ 3.13 - 4.50
Exercised............................................................. (12,850) 3.13 - 4.50
-----------
Outstanding at June 30, 1993............................................ 77,800 3.13 - 4.50
Exercised............................................................. (11,475) 3.13 - 4.50
Cancelled............................................................. (4,100) 4.50
-----------
Outstanding at June 30, 1994............................................ 62,225 3.13 - 4.50
Exercised............................................................. (7,223) 3.13 - 4.50
Cancelled............................................................. (500) 4.50
-----------
Outstanding at June 30, 1995............................................ 54,502 $ 3.13 - 3.81
-----------
-----------
</TABLE>
Under the 1987 Plan, options to purchase an aggregate of 54,502 shares were
exercisable at June 30, 1995.
In November 1990, the shareholders adopted the 1990 Stock Plan (the "1990
Plan") to provide for options to be granted to certain eligible employees,
non-employee members of the Board of Directors and other non-employee persons as
defined in the Plan. In November 1993, the 1990 Plan was amended to provide a
total of 1,000,000 shares of common stock reserved for issuance under the 1990
Plan. Options will be granted under the 1990 Plan at exercise prices which are
determined by a committee as appointed by the Board of Directors. Options
granted to date under the 1990 Plan have been at fair market value. Each grant
awarded specifies the period for which the options are exercisable and provides
that the options shall expire at the end of such period.
Option transactions under the 1990 Plan during the three years ended June
30, 1995 are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF
1990 PLAN SHARES OPTION PRICE RANGE
- ------------------------------------------------------------------------ ----------- ------------------
<S> <C> <C>
Outstanding at July 1, 1992............................................. 285,000 $ 2.63 - 19.00
Granted............................................................... 151,000 3.75 - 17.25
Exercised............................................................. (4,200) 9.88
Cancelled............................................................. (10,750) 9.50 - 9.88
-----------
Outstanding at June 30, 1993............................................ 421,050 2.63 - 19.00
Granted............................................................... 145,000 4.25 - 10.88
Exercised............................................................. (18,208) 2.63 - 7.38
Cancelled............................................................. (47,550) 5.00 - 11.25
-----------
Outstanding at June 30, 1994............................................ 500,292 2.63 - 19.00
Granted............................................................... 164,500 3.63 - 8.25
Exercised............................................................. (1,250) 5.75
Cancelled............................................................. (88,625) 3.88 - 16.88
-----------
Outstanding at June 30, 1995............................................ 574,917 $ 2.63 - 19.00
-----------
-----------
</TABLE>
F-12
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE H -- STOCK OPTIONS (CONTINUED)
Under the 1990 Plan, options to purchase an aggregate of 283,316 shares were
exercisable at June 30, 1995.
EMPLOYEE STOCK PURCHASE SAVINGS PLAN
The 1990 Employee Stock Purchase Savings Plan ("ESPSP") provides for the
purchase by eligible employees of Company common stock at a price equal to 85%
of the market price on either the anniversary date of such plan's commencement
or the termination date of the plan, whichever is lower. Participants may
authorize payroll deductions up to 10% of their base salary during the plan year
to purchase the stock. During the three years ended June 30, 1995 a total of
29,881 shares had been issued, including 2,116 shares for approximately $12,000
in 1993, 17,156 shares for approximately $103,000 in 1994 and 10,609 shares for
approximately $54,000 during 1995. At June 30, 1995, the Company had
approximately 93,000 shares reserved for future issuance under the ESPSP.
NOTE I -- SETTLEMENT OF COMMON STOCK VALUATION
In October 1992, the Company issued a total of 330,000 shares of its common
stock to satisfy certain notes payable. Pursuant to the agreement with the note
holder, the valuation of the 330,000 shares of common stock in excess of the
outstanding principal balances was to be returned to Lifecore provided such
value was realized from sales of the common stock. In October 1993, the
remaining shares were sold and $521,000 of cash was returned to Lifecore.
NOTE J -- COMMITMENTS AND CONTINGENCIES
ROYALTY AGREEMENTS
The Company has entered into an agreement which provides for royalty
payments based on a percentage of net sales of certain products of its Oral
Restorative Division. Total royalty expense under these agreements for the three
years ended June 30, 1995 has not been material.
SEVERANCE AGREEMENTS
The Company has employment agreements with certain officers that provide
severance pay benefits if there is a change in control of the Company (as
defined) and the officer is involuntarily terminated (as defined). The maximum
contingent liability under these agreements at June 30, 1995 is approximately
$918,000.
NOTE K -- EMPLOYEE BENEFIT PLAN
Effective October 1, 1988, the Company established a 401(k) profit sharing
plan for eligible employees not covered by collective bargaining agreements.
Contributions by the Company are determined by the Board of Directors. There
have been no Company contributions since the inception of the plan.
NOTE L -- SEGMENT INFORMATION
The Company's two business segments are the manufacturing, marketing and
selling of products containing hyaluronate (the "Hyaluronate Division") and oral
restorative products (the "Oral Restorative Division").
Currently, products containing hyaluronate are sold primarily to OEM
customers pursuant to supply agreements between the Company and its customers.
Currently, Alcon is a major customer of the Company. Sales to Alcon were 68%,
57% and 32% of total sales in 1993, 1994 and 1995. Accounts receivable from
Alcon represented 44% of receivables at June 30, 1994 (see Note E).
F-13
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE L -- SEGMENT INFORMATION (CONTINUED)
The Company's Oral Restorative Division markets products throughout the
United States directly to clinicians through a direct sales force and primarily
through distributorship arrangements in foreign locations.
Sales to customers located principally in Europe accounted for 10%, 16% and
20% of total Company sales during the years ended June 30, 1993, 1994 and 1995.
As of, and for, the period from inception to June 30, 1995, the operations of
the Company's Italian subsidiary, Lifecore Biomedical SpA, have not been
material to the consolidated financial statements.
Segment information for the Company is as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------------------------
1993 1994 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Net sales
Hyaluronate products................................. $ 5,584,000 $ 6,903,000 $ 5,223,000
Oral restorative products............................ 1,901,000 3,527,000 4,795,000
-------------- -------------- --------------
$ 7,485,000 $ 10,430,000 $ 10,018,000
-------------- -------------- --------------
-------------- -------------- --------------
Profit (loss) from operations
Hyaluronate products................................. $ (699,000) $ 960,000 $ (3,309,000)
Oral restorative products............................ (3,582,000) (2,351,000) (1,374,000)
-------------- -------------- --------------
$ (4,281,000) $ (1,391,000) $ (4,683,000)
-------------- -------------- --------------
-------------- -------------- --------------
Capital expenditures
Hyaluronate products................................. $ 261,000 $ 360,000 $ 395,000
Oral restorative products............................ -- 35,000 54,000
-------------- -------------- --------------
$ 261,000 $ 395,000 $ 449,000
-------------- -------------- --------------
-------------- -------------- --------------
Depreciation and amortization expense
Hyaluronate products................................. $ 676,000 $ 588,000 $ 554,000
Oral restorative products............................ 198,000 355,000 385,000
-------------- -------------- --------------
$ 874,000 $ 943,000 $ 939,000
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
------------------------------
1994 1995
-------------- --------------
<S> <C> <C>
Identifiable assets
Hyaluronate products................................................. $ 16,542,000 $ 16,404,000
Oral restorative products............................................ 7,521,000 9,118,000
-------------- --------------
$ 24,063,000 $ 25,522,000
-------------- --------------
-------------- --------------
</TABLE>
NOTE M -- AGREEMENTS
On August 8, 1994, Lifecore and Ethicon entered into a Conveyance, License,
Development and Supply Agreement (the "Ethicon Agreement"). At the same time,
Lifecore, Ethicon and JJDC, a subsidiary of Johnson & Johnson, entered into a
Stock Purchase Agreement.
Under the terms of the Ethicon Agreement, Ethicon transferred to Lifecore
its ownership in certain technology related to research and development
previously conducted on the Company's sodium hyaluronate material. The
technology transferred to Lifecore includes written technical documents related
to Ethicon's research and development of a product to inhibit the formation of
post-surgical adhesions. These documents include product specifications, methods
and techniques,
F-14
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE M -- AGREEMENTS (CONTINUED)
technology, know-how and certain patent applications. Lifecore has assumed
responsibility for continuing the anti-adhesion development project including
conducting human clinical trials on a second generation hyaluronate based
product. Lifecore has granted Ethicon exclusive world-wide marketing rights
through 2008 to the products developed by Lifecore within defined fields of use.
Under the terms of the Stock Purchase Agreement, JJDC purchased 757,396
unregistered shares of Lifecore common stock for total consideration of $4
million consisting of $2.6 million cash and $1.4 million conversion of a
customer deposit from Ethicon held by Lifecore. Lifecore granted JJDC certain
registration rights which provide JJDC the option of having up to one half of
the shares registered on, or after, June 30, 1995 and the remaining shares
registered on, or after, June 30, 1996.
NOTE N -- LEGAL PROCEEDINGS
The Company is subject to various legal proceedings in the normal course of
business. Management believes that these proceedings will not have a material
adverse effect on the consolidated financial statements.
NOTE O -- RECLASSIFICATIONS
Certain reclassifications have been made to the 1993 and 1994 financial
statements to conform to the 1995 presentation.
F-15
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN C
-----------------------
COLUMN B
--------- ADDITIONS COLUMN E
BALANCE ----------------------- ---------
COLUMN A AT CHARGED TO CHARGED TO COLUMN D BALANCE
- ------------------------------------------------------------ BEGINNING COSTS AND OTHER ---------- AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ------------------------------------------------------------ --------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1995
Accounts receivable allowance............................. $ 78,000 $ 152,000 $ -- $ (11,000)(A) $ 219,000
Inventory reserve......................................... 332,000 -- -- (25,000)(B) 307,000
Year ended June 30, 1994
Accounts receivable allowance............................... 55,000 31,000 -- (8,000)(A) 78,000
Inventory reserve......................................... 72,000 260,000 -- -- 332,000
Year ended June 30, 1993
Accounts receivable allowance............................. 44,000 17,000 -- (6,000)(A) 55,000
Inventory reserve......................................... 72,000 -- -- -- 72,000
<FN>
- ------------------------
(A) Deductions represent accounts receivable balances written-off during the
year.
(B) Deductions represent utilization of the reserve through inventory
written-off during the year.
</TABLE>
S-1
<PAGE>
9/18/95
AMENDED BYLAWS
OF
LIFECORE BIOMEDICAL, INC.
ARTICLE I
SHAREHOLDERS
SECTION 1. The shareholders of this Corporation shall hold an annual
meeting in each calendar year at such time and place, within or without the
State of Minnesota, as may be designated by the Board of Directors, for the
purpose of electing directors, and for the transaction only of such other
business as is properly brought before the meeting in accordance with these
Bylaws; provided, however, that the interval between two consecutive annual
meetings shall not be more than fourteen (14) months nor less than ten (10)
months. A notice setting out the time and place of the annual meeting shall be
mailed by the secretary of the Corporation, or his delegate, postage prepaid, to
each shareholder of record at his address as it appears on the records of the
Corporation, or, if no such address appears, at his last known place of
residence, at least ten (10) days prior to said annual meeting, but any
shareholder may waive such annual notice by a signed waiver in writing.
SECTION 2. At the annual meeting, the shareholders shall elect directors
of the Corporation and shall transact such other business as may properly come
before them. To be properly brought before the meeting, business must be of a
nature that is appropriate for consideration at an annual meeting and must be
(i) specified in the notice of meeting (or any supplement thereto) given by or
at the direction of the Board of Directors, or (ii) otherwise properly brought
before the meeting by or at the direction of the Board of Directors, or (iii)
otherwise properly brought before the meeting by a shareholder. In addition to
any other applicable requirements, for business to be properly brought before
the annual meeting by a shareholder, the shareholder must have given timely
notice thereof in writing to the secretary of the Corporation. To be timely,
each such notice must be given, either by personal delivery or by United States
mail, postage prepaid, to the secretary of the Corporation, not less than fifty
(50) days nor more than seventy-five (75) days prior to the meeting; provided,
however, that in the event less than sixty (60) days' notice or prior public
disclosure of the date of the meeting is given or made to shareholders, notice
by the shareholder to be timely must be so received not later than the close of
business on the tenth day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure was made, whichever
first occurs. Each such notice to the secretary shall set forth as to each
matter the shareholder proposes to bring before the annual meeting (w) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting; (x) the name and
address of record of the shareholder proposing such business; (y) the class or
series (if any) and number of shares of the Corporation which are owned by the
shareholder; and (z) any material interest of the shareholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
transacted at the annual meeting except in accordance with the procedures set
forth in this Article; provided, however, that nothing in this Article shall be
deemed to preclude discussion by any shareholder of any business properly
brought before the annual
<PAGE>
meeting in accordance with these Bylaws.
SECTION 3. A special meeting of the shareholders may be called at any time
by the chief executive officer or chief financial officer of the Corporation,
and shall be called by the president or the secretary upon the request in
writing, or by vote of, two or more directors or upon the request in writing of
shareholders of record owning one-tenth of the outstanding shares of common
stock. Such meeting shall be called by mailing a notice thereof as above
provided in the case of the annual meeting of shareholders, which notice shall
state the purpose or purposes of the meeting.
SECTION 4. At any shareholders' meeting, each shareholder shall be
entitled to one (1) vote for each share of common stock standing in his name on
the books of the Corporation as of the record date. Any shareholder may vote
either in person or by proxy. The presence in person or by proxy of the holders
of thirty-three and one-third percent (33 1/3%) of the shares of common stock
entitled to vote at any shareholders' meeting shall constitute a quorum for the
transaction of business. If no quorum is present at any meeting, the
shareholders present in person or by proxy may adjourn the meeting to such
future time as they shall agree upon without further notice other than by
announcement at the meeting at which such adjournment is taken.
SECTION 5. At any shareholders meeting for which there is a quorum present,
the shareholders may conduct such business as may be on the agenda or otherwise
proposed for such meeting, or any part of such business in the case of an
adjournment. All or any part of the business not conducted at the initial
meeting of shareholders may be conducted at any adjournments thereof, including
any specific proposals on the agenda for such initial meeting for which there
was no final disposition. A meeting of the shareholders at which there is a
quorum can be adjourned as to all or part of the matters to be considered at the
meeting upon motion by the person presiding at such meeting and by a majority
vote of shares represented in person or by proxy at such meeting. Such
adjournment shall be until a specific time and place, and the time and place for
the reconvened meeting shall be announced at the meeting and reflected in the
minutes thereof.
In addition, if the adjourned date is less than ten (10) days after the
date of the meeting at which an adjournment proposal was passed, a public
announcement shall be made by the Corporation as to the time and place for the
reconvened meeting; or, if the adjourned date for the reconvened meeting is ten
(10) days or more after the date of the meeting at which the adjournment
proposal was passed, notice of the time and place of the reconvened meeting
shall be sent by first class mail to all shareholders of record at least ten
(10) days prior to such reconvened meeting.
2
<PAGE>
ARTICLE II
DIRECTORS
SECTION 1. The Board of Directors shall have the general management and
control of all business and affairs of the Corporation and shall exercise all
the powers that may be exercised or performed by the Corporation under the
statutes, its Articles of Incorporation and its Bylaws.
SECTION 2.
(a) The Board of Directors shall consist of such number of directors, not
less than three, the exact number to be fixed from time to time solely by
resolution of the Board of Directors, acting by not less than a majority of the
directors then in office.
(b) The Board of Directors shall be divided into three classes, with the
term of office of one class expiring each year. Each class of directors shall
hold office for a three-year term. In the case of any vacancy on the Board of
Directors, including a vacancy created by an increase in the number of
directors, the vacancy shall be filled by election of the Board of Directors
with the director so elected to serve for the remainder of the term of the
director being replaced or, in the case of an additional director, for the
remainder of the term of the class to which the director has been assigned. All
directors shall continue in office until the election and qualification of their
respective successors in office. When the number of directors is changed, any
newly created directorships shall be so assigned among the classes by a majority
of the directors then in office, though less than a quorum, as to make all
classes as nearly equal in number as possible. No decrease in the number of
directors shall have the effect of shortening the term of any incumbent
director.
(c) Any director or directors may be removed from office at any time, but
only for cause and only by the affirmative vote of at least two-thirds of the
votes entitled to be cast by holders of all the outstanding shares of voting
stock (as defined in Article VI of the Corporation's Articles of Incorporation),
voting together as a single class.
(d) In the event that the Board of Directors increases the number of
directors or fills a vacancy on the Board in accordance with the provisions of
paragraph (b) of this Section 2, the Board of Directors shall give written
notice to the shareholders of the Corporation of any increase in the number of
directors and of pertinent information regarding any director so elected by the
Board to fill a vacancy. Such written notice shall be effected by inclusion of
such information in the next mailing to shareholders of the Corporation
following any such increase in the number of directors or election of a director
to fill a vacancy by the Board.
SECTION 3. Subject to the rights of holders of any class or series of
stock having a preference over the common shares as to dividends or upon
liquidation, nominations for the election of directors may be made by the Board
of Directors or a committee to be appointed by the Board of Directors or by any
shareholder entitled to vote generally in the election of
3
<PAGE>
directors. However, any shareholder entitled to vote generally in the
election of directors may nominate one or more persons for election as
directors at a meeting only if written notice of such shareholder's intent to
make such nomination or nominations has been given, either by personal
delivery or by United States mail, postage prepaid, to the secretary of the
Corporation not less than fifty (50) nor more than seventy-five (75) days
prior to the meeting; provided, however, that in the event less than sixty
(60) days' notice or prior public disclosure of the date of the meeting is
given or made to shareholders, notice by the shareholder to be timely must be
so received not later than the close of business on the tenth day following
the day on which such notice of the date of meeting was mailed or such public
disclosure was made, whichever first occurs. Each such notice to the
secretary shall set forth: (i) the name and address of record of the
shareholder who intends to make the nomination; (ii) a representation that
the shareholder is a holder of record of shares of the Corporation entitled
to vote at such meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (iii) the
name, age, business and residence addresses, and principal occupation or
employment of each nominee; (iv) a description of all arrangements or
understandings between the shareholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination
or nominations are to be made by the shareholder; (v) such other information
regarding each nominee proposed by such shareholder as would be required to
be included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission; and (vi) the consent of each nominee to
serve as a director of the Corporation if so elected. The Corporation may
require any proposed nominee to furnish such other information as may
reasonably be required by the Corporation to determine the eligibility of
such proposed nominee to serve as a director of the Corporation. The
presiding officer of the meeting may, if the facts warrant, determine that a
nomination was not made in accordance with the foregoing procedure and, if he
should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
SECTION 4. The Board of Directors may meet regularly at such time and
place as it shall fix by resolution, and no notice of regular meetings shall be
required. Special meetings of the Board of Directors may be called by the
chairman of the board, the president or by any majority of directors by giving
at least twenty-four (24) hours' notice to each of the other directors by mail,
telephone, telegraph, or in person.
SECTION 5. A majority of the directors shall constitute a quorum for the
transaction of business. Any act which might have been taken at a meeting of
the Board of Directors and requiring approval by shareholders under Minnesota
Statutes, Chapter 302A, may be taken without a meeting if authorized in a
writing signed by all of the directors, and any such action shall be as valid
and effective in all respects as if taken by the Board at a regular meeting. If
shareholder approval is not so required by Minnesota Statutes, Chapter 302A,
such act which might have been taken at a meeting of the Board of Directors may
be taken in written action signed by the number of directors that would be
required to take such action at a meeting of the Board of Directors of which all
such directors were present.
SECTION 6. The Board of Directors shall fix and change, as it may from
time to time
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determine, the compensation to be paid all officers of the Corporation.
SECTION 7. The Board of Directors may, by unanimous affirmative action of
the entire Board of Directors, designate two (2) or more of their number to
constitute an Executive Committee which, to the extent determined by the Board,
shall have and exercise the authority of the Board in the management of the
business of the Corporation. Such Executive Committee shall act only in the
interval between meetings of the Board and shall be subject at all times to the
control and direction of the Board.
ARTICLE III
OFFICERS
SECTION 1. The officers of this Corporation shall be a president, a
treasurer, a secretary and such vice presidents and other officers as may from
time to time be elected by the Board of Directors. All officers shall be
elected by the Board of Directors and shall serve at the pleasure of the Board
of Directors. Any two (2) of the offices, except those of the president and
vice president, may be held by the same person.
SECTION 2. The president may fix and change, as he may from time to time
determine, the compensation to be paid the employees of the Corporation. The
president shall be a director, but shall hold office until his successor is
elected notwithstanding an earlier termination of his office as director.
SECTION 3. The vice president, or executive vice president if there is
more than one, shall perform the duties and assume the responsibilities of the
president in the absence or inability to act of the president. In case of
death, resignation or permanent disability of the president, the executive vice
president shall act as president until the Board of Directors designates such
new president. A vice president who is not a director shall not succeed to the
office of president.
SECTION 4. The secretary shall keep a record of the minutes of the
proceedings of meetings of directors and of shareholders, and shall give notice
of such meetings as required in these Bylaws or by the Board of Directors.
SECTION 5. The treasurer shall keep accounts of all monies and other
assets of the Corporation received or disbursed, shall deposit all monies and
valuables in the name of and to the credit of the Corporation in such banks or
depositories or with such custodians as may be authorized to receive the same by
these Bylaws and by the Board of Directors, and shall render such accounts
thereof as may be required by the Board of Directors, the president or the
shareholders.
SECTION 6. The Board of Directors may appoint one or more of its members
to serve as its agent or to provide services and have such other powers and
perform such other duties as may
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be, from time to time, assigned by the Board of Directors or the president. The
Board may authorize one of its members to hold the nominal title of "Chairman of
the Board." If a Chairman of the Board is appointed, he shall not have the
status of an officer of the Corporation.
ARTICLE IV
OFFICE
The principal office of the Corporation shall be in the State of Minnesota.
The Corporation may also have an office or offices in such other places and in
such other states as the Board of Directors may from time to time authorize and
establish.
ARTICLE V
CORPORATE SEAL; STOCK CERTIFICATES
SECTION 1. The seal of the Corporation shall be a circular embossed seal,
having inscribed thereon the following words:
LIFECORE BIOMEDICAL, INC.
Corporate Seal
Minnesota
SECTION 2. Stock certificates issued by the Corporation shall be signed by
any two (2) officers. When a certificate is signed by a transfer agent or
registrar, the signature of any such officer may be facsimiled, engraved or
printed.
ARTICLE VI
CLOSING OF STOCK RECORDS
OR FIXING OF RECORD DATE
The Board of Directors shall have power to close the stock records of the
Corporation for a period not to exceed sixty (60) days preceding the date of any
meeting of shareholders, or the date for payment of any dividend, or the date
for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, or for a period not exceeding
sixty (60) days in connection with obtaining the consent of shareholders for any
purpose; provided, however, that in lieu of closing the stock records, the Board
of Directors may fix in advance a date not exceeding sixty (60) days preceding
the date of any meeting of shareholders, or the date for the payment of any
dividend, or the date for the allotment of rights, or the date when any change
or conversion or exchange of capital stock shall go into effect, or
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a date in connection with obtaining such consent of shareholders, or for the
determination of shareholders entitled to receive payment of any such dividend
or to receive any such allotment of rights or to exercise rights in respect of
any such change, conversion or exchange of capital stock, or to give any such
consent, as the case may be, and in such case only such shareholders as shall be
shareholders of record on the date so fixed shall be entitled to such notice of
and to attend such meeting, or to receive payment of such dividend, or to
receive such allotment of rights, or to exercise any rights, or to give such
consent, as the case may be, notwithstanding the transfer of any stock on the
books of the Corporation after any such record date fixed as aforesaid.
ARTICLE VII
INDEMNIFICATION
SECTION 1. Any person who at any time shall serve or shall have served as
a director, officer, employee or in some other official capacity at the request
of the Corporation, or of any other enterprise at the request of the
Corporation, and the heirs, executors and administrators of such person shall be
indemnified by the Corporation, in accordance with and to the fullest extent
permitted by the Minnesota Business Corporation Act as it may be amended from
time to time.
SECTION 2. Nothing in this Article VII shall be construed to limit the
ability of the Board of Directors, to the extent permitted by applicable law, to
indemnify any person or entity not described in this Article VII as determined
by the Board of Directors in its discretion. Furthermore, the Board of
Directors may authorize written agreements between the Corporation and persons,
whether or not described in this Article VII, to grant contractual rights to
such persons as permitted by law.
ARTICLE VIII
ADOPTION AND AMENDMENT OF BYLAWS
Section 1. The Board of Directors may alter or amend these Bylaws and may
make or adopt additional Bylaws subject to the power of the shareholders to
change or repeal the Bylaws, except that the Board of Directors shall not make
or alter any Bylaws fixing their qualifications, classifications or term of
office, or reducing their number.
SECTION 2. The shareholders may alter or amend these Bylaws and may make
or adopt additional Bylaws by a majority vote at any annual meeting of the
shareholders or at any special meeting called for that purpose, except as may be
provided by Article VI or any other provisions of the Articles of Incorporation
of the Corporation.
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The undersigned Secretary of Lifecore Biomedical, Inc. hereby certifies as
of this 18th day of September, 19995 that the foregoing Amended Bylaws are the
complete Bylaws of the Corporation as amended to date by the Board of Directors
of said Corporation.
/s/ James W. Bracke
____________________________________
James W. Bracke
Secretary
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Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
We have issued our report dated July 31, 1995 (except for note B, as to
which the date is October 18, 1995), accompanying the consolidated financial
statements and schedule included in the Annual Report of Lifecore Biomedical,
Inc. and Subsidiaries on Form 10-K/A for the year ended June 30, 1995. We
hereby consent to the incorporation by reference of said report in the
Registration Statement of Lifecore Biomedical, Inc. and Subsidiaries on Form S-8
(File No. 33-19288, effective December 23, 1987; File No. 33-26065, effective
February 18, 1988; File No. 33-32984, effective January 12, 1990; File No. 33-
38914, effective February 8, 1991 and File No. 33-38914, effective date
September 26, 1994) and on Form S-2 (File 33-62223, effective date October 13,
1995).
/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
October 18, 1995
