<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1995
------------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ____________ to _____________
Commission File Number O-4136
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Lifecore Biomedical, Inc.
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(Exact name of Registrant as specified in its charter)
Minnesota 41-0948334
- ------------------------------- ---------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3515 Lyman Boulevard
Chaska, Minnesota 55318
- ------------------------------- --------------------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: 612-368-4300
------------
Indicate by checkmark 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
----- -----
The number of shares outstanding of the registrant's Common Stock, $.01 per
value, as of October 20, 1995 was 10,241,169 shares.
1
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
PART I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets for
September 30, 1995 and June 30, 1995 3
Consolidated Condensed Statements of Operations for Three
Months Ended September 30, 1995 and 1994 4
Consolidated Condensed Statements of Cash Flows for
Three Months Ended September 30, 1995 and 1994 5
Notes to Consolidated Condensed Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 8-9
PART II. Other Information
Item 6. a. Exhibit Index 10
b. Reports on Form 8-K 10
SIGNATURES 11
2
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
1995 1995
------------- ----------
<S> <C> <C>
ASSETS
- ------
Current assets
Cash and cash equivalents $ 702,000 $ 2,726,000
Accounts receivable 1,671,000 1,598,000
Inventories 5,048,000 4,753,000
Prepaid expenses 529,000 404,000
---------- ----------
7,950,000 9,481,000
Property, plant and equipment
Land, building and equipment 13,104,000 12,784,000
Less accumulated depreciation (4,796,000) (4,642,000)
---------- ----------
8,308,000 8,142,000
Other assets
Intangibles 4,542,000 4,634,000
Security deposits 1,032,000 1,022,000
Inventory 1,697,000 1,405,000
Other 791,000 838,000
---------- ---------
8,062,000 7,899,000
---------- ---------
$24,320,000 $25,522,000
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Current maturities of long-term obligations $ 1,158,000 $1,139,000
Accounts payable 1,663,000 746,000
Accrued compensation 338,000 417,000
Accrued expenses 362,000 404,000
Customers' deposits 1,994,000 2,788,000
---------- ---------
5,515,000 5,494,000
Long-term obligations 7,774,000 7,888,000
Customers' deposits 1,930,000 1,952,000
Shareholders' equity 9,101,000 10,188,000
---------- ---------
$24,320,000 $25,522,000
---------- ---------
---------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
3
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
September 30,
--------------------------
1995 1994
---------- ----------
<S> <C> <C>
Net sales $ 2,729,000 $ 1,842,000
Cost of goods sold 1,990,000 1,740,000
---------- ---------
Gross profit 739,000 102,000
Operating expenses
Research and development 382,000 312,000
Marketing and sales 932,000 727,000
General and administrative 564,000 541,000
---------- ---------
1,878,000 1,580,000
---------- ---------
Loss from operations (1,139,000) (1,478,000)
Other income (expense)
Interest income 68,000 32,000
Interest expense (207,000) (212,000)
---------- ---------
(139,000) (180,000)
---------- ---------
Net loss $ (1,278,000) $(1,658,000)
---------- ---------
---------- ---------
Net loss per common share $ (.16) $ (.22)
---------- ---------
---------- ---------
Weighted average number of common
shares outstanding 7,982,218 7,632,015
---------- ---------
---------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
4
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
September 30,
---------------------------------------
1995 1994
-------- --------
<S> <C> <C>
Net cash used in operating activities $ (1,830,000) $ (681,000)
Cash flows from investing activities:
Purchases of property, plant and equipment (320,000) (163,000)
Purchases of intangibles (5,000) (24,000)
Other 35,000 (5,000)
---------- ---------
Net cash (used in) provided from investing activities (290,000) (192,000)
Cash flows from financing activities:
Payment of deposit to bond trustee -- (64,000)
Payments of long-term obligations (95,000) (147,000)
Proceeds from stock issuance 191,000 2,600,000
---------- ---------
Net cash (used in) provided from financing activities 96,000 2,389,000
---------- ---------
Net increase (decrease) in cash and cash equivalents (2,024,000) 1,516,000
Cash and cash equivalents at beginning of period 2,726,000 2,276,000
---------- ---------
Cash and cash equivalents at end of period $ 702,000 $ 3,792,000
---------- ---------
---------- ---------
Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest $ 207,000 $ 178,000
</TABLE>
The accompanying notes are an integral part of these statements.
5
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
NOTE A - FINANCIAL INFORMATION
In the opinion of management, the accompanying unaudited consolidated condensed
financial statements contain all adjustments (which consist only of accruals of
a normal recurring nature) necessary for fair presentation of the interim
results. These interim results are not necessarily indicative of the results
for the full year or of the results for any future periods.
These financial statements are presented in accordance with the requirements of
Form 10-Q and, consequently, may not include all disclosures normally required
by generally accepted accounting principles.
NOTE B - INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventory not expected to be consumed within one year is classified as
a long-term asset. Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, June 30,
1995 1995
------------- -----------
(Unaudited)
<S> <C> <C>
Raw materials $ 1,623,000 $ 1,551,000
Work in progress 247,000 95,000
Finished goods 4,875,000 4,512,000
---------- ---------
$ 6,745,000 $ 6,158,000
---------- ---------
---------- ---------
</TABLE>
NOTE C - 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 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 $1,930,000 of the cash advance is classified as long-term as it is
expected to be realized during the fiscal year ending June 30, 1997.
As security for the cash advance, Lifecore 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.
6
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
SEPTEMBER 30, 1995
NOTE D - STOCKHOLDERS' EQUITY
On August 8, 1994, Lifecore and Ethicon, Inc. ("Ethicon"), a subsidiary of
Johnson & Johnson, entered into a Conveyance, License, Development and Supply
Agreement (the "Ethicon Agreement"). At the same time, Lifecore, Ethicon and
Johnson & Johnson Development Corporation ("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
surgical adhesions. These documents include product specifications, methods and
techniques, 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 E - 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 JJDC for the purchase of 205,128
shares at the same price per share as to the public. JJDC currently owns
approximately 9.5% of the Company's outstanding common stock.
7
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1994.
Net sales for the quarter ended September 30, 1995 increased $887,000 or 48% as
compared to the same quarter of last fiscal year. Hyaluronate product sales for
the current quarter increased 32% as compared to the same quarter of last fiscal
year. The hyaluronate product sales increase was primarily attributable to
sales to new customers and to a lesser extent, increased sales to existing
customers. Oral restorative product sales for the current quarter increased 68%
as compared to the same quarter of last fiscal year. The increase in oral
restorative product sales reflected the expanding product lines and the effect
of increased marketing and sales activities. The oral restorative product sales
increase was representative of both domestic and international sales.
Cost of goods sold, as a percentage of net sales, decreased to 73% for the
current quarter from 94% for the same quarter of last fiscal year. The decrease
resulted from spreading fixed expenses over increased product sales and from a
decrease in the continuing direct charges for idle capacity relating to
hyaluronate products, resulting from a higher utilization of the Company's
manufacturing facility for the current quarter as compared to the same quarter
of last fiscal year.
Research and development expenses increased $70,000 or 22% for the current
quarter as compared to the same quarter of last fiscal year. The increase
resulted principally from the costs associated with human clinical trials on
Lubricoat Gel which began in late fiscal 1995 and continued throughout the
current quarter.
Marketing and sales expenses increased $205,000 or 28% for the current quarter
as compared to the same quarter of last fiscal year. The increase reflected
compensation costs from additional sales personnel, increased advertising and
sales literature costs, and expenses from the direct sales force at Lifecore
Biomedical SpA, which has been in operation since April 1995.
8
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONT.)
LIQUIDITY AND CAPITAL RESOURCES
The Company's amended Annual Report on Form 10-K/A for the year ended June 30,
1995 contains a detailed discussion of Lifecore's liquidity and capital
resources. In conjunction with this Quarterly Report on Form 10-Q, investors
should read the 1995 Form 10-K/A.
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.
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. The
net proceeds and shares sold include $2,000,000 received from Johnson & Johnson
Development Corporation 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.
9
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits and Exhibit Index
None Required
b. Reports on Form 8-K
None
10
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements 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.
LIFECORE BIOMEDICAL, INC.
Dated: November 2, 1995 /s/ James W. Bracke
-------------------
James W. Bracke
President & Chief Executive Officer
(Principal Financial Officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE LIFECORE
BIOMEDICAL, INC. AND SUSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 702,000
<SECURITIES> 0
<RECEIVABLES> 1,902,000
<ALLOWANCES> 231,000
<INVENTORY> 6,745,000
<CURRENT-ASSETS> 7,950,000
<PP&E> 13,104,000
<DEPRECIATION> 4,796,000
<TOTAL-ASSETS> 24,320,000
<CURRENT-LIABILITIES> 5,515,000
<BONDS> 7,774,000
<COMMON> 80,000
0
0
<OTHER-SE> 9,021,000
<TOTAL-LIABILITY-AND-EQUITY> 24,320,000
<SALES> 2,729,000
<TOTAL-REVENUES> 2,729,000
<CGS> 1,990,000
<TOTAL-COSTS> 3,868,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 207,000
<INCOME-PRETAX> (1,278,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,278,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,278,000)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
