<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, 1996
------------------
[ ] 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
------
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 18, 1996 was 12,148,815 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 at
September 30, 1996 and June 30, 1996 3
Consolidated Condensed Statements of Operations for Three
Months Ended September 30, 1996 and 1995 4
Consolidated Condensed Statements of Cash Flows for
Three Months Ended September 30, 1996 and 1995 5
Notes to Consolidated Condensed Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 10-12
PART II. Other Information
Item 6. a. Exhibit Index 13
b. Reports on Form 8-K 13
SIGNATURES 14
2
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
September 30, June 30,
1996 1996
------------- ------------
ASSETS
Current assets
Cash and cash equivalents $ 931,000 $ 3,264,000
Short-term investments 19,044,000 14,947,000
Accounts receivable 2,338,000 2,326,000
Inventories 6,261,000 5,954,000
Prepaid expenses 1,047,000 800,000
------------ ------------
29,621,000 27,291,000
Property, plant and equipment
Land, building and equipment 13,488,000 13,670,000
Less accumulated depreciation (4,751,000) (5,009,000)
------------ ------------
8,737,000 8,661,000
Other assets
Intangibles 4,177,000 4,268,000
Long-term investments 16,042,000 20,137,000
Security deposits 798,000 788,000
Inventory 2,313,000 2,014,000
Other 1,094,000 1,270,000
------------ ------------
24,424,000 28,477,000
------------ ------------
$ 62,782,000 $ 64,429,000
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term obligations $ 698,000 $ 698,000
Accounts payable 849,000 1,156,000
Accrued compensation 350,000 548,000
Accrued expenses 777,000 730,000
Customers' deposits 1,347,000 1,952,000
------------ ------------
4,021,000 5,084,000
Long-term obligations 7,142,000 7,193,000
Shareholders' equity 51,619,000 52,152,000
------------ ------------
$ 62,782,000 $ 64,429,000
------------ ------------
------------ ------------
See accompanying notes to consolidated condensed financial statements.
3
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
September 30,
----------------------------
1996 1995
------------ ------------
Net sales $ 3,568,000 $ 2,729,000
Cost of goods sold 2,098,000 1,990,000
------------ ------------
Gross profit 1,470,000 739,000
Operating expenses
Research and development 686,000 382,000
Marketing and sales 1,112,000 932,000
General and administrative 725,000 564,000
------------ ------------
2,523,000 1,878,000
------------ ------------
Loss from operations (1,053,000) (1,139,000)
Other income (expense)
Interest income 555,000 68,000
Interest expense (156,000) (207,000)
------------ ------------
399,000 (139,000)
------------ ------------
Net loss $ (654,000) $ (1,278,000)
------------ ------------
------------ ------------
Net loss per common share $ (.05) $ (.16)
------------ ------------
------------ ------------
Weighted average number of common
shares outstanding 12,131,046 7,982,218
------------ ------------
------------ ------------
See accompanying notes to consolidated condensed financial 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,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Net cash used in operating activities $ (2,280,000) $ (1,830,000)
Cash flows from investing activities:
Purchases of property, plant and equipment (279,000) (320,000)
Purchases of investments (3,953,000) --
Maturities of investments 3,912,000 --
Purchases of intangibles (4,000) (5,000)
Other 202,000 35,000
------------ ------------
Net cash (used in) provided from investing activities (122,000) (290,000)
Cash flows form financing activities:
Payments of long-term obligations (51,000) (95,000)
Proceeds from stock issuance 120,000 191,000
------------ ------------
Net cash (used in) provided from financing activities 69,000 96,000
------------ ------------
Net increase (decrease) in cash and cash equivalents (2,333,000) (2,024,000)
Cash and cash equivalents at beginning of period 3,264,000 2,726,000
------------ ------------
Cash and cash equivalents at end of period $ 931,000 $ 702,000
------------ ------------
------------ ------------
Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest $ 175,000 $ 207,000
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 1996
NOTE A - FINANCIAL INFORMATION
Lifecore Biomedical, Inc. ("the Company"), develops, manufactures, and markets
surgically implantable materials and devices through its two divisions, the
Hyaluronate Division and the Oral Restorative Division. The Hyaluronate
Division's manufacturing facility is located in Chaska, Minnesota and markets
its products through OEM and contract manufacturing alliances in the fields of
ophthalmology, veterinary and wound care management. The Oral Restorative
Division markets its products through direct sales in the United States and
Italy and through distributors in other foreign countries. In April 1995, the
Company began direct sales operations in Italy through a newly formed
subsidiary, Lifecore Biomedical SpA, in Verona, Italy.
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with Regulation S-X pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although management believes that the
disclosures are adequate to make the information presented not misleading.
In the opinion of management, the unaudited consolidated condensed financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of September
30, 1996, and the results of operations and cash flows for the three month
periods ended September 30, 1996 and 1995. The results of operations for the
three months ended September 30, 1996 are not necessarily indicative of the
results for the full year or of the results for any future periods.
In preparation of the Company's consolidated financial statements, management is
required to make estimates and assumptions that effect reported amounts of
assets and liabilities and related revenues and expenses. Actual results could
differ from the estimates used by management.
6
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONT.)
September 30, 1996
NOTE B - INVESTMENTS
The Company has invested its excess cash from the public offering completed in
the second quarter of fiscal 1996 and the offshore stock offering in April 1996
in commercial paper, government agencies and medium term corporate notes. These
investments are classified as held-to-maturity given the Company's intent and
ability to hold the securities to maturity and are carried at amortized cost.
Investments that have maturities of less than one year have been classified as
short-term investments.
September 30, June 30,
1996 1996
------------- -------------
(Unaudited)
Short-term investments:
Commercial paper (maturing October
1996 through August 1997) $ 14,312,000 $ 12,447,000
U.S. Government Agencies (maturing
November 1996 through August 1997) 4,732,000 2,500,000
------------- -------------
19,044,000 14,947,000
Long-term investments:
U.S. Government Agencies
(maturing July 1997) -- 1,242,000
Medium term corporate notes (maturing
November 1997 through October 1998) 16,042,000 18,895,000
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16,042,000 20,137,000
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$ 35,086,000 $ 35,084,000
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------------- -------------
NOTE C - 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:
September 30, June 30,
1996 1996
------------- -------------
(Unaudited)
Raw materials $ 2,724,000 $ 2,632,000
Work in progress 140,000 82,000
Finished goods 5,710,000 5,254,000
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$ 8,574,000 $ 7,968,000
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7
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONT.)
September 30, 1996
NOTE D - 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
totaling $10,400,000 for calendar years 1995 through 1998. Lifecore received a
$6,300,000 cash advance from Alcon against future contract purchases. The
remaining cash advance is classified as short-term as it is expected to be
realized during the fiscal year ended 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.
NOTE E - OFFERINGS OF COMMON STOCK
On October 18, 1995, the Company received net proceeds of approximately
$19,852,000 from the sale of 2,200,000 shares of its common stock through a
public offering. On November 16, 1995, the Company received net proceeds of
approximately $3,010,000 when the underwriters purchased an additional 330,000
shares of common stock related to the over-allotment option.
On April 11, 1996, the Company completed the sale of 1,500,000 shares of its
common stock and received net proceeds of approximately $22,443,000 through a
Regulation S offering to qualified investors outside the United States.
NOTE F - AGREEMENTS
In 1994, Lifecore and Ethicon, Inc. ("Ethicon"), a subsidiary of Johnson &
Johnson, entered into a Conveyance, License, Development and Supply Agreement
(the "Ethicon 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,
8
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONT.)
September 30, 1996
technology, know-how and certain patent applications. Lifecore has assumed
responsibility for continuing the anti-adhesion development project including
conducting human clinical trials on LUBRICOAT Gel, a second generation
hyaluronate-based product. Lifecore has granted Ethicon exclusive worldwide
marketing rights through 2008 to the products developed by Lifecore within
defined fields of use.
The Company has made and continues to make a significant investment in the
development and testing of LUBRICOAT Gel, a product designed to reduce the
incidence of postsurgical adhesions. The product is currently undergoing human
clinical trials to develop the data necessary to apply to the United States Food
and Drug Administration ("FDA") for clearance to market the product for
commercial application. However, even if the product is successfully developed
and the Company receives clearance from the FDA, there can be no assurance that
it will receive market acceptance. Failure to achieve significant sales of the
product could have a material adverse effect on future prospects for the
Company's operations.
9
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONAL AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
Net sales for the quarter ended September 30, 1996 increased $839,000 or 31% as
compared to the same quarter of last fiscal year. Hyaluronate product sales for
the current quarter decreased 10% as compared to the same quarter of last fiscal
year. The decrease resulted from two main factors. First, sales to Alcon for
the quarter ended September 30, 1996 were at contract minimums, which were lower
than the contract minimums for the same quarter of last fiscal year. Second,
revenues from products in development were lower during the quarter ended
September 30, 1996 as compared to the same quarter of last fiscal year. These
decreases were partially offset by product revenues from Chiron Vision in the
quarter ended September 30, 1996 compared to no revenues from Chiron Vision in
the same quarter of last fiscal year. Product shipments to Chiron Vision
commenced in December 1995. Oral restorative product sales for the current
quarter increased 71% as compared to the same quarter of last fiscal year. The
increase in oral restorative product sales is a result of increased marketing
and sales activities in the domestic market and expanded distribution networks
in international markets, including Italy, where the Company's subsidiary,
Lifecore Biomedical SpA is located.
Cost of goods sold, as a percentage of net sales, decreased to 59% for the
current quarter from 73% for the same quarter of last fiscal year. The decrease
resulted principally from spreading fixed expenses over increased product sales
and to a lesser extent, lower direct charges for idle capacity related to
hyaluronate products resulting from a higher utilization of the Company's
manufacturing facility.
Research and development expenses increased $304,000 or 80% for the current
quarter as compared to the same quarter of last fiscal year. The increase
resulted principally from increased costs associated with human clinical trials
on LUBRICOAT Gel. Human clinical trials began in late fiscal 1995 and continued
throughout the current quarter. Activity on other products in development was
higher in the current quarter compared to the same quarter of last fiscal year
which accounted for the remainder of the increase.
10
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONAL AND FINANCIAL CONDITION (CONT.)
Marketing and sales expenses increased $180,000 or 19% for the current quarter
as compared to the same quarter of last fiscal year. The increase reflects
increased advertising, sales literature costs and expenses from the expanded
direct sales force at Lifecore Biomedical SpA.
General and Administrative expenses increased $161,000 or 29% for the current
quarter as compared to the same quarter of last fiscal year. The increase
reflects higher personnel related costs.
Other income (expense) increased $538,000 for the current quarter as compared to
the same quarter of last fiscal year. The increase in interest income of
$487,000 reflected the effect of having additional cash available to invest as a
result of the proceeds received from the public stock offering completed in fall
1995 and the offshore stock offering in April 1996. Interest expense decreased
for the current quarter as compared to the same quarter of last fiscal year due
to lower average debt outstanding as a result of the October 1995 payment on the
note payable to Implant Support, Systems, Inc. (ISS).
LIQUIDITY AND CAPITAL RESOURCES
The Company's Annual Report on Form 10-K for the year ended June 30, 1996
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
1996 Form 10-K.
The Company has had significant operating cash flow deficits for the last three
fiscal years. As the Hyaluronate Division's production increases, the Company's
direct charges associated with excess plant capacity will decrease; however,
research and development costs for LUBRICOAT Gel, marketing and sales expenses
for the oral restorative products, and personnel costs are increasing.
Approximately $1.9 million of product shipments due to Alcon in fiscal 1997 will
not generate additional cash as the customer deposit from November 1994 is
reduced to zero. In addition, the Company will have significant fixed
obligations in future periods associated with the equipment lease, the
industrial development revenue bonds and the ISS note, which total $2,518,000
for fiscal 1997 and $2,073,000 for fiscal 1998.
In the second quarter of fiscal 1996, the Company completed a public offering of
its Common Stock, providing net proceeds of approximately $23 million. In the
fourth quarter of fiscal 1996, the Company completed a Regulation S offering to
qualified investors outside the United States providing net proceeds of
approximately $22
11
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONAL AND FINANCIAL CONDITION (CONT.)
million. The Company intends to use the net proceeds of these offerings to
expand its warehouse and distribution capabilities, to accelerate the scale-up
of aseptic-packaging facilities in anticipation of significant commercial demand
for finished hyaluronate products, for working capital, and for possible future
redemption of all or a portion of the outstanding industrial development revenue
bonds. The Company believes these capital resources are sufficient to meet the
Company's needs through fiscal 1998, including its fixed obligations and
anticipated operating cash flow deficits.
Please refer to the Management's Discussion and Analysis section of the Annual
Report on Form 10-K for the year ended June 30, 1996 for a cautionary statement
on important factors to consider in evaluating the forward-looking statements
included in this Form 10-Q.
12
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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
13
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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: October 28, 1996 /s/ James W. Bracke
--------------------------
James W. Bracke
President & Chief Executive Officer
Dated: October 28, 1996 /s/ Dennis J. Allingham
--------------------------
Dennis J. Allingham
Vice President & Chief Financial Officer
(Principal Financial Officer)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE LIFECORE
BIOMEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE 3
MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000028626
<NAME> LIFECORE BIOMEDICAL
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 931,000
<SECURITIES> 35,086,000
<RECEIVABLES> 2,636,000
<ALLOWANCES> 298,000
<INVENTORY> 8,574,000
<CURRENT-ASSETS> 29,621,000
<PP&E> 13,488,000
<DEPRECIATION> 4,751,000
<TOTAL-ASSETS> 62,782,000
<CURRENT-LIABILITIES> 4,021,000
<BONDS> 7,142,000
0
0
<COMMON> 121,000
<OTHER-SE> 51,498,000
<TOTAL-LIABILITY-AND-EQUITY> 62,782,000
<SALES> 3,568,000
<TOTAL-REVENUES> 3,568,000
<CGS> 2,098,000
<TOTAL-COSTS> 4,621,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 156,000
<INCOME-PRETAX> (654,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (654,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (654,000)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
