<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 March 31, 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.
(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 (Zip Code)
executive 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 April 19, 1996 was 12,112,041 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
March 31, 1996 and June 30, 1995 3
Consolidated Condensed Statements of Operations for Three
Months and Nine Months Ended March 31, 1996 and 1995 4
Consolidated Condensed Statements of Cash Flows for
Nine Months Ended March 31, 1996 and 1995 5
Notes to Consolidated Condensed Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 9-10
PART II. Other Information
Item 6. a. Exhibit Index 11
b. Reports on Form 8-K 11
SIGNATURES 12
2
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,049,000 $ 2,726,000
Short-term investments 11,889,000 --
Accounts receivable 1,872,000 1,598,000
Inventories 6,376,000 4,753,000
Prepaid expenses 668,000 404,000
------------- -------------
21,854,000 9,481,000
Property, plant and equipment
Land, building and equipment 13,611,000 12,784,000
Less accumulated depreciation (5,110,000) (4,642,000)
------------- -------------
8,501,000 8,142,000
Other assets
Long-term investments 4,076,000 --
Intangibles 4,359,000 4,634,000
Security deposits 856,000 1,022,000
Inventory 1,777,000 1,405,000
Other 880,000 838,000
------------- -------------
11,948,000 7,899,000
------------- -------------
$ 42,303,000 $ 25,522,000
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term
obligations $ 739,000 $ 1,139,000
Accounts payable 891,000 746,000
Accrued compensation 404,000 417,000
Accrued expenses 487,000 404,000
Customers' deposits 2,418,000 2,788,000
------------- -------------
4,939,000 5,494,000
Long-term obligations 7,223,000 7,888,000
Customers' deposits 139,000 1,952,000
Shareholders' equity 30,002,000 10,188,000
------------- -------------
$ 42,303,000 $ 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>
Three months ended March 31, Nine months ended March 31,
-------------------------------- --------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 3,673,000 $ 2,885,000 $ 9,676,000 $ 6,916,000
Cost of goods sold 2,240,000 2,203,000 6,345,000 5,503,000
------------ ------------ ------------ ------------
Gross profit 1,433,000 682,000 3,331,000 1,413,000
Operating expenses
Research and development 658,000 391,000 1,679,000 996,000
Marketing and sales 1,112,000 730,000 3,229,000 2,222,000
General and administrative 670,000 577,000 2,007,000 1,683,000
------------ ------------ ------------ ------------
2,440,000 1,698,000 6,915,000 4,901,000
------------ ------------ ------------ ------------
Loss from operations (1,007,000) (1,016,000) (3,584,000) (3,488,000)
Other income (expense)
Interest income 262,000 112,000 576,000 212,000
Interest expense (201,000) (233,000) (622,000) (660,000)
------------ ------------ ------------ ------------
61,000 (121,000) (46,000) (448,000)
------------ ------------ ------------ ------------
Net loss $ (946,000) $ (1,137,000) (3,630,000) $ (3,936,000)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net loss per common share $ (.09) $ (.14) $ (.38) $ (.50)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average
shares outstanding 9,991,045 7,962,294 9,507,989 7,849,266
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</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>
Nine months ended
March 31,
--------------------------------
1996 1995
------------ -------------
<S> <C> <C>
Net cash provided from (used in) operating activities $ (7,371,000) $ 2,214,000
Cash flows from investing activities:
Purchases of property, plant and equipment (828,000) (408,000)
Purchases of intangibles (5,000) (70,000)
Purchases of investments (21,437,000) --
Maturities of investments 5,456,000 --
(Increase) decrease in security deposits 166,000 (128,000)
Other (38,000) (23,000)
------------ -------------
Net cash used in investing activities (16,686,000) (629,000)
Cash flows from financing activities:
Payment of deposit to bond trustee (52,000) (64,000)
Payments of long-term obligations (1,012,000) (231,000)
Proceeds from stock issuance 23,444,000 2,667,000
------------ -------------
Net cash provided from financing activities 22,380,000 2,372,000
------------ -------------
Net increase (decrease) in cash and cash equivalents (1,677,000) 3,957,000
Cash and cash equivalents at beginning of period 2,726,000 2,275,000
------------ -------------
Cash and cash equivalents at end of period $ 1,049,000 $ 6,232,000
------------ -------------
------------ -------------
Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest $ 613,000 $ 640,000
Income taxes 6,000 8,000
</TABLE>
The accompanying notes are an integral part of these statements.
5
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1996
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 - INVESTMENTS
The Company has invested its excess cash from the public offering completed in
the second quarter of fiscal 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. In accordance with Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities",
held-to-maturity securities are carried at amortized cost. Investments that
have maturities of less than one year have been classified as short-term
investments.
At March 31, 1996, amortized cost approximates fair value of held-to-maturity
investments which consist of the following:
<TABLE>
<S> <C>
Short-term investments:
Commercial paper (maturing April 1996 through October 1996) $ 7,365,000
U.S. Government Agencies (maturing November 1996) 2,500,000
Medium term corporate notes (maturing January 1997) 2,024,000
------------
11,889,000
Long-term investments:
U.S. Government Agencies (maturing July 1997) $ 1,252,000
Medium term corporate notes (maturing August 1997
through November 1997) 2,824,000
------------
4,076,000
15,965,000
------------
------------
</TABLE>
6
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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:
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
----------- -----------
<S> <C> <C>
Raw materials $ 2,421,000 $ 1,551,000
Work in progress 164,000 95,000
Finished goods 5,568,000 4,512,000
----------- -----------
$ 8,153,000 $ 6,158,000
----------- -----------
----------- -----------
</TABLE>
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
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 $139,000 of the remaining cash advance is classified as long-term
as it is not expected to be realized during the next twelve months.
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 - STOCKHOLDERS' EQUITY
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.
In August 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 and know-how. In addition, the Company was assigned a
pending patent covering the composition and use of LUBRICOAT Gel, with
applications filed in the United States, Australia, Brazil, Canada,
7
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Europe, Greece, and Japan. Subsequently, the patent has been issued in
Australia and Greece. In March 1996, the Company received a notice of allowance
for its patent application in the United States. 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 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.
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 approval to market the product for
commercial application. However, even if the product is successfully developed
and the Company receives approval 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.
NOTE F - OFFERING OF COMMON STOCK
On April 11, 1996, the Company completed the sale of 1,500,000 shares of its
common stock and received net proceeds of approximately $22,500,000 through a
Regulation S offering to qualified investors outside the United States.
8
<PAGE>
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS AND
NINE MONTHS ENDED MARCH 31, 1995
Net sales for the three months and nine months ended March 31, 1996 increased
$788,000, or 27%, and $2,760,000, or 40%, respectively, compared with the same
periods of last fiscal year. Hyaluronate product sales for the three month and
nine month periods ended March 31, 1996 decreased 13% and increased 10%,
respectively, compared with the same periods of last fiscal year. The
hyaluronate product sales decrease during the three month period ended March 31,
1996 was primarily caused by Alcon Laboratories, Inc. purchases at contract
minimums and new customer milestone payments included in the same period of last
fiscal year. The hyaluronate product sales increase during the nine month
period ended March 31, 1996 was primarily due to sales to a new customer. Oral
restorative product sales for the three month and nine month periods ended March
31, 1996 each increased 73%, compared with the same periods of last fiscal year.
The increase in oral restorative product sales reflected a broader product line
and more effective marketing and sales activities.
Cost of goods sold, as a percentage of net sales, decreased to 61% and 66%,
respectively, from the three month and nine month period ended March 31, 1996
from 76% and 80%, respectively, for the same periods of last fiscal year. The
decreases resulted from two main factors. First, fixed expenses were spread
over increased product sales. Second, continuing direct charges for idle
capacity relating to the Company's manufacturing facility for hyaluronate
products were lower than in the same period last year. For the nine month
period ended March 31, 1996, these improvements were partially offset by the
negative impact of costs incurred for the production scale-up of aseptic
ophthalmic syringe products in the second quarter.
Research and development expenses increased $267,000, or 68%, for the current
quarter as compared to the same quarter of last fiscal year and $683,000, or
69%, for the nine months ended March 31, 1996 as compared with the same period
of last fiscal year. The increase resulted from the costs associated with on-
going human clinical trials on LUBRICOAT Gel, which began in late fiscal 1995,
and costs associated with other products that began or increased in development
activity during the nine months ended March 31, 1996.
Marketing and sales expenses increased $382,000, or 52%, for the current quarter
as compared to the same quarter of last fiscal year and $1,007,000, or 45%, for
the nine months ended March 31, 1996 as compared with the same period 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.
9
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General and administrative expenses increased $93,000, or 16%, for the current
quarter as compared to the same quarter of last fiscal year and $324,000, or
19%, for the nine months ended March 31, 1996 as compared with the same period
of last fiscal year. The increase in the current period resulted mainly from
increased number of personnel.
Interest income increased $150,000, or 134%, for the current quarter as compared
to the same quarter of last fiscal year and $364,000, or 172%, for the nine
months ended March 31, 1996 as compared with the same period of last fiscal
year. In the second quarter of fiscal 1996, the Company completed a public
offering of its Common Stock, providing net proceeds of approximately $23
million, thus providing more cash available to invest compared to the same
period of last fiscal year.
Interest expense decreased $32,000, or 14%, for the current quarter as compared
to the same quarter of last fiscal year and $38,000, or 6%, for the nine months
ended March 31, 1996 as compared with the same period of last fiscal year. The
decrease in interest expense resulted from a lower note payable balance
remaining from the July 1993 acquisition of Implant Support Systems, Inc. as a
scheduled note payment of $850,000 was made during the second quarter of fiscal
1996.
Net loss for the three months and nine months ended March 31, 1996 decreased
$191,000, or 17%, and $306,000, or 8%, respectively, compared with the same
periods of last fiscal year.
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.
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. 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. 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. The Company has used, and will continue to use, the proceeds
of the offering to finance capital expenditures relating to production scale-up;
research and development, including clinical trials; repayment of indebtedness;
and general working capital purposes. Following the end of the third quarter,
on April 11, 1996, the Company completed the sale of 1,500,000 shares of its
common stock and received net proceeds of approximately $22,500,000 through a
Regulation S offering to qualified investors outside the United States. The
proceeds of this offering will be used to finance capital expenditures relating
to an accelerated production scale-up, general working capital purposes, and
possible future redemption of indebtedness. As a result of these offerings, the
Company has approximately $38 million in cash and investments in April 1996.
10
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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
11
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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: April 24, 1996 /s/ James W. Bracke
---------------------------------------------
James W. Bracke
President & Chief Executive Officer
/s/ Dennis J. Allingham
---------------------------------------------
Dennis J. Allingham
Vice President & Chief Financial Officer
(Principal Accounting & Financial Officer)
12
<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 nine
months ended March 31, 1996, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 1,049,000
<SECURITIES> 15,965,000
<RECEIVABLES> 1,872,000
<ALLOWANCES> 245,000
<INVENTORY> 8,153,000
<CURRENT-ASSETS> 21,854,000
<PP&E> 13,611,000
<DEPRECIATION> (5,110,000)
<TOTAL-ASSETS> 42,303,000
<CURRENT-LIABILITIES> 4,939,000
<BONDS> 7,223,000
0
0
<COMMON> 106,000
<OTHER-SE> 29,896,000
<TOTAL-LIABILITY-AND-EQUITY> 42,303,000
<SALES> 9,676,000
<TOTAL-REVENUES> 9,676,000
<CGS> 6,345,000
<TOTAL-COSTS> 13,260,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 622,000
<INCOME-PRETAX> (3,630,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,630,000)
<EPS-PRIMARY> (.38)
<EPS-DILUTED> (.38)
</TABLE>
