<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, 1997
------------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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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
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(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 15, 1997 was 12,232,797 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, 1997 and June 30, 1997 3
Consolidated Condensed Statements of Operations for Three
Months Ended September 30, 1997 and 1996 4
Consolidated Condensed Statements of Cash Flows for
Three Months Ended September 30, 1997 and 1996 5
Notes to Consolidated Condensed Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 10-11
PART II. Other Information
Item 6. a. Exhibit Index 12
b. Reports on Form 8-K 12
SIGNATURES 13
2
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
September 30, June 30,
1997 1997
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ASSETS
Current assets
Cash and cash equivalents $ 2,428,000 $ 1,371,000
Short-term investments 13,921,000 16,630,000
Accounts receivable 4,472,000 4,792,000
Inventories 9,354,000 8,440,000
Prepaid expenses 1,415,000 1,432,000
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31,590,000 32,665,000
Property, plant and equipment
Land, building and equipment 20,375,000 19,228,000
Less accumulated depreciation (5,838,000) (5,483,000)
------------ ------------
14,537,000 13,745,000
Construction-in-progress and advance
deposits 7,398,000 5,265,000
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21,935,000 19,010,000
Other assets
Intangibles 6,180,000 6,306,000
Long-term investments 1,000,000 3,960,000
Security deposits 797,000 786,000
Inventory 2,058,000 1,839,000
Other 769,000 943,000
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10,804,000 13,834,000
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$ 64,329,000 $ 65,509,000
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term
obligations $ 923,000 $ 918,000
Accounts payable 3,160,000 3,613,000
Accrued compensation 611,000 638,000
Accrued expenses 801,000 648,000
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5,495,000 5,817,000
Long-term obligations 7,571,000 7,596,000
Shareholders' equity 51,263,000 52,096,000
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$ 64,329,000 $ 65,509,000
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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,
----------------------------
1997 1996
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Net sales $ 5,214,000 $ 3,568,000
Cost of goods sold 2,527,000 2,098,000
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Gross profit 2,687,000 1,470,000
Operating expenses
Research and development 1,344,000 686,000
Marketing and sales 1,730,000 1,112,000
General and administrative 757,000 725,000
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3,831,000 2,523,000
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Loss from operations (1,144,000) (1,053,000)
Other income (expense)
Interest income 295,000 555,000
Interest expense (54,000) (156,000)
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241,000 399,000
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Net loss $ (903,000) $ (654,000)
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Net loss per common share $ (.07) $ (.05)
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Weighted average number of common
shares outstanding 12,225,025 12,131,046
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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)
Three months ended
September 30,
--------------------------------
1997 1996
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Net cash used in operating activities $ (1,534,000) $ (2,280,000)
Cash flows from investing activities:
Purchases of property, plant and
equipment (3,280,000) (279,000)
Purchases of investments (991,000) (3,953,000)
Maturities of investments 6,653,000 3,912,000
Purchases of intangibles (14,000) (4,000)
Other 173,000 202,000
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Net cash (used in) provided from investing
activities 2,541,000 (122,000)
Cash flows form financing activities:
Payments of long-term obligations (20,000) (51,000)
Proceeds from stock issuance 70,000 120,000
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Net cash provided from financing activities 50,000 69,000
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Net increase (decrease) in cash and cash
equivalents 1,057,000 (2,333,000)
Cash and cash equivalents at beginning of
period 1,371,000 3,264,000
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Cash and cash equivalents at end of period $ 2,428,000 $ 931,000
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Supplemental disclosure of cash flow
information:
Cash paid during the period:
Interest $ 173,000 $ 175,000
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, 1997
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.
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, 1997, and the results of operations and cash flows for the three month
periods ended September 30, 1997 and 1996. The results of operations for the
three months ended September 30, 1997 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, 1997
NOTE B - INVESTMENTS
The Company has invested its excess cash 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. At
September 30, 1997 and June 30, 1997, amortized cost approximates fair value of
held-to-maturity investments which consist of the following:
September 30, June 30,
1997 1997
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(Unaudited)
Short-term investments:
Medium term corporate notes $ 12,930,000 $ 12,800,000
Commercial paper 991,000 2,627,000
U.S. Government Agencies --- 1,203,000
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$ 13,921,000 $ 16,630,000
Long-term investments:
Medium term corporate notes 1,000,000 3,960,000
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1,000,000 3,960,000
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$ 14,921,000 $ 20,590,000
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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,
1997 1997
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(Unaudited)
Raw materials $ 2,926,000 $ 2,819,000
Work in progress 168,000 205,000
Finished goods 8,318,000 7,255,000
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$ 11,412,000 $ 10,279,000
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7
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONT.)
September 30, 1997
NOTE D - 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, technology, know-how and certain patent
applications. Lifecore has assumed responsibility for continuing the
anti-adhesion development project including conducting human clinical trials on
INTERGEL-TM- Adhesion Prevention Solution (formerly known as 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 INTERGEL-TM- Adhesion Prevention Solution, 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.
NOTE E - COMMITMENTS
The Company is in the process of expanding its manufacturing and distribution
capabilities at its Chaska, Minnesota location. This expansion includes
building and equipment expenditures for warehouse and distribution capabilities
and to expand aseptic-packaging facilities for finished products.
Construction-in-progress and advance deposits relating to the expansion of
approximately $7,398,000 were incurred through September 30, 1997. The Company
has signed contracts with an architect, a process engineering firm and a
construction company for the expansion project. The contracts provide for the
expansion to be completed in phases. The contracts may be terminated at any
time at minimal cost to the Company. At September 30, 1997, and June 30, 1997,
firm purchase commitments of
8
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONT.)
September 30, 1997
approximately $1,528,000 and $2,161,000, respectively, have been recorded in
accounts payable.
NOTE F - CAPITALIZED INTEREST
At September 30, 1997, $153,000 of interest has been capitalized in conjunction
with the facility expansion project.
9
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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, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
Net sales for the quarter ended September 30, 1997 increased $1,646,000 or 46%
as compared to the same quarter of last fiscal year. Hyaluronate product sales
for the current quarter increased 60% as compared to the same quarter of last
fiscal year. The primary reason was from increased sales to ophthalmic and
veterinary customers. Sales to Alcon for the quarter ended September 30, 1997
were above the same quarter of last fiscal year. The increase in sales to
ophthalmic and veterinary customers was partially offset by a decrease in
revenues from development contracts compared to the same quarter last fiscal
year. Oral restorative product sales for the current quarter increased 39%
compared to the same quarter of last fiscal year. This increase is a result of
the introduction of new tissue regenerative products, increased sales and
marketing 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 48% for the current
quarter from 59% 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 excess plant capacity related
to hyaluronate products.
Research and development expenses increased $658,000 or 96% 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 INTERGEL-TM- Adhesion Prevention Solution and higher personnel costs due to
increased headcount.
Marketing and sales expenses increased $618,000 or 56% for the current quarter
as compared to the same quarter of last fiscal year. This was primarily a
result of costs associated with an expanded direct sales force for the domestic
market and increased marketing efforts in conjunction with the introduction of
the new tissue regenerative products.
General and Administrative expenses increased $32,000 or 4% for the current
quarter as compared to the same quarter last fiscal year. The increase mainly
10
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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
results from amortization of the TefGen product line which was purchased in May
1997.
Other income (expense) decreased $158,000 or 40% for the current quarter as
compared to the same quarter of last fiscal year. The decrease in interest
income of $260,000 reflects the utilization of cash and investments to fund
current operations and the facility expansion project. Interest expense
decreased $102,000 for the current quarter compared to the same quarter last
fiscal year due to capitalization of interest expense associated with the
facility expansion project offset by interest expense for the TefGen note
payable in the current quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's Annual Report on Form 10-K for the year ended June 30, 1997
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 1997 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 INTERGEL-TM- Adhesion Prevention Solution,
marketing and sales expenses for the oral restorative products, and personnel
costs have increased. The Company is in the process of expanding its
manufacturing and distribution capabilities at its Chaska, Minnesota location.
This expansion includes building and equipment expenditures for warehouse and
distribution capabilities and to scale-up aseptic-packaging facilities for
finished products. Construction-in-progress and advance deposits related to the
expansion of approximately $ 7,398,000 were incurred through September 30, 1997.
The Company has signed contracts with an architect, a process engineering firm
and a construction company for the expansion project. The contracts provide for
the expansion to be completed in phases. The contracts may be terminated at any
time at minimal cost to the Company. The Company anticipates that approximately
$11 - 13 million will be expended in the remainder of fiscal year 1998 to
complete the expansion project. Funding will result from the use of cash and
investments, which at September 30, 1997 aggregate approximately $17 million.
11
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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
12
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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 27, 1997 /s/ James W. Bracke
-----------------------------
James W. Bracke
President & Chief Executive Officer
Dated: October 27, 1997 /s/ Dennis J. Allingham
-----------------------------
Dennis J. Allingham
Vice President & Chief Financial
Officer
(Principal Financial Officer)
13
<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, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,428,000
<SECURITIES> 14,921,000
<RECEIVABLES> 4,772,000
<ALLOWANCES> 300,000
<INVENTORY> 11,412,000
<CURRENT-ASSETS> 31,590,000
<PP&E> 27,773,000
<DEPRECIATION> 5,838,000
<TOTAL-ASSETS> 64,329,000
<CURRENT-LIABILITIES> 5,495,000
<BONDS> 7,571,000
0
0
<COMMON> 122,000
<OTHER-SE> 51,141,000
<TOTAL-LIABILITY-AND-EQUITY> 64,329,000
<SALES> 5,214,000
<TOTAL-REVENUES> 5,214,000
<CGS> 2,527,000
<TOTAL-COSTS> 6,358,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,000
<INCOME-PRETAX> (903,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (903,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (903,000)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
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