UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

þQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period endedMarch 31,September 30, 2005

oTransition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______________ to _____________

___

Commission File Number0-4136

Lifecore Biomedical, Inc.
(Exact name of registrant as specified in its charter)
   
Minnesota 41-0948334
 
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
incorporation or organization)
   
3515 Lyman Boulevard
Chaska, Minnesota 55318
 
(Address of principal executive offices) (Zip Code)
offices)

Registrant’s telephone number, including area code:952-368-4300

Not Applicable
(Former name, former address and former fiscal year,
if changed since last report.)

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.

Yesþ Noo

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yesþ Noo

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yeso Noþ
The number of shares outstanding of the registrant’s Common Stock, $.01 par value, as of May 1,November 4, 2005 was 13,023,36213,156,160 shares.
 
 

 

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS
     
  Page
Part I.
Financial Information    
     
Item 1.
Financial Statements    
     
Condensed Consolidated Balance Sheets at March 31,September 30, 2005 and June 30, 20042005
  2 
     
Condensed Consolidated Statements of Operations for Three Months and Nine Months Ended March 31,September 30, 2005 and 2004
  3 
     
Condensed Consolidated Statements of Cash Flows for NineThree Months Ended March 31,September 30, 2005 and 2004
  4 
     
Notes to Unaudited Condensed Consolidated Financial Statements
  5-95-11 
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations  10-1512-18 
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk  1619 
     
Item 4.
Controls and Procedures  1619 
     
Part II.
Other Information    
     
Item 1.
Legal Proceedings  17-2020 
     
Item 6. Exhibits
Exhibits  21 
     
Signatures
  22 
     
Exhibit Index
  23 
 Certification of CEO Pursuant to Section 302
 Certification of CFO Pursuant to Section 302
 Certification of CEO Pursuant to Section 906
 Certification of CFO Pursuant to Section 906

1

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I —– FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)
                
 March 31, June 30,  September 30, June 30, 
 2005 2004  2005 2005 
ASSETS  
Current Assets  
Cash and cash equivalents $14,779,000 $8,553,000  $18,504,000 $18,508,000 
Accounts receivable, less allowances 9,497,000 8,626,000  9,739,000 10,171,000 
Inventories 9,854,000 9,491,000  11,234,000 9,456,000 
Deferred income taxes 4,560,000 4,190,000 
Prepaid expenses 887,000 705,000  1,026,000 780,000 
          
Total current assets 35,017,000 27,375,000  45,063,000 43,105,000 
  
Property, plant and equipment  
Land, building and equipment 46,511,000 45,398,000  47,877,000 47,400,000 
Less accumulated depreciation  (23,699,000)  (22,200,000)  (24,657,000)  (24,211,000)
          
 22,812,000 23,198,000  23,220,000 23,189,000 
  
Other Assets  
Intangibles 4,496,000 4,513,000  5,270,000 4,799,000 
Security deposits 7,000 837,000 
Inventories 2,812,000 3,891,000  2,265,000 2,409,000 
Deferred income taxes 5,207,000 6,062,000 
Other 618,000 504,000  343,000 302,000 
          
 7,933,000 9,745,000  13,085,000 13,572,000 
          
 $65,762,000 $60,318,000  $81,368,000 $79,866,000 
          
  
LIABILITIES AND SHAREHOLDERS’ EQUITY  
Current Liabilities  
Current maturities of long-term obligations $277,000 $177,000  $285,000 $285,000 
Accounts payable 1,941,000 2,467,000  3,443,000 3,418,000 
Accrued compensation 1,299,000 1,362,000  1,355,000 1,920,000 
Accrued expenses 1,659,000 1,677,000  1,396,000 1,293,000 
          
Total current liabilities 5,176,000 5,683,000  6,479,000 6,916,000 
  
Long-term obligations 5,166,000 5,809,000  5,019,000 5,089,000 
  
Shareholders’ equity 55,420,000 48,826,000  69,870,000 67,861,000 
          
 $65,762,000 $60,318,000  $81,368,000 $79,866,000 
          

See accompanying notes to condensed consolidated financial statements.

2

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES

PART I —– FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (continued)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)
                        
 Three months ended March 31, Nine months ended March 31,  Three months ended September 30, 
 2005 2004 2005 2004  2005 2004 
Net sales $14,134,000 $12,537,000 $40,422,000 $34,042,000  $13,425,000 $12,305,000 
Cost of goods sold 5,474,000 5,585,000 15,790,000 15,217,000  5,063,000 5,096,000 
              
Gross profit 8,660,000 6,952,000 24,632,000 18,825,000  8,362,000 7,209,000 
  
Operating expenses  
Research and development 1,235,000 1,032,000 3,254,000 3,536,000  999,000 848,000 
Marketing and sales 3,661,000 3,555,000 10,713,000 10,029,000  4,009,000 3,215,000 
General and administrative 1,660,000 1,513,000 4,706,000 4,764,000  1,787,000 1,467,000 
Restructuring charges — 940,000 — 940,000 
              
 6,556,000 7,040,000 18,673,000 19,269,000  6,795,000 5,530,000 
              
  
Operating income (loss) 2,104,000  (88,000) 5,959,000  (444,000)
Operating income 1,567,000 1,679,000 
  
Other income (expense)  
Interest income 67,000 32,000 109,000 44,000  135,000 10,000 
Interest expense  (53,000)  (173,000)  (221,000)  (482,000)  (56,000)  (113,000)
Bond retirement expense — —  (290,000) —  —  (290,000)
Currency transaction gains 122,000 193,000 320,000 591,000 
Currency transaction gains (losses)  (24,000) 85,000 
Other  (3,000)  (13,000) 249,000  (4,000)  (14,000) 2,000 
              
 133,000 39,000 167,000 149,000  41,000  (306,000)
              
  
Income (loss) before income taxes 2,237,000  (49,000) 6,126,000  (295,000)
Income before income taxes 1,608,000 1,373,000 
  
Provision for income taxes 129,000 — 359,000 — 
Income tax expense 563,000 94,000 
              
  
Net income (loss) $2,108,000 $(49,000) $5,767,000 $(295,000)
Net income $1,045,000 $1,279,000 
              
  
Net income (loss) per share 
Net income per share 
Basic $0.16 $(0.00) $0.45 $(0.02) $0.08 $0.10 
              
Diluted $0.15 $(0.00) $0.43 $(0.02) $0.08 $0.10 
              
  
Weighted average shares outstanding  
Basic 12,993,379 12,898,331 12,957,033 12,892,822  13,059,567 12,932,606 
              
Diluted 13,670,465 12,898,331 13,279,991 12,892,822  13,460,056 12,965,549 
              

See accompanying notes to condensed consolidated financial statements.

3

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES

PART I —– FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (continued)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)
                
 Nine months ended March 31,  Three months ended September 30, 
 2005 2004  2005 2004 
Cash flows from operating activities:  
Net income (loss) $5,767,000 $(295,000)
Adjustments to reconcile net income (loss) to net cash provided by operating activities: 
Net income $1,045,000 $1,279,000 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation and amortization 1,523,000 1,969,000  473,000 523,000 
Allowance for doubtful accounts 333,000  (28,000) 10,000 139,000 
Deferred income taxes 485,000 — 
Stock compensation 106,000 —  230,000 — 
Accumulated currency translation adjustment 65,000  (427,000) 28,000 92,000 
Changes in operating assets and liabilities: 
Changes in operating assets and liabilities, net of effects of acquisitions: 
Accounts receivable  (1,204,000) 305,000  140,000 78,000 
Inventories 716,000 473,000   (1,533,000)  (354,000)
Prepaid expenses  (182,000) 89,000   (245,000)  (219,000)
Accounts payable  (526,000)  (96,000) 13,000  (573,000)
Accrued liabilities  (81,000) 1,516,000   (474,000)  (275,000)
          
Net cash provided by operating activities 6,517,000 3,506,000  172,000 690,000 
 
Cash flows from investing activities:  
Purchases of property, plant and equipment  (1,113,000)  (353,000)  (445,000)  (493,000)
Acquisitions, net of cash acquired  (322,000) — 
Refunds of security deposits 830,000 4,000  — 830,000 
Other  (121,000) 243,000 
Increase in other assets  (45,000)  (81,000)
          
Net cash used in investing activities  (404,000)  (106,000)
Net cash provided by (used in) investing activities  (812,000) 256,000 
  
Cash flows from financing activities:  
Payments on long-term obligations  (187,000)  (103,000)  (70,000)  (23,000)
Issuance of industrial revenue bonds 5,630,000 —  — 5,630,000 
Retirement of industrial revenue bonds  (5,986,000) —  —  (5,986,000)
Proceeds from stock issuance 656,000 85,000 
Proceeds from stock options exercised 706,000 6,000 
          
Net cash provided by (used in) financing activities 113,000  (18,000) 636,000  (373,000)
          
Net increase in cash and cash equivalents 6,226,000 3,382,000 
Net increase (decrease) in cash and cash equivalents  (4,000) 573,000 
Cash and cash equivalents at beginning of period 8,553,000 4,211,000  18,508,000 8,553,000 
          
Cash and cash equivalents at end of period $14,779,000 $7,593,000  $18,504,000 $9,126,000 
          
  
Supplemental disclosure of cash flow information:  
Cash paid during the period for:  
Interest $271,000 $486,000  $56,000 $156,000 
Taxes 347,000 76,000  21,000 68,000 

See accompanying notes to condensed consolidated financial statements.

4

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES

PART I —– FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31,

September 30, 2005

NOTE A – FINANCIAL INFORMATION

Lifecore Biomedical, Inc. (referred to in this report as “Lifecore” or the “Company”) manufactures biomaterials and surgical devices for use in various surgical markets and provides specialized contract aseptic manufacturing services through its two divisions, the Hyaluronan Division and the Oral Restorative Division. The Company’s manufacturing facility is located in Chaska, Minnesota. The Hyaluronan Division markets its products through original equipment manufacturers and contract manufacturing alliances in ophthalmologic, orthopedic surgery, veterinary medicine and gynecologic fields. The Oral Restorative Division markets its products through direct sales in the United States, Italy, Germany, Sweden and SwedenFrance and through distributors in other foreign countries.

The accompanying unaudited condensed consolidated 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 accounting principles generally accepted in the United States 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 condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of March 31,September 30, 2005, the results of operations for the three month and nine month periods ended March 31,September 30, 2005 and 2004; and cash flows for the ninethree month periods ended March 31,September 30, 2005 and 2004. The results of operations for the ninethree months ended March 31,September 30, 2005 are not necessarily indicative of the results for the full year or of the results for any future periods. The unaudited condensed consolidated balance sheet as of June 30, 20042005 has been derived from audited financial statements as of that date.

In preparation of the Company’s consolidated financial statements, management is required to make estimates and assumptions that affect reported amounts of assets and liabilities and related revenues and expenses during the reporting periods. Actual results could differ from the estimates used by management.

NOTE B – INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventories consist mainly of finished hyaluronan powder, aseptic units and oral restorative products and related raw materials. The Company’s inventory has been reduced to lower of cost or market for obsolete, excess or unmarketable inventory. The lower of cost or market adjustment is based on management’s review of inventories on hand compared to estimated future usage and sales. The portion of finished hyaluronan powder inventory not expected to be consumed within the next twelve12 months is classified as a long-term asset. Finished good inventories includeThe finished hyaluronan packaged aseptic,inventory is maintained in a frozen state and oral restorative products.has a shelf life of ten years. Inventories consist of the following:
         
  March 31,  June 30, 
  2005  2004 
Raw materials $3,191,000  $2,756,000 
Work in progress  306,000   416,000 
Finished goods  9,169,000   10,210,000 
       
  $12,666,000  $13,382,000 
       
         
  September 30,  June 30, 
  2005  2005 
Raw materials $4,351,000  $3,102,000 
Work-in-process  554,000   426,000 
Finished goods-current  6,329,000   5,928,000 
       
   11,234,000   9,456,000 
Finished goods-long term  2,265,000   2,409,000 
       
  $13,499,000  $11,865,000 
       

5

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES

PART I —– FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (continued)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31,

September 30, 2005

NOTE C – INTANGIBLE ASSETS

Intangibles consist primarily of the cost of goodwill related to acquisitions, patents and distribution rights and licenses. All intangibles relate to the Oral Restorative Division.
Also included within intangibles 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 Company doescosts are amortized over the estimated useful life of the patent or trademark, not amortize goodwill. The Company’s patentsto exceed 17 years.
Goodwill is tested for impairment on a quarterly basis and written down when impaired by applying a fair-value based test. Purchased intangible assets other than goodwill are amortized over their useful lives. On an ongoing basis the Company reviews the valuation of intangibleslives unless these lives are determined to determine possible impairment by comparing the carrying value to projected undiscounted future cash flows of the related assets. As a result of such review, therebe indefinite. There was no impairment recorded for the ninethree month period ended March 31,September 30, 2005.

Intangibles consisted of the following at:
               
 March 31, June 30, September 30, June 30, 
 2005 2004 2005 2005 
Goodwill $4,352,000 $4,352,000  $4,847,000 $4,352,000 
Patents 387,000 387,000  387,000 387,000 
Distribution rights and licenses 350,000 350,000 
Accumulated amortization  (243,000)  (226,000)  (314,000)  (290,000)
          
 $4,496,000 $4,513,000  $5,270,000 $4,799,000 
          

NOTE D – LINE OF CREDIT

On November 17, 2004, the

The Company renewed itshas a $5,000,000 bank credit facility to extend thewith a bank which has a maturity date toof December 31, 2006. The agreement allows for advances against eligible accounts receivable, subject to a borrowing base certificate. Under the renewed credit facility, interest will accrue at the prime rate (5.75%(6.75% at March 31,September 30, 2005) minus .5% or LIBOR (2.86%(3.86% at March 31,September 30, 2005) plus 2.25%, at the Company’s option. At March 31,September 30, 2005 and June 30, 2004,2005, there were no balances outstanding under the line of credit. The terms of the agreement require the Company to comply with various financial covenants, including minimum tangible net worth, liabilities to tangible net worth ratio and profitability. At March 31,September 30, 2005 and June 30, 2004,2005, the Company was in compliance with all covenants.

NOTE E – STOCK BASED COMPENSATION
Commencing July 1, 2005, the Company adopted Statement of Financial Accounting Standard No. 123R, “Share Based Payment” (“SFAS 123R”), which requires all share-based payments, including grants of stock options, to be recognized in the income statement as an operating expense, based on their fair values over the requisite service period. The Company recorded $190,000 of related compensation expense, included in general and administrative expense, for the three-months ended September 30, 2005. There was no tax benefit from recording this non-cash expense. The compensation expense reduced both basic and diluted earnings per share by $0.01.
As of September 30, 2005, $939,000 of total unrecognized compensation costs related to non-vested awards is expected to be recognized over a weighted average period of approximately 2.5 years.

6

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES

PART I —– FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (continued)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31,

September 30, 2005

NOTE E – STOCK PLAN INFORMATION

BASED COMPENSATION – (continued)

Prior to adopting SFAS 123R, the Company accounted for stock-based compensation under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” The Company has various stockapplied the modified prospective method in adopting SFAS 123R. Accordingly, periods prior to adoption have not been restated. The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to the prior period.
     
  Three months ended 
  September 30, 2004 
Reported net income $1,279,000 
Stock-based employee compensation determined under the fair value based method, net of related tax effects  (207,000)
    
Pro forma net income $1,072,000 
    
     
Income per common equivalent share:    
Basic — as reported $0.10 
Diluted — as reported $0.10 
     
Basic — pro forma $0.08 
Diluted — pro forma $0.08 
The Company uses the Black-Scholes option plans that provide forpricing model to determine the grantingweighted average fair value of options. The weighted average fair value of options granted during the three month periods ended September 30, 2005 and 2004 were $4.44 and $2.48, respectively. The fair value of options at date of grant and the assumptions utilized to determine such values are indicated in the following table:
         
  Three Months Ended
  September 30,
  2005 2004
Risk-free interest rate  4.27%  3.9%
Expected volatility  69.5%  69.6%
Expected life (in years)  5.6   5.4 
Dividend yield  —   — 

7

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 2005
NOTE E – STOCK BASED COMPENSATION – (continued)
The Company’s stock options to officers, employeesgenerally vest ratably over four years of service and directors.have a contractual life of 10 years. The Company accountshas authorized 5,000,000 shares for stock-based compensation usinggrant under the intrinsic value method whereby1990, 1996 and 2003 Stock Option Plans. Option transactions under the 1990 and 1996 Stock Option Plans during the first quarter ended September 30, 2005 are summarized as follows (no stock options arehave been granted under the 2003 Plan):
         
  Number of  Weighted Average 
  Shares  Exercise Price 
Outstanding at June 30, 2005  1,720,706  $10.19 
Granted  41,300   10.86 
Exercised  (101,100)  7.00 
Canceled  (12,750)  9.35 
       
Outstanding at September 30, 2005  1,648,156  $10.41 
       
         
  Number of Weighted Average
  Shares Exercise Price
Options exercisable at September 30, 2005  1,309,856   $10.83
The following tables summarize information concerning currently outstanding and exercisable stock options.
                       
Options Outstanding
Range of Number Weighted Average Remaining Weighted Average
Exercise Price Outstanding Contractual Life Exercise Price
$3.55   —   5.82   87,750 6.27 years $ 5.23
 5.83   —   8.75   708,563 6.79 years   7.29
 8.76   —   13.12   394,800 6.48 years   10.15
 13.13   —   19.68   426,043 2.34 years   16.09
 19.69   —   23.38   31,000 2.26 years   21.55
                   
             1,648,156     $ 10.41
                   

8

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 2005
NOTE E – STOCK BASED COMPENSATION – (continued)
                   
Options Exercisable
 
Range of Number Weighted Average
Exercise Price Exercisable Exercise Price
$3.55   —   5.82   65,125 $ 5.35
 5.83   —   8.75   551,938  7.23
 8.76   —   13.12   242,750  10.13
 13.13   —   19.68   424,043  16.10
 19.69   —   23.38   26,000  21.58
               
             1,309,856 $ 10.83
               
Issuance of Restricted Stock
During fiscal 2005, the Company granted 60,000 restricted common stock awards to its officers. 50,000 of the shares were awarded at marketa price of $9.30 and therefore no compensation costs are recognized. If6,667 of those shares were forfeited during the year ended June 30, 2005. 10,000 of the shares were awarded at a price of $10.79. The restricted shares will vest at the earlier of four years from the date of issuance or upon achievement of financial performance criteria for fiscal years 2005, 2006 and 2007. The Company achieved the financial performance criteria in fiscal 2005, and as a result, 20,000 shares vested. The employee forfeits unvested shares upon the termination of employment prior to the end of the vesting period. Stock compensation expense forrecognized related to these grants totaled $40,000 and $0 during the Company’s various stock option plans had been determined based upon the projected fair values at the grant dates for awards under those plans, the Company’s pro-forma net income (loss),three month periods ended September 30, 2005 and basic and diluted net income (loss) per common share would have been as follows:2004, respectively.
                 
  Three months ended March 31,  Nine months ended March 31, 
  2005  2004  2005  2004 
Net income (loss), as reported $2,108,000  $(49,000) $5,767,000  $(295,000)
Deduct: Total stock-based employee compensation expense determined under fair value method for awards, net of related tax effects (no tax effect in 2005 and 2004)  (312,000)  (10,000)  (710,000)  (127,000)
             
                 
Pro forma net income (loss) $1,796,000  $(59,000) $5,057,000  $(422,000)
             
Net income (loss) per common equivalent share:                
Basic — as reported $0.16  $(0.00) $0.45  $(0.02)
Diluted — as reported $0.15  $(0.00) $0.43  $(0.02)
Basic — pro-forma $0.14  $(0.00) $0.39  $(0.03)
Diluted — pro-forma $0.13  $(0.00) $0.38  $(0.03)

NOTE F – ACCUMULATED OTHER COMPREHENSIVE INCOME

The Company has $628,000 of accumulated currency translation adjustment which reduces shareholders’ equity at September 30, 2005. Total comprehensive income was $1,073,000 and $1,370,000 for the three month periods ended September 30, 2005 and 2004, respectively.
NOTE G – NET INCOME (LOSS) PER SHARE

The Company’s basic net income (loss) per share amounts have been computed by dividing net income (loss) by the weighted average number of outstanding common shares. The Company’s diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of outstanding common shares and common share equivalents relating to stock options and restricted stock, when dilutive. For the three and nine month periods ended March 31,September 30, 2005 677,086 shares and 322,9582004, 400,489 and 32,943 shares of common stock equivalents, respectively, were included in the computation of diluted net income per share. For the three and nine month periods ended March 31, 2004, 80,181 and 48,876 common share equivalents, respectfully, would have been included in the computation of diluted net income per share had net income been achieved.

Options to purchase 319,043 and 587,543465,543 shares of common stock with a weighted average exercise price of $17.53 and $15.20$16.39 for the three-month and nine-month periodsperiod ended March 31,September 30, 2005 respectively, and options to purchase 2,362,683 and 2,436,4581,343,978 shares of common stock with a weighted average exercise price of $12.46 and $12.30$11.20 for the three-month and nine-month periodsperiod ended March 31,September 30, 2004 respectively, were outstanding but were not included in the calculation of diluted net lossincome per share because the options’ exercise prices were greater than the average market price of the Company’s common stock during those periods. Although these options were antidilutive for the periods presented, they may be dilutive in future period calculations.

79

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES

PART I —– FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (continued)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31,

September 30, 2005

NOTE GH – INCOME TAXES
Provision for income taxes was $563,000 and $94,000 for the three months ended September 30, 2005 and 2004, respectively. The effective rate for the prior year period was significantly lower than the comparable 2005 period due to recognizing a tax benefit for a partial release in the deferred tax asset valuation allowance for the net operating losses utilized in 2004. The full domestic valuation allowance was fully reversed in the fourth quarter of last fiscal year. As a result the company’s statement of earnings will reflect more normal tax charges though out fiscal 2006 and beyond. However, with the exception of the Alternative Minimum Tax and certain state taxes, the company will not use cash for domestic income taxes until their net operating losses are fully realized on their tax returns.
NOTE I– SEGMENT INFORMATION

The Company operates in two business segments. The Hyaluronan Division manufactures, markets and sells products containing hyaluronan and provides contract aseptic packaging services. The Oral Restorative Division produces and markets various oral restorative products to the area of implant dentistry. Currently, products containing hyaluronan are sold primarily to customers pursuant to ongoing supply agreements. The Company’s Oral Restorative Division markets products directly to clinicians and dental laboratories in the United States, Germany, Italy, Sweden and SwedenFrance and primarily through distributorship arrangements in other foreign locations.

Segment assets and the basis of segmentation are consistent with that reported at June 30, 2004.2005. Segment information for sales and income (loss) from operations are as follows:
                        
 Three months ended March 31, Nine months ended March 31,  Three months ended September 30, 
 2005 2004 2005 2004  2005 2004 
Net sales  
Hyaluronan products $5,026,000 $4,475,000 $14,173,000 $11,578,000  $4,661,000 $4,644,000 
Oral restorative products 9,108,000 8,062,000 26,249,000 22,464,000  8,764,000 7,661,000 
              
 $14,134,000 $12,537,000 $40,422,000 $34,042,000  $13,425,000 $12,305,000 
              
Income (loss) from operations 
 
Income from operations 
Hyaluronan products $1,020,000 $(233,000) $3,192,000 $(869,000) $1,116,000 $1,319,000 
Oral restorative products 1,084,000 145,000 2,767,000 425,000  451,000 360,000 
              
 $2,104,000 $(88,000) $5,959,000 $(444,000) $1,567,000 $1,679,000 
              

NOTE HJ – NEW ACCOUNTING PRONOUNCEMENTS

In November 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 151,Inventory Costs(“SFAS 151”). The provisions of this statement become effective forACQUISITION OF BARDO-BIOTECH SAS

Effective August 12, 2005, the Company in fiscal 2006. SFAS 151 amends the existing guidance on the recognition of inventory costs to clarify the accounting for abnormal amounts of idle expense, freight, handling costs, and wasted material (spoilage). Existing rules indicate that under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges. SFAS 151 requires that those items be recognized as current period charges regardless of whether they meet the criterion of “so abnormal”. In addition, SFAS 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacityacquired 100% of the production facilities. The Company’s existing policies with regard to inventory accounting are consistent with the provisionsstock of SFAS 151 and the adoption of SFAS 151 is not expected to haveBardo-Biotech SAS, a material impact on the valuation of inventory or operating results.

In December 2004, the FASB issued SFAS 123R,Share-Based Payment, (“SFAS 123R”). This revised standard addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for either equity instrumentsprivately-owned distributor of the company or that are based onCompany’s Oral Restorative products located in Beauzelle, France. The transaction was treated for accounting purposes as a purchase and accordingly the fair valueCompany included the operating results of Bardo-Biotech SAS in the financial statements from August 1, 2005.

In conjunction with this acquisition, the consideration paid was $401,000 in cash and $362,000 in debt forgiveness. The acquisition resulted in goodwill of $495,000, a portion of which is deductible for tax purposes. Approximately $43,000 of the company’s equity instruments or that may be settled by the issuance of such equity instruments. Under the new standard, companies will no longer be able topurchase price was placed in a bank guarantee account for share-based compensation transactions using the intrinsic method in accordance with APB 25. Instead, companies will be required to account for such transactions using a fair-value method and recognize the expense in the consolidated statement of income. SFAS 123R will be effective for all annual periods beginning after June 15, 2005. The Company will adopt this standard July 1, 2005. Management believes it will have a significant impact due to the Company’s use of options as employee incentives but has not yet determined the impact on earnings.

event there are any loss claims or asset valuation adjustments that should arise.

810

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES

PART I —– FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (continued)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31,

September 30, 2005

NOTE IK – AGREEMENTS

On September 20, 2004, the Company secured worldwide marketing rights to its ferric hyaluronan adhesion prevention product from Ethicon, Inc. Lifecore’s product, which was previously marketed by Gynecare, a division of Ethicon, Inc. (“Gynecare”), under the trademark GYNECARE INTERGEL Adhesion Prevention Solution, was voluntarily withdrawn from the market by Gynecare on March 27, 2003 to assess information obtained from its usage in the treatment of patients. Under the agreement, Gynecare will have no responsibility for any aspect of the future manufacture, marketing, sale or distribution of the product nor will it derive any financial benefit therefrom. A payment of $250,000, included in other income, was received during the second quarter of fiscal 2005 from Ethicon, Inc. in conjunction with the above mentioned agreement.

NOTE JL – LEGAL PROCEEDINGS

Lifecore is a party in 6775 pending lawsuits, filed by 71 different plaintiffs, all of which allege that the plaintiffs suffered injuries due to the defective nature of INTERGEL Solution manufactured by Lifecore and marketed by ETHICON. Under the terms of its Conveyance, License, Development and Supply Agreement dated August 8, 1994 with ETHICON, ETHICON is currently defendingobligated to indemnify and hold Lifecore harmless from all claims related to the sale and use of INTERGEL Solution, unless it is ultimately determined that a plaintiff’s injuries were caused by a breach of Lifecore’s limited contractual warranty to Ethicon. Lifecore believes that ETHICON will be obligated to fully indemnify Lifecore in eachconnection with all of these lawsuits.the pending claims relating to INTERGEL Solution. Lifecore also has product liability insurance that it believes willwould cover its exposure, if any, related to these claims.

NOTE M – RECLASSIFICATIONS
Certain 2004 amounts have been reclassified to conform to the 2005 presentation.

911

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES

PART I —– FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations isare based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions in certain circumstances that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the Company’s financial statements. Management bases its estimates and judgments on historical experience, observance of trends in the industry, information provided by customers and other outside sources and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Revenue Recognition:

The Company recognizes revenue when the product is shipped or otherwise accepted by unaffiliated customers, pursuant to customers orders, the price is fixed and collection is reasonably assured. The Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition” provides guidance on the application of generally accepted accounting principles to selected revenue recognition issues. The Company has concluded that its revenue recognition policy is appropriate and in accordance with generally accepted accounting principles and SAB No. 101.

Allowance for Uncollectible Accounts Receivable:

Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. The Company extends credit to customers in the normal course of business but generally does not require collateral or any other security to support amounts due. Management performs on-going credit evaluations of the Company’s customers and bases the estimated allowance on these evaluations.

Inventories:

Inventories are stated at the lower of cost (first-in, first-out method) or market and have been reduced to the lower of cost or market for obsolete, excess or unmarketable inventory. The lower of cost or market adjustment is based on management’s review of inventories on hand compared to estimated future usage and sales.

Goodwill, Intangibles and Other Long-Lived Assets:

Intangibles and certain other long-lived assets with a definite life are amortized over their useful lives. Useful lives are based on management’s estimates of the period that the assets will generate revenue.

The Company reviews goodwill for impairment on a regular basis, at least annually.

quarterly or upon a triggering event.

Management has reviewed goodwill and other intangibles for impairment and has concluded that such assets are appropriately valued at the financial statement dates.

Accounting for Income Taxes:
Income taxes are accounted for under the provisions of Statement of Financial Accounting Standards, or SFAS No. 109, “Accounting for Income Taxes.” Under this method, deferred tax assets and liabilities are determined based upon the difference between the financial statement and tax bases of assets and liabilities using the enacted tax rates in effect for the year in which the differences are expected to affect taxable

1012

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES

PART I —– FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

income. The tax consequences of events recognized in the current year’s financial statements are included in determining income taxes currently payable. However, because tax laws and financial accounting standards differ in their recognition and measurement of assets, liabilities, equity, revenue, expenses, gains and losses, differences arise between the amount of taxable income and pretax financial income for a year and between the tax bases of assets or liabilities and their reported amounts in the financial statements. Because it is assumed that the reported amounts of assets and liabilities will be recovered and settled, respectively, a difference between the tax basis of an asset or a liability and its reported amount in the balance sheet will result in a taxable or a deductible amount in some future years when the related liabilities are settled or the reported amounts of the assets are recovered, hence giving rise to a deferred tax asset. Management must then assess the likelihood that the deferred tax assets will be recovered from future taxable income and to the extent that recovery is not likely, a valuation allowance must be established.
In fiscal 2005, management determined that it was appropriate to release a substantial portion of the deferred tax valuation allowance based upon the Company’s then-current and expected level of profitability, and the belief that it is more likely than not that the deferred tax assets will be utilized before they expire. The remaining valuation allowance is provided for foreign net operating losses. As part of the process of preparing the consolidated financial statements, income taxes are required to be estimated. This process involves estimating actual current tax exposure together with assessing temporary differences that may result in deferred tax assets or liabilities. Management judgment is required in determining any valuation allowance recorded against deferred tax assets. Any such valuation allowance would be based on our management’s estimates of taxable income and the period over which deferred tax assets would be recoverable.
Overview

The Company manufactures biomaterials and medical devices for use in various surgical markets and provides related specialized contract aseptic manufacturing services. The Company operates through two business divisions,units, the Hyaluronan Division and the Oral Restorative Division.

The Company’s performance continuesHyaluronan Division is principally involved in the development and manufacture of products utilizing hyaluronan, a naturally occurring polysaccharide that is widely distributed in the extracellar matrix of connective tissues in both animals and humans.
The Hyaluronan Division primarily sells into three medical segments: 1) Ophthalmic, 2) Orthopedic, and 3) Veterinary. In addition, the Company developed and owns the global marketing rights for a product using its patented ferric hyaluronan adhesion prevention technology. The product, FeHA, (formerly labeled as GYNECARE INTERGEL Adhesion Prevention Solution (“INTERGEL Solution”), has been clinically proven to be positively affected by revenue growthreduce the incidence of post-surgical adhesions following surgical trauma. The product was voluntarily withdrawn from the market in bothMarch 2003 in order to assess information obtained from postmarketing experience with the product. The Company is currently evaluating regulatory requirements and opportunities for distribution partners to market the FeHA product.

13

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I – FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Lifecore also supplies hyaluronan to customers pursuing other medical applications, such as wound care, aesthetic surgery, medical device coatings, tissue engineering, drug delivery and pharmaceuticals. The Company leverages its hyaluronan manufacturing expertise to provide expanded hyaluronan product offerings and specialized aseptic manufacturing of hyaluronan products.
The Company’s Oral Restorative Division develops and markets precision surgical and prosthetic devices for the restoration of damaged or deteriorating dentition and associated support tissues. The Company’s dental implants are permanently implanted in the jaw for tooth replacement therapy as long-term support for crowns, bridges, and dentures.
The Oral Restorative Division also offers innovative bone regenerative products for the repair of bone defects resulting from periodontal disease and tooth loss. Additionally, the Oral Restorative Division provides professional support services to its dental surgery clients through comprehensive education curricula, as provided in the Company’s various Support PlusÔ programs and surgical courses. These professional continuing education programs are designed to train restorative clinicians and their auxiliary teams in the Hyaluronan Division.principles of tooth replacement therapy and practice management. The financial leverage gained by this increaseCompany’s Increasing Case Acceptance Program (“ICA”) offers clients the marketing and consultative tools and training to foster higher patient acceptance of dental implants.
The Oral Restorative Division’s products are marketed in revenues combined withthe United States through the Company’s direct sales force. Internationally, the Division’s products are marketed through direct subsidiaries in Italy, Germany, France and Sweden, and through 25 national distributors covering 34 additional countries.
Acquisition of Bardo-Biotech SAS
Effective August 12, 2005, the Company acquired 100% of the stock of Bardo-Biotech SAS, a reductionprivately-owned distributor of the Company’s Oral Restorative products located in operating expensesBeauzelle, France. The transaction was treated for accounting purposes as a percentpurchase and accordingly the Company included the operating results of revenue has hadBardo-Biotech SAS in the financial statements from August 1, 2005.
In conjunction with this acquisition, the consideration paid was $401,000 in cash and $362,000 in debt forgiveness. The acquisition resulted in goodwill of $495,000, a positive impact on operating results. The above factorsportion of which is deductible for tax purposes. Approximately $43,000 of the purchase price was placed in a bank guarantee account in the event there are applicable to the three month and nine month periods ended March 31, 2005.any loss claims or asset valuation adjustments that should arise.

14

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I – FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Results of Operations

Three Months Ended March 31,September 30, 2005 Compared to Three Months Ended March 31,September 30, 2004:
                                                
 Hyaluronan Oral Restorative    Hyaluronan Oral Restorative   
 Division Division Consolidated  Division Division Consolidated 
 2005 2004 2005 2004 2005 2004  2005 2004 2005 2004 2005 2004 
Net sales $5,026,000 $4,475,000 $9,108,000 $8,062,000 $14,134,000 $12,537,000  $4,661,000 $4,644,000 $8,764,000 $7,661,000 $13,425,000 $12,305,000 
Cost of goods sold 2,309,000 2,715,000 3,165,000 2,870,000 5,474,000 5,585,000  2,052,000 2,093,000 3,011,000 3,003,000 5,063,000 5,096,000 
                          
Gross profit 2,717,000 1,760,000 5,943,000 5,192,000 8,660,000 6,952,000  2,609,000 2,551,000 5,753,000 4,658,000 8,362,000 7,209,000 
  
Operating expenses  
Research and development 952,000 761,000 283,000 271,000 1,235,000 1,032,000  607,000 604,000 392,000 244,000 999,000 848,000 
Marketing and sales 133,000 133,000 3,528,000 3,422,000 3,661,000 3,555,000  176,000 92,000 3,833,000 3,123,000 4,009,000 3,215,000 
General and administrative 612,000 576,000 1,048,000 937,000 1,660,000 1,513,000  710,000 536,000 1,077,000 931,000 1,787,000 1,467,000 
Restructuring charges — 523,000 — 417,000 — 940,000 
                          
 1,697,000 1,993,000 4,859,000 5,047,000 6,556,000 7,040,000  1,493,000 1,232,000 5,302,000 4,298,000 6,795,000 5,530,000 
                          
  
Operating income (loss) $1,020,000 $(233,000) $1,084,000 $145,000 $2,104,000 $(88,000)
Operating income $1,116,000 $1,319,000 $451,000 $360,000 $1,567,000 $1,679,000 
                          

Net Sales. Net sales for the quarter ended March 31,September 30, 2005 increased $1,597,000$1,120,000 or 13%9% as compared to the same quarter of last fiscal year. Hyaluronan productDivision sales increased $17,000, and Oral Restorative Division sales increased $1,103,000 or 14%.
Hyaluronan Division sales for the current quarter increased $551,000 or 12% as compared to $4,661,000 from $4,644,000 in the same quarter of last fiscal year due to increased sales to veterinary customers offset partially by lower sales to ophthalmic and orthopedic sales. customers.
Oral restorative productRestorative Division sales for the current quarter increased $1,046,000 or 13% compared to $8,764,000 from $7,661,000 in the same quarter of last fiscal year. Domestic sales increased 21%22% due to the continued expansion of our sales representatives, sales of the RENOVA Internal Hex Implant System and continued sales growth of the STAGE-1 Single Stage Implant System. Sales in the international markets increased by 6%.
Gross profit. Consolidated gross profit, as a percentage of net sales, was 62% in the current quarter and 59% in the same quarter of last fiscal year. The gross profit for the Hyaluronan Division increased 6%to 56% in the current quarter from 55% in the same quarter of last fiscal year; 3.3 percentage point change due to a decrease in unused manufacturing capacity charges associated with increased hyaluronan production, offset by a 2.1 percentage point change due to product mix.
Gross profit for the Oral Restorative Division increased to 66% in the current quarter from 61% in the same quarter of last fiscal year of which 3.6 percentage points were due to a favorable shift in sales mix from lower margin products to higher margin products and 1.3 percentage points were due to fixed costs spread over a larger sales base.

15

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I – FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Research and development. Consolidated research and development expenses consist of personnel costs, contract services, facility and equipment charges and materials consumed in the development of new products or enhancements to existing products. Research and development activities include: pilot plant operations, development of new formulations, design and testing of new products, regulatory services and clinical evaluation. Research and development expenses increased $151,000 or 18% in the current quarter as compared to the same quarter last fiscal year. The increase is due to additional expenses associated with new product development in the Oral Restorative Division.
Marketing and sales. Consolidated marketing and sales expenses increased by $794,000 or 25% in the current quarter as compared to the same quarter of last fiscal year. Favorable foreign currency comparisons increased international sales by $102,000 over the same quarter of last fiscal year.

Consolidated gross margin increasedThe increase was due mainly to 61% for the current quarter from 55% for the same quarter of last fiscal year. The gross margin for the Hyaluronan Division increased to 54%, from a gross margin of 39%, due to a favorable product mix and decreased unused manufacturing capacity chargescosts associated with increased production. The gross margin for the Oral Restorative Division was 65% fortiming of tradeshows, the current quarter compared to 64% forexpansion of the same quarter of last fiscal year.

11

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES

PART I — FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Researchoral restorative’s domestic sales force, and developmentinternational operations.

General and administrative. Consolidated general and administrative expenses increased $203,000by $320,000 or 20%22% in the current quarter as compared to the same quarter of last fiscal year. The increase is duerelated to regulatory consulting and professional fees$190,000 of compensation expense associated with the Company’s adhesion prevention product.

Marketingadoption of SFAS 123R and sales expenses increased $106,000 or 3%higher insurance costs.

On June 16, 2005 the Company accelerated of the vesting of 74,375 stock options which had an exercise price greater than the closing price on that date. The accelerated vesting enabled the Company to avoid recognizing in the current quarter as compared to the same quarter of last fiscal year due to increased costsits income statement compensation expense associated with expansionthese options in future periods upon the adoption by the Company of FASB Statement No. 123(R) “Share-Based Payment” in July 2005.
Other income (expense). Net other income, as shown on the Oral Restorative Division’s domestic sales force and international operations.

General and administrative expensesConsolidated Statements of Operations, increased $147,000 or 10%$347,000 for the current quarter as compared to the same quarter of last fiscal year. The increase is due to higher insurance expenses, costs associated with Sarbanes-Oxley complianceno bond retirement expense of $290,000 and an increase in the allowanceinterest income of $125,000 resulting from a higher cash balance, offset by decreases in currency transaction gains realized on Euro denominated intercompany transactions of $110,000.

Provision for uncollectible accounts.

In the same quarter of last fiscal year, restructuring charges of $940,000 were recorded as part of a 10% workforce reduction.

Other income as shown on the Condensed Consolidated Statements of Operations, increasedtaxes.Provision for income taxes was $563,000 and $94,000 for the current quarter as comparedthree months ended September 30, 2005 and 2004, respectively. The effective rate for the prior year period was significantly lower than the comparable 2005 period due to recognizing a tax benefit for a partial release in the samedeferred tax asset valuation allowance for the net operating losses utilized in 2004. The full domestic valuation allowance was fully reversed in the fourth quarter of last fiscal year. Net interest expense decreased $155,000 fromAs a result the third quartercompany’s statement of a year ago. This was due toearnings will reflect more normal tax charges though out fiscal 2006 and beyond. However, with the refinancingexception of the Company’s industrial revenue bondsAlternative Minimum Tax and certain state taxes, the company will not use cash for domestic income taxes until their net operating losses are fully realized on their tax returns. We account for income taxes under the provisions of SFAS No. 109, “Accounting for Income Taxes.”

Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using the enacted tax rates in effect for the first quarteryear in which the differences are expected to affect taxable income. We believe that in fiscal 2006 our tax rate will be approximately 35%, even though the actual amount of taxes paid will be reduced by the Company’s interest rate by more than six percentage points and interest income has increased due to both higher cash balances and interest rates. Offsetting the impactutilization of the above, currency transaction gains decreased $71,000 from the same period a year ago.

net operating loss carryforward.

Nine Months Ended March 31, 2005 Compared to Nine Months Ended March 31, 2004:

                         
  Hyaluronan  Oral Restorative    
  Division  Division  Consolidated 
  2005  2004  2005  2004  2005  2004 
Net sales $14,173,000  $11,578,000  $26,249,000  $22,464,000  $40,422,000  $34,042,000 
Cost of goods sold  6,486,000   6,987,000   9,304,000   8,230,000   15,790,000   15,217,000 
                   
Gross profit  7,687,000   4,591,000   16,945,000   14,234,000   24,632,000   18,825,000 
                         
Operating expenses                        
Research and development  2,451,000   2,755,000   803,000   781,000   3,254,000   3,536,000 
Marketing and sales  375,000   396,000   10,338,000   9,633,000   10,713,000   10,029,000 
General and administrative  1,669,000   1,786,000   3,037,000   2,978,000   4,706,000   4,764,000 
Restructuring charges  —   523,000   —   417,000   —   940,000 
                   
   4,495,000   5,460,000   14,178,000   13,809,000   18,673,000   19,269,000 
                   
                         
Operating income (loss) $3,192,000  $(869,000) $2,767,000  $425,000  $5,959,000  $(444,000)
                   

Net sales for the nine months ended March 31, 2005 increased $6,380,000 or 19% as compared to the same period of last fiscal year. Hyaluronan product sales for the current period increased $2,595,000 or 22% as compared to the same period of last fiscal year due to increased ophthalmic and orthopedic sales. Oral restorative product sales for the current period increased $3,785,000 or 17% compared to the same period of last fiscal year. Domestic sales increased 22% and international sales increased 12% as compared to the same period of last fiscal year. Favorable foreign currency comparisons increased international sales by $406,000 over the same period of last fiscal year.

1216

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES

PART I —– FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Consolidated gross margin increased to 61% for the current period from 55% for the same period of last fiscal year. The gross margin for the Hyaluronan Division increased to 54% for the current period from a gross margin of 40% for the same period of last fiscal year due to a favorable product mix and lower unused manufacturing capacity charges associated with increased production. The gross margin for the Oral Restorative Division increased to 65% for the current period from 63% for the same quarter of last fiscal year. The gross margin increase is due to operating leverage afforded by the higher sales volume.

Research and development expenses decreased $282,000 or 8% in the current period as compared to the same period of last fiscal year. The decrease is primarily due to reduced consulting and professional fees associated with the Company’s adhesion prevention product.

Marketing and sales expenses increased $684,000 or 7% in the current period as compared to the same period of last fiscal year due to increased costs associated with expansion of oral restorative’s domestic sales force and international operations.

General and administrative expenses decreased $58,000 or 1% for the current period as compared to the same period of last fiscal year. The decrease resulted from the workforce reduction in the third quarter of fiscal 2004 and lower legal expenses offset by expense increases for insurance, Sarbanes-Oxley compliance and the allowance for uncollectible accounts.

In the same period of last fiscal year, restructuring charges of $940,000 were recorded as part of a 10% workforce reduction.

Other income, as shown on the Condensed Consolidated Statements of Operations, increased $18,000 for the current period as compared to the same period of last fiscal year. The increase is due to a one-time pretax gain of $250,000 recorded in the second quarter in conjunction with the Company securing the worldwide marketing rights to its anti-adhesion product. Also, net interest expense decreased $326,000 from the same period of a year ago. This is due to the refinancing of the Company’s industrial revenue bonds in the first quarter which reduced the Company’s interest rate by more than six percentage points and interest income has increased due to both higher cash balances and interest rates. Offsetting the impact of the above was a reduction in currency transaction gains of $271,000 from the same period a year ago and bond retirement expense of $290,000 recorded in the first quarter of the current fiscal year resulting from the refinancing of industrial revenue bonds.

Liquidity and Capital Resources

The Company’s Annual Report on Form 10-K, as amended, for the year ended June 30, 20042005 contains a detailed discussion of Lifecore’s liquidity and capital resources. Investors should read the 20042005 Form 10-K, as amended, in conjunction with this Quarterly Report on Form 10-Q.

For the ninethree month period ended March 31,September 30, 2005, the Company had positivenegative cash flow of $6,226,000.$4,000. The Company has had positive cash flow in fiscal years 2005, 2004 2003 and 2002.2003. Charges for unused manufacturing capacity associated with the Company’s hyaluronan production have continued to negatively impact operating results in the current fiscal year. Also, marketing and sales expenses for the oral restorative products are expected to continue at a high level due to continued international expansion and increased personnel costs.

On November 17, 2004,costs associated with expanding the sales force.

The Company renewed itshas a $5,000,000 bank credit facility to extend thewith a bank which has a maturity date toof December 31, 2006. The agreement allows for advances against eligible accounts receivable, subject to a borrowing base certificate. Under the renewed credit facility, interest will accrue at the prime rate (5.75%(6.75% at March 31,September 30, 2005) minus .5% or LIBOR (2.86%(3.86% at March 31,September 30, 2005) plus 2.25%, at the Company’s option. At March 31,September 30, 2005 and June 30, 2004,2005, there were no balances outstanding under the line of credit. The terms of the agreement require the Company to comply with various financial covenants, including minimum tangible net worth, liabilities to tangible net worth ratio and profitability. At March 31,September 30, 2005 and June 30, 2004,2005, the Company was in compliance with all covenants.

13

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES

PART I — FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

On August 19, 2004, the Company issued variable rate industrial revenue bonds. The proceeds from these bonds were used to retire the existing 10.25% fixed rate industrial revenue bonds on September 1, 2004. The aggregate principal amount of the new bonds is $5,630,000, and the bonds will bear interest at a variable rate set weekly by the bond remarketing agent (2.28%(2.75% as of March 31,September 30, 2005). In addition, the Company will paypays an annual remarketing fee equal to .125% and an annual letter of credit fee of 1.0%. The bonds are collateralized by a bank letter of credit which is secured by a first mortgage on the facility. The Company is required to make monthly principal and interest payments to a sinking fund. The terms of the agreement require the Company to comply with various financial covenants including minimum tangible net worth, liabilities to tangible net worth ratio and net income (loss). As of March 31,September 30, 2005 and June 30, 2005, the Company was in compliance with all covenants.

The Company’s ability to generate positive cash flow from operations and achieve ongoing profitability is dependent upon the continued expansion of revenue from its hyaluronan and oral restorative businesses. Growth in the Hyaluronan Division is unpredictable due to the complex governmental regulatory environment for new medical products, the early stage of certain of these markets and the uncertainty associated with the future market status of the Company’s adhesion prevention product. Similarly, expansion of the Company’s Oral Restorative Division sales is also dependent upon increased revenue from new and existing customers, as well as successfully competing in a more mature market. The Company expects its cash generated from anticipated operations and the available funds under the line of credit to satisfy cash flow needs in the near term. No assurance can be given that the Company will maintain positive cash flow from operations. While the Company’s capital resources appear adequate today, the Company may seek additional financing in the future. If additional financing is necessary, 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.

The Company does not have any material “off-balance sheet” financing activities.

New Accounting PronouncementsSeasonality

In November 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 151,Inventory Costs(“SFAS 151”).

The provisions of this statement become effective for the CompanyCompany’s business is seasonal in fiscal 2006. SFAS 151 amends the existing guidancenature. Historically, sales on the recognition of inventory costs to clarifyOral Restorative Division are lower in the accounting for abnormal amounts of idle expense, freight, handling costs, and wasted material (spoilage). Existing rules indicate that under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges. SFAS 151 requires that those items be recognized as current period charges regardless of whether they meetfirst quarter than throughout the criterion of “so abnormal”. In addition, SFAS 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacityrest of the production facilities. The Company’s existing policies with regard to inventory accounting are consistent withyear, as a result of European holidays during the provisions of SFAS 151 and the adoption of SFAS 151 is not expected to have a material impact on the valuation of inventory or operating results.

summer months.

In December 2004, the FASB issued SFAS 123R,Share-Based Payment, (“SFAS 123R”). This revised standard addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for either equity instruments of the company or that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments. Under the new standard, companies will no longer be able to account for share-based compensation transactions using the intrinsic method in accordance with APB 25. Instead, companies will be required to account for such transactions using a fair-value method and recognize the expense in the consolidated statement of income. SFAS 123R will be effective for all annual periods beginning after June 15, 2005. The Company will adopt this standard July 1, 2005. Management believes it will have a significant impact due to the Company’s use of options as employee incentives but has not yet determined the impact on earnings.

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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES

PART I —– FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Cautionary Statement

Statements included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Form 10-Q, in future filings by the Company with the Securities and Exchange Commission and in the Company’s press releases and oral statements made with the approval of authorized executive officers, that are not historical or current facts, should be considered “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may, among other things, relate to market acceptance and demand for the Company’s products, future product development plans and timing, the results of clinical trials, FDA clearances and the related timing of such, the potential size of the markets for the Company’s products, future product introductions, future revenues, expense levels, tax rates and capital needs and the Company’s ability to successfully negotiate acceptable agreements with its corporate partners. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The following important factors, among others, in some cases have affected or in the future could affect the Company’s actual results and could cause its actual financial performance to differ materially from that expressed in any forward-looking statement: (i) obtaining the necessary regulatory approvals for new hyaluronan and oral restorative products; (ii) the Company’s reliance on corporate partners to develop new products on a timely basis and to market the Company’s existing and new hyaluronan products effectively; (iii) intense competition in the markets for the Company’s principal products; and (iv) the uncertainty associated with the future market status of the Company’s adhesion prevention product. Investors are referred to a more detailed discussion of the risks presented in Exhibit 99.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2004.

2005.

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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES

PART I —– FINANCIAL INFORMATION

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company invests its excess cash in money market mutual funds and highly rated short-term corporate debt securities. All investments are held to maturity. The market risk on such investments is minimal.

Receivables from sales to foreign customers are denominated in U.S. dollars. Transactions at the Company’s foreign subsidiaries are denominated in European Euros at Lifecore Biomedical SpA, and Lifecore Biomedical GmbH and Lifecore Biomedical SAS and are denominated in Swedish Krona at Lifecore Biomedical AB. The Company is exposed to foreign currency exchange rate risk arising from transactions in the normal course of business from sales to its foreign subsidiaries. Because the Company’s products are manufactured or sourced primarily from the United States, a stronger U.S. dollar generally has a negative impact on results from operations outside the United States while a weaker dollar generally has a positive effect. The Company does not use derivative financial instruments to manage foreign currency fluctuation risk.

On August 19, 2004, the Company issued variable rate industrial revenue bonds. The proceeds from these bonds were used to retire the existing 10.25% fixed rate industrial revenue bonds on September 1, 2004. The aggregate principal amount of the new bonds iswas $5,630,000, and the bonds will bear interest at a variable rate set weekly by the bond remarketing agent (2.28%(2.75% as of March 31,September 30, 2005). A ten percent change in this variable rate would result in approximately $12,000$15,000 of additional interest expense annually.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a – 15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.

(b) Changes in internal control over financial reporting.

During the fiscal period covered by this report, there has been no change in the Company’s internal control over financial reporting (as defined in Rule 13a – 15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART II —– OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Lifecore has been named as a defendant in 6775 product liability lawsuits filed by 71 different plaintiffs (four plaintiffs have filed more than one case, and one has nine plaintiffs) alleging that the plaintiffs suffered injuries due to the defective nature of GYNECARE INTERGEL Adhesion Prevention Solution (“INTERGEL Solution”) which was developed, manufactured by Lifecore and marketed by Lifecore. The other defendants in these lawsuits are ETHICON, Inc., which was Lifecore’s exclusive worldwide marketing partner for INTERGEL Solution through its division GYNECARE Worldwide; and Johnson & Johnson, the parent company of ETHICON. Many of the lawsuits also name Vital Pharma, Inc. as a defendant; Vital Pharma acted as the contract packager for the INTERGEL solution. The plaintiffs in these actions are individuals who were patients in medical procedures during which INTERGEL Solution was used and who were allegedly injured due to the defective nature of INTERGEL Solution.
Lifecore hasanticipates that the lawsuit captionedRenee Contratto v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc., which was the first such lawsuit served on Lifecore, will be the first of these lawsuits to go to trial. TheContratto case was filed in U.S. District Court for the Northern District of California and was served on Lifecore on September 15, 2003. As of October 15, 2005, Lifecore had been served in 72 of the following cases75 lawsuits on dates ranging from September 15, 2003 to October 3, 2005. Fifty-eight of these lawsuits were filed in Florida state court. The balance of the lawsuits served on Lifecore have been filed in various states including Connecticut, Kansas, Louisiana, Minnesota, New Jersey, Pennsylvania and Wisconsin.
ETHICON began marketing INTERGEL Solution outside the United States in June 1998 for reducing the incidence of post-surgical adhesions. INTERGEL Solution was approved by the FDA for the U.S. market in November 2001. INTERGEL Solution was voluntarily withdrawn from the market by ETHICON in March 2003 in order to assess information obtained from postmarketing experience with the product, including allegations of adverse events associated with off-label use in non-conservative surgical procedures (such as of April 25, 2005:

1.  Patricia Alleborn, Kathy Camp, Sadie Frye, Diedre Moss, Tamera Olsen, Maria Pelopida, Latrisa Pickett, Mary Pomroy and Stacy Sutton v. Lifecore Biomedical, Inc., Johnson & Johnson; Ethicon, Inc. and Gynecare Worldwide (County of Carver, State of Minnesota); served 4/25/05
2.  Linda Authement v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inchysterectomies). (Florida); served 8/20/04
3.  Pamela Jo Bechtel and Michael R. Bechtel            v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 12/16/04
4.  Michelle Frosh Bernard v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 8/20/04
5.  Susan Bethers v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 11/1/04
6.  Barbara Black v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 8/16/04
7.  Shelly Curtis Brown and Bill Brown v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 3/7/05
8.  Daniell Cahoo v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc.; served 3/28/05
9.  Ashley Carlson v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served (unsure of date served)
10.  Alma Coleman and Bruce Coleman v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 2/1/05
11.  Renee Contratto v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Northern District of California); served 9/15/03
12.  Renee Contratto v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Superior Court of the State of California, County of Alameda); served 2/4/04
13.  Carol Crosley v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 4/4/05
14.  Nancy Susan Drinkwitz v. Lifecore Biomedical, Inc., Johnson & Johnson, Ethicon, Inc. and Gynecare Worldwide (Carver County District Court, State of Minnesota); served 8/20/04
15.  Victoria Lynn Evans-Sands and Wesley A. Sands, Sr. v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 12/21/04

17

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES

PART II — OTHER INFORMATION

16.  April Ferrell and Michael Ferrell, Jr. v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc., (Florida); served 8/20/04
17.  Caroline Glover and Charles Glover v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 3/14/05
18.  Jennifer Golden and Ricky Golden v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 3/7/05
19.  Pamela Gregory and Darrell Gregory v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 8/20/04
20.  Amy Grimm v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 4/4/05
21.  Tammy Hewett v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 2/23/05
22.  Delores Hill v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 3/14/05
23.  Teresa Hoganv. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 11/19/04
24.  Kimberley Jackson and Rufus A. Jackson v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 12/21/04
25.  Susan Kientz v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 2/4/05 (A. Complaint)
26.  Shannon Killebrew, d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 12/21/04
27.  Misty Langfitt v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 11/1/04
28.  Elaine Lavergne and Michael Ray Lavergnev. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 11/18/04
29.  Dionesia Lewis and Daniel Lewis v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 11/18/04
30.  Kristin Manning v. Johnson & Johnson, Ethicon, Inc., d/b/a Gynecare Worldwide and Lifecore Biomedical, Inc. (D. Kansas); served 1/29/04
31.  Karene Sue Marchan and Carlos Marchan v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 12/21/04
32.  Marie McCabe and Scott McCabe v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 10/29/04 (A. Complaint)

18

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES

PART II — OTHER INFORMATION

33.  Antoinette McNeil v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 11/1/04
34.  Janet Meader and Dan Meader v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 12/27/04
35.  Amanda Moloney v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 3/7/05
36.  Lauria Nuccio and Dominic Nuccio Sr. v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 11/1/04
37.  Louise O’Connor and Joseph O’Connor v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 12/21/04
38.  Linda Odem v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 11/18/04
39.  Bonnie Ray O’Neal and Maurice Miller v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 12/21/04
40.  Tammy Philibert and Rudolph Philibert v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida, transferred to Louisiana); served 11/1/04
41.  Melissa Powers v. Gynecare Through Ethicon, Inc., Johnson & Johnson, Lifecore Biomedical, Inc. and George B. Morris, IV, M.D. (Civil District Court for the Parish of Orleans, State of Louisiana); served 6/3/04
42.  Tanya Rengifo and Henry Rengifo v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 12/21/04
43.  Rebecca J. Rezendes v. Lifecore Biomedical, Inc., Johnson &Johnson, Ethicon, Inc. and Gynecare Worldwide; served 6/4/04
44.  Bobbie Jo Ridener and Jeffrey Ridener v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 4/4/05
45.  Olivia Rivers and Joseph Rivers, Jr. v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 4/4/05
46.  Marisol Suarez Saiz and Alejanndo Balmaseda v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 11/4/04
47.  Natalie M. Sanders v. Johnson & Johnson, Inc., Gynecare Worldwide, Ethicon, Inc., and Lifecore Biomedical, Inc. (District of New Jersey); served 5/21/04
48.  Kenna Schaller and Dennis Schaller v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 4/4/05
49.  Dianna Shirley v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 11/4/04

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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES

PART II — OTHER INFORMATION

50.  Monika Shumbo-Poissant v. Lifecore Biomedical, Inc., et al. (Superior Court of Connecticut); served 7/19/04
51.  Siobhan Sprecace and David Sprecace v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 8/20/04
52.  Raven Spurlin and Jimmy Spurlin v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 4/4/05
53.  Heather Strauch v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 11/1/04
54.  Stephanie and Michael Stibor and Wisconsin Physicians Service Insurance Corporation v. Ethicon, Inc., Lifecore Biomedical, Inc. and Krista Jacobson (Wisconsin State Court); served (unsure of date served)
55.  Stephanie Succar v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 11/4/04
56.  Lisa Surbey and Glen C. Surbey and Michael R. Bechtel v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 12/7/04
57.  Joanne Thorpe v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 11/4/04
58.  Charmaine Wickwire and Michael Steven Wickwire, Sr. v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 11/3/04
59.  Chonn Whiting v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 11/19/04
60.  Cathy Whitmore v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 1/14/05
61.  Wendy Wilkerson v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 11/19/04

ETHICON is defending Lifecore in all of these lawsuits. Under the above-listed lawsuits.

terms of Lifecore’s Conveyance, License, Development and Supply Agreement dated August 8, 1994 with ETHICON, ETHICON is obligated to indemnify and hold Lifecore harmless from all claims related to the sale and use of INTERGEL Solution, unless it is ultimately determined that a plaintiff’s injuries were caused by a breach of Lifecore’s limited contractual warranty to ETHICON under that agreement. Lifecore believes that ETHICON will be obligated to fully indemnify Lifecore in connection with all of the pending claims relating to INTERGEL Solution.

Lifecore has also received four claim letters alleging claims similar to the complaints listed above as follows:

1. Heather Dunne, letter dated October 9, 2003

2. Margery LeRoux, letter dated September 9, 2003

3. Kenna Schaller, letter dated July 10, 2003

4. Julia Smith, letter dated May 10, 2004

5. Mrs. Piccinini Chiara, letter dated January 5, 2005

lawsuits. ETHICON is responding to the above-listed claim letters on behalf of Lifecore. In addition to the above-listed claim letters, Lifecore has received a claim letter on behalf of Melody Whitfield, dated October 2, 2003, relating to injuries unrelated to INTERGEL Solution suffered in a second-look surgery as part of a clinical trial. Whitfield is seeking $195,000 in damages. Lifecore has not received any response to its letter dated February 19, 2004 disputing her claim. ETHICON has denied Lifecore’s tender of defense of Whitfield’s claim.

20

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES

PART II —– OTHER INFORMATION

ITEM 6. EXHIBITS

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 for the quarter ended December 31, 1987), as amended by Amendment No. 2 (incorporated by reference to Exhibit 3.1 to Form 10-K for the year ended June 30, 1997)
 
3.2 Amended Bylaws (incorporated by reference to Exhibit 3.2 to Form 10-K/A for the year ended June 30, 1995)
 
  3.34.1Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to 1987 S-2 Registration Statement [File No. 33-12970])
4.2 Form of Rights Agreement, dated as of May 23, 1996, between the Company and Norwest Bank Minnesota, National Association (incorporated by reference to Exhibit 1 to the Company’s Form 8-A Registration Statement dated May 31, 1996)
 
  4.1  31.1Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to 1987 S-2 Registration Statement [File No. 33-12970])
10.1  Noncompetition and Nonsolicitation Agreement, dated January 7, 2005, between the Company and Kipling Thacker, Ph.D. (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2004)
31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
32.1 Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
32.2 Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

21

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.
 
 By:
 
Dated: MayNovember 9, 2005 /s/ Dennis J. Allingham
  
 Dennis J. Allingham
 President, Chief Executive Officer, Secretary and Director
 (duly authorized officer)
   
Dated: MayNovember 9, 2005 /s/ David M. Noel
  
 David M. Noel
 Vice President of Finance and Chief Financial Officer
 (principal financial and accounting officer)

22

Exhibit Index

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 for the quarter ended December 31, 1987), as amended by Amendment No. 2 (incorporated by reference to Exhibit 3.1 to Form 10-K for the year ended June 30, 1997)
 
3.2 Amended Bylaws (incorporated by reference to Exhibit 3.2 to Form 10-K/A for the year ended June 30, 1995)
 
  3.34.1Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to 1987 S-2 Registration Statement [File No. 33-12970])
4.2 Form of Rights Agreement, dated as of May 23, 1996, between the Company and Norwest Bank Minnesota, National Association (incorporated by reference to Exhibit 1 to the Company’s Form 8-A Registration Statement dated May 31, 1996)
 
  4.1  31.1Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to 1987 S-2 Registration Statement [File No. 33-12970])
10.1  Noncompetition and Nonsolicitation Agreement, dated January 7, 2005, between the Company and Kipling Thacker, Ph.D. (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2004)
31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
32.1 Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
32.2 Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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