LIFECORE BIOMEDICAL, INC. (Nasdaq:LCBM) today reported net sales of $15.0 million in the first quarter ended September 30, 2006, an increase of 12 percent over net sales of $13.4 million in the first quarter of fiscal year 2006.

Net income of $1,139,000, or $.08 per diluted share, was posted for the quarter compared to net income of $1,045,000, or $.08 per diluted share, in the quarter ended September 30, 2005. First quarter results include expenses for stock options in the amount of $313,000 and $190,000 for fiscal 2007 and 2006, respectively. Income tax expense of $713,000 at an effective rate of 38.5% was recorded in the first quarter compared to $563,000 at an effective rate of 35% in the quarter a year ago.

?We are satisfied with the first quarter results,? said Dennis J. Allingham, President and CEO. ?Sales and profits for the quarter were in-line with our guidance.?

The Company reported a cash and cash equivalents balance of $28.1 million at September 30, 2006. Cash effects associated with the income tax expenses reflected in the first quarter operating results were minimal due to the utilization of the Company's net operating loss carry forwards.

Hyaluronan Division

Net sales from the Hyaluronan Division for the first quarter were $4.8 million, a slight increase from the $4.7 million reported in the same quarter last year.

The Division reported operating income of $996,000 in the first quarter compared to operating income of $1,138,000 in the first quarter of fiscal year 2006. The decline resulted from additional costs associated with product development and increased stock option expense.

?Sales in the orthopedic segment and revenues from product development accounted for the increase,? said Dennis J. Allingham, President & CEO. ?We continue to focus our development efforts on opportunities for existing business segments as well as new ones, including the aesthetic market.?

Dental Division

Net sales from the Dental Division for the first quarter were $10.2 million, an increase of 17% from the $8.8 million recorded in the first quarter last year. Domestic sales grew 16% for the quarter. International sales growth improved for the quarter at 18%.

The Division reported operating income of $510,000 for the first quarter compared to operating income of $429,000 in the first quarter of fiscal year 2006.

?Sales of the Prima? Implant System continued to drive domestic sales growth,? said Dennis J. Allingham, President & CEO. ?We were pleased to see that actions taken over the past two quarters were effective with the improved rate of international sales growth.?

Outlook

In-line with the first quarter guidance and subsequent performance the Company is maintaining its fiscal year guidance. The Company expects fiscal year 2007 sales of $70 to $72 million, an increase of 11 to 14 percent over fiscal year 2006. Net income is expected to increase 19 to 27 percent with earnings per share of $.61 to $.65 per diluted share.

The Company expects sales of $16.6 to $17.0 million in the second quarter of fiscal year 2007 with earnings per diluted share of $.10 to $.12.

The Company added, factored into this guidance are expected second quarter sales decreases or delays with two hyaluronan products. They cited delays in OUS regulatory approval for their orthopedic viscosupplement, Ortholure?, and a distributor in France discontinuing orders for a private label ophthalmic viscoelastic due to competitive market conditions.

The Company expects second quarter growth to be driven by the Dental business and indicated that the domestic sales force expansion has been completed.

Conference Call

As previously announced, the Company will host a conference call today at 3:45 p.m. Central Time to discuss first quarter results. A live web cast of the call is available through the Company's website at www.lifecore.com. After selecting the INVESTOR INFO tab, select CALENDAR OF EVENTS from the INVESTOR INFO & RESEARCH menu at the right side of the page and follow the instructions for participation. A replay of the web cast will be available shortly after completion of the call. To select the archived replay, select AUDIO ARCHIVES from the INVESTOR INFO & RESEARCH tools menu at the right side of the screen. The conference call will also be available at www.earnings.com.

The conference call may include forward-looking statements. See the cautionary information about such statements in the ?Safe-Harbor Statement? section below.

Safe-Harbor Statement

Certain statements in this release regarding Lifecore's anticipated future sales and financial results are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Numerous risks and uncertainties may affect whether such results are actually achieved. These include the timing of orders from customers, continued market acceptance of the Company's products, rate of sales force expansion, timing of regulatory approvals, success of new product development efforts, the likelihood and timing of the return of the Company's adhesion prevention product to the market, and other factors. These risks and uncertainties are more fully described in the Company's Annual Report on Form 10-K for the fiscal year ending June 30, 2006, and other, more recent filings. Actual results may differ materially from anticipated results.

About Lifecore Biomedical

Lifecore Biomedical develops, manufactures, and markets biomaterials and medical devices for use in various surgical markets.

News and general information are available through the Company's website at www.lifecore.com or by telephone at 952-368-4300.

Lifecore Biomedical, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)

September 30,

June 30,

2006  2006 
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 28,110,000  $ 26,638,000 
Accounts receivable 12,065,000  12,564,000 
Inventories 12,912,000  12,217,000 
Deferred income taxes, net 5,640,000  4,865,000 
Prepaid expense 1,154,000  1,084,000 
Total current assets 59,881,000  57,368,000 
 
PROPERTY, PLANT AND EQUIPMENT, NET 23,037,000  23,250,000 
 
LONG-TERM INVENTORY 1,315,000  1,406,000 
DEFERRED INCOME TAXES, NET 354,000  1,694,000 
OTHER ASSETS 5,481,000  5,520,000 
$ 90,068,000  $ 89,238,000 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 6,010,000  $ 6,898,000 
Long-term obligations 4,734,000  4,804,000 
Shareholders' equity 79,324,000  77,536,000 
$ 90,068,000  $ 89,238,000 
Lifecore Biomedical, Inc.
Consolidated Statements of Earnings
(Unaudited)
 

Three Months Ended

September 30,

2006  2005 
 
Net sales $ 15,010,000  $ 13,425,000 
Cost of goods sold 5,572,000  5,074,000 
Gross profit 9,438,000  8,351,000 
 
Operating expenses
Research and development 1,096,000  1,014,000 
Marketing and sales 4,912,000  4,064,000 
General and administrative 1,924,000  1,706,000 
7,932,000  6,784,000 
 
Operating income 1,506,000  1,567,000 
 
Other income (expense)
Interest income 331,000  135,000 
Interest expense (64,000) (56,000)
Currency transaction gains (losses) 73,000  (24,000)
Other 6,000  (14,000)
346,000  41,000 
 
Income before income taxes 1,852,000  1,608,000 
 
Income tax expense 713,000  563,000 
 
Net Income $ 1,139,000  $ 1,045,000 
 
Net income per share
Basic $ 0.09  $ 0.08 
Diluted $ 0.08  $ 0.08 
 
Weighted average shares outstanding
Basic 13,223,448  13,059,567 
Diluted 13,672,260  13,460,056 

Lifecore Biomedical, Inc.
Divisional Statements of Earnings
Three Months Ended September 30,
(Unaudited)
 
Hyaluronan Division Dental Division Consolidated
 
2006  2005  2006  2005  2006  2005 
 
Net sales $ 4,779,000  $ 4,661,000  $10,231,000  $ 8,764,000  $15,010,000  $13,425,000 
Cost of goods sold 2,122,000  2,059,000  3,450,000  3,015,000  5,572,000  5,074,000 
Gross profit 2,657,000  2,602,000  6,781,000  5,749,000  9,438,000  8,351,000 
 
Operating expenses
Research and development 716,000  620,000  380,000  394,000  1,096,000  1,014,000 
Marketing and sales 196,000  183,000  4,716,000  3,881,000  4,912,000  4,064,000 
General and administrative 749,000  661,000  1,175,000  1,045,000  1,924,000  1,706,000 
1,661,000  1,464,000  6,271,000  5,320,000  7,932,000  6,784,000 
 
Operating income $ 996,000  $ 1,138,000  $ 510,000  $ 429,000  $ 1,506,000  $ 1,567,000