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

X IN BALLOT BOX Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period endedDecember 31, 2001

OPEN BALLOT BOX Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from __________to __________

Commission File Number O-4136

Lifecore Biomedical, Inc.

|                                |  |                    
|------------------------------- |  | -------------------
|Minnesota                       |  | 41-0948334         
|                                |  |                    
|(State or other jurisdiction of |  | (IRS Employer      
|incorporation or organization)  |  | Identification No.)
|                               
|3515 Lyman Boulevard            |  |                    
|                               
|Chaska, Minnesota               |  | 55318              
|                                |  |                    
|(Address of principal executive |  | (Zip Code)         
|offices)                        |  |                    

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

Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.

|    |                 |    |                 | 
|--- | --------------- | -- | --------------- | 
|Yes | X IN BALLOT BOX | No | OPEN BALLOT BOX
|    |                 |    |                 | 

The number of shares outstanding of the registrants Common Stock, $.01 par
value, as of January 24, 2002 was 12,810,142 shares.





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TABLE OF CONTENTS



|                                            |                                                                                               |                                                                                                                   |  |  |  |  |  | 
|------------------------------------------- | --------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------- |  |  |  |  |  | 
|Part I Financial Information               
|                                            | Item 1. Financial Statements                                                                 
|                                            |                                                                                               | Condensed Consolidated Balance Sheets at December 31, 2001 and June 30, 2001                                     
|                                            |                                                                                               | Condensed Consolidated Statements of Operations for Three Months and Six Months Ended Decenmber 31, 2001 and 2000
|                                            |                                                                                               | Condensed Consolidated Statements of Cash Flows for Six Months Ended December 31, 2001 and 2000                  
|                                            |                                                                                               | Notes to Condensed Consolidated Financial Statements                                                             
|                                            | Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition
|                                            | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|Part II Other Information                  
|                                            | Item 2. Changes in Securities and Use of Proceeds                                            
|                                            | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                                            | Item 6. a. Exhibit Index                                                                     
|                                            | b. Reports on Form 8-K                                                                       
|Signatures                                 
|Amendment #4 to Credit & Security Agreement



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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

|           |  |                                                                                                                  |  |      
|---------- |  | ---------------------------------------------------------------------------------------------------------------- |  | -----
|           |  |                                                                                                                  |  | Page 
|           |  |                                                                                                                  |  |      
|Part I     |  | Financial Information                                                                                            |  |      
|          
|Item 1.    |  | Financial Statements                                                                                             |  |      
|          
|           |  | Condensed Consolidated Balance Sheets at
December 31, 2001 and June 30, 2001                                     |  | 3    
|          
|           |  | Condensed Consolidated Statements of Operations for Three
Months and Six Months Ended December 31, 2001 and 2000 |  | 4    
|          
|           |  | Condensed Consolidated Statements of Cash Flows for
Six Months Ended December 31, 2001 and 2000                  |  | 5    
|          
|           |  | Notes to Condensed Consolidated Financial Statements                                                             |  | 6-10 
|          
|Item 2.    |  | Managements Discussion and Analysis of Results of
Operations and Financial Condition                            |  | 11-14
|          
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                       |  | 15   
|          
|Part II    |  | Other Information                                                                                                |  |      
|          
|Item 2.    |  | Changes in Securities and Use of Proceeds                                                                        |  | 16   
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                              |  | 16   
|Item 6.    |  | a.    Exhibit Index                                                                                              |  | 16   
|           |  | b.    Reports on Form 8-K                                                                                        |  | 16   
|          
|Signatures |  |                                                                                                                  |  | 17   

2



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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

|                                     |                                             |   |              |             |   |          |            |             |  
|------------------------------------ | ------------------------------------------- | - | ------------ | ----------- | - | -------- | ---------- | ----------- | -
|                                     |                                             |   | December 31, |             |   | June 30, |           
|                                     |                                             |   | 2001         |             |   | 2001     |           
|                                     |                                             |   |              |             |   |          |           
|ASSETS                               |                                             |   |              |             |   |          |            |            
|Current assets                       |                                             |   |              |             |   |          |            |            
|                                     | Cash and cash equivalents                   |   | $            | 895,000     |   |          | $          | 2,310,000   |  
|                                     | Accounts receivable                         |   |              | 6,572,000   |   |          |            | 6,923,000   |  
|                                     | Inventories                                 |   |              | 11,164,000  |   |          |            | 8,693,000   |  
|                                     | Prepaid expenses                            |   |              | 866,000     |   |          |            | 675,000     |  
|                                     |                                             |   |              |             |   |         
|                                     |                                             |   | 19,497,000   |             |   |          | 18,601,000 |            
|                                    
|Property, plant and equipment        |                                             |   |              |             |   |          |            |            
|                                     | Land, building and equipment                |   |              | 43,373,000  |   |          |            | 43,027,000  |  
|                                     | Less accumulated depreciation               |   |              | (15,928,000 | ) |          |            | (14,590,000 | )
|                                     |                                             |   |              |             |   |         
|                                     |                                             |   | 27,445,000   |             |   |          | 28,437,000 |            
|                                    
|Other assets                         |                                             |   |              |             |   |          |            |            
|                                     | Goodwill                                    |   |              | 4,472,000   |   |          |            | 4,213,000   |  
|                                     | Acquired intangible assets                  |   |              | 541,000     |   |          |            | 614,000     |  
|                                     | Security deposits                           |   |              | 873,000     |   |          |            | 854,000     |  
|                                     | Inventories                                 |   |              | 5,587,000   |   |          |            | 9,368,000   |  
|                                     | Other                                       |   |              | 994,000     |   |          |            | 609,000     |  
|                                     |                                             |   |              |             |   |         
|                                     |                                             |   | 12,467,000   |             |   |          | 15,658,000 |            
|                                     |                                             |   |              |             |   |         
|                                     |                                             | $ | 59,409,000   |             |   | $        | 62,696,000 |            
|                                     |                                             |   |              |             |   |         
|                                    
|LIABILITIES AND SHAREHOLDERS EQUITY |                                             |   |              |             |   |          |            |            
|                                    
|Current liabilities                  |                                             |   |              |             |   |          |            |            
|                                     | Current maturities of long-term obligations |   | $            | 222,000     |   |          | $          | 227,000     |  
|                                     | Accounts payable                            |   |              | 2,635,000   |   |          |            | 3,057,000   |  
|                                     | Accrued compensation                        |   |              | 925,000     |   |          |            | 796,000     |  
|                                     | Accrued expenses                            |   |              | 585,000     |   |          |            | 311,000     |  
|                                     |                                             |   |              |             |   |         
|                                     |                                             |   | 4,367,000    |             |   |          | 4,391,000  |            
|                                    
|Long-term obligations                |                                             |   | 6,189,000    |             |   |          | 6,249,000  |            
|Shareholders equity                 |                                             |   | 48,853,000   |             |   |          | 52,056,000 |            
|                                     |                                             |   |              |             |   |         
|                                     |                                             | $ | 59,409,000   |             |   | $        | 62,696,000 |            
|                                     |                                             |   |              |             |   |         

See accompanying notes to condensed consolidated financial statements.

3



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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (continued)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

|                                    |                            |   |                                 |            |   |                               |           |            |      |   |            |            |   |   |            |            |  
|----------------------------------- | -------------------------- | - | ------------------------------- | ---------- | - | ----------------------------- | --------- | ---------- | ---- | - | ---------- | ---------- | - | - | ---------- | ---------- | -
|                                    |                            |   | Three months ended December 31, |            |   | Six months ended December 31, |          
|                                    |                            |   |                                 |            |   |                               |          
|                                    |                            |   | 2001                            |            |   | 2000                          |           |            | 2001 |   |            | 2000       |  
|                                    |                            |   |                                 |            |   |                               |           |            |      |   |            |            |  
|Net sales                           |                            | $ | 8,584,000                       |            |   | $                             | 8,717,000 |            |      | $ | 16,818,000 |            |   | $ | 16,613,000 |           
|Cost of goods sold                  |                            |   | 5,323,000                       |            |   |                               | 4,708,000 |            |      |   | 10,258,000 |            |   |   | 8,876,000  |           
|                                    |                            |   |                                 |            |   |                               |           |            |      |   |            |           
|Gross profit                        |                            |   | 3,261,000                       |            |   |                               | 4,009,000 |            |      |   | 6,560,000  |            |   |   | 7,737,000  |           
|                                   
|Operating expenses                  |                            |   |                                 |            |   |                               |           |            |      |   |            |            |   |   |            |           
|                                    | Research and development   |   |                                 | 1,127,000  |   |                               |           | 952,000    |      |   |            | 2,763,000  |   |   |            | 1,894,000  |  
|                                    | Marketing and sales        |   |                                 | 2,691,000  |   |                               |           | 2,279,000  |      |   |            | 5,135,000  |   |   |            | 4,362,000  |  
|                                    | General and administrative |   |                                 | 1,303,000  |   |                               |           | 1,144,000  |      |   |            | 2,349,000  |   |   |            | 2,246,000  |  
|                                    |                            |   |                                 |            |   |                               |           |            |      |   |            |           
|                                    |                            |   | 5,121,000                       |            |   |                               | 4,375,000 |            |      |   | 10,247,000 |            |   |   | 8,502,000  |           
|                                    |                            |   |                                 |            |   |                               |           |            |      |   |            |           
|                                   
|Operating loss                      |                            |   | (1,860,000                      | )          |   |                               | (366,000  | )          |      |   | (3,687,000 | )          |   |   | (765,000   | )         
|                                   
|Other income (expense)              |                            |   |                                 |            |   |                               |           |            |      |   |            |            |   |   |            |           
|                                    | Interest income            |   |                                 | 10,000     |   |                               |           | 65,000     |      |   |            | 78,000     |   |   |            | 128,000    |  
|                                    | Interest expense           |   |                                 | (223,000   | ) |                               |           | (234,000   | )    |   |            | (393,000   | ) |   |            | (450,000   | )
|                                    | Other                      |   |                                 | (7,000     | ) |                               |           | (26,000    | )    |   |            | (10,000    | ) |   |            | (80,000    | )
|                                    |                            |   |                                 |            |   |                               |           |            |      |   |            |           
|                                    |                            |   | (220,000                        | )          |   |                               | (195,000  | )          |      |   | (325,000   | )          |   |   | (402,000   | )         
|                                    |                            |   |                                 |            |   |                               |           |            |      |   |            |           
|                                   
|Net loss                            |                            | $ | (2,080,000                      | )          |   | $                             | (561,000  | )          |      | $ | (4,012,000 | )          |   | $ | (1,167,000 | )         
|                                    |                            |   |                                 |            |   |                               |           |            |      |   |            |           
|                                   
|Net loss per share                  |                            |   |                                 |            |   |                               |           |            |      |   |            |            |   |   |            |           
|                                    | Basic                      |   | $                               | (.16       | ) |                               | $         | (.04       | )    |   | $          | (.31       | ) |   | $          | (.09       | )
|                                    |                            |   |                                 |            |   |                               |           |            |      |   |            |           
|                                    | Diluted                    |   | $                               | (.16       | ) |                               | $         | (.04       | )    |   | $          | (.31       | ) |   | $          | (.09       | )
|                                    |                            |   |                                 |            |   |                               |           |            |      |   |            |           
|                                   
|Weighted average
shares outstanding |                            |   |                                 |            |   |                               |           |            |      |   |            |            |   |   |            |           
|                                    | Basic                      |   |                                 | 12,785,099 |   |                               |           | 12,622,249 |      |   |            | 12,766,358 |   |   |            | 12,616,874 |  
|                                    |                            |   |                                 |            |   |                               |           |            |      |   |            |           
|                                    | Diluted                    |   |                                 | 12,785,099 |   |                               |           | 12,622,249 |      |   |            | 12,766,358 |   |   |            | 12,616,874 |  
|                                    |                            |   |                                 |            |   |                               |           |            |      |   |            |           

See accompanying notes to condensed consolidated financial statements.

4



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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (continued)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

|                                                                                            |                     |                              |                                            |           |   |                  |            |            |      |          |         | 
|------------------------------------------------------------------------------------------- | ------------------- | ---------------------------- | ------------------------------------------ | --------- | - | ---------------- | ---------- | ---------- | ---- | -------- | ------- | 
|                                                                                            |                     |                              |                                            |           |   | Six months ended |           
|                                                                                            |                     |                              |                                            |           |   | December 31,     |           
|                                                                                            |                     |                              |                                            |           |   |                  |           
|                                                                                            |                     |                              |                                            |           |   | 2001             |            |            | 2000 |         
|                                                                                            |                     |                              |                                            |           |   |                  |            |            |      |         
|Cash flows from operating activities:                                                       |                     |                              |                                            |           |   |                  |            |           
|Net loss                                                                                    |                     | $                            | (4,012,000                                 | )         |   | $                | (1,167,000 | )         
|Adjustments to reconcile net loss to net cash provided
from (used in) operating activities: |                     |                              |                                            |           |   |                  |            |           
|Depreciation
and amortization                                                               |                     |                              | 1,505,000                                  |           |   |                  | 1,662,000  |           
|Allowance for doubtful accounts                                                             |                     |                              | 128,000                                    |           |   |                  | 5,000      |           
|Changes in operating assets and liabilities                                                 |                     |                              |                                            |           |   |                  |            |           
|                                                                                            | Accounts receivable |                              |                                            | 223,000   |   |                  |            | (1,031,000 | )   
|                                                                                            | Inventories         |                              |                                            | 1,310,000 |   |                  |            | 2,294,000  |     
|                                                                                            | Prepaid expenses    |                              |                                            | (191,000  | ) |                  |            | (27,000    | )   
|                                                                                            | Accounts payable    |                              |                                            | (422,000  | ) |                  |            | (809,000   | )   
|                                                                                            | Accrued liabilities |                              |                                            | 403,000   |   |                  |            | (51,000    | )   
|                                                                                            | Customers deposits |                              |                                            |          |   |                  |            | (302,000   | )   
|                                                                                            |                     |                              |                                            |           |   |                 
|Net cash provided from (used in) operating activities                                       |                     |                              | (1,056,000                                 | )         |   |                  | 574,000    |           
|                                                                                           
|Cash flows from investing activities:                                                       |                     |                              |                                            |           |   |                  |            |           
|                                                                                            |                     |                              | Purchases of property, plant and equipment |           |   | (346,000         | )          |            |      | (411,000 | )      
|                                                                                            |                     |                              | Purchases of intangibles                   |           |   | (60,000          | )          |            |      | (21,000  | )      
|                                                                                            |                     |                              | Other                                      |           |   | (152,000         | )          |            |      | 7,000    |        
|                                                                                            |                     |                              |                                            |           |   |                 
|Net cash used in investing activities                                                       |                     |                              | (558,000                                   | )         |   |                  | (425,000   | )         
|                                                                                           
|Cash flows from financing activities:                                                       |                     |                              |                                            |           |   |                  |            |           
|                                                                                            |                     |                              | Payment of long-term obligations           |           |   | (65,000          | )          |            |      | (76,000  | )      
|                                                                                            |                     |                              | Proceeds from stock issuance               |           |   | 264,000          |            |            |      | 71,000   |        
|                                                                                            |                     |                              |                                            |           |   |                 
|Net cash provided from (used in) financing activities                                       |                     |                              | 199,000                                    |           |   |                  | (5,000     | )         
|                                                                                            |                     |                              |                                            |           |   |                 
|                                                                                           
|Net increase (decrease) in cash and cash equivalents                                        |                     |                              | (1,415,000                                 | )         |   |                  | 144,000    |           
|Cash and cash equivalents at beginning of period                                            |                     |                              | 2,310,000                                  |           |   |                  | 1,101,000  |           
|                                                                                            |                     |                              |                                            |           |   |                 
|                                                                                           
|Cash and cash equivalents at end of period                                                  |                     | $                            | 895,000                                    |           |   | $                | 1,245,000  |           
|                                                                                            |                     |                              |                                            |           |   |                 
|Supplemental disclosure of cash flow information:                                           |                     |                              |                                            |           |   |                  |            |           
|                                                                                            |                     | Cash paid during the
period: |                                            |           |   |                  |            |            |      |         
|                                                                                            |                     |                              |                                            | Interest  |   | $                | 336,000    |            |      | $        | 419,000 | 

See accompanying notes to condensed consolidated financial statements.

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##### Table of Contents






LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2001

NOTE A  FINANCIAL INFORMATION

Lifecore Biomedical, Inc. (the Company) develops, manufactures and markets
biomaterials and medical devices for use in various surgical markets through two
divisions, the Hyaluronan Division and the Oral Restorative Division. The
Companys manufacturing facility is located in Chaska, Minnesota. The Hyaluronan
Division conducts its business through OEM and contract manufacturing alliances
in the fields of gynecological surgery, ophthalmology, veterinary, and wound
management. The Oral Restorative Division conducts its business through direct
sales and marketing in the United States, Germany, Italy and Sweden and through
22 distributors in 35 foreign countries.

The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with Regulation S-X pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted pursuant to such rules and regulations, although
management believes that the disclosures are adequate to make the information
presented not misleading.

In the opinion of management, the unaudited consolidated condensed financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of December
31, 2001, and the results of operations for the three and six month periods
ended December 31, 2001 and 2000 and cash flows for the six month periods ended
December 31, 2001 and 2000. The results of operations for the six months ended
December 31, 2001 are not necessarily indicative of the results for the full
year or of the results for any future periods. The unaudited consolidated
condensed balance sheet as of June 30, 2001 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. 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 not expected to be consumed within one year are classified
as a long-term asset. Finished good inventories include hyaluronan, packaged
aseptic and oral restorative products. Inventories consist of the following:

|                 |  |              |            |  |          |   |            | 
|---------------- |  | ------------ | ---------- |  | -------- | - | ---------- | 
|                 |  | December 31, |            |  | June 30, |  
|                 |  | 2001         |            |  | 2001     |  
|                 |  |              |            |  |          |  
|                 |  | (Unaudited)  |           
|Raw materials    |  | $            | 3,433,000  |  |          | $ | 3,150,000  | 
|Work in progress |  |              | 348,000    |  |          |   | 358,000    | 
|Finished goods   |  |              | 12,970,000 |  |          |   | 14,553,000 | 
|                 |  |              |            |  |          |  
|                 |  | $            | 16,751,000 |  |          | $ | 18,061,000 | 
|                 |  |              |            |  |          |  

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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2001

NOTE C  GOODWILL AND INTANGIBLE ASSETS

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) 141, Business Combinations, and SFAS
142, Goodwill and Other Intangible Assets. SFAS 141 is effective for all
business combinations completed after June 30, 2001. SFAS 142 is effective for
fiscal years beginning after December 15, 2001; however, certain provisions of
this Statement apply to goodwill and other intangible assets acquired between
July 1, 2001 and the effective date of SFAS 142. Earlier adoption of SFAS 142 is
permitted, and the Company has elected to adopt the provisions of SFAS 142 as of
July 1, 2001. Major provisions of these Statements and their effective dates for
the Company are as follows:



| |  | intangible assets acquired in a business combination must be recorded
separately from goodwill if they arise from contractual or other legal
rights or are separable from the acquired entity and can be sold,
transferred, licensed, rented or exchanged, either individually or as part
of a related contract, asset or liability;
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | goodwill, as well as intangible assets with indefinite lives, acquired
after June 30, 2001, will not be amortized. Effective July 1, 2001, all of
the Companys previously recognized goodwill and intangible assets with
indefinite lives are no longer amortized;                                                                 
| 
| |  | effective July 1, 2001, goodwill and intangible assets with indefinite
lives will be tested for impairment annually and whenever there is an
impairment indicated, an impairment loss will be recognized;                                                                                                                           
| 
| |  | all acquired goodwill must be assigned to reporting units for purposes of impairment testing and segment
reporting.                                                                                                                                                                                                                 

The Company has completed a transitional fair value based impairment test of
goodwill as of July 1, 2001 and December 31, 2001. The fair value was estimated
using the expected present value of future cash flows. The changes in the
carrying amount of goodwill (all related to the Oral Restorative Division) for
the quarter and six month period ended December 31, 2001, are as follows:

|                                |  |                |           |   |                |   |           |  
|------------------------------- |  | -------------- | --------- | - | -------------- | - | --------- | -
|                                |  | Three months   |           |   | Six months     |  
|                                |  | ended December |           |   | ended December |  
|                                |  | 31, 2001       |           |   | 31, 2001       |  
|                                |  |                |           |   |                |  
|Balance at beginning of period  |  | $              | 4,512,000 |   |                | $ | 4,213,000 |  
|Goodwill acquired during period |  |                |          |   |                |   | 339,000   |  
|Impairment loss                 |  |                | (40,000   | ) |                |   | (80,000   | )
|                                |  |                |           |   |                |  
|Balance at end of period        |  | $              | 4,472,000 |   |                | $ | 4,472,000 |  
|                                |  |                |           |   |                |  

The acquired goodwill during the period resulted from the acquisition of 100% of
Lifecore AB in Sweden. This acquisition is not considered material to the
financial statements as a whole and does not meet the threshold for significant
subsidiary under Regulation S-X. As a result, no historical or proforma
financial statements for the acquisition are required. The impairment loss on
previously acquired goodwill is not material to the financial statements as a
whole and, accordingly, has been included in the operating loss for the quarter
and six-month periods ended December 31, 2001.

7



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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2001

NOTE C  GOODWILL AND INTANGIBLE ASSETS  continued

The following table presents a reconciliation of net loss and net loss per share
amounts, as reported in the financial statements, to those amounts adjusted for
goodwill amortization determined in accordance with the provisions of SFAS 142.

|                                     |                       |   |                               |      |   |      |            |      |  
|------------------------------------ | --------------------- | - | ----------------------------- | ---- | - | ---- | ---------- | ---- | -
|                                     |                       |   | Six months ended December 31, |     
|                                     |                       |   |                               |     
|                                     |                       |   | 2001                          |      |   | 2000 |           
|                                     |                       |   |                               |      |   |      |           
|Reported net loss                    |                       | $ | (4,012,000                    | )    |   | $    | (1,167,000 | )   
|Add back: goodwill amortization      |                       |   |                              |      |   |      | 262,000    |     
|                                     |                       |   |                               |      |   |     
|Adjusted net loss                    |                       | $ | (4,012,000                    | )    |   | $    | (905,000   | )   
|                                     |                       |   |                               |      |   |     
|Basic and diluted net loss per share |                       |   |                               |      |   |      |            |     
|                                     | Reported net loss     |   | $                             | (.31 | ) |      | $          | (.09 | )
|                                     | Goodwill amortization |   |                               |     |   |      |            | .02  |  
|                                     |                       |   |                               |      |   |     
|                                     | Adjusted net loss     |   | $                             | (.31 | ) |      | $          | (.07 | )
|                                     |                       |   |                               |      |   |     

Acquired intangible assets of the Company that have been determined to have a
definite life and continue to be amortized as of December 31, 2001 are as
follows:

|                            |                        |       |   |                |           |  |              |          |          |  
|--------------------------- | ---------------------- | ----- | - | -------------- | --------- |  | ------------ | -------- | -------- | -
|                            |                        |       |   | Gross Carrying |           |  | Accumulated  |         
|                            |                        |       |   | Amount         |           |  | Amortization |         
|                            |                        |       |   |                |           |  |              |         
|Amortized intangible assets |                        |       |   |                |           |  |              |         
|                            | Customer list          |       | $ | 726,000        |           |  | $            | (399,000 | )       
|                            | Patents and trademarks |       |   | 387,000        |           |  |              | (173,000 | )       
|                            |                        |       |   |                |           | 
|                            |                        | Total |   | $              | 1,113,000 |  |              | $        | (572,000 | )
|                            |                        |       |   |                |           | 

The aggregate amortization expense for the six months ended December 31, 2001
was $84,000. The estimated amortization expense for the years ended June 30,
2002 through 2006 is as follows:

|     |  |                |         | 
|---- |  | -------------- | ------- | 
|     |  | For the years  |        
|     |  | ended June 30, |        
|     |  |                |        
|2002 |  | $              | 167,000 | 
|2003 |  |                | 167,000 | 
|2004 |  |                | 130,000 | 
|2005 |  |                | 22,000  | 
|2006 |  |                | 22,000  | 

8



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##### Table of Contents



LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2001

NOTE D  AGREEMENTS

The Company and ETHICON, INC., a Johnson & Johnson Company (ETHICON), have
entered into a Conveyance, License, Development and Supply Agreement (the
ETHICON Agreement). Under the terms of the ETHICON Agreement, ETHICON
transferred to the Company its ownership in certain technology related to
research and development previously conducted on the Companys sodium hyaluronan
material. The technology transferred to the Company includes written technical
documents related to ETHICONs research and development of a product based upon
technology for the ionic crosslinking of hyaluronan to inhibit the formation of
postsurgical adhesions. These documents include product specifications, methods
and techniques, technology, know-how and certain patent applications. The
Company has assumed responsibility for continuing the anti-adhesion development
project including conducting human clinical trials on a product based upon the
ferric hyaluronan technology called GYNECARE INTERGEL Adhesion Prevention
Solution. The Company has granted ETHICON exclusive worldwide marketing rights
through 2008 to the products developed by the Company within defined fields of
use.

The Company has made a significant investment in the development and testing of
GYNECARE INTERGEL Solution. The product PMA has been reviewed by the FDAs
Medical Devices Dispute Resolution Panel (MDDRP) which recommended its approval.
The Director for FDAs Center for Devices and Radiological Health has concurred
with the MDDRP recommendation. The Company has received final approval to market
the product in the United States. U.S. sales of INTERGEL Solution are expected
to commence in the third quarter of fiscal 2002. However, there can be no
assurance that this product will receive market acceptance. Failure to achieve
significant sales of the product could have a material adverse effect on future
prospects for the Companys operations.

NOTE E  LINE OF CREDIT

The Company has an agreement with a bank for a $5,000,000 line of credit. The
agreement allows for advances against eligible accounts receivable and
inventories, subject to a borrowing base certificate. Interest is accrued at the
prime rate plus 1% at December 31, 2001, which was 5.75% and at the prime rate
at June 30, 2001, which was 6.75%. The agreement, as amended, has a maturity
date of December 31, 2002. At December 31, 2001 and June 30, 2001, there were no
balances outstanding under this line of credit. The terms of the agreement
require the Company to comply with various financial covenants including minimum
tangible net worth, capital expenditure limitations, liabilities to tangible net
worth ratio, minimum EBITDA and minimum working capital targets. At December 31,
2001 and June 30, 2001, the Company was in compliance with all covenants.

9



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##### Table of Contents



LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2001

NOTE F  NET LOSS PER SHARE

The Companys basic net loss per share amounts have been computed by dividing
net loss by the weighted average number of outstanding common shares. The
Companys diluted net loss per share is computed by dividing net loss by the
weighted average number of outstanding common shares and common share
equivalents relating to stock options, when dilutive. For the three months ended
December 31, 2001 and 2000 and the six months ended December 31, 2001 and 2000,
the Company reported a net loss and as such, no common share equivalents were
included in the computation of diluted net loss per share. However, if the
Company would have reported net income in the three months ended December 31,
2001 and 2000 and the six months ended December 31, 2001 and 2000, 470,893,
13,951, 247,742, and 21,067 common share equivalents would have been included in
the computation of diluted net income per share, respectively.

Options to purchase 901,700 and 613,450 shares of common stock with a weighted
average exercise price of $14.28 and $16.21 for the three-month and six-month
periods ended December 31, 2001 and options to purchase 2,660,390 and 2,694,265
shares of common stock with a weighted average exercise price of $12.85 and
$12.77 for the three-month and six-month periods ended December 31, 2000,
respectively, were outstanding but were not included in the calculation of
diluted net loss 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s calculations.

NOTE G  SEGMENT INFORMATION

The Company operates two business segments. The Hyaluronan Division develops,
manufactures, and markets products containing hyaluronan. The Oral Restorative
Division develops, manufactures and/or markets various oral restorative products
to the area of implant dentistry. Currently, products containing hyaluronan are
sold primarily to customers pursuant to supply agreements. Sales to Alcon
Laboratories under such agreements were 12% and 20% of total sales in the six
months ended December 31, 2001 and 2000, respectively. The Companys Oral
Restorative Division markets products directly to clinicians and dental
laboratories in the United States, Germany, Italy and Sweden and primarily
through distributorship arrangements in other foreign locations. The operations
of the Companys subsidiaries, Lifecore Biomedical GmbH, Lifecore Biomedical
SpA, and Lifecore Biomedical AB have not been material to the consolidated
financial statements.

Segment assets and the basis of segmentation are consistent with that reported
at June 30, 2001. Segment information for sales and loss from operations are as
follows:

|                     |                           |   |                                 |            |   |                               |           |           |      |   |            |            |   |   |            |           |  
|-------------------- | ------------------------- | - | ------------------------------- | ---------- | - | ----------------------------- | --------- | --------- | ---- | - | ---------- | ---------- | - | - | ---------- | --------- | -
|                     |                           |   | Three months ended December 31, |            |   | Six months ended December 31, |          
|                     |                           |   |                                 |            |   |                               |          
|                     |                           |   | 2001                            |            |   | 2000                          |           |           | 2001 |   |            | 2000       |  
|                     |                           |   |                                 |            |   |                               |           |           |      |   |            |            |  
|Net sales            |                           |   |                                 |            |   |                               |           |           |      |   |            |            |   |   |            |          
|                     | Hyaluronan products       |   | $                               | 2,525,000  |   |                               | $         | 3,800,000 |      |   | $          | 5,553,000  |   |   | $          | 7,215,000 |  
|                     | Oral restorative products |   |                                 | 6,059,000  |   |                               |           | 4,917,000 |      |   |            | 11,265,000 |   |   |            | 9,398,000 |  
|                     |                           |   |                                 |            |   |                               |           |           |      |   |            |           
|                     |                           | $ | 8,584,000                       |            |   | $                             | 8,717,000 |           |      | $ | 16,818,000 |            |   | $ | 16,613,000 |          
|                     |                           |   |                                 |            |   |                               |           |           |      |   |            |           
|                    
|Loss from operations |                           |   |                                 |            |   |                               |           |           |      |   |            |            |   |   |            |          
|                     | Hyaluronan products       |   | $                               | (1,768,000 | ) |                               | $         | (44,000   | )    |   | $          | (3,332,000 | ) |   | $          | (43,000   | )
|                     | Oral restorative products |   |                                 | (92,000    | ) |                               |           | (322,000  | )    |   |            | (355,000   | ) |   |            | (722,000  | )
|                     |                           |   |                                 |            |   |                               |           |           |      |   |            |           
|                     |                           | $ | (1,860,000                      | )          |   | $                             | (366,000  | )         |      | $ | (3,687,000 | )          |   | $ | (765,000   | )        
|                     |                           |   |                                 |            |   |                               |           |           |      |   |            |           

10



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##### Table of Contents






LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION

Results of Operations

Three Months Ended December 31, 2001 Compared to Three Months Ended December 31, 2000



| |  | (Unaudited)
| |  | -----------

|                    |                            |   |            |         |  |                  |           |         |              |   |           |           |  |   |           |           |  |      |            |           |  |   |           |           | 
|------------------- | -------------------------- | - | ---------- | ------- |  | ---------------- | --------- | ------- | ------------ | - | --------- | --------- |  | - | --------- | --------- |  | ---- | ---------- | --------- |  | - | --------- | --------- | 
|                    |                            |   | Hyaluronan |         |  | Oral Restorative |           |         |              |   |           |           |  |   |          
|                    |                            |   | Division   |         |  | Division         |           |         | Consolidated |  
|                    |                            |   |            |         |  |                  |           |         |              |  
|                    |                            |   | 2001       |         |  | 2000             |           |         | 2001         |   |           | 2000      |  |   | 2001      |           |  | 2000 |           
|                    |                            |   |            |         |  |                  |           |         |              |   |           |           |  |   |           |           |  |      |           
|Net sales           |                            | $ | 2,525,000  |         |  | $                | 3,800,000 |         |              | $ | 6,059,000 |           |  | $ | 4,917,000 |           |  | $    | 8,584,000  |           |  | $ | 8,717,000 |          
|Cost of goods sold  |                            |   | 2,926,000  |         |  |                  | 2,665,000 |         |              |   | 2,397,000 |           |  |   | 2,043,000 |           |  |      | 5,323,000  |           |  |   | 4,708,000 |          
|                    |                            |   |            |         |  |                  |           |         |              |   |           |           |  |   |           |           |  |     
|Gross profit (loss) |                            |   | (401,000   | )       |  |                  | 1,135,000 |         |              |   | 3,662,000 |           |  |   | 2,874,000 |           |  |      | 3,261,000  |           |  |   | 4,009,000 |          
|                   
|Operating expenses  |                            |   |            |         |  |                  |           |         |              |   |           |           |  |   |           |           |  |      |            |           |  |   |           |          
|                    | Research and development   |   |            | 884,000 |  |                  |           | 696,000 |              |   |           | 243,000   |  |   |           | 256,000   |  |      |            | 1,127,000 |  |   |           | 952,000   | 
|                    | Marketing and sales        |   |            | 67,000  |  |                  |           | 54,000  |              |   |           | 2,624,000 |  |   |           | 2,225,000 |  |      |            | 2,691,000 |  |   |           | 2,279,000 | 
|                    | General and administrative |   |            | 416,000 |  |                  |           | 429,000 |              |   |           | 887,000   |  |   |           | 715,000   |  |      |            | 1,303,000 |  |   |           | 1,144,000 | 
|                    |                            |   |            |         |  |                  |           |         |              |   |           |           |  |   |           |           |  |     
|                    |                            |   | 1,367,000  |         |  |                  | 1,179,000 |         |              |   | 3,754,000 |           |  |   | 3,196,000 |           |  |      | 5,121,000  |           |  |   | 4,375,000 |          
|                    |                            |   |            |         |  |                  |           |         |              |   |           |           |  |   |           |           |  |     
|                   
|Operating loss      |                            | $ | (1,768,000 | )       |  | $                | (44,000   | )       |              | $ | (92,000   | )         |  | $ | (322,000  | )         |  | $    | (1,860,000 | )         |  | $ | (366,000  | )        
|                    |                            |   |            |         |  |                  |           |         |              |   |           |           |  |   |           |           |  |     

Net sales for the quarter ended December 31, 2001 decreased $133,000 or 2% as
compared to the same quarter of last fiscal year. Hyaluronan product sales for
the current quarter decreased $1,275,000 as compared to the same quarter of last
fiscal year. The sales decrease was due to reduced ophthalmic hyaluronan
shipments and the termination of the Bausch & Lomb shipments that were still
occurring in the prior year quarter. Oral restorative product sales for the
current quarter increased 23% compared to the same quarter of last fiscal year.
International sales of oral restorative products increased 31%, principally from
increased sales in Europe, while Domestic sales of oral restorative products
increased 18% as compared to the same quarter of last fiscal year.

Consolidated gross margin decreased to 38% for the current quarter from 46% for
the same quarter of last fiscal year. The gross margin for the Hyaluronan
Division decreased to a negative gross margin of 16% from a positive gross
margin of 30% due to unabsorbed excess capacity costs associated with decreased
hyaluronan production and lower sales for the quarter as compared with the same
period of the prior year. Hyaluronan Division production has been slowed due to
unexpected delays in the FDA review process of GYNECARE INTERGEL Solution for
U.S. distribution. The gross margin for the Oral Restorative Division increased
to 60% for the current quarter from 58% for the same quarter of last fiscal
year. The gross margin improvement is attributed to a lower percentage of fixed
overhead as a percentage of sales for the current quarter as compared to the
same quarter of the prior year.

Research and development expenses increased $175,000 or 18% in the current
quarter as compared to the same quarter of last fiscal year. The increase
resulted from additional costs associated with the PMA process for GYNECARE
INTERGEL Solution. Expenses for the PMA process are expected to decrease in the
coming quarters.

11



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##### Table of Contents



LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (cont.)

Marketing and sales expenses increased $412,000 or 18% in the current quarter as
compared to the same quarter of last fiscal year due to an increase in sales
personnel and costs associated with international expansion.

General and administrative expenses increased $159,000 or 14% for the current
quarter as compared to the same quarter of last fiscal year. The increase
resulted from a reserve for accounts receivable in response to the economic
situation in Argentina and higher legal and personnel expenses. This increase
was partially offset by lower amortization as a result of an accounting change
for SFAS 142  Goodwill and Other Intangible Assets as goodwill is no longer
amortized. The result of this accounting change for the period was a decrease of
$131,000 in amortization expense.

Net other expense increased $25,000 for the current quarter as compared to the
same quarter of last fiscal year. The $55,000 decrease in interest income
results from a lower average amount of cash to invest than in the same quarter
of last fiscal year combined with a lower rate of return. Interest expense
decreased $11,000 for the current quarter principally due to lower average debt
outstanding as compared to the same quarter of last fiscal year. Other expense
decreased $19,000 for the current quarter as compared to the same quarter of
last fiscal year.

Six Months Ended December 31, 2001 Compared to Six Months Ended December 31, 2000



| |  | (Unaudited)
| |  | -----------

|                    |                            |   |            |           |  |                  |           |           |              |   |            |           |  |   |           |           |  |      |            |           |  |   |            |           | 
|------------------- | -------------------------- | - | ---------- | --------- |  | ---------------- | --------- | --------- | ------------ | - | ---------- | --------- |  | - | --------- | --------- |  | ---- | ---------- | --------- |  | - | ---------- | --------- | 
|                    |                            |   | Hyaluronan |           |  | Oral Restorative |           |           |              |   |            |           |  |   |          
|                    |                            |   | Division   |           |  | Division         |           |           | Consolidated |  
|                    |                            |   |            |           |  |                  |           |           |              |  
|                    |                            |   | 2001       |           |  | 2000             |           |           | 2001         |   |            | 2000      |  |   | 2001      |           |  | 2000 |           
|                    |                            |   |            |           |  |                  |           |           |              |   |            |           |  |   |           |           |  |      |           
|Net sales           |                            | $ | 5,553,000  |           |  | $                | 7,215,000 |           |              | $ | 11,265,000 |           |  | $ | 9,398,000 |           |  | $    | 16,818,000 |           |  | $ | 16,613,000 |          
|Cost of goods sold  |                            |   | 5,623,000  |           |  |                  | 4,934,000 |           |              |   | 4,635,000  |           |  |   | 3,942,000 |           |  |      | 10,258,000 |           |  |   | 8,876,000  |          
|                    |                            |   |            |           |  |                  |           |           |              |   |            |           |  |   |           |           |  |     
|Gross profit (loss) |                            |   | (70,000    | )         |  |                  | 2,281,000 |           |              |   | 6,630,000  |           |  |   | 5,456,000 |           |  |      | 6,560,000  |           |  |   | 7,737,000  |          
|                   
|Operating expenses  |                            |   |            |           |  |                  |           |           |              |   |            |           |  |   |           |           |  |      |            |           |  |   |            |          
|                   
|                    | Research and development   |   |            | 2,317,000 |  |                  |           | 1,395,000 |              |   |            | 446,000   |  |   |           | 499,000   |  |      |            | 2,763,000 |  |   |            | 1,894,000 | 
|                    | Marketing and sales        |   |            | 129,000   |  |                  |           | 96,000    |              |   |            | 5,006,000 |  |   |           | 4,266,000 |  |      |            | 5,135,000 |  |   |            | 4,362,000 | 
|                    | General and administrative |   |            | 816,000   |  |                  |           | 833,000   |              |   |            | 1,533,000 |  |   |           | 1,413,000 |  |      |            | 2,349,000 |  |   |            | 2,246,000 | 
|                    |                            |   |            |           |  |                  |           |           |              |   |            |           |  |   |           |           |  |     
|                    |                            |   | 3,262,000  |           |  |                  | 2,324,000 |           |              |   | 6,985,000  |           |  |   | 6,178,000 |           |  |      | 10,247,000 |           |  |   | 8,502,000  |          
|                    |                            |   |            |           |  |                  |           |           |              |   |            |           |  |   |           |           |  |     
|                   
|Operating loss      |                            | $ | (3,332,000 | )         |  | $                | (43,000   | )         |              | $ | (355,000   | )         |  | $ | (722,000  | )         |  | $    | (3,687,000 | )         |  | $ | (765,000   | )        
|                    |                            |   |            |           |  |                  |           |           |              |   |            |           |  |   |           |           |  |     

Net sales for the six months ended December 31, 2001 increased $205,000 or 1% as
compared to the same period of last fiscal year. Hyaluronan product sales for
the period decreased $1,662,000 as compared to the same period of last fiscal
year. The sales decrease was due to reduced ophthalmic hyaluronan shipments and
the termination of the Bausch & Lomb shipments that were still occurring in the
prior year period. Oral restorative product sales for the current period
increased $1,867,000 or 20% as compared to the same period of last fiscal year.
International sales of oral restorative products increased 30% with strong
growth coming in European markets. The Domestic oral restorative sales increased
14% in the current period as compared to the prior year.

Consolidated gross
margin decreased to 39% for the current period from 47% for the same period of
last fiscal year. The gross margin for the Hyaluronan Division decreased to a
negative 1% from 32% due to lower sales than the prior year period and
unabsorbed excess capacity costs associated with decreased hyaluronan
production. That production has been slowed due to unexpected delays in the FDA
review

12



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##### Table of Contents



LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (cont.)

process of GYNECARE INTERGEL Solution for U.S. distribution. The gross
margin for the Oral Restorative Division was 59% for the current period as
compared to 58% for the same period of last fiscal year. The increase is mainly
the result of spreading overhead over a larger sales base.

Research and development expenses increased $869,000 for the current period as
compared to the same period of last fiscal year. The increase resulted from
additional costs associated with the PMA process for GYNECARE INTERGEL Solution.
Expenses for the PMA process are expected to decrease in the coming quarters.

Marketing and sales expenses increased $773,000 or 18% for the current period as
compared to the same period of last fiscal year due to an increase in sales
personnel and costs associated with international expansion.

General and administrative expenses increased $103,000 or 5% in the current
period as compared to the same period of last fiscal year. The increase resulted
from a reserve for accounts receivable in response to the economic situation in
Argentina and higher legal and personnel expenses. This increase was partially
offset by lower amortization as a result of an accounting change for SFAS 142 -
Goodwill and Other Intangible Assets as goodwill is no longer amortized. The
result of this accounting change for the period was a decrease of $262,000 in
amortization expense.

Net other expense decreased $77,000 for the current period as compared to the
same period of last fiscal year. The $50,000 decrease in interest income results
from a lower average amount of cash to invest than in the same period of last
fiscal year combined with a lower rate of return. Interest expense decreased
$57,000 for the current period principally due to lower average debt outstanding
as compared to the same period of last fiscal year. Other expense decreased
$70,000 for the current period as compared to the same period of last fiscal
year.

Liquidity and Capital Resources

The Companys Annual Report on Form 10-K for the year ended June 30, 2001
contains a detailed discussion of Lifecores liquidity and capital resources. In
conjunction with this Quarterly Report on Form 10-Q, investors should read the
2001 Form 10-K.

While the Company had positive cash flow from operations in fiscal 2001 and
2000, the Company had a significant operating cash flow deficit in fiscal 1999.
As the Hyaluronan Divisions production levels increase, its related production
efficiencies will increase. However, charges for unused capacity associated with
the Companys hyaluronan production have negatively impacted operating results
in the current fiscal year, as well as in fiscal 2001 and 2000. These charges
are a result of an unanticipated delay in receiving GYNECARE INTERGEL Solution
marketing approval in the U.S. from the FDA. The Company expects that its
Hyaluronan Division gross margins will continue to be negatively impacted until
production and sales levels for GYNECARE INTERGEL Solution are significantly
increased. Also, marketing and sales expenses for the oral restorative products
are expected to continue at a high level with continued international expansion,
and personnel costs have increased.

The loan agreement between the Company and the holder of the industrial
development revenue bonds issued to finance the Companys Chaska, Minnesota
facility was amended in May 2001 to waive the fixed charge coverage ratio and
the cash flow coverage ratio through June 30, 2002. With respect to certain of
these covenants, the Company may be required to obtain further waivers for
fiscal 2003. There can be no assurance that future waivers will be granted to
the Company.

The Company has an agreement with a bank for a $5,000,000 line of credit. The
agreement allows for advances against eligible accounts receivable and
inventories, subject to a borrowing base certificate.

13



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##### Table of Contents



LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I  FINANCIAL INFORMATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (cont.)

Interest is accrued at the
prime rate plus 1% at December 31, 2001, which was 5.75% and at the prime rate
at June 30, 2001, which was 6.75%. The agreement has a maturity date of December
31, 2002. At December 31, 2001 and June 30, 2001, there were no balances
outstanding under this line of credit. The terms of the agreement require the
Company to comply with various financial covenants including minimum tangible
net worth, capital expenditure limitations, liabilities to tangible net worth
ratio, minimum EBITDA and minimum working capital targets. At December 31, 2001
and June 30, 2001, the Company was in compliance with all covenants.

The Companys ability to generate positive cash flow from operations and achieve
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 and the early stage of certain of these markets. 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 availability of 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.

Cautionary Statement

Certain statements in this Form 10-Q are forward-looking statements as defined
in the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements, which include statements relating to anticipated regulatory
outcomes, continued financial improvement, adequate cash flow, the successful
market acceptance of GYNECARE INTERGEL Solution in the U.S., the reduction of
research and development expenses related to the GYNECARE INTERGEL Solution PMA
process, and the negative impact on Hyaluronan Division margins from the unused
capacity, are subject to change. These statements are subject to certain risks
and uncertainties that could cause actual results to differ materially from
historical results and those presently anticipated or projected, such as,
unforeseen difficulties or delays in interactions with the FDA, and lack of
cooperation or marketing success from marketing partners for the hyaluronan
products. Investors are referred to a more detailed discussion of those risks
presented in Managements Discussion and Analysis of Financial Condition and
Results of Operations section in the Companys Annual Report on Form 10-K for
the year ended June 30, 2001.

GYNECARE INTERGEL Adhesion Prevention Solution, GYNECARE, AND ETHICON, INC. are registered trademarks of ETHICON,
INC.

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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 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 are
denominated in Swedish Krona at Lifecore Biomedical AB. The Company has
historically had minimal exposure to changes in foreign currency exchange rates,
and as such, has not used derivative financial instruments to manage foreign
currency fluctuation risk.

The Companys outstanding long-term debt carries interest at a fixed rate. There
is no material market risk relating to the Companys long-term debt.

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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART II  OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On October 18, 2001, the Company issued 21,097 shares of common stock
to Lancet Software Development, Inc. (Lancet). The shares of common
stock were issued to Lancet in exchange for consulting services
relating to the development of the Companys e-commerce website. The
aggregate value of the stock issuance was $249,000. The issuance was
completed pursuant to an exemption from registration provided under
Section 4(2) of the Securities Act of 1933.

Item 4. Submission of Matters to a Vote of Security Holders



| |                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On November 15, 2001, the Company held its Annual Meeting of
Shareholders. At the meeting, the shareholders elected directors
Richard W. Perkins (with 11,230,215 affirmative votes and 151,079 votes
withheld) and John C. Heinmiller (with 11,234,860 affirmative votes and
146,434 votes withheld).
|
| | The shareholders also ratified and approved the appointment of Grant
Thornton LLP as independent certified public accountants of the Company
for the current fiscal year ending June 30, 2002 (with 11,265,534
affirmative votes, 100,400 negative votes and 15,360 votes abstained).                 

Item 6. Exhibits and Reports on Form 8-K



| |                              
| | -----------------------------
| | a. Exhibits and 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)                                                                                                                                                                                                                  
|3.3  |  | 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  |  | Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to 1987 S-2 Registration
Statement [File No. 33-12970])                                                                                                                                                                                          
|10.1 |  | Amendment No. 4 to Credit and Security Agreement dated January 24, 2002 between U.S. Bank National
Association and the Company, filed herewith                                                                                                                                                                              



|   |                    
|-- | -------------------
|b. | Reports on Form 8-K



| |     
| | ----
| | None

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LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART II  OTHER INFORMATION

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|       |  |                  |  |                                                                                                                                     
|------ |  | ---------------- |  | ------------------------------------------------------------------------------------------------------------------------------------
|       |  |                  |  | LIFECORE BIOMEDICAL, INC.                                                                                                           
|      
|      
|Dated: |  | February 1, 2002 |  | /s/ James W. BrackeJames W. Bracke
   President & Chief Executive Officer                                                           
|      
|      
|Dated: |  | February 1, 2002 |  | /s/ Dennis J. AllinghamDennis J. Allingham
   Executive Vice President
   & Chief Financial Officer
   (Principal Financial Officer)

17