**Exhibit 99.1**
**RISK FACTORS**
**Lack of sustained Profitability; Possible Need for Future Financing**
     The Company recorded net income of $707,000 for the year ended June 30,2004 and losses of $355,000 and $4,717,000 for the years ended June 30, 2003and 2002, respectively. Charges for unused manufacturing capacity associatedwith the Company’s hyaluronan production negatively impacted operating resultsin fiscal 2004, 2003 and 2002. These charges are a result of ETHICON’svoluntary withdrawal if INTERGEL Solution from the market in 2003 and theunanticipated delay in receiving INTERGEL Solution marketing approval in theU.S. from the FDA in 2002. Marketing and sales expenses for the oralrestorative products are expected to continue at a high level, and personnelcosts have increased.
     The Company’s ability to generate positive cash flow from operations andachieve profitability is dependent upon the continued expansion of revenue fromits hyaluronan and oral restorative businesses. The Company expects its futurecash requirements to be covered by cash generated from anticipated operationsand from its line of credit facility. No assurance can be given that theCompany will maintain positive cash flow before its capital resources areexhausted. If additional financing is necessary, no assurance can be giventhat such financing will be available and, if available, will be on termsfavorable to the Company and its shareholders.
**Uncertainty of Re-release of INTERGEL Solution**
     INTERGEL Solution was voluntarily withdrawn from the market by ETHICON inMarch 2003 in order to assess information obtained from postmarketingexperience with the product, including allegations of adverse events associatedwith off-label use in non-conservative surgical procedures (such ashysterectomies). The Company is working with ETHICON to complete thepost-marketing evaluation and determine the opportunities for returning theproduct to market. There can be no assurance that INTERGEL Solution will bereturned to the market, thereby negatively affecting revenues and unusedmanufacturing capacity charges in the future.
**Uncertainty of Successful Development of New Hyaluronan Products**
     A significant amount of the Company’s anticipated growth is dependent onits ability to develop, manufacture and market new product applications forhyaluronan. Such formulations must be developed, tested and, in most cases,approved for use by appropriate government agencies. Once approved asproducts, they must be manufactured in commercial quantities and marketedsuccessfully. Each of these steps involves significant amounts of time andexpense. There can be no assurance that any of these products, if and whenfully developed and tested, will perform in accordance with the Company’sexpectations, that necessary regulatory approvals will be obtained in a timelymanner, if at all, or that these products can be successfully and profitablyproduced and marketed.
**Reliance on Marketing and Development Support from Corporate Partners forHyaluronan Division**
     The Company has historically developed, manufactured, and marketed itsHyaluronan Division products through long-term strategic alliances withcorporate partners. In the case of such relationships, the speed and otheraspects of the development project are sometimes outside of the Company’scontrol, as the other party to the relationship often has priorities thatdiffer from those of the Company. Thus, the timing of commercialization of theCompany’s products under development may be subject to unanticipated delays.
     Further, the Company currently has limited direct sales capabilities inthe Hyaluronan Division and generally relies upon its corporate partners formarketing and distribution to end-users. The market success of the Company’shyaluronan products generally will depend upon the size and skill of themarketing organizations of the Company’s corporate partners, as well as thelevel of priority assigned to the marketing of the Company’s products by theseentities, which may differ from the Company’s. Should one or more of theCompany’s strategic alliances fail to develop or market products as planned,the Company’s business may be adversely affected. No assurance can be giventhat the Company will be able to negotiate acceptable strategic alliances inthe future or that current strategic alliances will continue.
     The development contracts into which the Company enters with corporatepartners are long-term agreements that are subject to development milestones,product specifications, and other terms. Consequently, future agreement oftenis required regarding the course and nature of continued developmentactivities. Contractual
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issues requiring resolution between the parties have arisen in the past and areexpected to arise in the ordinary course of the Company’s future developmentactivities. There can be no assurance that all such issues will besuccessfully resolved.
**Limited Direct Sales and Marketing Resources for Oral Restorative DivisionProducts**
     The Oral Restorative Division markets its products through a direct salesforce and a distribution network. Continued growth of the Company’s revenuesfrom oral restorative products will depend on the ability of this sales anddistribution network to increase the Company’s market share by convincingpractitioners to use the Company’s products over competing establishedproducts. No assurance can be given that the sales and distribution networkwill be successful in increasing or maintaining the Company’s market share orsales levels. Failure to maintain and increase the market share of theseproducts would adversely affect the Company’s results of operations andfinancial condition.
**Exposure to Product Liability Claims and Other Legal Proceedings**
     The manufacture and sale of the Company’s products entails a risk ofproduct liability claims. In addition to product liability exposure for itsown products, the Company may be subject to claims for products of itscustomers which incorporate Lifecore’s materials. The Company maintainsproduct liability insurance coverage in amounts it deems adequate. However,there can be no assurance that the Company will have sufficient resources ifclaims exceed available insurance coverage. In addition, other types of claimsmay arise that are not covered by such insurance.
     Lifecore is a party in 41 pending lawsuits filed by 37 differentplaintiffs, all of which allege that the plaintiffs suffered injuries due tothe defective nature of INTERGEL Solution manufactured by Lifecore and marketedby ETHICON. There can be no assurance that other related claims will notarise. ETHICON is currently defending Lifecore in each of these lawsuits.Lifecore also has products liability insurance that it believes will coverthese claims. There can be no assurance, however, that these claims, otherproduct liability claims, claims with respect to uninsured liabilities orclaims in excess of insured liabilities, will not have a material adverseeffect on the business, financial condition and results of operations of theCompany. In addition, there can be no assurance that insurance will continueto be available to the Company and that, if available, the insurance willcontinue to be on commercially acceptable terms.
**Competition**
     Lifecore is engaged in very competitive segments of the human health careproducts industry. Competitors of the Hyaluronan and Oral RestorativeDivisions in the United States and elsewhere are numerous and include majorchemical, dental, medical, and pharmaceutical companies, as well as smallerspecialized firms. Many of these competitors have substantially greatercapital resources, marketing experience, and research and development resourcesthan the Company. These companies may succeed in developing products that aremore effective than any that have been or may be developed by Lifecore and mayalso prove to be more successful than Lifecore in producing and marketing theseproducts. In addition, the Oral Restorative Division is competing against anumber of large established competitors. In order to increase sales, theDivision may need to gain market share from its competitors. There can be noassurance that Lifecore will be able to continue to compete successfullyagainst these competitors.
     Several companies produce hyaluronan through a fermentation process,including Genzyme, Inc., Savient, Fidia SpA, IOLTECH, Kyowa Hakko, Kibun andBayer. In addition, several companies manufacture hyaluronan by using roostercomb extraction methods. These companies primarily include Anika Therapeutics,Inc., Genzyme, Inc., Fidia SpA, Pharmacia and Kibun. The Company’s competitorshave filed or obtained patents covering aspects of fermentation production oruses of hyaluronan. These patents may cover the same applications as theCompany’s. Although the Company believes that it does not infringe the patentsof its competitors, there can be no assurance that the Company will not receiveclaims of infringement from third parties.
     In addition, negative announcements regarding any competitor’s productsmay have a negative impact on the public’s perception of the market potentialfor all similar products, including the Company’s products.
     There can be no assurance that product introductions by present or futurecompetitors or future technological or health care innovations will not renderLifecore’s products and processes obsolete.
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**Protection of Proprietary Technology**
     Lifecore’s success depends, to a large extent, on its ability to maintaina competitive technological position in its product areas. While certain ofLifecore’s patents have been allowed or issued, there can be no assurance that,to the extent issued, the Company’s patents will effectively protect itsproprietary technology. If other manufacturers were to infringe on itspatents, there can be no assurance that the Company would be successful inchallenging, or would have adequate resources to challenge, such infringement.Lifecore also relies upon trade secrets, proprietary know-how and continuingtechnological innovation to develop and maintain its competitive position.There can be no assurance that others will not independently develop suchknow-how or otherwise obtain access to the Company’s technology. WhileLifecore’s employees, temporary staff, consultants and corporate partners withaccess to proprietary information are required to enter into confidentialityagreements, there can be no assurance that these agreements will provide theCompany with adequate protection from loss of proprietary technology orknow-how.
     Under current law, patent applications in the United States are maintainedin secrecy until patents are issued, and patent applications in foreigncountries are maintained in secrecy for a period after filing. The right to adevice patent in the United States is attributable to the first to invent thedevice, not the first to file a patent application. Accordingly, the Companycannot be sure that its products or technologies do not infringe patents thatmay be granted in the future pursuant to pending patent applications. TheCompany has not received any notices alleging, and is not aware of, anyinfringement by the Company of any other entity’s patents relating to theCompany’s current or anticipated products. There can be no assurance, however,that its products do not infringe any patents or proprietary rights of thirdparties. In the event that any relevant claims of third-party patents areupheld as valid and enforceable, the Company could be prevented from sellingits products or could be required to obtain licenses from the owners of suchpatents or be required to redesign its products or processes to avoidinfringement. There can be no assurance that such licenses would be availableor, if available, would be on terms acceptable to the Company or that theCompany would be successful in any attempt to redesign its products orprocesses to avoid infringement. The Company’s failure to obtain theselicenses or to redesign its products or processes would have a material adverseeffect on the Company’s business, financial condition, and results ofoperations.
**Lack of Regulatory Approvals; Regulation of Existing Products**
     The Company’s products under development are considered to be medicaldevices and, therefore, they require clearance or approval by the FDA beforecommercial sales can be made in the United States. The products also requireapprovals of foreign government agencies before sales may be made in many othercountries. The process of obtaining these clearances or approvals variesaccording to the nature and use of the product. It can involve lengthy anddetailed laboratory and clinical testing, sampling activities and other costlyand time-consuming procedures. There can be no assurance that any of therequired clearances or approvals will be granted on a timely basis, if at all.
     In addition, most of the existing products being sold by the Company andits customers are subject to continued regulation by the FDA, various stateagencies and foreign regulatory agencies which regulate manufacturing, labelingand record keeping procedures for such products. Marketing clearances orapprovals by these agencies can be withdrawn due to failure to comply withregulatory standards or the occurrence of unforeseen problems following initialclearance or approval. These agencies can also limit or prevent themanufacture or distribution of the Company’s products. A determination thatthe Company is in violation of such regulations could lead to the imposition ofcivil penalties, including fines, product recalls or product seizures,injunctions, and, in extreme cases, criminal sanctions.
**Possible Limitations on Ability to Manufacture Products**
     The Company has designed its modular facility to permit the production ofhyaluronan at levels exceeding current levels of production. However, in theevent of a sudden increase in demand for any of the Company’s hyaluronanproducts, the Company will be required to scale-up operations, including theacquisition and validation of additional equipment and training of additionalpersonnel. No assurance can be given that the Company will be able toadequately meet any such demands on a timely basis.
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**Risk of Interruption of Manufacturing**
     The Company’s manufacturing requires extensive specialized equipment. Inaddition, the Company manufactures its hyaluronan products at one facility.Although the Company has contingency plans in effect for certain naturaldisasters, as well as other unforeseen events that could damage the Company’sfacilities or equipment, no assurance can be given that any such events willnot materially interrupt the Company’s business. In the event of such anoccurrence, the Company has business interruption insurance to cover lostrevenues and profits. However, such insurance would not compensate the Companyfor the loss of opportunity and potential adverse impact on relations withexisting customers created by an inability to produce its products.
**Dependence on Management**
     The Company’s success depends in large part upon the services of itsexecutive officers. The executive officers consist of Dennis J. Allingham,President and Chief Executive Officer, David M. Noel, Vice President of Financeand Chief Financial Officer; Andre P. Decarie, Vice President of Marketing andSales; and Larry Hiebert, Vice President of Operations. The loss of any one ofthese individuals may have a material adverse effect on the Company’s businessand operations. The Company does not have employment agreements with or lifeinsurance on its officers.
**Possible Volatility of Share Price**
     Market prices in the United States for securities of medical technologycompanies can be highly volatile, and the trading price of the Company’s CommonStock could be subject to significant fluctuations in response to quarterlyvariations in operating results, announcements of the status or results ofdevelopment projects or technological innovations by the Company or itscompetitors, government regulation and other events or factors. The volatilityin market prices may be unrelated to the operating performance of particularcompanies. These market fluctuations have in the past materially adverselyaffected the market price of the Company’s Common Stock, and may have such aneffect in the future.
**Anti-Takeover Considerations**
     The Company’s charter documents, Minnesota law and the Company’sshareholder rights plan include provisions that may discourage or preventtakeover attempts. The Board of Directors of the Company has the authority,without any action by the shareholders, to fix the rights and preferences ofany shares of the Company’s Preferred Stock to be issued from time to time.Pursuant to the Company’s Articles of Incorporation, the Board of Directors isdivided into three classes of directors, with each director serving athree-year term. Each year only one class of directors is subject to ashareholder vote. A shareholder desiring to control the Board of Directorsmust participate in two elections of directors to obtain majorityrepresentation on the Board of Directors. In addition, as a Minnesotacorporation, the Company is subject to certain anti-takeover provisions of theMinnesota Business Corporation Act. The Company also has a shareholder rightsplan, commonly referred to as a poison pill, which makes it difficult, if notimpossible, for a person to acquire control of the Company without the consentof the Board of Directors. All of these factors could have the effect ofdelaying, deferring or preventing a change in control of the Company, maydiscourage bids for the Company’s Common Stock at a premium over the thenprevailing market price of the Common Stock, and may adversely affect themarket price of, and the voting and other rights of the holders of, CommonStock.
**No Dividends**
     The Company has never paid or declared a dividend on its capital stock anddoes not anticipate doing so for the foreseeable future.
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