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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                            ------------------------
 
                                   FORM 10-K
                                ---------------
 
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<S>        <C>
/X/        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
           FOR THE FISCAL YEAR ENDED JUNE 30, 1997
           COMMISSION FILE NUMBER: 0-4136
</TABLE>
 
                            ------------------------
 
                           LIFECORE BIOMEDICAL, INC.
             (Exact name of registrant as specified in its charter)
 
              MINNESOTA                                41-0948334
   (State or other jurisdiction of                  (I.R.S. Employer
    incorporation or organization)               Identification Number)
 
                              3515 LYMAN BOULEVARD
                          CHASKA, MINNESOTA 55318-3051
                    (Address of principal executive offices)
 
       Registrant's telephone number, including area code: (612)368-4300

        Securities registered pursuant to Section 12(b) of the Act: NONE

          Securities registered pursuant to Section 12(g) of the Act:
                        COMMON STOCK ($.01 STATED VALUE)
                                (Title of Class)
 
                            ------------------------
 
    Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.  Yes /X/ No / /
 
    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  /X/
 
    The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $182,192,000 at August 15, 1997 when the last sale
price of such stock, as reported by the Nasdaq National Market, was $15.13.
 
The number of shares outstanding of the Registrant's Common Stock, $.01 stated
value, as of August 15, 1997 was 12,223,722 shares.
 
                            ------------------------
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
1.  Proxy Statement to be filed with the Commission within 120 days after the
    end of the Registrant's fiscal year.
 
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                                       1

<PAGE>
                                     PART I
 
ITEM 1. BUSINESS
 
GENERAL
 
    Lifecore Biomedical, Inc. ("Lifecore" or the "Company") develops,
manufactures and markets medical and surgical devices through its two divisions,
the Hyaluronate Division and the Oral Restorative Division. Further information
about Lifecore can be obtained from Lifecore's internet site at
www.lifecore.com.
 
    The Company's Hyaluronate Division is principally involved in the
development and manufacture of products utilizing hyaluronate, a
naturally-occurring carbohydrate which moisturizes or lubricates the soft
tissues of the body. The Hyaluronate Division's primary development project
involves LUBRICOAT-Registered Trademark-0.5% Ferric Hyaluronate Gel ("LUBRICOAT
Gel"), the Company's second generation product for potential application in
reducing the incidence of postsurgical adhesions. LUBRICOAT Gel is intended to
reduce the incidence of fibrous tissue adhesions, which commonly form as part of
the body's natural healing process when tissues or organs are subject to
accidental or surgical trauma. Particularly with respect to abdominal,
cardiovascular, orthopedic, reproductive, and thoracic surgeries, these
adhesions may cause internal complications that often require costly
postsurgical intervention. Industry sources recently estimated the annual cost
of treating adhesion complications in the lower abdomen, a common site for the
occurrence of adhesions, at $2 billion in the United States.
 
    The Company produces hyaluronate through a proprietary fermentation process.
Currently, the primary commercial use for the Company's hyaluronate is as a
component in ophthalmic surgical solutions for cataract surgery. Lifecore is
pursuing the development of several other applications of hyaluronate through
its strategic alliances with a number of corporate partners for a variety of
veterinary, drug delivery and wound care applications. The Company also is
leveraging its specialized hyaluronate manufacturing skills to develop and
manufacture non-hyaluronate products for medical applications.
 
    The Company's Oral Restorative Division markets a comprehensive line of
titanium-based dental implants for the replacement of lost or extracted teeth.
In May 1992, the Company acquired the Sustain Dental Implant System from
Bio-Interfaces, Inc. ("BII") and, in July 1993, acquired Implant Support
Systems, Inc. ("ISS"), the manufacturer of the Restore Dental Implant System and
the ISS line of compatible components. The Company has enhanced and expanded
these product lines since their acquisition. The Oral Restorative Division also
manufactures and markets tissue regeneration products for the restoration of
bone deterioration resulting from periodontal disease and tooth loss. In May
1997, Lifecore acquired the TefGen-Registered Trademark- product line from
Bridger Biomed, Inc. ("Bridger"). The acquisition expanded and complemented the
growing line of tissue regenerative products by adding a nonresorbable membrane
to address the current clinical practice referred to as guided tissue
regeneration. In June 1997, Lifecore expanded its tissue regeneration business
to include soft tissue applications with the addition of AlloDerm-Registered
Trademark- Dermal Graft, which the Company will distribute on an exclusive basis
to the U.S. dental market for LifeCell Corporation ("LifeCell"). This Division's
products are marketed in the United States through the Company's direct sales
force; in Italy through the Company's subsidiary, Lifecore Biomedical SpA; and
in other countries through distributors.

                                       2
<PAGE>


HYALURONATE DIVISION
 
BACKGROUND
 
    Hyaluronate is a critical, naturally-occurring carbohydrate component of the
physiological fluids that lubricate, moisturize or otherwise protect the body's
soft tissues. Due to its widespread presence in tissues and its high degree of
biocompatibility, the Company believes that hyaluronate can be used for a wide
variety of medical applications.

    Hyaluronate (also referred to as hyaluronan, hyaluronic acid and sodium
hyaluronate) was first demonstrated to have commercial medical utility as a
viscoelastic (elastic yet fluid) solution in cataract surgery. In this
application, its use for coating and lubricating of tissues during the
implantation of intraocular lenses dramatically improved the existing surgical
success rates. An ophthalmic hyaluronate product, produced by extraction from
rooster comb tissue, initially became commercially available in the United
States in 1981. Hyaluronate-based products, produced both by rooster comb
extraction and by fermentation processes such as the Company's, have since
gained widespread acceptance among ophthalmologists and are currently used in
the majority of cataract procedures in the world.
 
    Other hyaluronate applications currently being investigated by Lifecore or
its partners include general surgery (prevention of postsurgical adhesions),
catheter guide-wire coatings, drug delivery (as a vehicle to carry wound healing
agents), and veterinary (storage of fertilized embryos; orthopedics). The
Company believes that the use of hyaluronate for postsurgical adhesion
prevention currently represents the most significant potential application for
hyaluronate.
 
STRATEGY
 
    The Company intends to use its proprietary large scale fermentation process
to be a leader in the development of hyaluronate-based products for multiple
applications. Elements of the Company's strategy include the following:
 
    - ESTABLISH STRATEGIC ALLIANCES WITH MARKET LEADERS. The Company will
      continue to develop applications for products with partners who have
      strong marketing, sales and distribution capabilities to end-user markets.
      The Company currently has established relationships with Alcon
      Laboratories, Inc., an indirect subsidiary of Nestle S.A. ("Alcon"),
      Chiron Vision, Inc., a subsidiary of Chiron Corporation ("Chiron Vision"),
      Ethicon, Inc., a wholly-owned subsidiary of Johnson & Johnson ("Ethicon"),
      Johnson & Johnson Medical Ltd., a wholly-owned subsidiary of Johnson &
      Johnson ("JJML"), Mentor Ophthalmics Inc. ("Mentor"), and Storz
      Ophthalmics, Inc., a subsidiary of American Home Products, Inc. ("Storz"),
      market leaders in the ophthalmics and surgical products fields.
 
    - EXPAND MEDICAL APPLICATIONS FOR HYALURONATE. The Company is currently
      pursuing a broad range of applications in general surgery, veterinary,
      drug delivery and wound care. Due to the growing knowledge of the unique
      characteristics of hyaluronate, the Company intends to continue to
      identify and pursue further uses for hyaluronate in medical applications.
 
    - MAINTAIN FLEXIBILITY IN PRODUCT DEVELOPMENT AND SUPPLY RELATIONSHIPS. The
      Company's vertically integrated development and manufacturing capabilities
      allow it to establish a variety of relationships with large corporate
      partners. The Company's role in these relationships extends from supplier

                                       3
<PAGE>


      of raw materials to manufacturer of aseptically-packaged products. In
      addition, the Company may develop its own proprietary products.
 
    - LEVERAGE SPECIALIZED HYALURONATE MANUFACTURING SKILLS. The Company is
      using its viscous fluid handling and aseptic packaging experience gained
      in producing hyaluronate to develop and manufacture non-hyaluronate
      products for new customers.
 
HYALURONATE DIVISION PRODUCTS
 
    The following chart summarizes the principal products and development
projects of the Hyaluronate Division, along with their applications and the
companies with which Lifecore has related strategic alliances:
 
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
          PRODUCT                        STRATEGIC ALLIANCE                    MARKET                  STATUS*
----------------------------  ----------------------------------------  --------------------  -------------------------
<S>                           <C>                                       <C>                   <C>
GENERAL SURGERY
 
LUBRICOAT-Registered          Lifecore's proprietary product under      Adhesion prevention   Pivotal human clinical
  Trademark- 0.5% Ferric      development; Ethicon has exclusive                              trials commenced in March
  Hyaluronate Gel             worldwide marketing rights                                      1996

-------------------------------------------------------------------------------------------------------------------------
OPHTHALMIC
 
Viscoat-Registered            Lifecore supplies proprietary             Cataract surgery      Commercial sales since
  Trademark- Ophthalmic       hyaluronate powder for inclusion in                             1983
  Viscoelastic Solution       Alcon Laboratories' Viscoat viscoelastic
                              solution
 
Amvisc-Registered Trademark-  Lifecore supplies viscoelastic solution   Cataract surgery      Lifecore export shipments
  and Amvisc Plus-Registered  syringes to Chiron Vision, Inc., which                          commenced in December
  Trademark- Ophthalmic       markets the products                                            1995; Chiron's PMA
  Solutions                                                                                   supplement for U.S. sales
                                                                                              has been filed
 
Lurocoat-Registered           Lifecore supplies its proprietary         Cataract surgery      Human clinical trials to
  Trademark- Ophthalmic       viscoelastic syringes to Mentor                                 begin in fiscal 1998;
  Solution                    Ophthalmics, Inc., which will market                            Lifecore export shipments
                              product exclusively in U.S. and Canada                          commenced in June 1997
                              and on a non-exclusive basis
                              elsewhere.The product is also supplied
                              on a non-exclusive basis to several
                              other ophthalmic companies
 
Polyethylene Oxide (PEO)      Lifecore supplies syringes of PEO to      Refractive surgery    Storz commenced human
  Ophthalmic gel              Storz Ophthalmics, Inc., which owns                             clinical trials in 1997
                              rights to market the product
 
Caprogel-TM- Topical          Lifecore supplies syringes of             Ocular bleeding       Orphan Medical's human
  Aminocaproic Acid           aminocaproic acid to Orphan Medical,      (hyphema)             clinical trials commenced
                              Inc., which owns rights to market the                           in 1994
                              product
-------------------------------------------------------------------------------------------------------------------------
WOUND MANAGEMENT
 
Wound healing agent           Lifecore supplies hyaluronate powder to   Wound management      Pre-clinical trials
                              Johnson & Johnson Medical Ltd. for use                          commenced in fiscal 1997
                              in delivery vehicle and process
                              development services
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
                                       4
<PAGE>

<TABLE>
<CAPTION>
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          PRODUCT                        STRATEGIC ALLIANCE                    MARKET                  STATUS*
----------------------------  ----------------------------------------  --------------------  -------------------------
<S>                           <C>                                       <C>                   <C>

OTHER APPLICATIONS
 
MAP-5-TM- Embryo              Lifecore supplies hyaluronate solution    Veterinary            Commercial sales since
  Cryopreservation Solution   in vials to Vetrepharm, Inc., which       cryopreservation      1994
                              markets the product
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

*   For many of the products or projects listed above, government regulatory
    approvals and significant development work are required before commercial
    sales can commence in the United States or elsewhere. See "Government
    Regulation." No assurance can be given that such products will be
    successfully developed or marketed.
 
    ADHESION PREVENTION DEVELOPMENT PROJECT WITH ETHICON
 
    The Company is developing a hyaluronate product, LUBRICOAT Gel, for
potential application in reducing the incidence of postsurgical adhesions.
Ethicon has worldwide, exclusive distribution rights for LUBRICOAT Gel.
 
    Following surgical procedures, fibrous tissue, or adhesions, commonly form
as part of the body's natural healing process resulting from trauma to tissues
or organs during surgery. Particularly with respect to abdominal,
cardiovascular, orthopedic, reproductive and thoracic surgeries, these adhesions
may cause internal complications that can require costly follow-up surgical
intervention. For example, adhesions following reproductive tract surgery can
cause infertility, while adhesions following abdominal surgery can cause life
threatening bowel obstructions.
 
    Industry sources recently estimated the annual cost of treating adhesion
complications in the lower abdomen, a common site for the occurrence of
adhesions, at $2 billion in the United States. The Company believes that a
significant share of this market can be captured by skilled market distribution
of a product with low toxicity, easy application, high procedural flexibility,
broad effectiveness, and appropriate pricing.
 
    In 1989, the Company began working with Ethicon on anti-adhesion products
being developed by Ethicon using the Company's Tenalure-Registered Trademark-
Sodium Hyaluronate formulation. Starting in 1990, Ethicon conducted a series of
human clinical studies with Tenalure hyaluronate, designed to demonstrate the
effectiveness of a hyaluronate solution in the reduction of postsurgical
adhesions. These double-blinded, placebo-controlled, multi-center studies
involved over 300 patients. In these clinical studies, Tenalure hyaluronate
demonstrated the ability to reduce the incidence of adhesions, but the degree of
adhesion reduction fell short of Ethicon's efficacy goals. Tenalure hyaluronate
was observed to have a greater effect in areas where the hyaluronate pooled
after the completion of surgery. With that knowledge, the companies reformulated
Tenalure hyaluronate into a second generation product, LUBRICOAT Gel, designed
to coat and remain in contact with tissues for a longer time after surgery. This
reformulation involved the ionic cross-linking of hyaluronate with an iron
compound to enhance coating properties. The companies then tested LUBRICOAT Gel
in animal models designed to pose a greater adhesion challenge by employing a
more severe surgical wound than the studies using Tenalure hyaluronate. The
results of the animal trials using LUBRICOAT Gel showed significant improvement
over those of Tenalure hyaluronate.
 
    In order to accelerate development of the anti-adhesion project, the
companies, at that time, decided to shift responsibility for completion of this
project to Lifecore. Lifecore subsequently completed the preclinical studies and
submitted an application to the United States Food and Drug Administration

                                       5
<PAGE>

("FDA") for an Investigational Device Exemption ("IDE") to begin human clinical
trials to evaluate the safety and efficacy of LUBRICOAT Gel. In April 1995, the
FDA approved the IDE. A pilot human clinical trial, involving 23 female patients
undergoing peritoneal cavity surgery with preservation of fertility, was
completed at a single United States clinical center in December 1995. Patients
were randomly selected to receive either LUBRICOAT Gel or a control solution
applied in a final step prior to completion of surgery. The primary goals of the
pilot study were the preliminary assessment of the safety of LUBRICOAT Gel and
an evaluation of the experimental clinical protocol. A secondary goal was the
preliminary assessment of the effectiveness of LUBRICOAT Gel in reducing
postsurgical adhesions by second-look laparoscopy. This laparoscopy is a
standard surgical practice with fertility patients, which requires a follow-up
evaluation of the patients' internal abdominal anatomy. The laparoscopy enabled
clinicians to gather data visually comparing postsurgical adhesions in the two
patient treatment groups. Analysis of the pilot clinical data indicated that
patients who received LUBRICOAT Gel experienced a 45% lower incidence of a broad
range of adhesions than control patients (p LESS THAN 0.02). Further, the study
showed that when adhesions did occur, those of the LUBRICOAT Gel patient group
were significantly less extensive and less severe than those of the control
group (p LESS THAN 0.01). Finally, physicians using the test material indicated
that it was easily incorporated into current clinical procedures.
 
    Based on these results, the Company initiated a pivotal human clinical trial
in March 1996. The pivotal trial is expected to involve up to 200 patients in a
blinded study at approximately twelve clinical sites in the United States and
five clinical sites in Europe. These patients will undergo a similar randomized
treatment protocol and be evaluated for adhesion formation at 24 abdominal and
pelvic sites by second-look laparoscopy. If the pivotal trial confirms the
statistical significance observed in the pilot trial, the Company will be in a
position to apply for a Pre-Market Approval ("PMA"), which it expects to do in
1998. There can be no assurance that the results of the pivotal trial will be
positive, that the Company will submit a PMA application, or that a PMA will be
approved by FDA. See "Government Regulation."
 
    In August 1994 when responsibility for development of this project was
shifted to Lifecore, the Company and Ethicon entered into a Conveyance, License,
Development and Supply Agreement (the "Ethicon Agreement") to carry out the
shift of responsibility. The Ethicon Agreement transferred to the Company the
intellectual property developed to date from the anti-adhesion project,
including pending patent rights and data from research, product development,
clinical safety and efficacy, and marketing evaluations. The Company assumed
responsibility for continuing the development project, including conducting
human clinical trials with LUBRICOAT Gel. Furthermore, the Company granted
Ethicon exclusive worldwide marketing rights to LUBRICOAT Gel for postsurgical
adhesion prevention and orthopedic applications in return for an exclusive
supply contract through 2008 with provisions for renewal. The Company currently
receives certain technical support from Ethicon for a specified annual fee under
the provisions of an associated consulting agreement. Under this agreement, the
primary Ethicon scientist responsible for supervising the anti-adhesion project
since its inception reports directly to Lifecore management.

                                       6
<PAGE>

    OPHTHALMIC APPLICATIONS
 
    CATARACT SURGERY.  Currently, the primary commercial application for the
Company's hyaluronate is in cataract surgery. During the process of cataract
surgery, hyaluronate in a viscoelastic solution is used to coat and lubricate
the anterior chamber of the eye during the implantation of an intraocular lens.
These solutions have been shown to reduce surgical trauma and thereby contribute
to more rapid recovery with fewer complications than were experienced prior to
the use of viscoelastics. The Company currently sells hyaluronate for this
application to six customers, including Alcon, Chiron Vision and Mentor. Alcon
and Chiron Vision are two of the leading producers of ophthalmic surgical
products in the world. In February 1996, the Company entered into a private
label manufacturing agreement with Mentor to supply the Lurocoat solution on an
exclusive basis in the United States and Canada and on a non-exclusive basis
elsewhere for use in ophthalmic surgery. The Company also has three other
agreements to supply Lurocoat solution under private label relationships outside
the United States and Canada for this application.
 
    Hyaluronate based products are used in the majority of cataract surgeries in
the world. The Company estimates that the worldwide market for hyaluronate for
cataract surgery, on a patient cost basis, is approximately $160 million per
year and is relatively stable. However, the market share of products using
fermented hyaluronate has increased relative to the market share of products
using hyaluronate extracted from rooster combs.
 
    Alcon purchases the Company's hyaluronate for inclusion in
Viscoat-Registered Trademark- Ophthalmic Viscoelastic Solution, which is used
during cataract surgery. The Company's relationship with Alcon and its
predecessors commenced in 1983, when the Company's hyaluronate was specified as
a raw material component of the Viscoat product, which received clearance from
the FDA in 1986. Until 1990, Alcon's predecessors had the exclusive rights to
purchase the Company's hyaluronate for ophthalmic applications. In 1990, the
arrangement with Alcon became non-exclusive. Since that time, sales of
hyaluronate to Alcon have continued to be made pursuant to supply agreements.
The current Alcon supply agreement, as renewed in November 1994, is for a term
of four years through December 31, 1998. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
 
    In December 1994, the Company entered into a supply agreement with Chiron
Vision. Under the agreement, the Company has been selling its hyaluronate to
Chiron Vision for export in packaged syringes in connection with two of Chiron
Vision's ophthalmic viscoelastic surgical products, Amvisc-Registered Trademark-
and Amvisc Plus-Registered Trademark- Ophthalmic Solutions. The Company has
validated its manufacturing facility to produce these products, and Chiron
Vision has filed a PMA supplement with the FDA to allow the Company to
manufacture these products for U.S. sale. The sale by Chiron Vision in the
United States of Amvisc and Amvisc Plus syringes supplied by the Company is
dependent upon such FDA clearance. In December 1995, Chiron Vision commenced
shipments of finished products to Europe.
 
    The Company is in the process of independently developing its own
viscoelastic solution, Lurocoat Solution, and has received an IDE from the FDA
to clinically evaluate that product for ophthalmic surgical use in the U.S. The
Company has entered into a multi-year private label manufacturing agreement with
Mentor, under which the Company will manufacture the Lurocoat product in
syringes under Mentor's trade name for sale on an exclusive basis in the United
States and Canada, and on a non-exclusive basis in other parts of the world.
United States clinical trials, funded by Mentor, are expected to commence in
fiscal 1998. The Company received CE marking for Lurocoat solution during fiscal
year 1997. The Company 

                                       7
<PAGE>

also has three other private label agreements to supply Lurocoat solution to 
others outside the United States and Canada. Export shipments of Lurocoat 
solution began in fiscal year 1997.
 
    NON-HYALURONATE OPHTHALMIC APPLICATIONS
 
    In its work with hyaluronate, the Company developed specialized skills in
filling syringes and vials with materials that, due to their perishable nature
or complex viscous handling properties, often could not be sterilized and
required rigorous aseptic manufacturing and packaging protocols. The Company is
leveraging these skills to initiate development projects for the manufacture of
non-hyaluronate products in the areas of refractive surgery and hyphema.
 
    REFRACTIVE SURGERY.  The Company is developing a manufacturing process with
Storz, to produce a polyethylene oxide ("PEO") ophthalmic gel product currently
under development for use in refractive surgery for myopia (near-sightedness).
Industry sources estimate that the current worldwide refractive surgery market,
on a patient cost basis, exceeds $900 million.
 
    The current refractive surgery procedures for correcting myopia involve
surgical revision of the cornea which, in one type of surgery, weakens and
relaxes the outer curvature to achieve a corresponding correction of the eye's
focusing mechanism, and in the other type of surgery, causes the cornea to be
surgically "flapped" to allow laser sculpting of the underlying layer. Both
current surgical approaches are performed within the central region of the
cornea, which is the eye's primary visual field. Storz is developing a
polyethylene oxide ophthalmic gel to be injected into the peripheral region of
the cornea, between the inner and outer layers, thereby changing the corneal
curvature to achieve vision correction without weakening the eye's structure or
compromising the primary visual field. Other potential advantages of this
approach are the opportunity for reversing the procedure, as well as using
repeat injections to adjust the vision correction over the patient's lifetime.
In June 1995, the Company began providing process development, manufacturing
scale-up, validation and clinical trial samples to Storz for the gel product.
Storz must successfully complete clinical trials and receive a PMA from the FDA
prior to commercial sales of its product in the United States. If successfully
developed, the Company may continue to provide manufacturing services to Storz.
 
    TREATMENT OF OCULAR HYPHEMA.  In January 1995, the Company signed an 
agreement with Orphan Medical, Inc. ("OMI") to provide OMI's 
Caprogel-TM-Topical Aminocaproic Acid in aseptically packaged syringes. 
Caprogel is a non-hyaluronate product for the topical treatment of ocular 
hyphema (internal bleeding of the eye), which can lead to retinal damage and 
blindness. Aminocaproic acid has been administered in other areas of the body 
to alleviate the side effects of bleeding, but has not been successfully 
developed for the eye. OMI received orphan drug status from the FDA in 1994 
and is proceeding with its development. Orphan drug status entitles a 
manufacturer, upon FDA approval, to exclusive marketing rights for certain 
products that serve a limited patient population. The Company is providing 
contract process development and aseptic packaging for Caprogel and expects 
that a subsequent commercial supply phase with a three-year term may commence 
upon OMI's commercial introduction of Caprogel. Industry sources estimate 
that the worldwide market for ocular hyphema involves 70,000 cases each year.

                                       8
<PAGE>
 
    WOUND MANAGEMENT
 
    Johnson & Johnson Medical, Ltd. ("JJML") is developing a product that
utilizes the Company's hyaluronate and process development expertise to produce
a drug delivery vehicle to enhance topical wound healing. During fiscal 1997,
JJML entered pre-clinical trials with this product.
 
    OTHER APPLICATIONS
 
    The Hyaluronate Division undertakes its own product development activities
for both hyaluronate based and non-hyaluronate based applications, as well as on
a contract basis with certain clients. The majority of outside projects are
initiated by a client to demonstrate that the Company's hyaluronate is suitable
for a particular medical application. Suitability is often measured by detailed
specifications for product characteristics such as purity, stability, viscosity,
and molecular weight, as well as efficacy for a particular medical application.
 
    The Company currently manufactures Vetrepharm, Inc.'s MAP-5-TM- Embryo
Cryopreservation Solution, an aseptically-packaged hyaluronate solution, for the
cryopreservation of fertilized animal embryos. MAP-5 Solution is used to
preserve the embryos for transportation to local veterinarians. Sales to
Vetrepharm, Inc. have been made since 1994 pursuant to annual purchase orders
which specify the quantity and unit price.
 
    Another area of development activity involves the potential use of
hyaluronate in various drug delivery vehicles. Independent studies conducted by
organizations other than the Company have yielded animal and human data that
indicate hyaluronate has the potential to enhance the delivery of antibiotics,
pain killers, chemotherapeutic agents, and other drugs similar to the JJML
opportunity outlined above.
 
    There can be no assurance that products which are currently under
development by the Company or others will be successfully developed or, if so
developed, will be successfully and profitably marketed.
 
ORAL RESTORATIVE DIVISION
 
BACKGROUND
 
    Dental implants are increasingly used to replace missing or extracted teeth
and to serve as supports for dentures, crowns, and bridges. In comparison to
conventional restorative procedures, dental implants are surgically placed
directly into the jawbone in a manner simulating the anchoring of a tooth by its
root. This better maintains underlying bone structure and provides superior
fixation of restorations, minimizing loosening of fixtures against surrounding
teeth and gingiva. Typically constructed of titanium in a cylindrical or
flattened shape, dental implants generally are categorized by shape and method
of implantation. For example, the threaded cylinder implant is screwed into the
jawbone, while an alternate form, the press-fit cylinder, is placed into a
precision-drilled hole with a friction fit. Additionally, various implant styles
may be spray coated with hydroxylapatite or metal to enhance bone fixation. The
Company believes the current dental implant market is approximately $350 million
on a manufacturers' sales basis.
 
    Bone graft substitutes are used for the restoration of hard and soft tissues
resulting from periodontal disease and tooth loss. Historically, when bone was
needed to fill holes or restore bone loss in a patient, the only available
sources have been bone from cadavers, live donor bone or autologous bone (from
another 

                                       9
<PAGE>

part of the patient's body). These sources have limitations related to 
quality and convenience. The Company has developed a patented process for the 
synthetic production of hydroxylapatite, the major inorganic constitute of 
natural bone. The Company's hydroxylapatite products provide surgeons with a 
readily available synthetic bone substitute of consistent quality at a 
competitive cost for periodontal and oral surgery applications. While the 
current market for bone substitute products is limited (approximately $5 
million annually in the United States), the addition of hard tissue 
regeneration products has expanded the market to approximately $25 million in 
the United States. The Company's TefGen-Registered Trademark- Regenerative 
Membrane and Capset-TM- Calcium Sulfate Bone Graft Barrier address this 
market opportunity. Similarly, a market for soft tissue regenerative products 
has developed to address the area of soft tissue replacement in adding to or 
replacing gingival tissue. The estimated U.S. market potential for a soft 
tissue regenerative product is approximately $50 million. AlloDerm-Registered 
Trademark- Dermal Graft addresses this market opportunity.
 
STRATEGY
 
    The Company intends to be a leader in the oral restorative surgical products
industry. The Company's strategies for achieving this goal are as follows:
 
    - Develop a broad line of dental implants and related dental surgery support
      products which facilitate the transition from competitive systems to a
      Lifecore system.
 
    - Develop and deliver unique educational programs and materials aimed at
      participating dentists and their staffs to facilitate the conversion from
      traditional dental treatment options to those involving dental implant and
      tissue regeneration therapy.
 
    - Develop and implement innovative cooperative marketing programs with
      participating dentists for the purpose of creating increased awareness of
      dental implant and tissue regeneration therapy among their client base and
      the public in general.

                                       10
<PAGE>

ORAL RESTORATIVE DIVISION PRODUCTS
 
    The following chart summarizes the principal products of the Company's Oral
Restorative Division:
 
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
               PRODUCT                                         MARKET                               STATUS*
--------------------------------------  ----------------------------------------------------  --------------------
<S>                                     <C>                                                   <C>
Sustain-Registered Trademark- and       Replacement of lost or extracted teeth                  Commercial sales
  Restore-Registered Trademark- Dental
  Implant Systems
------------------------------------------------------------------------------------------------------------------
Implant Support Systems                 Precision oral restorative components compatible        Commercial sales
                                        with implants
------------------------------------------------------------------------------------------------------------------
Capset-TM- Calcium Sulfate Bone Graft   For use with natural and synthetic bone graft           Commercial sales
  Barrier                               materials as a resorbable barrier cap and/or binding
                                        agent
------------------------------------------------------------------------------------------------------------------
TefGen-Registered Trademark-            Nonresorbable membrane for guided tissue                Commercial sales
  Regenerative Membrane                 regeneration
------------------------------------------------------------------------------------------------------------------
Hapset-Registered Trademark-            Repair of jawbone structure                             Commercial sales
  Hydroxylapatite Bone Graft Plaster
------------------------------------------------------------------------------------------------------------------
Orthomatrix-Registered Trademark-       Graft Substitute Repair of jawbone structure            Commercial sales
  Non-resorbable Hydroxylapatite Bone
------------------------------------------------------------------------------------------------------------------
AlloDerm-Registered Trademark- Dermal   For use in gingival tissue replacement or               Commercial sales
  Graft                                 augmentation surgery
------------------------------------------------------------------------------------------------------------------
</TABLE>
 
    IMPLANT PRODUCTS
 
    The Company offers two dental implant systems, the Restore Dental Implant
System and the Sustain Dental Implant System.
 
    The Restore System is based on a classic threaded titanium implant design
that pioneered the commercialization of these devices in general oral
restorative surgery. In July 1993, the Company acquired this implant design in
connection with its acquisition of Implant Support Systems, Inc., a manufacturer
of dental implant products. The Company has since enhanced and expanded the
original ISS line into a broad range of implant options, marketed under the
Restore System name. Included in the ISS acquisition was a line of dental
implant prosthetic components that the Company continues to market under the
Implant Support Systems brand. These components are compatible and
interchangeable with several other dental implant manufacturers' systems, as
well as miscellaneous dental implant support products, permitting the Company to
market its products to dental offices that currently use competitors' implant
systems.
 
    The Sustain System is based on a newer innovative design that embraces both
threaded and press-fit cylinder format with added "bone-like" hydroxylapatite.
In May 1992, the Company acquired the basic Sustain System from Bio-Interfaces,
Inc. after serving as an exclusive distributor for the Sustain System since
1990. The Sustain System is complemented by a complete line of prosthetic
components.
 
    Lifecore has enhanced and expanded both of these lines, creating new
products with a combination of innovative features from both systems. This gives
the Company one of the broadest lines in the oral restorative industry, offering
practitioners maximum flexibility in choice of treatment modalities with over
1,100 products.

                                       11
<PAGE>

    BONE AND SOFT TISSUE REGENERATION PRODUCTS
 
    The Company offers five products which address various bone and tissue
regeneration procedures.
 
    CAPSET-TM- Calcium Sulfate Bone Graft Barrier received 510(k) clearance and
was introduced to the market in 1995. The product is based on a calcium sulfate
plaster technology developed by and licensed from the U.S. Gypsum Corporation.
The business unit of U.S. Gypsum that supplied Lifecore with the raw material
and exclusive license rights to its dental use was purchased during the
Company's fiscal year 1997 by Wright Medical, Inc., an orthopedic products
manufacturer based in Memphis, Tennessee. Wright Medical and Lifecore have
agreed to maintain the technology and license agreement. CAPSET Barrier allows
the clinician to more efficiently use demineralized freeze-dried bone grafts to
restore missing bone, particularly in periodontal defects, without resorting to
more elaborate treatment techniques or no treatment at all.
 
    TefGen-Registered Trademark- Regenerative Membrane technology was acquired
by the Company from Bridger Biomed, Inc. in May 1997. This non-resorbable
membrane is based on NANO POROUS PTFE BIOMATERIALS ("nPTFE"); competitive with
the market's leading product produced by W.L. Gore. TefGen Regenerative Membrane
allows the dental surgeon to cover a treated defect in bone and prevent the
invasion of soft tissue while the slower growing bone tissue below has time to
establish itself.
 
    HAPSET-Registered Trademark- Hydroxylapatite Bone Graft Plaster is a
moldable, partially resorbable form of hydroxylapatite graft substitute that can
be contoured to bone defect during surgery. It consists of the Company's
hydroxylapatite particle in a carrier of the same calcium sulfate plaster used
for CAPSET.
 
    ORTHOMATRIX-Registered Trademark- Non-resorbable Hydroxylapatite Bone Graft
Substitute is a calcium phosphate particle that can be used in place of
freeze-dried allograft bone or the patient's own bone in defects where permanent
graft presence is desired.
 
    AlloDerm-Registered Trademark- Dermal Graft is freeze-dried and chemically
processed human donor skin that can be used as a substitute for soft tissue
grafts taken from the roof of the patient's mouth. In June 1997, Lifecore
entered into an exclusive U.S. sales and distribution agreement with LifeCell
Corporation to market and distribute AlloDerm Dermal Graft in the dental market.
The product provides soft tissue for adding or replacing gingival tissue without
the second site surgery and patient discomfort associated with palatal (roof of
mouth) harvesting of graft tissue.
 
    PRODUCT DEVELOPMENT
 
    The Oral Restorative Division is also involved in product development
activities to improve existing components and packaging and to add new
components to the dental implant systems. These development activities enhance
the suitability and ease of use of the products for specific surgical
applications and reflect changing trends in dental implant technology. There can
be no assurance, however, that products which are currently under development by
the Company will be successfully developed, or if so developed, will be
successfully and profitably marketed.

                                       12
<PAGE>

SALES AND MARKETING
 
    HYALURONATE DIVISION PRODUCTS
 
    The Company generally markets and distributes its hyaluronate products to
end-users through corporate partners. The Company sells hyaluronate to these
partners in a variety of forms, including powders, gels and solutions which are
packaged either in bulk jars, vials, or syringes. The Company sells its
ophthalmic grade hyaluronate powder to Alcon for Alcon's Viscoat solution and
has commenced the supply of Chiron Vision's Amvisc products with shipments to
Europe in December 1995. Mentor Ophthalmics, Inc. will provide exclusive
marketing of the Lurocoat viscoelastic for ophthalmic surgery in the United
States and Canada and non-exclusive marketing in other areas. Supply of Lurocoat
viscoelastic to Mentor began in June 1997 for marketing outside the United
States. The Company also has three other private label agreements to supply
Lurocoat viscoelastic to others outside the United States and Canada. In
addition, the Company manufactures and packages a PEO ophthalmic gel for Storz
pursuant to a development agreement and may enter into a supply relationship
upon the completion of successful clinical testing. The Company also sells vials
of hyaluronate solution for veterinary embryo cryopreservation to Vetrepharm,
Inc.
 
    The Company has an agreement with Ethicon for exclusive distribution of
LUBRICOAT Gel. The Company believes that Ethicon is the worldwide market leader
in the area of surgical products and has one of the largest marketing and sales
forces in the industry. Commercialization of LUBRICOAT Gel is dependent on
completion of clinical trials, receipt of FDA marketing approval, successful
manufacturing of commercial quantities, and the efforts of Ethicon to develop
the market for the product. No assurance can be given that any or all of these
conditions will be met.
 
    The Company also sells various forms of medical grade hyaluronate directly
to third parties for development and evaluation of new applications to be
marketed and distributed through those companies' distribution systems or a
jointly developed distribution system.
 
    ORAL RESTORATIVE DIVISION PRODUCTS
 
    The Company is focused on expanding its product line in the Oral Restorative
Division, improving product quality, and developing an appropriate
infrastructure to support sales growth. Management of the Company believes that
the dental implant market is highly specialized and that its sales force must
have extensive knowledge about the products. The products are marketed to oral
surgeons, periodontists, implantologists, prosthodontists, general dental
practitioners, and dental laboratories. Accordingly, the Company believes that
for proper distribution of these products, it must maintain a direct sales force
in the United States. The Company believes that because of their high level of
experience, its sales force offers better customer service, technical support
and regulatory control than could be achieved through an independent distributor
network in the United States. The Company employs eighteen individuals dedicated
to sales in the United States and five U.S.-based salespersons dedicated to
international sales. The Oral Restorative Division products are marketed
internationally through 25 distributors. In addition, the products are marketed
in Italy through its subsidiary, Lifecore Biomedical SpA, which currently
utilizes eight sales agents.
 
    The Company's marketing activities are designed to support its direct sales
force and include advertising and product publicity in trade journals, direct
mail catalogs, newsletters, continuing education programs, telemarketing, and
attendance at trade shows and professional association meetings.

                                       13
<PAGE>

    A new cooperative marketing venture, with certain key implant practioners,
is being tested as a means to advertise direct to the consumer in target
markets. Industry estimates indicate a need for replacement of approximately 100
million teeth in the adult population of the United States. That represents a
potential market for implant companies such as Lifecore of approximately $30
billion.
 
MANUFACTURING
 
    The commercial production of hyaluronate by the Company requires
fermentation, separation and purification capabilities, and aseptic packaging of
product in a variety of formats. In addition, the production of the LUBRICOAT
Gel formulation requires high volume precision mixing of viscous fluids.
 
    The Company produces its hyaluronate through a proprietary process of
fermentation. Until the introduction of the Company's medical grade hyaluronate,
the only commercial source for medical hyaluronate was through an animal
rendering process of extraction from rooster combs. The Company believed that
the rooster comb extraction method would not be capable of producing large
quantities of hyaluronate in an efficient manner if the use of medical grade
hyaluronate greatly increased. Consequently, the Company developed its
proprietary fermentation process for hyaluronate using existing knowledge of
other successful fermentation manufacturing processes. The Company believes that
the fermentation manufacturing approach is superior to rooster comb extraction
because of greater efficiency, flexibility, and better economies of scale in
producing large commercial quantities.
 
    The Company has a 66,000 square foot facility primarily for the Company's
proprietary hyaluronate manufacturing process. Several corporate partners have
required that the Company validate its manufacturing capability to fulfill
forecasted production requirements by creating additional capacity and
periodically operating at higher capacity levels. The Company believes it has
adequate current fermentation manufacturing capacity to meet these needs.
 
    The Company provides versatility in the simultaneous manufacturing of
various types of finished products. Currently, the Company supplies several
different formulations of hyaluronate (e.g., varied molecular weight fractions)
in powders, solutions and gels, and in a variety of finished packages, including
bulk jars, vials and syringes. The Hyaluronate Division is continuously
conducting development work relating to the techniques utilized in hyaluronate
manufacturing. Such development activity is designed to improve production
efficiencies and expand the Company's capabilities to achieve a wider range of
hyaluronate product specifications. The Company's specialized fluid handling and
aseptic packaging capabilities also provide the opportunity for the Company to
offer contract packaging for other technically challenging non-hyaluronate
fluids.
 
    In anticipation of significant commercial demand for hyaluronate products,
specifically LUBRICOAT Gel, the Company is expanding its warehouse and
distribution capabilities and its aseptic formulation and packaging facilities
for finished products. The scale-up of the aseptic operations requires the
purchase and validation of additional equipment and training of additional
personnel. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
 
    The Company's facility was designed to meet applicable regulatory
requirements and has been cleared by the FDA for the manufacture of both drug
and device products. The FDA periodically inspects the Company's manufacturing
systems, and requires conformance to the FDA's Good Manufacturing 

                                       14
<PAGE>

Practices ("GMP") regulations. In addition, the Company's corporate partners 
are required by the FDA to conduct intensive regulatory audits of its 
facilities. The Company also regularly contracts with independent regulatory 
consultants to conduct audits of the Company's operations. The Company has 
received certification of conformance to ISO 9001 Standards and Medical 
Device Directives, as well as the COMMISSION EUROPEEN (CE) Mark of Conformity 
from TUV Product Services of Munich, Germany. These approvals represent 
international symbols of quality system assurance and compliance with 
applicable European Medical Device Directives, which greatly assist in the 
marketing of the Company's products in the European Union.
 
    The Company uses outside metal finishing vendors to produce its finished
dental implant devices and related components. The Company conducts its own
inspection of vendors and quality assurance and quality control functions
related to the implant devices and components and performs its own finished
packaging.
 
    The Company purchases raw materials for its production of hyaluronate and
hydroxylapatite from outside vendors. While these materials are available from a
variety of sources, the Company principally uses limited sources for some of its
key materials to better monitor quality and achieve cost efficiencies. The key
raw material for CAPSET Barrier is supplied exclusively by Wright Medical, and
the Company believes such supplier is able to provide adequate amounts of the
raw materials for such product. The Company utilizes supply agreements with
Bridger Biomed, Inc. to supply the TefGen product line and LifeCell Corporation
to supply the AlloDerm Dermal Graft product line.
 
COMPETITION
 
    The competitors of the Company include major chemical, dental, medical, and
pharmaceutical companies, as well as smaller specialized firms. Many of these
companies have significantly greater financial, manufacturing, marketing, and
research and development resources than the Company.
 
    HYALURONATE PRODUCTS
 
    A number of companies produce hyaluronate products and thus directly or
indirectly compete with Lifecore or its corporate partners. Several companies
are pursuing anti-adhesion product development, including Anika Research, Inc.,
Biomatrix, Inc., Focal, Genzyme Corporation, Gliatech, Osteotech and W.L. Gore &
Associates, Inc. Genzyme is developing several hyaluronate-based formulations
for surgical anti-adhesion applications, which would directly compete with the
Company's LUBRICOAT Gel product, if and when approved for marketing by the FDA.
Genzyme has begun to market one of those products, Seprafilm-TM- bioresorbable
membrane. A second product, in the form of a gel, is in development. If the
products obtain commercial acceptance, the Company's prospects for LUBRICOAT
Gel, if and when approved, may be adversely affected.
 
    In addition to Genzyme, several companies produce hyaluronate through a
fermentation process, including Bio-Technology General Corporation, Kyowa Hakko,
Nippon, Seikagaku, and Miles Laboratories. Genzyme currently sells a high
molecular weight hyaluronate which is manufactured through a fermentation
process to the Company's ophthalmic customer, Alcon, for use in its
Provisc-Registered Trademark- solution. The Company believes that it and Genzyme
are the only fermentation manufacturers with the current capability to produce
large commercial quantities of medical grade hyaluronate under GMP conditions.
In addition, several companies manufacture hyaluronate by using rooster comb
extraction methods. These companies 

                                       15
<PAGE>


primarily include Anika Research, Inc., Biomatrix, Inc., Chesapeake 
Biological Labs, Fidia SpA, and Pharmacia & Upjohn. The Company believes that 
its patented fermentation process may offer production and regulatory 
advantages over the traditional rooster comb extraction method. The Company's 
competitors have filed or obtained patents covering aspects of fermentation 
production or uses of hyaluronate. These patents may cover the same 
applications as the Company's. Although there can be no assurance, the 
Company believes that it does not infringe the patents of its competitors. 
See "Patents and Proprietary Rights."
 
    The Company believes that competition in the ophthalmic and medical grade 
hyaluronate market is primarily based on product performance and 
manufacturing capacity, as well as product development capabilities. Future 
competition may be based on the existence of established supply 
relationships, regulatory approvals, intellectual property, and product 
price. After a manufacturer has taken a product through the FDA marketing 
approval process, a change in suppliers can involve significant cost and 
delay because significant manufacturing issues may be encountered and 
supplemental FDA review may be required.
 
    ORAL RESTORATIVE PRODUCTS
 
    The dental implant market is also highly competitive. Major market
competitors include Sulzer Calcitek, Inc., Paragon (Core-Vent), Implant
Innovations, Inc., Nobel Biocare AB and Steri-Oss. A number of these competitors
are established companies with dominant market shares. The Company believes that
competition in the dental implant market is based primarily on product
performance and quality, strong sales support, and education.
 
    The Company believes that its broad product line facilitates the conversion
of existing implant users to a Lifecore system. In addition, the Company has
developed several innovative education and marketing support programs which are
designed to increase the client's implant business. The Company believes it has
established a strong reputation for quality products due to its stringent design
and inspection criteria. No assurance can be given, however, that the Company
can effectively compete with manufacturers of dental implant systems having
larger, more established client bases.
 
    The market for the Company's tissue regeneration products is also
competitive. The major competitors include Guidor AB (Guidor), Implant
Innovations, Inc., W. L. Gore (GORE-TEX), and Sulzer Calcitek Inc. (Biomend).
While the Company believes its product line and experienced sales representation
are an advantage in this area, no assurance can be given that it can gain
significant market share from its more established competitors.
 
PATENTS AND PROPRIETARY RIGHTS
 
    The Company pursues a policy of obtaining patent protection for patentable
subject matter in its proprietary technology. In May 1985, the Company received
a United States patent covering certain aspects of its hyaluronate fermentation
process. The Company has also licensed a 1991 patent for the recombinant DNA
encoding of hyaluronate synthase, exclusively in the United States and
non-exclusively outside the United States. In August 1994, in connection with
the Ethicon Agreement, the Company was assigned a pending patent covering the
composition and use of LUBRICOAT Gel, with applications filed in the United
States, Australia, Brazil, Canada, Europe, Greece, and Japan. Subsequently, the
patent has been issued in Australia, Greece, and the United States. The Company
also has a United States patent covering the 

                                       16
<PAGE>


processes used in the manufacture of hydroxylapatite and a second patent 
covering the hydroxylapatite product produced by that process. The Company 
also licenses patented technology used in the production of hydroxylapatite 
from Wright Medical and the University of North Carolina. In conjunction with 
the purchase of the TefGen product line, the Company obtained the rights to 
the patent for composition, manufacture and use of the nPTFE material.
 
    The Company believes that patent protection is significant to its business.
However, if other manufacturers were to infringe on its patents, there can be no
assurance that the Company would be successful in challenging, or would have
adequate resources to challenge, such infringement. The Company also relies upon
trade secrets, proprietary know-how and continuing technological innovation to
develop and maintain its competitive position. There can be no assurance that
others will not obtain or independently develop technologies which are the same
as or similar to the Company's technologies. The Company pursues a policy of
requiring employees, temporary staff, consultants and customers (which have
access to some of its proprietary information) to sign confidentiality
agreements. There can be no assurance that the Company will be able to
adequately protect its proprietary technology through patents or other means.
 
    The Company is aware that one or more of its competitors have obtained, 
or are attempting to obtain, patents covering fermentation and other 
processes for producing hyaluronate. Other patents have been, or may be, 
issued in the future in product areas of interest to the Company. Although 
the Company is not aware of any claims that its current or anticipated 
products infringe on patents held by others, no assurance can be given that 
there will not be an infringement claim against the Company in the future. 
The costs of any Company involvement in legal proceedings could be 
substantial, both in terms of legal costs and the time spent by management of 
the Company in connection with such proceedings. It is also possible that the 
Company, to manufacture and market some of its products, may be required to 
obtain additional licenses, which may require the payment of initial fees, 
minimum annual royalty fees and ongoing royalties on net sales. There can be 
no assurance that the Company would be able to license technology developed 
by others, on favorable terms or at all, that may be necessary for the 
manufacture and marketing of its products.
 
GOVERNMENT REGULATION
 
    Government regulation in the United States and other countries is a
significant factor in the marketing of the Company's products and in the
Company's ongoing research and development activities. The Company's products
are subject to extensive and rigorous regulation by the FDA, which regulates the
products as medical devices and which, in some cases, requires a PMA, and by
foreign countries, which regulate the products as medical devices or drugs.
Under the Federal Food, Drug, and Cosmetic Act ("FDC Act"), the FDA regulates
clinical testing, manufacturing, labeling, distribution, sale, and promotion of
medical devices in the United States.
 
    Following the enactment of the Medical Device Amendments of 1976 to the FDC
Act, the FDA classified medical devices in commercial distribution at the time
of enactment ("old devices") into one of three classes--Class I, II, or III.
This classification is based on the controls necessary to reasonably ensure the
safety and effectiveness of medical devices. Class I devices are those whose
safety and effectiveness can reasonably be ensured through general controls,
such as labeling, premarket notification (the "510(k) Notification"), and
adherence to FDA-mandated current GMP requirements for devices. Class II devices
are those whose safety and effectiveness can reasonably be ensured through the
use of special controls, such as 

                                       17
<PAGE>

performance standards, post-market surveillance, patient registries, and FDA 
guidelines. Class III devices are devices that must receive a PMA from the 
FDA to ensure their safety and effectiveness. Ordinarily, a PMA requires the 
performance of at least two independent, statistically significant clinical 
trials that demonstrate the device's safety and effectiveness. Class III 
devices are generally life-sustaining, life-supporting, or implantable 
devices, and also include most devices that were not on the market before May 
28, 1976 ("new devices") and for which the FDA has not made a finding of 
substantial equivalence based upon a 510(k) Notification. An old Class III 
device does not require a PMA unless and until the FDA issues a regulation 
requiring submission of a PMA application for the device.
 
    The FDA invariably requires clinical data for a PMA application and has the
authority to require such data for a 510(k) Notification. If clinical data are
necessary, the manufacturer or distributor is ordinarily required to obtain an
IDE authorizing the conduct of human studies. Once in effect, an IDE permits
evaluation of devices under controlled clinical conditions. After a clinical
evaluation process, the resulting data may be included in a PMA application or a
510(k) Notification. The PMA may be approved, or the 510(k) Notification cleared
by the FDA, only after a review process which may include requests for
additional data, sometimes requiring further studies.
 
    If a manufacturer or distributor of medical devices can establish to the
FDA's satisfaction that a new device is substantially equivalent to what is
called a "predicate device," i.e., a legally marketed Class I or Class II
medical device or a legally marketed Class III device for which the FDA has not
required a PMA, the manufacturer or distributor may market the new device. In
the 510(k) Notification, a manufacturer or distributor makes a claim of
substantial equivalence, which the FDA may require to be supported by various
types of information, including data from clinical studies, showing that the new
device is as safe and effective for its intended use as the predicate device.
 
    Following submission of the 510(k) Notification, the manufacturer or
distributor may not place the new device into commercial distribution until an
order is issued by the FDA finding the new device to be substantially
equivalent. The FDA has no specific time limit by which it must respond to a
510(k) Notification. The 510(k) Notification process can take up to eighteen
months or more. The FDA may agree with the manufacturer or distributor that the
new device is substantially equivalent to a predicate device, and allow the new
device to be marketed in the United States. The FDA may, however, determine that
the new device is not substantially equivalent and require the manufacturer or
distributor to submit a PMA or require further information, such as additional
test data, including data from clinical studies, before it is able to make a
determination regarding substantial equivalence. Although the PMA process is
significantly more complex, time-consuming, and expensive than the 510(k)
Notification process, the latter process can also be expensive and substantially
delay the market introduction of a product.
 
    Hyaluronate products are generally Class III devices. In cases where the
Company is supplying hyaluronate to a corporate partner as a raw material or
producing a finished product under a license for the partner, the corporate
partner will be responsible for obtaining the appropriate FDA clearance or
approval. Export of the Company's hyaluronate products generally requires
approval of the importing country.
 
    The Sustain System and the Restore System, along with other dental implants,
are categorized as old Class III devices and are eligible for marketing through
510(k) Notifications. The FDA, however, has proposed to require PMAs for dental
implants, and by law must confirm such implants as Class III devices and require
PMAs for them or reclassify them into Class II or Class I. It is not known when
the FDA will make this decision or whether it will require PMAs for all, some or
none of these implants. The Company 

                                       18
<PAGE>

began clinical trials of its Sustain System under an IDE in 1990 in 
anticipation of the possibility that the FDA would require submission of PMAs 
for dental implants and believes it will have appropriate data to meet FDA 
requirements. The Company's TefGen product line is a Class II device. CAPSET 
Barrier, HAPSET Plaster and ORTHOMATRIX Bone Graft Substitute have received 
market clearance through 510(k) Notifications but are unclassified. Alloderm 
Dermal Graft is regulated as a banked human tissue.
 
    Other regulatory requirements are placed on a medical device's manufacture
and the quality control procedures in place, such as the FDA's device GMP
regulations. Manufacturing facilities are subject to periodic inspections by the
FDA to ensure compliance with device GMP requirements. The Company's facility is
subject to inspections as both a device and a drug manufacturing operation.
Other applicable FDA requirements include the medical device reporting
regulation, which requires that the Company provide information to the FDA on
deaths or serious injuries alleged to have been associated with the use of its
devices, as well as product malfunctions that would likely cause or contribute
to death or serious injury if the malfunction were to recur.
 
    If the Company is not in compliance with FDA requirements, the FDA or the
federal government can order a recall, detain the Company's devices, withdraw or
limit 510(k) Notification clearances or PMA approvals, institute proceedings to
seize the Company's devices, prohibit marketing and sales of the Company's
devices, and assess civil money penalties and impose criminal sanctions against
the Company, its officers, or its employees.
 
    There can be no assurance that any of the Company's clinical studies will
show safety or effectiveness; that 510(k) Notifications or PMA applications will
be submitted or, if submitted, accepted for filing; that any of the Company's
products that require clearance of a 510(k) Notification or approval of a PMA
application will obtain such clearance or approval on a timely basis, on terms
acceptable to the Company for the purpose of actually marketing the products, or
at all; or that following any such clearance or approval previously unknown
problems will not result in restrictions on the marketing of the products or
withdrawal of clearance or approval.
 
PRODUCT LIABILITY
 
    Product liability claims may be asserted with respect to the Company's
products. In addition, the Company may be subject to claims for products of its
customers which incorporate Lifecore's materials. The Company maintains product
liability insurance coverage of $1.0 million per claim, with an aggregate
maximum of $2.0 million. The Company also carries an $8.0 million umbrella
insurance policy which also covers product liability claims. Lifecore Biomedical
SpA also carries product liability insurance in the amount of $1.0 million per
claim with an aggregate maximum of $2.0 million. There can be no assurance that
the Company will have sufficient resources to satisfy product claims if they
exceed available insurance coverage.
 
EMPLOYEES
 
    As of July 31, 1997, the Company employed 156 persons on a full-time basis,
one part-time employee and nine temporary employees. None of the Company's
employees is represented by a labor organization, and the Company has never
experienced a work stoppage or interruption due to labor disputes. Management
believes its relations with employees are good.

                                       19
<PAGE>

EXECUTIVE OFFICERS OF THE REGISTRANT
 
EXECUTIVE OFFICERS
 
    The following sets forth the names of the executive officers of Lifecore, in
addition to information about their positions with Lifecore, their periods of
service in such capacities, and their business experience for at least the past
five years. There are no family relationships among them. All executive officers
named are elected or appointed by the Board of Directors for a term of office
from the time of election or appointment until the next annual meeting of
directors (held following the annual meeting of shareholders) and until their
respective successors are elected and have qualified.
 
    JAMES W. BRACKE, PH.D.  Dr. Bracke was appointed President and Chief
Executive Officer and a director in August 1983 and Secretary in March 1995. He
joined the Company in February 1981 as Senior Research Scientist.
 
    DENNIS J. ALLINGHAM.  Mr. Allingham has been Vice President and Chief
Financial Officer of the Company since February 1996. Mr. Allingham has also
been General Manager of the Hyaluronate Division since November 1996. From June
1995 until January 1996, Mr. Allingham served as Senior Vice President and Chief
Financial Officer of Premier Salons International, Inc., a leading private hair
salon chain in North America. From June 1993 until May 1995, Mr. Allingham
served as Executive Vice President, Chief Financial Officer and director of
TitleWave Stores, Inc., a leading chain retailer of home entertainment software.
From July 1992 until May 1993, Mr. Allingham was a management financial
consultant. From June 1980 until June 1992, Mr. Allingham held various positions
with Krelitz Industries, Inc., a wholesale distributor of pharmaceutical and
healthcare products, most recently serving as Executive Vice President, Chief
Operating Officer, Chief Financial Officer and director.
 
    BRIAN J. KANE.  Mr. Kane has been Vice President of New Business Development
for the Company since July 1991. He joined the Company as Vice President of
Marketing in June 1986.
 
    MARK J. MCKOSKEY.  Mr. McKoskey has been Vice President and General Manager
of the Oral Restorative Division since July 1994. He became Vice President of
Operations in June 1990. He joined the Company in June 1985 as Engineering
Manager.
 
    COLLEEN M. OLSON.  Ms. Olson has been Vice President of Corporate
Administrative Operations of the Company since May 1991. Prior to that time, she
was Vice President of Human Resources and Administration from June 1990 to May
1991, and Director of Human Resources and Administration from October 1984 to
June 1990. She joined the Company in January 1980 as Office Manager.
 
ITEM 2. PROPERTIES
 
    The Company's operations are all conducted in its 66,000 square foot
building in Chaska, Minnesota. At June 30, 1997, the Company is in the process
of expanding its building in Chaska by approximately 32,000 square feet. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation".

                                       20
<PAGE>

ITEM 3. LEGAL PROCEEDINGS
 
    Not applicable.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
    Not applicable.
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
    The Company's Common Stock is traded on the Nasdaq National Market under the
symbol LCBM. The following table sets forth for each quarter of fiscal 1997 and
1996 the range of high and low closing sale prices of the Common Stock on the
Nasdaq National Market. These quotations represent prices between dealers and do
not include retail mark-ups, markdowns or commissions and may not represent
actual transactions.
 
<TABLE>
<CAPTION>
FISCAL YEAR                                                                       LOW       HIGH
-----------------------------------------------------------------------------   -------    -------
<S>                                                                             <C>        <C>
1997
  First Quarter..............................................................   $16        $22 1/8
  Second Quarter.............................................................    15 1/8     20
  Third Quarter..............................................................    14 5/8     19 5/8
  Fourth Quarter.............................................................    11 1/2     16 1/8
 
1996
  First Quarter..............................................................   $ 7 3/8    $13 1/2
  Second Quarter.............................................................     9 5/8     18 3/4
  Third Quarter..............................................................    15 1/2     18 11/16
  Fourth Quarter.............................................................    16         21 1/4
</TABLE>
 
    The Company has not paid cash dividends on its Common Stock and does not
plan to pay cash dividends in the near future. The Company expects to retain any
future earnings to finance its business. The Company has a loan agreement which
restricts its ability to pay dividends. See Note C to Consolidated Financial
Statements.
 
    At July 31, 1997, the Company had 726 shareholders of record.
 
                                       21
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA
 
                      SELECTED CONSOLIDATED FINANCIAL DATA
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
    The following sets forth selected historical financial data with respect to
the Company and its subsidiaries. The data given below as of and for the five
years ended June 30, 1997 has been derived from the Company's Consolidated
Financial Statements audited by Grant Thornton LLP, independent certified public
accountants. Such data should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included elsewhere herein
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
 
<TABLE>
<CAPTION>
                                                                             YEARS ENDED JUNE 30,
                                                             -----------------------------------------------------
                                                               1993       1994       1995       1996       1997
                                                             ---------  ---------  ---------  ---------  ---------
<S>                                                          <C>        <C>        <C>        <C>        <C>
STATEMENTS OF OPERATIONS DATA:
Net sales..................................................  $   7,485  $  10,430  $  10,018  $  14,063  $  18,913
Costs of goods sold........................................      3,767      6,004      7,900      9,173      9,052
                                                             ---------  ---------  ---------  ---------  ---------
Gross profit...............................................      3,718      4,426      2,118      4,890      9,861
Operating expenses
  Research and development.................................      1,706      1,072      1,381      2,699      3,703
  Marketing and sales......................................      2,764      2,645      3,038      4,356      5,464
  General and administrative...............................      2,198      2,100      2,382      2,861      2,986
  Insurance proceeds, net..................................     --         --         --           (754)    --
  Manufacturing relocation.................................      1,331     --         --         --         --
                                                             ---------  ---------  ---------  ---------  ---------
                                                                 7,999      5,817      6,801      9,162     12,153
                                                             ---------  ---------  ---------  ---------  ---------
Loss from operations.......................................     (4,281)    (1,391)    (4,683)    (4,272)    (2,292)
Other income (expense).....................................        554     (1,406)      (532)       272      1,259
                                                             ---------  ---------  ---------  ---------  ---------
Net loss...................................................  $  (3,727) $  (2,797) $  (5,215) $  (4,000) $  (1,033)
                                                             ---------  ---------  ---------  ---------  ---------
                                                             ---------  ---------  ---------  ---------  ---------
Net loss per common share..................................  $    (.53) $    (.39) $    (.66) $    (.40) $    (.08)
                                                             ---------  ---------  ---------  ---------  ---------
                                                             ---------  ---------  ---------  ---------  ---------
Weighted average shares outstanding........................      7,048      7,176      7,880     10,114     12,179
                                                             ---------  ---------  ---------  ---------  ---------
                                                             ---------  ---------  ---------  ---------  ---------
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                AS OF JUNE 30,
                                                             -----------------------------------------------------
                                                               1993       1994       1995       1996       1997
                                                             ---------  ---------  ---------  ---------  ---------
<S>                                                          <C>        <C>        <C>        <C>        <C>
BALANCE SHEET DATA:
Working capital............................................  $   7,756  $   3,618  $   3,987  $  22,207  $  26,848
Total assets...............................................     23,786     24,063     25,522     64,429     65,509
Long-term obligations......................................      7,398      9,051      7,888      7,193      7,596
Shareholders' equity.......................................     13,453     11,328     10,188     52,152     52,096
</TABLE>
 
                                       22
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS
 
GENERAL
 
    The Company develops, manufactures and markets medical and surgical devices
through its Hyaluronate and the Oral Restorative Divisions.
 
    The Company has a number of relationships with corporate partners relating
to the development and marketing of hyaluronate based products for a variety of
medical applications, as well as certain non-hyaluronate based applications that
utilize the Company's specialized manufacturing capabilities. Currently, the
primary commercial application for the Company's hyaluronate is as a component
in an ophthalmic surgical product marketed by Alcon for cataract surgery. Sales
to Alcon are made under a supply agreement which extends through December 31,
1998. The agreement contains minimum purchase requirements totaling $10.4
million, consisting of $3.2 million in calendar year 1995 and $2.4 million in
each of calendar years 1996 through 1998. At the time the agreement was renewed
in 1994, the Company received a $6.3 million cash advance from Alcon against
future purchases. During fiscal year 1997, the remaining portion of the $6.3
million advance on product purchases from Alcon was fully utilized. See
"Liquidity and Capital Resources" and Note D to Consolidated Financial
Statements.
 
    The Company's Oral Restorative Division markets a comprehensive line of
titanium-based dental implants for tooth replacement therapy. In May 1992, the
Company acquired the Sustain System from BII and subsequently, in July 1993,
acquired ISS, the manufacturer of the Restore System and the ISS line of
compatible components. The Company has enhanced and expanded these product lines
since their acquisition. The Oral Restorative Division also manufactures and
markets synthetic bone graft substitute products for the restoration of bone
tissue deterioration resulting from periodontal disease and tooth loss. The Oral
Restorative Division also markets other products for the regeneration of bone
and soft tissue. The Division's products are marketed in the United States
through the Company's direct sales force; in Italy through the Company's
subsidiary, Lifecore Biomedical SpA; and in other countries through
distributors.
 
RESULTS OF OPERATIONS
 
    NET SALES.  Net sales increased $4,850,000 or 34% in fiscal 1997 from fiscal
1996, due to a $1,530,000 increase in sales to hyaluronate customers and a
$3,320,000 increase in sales to oral restorative customers.
 
    Hyaluronate sales increased to $7,115,000 in fiscal 1997 from $5,585,000 in
fiscal 1996. Sales to Alcon were $3,204,000, $2,861,000 and $3,182,000 for
fiscal years 1997, 1996 and 1995. In fiscal years 1996 and 1995, sales to Alcon
were at contract minimums. In fiscal year 1997, Alcon purchased above its
contract minimum. Net sales to hyaluronate customers other than Alcon increased
$1,187,000, or 44%, in fiscal 1997 from fiscal 1996. This increase was led
mainly by sales to Chiron Vision which increased by 54% in fiscal 1997 from
fiscal 1996. Hyaluronate sales increased to $5,585,000 in fiscal 1996 from
$5,223,000 in fiscal 1995. The decrease in hyaluronate sales to Alcon from
fiscal 1995 to fiscal 1996 was a result of Alcon purchasing only the required
minimum purchases. Net sales to other hyaluronate customers increased $683,000
or 33% in fiscal 1996 from fiscal 1995.

                                       23
<PAGE>

    Oral restorative product sales increased 39% to $11,798,000 in fiscal 1997
from $8,478,000 in fiscal 1996. This increase primarily reflects the continued
market acceptance of the Company's implant products, the effects of increased
sales and marketing activities in the domestic market, and increased sales
internationally through an expanded distributor network and at Lifecore
Biomedical SpA. Oral restorative product sales increased 77% to $8,478,000 in
fiscal 1996 from $4,795,000 in fiscal 1995. The increase in oral restorative
product sales in fiscal 1996 was a result of increased marketing and sales
activities in the domestic market, the introduction of CAPSET Barrier, sales
from Lifecore Biomedical SpA which was in operation for the entire fiscal year
1996, and higher sales levels internationally.

    COST OF GOODS SOLD.  Cost of goods sold, as a percentage of net sales,
decreased to 48% for fiscal year 1997 from 65% for fiscal year 1996. The
decrease resulted from fixed expenses being spread over increased product sales
and the expanded utilization of the Company's aseptic and hyaluronate production
capacity. Cost of goods sold, as a percentage of net sales, decreased to 65% for
fiscal 1996 from 79% for fiscal 1995. The decrease in fiscal 1996 resulted from
two main factors. First, fixed expenses were spread over increased product
sales. Second, direct charges for idle capacity relating to the Company's
manufacturing facility of hyaluronate products were lower than in the prior
year. These improvements were partially offset by the negative impact incurred
for the scale-up of aseptic ophthalmic syringe products. Cost of goods sold, as
a percentage of net sales for the oral restorative products, decreased to 40% in
fiscal 1997 from 46% in fiscal 1996 and 49% in fiscal 1995. The decreases
resulted principally from spreading fixed expenses over increased oral
restorative product sales in fiscal 1996 and 1997. Lower raw material costs as a
result of the ability to purchase in larger quantities further contributed to
the decrease in cost of goods sold.
 
    RESEARCH AND DEVELOPMENT.  Research and development expenses increased
$1,004,000 or 37% in fiscal 1997 from fiscal 1996. The increase in fiscal 1997
was principally a result of costs associated with human clinical trials on
LUBRICOAT Gel. Activity on other products in development was higher in fiscal
1997 than in fiscal 1996 which accounted for the remainder of the increase.
There was an increase of $1,318,000 or 95% in fiscal 1996 from fiscal 1995 as a
result of the LUBRICOAT Gel human clinical trials and increased activity on
other development projects.
 
    MARKETING AND SALES.  Marketing and sales expenses increased by $1,108,000
or 25% in fiscal 1997 from fiscal 1996. The increase in expenses mainly occurred
in the Oral Restorative Division. The components of this increase in fiscal 1997
were $417,000 for increased advertising and marketing costs, $363,000 due to
higher compensation costs for expanded sales personnel and commissions on an
increased sales base, $137,000 from Lifecore Biomedical SpA for increased sales
personnel and expanded marketing efforts, and a general increase in telephone,
travel and entertainment expenses. Marketing and sales expenses increased
$1,318,000 or 43% in fiscal 1996 from fiscal 1995. The principal components of
the increase in fiscal 1996 were $595,000 related to compensation costs,
primarily associated with additional sales personnel, $171,000 related to
advertising and sales literature costs, primarily resulting from a new product
catalog issued in the fall of 1995, increased travel and related expenses from
the additional sales personnel added in late fiscal 1995 and early fiscal 1996,
and expenses related to the direct sales personnel at Lifecore Biomedical SpA,
which has been in operation since April 1995.
 
    GENERAL AND ADMINISTRATIVE.  General and administrative expenses increased
by $125,000 or 4% in fiscal 1997 from fiscal 1996 and increased $479,000 or 20%
in fiscal 1996 from fiscal 1995. The increase in fiscal 1997 resulted mainly
from higher personnel related costs, including salaries, health 


                                       24
<PAGE>

insurance, recruiting and relocation expenses. The fiscal 1996 increase was 
due to higher personnel related costs and to a lesser extent a full year of 
expenses from Lifecore Biomedical SpA.
 
    INSURANCE PROCEEDS, NET.  In May 1996, the Company received net proceeds of
$754,000 on an insurance claim for product that was damaged in production as a
result of an equipment failure.
 
    OTHER INCOME (EXPENSE).  Interest expense was lower in fiscal 1997 compared
to fiscal 1996 due to a lower amount of debt outstanding and the capitalization
of interest expense in conjunction with the facility expansion project. Interest
income was greater in fiscal 1997 compared to fiscal 1996 as a result of a
higher average amount of cash to invest than in fiscal 1996. Interest expense
decreased in fiscal 1996 from fiscal 1995 due to a lower average debt
outstanding during fiscal 1996. Interest income increased in fiscal 1996 from
fiscal 1995 as a result of having additional cash available to invest from the
proceeds received from the public stock offering completed in the second quarter
of fiscal 1996 and the offshore stock offering in the fourth quarter of fiscal
1996.
 
LIQUIDITY AND CAPITAL RESOURCES
 
    Inventories consist mainly of finished hyaluronate and oral restorative
products and related raw materials. The portion of finished hyaluronate
inventory that is not expected to be consumed within the next twelve months is
classified as long-term. The finished hyaluronate inventory is maintained in a
frozen state and has a shelf life in excess of five years. Total inventory
increased $2,311,000 or 29% in fiscal 1997 from fiscal 1996 principally due to
building of hyaluronate inventory levels in anticipation of the demand for
LUBRICOAT Gel.
 
    The Company has had significant operating cash flow deficits for the last
three fiscal years. As the Hyaluronate Division's sales continue to increase,
the Company's direct charges associated with excess plant capacity are
decreasing; however, research and development costs for LUBRICOAT Gel, marketing
and sales expenses for the oral restorative products, and personnel costs are
increasing. Obligations under a promissory note in connection with the TefGen
product line acquisition total $800,000 for fiscal 1998 and $800,000 for fiscal
1999. These payments may be made in cash or the Company's common stock at the
Company's option. During the third quarter of fiscal 1997, the Company satisfied
its lease commitment with Johnson & Johnson Finance Corporation by purchasing
the equipment subject to the lease. The Company paid approximately $5.1 million
in exchange for the specialized production equipment which Lifecore was
utilizing under the operating lease. The lease termination is expected to
favorably impact ongoing financial operating costs.
 
    The loan agreement between the Company and the holder of the industrial
development revenue bonds issued to finance the Company's Chaska facility was
amended in July 1997 to waive the fixed charge coverage ratio and the cash flow
coverage ratio through June 30, 1998. With respect to certain of these
covenants, the Company anticipates that it will be required to obtain further
waivers for fiscal 1999. There can be no assurance that future waivers will be
granted to the Company.
 
    The Company is in the process of expanding its manufacturing and
distribution capabilities at its Chaska, Minnesota location. This expansion
includes building and equipment expenditures for warehouse and distribution
capabilities and to scale-up aseptic-packaging facilities for finished products.
Construction-in-progress and advance deposits relating to the expansion of
approximately $5,265,000 were incurred through June 30, 1997. The Company has
signed contracts with an architect, a process engineering firm 

                                       25
<PAGE>

and a construction company for the expansion project. The contracts provide 
for the expansion to be completed in phases. The contracts may be terminated 
at any time at minimal cost to the Company. The Company anticipates that 
approximately $13-15 million will be expended in fiscal year 1998 to 
complete the expansion project. Funding will result from the redemption of 
investments, which at June 30, 1997 aggregate in excess of $20 million.
 
    In fiscal 1996, the Company completed public offerings of its Common Stock,
providing net proceeds of approximately $45 million. The Company intends to use
the net proceeds to expand its warehouse and distribution capabilities, to
accelerate the scale-up of aseptic-packaging facilities in anticipation of
significant commercial demand for finished hyaluronate products, for working
capital, and for possible future redemption of all or a portion of the
outstanding industrial development revenue bonds. The Company believes these
capital resources are sufficient to meet the Company's needs through fiscal
1998, including its fixed obligations and anticipated operating cash flow
deficits.
 
    The Company exercised its option under the ISS note payable to make the
final principal payment due December 15, 1996 in the form of the Company's
common stock. To satisfy the $450,000 amount due, 29,108 shares of common stock
were issued under the formula described in the note.
 
    The Company's ability to generate positive cash flow from operations and 
achieve profitability is dependent upon the continued expansion of revenue 
from its hyaluronate and oral restorative businesses. Growth in the 
Hyaluronate 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. In the short term, the Company expects its cash requirements to 
significantly exceed the cash generated from anticipated operations due to 
the capital expeditures outlined above. No assurance can be given that the 
Company will attain and maintain positive cash flow before its capital 
resources are exhausted. While the Company's capital resources appear 
adequate today, unforeseen events, prior to achieving and maintaining 
positive cash flow, could require additional financing. 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
 
    Statements included in this Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this Form 10-K,
in the Letter to Shareholders contained in the Annual Report to Shareholders, in
future filings by the Company with the Securities and Exchange Commission and in
the Company's press releases and oral statements made with the approval of
authorized executive officers, if the statements are not historical or current
facts, should be considered "forward-looking statements" made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
These statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made. The following important factors, among others, in some cases have
affected and in the future could affect the Company's actual results and could
cause its actual financial performance to differ materially from that expressed
in any forward-looking statement: (i) uncertainty of successful development of
the Company's LUBRICOAT Gel, including the necessary PMA from the FDA, and of

                                       26
<PAGE>

other new hyaluronate products; (ii) the Company's reliance on corporate
partners to develop new products on a timely basis and to market the Company's
existing and new hyaluronate products effectively; (iii) possible limitations on
the Company's ability to meet anticipated significant commercial demand for
LUBRICOAT Gel product on a timely basis; and (iv) intense competition in the
markets for the Company's principal products. The foregoing list should not be
construed as exhaustive, and the Company disclaims any obligation subsequently
to revise any forward-looking statements to reflect events or circumstances
after the date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
    The consolidated financial statements are listed under Item 14 of this
report.
 
    Summarized unaudited quarterly financial data for 1997 and 1996 is as
follows:
 
<TABLE>
<CAPTION>
                                                                                  QUARTER
                                                           ------------------------------------------------------
                                                              FIRST         SECOND        THIRD         FOURTH
                                                           ------------  ------------  ------------  ------------
<S>                                                        <C>           <C>           <C>           <C>
Year ended June 30, 1997
  Net sales..............................................  $  3,568,000  $  4,684,000  $  4,611,000  $  6,050,000
  Gross profit...........................................     1,470,000     2,173,000     2,858,000     3,360,000
  Net income (loss)......................................      (654,000)     (543,000)       27,000       137,000
  Net income (loss) per share............................  $       (.05) $       (.04) $    --       $        .01
  Weighted average shares outstanding....................    12,131,046    12,180,372    12,180,648    12,221,082
 
Year ended June 30, 1996
  Net sales..............................................  $  2,729,000  $  3,274,000  $  3,673,000  $  4,387,000
  Gross profit...........................................       739,000     1,159,000     1,433,000     1,559,000
  Net loss...............................................    (1,278,000)   (1,406,000)     (946,000)     (370,000)
  Net loss per share.....................................  $       (.16) $       (.14) $       (.09) $       (.03)
  Weighted average shares outstanding....................     7,982,218     9,965,553     9,991,045    11,933,814
</TABLE>
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
  FINANCIAL DISCLOSURE
 
    None.

                                       27
<PAGE>

                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
    Information concerning director nominees is set forth in the section
entitled "Election of Directors" in the Company's Proxy Statement for its 1997
Annual Meeting of Shareholders to be held November 13, 1997, which is
incorporated herein by reference. See also "Executive Officers of the
Registrant" in Item 1 above.
 
ITEM 11. EXECUTIVE COMPENSATION
 
    Information concerning executive compensation is set forth in the section
entitled "Executive Compensation" in the Company's Proxy Statement for its 1997
Annual Meeting of Shareholders which is incorporated herein by reference.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
    Security ownership of certain owners and management is set forth in the
section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Company's Proxy Statement for its 1997 Annual Meeting of
Shareholders which is incorporated herein by reference.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
    Not Applicable.
 
                                       28
<PAGE>
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
(a) Documents filed as a part of the report:
 
    1.  Consolidated Financial Statements
 
<TABLE>
<CAPTION>
                                                                                FORM 10-K
                                                                             PAGE REFERENCE
                                                                           -------------------
<S>                                                                        <C>
Report of Independent Certified Public Accountants.......................          F-1
 
Consolidated Balance Sheets--June 30, 1996 and 1997......................          F-2
 
Consolidated Statements of Operations--years ended June 30, 1995, 1996   
  and 1997...............................................................          F-4
 
Consolidated Statements of Cash Flows--years ended June 30, 1995, 1996     
  and 1997...............................................................          F-5
 
Consolidated Statements of Shareholders' Equity--years ended June 30,     
  1995, 1996 and 1997....................................................          F-6
 
Notes to Consolidated Financial Statements...............................   F-7 through F-20
</TABLE>
 
    2.  Consolidated Financial Statement Schedules
 
<TABLE>
<CAPTION>
                                                                                FORM 10-K
                                                                             PAGE REFERENCE
                                                                           -------------------
<S>                                                                        <C>
Schedule II - Valuation and Qualifying Accounts..........................          S-1
</TABLE>
 
(b) Reports on Form 8-K
 
        None.
 
(c) Exhibits and Exhibit Index
 
<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER    DESCRIPTION
---------  ----------------------------------------------------------------------------------------------
<C>        <S>
   2.1     Stock Purchase Agreement between ISS and Lifecore dated July 28, 1993 (includes $2 million 5%
           Promissory Note dated July 28, 1993 as Exhibit A and Security Agreement as Exhibit B)
           (Pursuant to Rule 24b-2, certain portions of this Exhibit have been deleted and filed
           separately with the Commission) (incorporated by reference to Exhibit 2.1 to Form 8-K dated
           July 8, 1993)
</TABLE>
                                       29
<PAGE>

<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER    DESCRIPTION
---------  ----------------------------------------------------------------------------------------------
<C>        <S>
   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, filed herewith
 
   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     Loan Agreement dated as of September 1, 1990 between the City of Chaska and the Company
           (incorporated by reference from Exhibit 4.2 to the Registrant's Form 10-K for the year ended
           June 30, 1990, as amended on Form 8 dated October 12, 1990) as amended on June 10, 1991 and
           July 24, 1991 (incorporated by reference from Exhibit 10.2 to the Registrant's Amendment No. 1
           to Form 1991 S-2 Registration Statement [File No. 33-41291]) as amended on August 3, 1992
           (incorporated by reference to Exhibit 10.1 to Form 10-K for the year ended June 30, 1992) as
           amended on July 28, 1994 (incorporated by reference to Exhibit 10.1 to Form 10-K for the year
           ended June 30, 1994), as amended on July 27, 1995 (incorporated by reference to exhibit 10.1
           to Form 10-K for the year ended June 30, 1995), as amended on July 8, 1996, (incorporated by
           reference to exhibit 10.1 to Form 10-K for the year ended June 30, 1996), as amended on July
           1, 1997, filed herewith
 
  10.2     Trust Indenture dated as of September 1, 1990 from the City of Chaska to Norwest Bank
           Minnesota, N.A., as Trustee (incorporated by reference from Exhibit 4.3 to the Registrant's
           Form 10-K for the year ended June 30, 1990, as amended on Form 8 dated October 12, 1990)
 
  10.3     Combination Mortgage, Security Agreement and Fixture Financing Statement dated as of September
           1, 1990 from the Company to Norwest Bank Minnesota, N.A., as Trustee (incorporated by
           reference from Exhibit 4.4 to the Registrant's Form 10-K for the year ended June 30, 1990, as
           amended on Form 8 dated October 12, 1990)
 
  10.4     Contract for Private Redevelopment dated as of September 1, 1990 between the Company and
           Chaska Economic Development Authority (incorporated by reference from Exhibit 4.5 to the
           Registrant's Form 10-K for the year ended June 30, 1990, as amended on Form 8 dated October
           12, 1990)
 
  10.5     Hyaluronate Purchase Agreement dated March 28, 1990 between the Company and Alcon
           (incorporated by reference to Exhibit 10 to Form 8-K dated April 10, 1990, as amended on Form
           8 dated May 23, 1990) as amended on July 17, 1992, (Certain information has been deleted from
           this exhibit and filed separately with the Securities and Exchange Commission pursuant to a
           request for confidential treatment under Rule 24b-2) (incorporated by reference 
</TABLE>
                                            30
<PAGE>

<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER    DESCRIPTION
---------  ----------------------------------------------------------------------------------------------
<C>        <S>
           to Exhibit 10.5 to Form 10-K for the year ended June 30, 1992)
 
  10.6     Employment Agreement dated June 10, 1991 with James W. Bracke (incorporated by reference to
           Exhibit 10.11 to 1991 S-2 Registration Statement [File No. 33-41291]), as amended by letter
           agreement dated on August 14, 1995 (incorporated by reference to Exhibit 10.6 to Form 10-K for
           the year ended June 30, 1995)
 
  10.7     Form of Indemnification Agreement entered into between the Company and directors and officers
           (incorporated by reference to Exhibit 10.7 to Form 10-K for the year ended June 30, 1995)
 
  10.8     1987 Stock Option Plan (incorporated by reference to Exhibit 4(a) to S-8 Registration
           Statement [File No. 33-26065])
 
  10.9     1987 Employee Stock Purchase Savings Plan (incorporated by reference to Exhibit 4(a) to S-8
           Registration Statement [File No. 33-19288])
 
  10.10    1990 Employee Stock Purchase Savings Plan (incorporated by reference to Exhibit 4(a) to S-8
           Registration Statement [File No. 33-32984])

  10.11    1990 Stock Plan (incorporated by reference to Exhibit 4(a) to S-8 Registration Statement [File
           No. 33-38914]) as amended by Amendment No. 1 (incorporated by reference to Exhibit 10.13 to
           Form 10-K for the year ended June 30, 1994), as amended by Amendment No. 2, filed herewith
 
  10.12    Conveyance, License, Development and Supply Agreement dated August 8, 1994 between Lifecore
           Biomedical, Inc. and Ethicon, Inc. (pursuant to Rule 24b-2, certain portions of this Exhibit
           have been omitted and filed separately with the Commission) (incorporated by reference to
           Exhibit 10.14 to Form 10-K for the year ended June 30, 1994)
 
  10.13    Equipment Lease dated May 28, 1991 between the Registrant and Johnson & Johnson Finance
           Corporation (incorporated herein by reference from Exhibit 10.20 to 1991 S-2 Registration
           Statement [File No. 33-12970]) as amended in May 1992 (incorporated by reference to Exhibit
           10.15 to Form 10-K for the year ended June 30, 1992), as amended in January 1993 (incorporated
           by reference to Exhibit 10.15 to Form 10-K for the year ended June 30, 1993), as amended in
           January 1994 and March 1994 (incorporated by reference to Exhibit 10.15 to Form 10-Q for the
           quarter ended March 31, 1994)
 
  10.14    1996 Stock Option Plan (incorporated by reference to Exhibit 4.1 to S-8 Registration Statement
           [File No. 333-18515])
 
  10.15    Amendment No. 2 to Hyaluronate Purchase Agreement dated December 4, 1992 between Lifecore
           Biomedical, Inc. and Alcon Surgical, Inc. (pursuant to Rule 24b-2, certain portions of this
           Exhibit have been omitted and filed separately with the Commission) (incorporated by reference
           to Exhibit 28 to Form 8-K dated December 4, 1992)
 
  10.16    Amendment No. 3 to Hyaluronate Purchase Agreement dated May 12, 1993 between Lifecore

</TABLE>
                                            31
<PAGE>

<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER    DESCRIPTION
---------  ----------------------------------------------------------------------------------------------
<C>        <S>
           Biomedical, Inc. and Alcon Surgical, Inc. (pursuant to Rule 24b-2, certain portions of this
           Exhibit have been omitted and filed separately with the Commission) (incorporated by reference
           to Exhibit 10.18 to Form 10-K for the year ended June 30, 1993 as amended on Form 10-K/A dated
           December 15, 1994)
 
  10.17    Letter Agreement dated October 28, 1992 between the Company and Bio-Interfaces, Inc.
           (incorporated by reference to Exhibit 28.1 to Form 8-K dated October 5, 1992)
 
  10.18    Stock Purchase Agreement dated August 8, 1994 between Lifecore Biomedical, Inc. and Johnson
           and Johnson Development Corporation, (incorporated by reference to Exhibit 10.20 to Form 10-K
           for the year ended June 30, 1994)
 
  10.19    Amendment No. 4 to Hyaluronate Purchase Agreement dated November 29, 1994, between Lifecore
           Biomedical, Inc. and Alcon Laboratories, Inc. (pursuant to Rule 24b-2, certain portions of
           this Exhibit have been omitted and filed separately with the Commission) (incorporated by
           reference to Exhibit 10.21 to Form 10-Q for the quarter ended December 31, 1994)
 
  10.20    Supply Agreement dated December 7, 1994 between Lifecore Biomedical, Inc. and IOLAB
           Corporation (now Chiron Vision) (pursuant to Rule 24b-2, certain portions of this Exhibit have
           been omitted and filed separately with the Commission) (incorporated by reference to Exhibit
           10.20 to Form 10-K for the year ended June 30, 1995)

  10.21    Standard Form of Agreement Between Owner and Construction Manager dated June 1, 1996 between
           Lifecore Biomedical, Inc. and Marshall Contractors, Inc., filed herewith
 
  10.22    General Conditions of the Contract for Construction relating to the Standard Form of Agreement
           Between Owner and Construction Manager dated June 1, 1996 between Lifecore Biomedical, Inc.
           and Marshall Contractors, Inc., filed herewith
 
  23.1     Consent of Grant Thornton LLP
 
   27      Financial Data Schedule
</TABLE>
 
                                       32
<PAGE>
                                   SIGNATURES
 
    Pursuant to the requirements of Section 13 or 15(d) 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: August 28, 1997
                                By:  /s/ JAMES W. BRACKE
                                     ------------------------------------------
                                     James W. Bracke, Ph.D.
                                     PRESIDENT AND CHIEF EXECUTIVE OFFICER
                                     AND SECRETARY
 
    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in capacities and on the dates indicated.
 
Dated: August 28, 1997          By    /s/ DENNIS J. ALLINGHAM
                                      --------------------------------------
                                      Dennis J. Allingham
                                      VICE PRESIDENT AND CHIEF FINANCIAL
                                      OFFICER
                                      (PRINCIPAL FINANCIAL OFFICER)
 
Dated: August 28, 1997          By    /s/ JAMES W. BRACKE
                                      --------------------------------------
                                      James W. Bracke, Ph.D.
                                      PRESIDENT AND CHIEF EXECUTIVE OFFICER
                                      (PRINCIPAL EXECUTIVE OFFICER),
                                      SECRETARY AND DIRECTOR
 
Dated: August 28, 1997          By    /s/ ORWIN L. CARTER
                                      --------------------------------------
                                      Orwin L. Carter
                                      DIRECTOR
 
Dated: August 28, 1997          By    /s/ JOAN L. GARDNER
                                      --------------------------------------
                                      Joan L. Gardner
                                      DIRECTOR
 
Dated: August 28, 1997          By    /s/ THOMAS H. GARRETT
                                      --------------------------------------
                                      Thomas H. Garrett
                                      DIRECTOR
 
Dated: August 28, 1997          By    /s/ JOHN C. HEINMILLER
                                      --------------------------------------
                                      John C. Heinmiller
                                      DIRECTOR

Dated: August 28, 1997          By    /s/ DONALD W. LARSON
                                      --------------------------------------
                                      Donald W. Larson
                                      DIRECTOR
 
Dated: August 28, 1997          By    /s/ RICHARD W. PERKINS
                                      --------------------------------------
                                      Richard W. Perkins
                                      DIRECTOR
 
Dated: August 28, 1997          By    /s/ MARK T. SELLNOW
                                      --------------------------------------
                                      Mark T. Sellnow
                                      CONTROLLER (PRINCIPAL ACCOUNTING
                                      OFFICER)
 
                                       33
<PAGE>

              (This page has been left blank intentionally.)

<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
 
Shareholders and Board of Directors
  Lifecore Biomedical, Inc.
 
    We have audited the accompanying consolidated balance sheets of Lifecore
Biomedical, Inc. (a Minnesota corporation) and Subsidiaries as of June 30, 1997
and 1996, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended June 30,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
 
    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
    In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Lifecore
Biomedical, Inc. and Subsidiaries as of June 30, 1997 and 1996, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended June 30, 1997, in conformity with
generally accepted accounting principles.
 
    We have also audited Schedule II of Lifecore Biomedical, Inc. and
Subsidiaries for each of the three years in the period ended June 30, 1997. In
our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
 
                                          /s/ GRANT THORNTON LLP
 
Minneapolis, Minnesota
August 1, 1997
 
                                      F-1
<PAGE>
                   LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
                                    JUNE 30,

                                    ASSETS

<TABLE>
<CAPTION>
                                                        1996          1997
                                                    ------------  ------------
<S>                                                 <C>           <C>
CURRENT ASSETS
  Cash and cash equivalents (note A2).............  $  3,264,000  $  1,371,000
  Short-term investments (note A3)................    14,947,000    16,630,000
  Accounts receivable, less allowances (notes A4
    and A9).......................................     2,326,000     4,792,000
  Inventories (note A5)...........................     5,954,000     8,440,000
  Prepaid expenses................................       800,000     1,432,000
                                                    ------------  ------------
      Total current assets........................    27,291,000    32,665,000

PROPERTY, PLANT AND EQUIPMENT--AT COST (notes A6,
  C, E and H)
  Land............................................       249,000       249,000
  Building........................................     6,848,000     7,977,000
  Equipment.......................................     5,167,000     9,492,000
  Land and building improvements..................     1,406,000     1,510,000
                                                    ------------  ------------
                                                      13,670,000    19,228,000
  Less accumulated depreciation...................    (5,009,000)   (5,483,000)
                                                    ------------  ------------
                                                       8,661,000    13,745,000
  Construction-in-progress and advance deposits...       --          5,265,000
                                                    ------------  ------------
                                                       8,661,000    19,010,000
OTHER ASSETS
  Intangibles (notes A7 and B)....................     4,268,000     6,306,000
  Long-term investments (note A3).................    20,137,000     3,960,000
  Security deposits (note C)......................       788,000       786,000
  Inventories (note A5)...........................     2,014,000     1,839,000
  Other (note A8).................................     1,270,000       943,000
                                                    ------------  ------------
                                                      28,477,000    13,834,000
                                                    ------------  ------------
                                                    $ 64,429,000  $ 65,509,000
                                                    ------------  ------------
                                                    ------------  ------------
</TABLE>

                                     F-2
<PAGE>
                   LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS - (Continued)
                                    JUNE 30,

                     LIABILITIES AND SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                        1996          1997
                                                    ------------  ------------
<S>                                                 <C>           <C>

CURRENT LIABILITIES
  Current maturities of long-term obligations
    (note C)......................................  $    698,000  $    918,000
  Accounts payable (note H).......................     1,156,000     3,613,000
  Accrued compensation............................       548,000       638,000
  Accrued expenses................................       730,000       648,000
  Customers' deposits (note D)....................     1,952,000       --
                                                    ------------  ------------
      Total current liabilities...................     5,084,000     5,817,000
LONG-TERM OBLIGATIONS (note C)....................     7,193,000     7,596,000
COMMITMENTS AND CONTINGENCIES (notes D, E, H, K
  and M)..........................................       --            --
SHAREHOLDERS' EQUITY (notes B, C, G and K)
  Preferred stock--authorized, 25,000,000 shares
    of $1.00 stated value; none issued............       --            --
  Preferred stock, Series A Junior
    Participating--authorized, 500,000 shares of
    $1.00 par value; none issued..................       --            --
  Common stock--authorized, 50,000,000 shares of
    $.01 stated value; issued and outstanding,
    12,121,971 and 12,222,722 shares at June 30,
    1996 and 1997.................................       121,000       122,000
  Additional paid-in capital......................    83,139,000    84,115,000
  Accumulated deficit.............................   (31,108,000)  (32,141,000)
                                                    ------------  ------------
                                                      52,152,000    52,096,000
                                                    ------------  ------------
                                                    $ 64,429,000  $ 65,509,000
                                                    ------------  ------------
                                                    ------------  ------------
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                      F-3
<PAGE>
                   LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                              YEARS ENDED JUNE 30,
 
<TABLE>
<CAPTION>
                                                                          1995           1996           1997
                                                                      -------------  -------------  -------------
<S>                                                                   <C>            <C>            <C>
Net sales (notes A9 and J)..........................................  $  10,018,000  $  14,063,000  $  18,913,000
Cost of goods sold..................................................      7,900,000      9,173,000      9,052,000
                                                                      -------------  -------------  -------------
    Gross profit....................................................      2,118,000      4,890,000      9,861,000
 
Operating expenses
  Research and development..........................................      1,381,000      2,699,000      3,703,000
  Marketing and sales...............................................      3,038,000      4,356,000      5,464,000
  General and administrative........................................      2,382,000      2,861,000      2,986,000
  Insurance proceeds, net (note L)..................................       --             (754,000)      --
                                                                      -------------  -------------  -------------
                                                                          6,801,000      9,162,000     12,153,000
                                                                      -------------  -------------  -------------
    Loss from operations............................................     (4,683,000)    (4,272,000)    (2,292,000)
Other income (expense)
  Interest expense..................................................       (854,000)      (814,000)      (641,000)
  Interest income...................................................        322,000      1,086,000      1,900,000
                                                                      -------------  -------------  -------------
                                                                           (532,000)       272,000      1,259,000
                                                                      -------------  -------------  -------------
    NET LOSS........................................................  $  (5,215,000) $  (4,000,000) $  (1,033,000)
                                                                      -------------  -------------  -------------
                                                                      -------------  -------------  -------------
    Net loss per common share (notes A10 and A11)...................  $        (.66) $        (.40) $        (.08)
                                                                      -------------  -------------  -------------
                                                                      -------------  -------------  -------------
Weighted average common shares outstanding..........................      7,879,538     10,114,149     12,179,008
                                                                      -------------  -------------  -------------
                                                                      -------------  -------------  -------------
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                      F-4
<PAGE>
                   LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                              YEARS ENDED JUNE 30,
 
<TABLE>
<CAPTION>
                                                                        1995            1996            1997
                                                                    -------------  --------------  --------------
<S>                                                                 <C>            <C>             <C>
Cash flows from operating activities:
Net loss..........................................................  $  (5,215,000) $   (4,000,000) $   (1,033,000)
Adjustments to reconcile net loss to net cash used in operating
  activities:
  Depreciation and amortization...................................        939,000       1,015,000       1,406,000
  Allowance for doubtful accounts.................................        141,000          67,000        --
  Changes in operating assets and liabilities
    Accounts receivable...........................................       (357,000)       (795,000)     (2,466,000)
    Inventories...................................................       (862,000)     (1,810,000)     (2,311,000)
    Prepaid expenses..............................................       (142,000)       (396,000)       (632,000)
    Accounts payable..............................................        171,000         410,000       2,457,000
    Accrued liabilities...........................................        101,000         457,000           8,000
    Customers' deposits...........................................      3,320,000      (2,788,000)     (1,952,000)
                                                                    -------------  --------------  --------------
      Total adjustments...........................................      3,311,000      (3,840,000)     (3,490,000)
                                                                    -------------  --------------  --------------
Net cash used in operating activities.............................     (1,904,000)     (7,840,000)     (4,523,000)
 
Cash flows from investing activities:
  Purchases of property, plant and equipment......................       (449,000)     (1,147,000)    (11,338,000)
  Purchases of intangibles........................................        (51,000)        (33,000)       (840,000)
  Purchases of investments........................................       --           (67,832,000)    (11,379,000)
  Maturities of investments.......................................       --            32,748,000      25,844,000
  Decrease (increase) in security deposits........................        (97,000)        234,000           2,000
  Decrease (increase) in other assets.............................       (130,000)       (420,000)        341,000
                                                                    -------------  --------------  --------------
Net cash provided by (used in) investing activities...............       (727,000)    (36,450,000)      2,630,000
                                                                    -------------  --------------  --------------
Cash flows from financing activities:
  Payments of long-term obligations...............................       (993,000)     (1,136,000)       (527,000)
  Proceeds from issuance of common stock..........................      3,985,000      45,305,000        --
  Proceeds from stock options exercised...........................         90,000         659,000         527,000
                                                                    -------------  --------------  --------------
Net cash provided by financing activities.........................      3,082,000      44,828,000        --
                                                                    -------------  --------------  --------------
Net increase (decrease) in cash and cash equivalents..............        451,000         538,000      (1,893,000)
Cash and cash equivalents at beginning of year....................      2,275,000       2,726,000       3,264,000
                                                                    -------------  --------------  --------------
Cash and cash equivalents at end of year..........................  $   2,726,000  $    3,264,000  $    1,371,000
                                                                    -------------  --------------  --------------
                                                                    -------------  --------------  --------------
Supplemental disclosure of cash flow information:
  Cash paid during the year for:
    Interest......................................................  $     835,000  $      784,000  $      737,000
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                      F-5
<PAGE>
                   LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                                                COMMON STOCK
                                                          ------------------------   ADDITIONAL
                                                             SHARES                    PAID-IN      ACCUMULATED
                                                             ISSUED       AMOUNT       CAPITAL        DEFICIT
                                                          ------------  ----------  -------------  --------------
<S>                                                       <C>           <C>         <C>            <C>
Balances at June 30, 1994...............................     7,195,689  $   72,000  $  33,149,000  $  (21,893,000)
  Exercise of stock options and employee stock purchase
    savings plan........................................        19,082      --             90,000        --
  Proceeds from sale of common stock
    (note K)............................................       757,396       8,000      3,977,000        --
  Net loss for the year ended June 30, 1995.............       --           --           --            (5,215,000)
                                                          ------------  ----------  -------------  --------------
Balances at June 30, 1995...............................     7,972,167      80,000     37,216,000     (27,108,000)
  Exercise of stock options and employee stock purchase
    savings plan, net of 628 shares surrendered in
    payment.............................................       119,804       1,000        658,000        --
  Proceeds from sale of common stock
    (note G)............................................     4,030,000      40,000     45,265,000        --
  Net loss for the year ended June 30, 1996.............       --           --           --            (4,000,000)
                                                          ------------  ----------  -------------  --------------
Balances at June 30, 1996...............................    12,121,971     121,000     83,139,000     (31,108,000)
  Exercise of stock options and employee stock purchase
    savings plan, net of 1,588 shares surrendered in
    payment.............................................        71,643       1,000        545,000        --
  Issuance of common stock issued as payment of debt
    (note C)............................................        29,108      --            431,000        --
  Net loss for the year ended June 30, 1997.............       --           --           --            (1,033,000)
                                                          ------------  ----------  -------------  --------------
Balances at June 30, 1997...............................    12,222,722  $  122,000  $  84,115,000  $  (32,141,000)
                                                          ------------  ----------  -------------  --------------
                                                          ------------  ----------  -------------  --------------
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                      F-6
<PAGE>
                   LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
    Lifecore Biomedical, Inc. ("the Company"), develops, manufactures, and
markets surgically implantable materials and devices through its two divisions,
the Hyaluronate Division and the Oral Restorative Division. The Hyaluronate
Division's manufacturing facility is located in Chaska, Minnesota and markets
its products through OEM and contract manufacturing alliances in the fields of
ophthalmology, veterinary and wound care management. The Oral Restorative
Division markets its products through direct sales in the United States and
Italy and through distributors in other foreign countries. In April 1995, the
Company began direct sales operations in Italy through a newly formed
subsidiary, Lifecore Biomedical SpA, in Verona, Italy.
 
    In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
 
    A summary of significant accounting policies consistently applied in the
preparation of the financial statements follows:
 
1.  CONSOLIDATION POLICY
 
    The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Implant Support Systems, Inc. and Lifecore
Biomedical SpA. All intercompany balances and transactions have been eliminated
in consolidation.
 
2.  CASH AND CASH EQUIVALENTS
 
    The Company considers all highly liquid temporary investments with original
maturities of three months or less to be cash equivalents. At June 30, 1996 and
1997, principally all of the Company's cash and cash equivalents are invested in
a money market fund.

                                      F-7
<PAGE>
                   LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

3.  INVESTMENTS
 
    The Company has invested its excess cash in commercial paper, government
agencies and medium term corporate notes. These investments are classified as
held-to-maturity given the Company's intent and ability to hold the securities
to maturity and are carried at amortized cost. Investments that have maturities
of less than one year have been classified as short-term investments.
 
    At June 30, 1996 and 1997, amortized cost approximates fair value of
held-to-maturity investments which consist of the following:
 
<TABLE>
<CAPTION>
                                                                     1996           1997
                                                                 -------------  -------------
<S>                                                              <C>            <C>
Short-term investments:
  Medium term corporate notes..................................  $    --        $  12,800,000
  Commercial paper.............................................     12,447,000      2,627,000
  U.S. Government Agencies.....................................      2,500,000      1,203,000
                                                                 -------------  -------------
                                                                    14,947,000     16,630,000
Long-term investments:
  U.S. Government Agencies.....................................      1,242,000       --
  Medium term corporate notes..................................     18,895,000      3,960,000
                                                                 -------------  -------------
                                                                    20,137,000      3,960,000
                                                                 -------------  -------------
                                                                 $  35,084,000  $  20,590,000
                                                                 -------------  -------------
                                                                 -------------  -------------
</TABLE>
 
4.  ACCOUNTS RECEIVABLE
 
    The Company grants credit to customers in the normal course of business, but
generally does not require collateral or any other security to support amounts
due. The Company's customers are located primarily throughout the United States
and Europe. Management performs on-going credit evaluations of its customers.
The Company maintains allowances for potential credit losses which were $286,000
at June 30, 1996 and 1997.

                                      F-8
<PAGE>
                   LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

5.  INVENTORIES
 
    Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventory not expected to be consumed within one year is classified as a
long-term asset. Inventories consist of the following:
 
<TABLE>
<CAPTION>
                                                                         AS OF JUNE 30,
                                                                   ---------------------------
                                                                       1996          1997
                                                                   ------------  -------------
<S>                                                                <C>           <C>
Raw materials....................................................  $  2,632,000  $   2,819,000
Work-in-process..................................................        82,000        205,000
Finished goods...................................................     5,254,000      7,255,000
                                                                   ------------  -------------
                                                                   $  7,968,000  $  10,279,000
                                                                   ------------  -------------
                                                                   ------------  -------------
</TABLE>
 
6.  DEPRECIATION
 
    Depreciation is provided in amounts sufficient to charge the cost of 
depreciable assets to operations over their estimated service lives 
principally on a straight-line method for financial reporting purposes and on 
straight-line and accelerated methods for income tax reporting purposes. 
Depreciation expense was approximately $559,000, $628,000 and $990,000 for 
the years ended June 30, 1995, 1996 and 1997. Lives used in straight-line 
depreciation for financial reporting purposes are as follows:
 
<TABLE>
<CAPTION>
                                                                                    NUMBER OF
                                                                                      YEARS
                                                                                    ----------
<S>                                                                                 <C>
Building..........................................................................    18-25
Equipment.........................................................................     3-15
Land and building improvements....................................................      18
</TABLE>
 
7.  INTANGIBLES
 
    Intangibles consist primarily of the cost of the technology and regulatory
rights related to the Sustain Dental Implant System product line acquired in May
1992, the goodwill related to the July 1993 acquisition of Implant Support
Systems, Inc., and the cost of the technology and regulatory rights related to
the TefGen Regenerative Membrane product line acquired in May 1997.
 
    On an ongoing basis, the Company reviews the valuation and amortization of
intangibles to determine possible impairment by comparing the carrying value to
projected undiscounted future cash flows of the related assets. The cost of the
technology and regulatory rights and the goodwill are being amortized on the
straight-line method over 15 years, their estimated useful lives. Accumulated
amortization of intangibles was $1,256,000 and $1,647,000 at June 30, 1996 and
1997.

                                      F-9
<PAGE>
                   LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

8.  OTHER ASSETS
 
    Included within other assets are costs incurred to register patents and
trademarks which are capitalized as incurred. Amortization of these costs
commences when the related patent or trademark is granted. The costs are
amortized over the estimated useful life of the patent or trademark, not to
exceed 17 years. Patents and trademarks consist of the following:
 
<TABLE>
<CAPTION>
                                                                            AS OF JUNE 30,
                                                                        ----------------------
                                                                           1996        1997
                                                                        ----------  ----------
<S>                                                                     <C>         <C>
Patents...............................................................  $  160,000  $  169,000
Trademarks............................................................      59,000      61,000
                                                                        ----------  ----------
                                                                           219,000     230,000
Less accumulated amortization.........................................     (83,000)    (97,000)
                                                                        ----------  ----------
                                                                        $  136,000  $  133,000
                                                                        ----------  ----------
                                                                        ----------  ----------
</TABLE>
 
9.  REVENUE RECOGNITION AND PRODUCT WARRANTY
 
    The Company recognizes revenue when product is shipped or otherwise accepted
by the customer. Under the terms of a contract covering sales of ophthalmic
hyaluronate, the Company's product is under warranty against non-compliance with
product specifications. A provision is made for the estimated cost of replacing
or further processing any product not complying with the warranted product
specifications.
 
10. NET LOSS PER COMMON SHARE
 
    Net loss per common share is based upon the weighted average outstanding
common shares.
 
11. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 
    The Financial Accounting Standards Board ("FASB") has issued Statement No.
128 "Earnings Per Share", which is effective for financial statements issued
after December 15, 1997. Early adoption of the new standard is not permitted.
The new standard eliminates primary and fully diluted earnings per share and
requires presentation of basic and diluted earnings per share together with
disclosure of how the per share amounts were computed.
 
    In June 1997, the FASB issued Statement No. 130 "Reporting Comprehensive 
Income" and Statement No. 131 "Disclosures about Segments of an Enterprise 
and Related Information" which are effective for fiscal year 1999. Statement 
No. 130 will require the Company to display an amount representing total 
comprehensive income, as defined by the statement, as part of the Company's 
basic financial statements. Comprehensive income will include items such as 
unrealized gains or losses on certain investment securities and foreign 
currency items. Statement No. 131 will require the Company to disclose 

                                      F-10
<PAGE>
                   LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

financial and other information about its business segments, their products 
and services, geographic areas, major customers, revenues, profits, assets 
and other information.
 
    The adoption of these statements is not expected to have a material effect
on the consolidated financial statements of the Company.
 
NOTE B--ACQUISITION OF TEFGEN PRODUCT LINE
 
    In May 1997, the Company acquired the technology and regulatory rights in
the TefGen product line from Bridger Biomed, Inc. As consideration for the
$2,400,000 acquisition price, the Company paid $800,000 in cash and issued a
note payable for $1,600,000. The note bears interest at 6% per annum with
principal payments of $800,000 plus interest due annually in May 1998 and 1999.
The principal payments may be made in cash or the Company's common stock at the
Company's option. If the Company chooses its common stock as the form of
payment, the note holder has certain registration rights. The note is secured by
the purchased assets. The cost of the technology and regulatory rights is being
amortized on a straight-line basis over 15 years.
 
NOTE C--LONG-TERM OBLIGATIONS
 
    Long-term obligations consist of the following:
 
<TABLE>
<CAPTION>
                                                                          AS OF JUNE 30,
                                                                    --------------------------
                                                                        1996          1997
                                                                    ------------  ------------
<S>                                                                 <C>           <C>
Industrial development revenue bonds..............................  $  6,825,000  $  6,749,000
Note payable......................................................       450,000     1,600,000
Real estate special assessments...................................       207,000       165,000
Deferred lease payments...........................................       409,000       --
                                                                    ------------  ------------
                                                                       7,891,000     8,514,000
Less current maturities...........................................      (698,000)     (918,000)
                                                                    ------------  ------------
                                                                    $  7,193,000  $  7,596,000
                                                                    ------------  ------------
                                                                    ------------  ------------
</TABLE>
 
INDUSTRIAL DEVELOPMENT REVENUE BONDS
 
    On September 28, 1990, the Company completed a $7,000,000 transaction to
finance its manufacturing and administrative facility through the issuance of
30-year industrial development revenue bonds by the municipality where the
facility is located. The bonds are collateralized by a first mortgage on the
facility and bear interest at 10.25%. The Company is required to make debt
service payments on the bonds of approximately $775,000 per year for fiscal
years 1996 through 2021. The payments are required to be made monthly to a
sinking fund. At June 30, 1997, the Company has approximately $700,000 on
deposit with the bond trustee to cover the reserve fund requirement. The Company
has the right to redeem the 

                                      F-11
<PAGE>
                   LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE C--LONG-TERM OBLIGATIONS (CONTINUED)

bonds commencing September 1, 1998 upon the payment of the outstanding 
principal balance plus accrued interest and a premium. The premium is 8% of 
the principal amount during the year commencing September 1, 1998 and 
declines during subsequent years.
 
    The terms of the loan agreement require the Company to comply with various
financial covenants including minimum current ratio, fixed charges coverage and
cash flow coverage requirements and maximum debt to net worth limitation. The
fixed charges coverage and cash flow coverage requirements have been waived by
the bondholder through fiscal 1998. The debt to net worth ratio covenant has the
effect of restricting the payment of cash dividends or repurchases of common
stock.
 
NOTE PAYABLE
 
    On July 28, 1993, the Company acquired all of the outstanding shares of
common stock of Implant Support Systems, Inc. ("ISS"). The Company paid $682,000
in cash, issued a $2,000,000 note payable and assumed certain liabilities. The
payment terms of the note payable were amended in September 1994. The note, as
amended, required interest to be paid quarterly at 5% with principal payments of
$700,000 paid during fiscal 1995, $850,000 paid in October 1995 and $450,000
which was paid on December 15, 1996. The Company exercised its option under the
ISS note payable to make the final principal payment due December 15, 1996 in
the form of the Company's common stock. To satisfy the $450,000 amount due,
29,108 shares of common stock were issued under the formula described in the
note.
 
    In May 1997, the Company issued a note payable for $1,600,000 as part of the
consideration paid to the seller of the TefGen product line (see Note B).
 
REAL ESTATE SPECIAL ASSESSMENTS
 
    In connection with special land improvements added during and after the
construction of the Company's manufacturing and administrative facility the
property has been assessed special assessments. The special assessments bear
interest at 8.5% with principal and interest payments due semi-annually through
2001.
 
DEFERRED LEASE PAYMENTS
 
    The Company had recorded deferred lease payments to reflect the expense on a
straight-line basis for lease payments due under its equipment leases. In
February 1997, the Company purchased the equipment subject to the leases (see
Note E).
 
                                      F-12
<PAGE>
                   LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE C--LONG-TERM OBLIGATIONS (CONTINUED)

    At June 30, 1996 and 1997, the carrying amounts of long-term obligations
approximate the fair value of these obligations. The aggregate minimum annual
principal payments of long-term obligations for the years ending June 30 are as
follows:
 
<TABLE>
<S>                                                           <C>
1998........................................................  $   918,000
1999........................................................      933,000
2000........................................................      143,000
2001........................................................      139,000
2002........................................................      120,000
Thereafter..................................................    6,261,000
                                                              -----------
                                                              $ 8,514,000
                                                              -----------
                                                              -----------
</TABLE>
 
    At June 30, 1997, the Company capitalized $87,000 of interest expense in
conjunction with the facility expansion at its Chaska, Minnesota location.
 
NOTE D--CUSTOMERS' DEPOSITS
 
    In November 1994, Lifecore renewed its current supply contract with Alcon
Laboratories, Inc., an indirect subsidiary of Nestle S.A. ("Alcon") through
December of 1998. The agreement contains minimum annual purchase requirements
totaling $10,400,000 for calendar years 1995 through 1998. Lifecore received a
$6,300,000 cash advance from Alcon against future contract purchases. Product
has been delivered in quantities sufficient to fully utilize the cash advance as
of June 30, 1997.
 
NOTE E--OPERATING LEASES
 
    The Company leased equipment under an operating lease with Johnson & Johnson
Finance Corporation ("JJFC"), an affiliate of the Company's customers, Ethicon,
Inc. and Johnson & Johnson Medical, Ltd.. JJFC is also an affiliate of Johnson &
Johnson Development Corporation, a shareholder of the Company (see Note K). In
February 1997, the Company satisfied this lease commitment by purchasing the
equipment subject to the lease. The purchase price of the equipment was
approximately $5.1 million. Additionally, the Company had entered into operating
leases with a financial institution for approximately $900,000 of furniture and
fixtures. During the year ended June 30, 1996, the Company purchased from the
financial institution the furniture and fixtures subject to the operating
leases. Operating lease expense was approximately $1,911,000, $1,825,000 and
$665,000 for the years ended June 30, 1995, 1996 and 1997.
 
                                      F-13
<PAGE>
                   LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE F--INCOME TAXES
 
    Deferred tax assets and liabilities represent the tax effects, based on
current tax law, of future deductible or taxable amounts attributable to events
that have been recognized in the financial statements. Deferred tax assets
(liabilities) consist of the following at June 30:
 
<TABLE>
<CAPTION>
                                                                     1996            1997
                                                                --------------  --------------
<S>                                                             <C>             <C>
Deferred tax assets
  Net operating loss carryforward.............................  $    9,106,000  $    9,855,000
  Capital loss carryforward...................................         377,000         377,000
  Tax credit carryforward.....................................         263,000         289,000
  Inventories.................................................       1,281,000         989,000
  Other.......................................................         246,000         263,000
                                                                --------------  --------------
    Total deferred tax assets.................................      11,273,000      11,773,000
Deferred tax liabilities
  Deferred lease payments.....................................        (230,000)       --
  Depreciation................................................        (517,000)       (752,000)
                                                                --------------  --------------
    Total deferred tax liabilities............................        (747,000)       (752,000)
                                                                --------------  --------------
Net deferred tax asset before valuation allowance.............      10,526,000      11,021,000
Valuation allowance...........................................     (10,526,000)    (11,021,000)
                                                                --------------  --------------
Net deferred tax asset........................................  $     --        $     --
                                                                --------------  --------------
                                                                --------------  --------------
</TABLE>
 
    The deferred tax asset valuation allowance increased $495,000 during 1997,
since these benefits may not be realized.
 
    At June 30, 1997, the Company had approximately $27,700,000 of net operating
loss carryforwards for tax reporting purposes, which expire in 1999 through 2012
and income tax credit carryforwards of approximately $289,000 which expire in
1998 through 2007.
 
NOTE G--SHAREHOLDERS' EQUITY
 
OFFERINGS OF COMMON STOCK
 
    On October 18, 1995, the Company received net proceeds of approximately
$19,852,000 from the sale of 2,200,000 shares of its common stock through a
public offering. On November 16, 1995, the Company received net proceeds of
approximately $3,010,000 when the underwriters purchased an additional 330,000
shares of common stock related to the over-allotment option.
 
                                      F-14
<PAGE>
                   LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE G--SHAREHOLDERS' EQUITY (CONTINUED)

    On April 11, 1996, the Company completed the sale of 1,500,000 shares of its
common stock and received net proceeds of approximately $22,443,000 through a
Regulation S offering to qualified investors outside the United States.
 
STOCK OPTION PLANS
 
    The Company has three stock option plans. In November 1987, the 
shareholders adopted the 1987 Stock Plan (the "1987 Plan") to provide for 
options to be granted to certain eligible salaried employees and non-employee 
members of the Board of Directors. A total of 300,000 shares of common stock 
are reserved for issuance under the 1987 Plan. In November 1990, the 
shareholders adopted the 1990 Stock Plan (the "1990 Plan") to provide for 
options to be granted to certain eligible employees, non-employee members of 
the Board of Directors and other non-employee persons as defined in the 1990 
Plan. In November 1993, the 1990 Plan was amended to provide for a total of 
1,000,000 shares of common stock reserved for issuance under the 1990 Plan. 
In November 1996, the shareholders adopted the 1996 Stock Plan (the "1996 
Plan") to provide for options to be granted to certain eligible employees, 
non-employee members of the Board of Directors and other non-employee persons 
as defined in the 1996 Plan. A total of 3,000,000 shares of common stock are 
reserved for issuance under the 1996 Plan. Options will be granted under all 
plans at exercise prices which are determined by a committee as appointed by 
the Board of Directors. Options granted to date under all plans have been at 
fair market value. Each grant awarded specifies the period for which the 
options are exercisable and provides that the options shall expire at the end 
of such period.
 
    Option transactions under the 1987, 1990 and 1996 Stock Plans during the
three years ended June 30, 1997 are summarized as follows:
<TABLE>
<CAPTION>
                                                                 NUMBER OF   WEIGHTED AVERAGE
                                                                   SHARES     EXERCISE PRICE
                                                                 ----------  -----------------
<S>                                                              <C>         <C>
Outstanding at July 1, 1994....................................     562,517      $    7.97
  Granted......................................................     164,500           5.24
  Exercised....................................................      (8,473)          4.24
  Canceled.....................................................     (89,125)         10.19
                                                                 ----------         ------
Outstanding at June 30, 1995...................................     629,419           7.00
  Granted......................................................     181,500          12.45
  Exercised....................................................     (98,257)          5.59
  Canceled.....................................................     (30,417)          8.82
                                                                 ----------         ------
Outstanding at June 30, 1996...................................     682,245           8.74
  Granted......................................................     876,168          16.74
  Exercised....................................................     (63,507)          6.82
  Canceled.....................................................     (45,625)          9.67
                                                                 ----------         ------
Outstanding at June 30, 1997...................................   1,449,281      $   13.63
                                                                 ----------         ------
                                                                 ----------         ------
</TABLE>
 
                                      F-15
<PAGE>
                   LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE G--SHAREHOLDERS' EQUITY (CONTINUED)

<TABLE>
<CAPTION>
 
                                                                 NUMBER OF   WEIGHTED AVERAGE
                                                                   SHARES     EXERCISE PRICE
                                                                 ----------  -----------------
<S>                                                              <C>         <C>
Options exercisable at June 30:
  1995.........................................................     337,818      $    7.81
  1996.........................................................     331,520           8.10
  1997.........................................................     529,745          10.49
</TABLE>
 
    The following table summarizes information concerning currently outstanding
and exercisable stock options:
 
                              OPTIONS OUTSTANDING
 
<TABLE>
<CAPTION>
                                   WEIGHTED AVERAGE
    RANGE OF        NUMBER       REMAINING CONTRACTUAL    WEIGHTED AVERAGE
EXERCISE PRICES   OUTSTANDING            LIFE              EXERCISE PRICE
----------------  -----------  -------------------------  -----------------
<S>               <C>          <C>                        <C>
  $ 2.63 -  3.94      85,833            4.9 years             $    3.48
    4.00 -  5.91     103,330            6.6 years                  5.53
    6.13 -  8.86      93,075            6.6 years                  7.00
    9.13 - 13.29     210,375            7.1 years                 10.65
   13.38 - 19.93     950,668            9.0 years                 16.70
   20.00 - 20.25       6,000            9.2 years                 20.02
                  -----------
                   1,449,281
                  -----------
                  -----------
</TABLE>
 
                              OPTIONS EXERCISABLE
 
<TABLE>
<CAPTION>
    RANGE OF        NUMBER     WEIGHTED AVERAGE
EXERCISE PRICES   EXERCISABLE   EXERCISE PRICE
----------------  -----------  -----------------
<S>               <C>          <C>
  $ 2.63 -  3.94      74,916       $    3.43
    4.00 -  5.91      76,796            5.60
    6.13 -  8.86      62,575            6.96
    9.13 - 13.29     114,833           10.34
   13.38 - 19.93     200,500           16.19
   20.00 - 20.25         125           20.25
                  -----------
                     529,745
                  -----------
                  -----------
</TABLE>
 
    The weighted average fair value of options granted in 1996 and 1997 was
$8.53 and $11.80 per share. The fair value of each option grant is estimated on
the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for grants in 1996 and 1997: no
dividend yield; risk-free rate of return of 6%; volatility of 74.5% and 72.8%;
and an average term of 5.9 years and 6.4 years. The Company's 1996 and 1997
proforma net loss and net loss per share would have been $4,234,000 and
$2,768,000 or $.42 and $.23 per share had the fair value method been used for
valuing options granted during 1996 and 1997. These effects may not be
representative of the future effects of applying the fair value method.

                                      F-16
<PAGE>
                   LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE G--SHAREHOLDERS' EQUITY (CONTINUED)

EMPLOYEE STOCK PURCHASE SAVINGS PLAN
 
    The 1990 Employee Stock Purchase Savings Plan ("ESPSP") provides for the
purchase by eligible employees of Company common stock at a price equal to 85%
of the market price on either the anniversary date of such plan's commencement
or the termination date of the plan, whichever is lower. Participants may
authorize payroll deductions up to 10% of their base salary during the plan year
to purchase the stock. Since inception of the ESPSP a total of 87,931 shares
have been issued, including 10,609 shares for approximately $54,000 in 1995,
21,725 shares for approximately $111,000 during 1996 and 9,374 shares for
approximately $142,000 during 1997. At June 30, 1997, the Company had 62,069
shares reserved for future issuance under the ESPSP.
 
SHAREHOLDER RIGHTS PLAN
 
    In May 1996 the Board of Directors unanimously adopted a shareholder rights
plan designed to ensure that all of the Company's shareholders receive fair and
equal treatment in the event of any proposal to acquire the Company. The Board
declared a distribution of one Right for each share of common stock outstanding
on June 15, 1996. Each Right entitles the holder to purchase 1/100th of a share
of a new series of Junior Participating Preferred Stock of Lifecore at an
initial exercise price of $110.00. Initially, the Rights will be attached to the
common stock and will not be exercisable. They become exercisable only following
the acquisition by a person or group, without the prior consent of the Company's
Board of Directors, of 15 percent or more of the Company's voting stock, or
following the announcement of a tender offer or exchange offer to acquire an
interest of 15 percent or more.
 
    In the event that the Rights become exercisable, each Right will entitle the
holder to purchase, at the exercise price, common stock with a market value
equal to twice the exercise price and, should the Company be acquired, each
Right would entitle the holder to purchase, at the exercise price, common stock
of the acquiring company with a market value equal to twice the exercise price.
Rights owned by the acquiring person would become void. In certain specified
instances, the Rights may be redeemed by the Company. If not redeemed, they
would expire on June 15, 2006.
 
NOTE H--COMMITMENTS AND CONTINGENCIES
 
CONSTRUCTION AGREEMENTS
 
    The Company is in the process of expanding its manufacturing and
distribution capabilities at its Chaska, Minnesota location. This expansion
includes building and equipment expenditures for warehouse and distribution
capabilities and to expand aseptic-packaging facilities for finished products.
Construction-in-progress and advance deposits relating to the expansion of
approximately $5,265,000 were incurred through June 30, 1997. The Company has
signed contracts with an architect, a process engineering firm 

                                      F-17
<PAGE>
                   LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE H--COMMITMENTS AND CONTINGENCIES (CONTINUED)

and a construction company for the expansion project. The contracts provide 
for the expansion to be completed in phases. The contracts may be terminated 
at any time at minimal cost to the Company. At June 30, 1997, firm purchase 
commitments of approximately $2,161,000 have been recorded in accounts 
payable.
 
ROYALTY AGREEMENTS
 
    The Company has entered into agreements which provide for royalty payments
based on a percentage of net sales of certain products. Royalty expense under
these agreements was $78,000 and $153,000 for the years ended June 30, 1996 and
1997. Royalty expense for 1995 was not material.
 
SEVERANCE AGREEMENTS
 
    The Company has an agreement with each officer that provides severance pay
benefits if there is a change in control of the Company (as defined) and the
officer is involuntarily terminated (as defined). The maximum contingent
liability under these agreements at June 30, 1997 is approximately $1,260,000.
 
NOTE I--EMPLOYEE BENEFIT PLAN
 
    The Company has a 401(k) profit sharing plan for eligible employees.
Contributions by the Company are determined by the Board of Directors. There
have been no Company contributions since the inception
of the plan. 

NOTE J--SEGMENT INFORMATION

     The Company's two business segments are the manufacturing, marketing and 
selling of products containing hyaluronate (the "Hyaluronate Division") and 
oral restorative products (the "Oral Restorative Division").
 
    Currently, products containing hyaluronate are sold primarily to customers
pursuant to supply agreements between the Company and its customers. Currently,
Alcon is a major customer of the Company. Sales to Alcon were 32%, 20% and 17%
of total sales in 1995, 1996 and 1997.
 
    The Company's Oral Restorative Division markets products throughout the
United States and Italy directly to clinicians and dental laboratories through a
direct sales force and primarily through distributorship arrangements in foreign
locations.
 
    Sales to customers located principally in Europe accounted for 20%, 25% and
28% of total Company sales during the years ended June 30, 1995, 1996 and 1997.
The operations of the Company's 

                                      F-18
<PAGE>
                   LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE J--SEGMENT INFORMATION (CONTINUED)

Italian subsidiary, Lifecore Biomedical SpA, have not been material to the 
consolidated financial statements.
 
    Segment information for the Company is as follows:
 
<TABLE>
<CAPTION>
                                                             YEARS ENDED JUNE 30,
                                                  -------------------------------------------
                                                      1995           1996           1997
                                                  -------------  -------------  -------------
<S>                                               <C>            <C>            <C>
Net sales
  Hyaluronate products..........................  $   5,223,000  $   5,585,000  $   7,115,000
  Oral restorative products.....................      4,795,000      8,478,000     11,798,000
                                                  -------------  -------------  -------------
                                                  $  10,018,000  $  14,063,000  $  18,913,000
                                                  -------------  -------------  -------------
                                                  -------------  -------------  -------------
Loss from operations
  Hyaluronate products..........................  $  (3,309,000) $  (3,472,000) $  (1,877,000)
  Oral restorative products.....................     (1,374,000)      (800,000)      (415,000)
                                                  -------------  -------------  -------------
                                                  $  (4,683,000) $  (4,272,000) $  (2,292,000)
                                                  -------------  -------------  -------------
                                                  -------------  -------------  -------------
Capital expenditures
  Hyaluronate products..........................  $     395,000  $     798,000  $  11,112,000
  Oral restorative products.....................         54,000        349,000        226,000
                                                  -------------  -------------  -------------
                                                  $     449,000  $   1,147,000  $  11,338,000
                                                  -------------  -------------  -------------
                                                  -------------  -------------  -------------
Depreciation and amortization expense
  Hyaluronate products..........................  $     554,000  $     561,000  $     878,000
  Oral restorative products.....................        385,000        454,000        528,000
                                                  -------------  -------------  -------------
                                                  $     939,000  $   1,015,000  $   1,406,000
                                                  -------------  -------------  -------------
                                                  -------------  -------------  -------------
</TABLE>
 
<TABLE>
<CAPTION>
                                                                        AS OF JUNE 30,
                                                                 ----------------------------
                                                                     1996           1997
                                                                 -------------  -------------
<S>                                                              <C>            <C>
Identifiable assets
  Hyaluronate products.........................................  $  14,144,000  $  27,576,000
  Oral restorative products....................................     11,937,000     15,972,000
  General corporate............................................     38,348,000     21,961,000
                                                                 -------------  -------------
                                                                 $  64,429,000  $  65,509,000
                                                                 -------------  -------------
                                                                 -------------  -------------
</TABLE>
 
                                      F-19
<PAGE>
                   LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE K--AGREEMENTS
 
    On August 8, 1994, Lifecore and Ethicon entered into a Conveyance, License,
Development and Supply Agreement (the "Ethicon Agreement"). At the same time,
Lifecore, Ethicon and JJDC, a subsidiary of Johnson & Johnson, entered into a
Stock Purchase Agreement.
 
    Under the terms of the Ethicon Agreement, Ethicon transferred to Lifecore
its ownership in certain technology related to research and development
previously conducted on the Company's sodium hyaluronate material. The
technology transferred to Lifecore includes written technical documents related
to Ethicon's research and development of a product to inhibit the formation of
postsurgical adhesions. These documents include product specifications, methods
and techniques, technology, know-how and certain patent applications. Lifecore
has assumed responsibility for continuing the anti-adhesion development project
including conducting human clinical trials on LUBRICOAT Gel, a second generation
hyaluronate-based product. Lifecore has granted Ethicon exclusive worldwide
marketing rights through 2008 to the products developed by Lifecore within
defined fields of use.
 
    Under the terms of the Stock Purchase Agreement, JJDC purchased 757,396
unregistered shares of Lifecore common stock for total consideration of $4.0
million consisting of $2.6 million cash and $1.4 million conversion of a
customer deposit from Ethicon held by Lifecore. Lifecore granted JJDC certain
registration rights which provide JJDC the option of having up to one half of
the shares registered on, or after, June 30, 1995 and the remaining shares
registered on, or after, June 30, 1996.
 
    The Company has made and continues to make a significant investment in the
development and testing of LUBRICOAT Gel, a product designed to reduce the
incidence of postsurgical adhesions. The product is currently undergoing human
clinical trials to develop the data necessary to apply to the United States Food
and Drug Administration ("FDA") for approval to market the product for
commercial application. However, even if the product is successfully developed
and the Company receives approval from the FDA, there can be no assurance that
it will receive market acceptance. Failure to achieve significant sales of the
product could have a material adverse effect on future prospects for the
Company's operations.
 
NOTE L--INSURANCE PROCEEDS
 
    In May 1996, the Company received net proceeds of $754,000 on an insurance
claim for product that was damaged in production as a result of an equipment
failure.
 
NOTE M--LEGAL PROCEEDINGS
 
    The Company is subject to various legal proceedings in the normal course of
business. Management believes that these proceedings will not have a material
adverse effect on the consolidated financial statements.
 
                                      F-20
<PAGE>
                   LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
 
                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
 
<TABLE>
<CAPTION>
                                                                 ADDITIONS
                                                       -----------------------------
                                           COLUMN B              COLUMN C
                                          ----------   -----------------------------                      COLUMN E
COLUMN A                                  BALANCE AT   CHARGED TO                        COLUMN D      --------------
----------------------------------------  BEGINNING    COSTS AND    CHARGED TO OTHER   -------------   BALANCE AT END
DESCRIPTION                               OF PERIOD     EXPENSES        ACCOUNTS        DEDUCTIONS       OF PERIOD
----------------------------------------  ----------   ----------   ----------------   -------------   --------------
<S>                                       <C>          <C>          <C>                <C>             <C>
Year ended June 30, 1997
  Accounts receivable allowance.........   $ 286,000    $ 56,000        $--             $(56,000)(A)      $286,000
Year ended June 30, 1996
  Accounts receivable allowance.........     219,000      77,000         --              (10,000)(A)       286,000
Year ended June 30, 1995
  Accounts receivable allowance.........      78,000     152,000         --              (11,000)(A)       219,000
</TABLE>
 
------------------------
(A) Deductions represent accounts receivable balances written-off during the
    year.
 
                                      S-1