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



FORM 10-K



|  |  |                                                                                     
|- |  | ------------------------------------------------------------------------------------
|x |  | Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
|  |  |                                                                                     
|  |  | For the fiscal year ended June 30, 2002                                             
|  |  | Commission file number: 0-4136                                                      



LIFECORE BIOMEDICAL, INC.
(Exact name of registrant as specified in its charter)

|                                                                         |  |                                             
|------------------------------------------------------------------------ |  | --------------------------------------------
|Minnesota
(State or other jurisdiction
of incorporation or organization) |  | 41-0948334
(IRS Employer
Identification No.)

3515 Lyman Boulevard
Chaska, Minnesota 55318-3051
(Address of principal executive offices)

Registrants telephone number, including area code: (952) 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)
Preferred Stock Purchase Rights
(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 o

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 $105,311,000 at August 30, 2002 when the last
sale price of such stock, as reported by the Nasdaq National Market, was $8.28.

The number of shares outstanding of the Registrants Common Stock, $.01
stated value, as of August 30, 2002 was 12,876,367 shares.



DOCUMENTS INCORPORATED BY REFERENCE



|1. |  | Certain responses to Part III are incorporated by reference to
information contained in the Companys definitive Proxy Statement for its
2002 Annual Meeting to be filed with the Commission within 120 days after
the end of the Registrants fiscal year.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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TABLE OF CONTENTS



|                                                   |  |  |  |  |  |  |  | 
|-------------------------------------------------- |  |  |  |  |  |  |  | 
|PART I                                            
|PART II                                           
|PART III                                          
|PART IV                                           
|SIGNATURES                                        
|CERTIFICATIONS                                    
|REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
|CONSOLIDATED BALANCE SHEETS                       
|CONSOLIDATED STATEMENTS OF OPERATIONS             
|CONSOLIDATED STATEMENTS OF CASH FLOWS             
|CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        
|SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS   
|EX-10.1 LOAN AGREEMENT DATED AS OF SEPT. 1, 1990  
|EX-23.1 CONSENT OF GRANT THORNTON LLP             
|EX-99.1 RISK FACTORS                              
|EX-99.2 CERTIFICATION PURSUANT TO 18 USC SEC 1350 
|EX-99.3 CERTIFICATION PURSUANT TO 18 USC SEC 1350 



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PART I

Item 1. Business

General

Lifecore Biomedical, Inc. (Lifecore or the Company) manufactures
biomaterials and medical devices for use in various surgical markets and
provides related specialized contract aseptic manufacturing services. The
Company operates two divisions, the Hyaluronan Division and the Oral
Restorative Division. Further information about Lifecore can be obtained from
Lifecores Internet website at www.lifecore.com, however, the contents of the
website are not intended to be a part of this Form 10-K and are not
incorporated by reference. The Company was incorporated in the State of
Minnesota in 1965.

The Companys Hyaluronan Division is principally involved in the
development and manufacture of products utilizing hyaluronan, a naturally
occurring polysaccharide that moisturizes or lubricates the soft tissues of the
body. The Hyaluronan Divisions primary clinical development project involves
expanding the use of Lifecores patented ferric hyaluronan adhesion prevention
technology. A current product, GYNECARE INTERGEL* Adhesion Prevention Solution
(INTERGEL Solution). has been clinically proven to reduce the incidence of
tissue adhesions commonly formed as part of the bodys natural healing process
when tissues are subject to accidental or surgical trauma. These adhesions may
cause internal complications that often require costly re-operations,
particularly with respect to abdominal adhesions. Government sources recently
estimated the annual cost for treatment of adhesion complications in the female
pelvis alone at $1.6 billion in the United States. Since June 1998, the
Companys exclusive worldwide marketing partner, GYNECARE, a division of
ETHICON, INC. (ETHICON), a Johnson & Johnson company, has been marketing
INTERGEL Solution outside the U.S. On November 19, 2001, Lifecore received
Pre-Market Approval from the FDA to market INTERGEL Solution in the United
States for conservative gynecological surgery. ETHICON commenced marketing
INTERGEL Solution in the United States during the first calendar quarter of
2002.

In addition to the adhesion prevention market, the Companys hyaluronan is
used as a component in ophthalmic, orthopedic, and veterinary medical devices.
Lifecore continues to apply its hyaluronan manufacturing expertise toward the
pursuit of other medical applications based on hyaluronan as a primary
component The Company leverages its hyaluronan manufacturing know how to
provide specialized contract aseptic manufacturing services to selected
hyaluronan customers.

The Companys Oral Restorative Division develops and markets precision
surgical and prosthetic devices for the restoration of damaged or deteriorating
dentition and associated support tissues. The Companys titanium alloy dental
implants are permanently implanted in the jaw for tooth replacement therapy as
long-term support for crowns, bridges, and dentures. In September 1999, the
Company introduced the STAGE-1 Single Stage Implant System. In March 2001 the
Company introduced the RBM STAGE-1 Single Stage Implant System. In March 2002
the Company introduced the Quick-Cap Impressioning System. The Oral
Restorative Division also offers innovative bone regenerative products for the
repair of bone defects resulting from periodontal disease and tooth loss. The
Oral Restorative Division assists its dental surgery clients by developing
comprehensive continuing education curricula, as provided in the Companys
various Support Plus programs, to train restorative clinicians and their
auxiliary teams in the principles of tooth replacement therapy and practice
management. The Companys Increasing Case Acceptance Program offers client
personnel the marketing and selling skills training to foster higher patient
acceptance of dental implants. The Oral Restorative Divisions products are
marketed in the U.S. through the Companys direct sales force.
Internationally, the Divisions products are marketed through direct
subsidiaries in Italy, Germany and Sweden, and through 22 national distributors
covering 35 additional countries.

Hyaluronan Division

Background

Hyaluronan is a naturally occurring polysaccharide component of many
tissues in the body and of physiological fluids that lubricate or otherwise
protect the bodys soft tissues. Due to its widespread presence in tissues,
critical role in normal physiology, and its high degree of biocompatibility,
the Company believes that hyaluronan will continue to be used for an increasing
variety of medical applications. The Company produces hyaluronan through a
proprietary fermentation process.

Hyaluronan was first demonstrated to have commercial medical utility as a
viscoelastic solution in cataract surgery. In this application, its use for
coating and lubricating tissues during the implantation of intraocular lenses
dramatically improved the existing surgical success rates. The first ophthalmic
hyaluronan product produced by extraction from rooster comb tissue became
commercially available in the United States in 1981. Hyaluronan-based products,
produced either by rooster comb extraction or by fermentation processes such as
the Companys, have since gained widespread acceptance in ophthalmology and are
currently used in the majority of cataract extraction procedures in the world.
The Companys hyaluronan is also used as the primary raw material for making
INTERGEL Solution; as an aseptic solution which is used as a carrier vehicle
for allogeneic demineralized, freeze-dried bone provided to orthopedic
surgeons; as a component of devices to treat the symptoms of osteoarthritis;
and as a component to

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provide increased lubricity to medical devices. The Companys hyaluronan has
been utilized in veterinary applications such as an embryo cryopreservation
media and as a veterinary drug to treat traumatic arthritis.

Strategy

The Company intends to use its proprietary fermentation process to be a
leader in the development of hyaluronan-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 the market leading ophthalmic
surgical products company Alcon, Inc., (Alcon) (formerly Alcon Laboratories,
an indirect subsidiary of Nestle S.A.); ETHICON; and Musculoskeletal Transplant
Foundation (MTF), the worlds largest bone tissue procurement and
distribution service.

     Expand medical applications for hyaluronan.The company is currently
pursuing expansion of adhesion prevention indications. Due to the growing
knowledge of the unique characteristics of hyaluronan and the role it plays in
normal physiology, the Company continues to identify and pursue further uses
for hyaluronan in other 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.
Lifecores role in these relationships extends from supplier of raw materials
to manufacturer of aseptically-packaged finished products. In addition, the
Company may develop its own proprietary products.

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Hyaluronan Division Products

The following chart summarizes the principal products of the Hyaluronan
Division, along with their applications and the companies with which Lifecore
has related strategic alliances:

|                                                |  |                                                                                                                                                                                               |  |                                                   |  |                                                                                                           
|----------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------
|PRODUCT                                         |  | STRATEGIC ALLIANCE                                                                                                                                                                            |  | MARKET                                            |  | STATUS+                                                                                                   
|                                                |  |                                                                                                                                                                                               |  |                                                   |  |                                                                                                           
|GYNECOLOGICAL                                   |  |                                                                                                                                                                                               |  |                                                   |  |                                                                                                           
|SURGERY                                         |  |                                                                                                                                                                                               |  |                                                   |  |                                                                                                           
|GYNECARE INTERGEL*
Adhesion
Prevention Solution |  | Lifecores
proprietary
product; ETHICON
has exclusive
worldwide marketing
rights for adhesion
prevention
applications                                                                         |  | Adhesion
prevention                               |  | Commercial sales
for gynecological
applications in the
U.S. starting in
January 2002, in
Europe since 1998
|                                                |  |                                                                                                                                                                                               |  |                                                   |  |                                                                                                           
|OPHTHALMIC                                      |  |                                                                                                                                                                                               |  |                                                   |  |                                                                                                           
|Viscoat® Ophthalmic
Viscoelastic Solution       |  | Lifecore supplies
hyaluronan powder
for inclusion in
Alcons
viscoelastic
solution                                                                                                            |  | Cataract surgery                                  |  | Commercial sales
since 1986                                                                               
|                                                |  |                                                                                                                                                                                               |  |                                                   |  |                                                                                                           
|LUROCOAT® Ophthalmic
Viscoelastic Solution      |  | Lifecore supplies
its product for
marketing on a
non-exclusive basis
outside the U.S.                                                                                                         |  | Cataract surgery                                  |  | Lifecore export
shipments
commenced in June
1997                                                          
|                                                |  |                                                                                                                                                                                               |  |                                                   |  |                                                                                                           
|OTHER APPLICATIONS                              |  |                                                                                                                                                                                               |  |                                                   |  |                                                                                                           
|                                                |  |                                                                                                                                                                                               |  |                                                   |  |                                                                                                           
|HY-50®                                          |  | Lifecore supplies
syringes of
hyaluronan-based
solution to Bexco
Pharma, Inc for use
as a veterinary
orthopedic
injectible drug                                                               |  | Veterinary drug                                   |  | Commercial sales
since 1993                                                                               
|                                                |  |                                                                                                                                                                                               |  |                                                   |  |                                                                                                           
|Hyaluronan Solution for DBX                     |  | Lifecore supplies
an aseptic solution
containing
hyaluronan to
Musculoskeletal
Transplant
Foundation (MTF)
for use as a
carrier vehicle for
its allogeneic
demineralized,
freeze-dried bone |  | Grafting material
for restoration of
bone defects |  | Commercial sales
since 2000                                                                               

+ For many of the products listed above, government regulatory approvals 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 approved in new markets.

*     GYNECARE INTERGEL Adhesion Prevention Solution; GYNECARE; and ETHICON, INC.,
are registered trademarks of ETHICON, INC.

Viscoat® Ophthalmic Viscoelastic Solution is a registered trademark of
Alcon, Inc. LUROCOAT® Ophthalmic Solution is a registered trademark of Lifecore
Biomedical, Inc. HY-50® is a registered trademark of Bexco Pharma, Inc. DBX®
Demineralized Bone Matrix is a registered trademark of the Musculoskeletal
Transplant Foundation.

Adhesion Prevention Opportunities with ETHICON

The Company has developed and globally launched a product using a version
of its patented ferric hyaluronan technology, INTERGEL Solution, for reducing
the incidence of post-surgical adhesions. ETHICON has worldwide, exclusive
distribution rights for INTERGEL Solution.

Following surgical procedures tissue 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,
gynecological, orthopedic, reproductive and thoracic surgeries, these adhesions
may cause internal complications that require costly additional surgical
intervention. For example, adhesions following gynecological surgery can cause
infertility, life threatening bowel obstructions and can complicate subsequent
surgical interventions. The Company believes that successful penetration of
this market requires a product with broad effectiveness, low toxicity, easy
application, high procedural flexibility, and appropriate pricing.

INTERGEL Solution is a sterile, nonpyrogenic, amber colored, viscous
solution of ferric hyaluronan (sodium hyaluronan, which has been ionically
coordinated with ferric ions), that provides a transient coating on peritoneal
surfaces following surgical

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procedures. INTERGEL Solution is packaged in a 300 ml low density polyethylene
bellows bottle, which is provided in a sterile thermoformed tray sealed with a
Tyvek® lid. When stored at controlled temperature (2-30° C) the product has a
stable shelf life of 24 months.

On November 19, 2001, the Company received FDA approval to market
INTERGEL Solution in the United States. ETHICON began marketing INTERGEL
Solution in the U.S. during the first calendar quarter of 2002. Even though
Lifecore has received FDA approval, there can be no assurance that the product
will receive prominent market acceptance. Failure to achieve significant sales
of the product could have a material adverse effect on future prospects for the
Companys operations.

The safety and effectiveness of INTERGEL Solution has been established in
patients undergoing class I, non-oncologic, pelvic gynecologic laparotomy. The
safety and effectiveness has not been established in patients undergoing
laparoscopy procedures. In order to maximize the market potential of the
product it is the Companys intention to pursue and demonstrate clinical safety
and efficacy in patients undergoing laparoscopy procedures. No assurance can be
given that the product trials will be successful and that the required
regulatory approvals will be granted. Failure to achieve laparoscopic approval
of the product in the U.S. could have a material adverse effect on future
prospects for the Companys operations. See Government Regulation.. Outside
the U.S., INTERGEL Solution has been approved in 28 countries for the
prevention of post-surgical adhesions.

The composition and use of ferric hyaluronan technology in adhesion
reduction applications is described in U.S. Patent No. 5,532,221 (SEE Patents
and Proprietary Rights). The Company has a Conveyance, License, Development
and Supply Agreement with ETHICON, Inc., related to those proprietary rights
that extends through 2008 with provisions for renewal.

Ophthalmic Applications

Cataract Surgery.Currently, a primary commercial application for the
Companys hyaluronan is in cataract surgery. Hyaluronan, in the form of a
viscoelastic solution, is used to maintain a deep chamber during anterior
segment surgeries (including cataract extraction and intraocular lens
implantation) and to protect the corneal endothelium and other ocular tissue.
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
hyaluronan for this application to Alcon, the leading producer of ophthalmic
surgical products in the world, for inclusion in Viscoat® Ophthalmic
Viscoelastic Solution. The Company also has agreements to supply its hyaluronan
based LUROCOAT Solution under private label outside the United States and
Canada.

The Companys relationship with Alcon and its predecessors commenced in
1983, when the Companys hyaluronan was specified as a raw material component
of Viscoat Solution, which received marketing clearance from the FDA in 1986.
Until 1990, Alcons predecessors had the exclusive rights to purchase the
Companys hyaluronan for ophthalmic applications. In 1990, the arrangement with
Alcon became non-exclusive. Since that time, sales of hyaluronan to Alcon have
continued to be made pursuant to supply agreements. The current Alcon supply
agreement, as renewed in December 2000, is for a term of two years through
December 31, 2002. Management expects that the Company will be able to
negotiate an extension of this supply agreement. See Managements Discussion
and Analysis of Financial Condition and Results of Operations.

Hyaluronan-based products are used in the majority of cataract surgeries
in the world. The Company estimates that the worldwide market for hyaluronan
for cataract surgery, on a hospital cost basis, is approximately $140 million
per year.

The Company has developed its own viscoelastic solution, LUROCOAT
Solution. The Company received CE marking for LUROCOAT Solution during 1997
allowing LUROCOAT Solution to be marketed and sold in Europe. The Company
supplies LUROCOAT Solution outside the United States. Export shipments of
LUROCOAT Solution began in 1997.

Lifecore estimates that its hyaluronan has been used in approximately 26
million ophthalmic patients globally since 1983.

Other Applications

The Company supplies an aseptic hyaluronan solution to BioCon, the
not-for-profit controlling affiliate of the Musculoskelatal Transplant
Foundation (MTF), which utilizes the solution as a carrier vehicle for its
allogeneic demineralized, freeze-dried bone in a final putty composition
trademarked as DBX® Demineralized Bone Matrix. This bone putty is provided
by MTF to orthopedic surgeons through MTFs distribution channels.

The Company manufactures Bexco Pharma, Inc.s HY-50® product, an
aseptically packaged hyaluronan solution, for use as a veterinary orthopedic
injectible drug, under a supply agreement expiring June 30, 2003. Bexco
Pharma, Inc. has the option to renew the agreement for an additional two years
with the same terms and conditions as the original agreement.

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Lifecore estimates that its veterinary hyaluronan product has been used in
500,000 equine procedures worldwide.

The Hyaluronan Division undertakes its own product development activities
for hyaluronan-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 hyaluronan 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.

There can be no assurance that products currently under development by the
Company or in a partnership with others will be successfully developed or, if
so developed, will be successfully and profitably marketed.

Oral Restorative Division

Background

Dental implants are increasingly accepted as a replacement for missing or
extracted teeth and serve as supports for dentures, crowns and bridges. In
comparison to conventional restorative procedures, dental implants are
surgically placed in the jawbone, simulating the anchoring of a tooth by its
root. The implant maintains underlying bone structure and provides superior
fixation of restorations, minimizing loosening of fixtures against surrounding
teeth and gingiva. The titanium cylinder or screw-shaped implant is
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. To further enhance bone fixation, various implant styles may be
spray-coated with hydroxylapatite and/or grit blasted to create a roughened
surface. The Company believes the current annual worldwide dental implant
market is approximately $700 million.

Bone graft substitutes and bone regeneration membranes are used for the
restoration of deteriorated bone caused by periodontal disease and tooth loss.
Historically, bone-filling material needed to fill holes or restore
deteriorated bone was only available from cadavers or autologous bone
(self-donated from another part of the patients body). These sources have
quality, convenience, and safety limitations. Synthetic and animal-derived
bone graft substitutes emerged to address these issues, as did the
demineralized freeze-dry processing of cadaver bone. The current annual U.S.
market for synthetic and animal-derived bone substitute products is
approximately $35 million. In May 2000, the Company entered into a
representation agreement with the Musculoskeletal Transplant Foundation to
solicit orders for its MTF® Bone Allograft Tissue for a representation fee. In
May 2002, the Company and MTF mutually terminated this agreement to allow the
Company to focus its resources on its own product line.

The addition of supplemental bone regeneration barrier membranes has
expanded the U.S. dental bone regeneration market to approximately $70
million. The Companys TefGen Regenerative Membrane and CAPSET® Calcium
Sulfate Bone Graft Barrier products address this market opportunity.

Lifecore estimates that its oral restorative products have been used in
over 500,000 dental procedures worldwide.

Strategy

The Company is the value leader in the oral restorative surgical products
industry and has increased the market share for its implant products by
implementing the following strategies:



| |  |  | Develop a broad line of dental implants and related dental surgery support products that facilitate the transition
from competitive systems to a broad-based Lifecore system.                                                                                                                           
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Develop and deliver unique educational programs and materials aimed at restorative clinicians and their auxiliary
teams in the principles of tooth replacement therapy, practice management techniques and marketing and selling skills training to
foster higher patient acceptance of dental implants.
|
| |  |  | Continue expansion in international markets through either direct selling efforts or additional distribution
agreements.                                                                                                                                                                                

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Oral Restorative Division Products

The following chart summarizes the principal products of the Companys Oral Restorative Division:

|                                                                       |  |                                                                                                                          |  |                 
|---------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------ |  | ----------------
|PRODUCT                                                                |  | MARKET                                                                                                                   |  | STATUS          
|                                                                       |  |                                                                                                                          |  |                 
|SUSTAIN® and RESTORE® Dental
Implant Systems                           |  | Replacement of lost or extracted teeth                                                                                   |  | Commercial sales
|                                                                       |  |                                                                                                                          |  |                 
|STAGE-1 Single Stage Implant
System (TPS or RBM surface)              |  | One-stage surgical procedure with
self-tapping implant design for
easier placement and Morse taper
prosthetic connection |  | Commercial sales
|                                                                       |  |                                                                                                                          |  |                 
|Quick-Cap Impressioning System                                        |  | Increases the ease and efficiency of
the implant restoration process                                                     |  | Commercial sales
|                                                                       |  |                                                                                                                          |  |                 
|CAPSET® Calcium Sulfate Bone
Graft Barrier, including
SlowSet Version |  | For use with natural and synthetic
bone graft materials as a resorbable
barrier cap and/or binding agent                 |  | Commercial sales
|                                                                       |  |                                                                                                                          |  |                 
|TefGen Regenerative Membrane                                          |  | Nonresorbable membrane for assisting
the regeneration of bone defects                                                    |  | Commercial sales

SUSTAIN® and RESTORE® Dental Implant Systems, STAGE-1 Single Stage
Implant System, Quick-Cap Impressioning System, CAPSET® Calcium Sulfate Bone
Graft Barrier, SlowSet, TefGen Regenerative Membrane, and Support Plus are
registered trademarks of Lifecore Biomedical, Inc.

Implant Products

The Company offers the RESTORE Dental Implant System, the SUSTAIN Dental
Implant System and the STAGE-1 Single Stage 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. (ISS), 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 formats 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, like the RESTORE System, is
complemented by a complete line of prosthetic components.

The STAGE-1 Single Stage Implant System was designed by the Company to
allow for a one-stage surgical procedure. The STAGE-1 System uses a
self-tapping implant design for easier placement and includes the reliable
Morse taper prosthetic connection. Commercial sales began in September 1999.
In March 2001, the Company added the RBM STAGE-1 Single Stage Implant System to
this line.

The Quick-Cap Impressioning System was added to the Stage-1 Single Stage
line in March 2002. This system greatly improves the restorative dentists
ease and accuracy of impressioning for subsequent laboratory construction of
the final crown, bridge or denture.

Lifecore has enhanced and expanded its product lines, creating numerous
new products with a combination of innovative features from its existing
systems. This gives the Company a broad product line which offers practitioners
maximum flexibility in choice of treatment modalities and several innovations
that enhance ease-of-use by the clinician. Additionally, the Oral Restorative
Division assists its dental surgery clients by developing comprehensive
continuing education curricula, as provided in the Companys various Support
Plus programs, to train restorative clinicians and their auxiliary teams in
the principles of tooth replacement therapy and practice management. The
Companys Increasing Case Acceptance Program offers client personnel the
marketing and selling skills training to foster higher patient acceptance of
dental implants.

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Bone Regeneration Products

The Company offers products that address various bone and tissue
regeneration procedures.

CAPSET Calcium Sulfate Bone Graft Barrier received 510(k) clearance and
was introduced to the market in 1995. CAPSET SlowSet Barrier was introduced
in July 1999. These products are based on a calcium sulfate plaster technology
developed by and licensed from Wright Medical, Inc., an orthopedic product
manufacturer based in Memphis, Tennessee. CAPSET Barrier and CAPSET SlowSet
Barrier allow 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 Regenerative Membrane technology was acquired by the Company from
Bridger Biomed, Inc. in May 1997. This non-resorbable membrane is based on
nanoporous 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 underneath has time to establish
itself.

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.

Sales and Marketing

Hyaluronan Division Products

The Company generally markets and distributes its hyaluronan products to
end-users through corporate partners. The Company sells hyaluronan to these
partners in a variety of forms, including powders, gels and solutions packaged
in bulk or single-application units. The Company sells its ophthalmic grade
hyaluronan powder to Alcon for Viscoat solution.

The Company has an agreement with ETHICON for exclusive distribution of
INTERGEL Solution. 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. Successful commercialization of INTERGEL
Solution is dependent on 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 hyaluronan directly
to academic and corporate research customers for development and evaluation of
new applications.

Oral Restorative Division Products

The Company is focused on expanding its oral restorative product line and
developing increased sales and marketing support. The dental implant market is
highly specialized. Products are marketed to oral surgeons, periodontists,
implantologists, prosthodontists, general dental practitioners and dental
laboratories. Accordingly, management believes it must maintain a highly
experienced direct sales force in the United States for proper distribution of
these products. The Company believes that 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 twenty-one individuals dedicated to sales in the United States
and three U.S.-based salespersons dedicated to international sales. The Oral
Restorative Division products are marketed internationally in 35 countries
through 22 distributors and in Italy through its subsidiary, Lifecore
Biomedical SpA, in Germany through its subsidiary, Lifecore Biomedical GmbH,
and in Scandinavia through its subsidiary, Lifecore Biomedical AB.

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. Industry estimates indicate a need for replacement of approximately
100 million teeth in the adult population of the United States. That
represents a potential implants and accessories market of approximately $20
billion compared to the actual current U.S. market size of approximately $250
million.

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Manufacturing

The commercial production of hyaluronan by the Company requires
fermentation, separation and purification capabilities, and aseptic packaging
of product in a variety of bulk and single dose configurations. In addition,
the production of the INTERGEL Solution requires high volume precision mixing
of viscous fluids.

The Company produces its hyaluronan through a proprietary process of
fermentation. Until the introduction of the Companys medical grade hyaluronan,
the only commercial source for medical hyaluronan 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 hyaluronan in an efficient manner if demand for the use of
medical grade hyaluronan greatly increased. In addition, changing regulatory
requirements make medical use of animal extracts increasingly problematic.
Consequently, the Company developed its proprietary fermentation process for
hyaluronan 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, a more favorable long-term regulatory
environment, and better economies of scale in producing large commercial
quantities.

The Companys 110,000 square foot facility is used primarily for the
proprietary hyaluronan manufacturing process and the formulation of INTERGEL
Solution. Since January 2000, the Company has reduced its manufacturing levels
causing excess capacity charges in the ongoing periods. The FDA completed a
pre-approval site inspection of the Companys INTERGEL Solution manufacturing
operations allowing release of product in the U.S. after approval. The Company
believes that the current inventory on-hand, together with its manufacturing
capacity, will be sufficient to allow it to meet the needs of its current
customers for the foreseeable future.

The Company provides versatility in the simultaneous manufacturing of
various types of finished products. Currently, the Company supplies several
different forms of hyaluronan (e.g., varied molecular weight fractions) in
powders, solutions and gels, and in a variety of bulk and single-use finished
packages. The Hyaluronan Division is continuously conducting development work
relating to the techniques utilized in hyaluronan manufacturing. Such
development activity is designed to improve production efficiencies and expand
the Companys capabilities to achieve a wider range of hyaluronan product
specifications in order to address the broadening opportunities for using
hyaluronan in medical applications.

The Companys facility was designed to meet applicable regulatory
requirements and has been cleared for the manufacture of both device and
pharmaceutical products. The FDA periodically inspects the Companys
manufacturing systems, and requires conformance to the FDAs Quality Systems
Regulations (QSR). In addition, the Companys corporate partners conduct
intensive regulatory audits of the facilities. The Company also periodically
contracts with independent regulatory consultants to conduct audits of the
Companys operations. The Company has received certification of conformance to
ISO 9001 Quality Assurance System , ISO 13485 and EN 46001 Medical Device
Standards as per the Medical Device Directive, 93/42/EEC, as well as the
Conformite Europeene(CE) Mark for our products 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 dental
implant devices and related components. The Company inspects vendors quality
assurance and control functions, and performs its own finished packaging
related to the implant product lines.

The Company purchases raw materials for its production of hyaluronan and
calcium sulfate-based products 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. Wright Medical, Inc. exclusively supplies the key raw
material for CAPSET Barrier. The Company believes Wright Medical is able to
provide adequate amounts of the raw materials for CAPSET Barrier. The Company
utilizes a supply agreement with Bridger Biomed, Inc. to supply the TefGen
Regenerative Membrane 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.

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Hyaluronan Products

A number of companies produce hyaluronan products and thus directly or
indirectly compete with Lifecore or its corporate partners. Several companies
are pursuing anti-adhesion product development, including, but not limited to,
Alliance Pharmaceuticals, Inc., Anika Therapeutics, Inc., Confluent Surgical,
ETHICON, Fidia SpA, FzioMed, Genzyme Corporation, Life Medical Sciences, M.L.
Labs and W.L. Gore & Associates, Inc. If any or all of the competing
products are successfully developed, obtain regulatory approval and commercial
acceptance, the Companys prospects for INTERGEL Solution, may be adversely
affected.

Several companies produce hyaluronan through a fermentation process,
including Genzyme, Bio-Technology General Corporation, Fidia SpA, IOLTECH,
Kyowa Hakko and Bayer. In addition, several companies manufacture hyaluronan by
using rooster comb extraction methods. These companies primarily include Anika
Therapeutics, Inc., Genzyme, Inc., Fidia SpA, and Pharmacia and Kibun. 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 hyaluronan. 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
hyaluronan 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 Dentsply International, Inc., Centerpulse Dental, Biomet,
Inc., Straumann AG and Nobel Biocare AB. 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 competitive 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 other
manufacturers of dental implant systems.

The market for the Companys tissue regeneration products is also
competitive. The major competitors include Biomet, Inc., Dentsply
International, Inc., Geistlich, W. L. Gore (GORE-TEX), and Centerpulse Dental
(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 hyaluronan fermentation
process. In August 1994, in connection with the ETHICON Agreement, the Company
was assigned a pending patent covering the composition and use of INTERGEL
Solution, with applications filed in the United States, Australia, Brazil,
Canada, Europe, Greece, and Japan. Subsequently, the patent has been issued in
Australia, Canada, Greece, Japan, and the United States. The Company licenses
two patents covering the dental surgical use of calcium sulfate from Wright
Medical, Inc. The Company also licenses patented technology used in the
production of calcium sulfate from Wright Medical and the University of North
Carolina. In conjunction with the purchase of the TefGen Regenerative Membrane
product line, the Company obtained the rights to the patent for composition,
manufacture and use of the nPTFE material. The Company has received a patent
on its dental implant packaging and a patent on a super self-tapping dental
implant design.

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

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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 hyaluronan. 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 QSR requirements for devices. Class II
devices are those whose safety and effectiveness can reasonably be ensured
through the use of special controls, such as 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 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 that 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 a 90 day period by which to respond to a 510(k)
Notification. Dependent on the specific submission and subsequent agency
requirements, the 510(k) Notification process can take significantly longer to
complete. 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,

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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.

Hyaluronan products are generally Class III devices. In cases where the
Company is supplying hyaluronan 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 hyaluronan products generally requires
approval of the importing country.

The Companys TefGen Regenerative Membrane product line is a Class II
device. CAPSET Barrier has received market clearance through a 510(k)
Notification but is unclassified.

Other regulatory requirements are placed on a medical devices manufacture
and the quality control procedures in place, such as the FDAs device QSR
regulations. Manufacturing facilities are subject to periodic inspections by
the FDA to ensure compliance with device QSR 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 product liability claims
for the products of its customers that incorporate Lifecores materials. The
Company maintains product liability insurance coverage in amounts the Company
deems to be adequate. Lifecore Biomedical SpA and Lifecore GmbH also carry
product liability insurance. 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 August 30, 2002, the Company employed 188 persons on a full-time
basis, 8 part-time employees and 3 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.

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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 has been President and Chief Executive
Officer and a director of the Company since August 1983 and Secretary since
March 1995. He joined the Company in February 1981 as Senior Research
Scientist.

Dennis J. Allingham.Mr. Allingham was appointed Executive Vice President
of the Company in November 1997. He has been Chief Financial Officer of the
Company since January 1996. Mr. Allingham has also been General Manager of the
Hyaluronan Division since November 1996 and General Manager of the Oral
Restorative Division since November 1997.

Andre P. Decarie. Mr. Decarie joined the Company as Vice President of
Sales and Marketing  ORD in January 2001. Prior to joining the Company, Mr.
Decarie was Vice President, Business Development for Avitar, Inc., a
manufacturer of specialized wound dressings, from 1999 to December 2000. From
1998 to 1999, Mr. Decarie was Vice President, Business Development for Tremont
Medical, Inc., a medical electronics company. From 1993 to 1998, Mr. Decarie
was Senior Vice President with Integra LifeSciences Corporation, a medical
products company.

Brian J. Kane.Mr. Kane was appointed Vice President of New Business
Development of the Company in January 2001. He had been Vice President of New
Business Development and Marketing since December 1997. He joined the Company
as Vice President of Marketing in 1986.

Colleen M. Olson.Ms. Olson has been Vice President of Corporate
Administrative Operations of the Company since May 1991. She has been involved
in the administration operations of the Company since 1980.

Item 2. Properties

The Companys operations are all conducted in its 110,000 square foot
building in Chaska, Minnesota. The Company completed an expansion of its
facility during fiscal 1998. The Company leases local office space for its
three foreign subsidiaries.

Item 3. Legal Proceedings

In March 2000, the Company was served with a lawsuit in the Federal
District Court for the District of Massachusetts by The Straumann Company
alleging unfair competition and trade dress infringement surrounding the
Companys STAGE-1 Single Stage Implant System. Straumann Company moved for a
preliminary injunction, seeking a court order prohibiting Lifecores continued
sale of STAGE-1 Single Stage Implants. The federal court denied Straumanns
motion, ruling that Straumann had failed to prove that the claimed trade
dress was nonfunctional in nature. In February 2002, the federal court
granted the Companys motion for summary judgment in part, ruling that several
of the features of the Straumann implant were functional as a matter of law.
The discovery period recently ended, and the Company has renewed its motion for
summary judgment, seeking judgment as a matter of law on the remaining
functionality issues, on secondary meaning and on likelihood of confusion. The
Company believes the lawsuit is without merit and intends to vigorously defend
this position.

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

Not applicable.

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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 2002
and 2001 the range of high and low closing sale prices of the Common Stock on
the Nasdaq National Market.

|            |                |     |   |      |      |  |   |       |  |  | 
|----------- | -------------- | --- | - | ---- | ---- |  | - | ----- |  |  | 
|Fiscal year |                | Low |   |      | High | 
|            |                |     |   |      |      | 
|2002        |                |     |   |      |      |  |   |       |  |  | 
|            | First Quarter  |     | $ | 4.39 |      |  | $ | 12.69 | 
|            | Second Quarter |     |   | 9.50 |      |  |   | 13.25 | 
|            | Third Quarter  |     |   | 8.40 |      |  |   | 12.85 | 
|            | Fourth Quarter |     |   | 9.93 |      |  |   | 11.55 | 
|2001        |                |     |   |      |      |  |   |       |  |  | 
|            | First Quarter  |     | $ | 7.06 |      |  | $ | 8.50  | 
|            | Second Quarter |     |   | 3.69 |      |  |   | 7.88  | 
|            | Third Quarter  |     |   | 4.00 |      |  |   | 6.69  | 
|            | Fourth Quarter |     |   | 3.88 |      |  |   | 7.20  | 

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
that restricts its ability to pay dividends. See Note C to Consolidated
Financial Statements.

At August 30, 2002, the Company had 623 shareholders of record.

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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, 2002 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.

|                                                                 |                            |         |        |                      |        |   |        |       |        |      |        |       |        |   |        |       |        |   |        |       |        | 
|---------------------------------------------------------------- | -------------------------- | ------- | ------ | -------------------- | ------ | - | ------ | ----- | ------ | ---- | ------ | ----- | ------ | - | ------ | ----- | ------ | - | ------ | ----- | ------ | 
|                                                                 |                            |         |        | Years Ended June 30, |       
|                                                                 |                            |         |        |                      |       
|                                                                 |                            |         |        | 2002                 |        |   | 2001   |       |        | 2000 |        |       | 1999   |   |        | 1998  |       
|                                                                 |                            |         |        |                      |        |   |        |       |        |      |        |       |        |   |        |       |       
|Statements of Operations Data:                                   |                            |         |        |                      |        |   |        |       |        |      |        |       |        |   |        |       |        |   |        |      
|Net sales                                                        |                            | $       | 38,794 |                      |        | $ | 34,136 |       |        | $    | 32,823 |       |        | $ | 27,321 |       |        | $ | 25,570 |      
|Costs of goods sold                                              |                            |         | 22,116 |                      |        |   | 18,487 |       |        |      | 17,618 |       |        |   | 10,768 |       |        |   | 10,941 |      
|                                                                 |                            |         |        |                      |        |   |        |       |        |      |        |       |        |   |       
|Gross profit                                                     |                            |         | 16,678 |                      |        |   | 15,649 |       |        |      | 15,205 |       |        |   | 16,553 |       |        |   | 14,629 |      
|Operating expenses                                               |                            |         |        |                      |        |   |        |       |        |      |        |       |        |   |        |       |        |   |        |      
|                                                                 | Research and development   |         |        | 4,865                |        |   |        | 4,704 |        |      |        | 4,213 |        |   |        | 3,557 |        |   |        | 4,940 |       
|                                                                 | Marketing and sales        |         |        | 10,774               |        |   |        | 9,284 |        |      |        | 7,907 |        |   |        | 7,164 |        |   |        | 6,889 |       
|                                                                 | General and administrative |         |        | 5,035                |        |   |        | 4,633 |        |      |        | 3,847 |        |   |        | 3,534 |        |   |        | 3,345 |       
|                                                                 |                            |         |        |                      |        |   |        |       |        |      |        |       |        |   |       
|                                                                 |                            |         | 20,674 |                      |        |   | 18,621 |       |        |      | 15,967 |       |        |   | 14,255 |       |        |   | 15,174 |      
|                                                                 |                            |         |        |                      |        |   |        |       |        |      |        |       |        |   |       
|Operating income (loss)                                          |                            |         | (3,996 | )                    |        |   | (2,972 | )     |        |      | (762   | )     |        |   | 2,298  |       |        |   | (545   | )    
|Other income (expense)                                           |                            |         | (721   | )                    |        |   | (729   | )     |        |      | (837   | )     |        |   | (722   | )     |        |   | 778    |      
|                                                                 |                            |         |        |                      |        |   |        |       |        |      |        |       |        |   |       
|Net income (loss)                                                |                            | $       | (4,717 | )                    |        | $ | (3,701 | )     |        | $    | (1,599 | )     |        | $ | 1,576  |       |        | $ | 233    |      
|                                                                 |                            |         |        |                      |        |   |        |       |        |      |        |       |        |   |       
|Net income (loss) per common share                               |                            |         |        |                      |        |   |        |       |        |      |        |       |        |   |        |       |        |   |        |      
|                                                                 |                            | Basic   |        | $                    | (0.37  | ) |        | $     | (0.29  | )    |        | $     | (0.13  | ) |        | $     | 0.13   |   |        | $     | 0.02   | 
|                                                                 |                            |         |        |                      |        |   |        |       |        |      |        |       |        |   |       
|                                                                 |                            | Diluted |        | $                    | (0.37  | ) |        | $     | (0.29  | )    |        | $     | (0.13  | ) |        | $     | 0.13   |   |        | $     | 0.02   | 
|                                                                 |                            |         |        |                      |        |   |        |       |        |      |        |       |        |   |       
|Weighted average common and common equivalent
shares outstanding |                            |         |        |                      |        |   |        |       |        |      |        |       |        |   |        |       |        |   |        |      
|                                                                 |                            | Basic   |        |                      | 12,802 |   |        |       | 12,631 |      |        |       | 12,489 |   |        |       | 12,398 |   |        |       | 12,269 | 
|                                                                 |                            |         |        |                      |        |   |        |       |        |      |        |       |        |   |       
|                                                                 |                            | Diluted |        |                      | 12,802 |   |        |       | 12,631 |      |        |       | 12,489 |   |        |       | 12,508 |   |        |       | 12,568 | 
|                                                                 |                            |         |        |                      |        |   |        |       |        |      |        |       |        |   |       
|                                                                
|                                                                
|                                                                 |                            |         |        | As of June 30,       |       
|                                                                 |                            |         |        |                      |       
|                                                                 |                            |         |        | 2002                 |        |   | 2001   |       |        | 2000 |        |       | 1999   |   |        | 1998  |       
|                                                                 |                            |         |        |                      |        |   |        |       |        |      |        |       |        |   |        |       |       
|Balance Sheet Data:                                              |                            |         |        |                      |        |   |        |       |        |      |        |       |        |   |        |       |        |   |        |      
|Working capital                                                  |                            | $       | 17,783 |                      |        | $ | 14,210 |       |        | $    | 15,530 |       |        | $ | 16,649 |       |        | $ | 17,084 |      
|Total assets                                                     |                            |         | 60,096 |                      |        |   | 62,696 |       |        |      | 66,108 |       |        |   | 68,797 |       |        |   | 66,948 |      
|Long-term obligations                                            |                            |         | 6,114  |                      |        |   | 6,249  |       |        |      | 6,477  |       |        |   | 6,720  |       |        |   | 6,658  |      
|Shareholders equity                                             |                            |         | 48,548 |                      |        |   | 52,056 |       |        |      | 55,421 |       |        |   | 55,471 |       |        |   | 53,299 |      

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Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations

Critical Accounting Policies

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

Revenue Recognition:

The Companys revenues are recognized when products are shipped to or
otherwise agreed by unaffiliated customers. The Securities and Exchange
Commissions Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition
provides guidance on the application of generally accepted accounting
principles to selected revenue recognition issues. The Company has concluded
that its revenue recognition policy is appropriate and in accordance with
generally accepted accounting principles and SAB No. 101.

Allowance for Uncollectible Accounts Receivable:

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

Inventories:

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

Goodwill, Intangible and Other Long-Lived Assets:

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

In July 2001, the Financial Accounting Standards Board issued SFAS 142
which deals with, among other things, amortization of goodwill. The Company
adopted this new standard effective July 1, 2001 and ceased amortization of
goodwill at that date and reviews goodwill for impairment on a regular basis,
at least annually.

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

General

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

The Company has a number of relationships with corporate partners relating
to the development and marketing of hyaluronan-based products for a variety of
medical applications. Currently, the primary commercial application for the
Companys hyaluronan is as a component in ophthalmic surgical products marketed
by Alcon for cataract surgery. Sales to Alcon are made under a supply agreement
that extends through December 31, 2002. The agreement contains minimum purchase
requirements totaling $2.5 million in each of calendar years 2001 and 2002.
Management expects that the Company will be able to

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negotiate an extension of this supply agreement. Initial sales of INTERGEL
Solution occurred during fiscal 1998, as ETHICON, began marketing INTERGEL
Solution in Europe. On November 19, 2001, the Company received FDA approval
to market INTERGEL Solution in the United States. Sales of INTERGEL Solution
commenced in the United States during the first calendar quarter of 2002.

The Companys Oral Restorative Division markets a comprehensive line of
titanium-based dental implants for tooth replacement therapy. 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, in Germany through the Companys subsidiary, Lifecore
Biomedical GmbH, in Scandinavia through the Companys subsidiary, Lifecore
Biomedical AB, and in other countries through distributors.

Results of Operations

Year ended June 30, 2002 compared with year
ended June 30, 2001.

|                   |                            |   |            |           |  |                  |      |              |           |      |   |            |            |  |      |  |      |            |           |      |            |            |  |   |            |           | 
|------------------ | -------------------------- | - | ---------- | --------- |  | ---------------- | ---- | ------------ | --------- | ---- | - | ---------- | ---------- |  | ---- |  | ---- | ---------- | --------- | ---- | ---------- | ---------- |  | - | ---------- | --------- | 
|                   |                            |   | Hyaluronan |           |  | Oral Restorative |      |              |           |      |   |            |            | 
|                   |                            |   | Division   |           |  | Division         |      | Consolidated |          
|                   |                            |   |            |           |  |                  |      |              |          
|                   |                            |   | 2002       |           |  |                  | 2001 |              |           | 2002 |   |            |            |  | 2001 |  | 2002 |            |           | 2001
|                   |                            |   |            |           |  |                  |      |              |           |      |   |            |            |  |      |  |      |            |           |     
|Net sales          |                            | $ | 15,244,000 |           |  |                  | $    | 14,185,000   |           |      | $ | 23,550,000 |            |  |      |  | $    | 19,951,000 |           | $    | 38,794,000 |            |  | $ | 34,136,000 |          
|Cost of goods sold |                            |   | 12,165,000 |           |  |                  |      | 10,258,000   |           |      |   | 9,951,000  |            |  |      |  |      | 8,229,000  |           |      | 22,116,000 |            |  |   | 18,487,000 |          
|                   |                            |   |            |           |  |                  |      |              |           |      |   |            |            |  |      |  |      |            |           |     
|Gross profit       |                            |   | 3,079,000  |           |  |                  |      | 3,927,000    |           |      |   | 13,599,000 |            |  |      |  |      | 11,722,000 |           |      | 16,678,000 |            |  |   | 15,649,000 |          
|Operating expenses |                            |   |            |           |  |                  |      |              |           |      |   |            |            |  |      |  |      |            |           |      |            |            |  |   |            |          
|                   | Research and development   |   |            | 3,948,000 |  |                  |      |              | 3,674,000 |      |   |            | 917,000    |  |      |  |      |            | 1,030,000 |      |            | 4,865,000  |  |   |            | 4,704,000 | 
|                   | Marketing and sales        |   |            | 259,000   |  |                  |      |              | 206,000   |      |   |            | 10,516,000 |  |      |  |      |            | 9,078,000 |      |            | 10,775,000 |  |   |            | 9,284,000 | 
|                   | General and administrative |   |            | 1,831,000 |  |                  |      |              | 1,771,000 |      |   |            | 3,203,000  |  |      |  |      |            | 2,862,000 |      |            | 5,034,000  |  |   |            | 4,633,000 | 
|                   |                            |   |            |           |  |                  |      |              |           |      |   |            |            |  |      |  |      |            |           |     
|                   |                            |   | 6,038,000  |           |  |                  |      | 5,651,000    |           |      |   | 14,636,000 |            |  |      |  |      | 12,970,000 |           |      | 20,674,000 |            |  |   | 18,621,000 |          
|                   |                            |   |            |           |  |                  |      |              |           |      |   |            |            |  |      |  |      |            |           |     
|Operating loss     |                            | $ | (2,959,000 | )         |  |                  | $    | (1,724,000   | )         |      | $ | (1,037,000 | )          |  |      |  | $    | (1,248,000 | )         | $    | (3,996,000 | )          |  | $ | (2,972,000 | )        
|                   |                            |   |            |           |  |                  |      |              |           |      |   |            |            |  |      |  |      |            |           |     

Net Sales.Net sales increased $4,658,000 or 14% in fiscal 2002 from
fiscal 2001. Hyaluronan Division sales increased $1,059,000 or 7% and Oral
Restorative Division sales increased $3,599,000 or 18%.

Hyaluronan Division sales increased to $15,244,000 in fiscal 2002 from
$14,185,000 in fiscal 2001 due to increased sales of INTERGEL Solution to
ETHICON with the approval of INTERGEL Solution for sale in the United States.
This sales increase was partially offset by reduced ophthalmic hyaluronan
shipments and the termination of the Bausch & Lomb shipments that occurred in
fiscal 2001.

Oral Restorative Division sales increased to $23,550,000 in fiscal 2002
from $19,951,000 in fiscal 2001. Domestic sales increased 12% due to continued
growth in market acceptance of the STAGE-1 Single Stage Implant System and the
RBM coated implant lines. Sales in the international markets increased by 28%
from sales increases at our subsidiary operations.

Gross profit.Consolidated gross profit, as a percentage of net sales,
was 43% in fiscal 2002 and 46 % in fiscal 2001. The gross profit for the
Hyaluronan Division decreased to 20% in fiscal 2002 from 28% in fiscal 2001.
Charges for unused capacity, associated with the Companys hyaluronan
production as a result of an unanticipated delay in receiving INTERGEL Solution
marketing approval in the U.S. from the FDA, were $3.8 million in fiscal 2002
and $2.7 million in fiscal 2001. The Company expects that its Hyaluronan
Division gross margins will gradually improve as production levels increase to
meet the expected demand for hyaluronan. Gross profit for the Oral Restorative
Division decreased to 58% in fiscal 2002 from 59% in fiscal 2001. The decrease
is the result of product sales mix.

Research and development.Research and development expenses increased
$161,000 or 3% in fiscal 2002 from fiscal 2001. The increase resulted
principally from consulting and related expenses associated with the regulatory
process with the FDA for INTERGEL Solution.

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Marketing and sales.Marketing and sales expenses increased by $1,491,000
or 16% in fiscal 2002 from fiscal 2001. The increase was due mainly to the
development and execution of new products, promotions and customer training
programs for the Oral Restorative Division and increased costs associated with
subsidiary operations.

General and administrative.General and administrative expenses increased
by $401,000 or 9% in fiscal 2002 from fiscal 2001. The increase is principally
related to costs associated with subsidiary operations and higher legal
expenses in the current period as compared to the same period of last fiscal
year.

Other income (expense).Interest expense was lower in fiscal 2002
compared to 2001 mainly due to a lower level of borrowings on the line of
credit in fiscal 2002. Interest income decreased due to lower level of cash
available for investment, combined with lower interest rates in fiscal 2002 .

Year ended June 30, 2001 compared with year ended June 30, 2000

|                        |                            |   |            |           |  |                  |            |           |              |   |            |           |  |   |            |           |  |      |            |           |  |   |            |           | 
|----------------------- | -------------------------- | - | ---------- | --------- |  | ---------------- | ---------- | --------- | ------------ | - | ---------- | --------- |  | - | ---------- | --------- |  | ---- | ---------- | --------- |  | - | ---------- | --------- | 
|                        |                            |   | Hyaluronan |           |  | Oral Restorative |            |           |              |   |            |           |  |   |           
|                        |                            |   | Division   |           |  | Division         |            |           | Consolidated |  
|                        |                            |   |            |           |  |                  |            |           |              |  
|                        |                            |   | 2001       |           |  | 2000             |            |           | 2001         |   |            | 2000      |  |   | 2001       |           |  | 2000 |           
|                        |                            |   |            |           |  |                  |            |           |              |   |            |           |  |   |            |           |  |      |           
|Net sales               |                            | $ | 14,185,000 |           |  | $                | 12,765,000 |           |              | $ | 19,951,000 |           |  | $ | 20,058,000 |           |  | $    | 34,136,000 |           |  | $ | 32,823,000 |          
|Cost of goods sold      |                            |   | 10,258,000 |           |  |                  | 9,002,000  |           |              |   | 8,229,000  |           |  |   | 8,616,000  |           |  |      | 18,487,000 |           |  |   | 17,618,000 |          
|                        |                            |   |            |           |  |                  |            |           |              |   |            |           |  |   |            |           |  |     
|Gross profit            |                            |   | 3,927,000  |           |  |                  | 3,763,000  |           |              |   | 11,722,000 |           |  |   | 11,442,000 |           |  |      | 15,649,000 |           |  |   | 15,205,000 |          
|Operating expenses      |                            |   |            |           |  |                  |            |           |              |   |            |           |  |   |            |           |  |      |            |           |  |   |            |          
|                        | Research and development   |   |            | 3,674,000 |  |                  |            | 3,556,000 |              |   |            | 1,030,000 |  |   |            | 657,000   |  |      |            | 4,704,000 |  |   |            | 4,213,000 | 
|                        | Marketing and sales        |   |            | 206,000   |  |                  |            | 139,000   |              |   |            | 9,078,000 |  |   |            | 7,768,000 |  |      |            | 9,284,000 |  |   |            | 7,907,000 | 
|                        | General and administrative |   |            | 1,771,000 |  |                  |            | 1,514,000 |              |   |            | 2,862,000 |  |   |            | 2,333,000 |  |      |            | 4,633,000 |  |   |            | 3,847,000 | 
|                        |                            |   |            |           |  |                  |            |           |              |   |            |           |  |   |            |           |  |     
|                        |                            |   | 5,651,000  |           |  |                  | 5,209,000  |           |              |   | 12,970,000 |           |  |   | 10,758,000 |           |  |      | 18,621,000 |           |  |   | 15,967,000 |          
|                        |                            |   |            |           |  |                  |            |           |              |   |            |           |  |   |            |           |  |     
|Operating income (loss) |                            | $ | (1,724,000 | )         |  | $                | (1,446,000 | )         |              | $ | (1,248,000 | )         |  | $ | 684,000    |           |  | $    | (2,972,000 | )         |  | $ | (762,000   | )        
|                        |                            |   |            |           |  |                  |            |           |              |   |            |           |  |   |            |           |  |     

Net Sales.Net sales increased $1,313,000 or 4% in fiscal 2001 from
fiscal 2000. Hyaluronan Division sales increased $1,420,000 or 11% while the
Oral Restorative Division sales decreased $107,000.

The increase in Hyaluronan Division sales was due to an increase in sales
of ophthalmic products and an increase from other Hyaluronan Division customers
in fiscal 2001 compared to fiscal 2000. Sales of ophthalmic products to a
single customer were $6,406,000 in fiscal 2001 compared with $5,981,000 for
fiscal 2000.

Oral Restorative Division sales decreased to $19,951,000 in fiscal 2001
from $20,058,000 in fiscal 2000. Sales in the domestic market declined due to
the end of the Alloderm Graft distribution agreement in July 2000. When sales
of Alloderm Graft are adjusted out of the two years, domestic sales grew by 8%.
International sales increased by 12%, mainly from the addition of the German
subsidiary.

Gross profit.Consolidated gross profit, as a percentage of net sales,
was 46% in both fiscal 2001 and fiscal 2000. The gross profit for the
Hyaluronan Division decreased to 28% in fiscal 2001 from 29% in fiscal 2000.
Charges for unused capacity, associated with the Companys hyaluronan
production as a result of an unanticipated delay in receiving INTERGEL Solution
marketing approval in the U.S. from the FDA, were $2.7 million in fiscal 2001
and $3.2 million in fiscal 2000. Gross profit for the Oral Restorative Division
increased to 59% in fiscal 2001 from 57% in fiscal 2000. The increase is the
result of product mix; sales of the lower margin Alloderm Graft product
declined in fiscal 2001.

Research and development.Research and development expenses increased
$491,000 or 12% in fiscal 2001 from fiscal 2000. The increase resulted
principally from product development costs for the RBM STAGE-1 Single Stage
Implant that was introduced in March 2001 and from the consulting and related
expenses associated with the regulatory process with the FDA for INTERGEL
Solution.

Marketing and sales.Marketing and sales expenses increased by $1,377,000
or 17% in fiscal 2001 from fiscal 2000. The increase was due mainly to the
development and execution of new products, promotions and customer training
programs for the Oral Restorative Division and costs associated with operating
Lifecore GmbH.

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General and administrative.General and administrative expenses increased
by $786,000 or 20% in fiscal 2001 from fiscal 2000. The increase is principally
from costs associated with operating Lifecore GmbH and higher legal and health
insurance expenses in fiscal 2001 as compared to the same period of fiscal
2000.

Other income (expense).Interest expense was lower in fiscal 2001
compared to 2000 mainly from a lower level of borrowings on the line of credit
in fiscal 2001. A higher level of cash available for investment in fiscal 2001
contributed to the increase in interest income.

Liquidity and Capital Resources

Inventories consist mainly of finished hyaluronan powder and oral
restorative products and related raw materials. The portion of finished
hyaluronan inventory that is not expected to be consumed within the next twelve
months is classified as long-term inventory. The finished hyaluronan inventory
is maintained in a frozen state and has a shelf life in excess of five years.
Total inventory decreased by $2,935,000 and $3,597,000 in fiscal 2002 and 2001
as the Company decreased production of hyaluronan powder and INTERGEL Solution
after the unanticipated delay in receiving marketing approval of INTERGEL
Solution from the FDA. INTERGEL Solution sales have increased after the
Company obtained FDA approval to market INTERGEL Solution in the United States
in November 2001, which also contributed to the decrease in hyaluronan
inventory.

The Company had positive cash flow from operations in fiscal 2002, 2001
and 2000. As the Hyaluronan Divisions production levels increase, its related
production efficiencies will increase. However, charges for unused capacity
associated with the Companys hyaluronan production have negatively impacted
operating results in fiscal 2002 and 2001. These charges are a result of the
unanticipated delay in receiving INTERGEL Solution marketing approval in the
U.S. from the FDA. The Company expects that its Hyaluronan Division gross
margins will gradually increase as production levels and efficiency increases
as a result of gaining FDA approval to sell INTERGEL Solution in the United
States. Also, marketing and sales expenses for the oral restorative products
are expected to continue at a high level, and personnel costs have increased.

On July 2, 2001, the Company issued 69,597 shares of common stock, with an
aggregate value of $347,000, in connection with the acquisition of shares of
Lifecore Biomedical AB held by two individuals. The issuances were completed
pursuant to an exemption from registration provided under Section 4(2) of the
Securities Act of 1933.

On March 15, 2001, the Company entered into an agreement with Lancet
Software Development, Inc. whereby Lancet agreed to develop an e-Commerce site
for the Company to market its products worldwide. Payments due under the
agreement may be made in the form of the Companys common stock or cash, at the
option of the Company. In April 2001, the Company issued an aggregate of
20,973 shares of common stock to Lancet as the first progress payment under the
agreement. In June 2001, the Company issued an aggregate of 23,152 shares of
common stock to Lancet as the second progress payment under the agreement. In
October 2001, the Company issued an aggregate of 21,097 shares of common stock
to Lancet as the final payment under the agreement. The number of shares issued
to Lancet was determined using a formula based on the quoted market value of
the common stock as determined on the Nasdaq National Market. Under the terms
of the agreement, Lancet exercised the right to have the shares registered for
sale. Registration Statements on Form S-3 were filed and declared effective by
the Securities and Exchange Commission in April, August and November 2001.

The loan agreement between the Company and the holder of the industrial
development revenue bonds issued to finance the Companys Chaska, Minnesota
facility was amended in June 2002 to waive the fixed charge coverage ratio and
the cash flow coverage ratio through June 30, 2003. With respect to certain of
these covenants, the Company may be required to obtain further waivers for
fiscal 2004. There can be no assurance that future waivers will be granted to
the Company.

The Company has an agreement with a bank for a $5,000,000 line of credit.
The agreement allows for advances against eligible accounts receivable and
inventories, subject to a borrowing base certificate. Interest is accrued at
the prime rate plus 1% at June 30, 2002 and at prime at June 30, 2001, which
was 5.75% and 6.75% at the respective dates. The agreement has a maturity date
of December 31, 2002. At June 30, 2002 and 2001 there was no outstanding
balance under this line of credit. The terms of the agreement require the
Company to comply with various financial covenants including minimum net worth,
capital expenditure limitations and liabilities to tangible net worth ratio.
At June 30, 2002, the Company was in compliance with all covenants. It is the
intention of the Company to either renew the existing line of credit agreement
or seek a comparable line of credit agreement with a different bank. There is
no assurance that the Company will be able to renew the existing line of credit
agreement or be able to secure a line of credit agreement with a new bank when
the current agreement expires on December 31, 2002.

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

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. Such forward-looking statements relate to market acceptance and
demand for the Companys products, future product development plans and timing,
the results of clinical trials, FDA clearances and the related timing of such,
the potential size of the markets for the Companys products, future product
introductions, future expense levels and capital needs and the Companys
ability to successfully negotiate acceptable agreements with its corporate
partners. These statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical earnings and
those presently anticipated or projected. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date made. The following important factors, among
others, in some cases have affected 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)
obtaining the necessary regulatory approvals for new hyaluronan and oral
restorative products; (ii) the Companys reliance on corporate partners to
develop new products on a timely basis and to market the Companys existing and
new hyaluronan products effectively; (iii) possible limitations on the
Companys ability to meet anticipated significant commercial demand for
INTERGEL Solution on a timely basis; (iv) the uncertainty of the possible
outcome of the litigation with The Straumann Company regarding the STAGE-1
Single Stage Implant System, (v) intense competition in the markets for the
Companys principal products and (vi) other factors discussed in the risk
factors filed as Exhibit 99 to this Form 10-K. 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.

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Item 7a. Quantitative and Qualitative Disclosures About Market Risk

The Company invests its excess cash in money market mutual funds and
highly rated corporate debt securities. All investments are held-to-maturity.
The market risk on such investments is minimal. Receivables from sales to
foreign customers are denominated in U.S. Dollars. Transactions at the
Companys foreign subsidiaries are denominated in European Euros at Lifecore
Biomedical SpA and Lifecore Biomedical GmbH and are denominated in Swedish
Krona at Lifecore Biomedical AB. The Company has historically had minimal
exposure to changes in foreign currency exchange rates, and as such, has not
used derivative financial instruments to manage foreign currency fluctuation
risk. The Companys outstanding long-term debt carries interest at a fixed
rate. There is no material market risk relating to the Companys long-term
debt.

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 2002 and 2001 is as
follows:

|                         |                                                                  |                   |   |            |            |   |        |            |            |       |   |            |            |   |   |            |            |  
|------------------------ | ---------------------------------------------------------------- | ----------------- | - | ---------- | ---------- | - | ------ | ---------- | ---------- | ----- | - | ---------- | ---------- | - | - | ---------- | ---------- | -
|                         |                                                                  |                   |   | Quarter    |           
|                         |                                                                  |                   |   |            |           
|                         |                                                                  |                   |   | First      |            |   | Second |            |            | Third |   |            | Fourth     |  
|                         |                                                                  |                   |   |            |            |   |        |            |            |       |   |            |            |  
|Year ended June 30, 2002 |                                                                  |                   |   |            |            |   |        |            |            |       |   |            |            |   |   |           
|                         | Net sales                                                        |                   | $ | 8,234,000  |            |   | $      | 8,584,000  |            |       | $ | 10,254,000 |            |   | $ | 11,722,000 |           
|                         | Gross profit                                                     |                   |   | 3,299,000  |            |   |        | 3,261,000  |            |       |   | 4,601,000  |            |   |   | 5,517,000  |           
|                         | Net loss                                                         |                   |   | (1,932,000 | )          |   |        | (2,080,000 | )          |       |   | (657,000   | )          |   |   | (48,000    | )         
|                         | Net loss per share                                               |                   |   |            |            |   |        |            |            |       |   |            |            |   |   |            |           
|                         |                                                                  | Basic and diluted | $ | (0.15      | )          |   | $      | (0.16      | )          |       | $ | (0.05      | )          |   | $ | (0.00      | )         
|                         | Weighted average common and common
equivalent shares outstanding |                   |   |            |            |   |        |            |            |       |   |            |            |   |   |            |           
|                         |                                                                  | Basic and diluted |   |            | 12,747,618 |   |        |            | 12,785,099 |       |   |            | 12,806,177 |   |   |            | 12,854,643 |  
|                        
|Year ended June 30, 2001 |                                                                  |                   |   |            |            |   |        |            |            |       |   |            |            |   |   |           
|                         | Net sales                                                        |                   | $ | 7,896,000  |            |   | $      | 8,717,000  |            |       | $ | 8,627,000  |            |   | $ | 8,896,000  |           
|                         | Gross profit                                                     |                   |   | 3,728,000  |            |   |        | 4,009,000  |            |       |   | 4,195,000  |            |   |   | 3,717,000  |           
|                         | Net loss                                                         |                   |   | (606,000   | )          |   |        | (561,000   | )          |       |   | (621,000   | )          |   |   | (1,913,000 | )         
|                         | Net loss per share                                               |                   |   |            |            |   |        |            |            |       |   |            |            |   |   |            |           
|                         |                                                                  | Basic and diluted |   | $          | (0.05      | ) |        | $          | (0.04      | )     |   | $          | (0.05      | ) |   | $          | (0.15      | )
|                         | Weighted average common and common
equivalent shares outstanding |                   |   |            |            |   |        |            |            |       |   |            |            |   |   |            |           
|                         |                                                                  | Basic and diluted |   |            | 12,611,499 |   |        |            | 12,622,249 |       |   |            | 12,626,257 |   |   |            | 12,657,958 |  

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

21



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##### Table of Contents






PART III

Item 10. Directors and Executive Officers of the Registrant

Information concerning director nominees is set forth in the sections
entitled Election of Directors and Section 16(a) Beneficial Ownership
Reporting Compliance in the Companys Proxy Statement for its 2002 Annual
Meeting of Shareholders to be held November 14, 2002, 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 2002
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 2002 Annual Meeting of
Shareholders which is incorporated herein by reference.

Securities authorized for issuance under equity compensation plans

The following table provides information on equity compensation plans under
which equity securities of the Company are authorized for issuance, as of June
30, 2002:

|                                                            |  |                      |           |  |                      |   |       |                         |            |  |           |    
|----------------------------------------------------------- |  | -------------------- | --------- |  | -------------------- | - | ----- | ----------------------- | ---------- |  | --------- | ---
|Plan Category                                               |  | Number of securities |           |  | Weighted-average     |   |       | Number of securities    |           
|                                                            |  | to be issued upon    |           |  | exercise price of    |   |       | remaining available for |           
|                                                            |  | exercise of          |           |  | outstanding options, |   |       | future issuance under   |           
|                                                            |  | outstanding options, |           |  | warrants and rights  |   |       | equity compensation     |           
|                                                            |  | warrants and rights  |           |  |                      |   |       | plans (excluding        |           
|                                                            |  |                      |           |  |                      |   |       | securities reflected in |           
|                                                            |  |                      |           |  |                      |   |       |                         | column (a) | 
|                                                            |  | ( a )                |           |  | ( b )                |   |       | ( c )                   |           
|                                                            |  |                      |           |  |                      |   |       |                         |           
|Equity compensation plans
approved by security
holders (1): |  |                      | 2,823,210 |  |                      | $ | 11.87 |                         |            |  | 1,476,790 | (2)
|Equity compensation plans
not approved by security
holders: |  |                      |          |  |                      |   |      |                         |            |  |          |    
|                                                            |  |                      |           |  |                      |   |       |                         |           
|Total                                                       |  |                      | 2,823,210 |  |                      | $ | 11.87 |                         |            |  | 1,476,790 |    
|                                                            |  |                      |           |  |                      |   |       |                         |           

(1)  - Includes the Companys 1987 Stock Plan, 1990 Stock Plan and 1996 Stock
Plan.

(2)  - The 1996 Stock Plan authorizes the issuance of awards in the form of
restricted stock. There are a total of 562,748 shares available for future
issuance under the 1996 Stock Plan. The Company has not granted any shares of
restricted stock under the 1996 Stock Plan.

Item 13. Certain Relationships and Related Transactions

Not Applicable.

22



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##### Table of Contents






PART IV

Item 14. Controls and Procedures

There have not been any significant changes in the Companys internal
controls or in other factors that could significantly affect these controls
since the date these controls were last evaluated by the executive officers of
the Company.

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

|   |                                                                                             |     |                                       |  |  |  |               
|-- | ------------------------------------------------------------------------------------------- | --- | ------------------------------------- |  |  |  | --------------
|   |                                                                                             | (a) | Documents filed as
part of the report |  | 
|  
|1. | Consolidated Financial Statements                                                           |     |                                       |  | 
|  
|   |                                                                                             |     |                                       |  |  |  | Form 10-K     
|   |                                                                                             |     |                                       |  |  |  | Page Reference
|   |                                                                                             |     |                                       |  |  |  |               
|  
|   | Report of Independent Certified Public Accountants                                          |     | F-1                                  
|  
|   | Consolidated Balance Sheets  June 30, 2002 and 2001.                                       |     | F-2 and F-3                          
|  
|   | Consolidated Statements of Operations  years ended June 30, 2002,
2001 and 2000.           |     | F-4                                  
|  
|   | Consolidated Statements of Cash Flows  years ended June 30, 2002,
2001 and 2000.           |     | F-5                                  
|  
|   | Consolidated Statements of Shareholders Equity  years ended
June 30, 2002, 2001 and 2000. |     | F-6                                  
|  
|   | Notes to Consolidated Financial Statements                                                  |     | F-7 through F-18                     
|  
|2. | Consolidated Financial Statement Schedules                                                  |     |                                       |  | 
|  
|   | Schedule II  Valuation and Qualifying Accounts                                             |     | S-1                                  
|  
|   |                                                                                             | (b) | Reports on Form 8-K                   |  | 
|   |                                                                                             |     | None                                  |  |  |  |               
|  
|   |                                                                                             | (c) | Exhibits and
Exhibit Index            |  | 

Description

|    |  |                                                                                                                                                                                                                                                                                                                                                                                    
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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)
|    |  |                                                                                                                                                                                                                                                                                                                                                                                    
|3.1 |  | Restated Articles of Incorporation, as amended (incorporated by reference
to Exhibit 19(a) to Amendment No. 1 on Form 8, dated July 13, 1988, to
Form 10-Q for the quarter ended December 31, 1987), as amended by
Amendment No. 2 (incorporated by reference to Exhibit 3.1 to Form 10-K
for the year ended June 30, 1997)                                                        
|    |  |                                                                                                                                                                                                                                                                                                                                                                                    
|3.2 |  | Amended Bylaws, (incorporated by reference to Exhibit 3.2 to Form 10-K/A
for the year ended June 30, 1995)                                                                                                                                                                                                                                                                         
|    |  |                                                                                                                                                                                                                                                                                                                                                                                    
|3.3 |  | Form of Rights Agreement, dated as of May 23, 1996, between the Company
and Norwest Bank Minnesota, National Association (incorporated by
reference to Exhibit 1 to the Companys Form 8-A Registration Statement
dated May 31, 1996)                                                                                                                                              
|    |  |                                                                                                                                                                                                                                                                                                                                                                                    
|4.1 |  | Form of Common Stock Certificate (incorporated by reference to Exhibit
4.1 to 1987 S-2 Registration Statement [File No. 33-12970])                                                                                                                                                                                                                                                 

23



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Description

|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 (incorporated by reference to Exhibit 10.1 to Form 10-K for the
year ended June 30, 1997), as amended on June 5, 1998, (incorporated by
reference to Exhibit 10.1 to Form 10-K for the year ended June 30, 1998),
as amended on June 10, 1999, (incorporated by reference to Exhibit 10.1
to Form 10-K for the year ended June 30, 1999), as amended on June 8,
2000, (incorporated by reference to Exhibit 10.1 to Form 10-K for the
year ended June 30, 2000), as amended on May 24, 2001, (incorporated by
reference to Exhibit 10.1 to Form 10-K for the year ended June 30, 2001),
as amended on June 5, 2002, 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   |  | Hyaluronan 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 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), as amended by letter agreement dated
November 14, 1996 (incorporated by reference to Exhibit 10.1 to Form 10-Q
for the quarter ended December 31, 1997)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|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*  |  | 1990 Employee Stock Purchase Savings Plan (incorporated by reference to
Exhibit 4(a) to S-8 Registration Statement [File No. 33-32984])                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.10* |  | 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 (incorporated by
reference to Exhibit 10.11 to Form 10-K for the year ended June 30, 1997)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.11  |  | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

24



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##### Table of Contents



Description

|       |  |                                                                                                                                                                                                                                 
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.12* |  | 1996 Stock Option Plan (incorporated by reference to Exhibit 4.1 to S-8
Registration Statement [File No. 333-18515])                                                                                                            
|       |  |                                                                                                                                                                                                                                 
|10.13  |  | Credit and Security Agreement, dated December 28, 1998, between the U.S.
Bank National Association and the Company, (incorporated by reference to
Exhibit 10.1 to Form 10-Q for the quarter ended December 31, 1998)            
|       |  |                                                                                                                                                                                                                                 
|10.14  |  | Amendment No. 1 to Credit and Security Agreement dated February 7, 2000
between U.S. Bank National Association and the Company, (incorporated by
reference to Exhibit 10.21 to Form 10-K for the year ended June 30, 2000)      
|       |  |                                                                                                                                                                                                                                 
|10.15  |  | Amendment No. 2 to Credit and Security Agreement dated July 21, 2000
between U.S. Bank National Association and the Company, (incorporated by
reference to Exhibit 10.21 to Form 10-K for the year ended June 30, 2000)         
|       |  |                                                                                                                                                                                                                                 
|10.16  |  | Amendment No. 3 to Credit and Security Agreement dated August 21, 2001
between U.S. Bank National Association and the Company, (incorporated by
reference to Exhibit 10.17 to Form 10-K for the year ended June 30, 2001)       
|       |  |                                                                                                                                                                                                                                 
|10.19  |  | Amendment No. 4 to Credit and Security Agreement dated January 25, 2002
between U.S. Bank National Association and the Company, (incorporated by
reference to Exhibit 10.1 to Form 10-Q for the quarter ended December 31,
2001)
|       |  |                                                                                                                                                                                                                                 
|23.1   |  | Consent of Grant Thornton LLP                                                                                                                                                                                                   
|       |  |                                                                                                                                                                                                                                 
|99.1   |  | Risk Factors                                                                                                                                                                                                                    
|       |  |                                                                                                                                                                                                                                 
|99.2   |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002                                                                                                          
|       |  |                                                                                                                                                                                                                                 
|99.3   |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002                                                                                                          



---

|* |  | Denotes management contract or compensatory plan, contract or arrangement.
|- |  | --------------------------------------------------------------------------

25



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##### Table of Contents






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: September 20, 2002 |                           | By        /s/ JAMES W. BRACKEJames W. Bracke, Ph.D.President, 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: September 20, 2002 |  | By        /s/ DENNIS J. ALLINGHAMDennis J. AllinghamExecutive Vice President and Chief Financial Officer
(principal financial officer)     
|                         
|                          |  |                                                                                                                                            
|                         
|Dated: September 20, 2002 |  | By        /s/ JAMES W. BRACKEJames W. Bracke, Ph.D.President, Chief Executive Officer
(principal executive officer), Secretary and Director
|                         
|                          |  |                                                                                                                                            
|                         
|Dated: September 20, 2002 |  | By        /s/ ORWIN L. CARTEROrwin L. CarterDirector                                                                                       
|                         
|Dated: September 20, 2002 |  | By        /s/ JOAN L. GARDNERJoan L. GardnerDirector                                                                                       
|                         
|                          |  |                                                                                                                                            
|                         
|Dated: September 20, 2002 |  | By        /s/ THOMAS H. GARRETTThomas H. GarrettDirector                                                                                   
|                         
|                          |  |                                                                                                                                            
|                         
|Dated: September 20, 2002 |  | By        /s/ JOHN C. HEINMILLERJohn C. HeinmillerDirector                                                                                 
|                         
|                          |  |                                                                                                                                            
|                         
|Dated: September 20, 2002 |  | By        /s/ RICHARD W. PERKINSRichard W. PerkinsDirector                                                                                 
|                         
|                          |  |                                                                                                                                            
|                         
|Dated September 20, 2002  |  | By        /s/ JOHN E. RUNNELLSJohn E. RunnellsDirector                                                                                     

26



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##### Table of Contents






CERTIFICATIONS

Chief Executive Officer

I, James W. Bracke, Ph.D., certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Lifecore Biomedical, Inc.;                                                                                                                                                                                                                                               
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report; and
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operation and cash flows of the
registrant as of, and for, the periods presented in this annual report.                        

|                          |  |                                                                                                                                            
|------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------
|Dated: September 20, 2002 |  | By        /s/ JAMES W. BRACKEJames W. Bracke, Ph.D.President, Chief Executive Officer
(principal executive officer), Secretary and Director

Chief Financial Officer

I, Dennis J. Allingham, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Lifecore
Biomedical, Inc.;                                                                                                                                                                                                                                               
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this annual report; and
|  
|3. |  | Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present
in all material respects the financial condition, results of
operation and cash flows of the registrant as of, and for, the
periods presented in this annual report.                        

|                          |  |                                                                                                                                       
|------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------
|Dated: September 20, 2002 |  | By        /s/ DENNIS J. ALLINGHAMDennis J. AllinghamExecutive Vice President and Chief Financial Officer
(principal financial officer)

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28



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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, 2002
and 2001, and the related consolidated statements of operations, shareholders
equity, and cash flows for each of the three years in the period ended June 30,
2002. 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 auditing standards generally
accepted in the United States of America. 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, 2002 and 2001, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended June 30, 2002, in conformity with
accounting principles generally accepted in the United States of America.

We have also audited Schedule II of Lifecore Biomedical, Inc. and
subsidiaries for each of the three years in the period ended June 30, 2002. 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
July 30, 2002

F-1



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##### Table of Contents



Lifecore Biomedical, Inc. and Subsidiaries




CONSOLIDATED BALANCE SHEETS
June 30,

ASSETS

|                                        |                                      |                      |            |             |            |   |            |             |            | 
|--------------------------------------- | ------------------------------------ | -------------------- | ---------- | ----------- | ---------- | - | ---------- | ----------- | ---------- | 
|                                        |                                      |                      |            | 2002        |            |   | 2001       |            
|                                        |                                      |                      |            |             |            |   |            |            
|CURRENT ASSETS                          |                                      |                      |            |             |            |   |            |            
|                                        | Cash and cash equivalents            |                      | $          | 2,528,000   |            |   | $          | 2,310,000   |           
|                                        | Accounts receivable, less allowances |                      |            | 7,882,000   |            |   |            | 6,923,000   |           
|                                        | Inventories                          |                      |            | 11,810,000  |            |   |            | 8,693,000   |           
|                                        | Prepaid expenses                     |                      |            | 997,000     |            |   |            | 675,000     |           
|                                        |                                      |                      |            |             |            |  
|                                        |                                      | Total current assets |            |             | 23,217,000 |   |            |             | 18,601,000 | 
|                                       
|PROPERTY, PLANT AND EQUIPMENT  AT COST |                                      |                      |            |             |            |   |            |            
|                                        | Land                                 |                      |            | 249,000     |            |   |            | 249,000     |           
|                                        | Building                             |                      |            | 23,960,000  |            |   |            | 23,924,000  |           
|                                        | Equipment                            |                      |            | 16,302,000  |            |   |            | 15,425,000  |           
|                                        | Land and building improvements       |                      |            | 3,477,000   |            |   |            | 3,429,000   |           
|                                        |                                      |                      |            |             |            |  
|                                        |                                      |                      | 43,988,000 |             |            |   | 43,027,000 |            
|                                        | Less accumulated depreciation        |                      |            | (17,194,000 | )          |   |            | (14,590,000 | )         
|                                        |                                      |                      |            |             |            |  
|                                        |                                      |                      | 26,794,000 |             |            |   | 28,437,000 |            
|                                       
|OTHER ASSETS                            |                                      |                      |            |             |            |   |            |            
|                                        | Intangibles                          |                      |            | 4,850,000   |            |   |            | 4,605,000   |           
|                                        | Security deposits                    |                      |            | 845,000     |            |   |            | 854,000     |           
|                                        | Inventories                          |                      |            | 3,316,000   |            |   |            | 9,368,000   |           
|                                        | Other                                |                      |            | 1,074,000   |            |   |            | 831,000     |           
|                                        |                                      |                      |            |             |            |  
|                                        |                                      |                      | 10,085,000 |             |            |   | 15,658,000 |            
|                                        |                                      |                      |            |             |            |  
|                                        |                                      | $                    | 60,096,000 |             |            | $ | 62,696,000 |            
|                                        |                                      |                      |            |             |            |  

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Lifecore Biomedical, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS  (continued)
June 30,

LIABILITIES AND SHAREHOLDERS EQUITY

|                              |                                                                                                                                                       |                           |            |             |           |   |            |             |           | 
|----------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ---------- | ----------- | --------- | - | ---------- | ----------- | --------- | 
|                              |                                                                                                                                                       | 2002                      |            |             | 2001      |  
|                              |                                                                                                                                                       |                           |            |             |           |   |            |            
|CURRENT LIABILITIES           |                                                                                                                                                       |                           |            |             |           |   |            |            
|                              | Current maturities of long-term obligations                                                                                                           |                           | $          | 139,000     |           |   | $          | 227,000     |          
|                              | Accounts payable                                                                                                                                      |                           |            | 3,500,000   |           |   |            | 3,057,000   |          
|                              | Accrued compensation                                                                                                                                  |                           |            | 1,053,000   |           |   |            | 796,000     |          
|                              | Accrued expenses                                                                                                                                      |                           |            | 742,000     |           |   |            | 311,000     |          
|                              |                                                                                                                                                       |                           |            |             |           |  
|                              |                                                                                                                                                       | Total current liabilities |            |             | 5,434,000 |   |            |             | 4,391,000 | 
|                             
|LONG-TERM OBLIGATIONS         |                                                                                                                                                       |                           | 6,114,000  |             |           |   | 6,249,000  |            
|                             
|COMMITMENTS AND CONTINGENCIES |                                                                                                                                                       |                           |           |             |           |   |           |            
|                             
|SHAREHOLDERS EQUITY          |                                                                                                                                                       |                           |            |             |           |   |            |            
|                              | 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, 12,867,742 and
12,679,127 shares at June 30, 2002 and 2001 |                           |            | 129,000     |           |   |            | 127,000     |          
|                              | Additional paid-in capital                                                                                                                            |                           |            | 88,768,000  |           |   |            | 87,561,000  |          
|                              | Accumulated deficit                                                                                                                                   |                           |            | (40,349,000 | )         |   |            | (35,632,000 | )        
|                              |                                                                                                                                                       |                           |            |             |           |  
|                              |                                                                                                                                                       |                           | 48,548,000 |             |           |   | 52,056,000 |            
|                              |                                                                                                                                                       |                           |            |             |           |  
|                              |                                                                                                                                                       | $                         | 60,096,000 |             |           | $ | 62,696,000 |            
|                              |                                                                                                                                                       |                           |            |             |           |  

The accompanying notes are an integral part of these statements.

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Lifecore Biomedical, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30,

|                                                                        |                            |                   |            |            |            |   |            |            |            |      |            |            |            |  
|----------------------------------------------------------------------- | -------------------------- | ----------------- | ---------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | ---- | ---------- | ---------- | ---------- | -
|                                                                        |                            |                   |            | 2002       |            |   | 2001       |            |            | 2000 |           
|                                                                        |                            |                   |            |            |            |   |            |            |            |      |           
|Net sales                                                               |                            | $                 | 38,794,000 |            |            | $ | 34,136,000 |            |            | $    | 32,823,000 |           
|Cost of goods sold                                                      |                            |                   | 22,116,000 |            |            |   | 18,487,000 |            |            |      | 17,618,000 |           
|                                                                        |                            |                   |            |            |            |   |            |            |           
|                                                                        | Gross profit               |                   |            | 16,678,000 |            |   |            | 15,649,000 |            |      |            | 15,205,000 |           
|                                                                       
|Operating expenses                                                      |                            |                   |            |            |            |   |            |            |            |      |            |           
|                                                                        | Research and development   |                   |            | 4,865,000  |            |   |            | 4,704,000  |            |      |            | 4,213,000  |           
|                                                                        | Marketing and sales        |                   |            | 10,774,000 |            |   |            | 9,284,000  |            |      |            | 7,907,000  |           
|                                                                        | General and administrative |                   |            | 5,035,000  |            |   |            | 4,633,000  |            |      |            | 3,847,000  |           
|                                                                        |                            |                   |            |            |            |   |            |            |           
|                                                                        |                            |                   | 20,674,000 |            |            |   | 18,621,000 |            |            |      | 15,967,000 |           
|                                                                        |                            |                   |            |            |            |   |            |            |           
|                                                                        |                            | Operating loss    |            |            | (3,996,000 | ) |            |            | (2,972,000 | )    |            |            | (762,000   | )
|                                                                       
|Other income (expense)                                                  |                            |                   |            |            |            |   |            |            |            |      |            |           
|                                                                        | Interest income            |                   |            | 72,000     |            |   |            | 202,000    |            |      |            | 86,000     |           
|                                                                        | Interest expense           |                   |            | (743,000   | )          |   |            | (807,000   | )          |      |            | (876,000   | )         
|                                                                        | Other                      |                   |            | (50,000    | )          |   |            | (124,000   | )          |      |            | (47,000    | )         
|                                                                        |                            |                   |            |            |            |   |            |            |           
|                                                                        |                            |                   | (721,000   | )          |            |   | (729,000   | )          |            |      | (837,000   | )         
|                                                                        |                            |                   |            |            |            |   |            |            |           
|NET LOSS                                                                |                            | $                 | (4,717,000 | )          |            | $ | (3,701,000 | )          |            | $    | (1,599,000 | )         
|                                                                        |                            |                   |            |            |            |   |            |            |           
|                                                                       
|Net loss per common share                                               |                            |                   |            |            |            |   |            |            |            |      |            |           
|                                                                        |                            | Basic and diluted | $          | (0.37      | )          |   | $          | (0.29      | )          |      | $          | (0.13      | )         
|                                                                        |                            |                   |            |            |            |   |            |            |           
|                                                                       
|Weighted average common and common equivalent
shares shares outstanding |                            |                   |            |            |            |   |            |            |            |      |            |           
|                                                                        |                            | Basic and diluted |            |            | 12,802,354 |   |            |            | 12,630,990 |      |            |            | 12,488,687 |  
|                                                                        |                            |                   |            |            |            |   |            |            |           

The accompanying notes are an integral part of these statements.

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Lifecore Biomedical, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30,

|                                                                                |                                                     |          |                     |           |         |            |            |           |         |            |            |            |         |           |  
|------------------------------------------------------------------------------- | --------------------------------------------------- | -------- | ------------------- | --------- | ------- | ---------- | ---------- | --------- | ------- | ---------- | ---------- | ---------- | ------- | --------- | -
|                                                                                |                                                     |          |                     |           | 2002    |            |            | 2001      |         |            | 2000       |           
|                                                                                |                                                     |          |                     |           |         |            |            |           |         |            |            |           
|Cash flows from operating activities:                                           |                                                     |          |                     |           |         |            |            |           |         |            |            |           
|Net loss                                                                        |                                                     | $        | (4,717,000          | )         |         | $          | (3,701,000 | )         |         | $          | (1,599,000 | )         
|Adjustments to reconcile net loss to net cash provided by
operating activities: |                                                     |          |                     |           |         |            |            |           |         |            |            |           
|                                                                                | Depreciation and amortization                       |          |                     | 2,940,000 |         |            |            | 3,306,000 |         |            |            | 3,301,000  |        
|                                                                                | Allowance for doubtful accounts                     |          |                     | 187,000   |         |            |            | (49,000   | )       |            |            | (186,000   | )      
|                                                                                | Loss on sale of property, plant and equipment       |          |                     |          |         |            |            |          |         |            |            | 14,000     |        
|                                                                                | Changes in operating assets and liabilities         |          |                     |           |         |            |            |           |         |            |            |            |        
|                                                                                |                                                     |          | Accounts receivable |           |         | (1,146,000 | )          |           |         | (1,258,000 | )          |            |         | 1,299,000 |  
|                                                                                |                                                     |          | Inventories         |           |         | 2,935,000  |            |           |         | 3,597,000  |            |            |         | 109,000   |  
|                                                                                |                                                     |          | Prepaid expenses    |           |         | (322,000   | )          |           |         | 58,000     |            |            |         | (241,000  | )
|                                                                                |                                                     |          | Accounts payable    |           |         | 443,000    |            |           |         | 507,000    |            |            |         | 937,000   |  
|                                                                                |                                                     |          | Accrued liabilities |           |         | 688,000    |            |           |         | (8,000     | )          |            |         | (503,000  | )
|                                                                                |                                                     |          | Customers deposits |           |         |           |            |           |         | (302,000   | )          |            |         | 302,000   |  
|                                                                                |                                                     |          |                     |           |         |            |            |           |        
|Net cash provided by operating activities                                       |                                                     |          | 1,008,000           |           |         |            | 2,150,000  |           |         |            | 3,433,000  |           
|                                                                               
|Cash flows from investing activities:                                           |                                                     |          |                     |           |         |            |            |           |         |            |            |           
|                                                                                | Purchases of property, plant and equipment          |          |                     | (961,000  | )       |            |            | (693,000  | )       |            |            | (1,001,000 | )      
|                                                                                | Proceeds from sale of property, plant and equipment |          |                     |          |         |            |            |          |         |            |            | 15,000     |        
|                                                                                | Purchases of intangibles                            |          |                     | (60,000   | )       |            |            | (17,000   | )       |            |            | (33,000    | )      
|                                                                                | Decrease (increase) in security deposits            |          |                     | 9,000     |         |            |            | (7,000    | )       |            |            | (6,000     | )      
|                                                                                | Increase in other assets                            |          |                     | (219,000  | )       |            |            | (81,000   | )       |            |            | (69,000    | )      
|                                                                                |                                                     |          |                     |           |         |            |            |           |        
|Net cash used in investing activities                                           |                                                     |          | (1,231,000          | )         |         |            | (798,000   | )         |         |            | (1,094,000 | )         
|                                                                               
|Cash flows from financing activities:                                           |                                                     |          |                     |           |         |            |            |           |         |            |            |           
|                                                                                | Payments on long-term obligations                   |          |                     | (223,000  | )       |            |            | (244,000  | )       |            |            | (258,000   | )      
|                                                                                | Payments on line of credit                          |          |                     |          |         |            |            |          |         |            |            | (1,883,000 | )      
|                                                                                | Proceeds from stock options exercised               |          |                     | 664,000   |         |            |            | 101,000   |         |            |            | 359,000    |        
|                                                                                |                                                     |          |                     |           |         |            |            |           |        
|Net cash provided by (used in) financing activities                             |                                                     |          | 441,000             |           |         |            | (143,000   | )         |         |            | (1,782,000 | )         
|                                                                                |                                                     |          |                     |           |         |            |            |           |        
|Net increase in cash and cash equivalents                                       |                                                     |          | 218,000             |           |         |            | 1,209,000  |           |         |            | 557,000    |           
|Cash and cash equivalents at beginning of year                                  |                                                     |          | 2,310,000           |           |         |            | 1,101,000  |           |         |            | 544,000    |           
|                                                                                |                                                     |          |                     |           |         |            |            |           |        
|Cash and cash equivalents at end of year                                        |                                                     | $        | 2,528,000           |           |         | $          | 2,310,000  |           |         | $          | 1,101,000  |           
|                                                                                |                                                     |          |                     |           |         |            |            |           |        
|Supplemental disclosure of cash flow information:                               |                                                     |          |                     |           |         |            |            |           |         |            |            |           
|                                                                                | Cash paid during the year for:                      |          |                     |           |         |            |            |           |         |            |            |            |        
|                                                                                |                                                     | Interest |                     | $         | 763,000 |            |            | $         | 807,000 |            |            | $          | 940,000 |          

The accompanying notes are an integral part of these statements.

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Lifecore Biomedical, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

|                          |                                                                                                                |  |              |         |  |        |         |       |         |         |            |           |             |   |             |            |  
|------------------------- | -------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- |  | ------ | ------- | ----- | ------- | ------- | ---------- | --------- | ----------- | - | ----------- | ---------- | -
|                          |                                                                                                                |  | Common Stock |         |  |        |         |       |         |         |            |          
|                          |                                                                                                                |  |              |         |  |        |         |       |         |         |            |          
|                          |                                                                                                                |  |              |         |  |        |         |       |         |         | Additional |           |             |   |             |           
|                          |                                                                                                                |  | Shares       |         |  |        |         |       |         | Paid-In |            |           | Accumulated |  
|                          |                                                                                                                |  | Issued       |         |  | Amount |         |       | Capital |         |            | Deficit   |            
|                          |                                                                                                                |  |              |         |  |        |         |       |         |         |            |           |            
|Balances at June 30, 1999 |                                                                                                                |  | 12,416,729   |         |  | $      | 124,000 |       |         | $       | 85,679,000 |           |             | $ | (30,332,000 | )         
|                          | Exercise of stock options and
employee stock purchase savings
plan, net of 4,000 shares
surrendered in payment |  |              | 71,157  |  |        |         | 1,000 |         |         |            | 462,000   |             |   |             |           |  
|                          | Issuance of stock to satisfy debt                                                                              |  |              | 118,238 |  |        |         | 1,000 |         |         |            | 1,085,000 |             |   |             |           |  
|                          | Net Loss for the year ended June 30, 2000                                                                      |  |              |        |  |        |         |      |         |         |            |          |             |   |             | (1,599,000 | )
|                          |                                                                                                                |  |              |         |  |        |         |       |         |         |            |          
|Balances at June 30, 2000 |                                                                                                                |  | 12,606,124   |         |  |        | 126,000 |       |         |         | 87,226,000 |           |             |   | (31,931,000 | )         
|                          | Exercise of stock options and
employee stock purchase savings
plan                                             |  |              | 28,878  |  |        |         |      |         |         |            | 101,000   |             |   |             |           |  
|                          | Issuance of common stock as payment for services                                                               |  |              | 44,125  |  |        |         | 1,000 |         |         |            | 234,000   |             |   |             |            |  
|                          | Net Loss for the year ended June 30, 2001                                                                      |  |              |        |  |        |         |      |         |         |            |          |             |   |             | (3,701,000 | )
|                          |                                                                                                                |  |              |         |  |        |         |       |         |         |            |          
|Balances at June 30, 2001 |                                                                                                                |  | 12,679,127   |         |  |        | 127,000 |       |         |         | 87,561,000 |           |             |   | (35,632,000 | )         
|                          | Exercise of stock options and
employee stock purchase savings
plan                                             |  |              | 97,371  |  |        |         | 1,000 |         |         |            | 653,000   |             |   |             |           |  
|                          | Issuance of common stock as
payment for services                                                               |  |              | 21,647  |  |        |         |      |         |         |            | 208,000   |             |   |             |           |  
|                          | Issuance of common stock as
payment for subsidiary purchase                                                    |  |              | 69,597  |  |        |         | 1,000 |         |         |            | 346,000   |             |   |             |           |  
|                          | Net Loss for the year ended
June 30, 2002                                                                      |  |              |        |  |        |         |      |         |         |            |          |             |   |             | (4,717,000 | )
|                          |                                                                                                                |  |              |         |  |        |         |       |         |         |            |          
|Balances at June 30, 2002 |                                                                                                                |  | 12,867,742   |         |  | $      | 129,000 |       |         | $       | 88,768,000 |           |             | $ | (40,349,000 | )         
|                          |                                                                                                                |  |              |         |  |        |         |       |         |         |            |          

The accompanying notes are an integral part of these statements.

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Lifecore Biomedical, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Lifecore Biomedical, Inc. (the Company), manufactures biomaterials and
surgical devices for use in various surgical markets and provides specialized
contract aseptic manufacturing services through its two divisions, the
Hyaluronan Division and the Oral Restorative Division. The Companys
manufacturing facility is located in Chaska, Minnesota. The Hyaluronan
Division markets its products through OEM and contract manufacturing alliances
in gynecologic and ophthalmologic surgery, and veterinary medicine. The Oral
Restorative Division markets its products through direct sales in the United
States, Italy, Germany and Sweden and through distributors in other foreign
countries.

In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, 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
periods. 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
|-- |  | -------------

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Implant Support Systems, Inc., Lifecore
Biomedical SpA, Lifecore Biomedical GmbH and Lifecore Biomedical AB. 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, 2002 and 2001, substantially all of the Companys cash and cash equivalents
were invested in a money market fund.



|3. |  | Accounts Receivable
|-- |  | -------------------

The Company extends credit to customers in the normal course of business,
but generally does not require collateral or any other security to support
amounts due. Management performs on-going credit evaluations of its customers.
The Companys customers are located primarily throughout the United States,
Asia, Europe and South America. Accounts receivable balances from customers
located in Asia, Europe and South America were 10%, 29% and 8% of total
receivables at June 30, 2002 and 11%, 29% and 9% of total receivables at June
30, 2001. The Company maintains allowances for potential credit losses, which
were $325,000 and $145,000 at June 30, 2002 and 2001.

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Lifecore Biomedical, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  continued



|4. |  | Inventories
|-- |  | -----------

Inventories are stated at the lower of cost (first-in, first-out method)
or market. Inventories consist mainly of finished hyaluronan powder, aseptic
units and oral restorative products and related raw materials. The portion of
finished hyaluronan powder inventory not expected to be consumed within the
next twelve months is classified as a long-term asset. The finished hyaluronan
inventory is maintained in a frozen state and has a shelf life in excess of
five years. Inventories consist of the following:

|                |  |                |            |  |      |   |            | 
|--------------- |  | -------------- | ---------- |  | ---- | - | ---------- | 
|                |  | As of June 30, |           
|                |  |                |           
|                |  | 2002           |            |  | 2001 |  
|                |  |                |            |  |      |  
|Raw materials   |  | $              | 2,902,000  |  |      | $ | 3,150,000  | 
|Work-in-process |  |                | 272,000    |  |      |   | 358,000    | 
|Finished goods  |  |                | 11,952,000 |  |      |   | 14,553,000 | 
|                |  |                |            |  |      |  
|                |  | $              | 15,126,000 |  |      | $ | 18,061,000 | 
|                |  |                |            |  |      |  



|5. |  | 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 $2,603,000, $2,608,000 and $2,603,000 for the years ended
June 30, 2002, 2001 and 2000. Lives used in straight-line depreciation for
financial reporting purposes are as follows:

|                               |  |           |  | 
|------------------------------ |  | --------- |  | 
|                               |  | Number of | 
|                               |  | years     | 
|                               |  |           | 
|Building                       |  | 18-25     | 
|Equipment                      |  | 3-15      | 
|Land and building improvements |  | 18        | 



|6. |  | Intangibles
|-- |  | -----------

Intangibles consist primarily of the cost of 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., the cost of technology and regulatory rights related to the
TefGen Regenerative Membrane product line acquired in May 1997, the cost of
acquiring the customer list from a former distributor in Spain in April 1999
and the goodwill related to the July 2001 acquisition of Lifecore AB in Sweden.
All intangibles relate to the oral restorative segment.

Included within intangibles are costs incurred to register patents and
trademarks, which are capitalized as incurred. Amortization of these costs
commences when the related patent or trademark is granted. The costs are
amortized over the estimated useful life of the patent or trademark, not to
exceed 17 years.

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Lifecore Biomedical, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  continued

Effective July 1, 2001, the Company adopted Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standard (SFAS) No. 142,
Goodwill and Other Intangible Assets. Under the provisions of SFAS No. 142
the Company ceased amortization of goodwill and technology and regulatory
rights effective July 1, 2001, while the customer list continues to be
amortized on the straight-line method over 5 years. Amortization of goodwill
and technology and regulatory rights was $524,000 in both fiscal 2001 and 2000.
Excluding such amortization the net loss and net loss per share in fiscal 2001
and 2000 would have been $3,177,000 and $.25 and $1,075,000 and $.09. The
Company also completed a transitional goodwill impairment test noting an
impairment of $160,000, which was recorded in general and administrative
expenses in fiscal 2002. On an ongoing basis the Company reviews the valuation
of intangibles to determine possible impairment by comparing the carrying value
to projected undiscounted future cash flows of the related assets.

Intangibles consisted of the following at June 30:

|                         |  |      |            |   |      |   |            |  
|------------------------ |  | ---- | ---------- | - | ---- | - | ---------- | -
|                         |  | 2002 |            |   | 2001 |  
|                         |  |      |            |   |      |  
|Goodwill                 |  | $    | 8,245,000  |   |      | $ | 7,957,000  |  
|Customer list            |  |      | 725,000    |   |      |   | 725,000    |  
|Patents                  |  |      | 387,000    |   |      |   | 377,000    |  
|Accumulated amortization |  |      | (4,507,000 | ) |      |   | (4,454,000 | )
|                         |  |      |            |   |      |  
|                         |  | $    | 4,850,000  |   |      | $ | 4,605,000  |  
|                         |  |      |            |   |      |  

Effective July 1, 2001, the Company adopted SFAS No. 141, Business
Combinations. SFAS No. 141 is effective for all business combinations
initiated after June 30, 2001 and for all business combinations accounted for
by the purchase method for which the date of acquisition is after June 30,
2001. SFAS No. 141 requires that all business combinations be accounted for
under the purchase method and that certain acquired intangible assets in a
business combination be recognized as assets apart from goodwill. The adoption
of SFAS No. 141 did not have a material impact on the Companys financial
statements.



|7. |  | Other Assets
|-- |  | ------------

Other assets consist of the following at June 30:

|                                 |  |      |           |   |      |   |          |  
|-------------------------------- |  | ---- | --------- | - | ---- | - | -------- | -
|                                 |  | 2002 |           |   | 2001 |  
|                                 |  |      |           |   |      |  
|Website development costs        |  | $    | 759,000   |   |      | $ | 326,000  |  
|Financing costs                  |  |      | 307,000   |   |      |   | 307,000  |  
|Distribution rights and licenses |  |      | 180,000   |   |      |   | 30,000   |  
|Other                            |  |      | 73,000    |   |      |   | 277,000  |  
|Less accumulated amortization    |  |      | (245,000  | ) |      |   | (109,000 | )
|                                 |  |      |           |   |      |  
|                                 |  | $    | 1,074,000 |   |      | $ | 831,000  |  
|                                 |  |      |           |   |      |  

Amortization of these costs commences when the related asset is placed in
service. The costs are amortized over the estimated useful life of the asset
ranging from 3 to 20 years.

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Lifecore Biomedical, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  continued



|8. |  | 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 hyaluronan, 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.



|9. |  | Net Loss Per Common Share
|-- |  | -------------------------

The Companys basic net loss per share amounts have been computed by
dividing net loss by the weighted average number of outstanding common shares.
The Companys diluted net loss per share is computed by dividing net loss by
the weighted average number of outstanding common shares and common share
equivalents relating to stock options, when dilutive. For the fiscal years
ended June 30, 2002, 2001 and 2000, the common share equivalents that would
have been included in the computation of diluted net income per share were
308,513, 21,448 and 177,558, had net income been achieved.

Options to purchase 1,532,793, 2,580,065, and 1,480,836 shares of common
stock with a weighted average exercise price of $15.52, $12.67 and $16.52 were
outstanding at June 30, 2002, 2001, and 2000, but were excluded from the
computation of common share equivalents because their exercise prices were
greater than the average market price of the common shares.

NOTE B  LINE OF CREDIT

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

NOTE C  LONG-TERM OBLIGATIONS

Long-term obligations consist of the following:

|                                     |  |                |           |   |  |  |  |  |      |   |           |  
|------------------------------------ |  | -------------- | --------- | - |  |  |  |  | ---- | - | --------- | -
|                                     |  | As of June 30, |          
|                                     |  |                |          
|                                     |  | 2002           |           |   |  |  |  |  | 2001 |  
|                                     |  |                |           |   |  |  |  |  |      |  
|Industrial development revenue bonds |  | $              | 6,249,000 |   |  |  |  |  |      | $ | 6,369,000 |  
|Notes payable                        |  |                |          |   |  |  |  |  |      |   | 98,000    |  
|Other                                |  |                | 4,000     |   |  |  |  |  |      |   | 9,000     |  
|                                     |  |                |           |   |  |  |  |  |      |  
|                                     |  |                | 6,253,000 |   |  |  |  |  |      |   | 6,476,000 |  
|Less current maturities              |  |                | (139,000  | ) |  |  |  |  |      |   | (227,000  | )
|                                     |  |                |           |   |  |  |  |  |      |  
|                                     |  | $              | 6,114,000 |   |  |  |  |  |      | $ | 6,249,000 |  
|                                     |  |                |           |   |  |  |  |  |      |  

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##### Table of Contents



Lifecore Biomedical, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

NOTE C  LONG-TERM OBLIGATIONS  (continued)

Industrial Development Revenue Bonds

In 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 through 2021. The payments are
required to be made monthly to a sinking fund. At June 30, 2002 and 2001, the
Company had approximately $700,000 on deposit with the bond trustee to cover
the reserve fund requirement. The Company has the right to redeem the bonds
upon the payment of the outstanding principal balance plus accrued interest and
a premium. The premium is 4% of the principal amount during the year
commencing September 1, 2002 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 2003. The debt to net worth ratio covenant has
the effect of restricting the payment of cash dividends or repurchases of
common stock.

Notes Payable

In April 1999, the Company issued a non-interest bearing note payable in
the amount of $375,000 to a former distributor in exchange for a customer list.
Annual payments of $125,000 were made in March 2002, 2001 and 2000. The
Company used an effective interest rate of 8% to impute interest on the note
payable.

The aggregate minimum annual principal payments of long-term obligations
for the years ending June 30 are as follows:

|           |  |   |           | 
|---------- |  | - | --------- | 
|2003       |  | $ | 139,000   | 
|2004       |  |   | 145,000   | 
|2005       |  |   | 165,000   | 
|2006       |  |   | 180,000   | 
|2007       |  |   | 195,000   | 
|Thereafter |  |   | 5,429,000 | 
|           |  |   |          
|           |  | $ | 6,253,000 | 
|           |  |   |          

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Lifecore Biomedical, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

NOTE D  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:

|                                                  |                                 |   |             |            |   |      |             |            |  
|------------------------------------------------- | ------------------------------- | - | ----------- | ---------- | - | ---- | ----------- | ---------- | -
|                                                  |                                 |   | 2002        |            |   | 2001 |            
|                                                  |                                 |   |             |            |   |      |            
|Deferred tax assets                               |                                 |   |             |            |   |      |             |           
|                                                  | Net operating loss carryforward |   | $           | 10,213,000 |   |      | $           | 10,048,000 |  
|                                                  | Tax credit carryforward         |   |             | 706,000    |   |      |             | 300,000    |  
|                                                  | Inventories                     |   |             | 1,733,000  |   |      |             | 1,728,000  |  
|                                                  | Other                           |   |             | 305,000    |   |      |             | 247,000    |  
|                                                  |                                 |   |             |            |   |     
|                                                  | Total deferred tax assets       |   |             | 12,957,000 |   |      |             | 12,323,000 |  
|Deferred tax liabilities                          |                                 |   |             |            |   |      |             |           
|                                                  | Depreciation                    |   |             | (851,000   | ) |      |             | (937,000   | )
|                                                  | Customer list                   |   |             | (111,000   | ) |      |             | (156,000   | )
|                                                  |                                 |   |             |            |   |     
|                                                  | Total deferred tax liabilities  |   |             | (962,000   | ) |      |             | (1,093,000 | )
|                                                  |                                 |   |             |            |   |     
|Net deferred tax asset before valuation allowance |                                 |   | 11,995,000  |            |   |      | 11,230,000  |           
|Valuation allowance                               |                                 |   | (11,995,000 | )          |   |      | (11,230,000 | )         
|                                                  |                                 |   |             |            |   |     
|Net deferred tax asset                            |                                 | $ |            |            |   | $    |            |           
|                                                  |                                 |   |             |            |   |     

At June 30, 2002, the Company had net operating loss carryforwards of
approximately $28,480,000 for tax reporting purposes, which expire in 2005
through 2021.

The Company also has general business credit carryforwards of
approximately $706,000, which expire in 2003 through 2017.

Differences between income tax expense (benefit) and amounts derived by
applying the statutory federal income tax rate to loss before income taxes are
as follows for fiscal years ending June 30:

|                              |  |      |     |    |      |  |     |      |  |  |     |   
|----------------------------- |  | ---- | --- | -- | ---- |  | --- | ---- |  |  | --- | --
|                              |  | 2002 |     |    | 2001 |  |     | 2000 | 
|                              |  |      |     |    |      |  |     |      | 
|U.S. federal statutory rate   |  |      | 34  | %  |      |  | 34  | %    |  |  | 34  | % 
|Change in valuation allowance |  |      | (34 | )% |      |  | (34 | )%   |  |  | (34 | )%
|                              |  |      |     |    |      |  |     |      | 
|                              |  |     |     |    |     |  |     |     | 
|                              |  |      |     |    |      |  |     |      | 

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##### Table of Contents



Lifecore Biomedical, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

NOTE E  SHAREHOLDERS EQUITY

Issuance of Stock

On April 2, 2001, the Company issued 20,973 shares of common stock to
Lancet Software Development, Inc. (Lancet). On June 20, 2001, the Company
issued an additional 23,152 shares of common stock to Lancet. On October 8,
2001, the Company issued an additional 21,097 shares of common stock to Lancet.
The shares of common stock were issued to Lancet in exchange for consulting
services relating to the development of the Companys e-Commerce website. The
aggregate value of each issuance of stock was $100,000, $127,000 and $212,000,
respectively. The issuances were completed pursuant to an exemption from
registration provided under Section 4(2) of the Securities Act of 1933.

On July 2, 2001, the Company issued 69,597 shares of common stock, with an
aggregate value of $347,000, in connection with the acquisition of shares of
Lifecore Biomedical AB held by two individuals. The issuances were completed
pursuant to an exemption from registration provided under Section 4(2) of the
Securities Act of 1933.

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 that are determined by a committee as appointed by the
Board of Directors. Options granted to date under all plans have been at
exercise prices equal to the fair market value of the Companys stock on the
date of grant. 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.

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##### Table of Contents



Lifecore Biomedical, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

NOTE E  SHAREHOLDERS EQUITY  continued

Option transactions under the 1987, 1990 and 1996 Stock Option Plans
during the three years ended June 30, 2002 are summarized as follows:

|                             |           |  |           |          |   |                  |       |       | 
|---------------------------- | --------- |  | --------- | -------- | - | ---------------- | ----- | ----- | 
|                             |           |  | Number of |          |   | Weighted Average |      
|                             |           |  | Shares    |          |   | Exercise Price   |      
|                             |           |  |           |          |   |                  |      
|Outstanding at July, 1, 1999 |           |  | 1,863,001 |          |   | $                | 14.12 |      
|                             | Granted   |  |           | 416,000  |   |                  |       | 13.13 | 
|                             | Exercised |  |           | (60,857  | ) |                  |       | 7.06  | 
|                             | Canceled  |  |           | (66,750  | ) |                  |       | 13.96 | 
|                             |           |  |           |          |   |                 
|Outstanding at June 30, 2000 |           |  | 2,151,394 |          |   |                  | 14.12 |      
|                             | Granted   |  |           | 762,600  |   |                  |       | 7.39  | 
|                             | Exercised |  |           | (22,000  | ) |                  |       | 3.08  | 
|                             | Canceled  |  |           | (168,921 | ) |                  |       | 9.08  | 
|                             |           |  |           |          |   |                 
|Outstanding at June 30, 2001 |           |  | 2,723,073 |          |   |                  | 12.27 |      
|                             | Granted   |  |           | 325,900  |   |                  |       | 7.66  | 
|                             | Exercised |  |           | (70,860  | ) |                  |       | 7.45  | 
|                             | Canceled  |  |           | (154,903 | ) |                  |       | 13.13 | 
|                             |           |  |           |          |   |                 
|Outstanding at June 30, 2002 |           |  | 2,823,210 |          |   | $                | 11.87 |      
|                             |           |  |           |          |   |                 

|                                |      |  |           |           |  |                  |   |       | 
|------------------------------- | ---- |  | --------- | --------- |  | ---------------- | - | ----- | 
|                                |      |  | Number of |           |  | Weighted Average |  
|                                |      |  | Shares    |           |  | Exercise Price   |  
|                                |      |  |           |           |  |                  |  
|Options exercisable at June 30: |      |  |           |           |  |                  |   |      
|                                | 2002 |  |           | 1,884,541 |  |                  | $ | 12.63 | 
|                                | 2001 |  |           | 1,644,019 |  |                  |   | 13.39 | 
|                                | 2000 |  |           | 1,258,517 |  |                  |   | 14.18 | 

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##### Table of Contents



Lifecore Biomedical, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

NOTE E  SHAREHOLDERS EQUITY  continued

The following tables summarize information concerning currently outstanding and
exercisable stock options.

|                    |               |  |  |  |  |  |  |  |  |             |           |           |                            |  |           |                  |  |   |       |  | 
|------------------- | ------------- |  |  |  |  |  |  |  |  | ----------- | --------- | --------- | -------------------------- |  | --------- | ---------------- |  | - | ----- |  | 
|Options Outstanding
|                   
|Range of            |               |  |  |  |  |  |  |  |  | Number      |           |           | Weighted Average Remaining |  |           | Weighted Average | 
|Exercise Price      |               |  |  |  |  |  |  |  |  | Outstanding |           |           | Contractual Life           |  |           | Exercise Price   | 
|                    |               |  |  |  |  |  |  |  |  |             |           |           |                            |  |           |                  | 
|$                   | 3.88  5.82   |  |  |  |  |  |  |  |  |             |           | 259,633   |                            |  | 7.3 years |                  |  | $ | 5.39  | 
|                    | 5.83  8.75   |  |  |  |  |  |  |  |  |             |           | 844,909   |                            |  | 7.4 years |                  |  |   | 7.84  | 
|                    | 8.76  13.12  |  |  |  |  |  |  |  |  |             |           | 462,625   |                            |  | 6.6 years |                  |  |   | 10.10 | 
|                    | 13.13  19.68 |  |  |  |  |  |  |  |  |             |           | 1,201,543 |                            |  | 5.1 years |                  |  |   | 16.38 | 
|                    | 19.69  23.38 |  |  |  |  |  |  |  |  |             |           | 54,500    |                            |  | 5.4 years |                  |  |   | 21.38 | 
|                    |               |  |  |  |  |  |  |  |  |             |           |           |                            |  |           |                  |  |   |      
|                    |               |  |  |  |  |  |  |  |  |             | 2,823,210 |           |                            |  |           |                  |  |   |       | 
|                    |               |  |  |  |  |  |  |  |  |             |           |           |                            |  |           |                  |  |   |      

|                    |               |  |  |  |  |  |  |  |  |             |           |         |                  |  |   |  |  |  |  |       | 
|------------------- | ------------- |  |  |  |  |  |  |  |  | ----------- | --------- | ------- | ---------------- |  | - |  |  |  |  | ----- | 
|Options Exercisable
|                   
|Range of            |               |  |  |  |  |  |  |  |  | Number      |           |         | Weighted Average | 
|Exercise Price      |               |  |  |  |  |  |  |  |  | Exercisable |           |         | Exercise Price   | 
|                    |               |  |  |  |  |  |  |  |  |             |           |         |                  | 
|$                   | 3.88  5.82   |  |  |  |  |  |  |  |  |             |           | 67,683  |                  |  | $ |  |  |  |  | 5.02  | 
|                    | 5.83  8.75   |  |  |  |  |  |  |  |  |             |           | 561,565 |                  |  |   |  |  |  |  | 7.87  | 
|                    | 8.76  13.12  |  |  |  |  |  |  |  |  |             |           | 254,625 |                  |  |   |  |  |  |  | 10.00 | 
|                    | 13.13  19.68 |  |  |  |  |  |  |  |  |             |           | 972,668 |                  |  |   |  |  |  |  | 16.36 | 
|                    | 19.69  23.38 |  |  |  |  |  |  |  |  |             |           | 28,000  |                  |  |   |  |  |  |  | 21.14 | 
|                    |               |  |  |  |  |  |  |  |  |             | 1,884,541 |         |                  |  |   | 
|                    |               |  |  |  |  |  |  |  |  |             |           |         |                  |  |  

The weighted average fair value of options granted in 2002, 2001 and 2000
was $7.66, $6.12, and $10.70 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 2002, 2001,
and 2000: no dividend yield; risk-free rate of return of 6%; volatility of
89.4%, 91.7%, and 98.7%; and an average term of 6.0 years. The 2002, 2001 and
2000 proforma net loss and basic net loss per share would have been $7,485,000,
$7,987,000 and $4,473,000 or $.58, $.63 and $.36 per share had the fair value
method been used for valuing options granted during 2002, 2001 and 2000. These
effects may not be representative of the future effects of applying the fair
value method.

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 149,828
shares have been issued, including 26,511 shares for approximately $126,000 in
2002, 6,178 shares for approximately $29,000 in 2001 and 14,050 shares for
approximately $115,000 in 2000. The ESPSP was terminated in 2002 since 149,828
shares of the 150,000 shares authorized for the plan had been issued.

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##### Table of Contents



Lifecore Biomedical, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

NOTE E  SHAREHOLDERS EQUITY  continued

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 are
attached to the common stock and are not 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 that are owned by the acquiring person would become void. In certain
specified instances, the Company may redeem the Rights. If not redeemed, they
will expire on June 15, 2006.

NOTE F  COMMITMENTS AND CONTINGENCIES

Royalty Agreements

The Company has entered into agreements that provide for royalty payments
based on a percentage of net sales of certain products. Royalty expense under
these agreements was $148,000, $165,000 and $176,000 for the years ended June
30, 2002, 2001 and 2000.

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, 2002 is approximately $1,533,000.

NOTE G  EMPLOYEE BENEFIT PLAN

The Company has a 401(k) profit sharing plan for eligible employees. The
Company, at the discretion of the Board of Directors, may set a matching
percentage that is proportionate to the amount of the employees elective
contributions each year. During the years ended June 30, 2002, 2001 and 2000,
the Board of Directors authorized a company matching contribution to the plan
of $65,000, $60,000 and $61,000; respectively.

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##### Table of Contents



Lifecore Biomedical, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

NOTE H  SEGMENT INFORMATION

The Company operates two business segments. The Hyaluronan Division
manufactures, markets and sells products containing hyaluronan and provides
contract aseptic packaging services. The Oral Restorative Division produces
and markets various oral restorative products in the area of implant dentistry.
Currently, products containing hyaluronan are sold primarily to customers
pursuant to supply agreements. Sales to Alcon under such agreements were 14%,
19% and 18% of total sales in 2002, 2001 and 2000. Sales of GYNECARE INTERGEL
Solution to ETHICON, INC. amounted to 11% of total sales in 2002. The
Companys Oral Restorative Division markets products directly to clinicians and
dental laboratories in the United States, Italy, Germany and Sweden and
primarily through distributorship arrangements in other foreign locations.
Sales to customers located principally in Europe accounted for 31%, 40% and 31%
of total Company sales during the years ended June 30, 2002, 2001 and 2000. The
operations of the Companys Italian subsidiary, Lifecore Biomedical SpA, the
Companys German subsidiary, Lifecore Biomedical GmbH and the Companys Swedish
subsidiary, Lifecore Biomedical AB have not been material to the consolidated
financial statements.

Segment information for the Company is as follows:

|                                      |                           |   |                     |            |   |      |            |            |      |   |            |            |  
|------------------------------------- | ------------------------- | - | ------------------- | ---------- | - | ---- | ---------- | ---------- | ---- | - | ---------- | ---------- | -
|                                      |                           |   | Year ended June 30, |           
|                                      |                           |   |                     |           
|                                      |                           |   | 2002                |            |   | 2001 |            |            | 2000 |  
|                                      |                           |   |                     |            |   |      |            |            |      |  
|Net sales                             |                           |   |                     |            |   |      |            |            |      |   |            |           
|                                      | Hyaluronan products       |   | $                   | 15,244,000 |   |      | $          | 14,185,000 |      |   | $          | 12,765,000 |  
|                                      | Oral restorative products |   |                     | 23,550,000 |   |      |            | 19,951,000 |      |   |            | 20,058,000 |  
|                                      |                           |   |                     |            |   |      |            |            |      |  
|                                      |                           | $ | 38,794,000          |            |   | $    | 34,136,000 |            |      | $ | 32,823,000 |           
|                                      |                           |   |                     |            |   |      |            |            |     
|Operating income (loss)               |                           |   |                     |            |   |      |            |            |      |   |            |           
|                                      | Hyaluronan products       |   | $                   | (2,959,000 | ) |      | $          | (1,724,000 | )    |   | $          | (1,446,000 | )
|                                      | Oral restorative products |   |                     | (1,037,000 | ) |      |            | (1,248,000 | )    |   |            | 684,000    |  
|                                      |                           |   |                     |            |   |      |            |            |      |  
|                                      |                           | $ | (3,996,000          | )          |   | $    | (2,972,000 | )          |      | $ | (762,000   | )         
|                                      |                           |   |                     |            |   |      |            |            |     
|Capital expenditures                  |                           |   |                     |            |   |      |            |            |      |   |            |           
|                                      | Hyaluronan products       |   | $                   | 637,000    |   |      | $          | 336,000    |      |   | $          | 668,000    |  
|                                      | Oral restorative products |   |                     | 324,000    |   |      |            | 357,000    |      |   |            | 333,000    |  
|                                      |                           |   |                     |            |   |      |            |            |      |  
|                                      |                           | $ | 961,000             |            |   | $    | 693,000    |            |      | $ | 1,001,000  |           
|                                      |                           |   |                     |            |   |      |            |            |     
|Depreciation and amortization expense |                           |   |                     |            |   |      |            |            |      |   |            |           
|                                      | Hyaluronan products       |   | $                   | 2,070,000  |   |      | $          | 2,074,000  |      |   | $          | 2,100,000  |  
|                                      | Oral restorative products |   |                     | 870,000    |   |      |            | 1,232,000  |      |   |            | 1,201,000  |  
|                                      |                           |   |                     |            |   |      |            |            |      |  
|                                      |                           | $ | 2,940,000           |            |   | $    | 3,306,000  |            |      | $ | 3,301,000  |           
|                                      |                           |   |                     |            |   |      |            |            |     

|                    |                           |  |                |            |  |      |   |            |  |  |  |  | 
|------------------- | ------------------------- |  | -------------- | ---------- |  | ---- | - | ---------- |  |  |  |  | 
|                    |                           |  | As of June 30, |            |  |     
|                    |                           |  |                |            |  |      |   |           
|                    |                           |  | 2002           |            |  | 2001 |   |            |  |  | 
|                    |                           |  |                |            |  |      |   |            |  |  | 
|Identifiable assets |                           |  |                |            |  |      |   |            |  |  |  | 
|                    | Hyaluronan products       |  | $              | 38,357,000 |  |      | $ | 46,535,000 |  |  |  |  | 
|                    | Oral restorative products |  |                | 19,211,000 |  |      |   | 13,851,000 |  |  |  |  | 
|                    | General corporate         |  |                | 2,528,000  |  |      |   | 2,310,000  |  |  |  |  | 
|                    |                           |  |                |            |  |      |   |            |  |  | 
|                    |                           |  | $              | 60,096,000 |  |      | $ | 62,696,000 |  |  |  |  | 
|                    |                           |  |                |            |  |      |   |            |  |  | 

F-17



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##### Table of Contents



Lifecore Biomedical, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

NOTE I  AGREEMENTS

Lifecore and ETHICON have entered into a Conveyance, License, Development
and Supply Agreement (the ETHICON 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 hyaluronan 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 INTERGEL Solution, a
second-generation hyaluronan-based product. Lifecore has granted ETHICON
exclusive worldwide marketing rights through 2008 to the products developed by
Lifecore within defined fields of use.

NOTE J  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.

NOTE K  RECLASSIFICATIONS

Certain 2001 amounts have been reclassified to conform to the 2002
presentation.

F-18



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##### Table of Contents






Lifecore Biomedical, Inc. and Subsidiaries

SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS

|                         |           |           |            |         |          |            |           |          |  |  |          |          |            |  |            |  |  |           |   |  |                |  |   |          |       |  |  |         | 
|------------------------ | --------- | --------- | ---------- | ------- | -------- | ---------- | --------- | -------- |  |  | -------- | -------- | ---------- |  | ---------- |  |  | --------- | - |  | -------------- |  | - | -------- | ----- |  |  | ------- | 
|                         |           |           |            |         |          |            | Additions |          |  |  |          |          |            |  |            | 
|                         |           |           |            |         |          |            |           |          |  |  |          |          |            |  |            | 
|Column A                 |           | Column B  |            |         | Column C |            |           | Column D |  |  | Column E |         
|                         |           |           |            |         |          |            |           |          |  |  |          |         
|                         |           |           | Balance at |         |          | Charged to |           |          |  |  |          |          | Charged to |  |            |  |  |           |   |  |                | 
|                         |           |           | Beginning  |         |          | Costs and  |           |          |  |  |          |          | Other      |  |            |  |  |           |   |  | Balance at End | 
|Description              |           | of Period |            |         | Expenses |            |           |          |  |  |          | Accounts |            |  | Deductions |  |  | of Period |  
|                         |           |           |            |         |          |            |           |          |  |  |          |          |            |  |            |  |  |           |  
|Year ended June 30, 2002 |           |           |            |         |          |            |           |          |  |  |          |          |            |  |            |  |  |           |   |  |                |  |   |          |       |  |  |        
|Accounts receivable      |           |           |            |         |          |            |           |          |  |  |          |          |            |  |            |  |  |           |   |  |                |  |   |          |       |  |  |        
|                         | Allowance |           | $          | 145,000 |          |            | $         | 272,000  |  |  |          |          |            |  | $          |  |  |           |  |  |                |  | $ | (92,000  | ) (A) |  |  | 325,000 | 
|Year ended June 30, 2001 |           |           |            |         |          |            |           |          |  |  |          |          |            |  |            |  |  |           |   |  |                |  |   |          |       |  |  |        
|Accounts receivable      |           |           |            |         |          |            |           |          |  |  |          |          |            |  |            |  |  |           |   |  |                |  |   |          |       |  |  |        
|                         | Allowance |           |            | 186,000 |          |            |           | 65,000   |  |  |          |          |            |  |            |  |  |           |  |  |                |  |   | (106,000 | ) (A) |  |  | 145,000 | 
|Year ended June 30, 2000 |           |           |            |         |          |            |           |          |  |  |          |          |            |  |            |  |  |           |   |  |                |  |   |          |       |  |  |        
|Accounts receivable      |           |           |            |         |          |            |           |          |  |  |          |          |            |  |            |  |  |           |   |  |                |  |   |          |       |  |  |        
|                         | Allowance |           |            | 372,000 |          |            |           | 110,000  |  |  |          |          |            |  |            |  |  |           |  |  |                |  |   | (296,000 | ) (A) |  |  | 186,000 | 



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|(A) |  | Deductions represent accounts receivable balances written-off during
the year.
|--- |  | ------------------------------------------------------------------------------

S-1