<PAGE>

                                  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 DECEMBER 30, 2001

                                       OR

[ ]      Transition report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934
          For the transition period from _____________ to ____________


                           COMMISSION FILE NO. 0-18339

                                   SYLVAN INC.
             (Exact name of registrant as specified in its charter)

            NEVADA                                              25-1603408
            ------                                              ----------
(State or other jurisdiction of                               (IRS Employer
incorporation or organization)                             Identification No.)


333 MAIN STREET, P.O. BOX 249, SAXONBURG, PA                        16056-0249
---------------------------------------------                       ----------
  (Address of principal executive offices)                          (Zip Code)

       Registrant's telephone number, including area code: (724) 352-7520

Securities registered pursuant to                   Name of each exchange on
   Section 12(b) of the Act:                            which registered:

       Title of each class                               Not applicable
       -------------------
              None

           Securities registered pursuant to Section 12(g) of the Act:
                     COMMON STOCK, PAR VALUE $.001 PER SHARE
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
                                   Yes  X                              No
                                       ----                              ----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The aggregate market value of voting stock held by non-affiliates of the
registrant at February 28, 2002 was approximately $41,058,000. On that date, the
last sale price of the registrant's common stock was $11.65 per share. Solely
for purposes of this calculation, shares beneficially owned by directors and
executive officers have been excluded. However, such exclusion is not intended
to be, nor is it to be deemed, a determination or an admission by the registrant
that such directors and officers are, in fact, affiliates of the registrant.

Indicated below is the number of shares outstanding of each of the registrant's
classes of common stock as of February 28, 2002.


                                                               Outstanding on
                Class                                        February  28, 2002
                -----                                        ------------------
COMMON STOCK, PAR VALUE $.001 PER SHARE                            5,425,452

                       DOCUMENTS INCORPORATED BY REFERENCE

                                                 Part of Form 10-K into which
              Document                           the Document is Incorporated
              --------                           ----------------------------
DEFINITIVE PROXY STATEMENT TO SHAREHOLDERS     PART III, ITEMS 10, 11, 12 AND 13



<PAGE>

                                     PART I

ITEM 1.  BUSINESS

Sylvan Inc. (Sylvan, the company) is the successor to the business of a
Pennsylvania corporation that was chartered in 1937. Sylvan, through its
subsidiaries, is a worldwide producer and distributor of products for the
mushroom industry, specializing in spawn (the equivalent of seed for mushrooms)
and spawn-related products and services, and is a major grower of fresh
mushrooms in the United States. The company was organized as a Delaware
corporation on March 27, 1989, under the name of Sylvan Foods Holdings, Inc. It
became a Securities and Exchange Commission registrant in August 1990 pursuant
to the irrevocable distribution by the company's then majority shareholder, The
Prospect Group, Inc., of the shares of the company that it owned to its
shareholders. The company changed its name to Sylvan Inc. in July 1994 in
conjunction with the change of its state of incorporation to Nevada from
Delaware. The company's principal executive offices are at 333 Main Street, P.O.
Box 249, Saxonburg, PA 16056-0249.

Sylvan has two reportable business segments: Spawn Products, which includes
spawn-related products, services and bioproducts, and Fresh Mushrooms.
Spawn-related products include casing inoculum, nutritional supplements and
disease-control agents. The Fresh Mushrooms Segment is comprised of Quincy
Farms, a large, regional producer of fresh mushrooms. Sylvan's growth strategy
calls for devoting increased capital and management resources to supplying its
spawn and related products and services to suitable markets throughout the world
and utilizing its production technology for products outside of the mushroom
industry.

Spawn Operations: Spawn products accounted for 73% of the company's total sales
in 2001 and 82% of its operating income. Spawn is produced by a process whereby
carefully maintained mushroom cultures are introduced into specific nutrient
media to produce inoculum suitable for commercial spawn production. The inoculum
is then combined with a sterile, grain-based substrate in a manner that promotes
the colonization of the mushroom cultures throughout the substrate. The
resulting culture-enriched substrate is measured into sterilized containers and
the filled containers are incubated in environmentally controlled growing rooms.
Once the incubation is complete, the containers are refrigerated until they are
shipped to customers who then initiate their crop production cycle by adding
this seed-like material to the composted growing medium from which the mushrooms
grow.

The company conducts its operations through subsidiaries in North America,
Europe, Australia and South Africa, and is a leading producer and distributor of
mushroom spawn and various spawn-related products in each of the markets in
which it has a presence. End-stage spawn production in most of the company's
manufacturing facilities takes place in specialized pressure vessels in plants
that are operated pursuant to rigorous quality-control standards. Two plants are
located in the United States and one each in England, Ireland, the Netherlands,
France, Hungary, Australia, South Africa and Canada. Sylvan's Dutch and
Australian plants function under arrangements whereby certain prominent mushroom
growers in each respective country possess minority ownership of the operating
company. A similar ownership structure is expected to be implemented in 2002
with respect to the Canadian plant. In addition, the company operates one
bioproducts facility in the United States.

The company also operates two state-of-the-art spawn inoculum production plants.
These facilities, located in Kittanning, Pennsylvania, and Langeais, France,
incorporate the industry's most advanced production techniques and each is
capable of supplying all of the company's inoculum requirements. In addition,
the company produces nutritional supplements for mushroom compost at a plant in
Des Moines, Iowa. The value of backlog orders for spawn products is
insignificant.

The company's investment in biotechnical research has resulted in refinements of
techniques for genetic analysis of mushroom strains and its research programs
have produced some strains that possess commercial suitability. Another
successful product is Sylvan's casing inoculum (CI), a mushroom production
additive that is applied to the top layer of mushroom compost. It enables
mushroom farmers to get more crops per year from their investment in raw
materials and equipment by shortening the mushroom growing cycle and reducing a
crop's exposure to disease. In addition, Sylvan has distribution rights for
products produced by others, such as compost ingredients, pest-control agents
and disease-control agents that are targeted for use by mushroom growers.

The company's production experience and research capabilities lend themselves to
a variety of commercially viable microbial production applications. Sylvan
produces red yeast rice, which is sold at wholesale and resale levels, and is
supplying a Japanese company with dried Agaricus mushrooms for use in a beverage
that is marketed in the Far East. It also


                                       2
<PAGE>

collaborates with chemical, biotechnological and pharmaceutical companies in the
course of evaluating and promoting its capabilities beyond the mushroom
industry. The value of backlog orders for biological products is insignificant.

Fresh Mushrooms Operations: The Fresh Mushrooms Segment of Sylvan's business
accounted for 27% of the company's total sales in 2001 and 18% of its operating
income. Sylvan operates a mushroom farm located in Quincy, Florida, that is one
of the most modern and efficient mushroom production operations in North
America. It serves a strategic role for Sylvan as a resource for production
process innovations. The facility includes an advanced computer-controlled
production system. Included as part of the Quincy operation are two satellite
mushroom growing facilities that commenced operation in mid-2001. Each facility
is leased to an unrelated third party. These parties are obligated to purchase
their requirements of ready-to-grow mushroom trays from Quincy and to sell their
crops of mushrooms to Quincy.

Mushrooms are grown indoors in a continuous production process that employs a
temperature- and humidity-controlled environment. Compost, produced from a
carefully formulated and monitored mixture of hay or straw, water and various
organic supplements, is pasteurized and spawn is added to it. The spawn
colonizes the compost and, after about four to five weeks, grows into
harvestable mushrooms that are packaged and shipped to customers.

In January 2000, Sylvan began selling all of its mushrooms to a leading U.S.
mushroom marketing organization that packages and distributes them throughout
the eastern United States. Prior to this contract, the mushrooms were sold to
supermarkets, food processors and distributors in the mid-eastern and
southeastern United States. The value of backlog orders for mushroom products is
insignificant.

PERSONNEL

On December 30, 2001, Sylvan had approximately 900 full-time employees, of whom
about 750 were engaged in production activities and 150 in supervision, sales
and administration. On December 31, 2000, Sylvan had approximately 960 full-time
employees, of whom about 800 were engaged in production activities and 160 in
supervision, sales and administration.

The employees of the company's French subsidiary are subject to a national,
industry-wide collective bargaining agreement. In addition, harvesting and
packaging employees of its Quincy subsidiary are subject to a collective
bargaining agreement with the United Farm Workers. The remainder of the
company's workforce is not subject to collective bargaining arrangements.
Management believes that its employee relations are good.

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

The amounts of revenue, operating income and asset-related expenditures
attributable to each of the company's industry segments are set forth in Note 9
of the consolidated financial statements that are filed as part of this annual
report.

FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES

The amounts of revenue and long-lived assets attributable to each of the
company's geographic areas are set forth in Note 9 of the company's consolidated
financial statements that are filed as part of this annual report.

MAJOR CUSTOMER

Most of Sylvan's Fresh Mushrooms Segment sales in 2001 and 2000 were to one
customer. C And C Carriage Mushroom Company became the majority purchaser and
marketer of the company's mushrooms beginning in January 2000. The $23.0 million
and $20.8 million of fresh mushrooms that C And C purchased from the Quincy
subsidiary represented 27% and 24% of Sylvan's consolidated net sales for fiscal
years 2001 and 2000, respectively. C And C is not affiliated with Sylvan or any
of its subsidiaries and the purchase and marketing contract, dated January 14,
2000, carries an initial term of five years.

COMPETITIVE CONDITIONS

Spawn Products: Sylvan believes that there are seven companies in the United
States and three companies in Canada that produce and market almost all of the
spawn used by North American mushroom growers. Among these companies, Sylvan's
principal North American competitor is Lambert Spawn Company, which increased
its production capacity in 2001. In addition, Amycel, Inc. (a division of
Monterey Mushrooms, Inc.) is a major spawn producer in the United States, but
much of its production is consumed by its mushroom production affiliates. Sylvan
believes that its principal European competitors are


                                       3
<PAGE>

Italspawn and Le Lion. Numerous smaller spawn producers operate in the United
States, Canada and in almost every European country. Sylvan competes in the
spawn market with strict quality, consistency and reliability standards and
through its availability of broad-based, post-sale product support services to
mushroom growers.

The company's microbial production applications compete with those of chemical,
biotechnological and pharmaceutical companies worldwide. In particular, Chinese
growers produce dried Agaricus mushrooms that are similar to those that Sylvan
sells to its customer in Japan and are able to sell them at a price that is
lower than Sylvan's. The red yeast rice wholesale and retail market is extremely
competitive. In addition, its production and sales could be subject to
additional regulatory pressures.

Fresh Mushrooms: Sylvan believes that the top producer of mushrooms in the
United States is currently Monterey Mushrooms, Inc. Sylvan's production levels
are comparable to those of a group of 11 regional producers of substantial size.
The balance of the U.S. industry is fragmented, comprised of about 120 smaller
producers throughout the country. Quality, supply consistency and price are the
principal competitive factors in the mushroom business. Although brand names
have been established, competition is principally at the grocery retailer or
wholesaler level, rather than at the consumer level. In order to more
efficiently market their mushrooms, quite a few growers of various sizes have
joined together to form marketing ventures. Sylvan believes that currently six
or seven such organizations represent the sales of more than 50% of North
American fresh mushroom production. Competition outside of North America is
characterized primarily by the importation of processed mushroom products into
the United States and Canada. However, processed mushrooms are not a material
factor in Sylvan's current operations because Sylvan's mushrooms compete
primarily in the fresh mushroom market. Due to the fragility of fresh mushrooms,
Sylvan believes that the fresh mushroom market in the United States is somewhat
protected from direct non-North American competition. Fresh mushrooms have
limited shelf life, which, together with the relatively high cost of
refrigerated transportation, causes markets to be regional in nature. However,
for the same reasons, imbalances of supply and demand, from time to time, can
and do induce price fluctuations.

SEASONALITY

Spawn and spawn-related product sales are not seasonal, except to the extent
that they correlate to a mushroom grower's expectations of consumer demand for
mushrooms. Since mushrooms are grown indoors, mushroom production is not
particularly sensitive to many of the problems normally associated with
agricultural crops, such as production seasonality and dependence on weather.
However, mushrooms are susceptible to bacterial, fungal and viral contamination
that can reduce yields and affect sales and earnings for periods of weeks or
months. In addition, mushroom prices are typically softened by the increased
availability of a variety of fresh fruits and vegetables during the summer
months.

RESEARCH

In 2001, Sylvan's research and development expenditures totaled $1.7 million, as
compared with $1.8 million in 2000 and $1.6 million in 1999. These expenditures
were focused on improving the consistency, reliability and customer satisfaction
for the company's existing products, the development of new products, and the
support of Sylvan's bioproducts operations. The company also utilizes contracted
research efforts for specific studies that may be commercially useful, but fall
outside of the scope of its expertise or capabilities. None of these projects
currently constitute a material proportion of the company's ongoing business.

PATENTS

The company does not believe that its ability to maintain or improve its
competitive position is dependent upon its patents. However, the company holds
several non-U.S. patents that cover a process and apparatus for the cultivation
of cells on solid substrates. The patents were issued in various years from 1982
to 1986. In addition, over the last five years, Sylvan has patented several new
mushroom strains and several technologies and processes that facilitate mushroom
breeding and may be capable of enhancing the company's strain development and
improvement efforts. The company also holds two process patents relating to the
production of its nutritional supplements that were issued in 1988 and 1991. The
company possesses several Swiss patents that embody a process for commercially
producing spawn and spawn-related products and using a variety of nutrient
substrates as incubation material for spawn. The process is not currently
employed by the company.


                                       4
<PAGE>

ENVIRONMENTAL MATTERS

Certain phases of the mushroom production process create discharges of
conventional pollutants and other organic materials. Expenditures will routinely
be required in order to enable the company's Quincy subsidiary to comply with
existing and future environmental laws and regulations.

FINANCIAL INFORMATION

Information regarding Sylvan's financial performance is set forth herein
beginning on page 23.

ITEM 2. PROPERTIES

The following table lists by business segment the locations and floor areas of
Sylvan's principal operating properties. The company believes that each of these
properties is in good condition and suitable for the purposes for which they are
being utilized.

     SPAWN PRODUCTS SEGMENT

<TABLE>
<CAPTION>
                                                                             Floor area      Acquired/    Expanded/
                                                       Location                (ft.2)       constructed   renovated
                                                       --------              ----------     -----------   ---------
<S>                                         <C>                               <C>             <C>           <C>
        Spawn production:                   Kittanning, Pennsylvania            50,000          1981          2001
                                            Dayton, Nevada                      42,000          1992          2001
                                            Langeais, France                   115,000          1991           -
                                            Yaxley, England                     74,000          1992          1995
                                            Horst, the Netherlands              54,500          1994          1997
                                            Budapest, Hungary                   26,200          1997           -
                                            Navan, Ireland                      26,000          1998          1999
                                            Pretoria, South Africa              15,500          1999           -
                                            Windsor, Australia                  12,000          1996           -
                                            Leamington, Ontario, Canada         25,800          2001           -

        Inoculum production and research:   Kittanning, Pennsylvania            18,000          1996          2001
                                            Langeais, France                    15,000          1998           -

        Bioproducts production:             Kennett Square, Pennsylvania        41,000          1999           -

        Quality assurance:                  Kittanning, Pennsylvania            20,000          1997           -
                                            Langeais, France                    12,000          1991           -

        Compost supplement production:      Des Moines, Iowa                    18,000          1997           -

        Mushroom casing production:         Budapest, Hungary                   17,000          2000           -

     FRESH MUSHROOMS SEGMENT

        Fresh mushroom production,
           including satellite farms:       Quincy, Florida                    408,000          1981          2001
</TABLE>


The spawn plants in the Netherlands and Australia are owned by the company along
with joint venture partners in each country. The company owns all of its
principal operating properties except for those in Des Moines, Iowa, and
Budapest, Hungary (mushroom casing production) that it leases. The company also
leases several small administrative and/or sales offices in Pennsylvania and
California and some supplemental cold storage facilities to serve several North
American and overseas market areas. Construction loans relating to the spawn
plants in England, Ireland and the Netherlands have been collateralized with
mortgages. The two satellite mushroom growing facilities that Sylvan owns in
Quincy, Florida, are leased to and operated by unrelated third parties.



                                       5
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

There are no material pending legal proceedings to which Sylvan or any of its
subsidiaries is a party, or of which any of their property is subject, other
than ordinary, routine litigation incidental to their respective businesses.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders in the last quarter of
the 2001 fiscal year.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following is a list of the names and ages of the executive officers of the
company, indicating the positions and offices currently held by each person.
There is no arrangement or understanding between any executive officer and any
other person pursuant to which he was selected as an officer and no family
relationship exists among the company's officers and directors. The annual
appointment of officers is scheduled to occur on May 30, 2002 at the
organizational meeting of the board of directors, following the annual meeting
of shareholders.

       Name              Age                  Position
       ----              ---                  --------
  Dennis C. Zensen        63     Chairman of the Board,
                                 President and Chief Executive Officer of Sylvan

  Donald A. Smith         40     Chief Financial Officer of Sylvan

  Fred Y. Bennitt         57     Secretary/Treasurer of Sylvan

  Monir K. Elzalaki       46     President of Sylvan America, Inc.

  Gregory J. Verhagen     41     President of Quincy Farms

  Gary D. Walker          54     President of Sylvan Bioproducts, Inc.

  Michael A. Walton       52     Managing Director of Sylvan's European
                                 Operations


Biographical Information

Mr. Zensen was elected chairman of Sylvan in July 1990 and has served as a
director, president and chief executive officer of Sylvan since April 1989.

Mr. Smith was appointed chief financial officer of Sylvan in December 1998. He
joined the company in 1996 as manager of financial planning and analysis and was
named corporate controller in October 1997. Prior to that, he served as chief
financial officer of the company's Sylvan America, Inc. subsidiary from 1994 to
1996 and as controller of the company's former Moonlight Mushrooms, Inc.
subsidiary from 1989 through 1993.

Mr. Bennitt has served as secretary/treasurer of Sylvan since April 1989. His
service with Sylvan's predecessor company began in 1971.

Mr. Elzalaki was named president of the company's Pennsylvania spawn production
subsidiary in March 1992 and president of the company's Nevada spawn production
subsidiary in December 1992 at the time of its creation. He joined the
Pennsylvania company as its director of sales and marketing in April 1990 and
served as vice president and general manager from September 1990 until his
appointment as president.

Mr. Verhagen was appointed president of the company's Quincy Farms subsidiary in
January 2000, having served as Quincy's general manager since May 1999. For the
four years prior to that time, he served in various senior management positions
for Money's Mushrooms, Ltd.


                                       6
<PAGE>

Mr. Walker was appointed president of Sylvan Bioproducts in 1998, after serving
as manager and developer of the company's bioproducts business since the
beginning of 1994. He joined Sylvan in 1992 as president of its Moonlight
subsidiary until Moonlight closed in December 1993.

Mr. Walton was named managing director of Sylvan's European operations in 1995.
He joined Sylvan in connection with its acquisition of Hauser Champignonkulturen
AG (Hauser) in June 1992. At the time, he was serving as managing director of
Hauser's UK subsidiaries and continued in that capacity until his present
appointment.


                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a)  Market Information

Sylvan's common stock trades on The Nasdaq Stock Market under the symbol "SYLN."
Set forth below are the high and low sales prices for Sylvan's common stock for
2001 and 2000, as reported by The Nasdaq Stock Market.

                2001                High Price              Low Price
                ----                ----------              ---------
               1st Qtr.               15.000                   9.125
               2nd Qtr.               13.000                  11.000
               3rd Qtr.               13.150                  11.310
               4th Qtr.               12.000                  10.850

                2000                High Price              Low Price
                ----                ----------              ---------
               1st Qtr.               10.000                   7.563
               2nd Qtr.               10.250                   7.938
               3rd Qtr.               10.750                   8.438
               4th Qtr.               10.000                   8.000

(b)  Holders of Common Equity

At year-end 2001, there were approximately 1,500 shareholders of record of
Sylvan common stock.

(c)  Dividends

Sylvan has never paid cash dividends and currently has a policy of retaining its
earnings to fund operations, expansion and the purchase of treasury shares. The
company's revolving credit agreement contains financial covenants that permit,
but limit, the payment of dividends by Sylvan.

ITEM 6.  SELECTED FINANCIAL DATA

Set forth below are a Five-Year Summary of Selected Financial Data and Quarterly
Results of Operations with respect to Sylvan.



                                       7
<PAGE>



                  FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                             ---------------------------  Fiscal Year Ended ------------------------------
(In millions except share data)                     2001           2000           1999            1998           1997
--------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>            <C>           <C>             <C>            <C>
INCOME STATEMENT DATA:
  Net sales                                      $  85.9        $  85.9        $  89.8         $  89.8        $  81.6
  Operating income                                  11.0           11.5           10.6            11.1           11.5
  Net income                                         5.8            6.7            6.1             6.3            6.5
  Net income per common share - basic               1.06           1.18           1.00            0.98           1.01
  Net income per common share - diluted             1.05           1.18           1.00            0.97           1.01
  Weighted average shares - basic              5,500,799      5,658,860      6,112,007       6,440,287      6,395,971
  Weighted average shares - diluted            5,551,673      5,665,974      6,130,694       6,533,740      6,406,544
  Earnings before interest, taxes,
    depreciation and amortization (EBITDA)          17.2           17.4           16.9            16.9           16.5

BALANCE SHEET DATA:
  Total assets                                   $ 107.1        $ 105.8        $ 109.5        $  102.6        $  93.7
  Long-term debt and other
    long-term liabilities                           45.5           47.7           51.8            38.4           36.4
  Shareholders' equity                              50.9           49.5           47.2            50.3           44.0
  Working capital                                   23.2           23.0           22.8            18.9           16.9
  Net cash provided by operations                   10.7            9.7           13.0            10.2           10.4
  Net cash used in investing                         8.7            6.2           12.2             9.8           11.6
  Net cash (used in) provided by financing          (1.8)          (5.2)           1.4             0.1            4.1
  Cash dividends per common share                     --             --             --              --             --
</TABLE>

                         QUARTERLY RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                  First         Second           Third         Fourth
(Unaudited, in thousands except share data)                     Quarter        Quarter         Quarter        Quarter
--------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>              <C>            <C>             <C>
2001:
  Net sales                                                    $ 20,881       $ 21,074        $ 21,848       $ 22,108
  Gross profit                                                    8,969          8,880           8,955          9,289
  Net income                                                      1,177          1,372           1,508          1,773
  Net income per common share - basic                              0.21           0.25            0.27           0.33
  Net income per common share - diluted                            0.21           0.25            0.27           0.32
  Weighted average shares - basic                             5,517,556      5,522,172       5,523,618      5,439,849
  Weighted average shares - diluted                           5,552,575      5,580,688       5,584,890      5,485,552

2000:
  Net sales                                                    $ 22,459       $ 20,740        $ 20,988       $ 21,762
  Gross profit                                                   10,184          9,229           9,290          9,310
  Net income                                                      1,414          1,296           1,586          2,388
  Net income per common share - basic                              0.25           0.23            0.28           0.42
  Net income per common share - diluted                            0.25           0.23            0.28           0.42
  Weighted average shares - basic                             5,690,424      5,663,883       5,666,718      5,614,415
  Weighted average shares - diluted                           5,690,424      5,666,211       5,672,815      5,621,674

</TABLE>

                                       8
<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS


                              RESULTS OF OPERATIONS
                          COMPARISON OF 2001 WITH 2000
NET SALES

Net sales were $85.9 million for both 2001 and 2000. A $1.6 million increase in
the Fresh Mushrooms Segment sales was offset by a decrease in the Spawn Products
Segment sales. On average, the U.S. dollar was approximately 5% stronger, when
measured against the company's applicable foreign currencies, than for 2000. The
effect of this strengthening decreased sales and operating income during 2001,
as compared with 2000, by approximately $2.7 million and $225,000, respectively.
International sales, as a percentage of net sales, were 53% in 2001 and 51% in
2000.

Spawn Products: Net sales of spawn and spawn-related products were $63.6
million, a 3% decrease when compared with the net sales of $65.2 million for
2000. This decrease was due to four offsetting factors. First, sales of
disease-control agents and nutritional supplements increased $1.6 million, or
13%, and accounted for 17% of Sylvan's consolidated net sales. Second, spawn
product sales volume decreased 4%, with a 16% decrease in the Americas,
countered by a 4% increase in overseas markets. Most of the volume decrease in
the Americas related to changing market conditions in the mushroom industry.
Third, foreign currency translation fluctuations had the effect of reducing
sales on a year-over-year comparison by $2.7 million. Fourth, the effect of 2001
local market price increases in international locations was approximately $1.2
million.

On August 17, 2001, the U.S. Department of Agriculture released its annual
statistical report on mushrooms covering the fiscal year July 2000 through June
2001. The Department reported an 11% reduction in the amount of Agaricus growing
area planted. This reduction, combined with additional farm closings in the
third and fourth quarters of 2001, decreased Sylvan's available market in the
United States by approximately 15%. The J.B. Swayne customer base, which was
acquired in November 1999, has been substantially unaffected. Sylvan experienced
additional price and payment-term competition in the United States during the
second half of 2001.

The overseas U.S. dollar equivalent selling price was 4% lower during 2001, as
compared with 2000, due to the strengthening of the U.S. dollar. The selling
price in the Americas decreased by less than 1%.

Fresh Mushrooms: Net sales of fresh mushrooms increased 7% during 2001 to $23.6
million, as compared with $22.0 million for 2000. This increase was due to a 3%
increase in the number of pounds sold and a 1% higher selling price per pound.
Quincy Farms experienced an increase in its yield per square foot and an
improvement in the quality of its mushrooms. The first two satellite farms,
which commenced operations during the second quarter of 2001, purchased $0.7
million of ready-to-grow mushroom trays and sold approximately $1.3 million
high-quality mushrooms to Quincy for immediate resale to its third-party
marketer.

The southeastern United States, the market for Quincy's production, experienced
lower demand for fresh mushrooms by restaurants, convention centers and other
components of the food service industry after September 11, 2001. As a result,
Quincy's average selling price per pound decreased approximately 4% from
pre-September 11 pricing.

COST OF SALES

The company's cost of sales, expressed as a percentage of net sales, was 58.0%
for 2001 and 55.8% for 2000. Improved margins in the Fresh Mushrooms Segment
were more than offset by lower margins in the Spawn Products Segment.

Spawn Products: The cost of sales, as a percentage of net sales, was 53.2% for
2001, as compared with 50.5% for 2000. The increase was due to two factors.
First, spawn production in the Americas during 2001 was 13.3% lower than for
2000, spreading costs that are primarily fixed in nature over fewer units.
Second, the company generated sales increases of disease-control agents and
nutritional supplements, which have a lower margin than mushroom spawn. The
overall discard rate for spawn production was 5.8% in both 2001 and 2000.

Fresh Mushrooms: The cost of sales percentage was 67.7% for 2001 and 68.1% for
2000. Quincy improved yield efficiencies, spreading growing area costs that are
primarily fixed in nature over more pounds. In addition, the sale of
ready-to-grow mushroom trays to the satellite farms contributed to the improved
financial performance.


                                       9
<PAGE>

SELLING AND ADMINISTRATIVE EXPENSES

Selling and administrative expenses decreased to $18.0 million, or 21.0% of net
sales, as compared with $19.5 million, or 22.7%, for 2000. Approximately $0.4
million of this decrease related to three nonrecurring items recorded in the
Spawn Products Segment during the first quarter of 2000. The strengthening of
the U.S. dollar had the effect of decreasing selling and administrative expenses
by $0.4 million during 2001, as compared with 2000. The remaining decrease of
$0.7 million in selling and administrative expenses, for 2001 versus 2000, was
the result of a reduction in general administrative expenditures, some of which
related to the incorporation of the Swayne acquisition into Sylvan's North
American spawn operations. The company recorded $0.6 million of net periodic
benefit income during 2001 from a pension plan of a former subsidiary.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses decreased 2% in 2001 to $1.7 million, when
compared with $1.8 million in 2000.

DEPRECIATION EXPENSE

Depreciation expense was $5.4 million in 2001, an increase of 3% over the $5.2
million reported for 2000. This increase resulted from new capital assets placed
into service.

INTEREST EXPENSE

Net interest expense for 2001 was $2.5 million, virtually equal to the interest
expense for 2000. The effective interest rate for 2001 was 6.7%, as compared
with 6.9% for 2000. During 2001, the company recorded interest expense of
$132,000 related to SFAS No. 133. The effective borrowing rate for 2001,
excluding the effect of SFAS No. 133, was 6.3%. During 2001, the company had
variable-to-fixed interest rate swaps in place to manage interest rate risk that
increased the average borrowing rate 0.61%. During 2000, swaps decreased the
average borrowing rate 0.45%.

INCOME TAX EXPENSE

The company's overall effective tax rate for 2001 was 29.5%. In 2000, the
company reported an overall effective tax rate of 22%. Excluding the benefit of
a net operating loss carryforward recorded from a merger of two subsidiaries,
the rate for 2000 was 28%. This higher effective tax rate for 2001 was the
result of a larger portion of the company's taxable income being derived from
higher tax-rate jurisdictions. Sylvan expects a higher effective tax rate for
2002.


                              RESULTS OF OPERATIONS
                          COMPARISON OF 2000 WITH 1999

NET SALES

Net sales for 2000 were $85.9 million, a 4% decrease when compared with 1999 net
sales of $89.8 million. This $3.9 million change was the result of increased
spawn and spawn-related product sales, net of international currency translation
fluctuations, and operational changes in the Fresh Mushrooms Segment.
International sales, as a percentage of net sales, decreased to 51% in 2000, as
compared with 52% for 1999. During 2000, the U.S. dollar strengthened 14%, on
average, against the company's major foreign trading currencies. This had the
effect of reducing net sales by $8.0 million, operating income by $0.9 million
and the diluted earnings per share by approximately eleven cents.

Spawn Products: Net sales of spawn and spawn-related products were $65.2 million
in 2000, a 5% increase when compared with net sales of $61.9 million for 1999.
Excluding the effect of the strengthened U.S. dollar during 2000, the Spawn
Products Segment sales increased 19% during the year. Overall, spawn product
sales volume increased 15%, with a 33% increase in the Americas, primarily due
to the November 1999 Swayne acquisition, and a 5% increase in overseas markets.
The overseas U.S. dollar equivalent selling price was 13% lower, primarily due
to the strengthening of the U.S. dollar. The average selling price in the
Americas was 4% lower than in 1999 due to the inclusion of the sales of the J.B.
Swayne Spawn Company, which had an overall lower pricing structure. In addition,
consolidation of the mushroom industry, as evidenced by


                                       10
<PAGE>

the acquisition of Vlasic Farms by a Canadian company and the formation of
regional marketing alliances, has generated increased volume discounts,
resulting in a lower average net selling price. Sales of disease-control agents
and nutritional supplements increased 10%, accounting for 15% and 13% of
consolidated net sales for 2000 and 1999, respectively.

Fresh Mushrooms: Net sales of fresh mushrooms decreased during 2000 by 24% to
$22.0 million. This decrease was due to two offsetting factors. First, marketing
changes occurred within the Fresh Mushrooms Segment beginning on January 16,
2000. On January 14, 2000, Quincy entered into a marketing contract to sell all
of the mushrooms directly from its harvesting area to a third party, which then
packages and distributes the mushrooms on its own behalf. Since Quincy no longer
performs value-added commercial enhancements, such as slicing and packaging, and
does not distribute its products to wholesalers and retailers, it receives a
lower price per pound for mushrooms sold. This new structure resulted in an $8.8
million decrease in sales. Second, during 2000 Quincy experienced improved
production yields when compared with 1999, which provided an increase of 8% in
the number of pounds sold. After adjusting for the effect of the marketing
change, Quincy's sales would have increased by $1.7 million.

The United States Department of Agriculture reported little change in fresh
mushroom sales in the United States for the 1999-2000 season, reflecting a 2%
increase in pounds sold and a 1% decrease in the average selling price. The USDA
crop reports also indicated that sales of processed mushrooms decreased 3% in
the 1999-2000 period over the 1998-1999 period.

COST OF SALES

The company's cost of sales, expressed as a percentage of net sales, was 55.8%
for 2000 and 58.7% for 1999. Increased production efficiencies were realized in
the Fresh Mushrooms Segment, on a year-versus-year basis, due to higher
production yields and the new marketing contract.

Spawn Products: The cost of sales, as a percentage of net sales, was 50.5% for
2000, as compared with 49.7% for 1999. The increase was due to two factors.
First, the Swayne spawn production facility, which was acquired on November 30,
1999, was operational during all of 2000 versus one month in 1999. The
production method at this facility had a much higher cost structure due to a
more labor-intensive process. Second, the higher proportion of nutritional
supplement and disease-control agent sales has a higher cost of sales percentage
than spawn products. During 2000, the overall discard rate for spawn production
was 5.8%, as compared with 6.0% for 1999.

Fresh Mushrooms: The cost of sales percentage was 68.1% for 2000 and 75.2% for
1999. Under the marketing contract, mushrooms are sold directly from the
harvesting area; therefore, Quincy is no longer performing commercial
enhancement and distribution activities. Quincy also had improved yield
efficiencies, spreading a growing area cost structure that is primarily fixed in
nature over more pounds.

SELLING AND ADMINISTRATIVE EXPENSES

Selling and administrative expenses, as a percentage of net sales, were 22.7%
and 21.7% for 2000 and 1999, respectively. Most of this increase was related to
three items recorded in the Spawn Products Segment during the first quarter of
2000: a write-off of pre-construction costs associated with scope revisions and
a management change in the company's Hungarian composting project ($0.2
million), a loss on the sale of a small mushroom farm ($0.1 million) that was
acquired as part of the May 1998 purchase of International Mushrooms Ltd., and a
nonrecurring expense ($0.1 million) for non-income related taxes. In addition,
ongoing costs were incurred by operating the sales and administrative facilities
of Swayne, which was acquired in November 1999. The company recorded $0.6
million of net periodic benefit income during 2000 from a pension plan of a
former subsidiary.

The Fresh Mushrooms Segment realized annual cost savings of $0.8 million related
to wages, employee benefits, and general building overhead that were assumed by
an outside party under the terms of the marketing contract.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses increased 11% in 2000 to $1.8 million, when
compared with $1.6 million in 1999. Sylvan intends to devote a larger portion of
its research and development expenditures to its Bioproducts operation in 2001.


                                       11
<PAGE>

DEPRECIATION EXPENSE

Depreciation expense was $5.2 million in 2000, a 5% decrease over the $5.5
million reported for 1999. This change was primarily due to the strengthening of
the U.S. dollar, which had the effect of decreasing depreciation expense by $0.3
million.

INTEREST EXPENSE

Net interest expense for 2000 was $2.5 million, as compared with $2.2 million
for 1999. The increase resulted from higher interest rates and higher average
borrowings for 2000. The average effective borrowing rate for 2000 was 6.9%, as
compared with 6.4% for 1999.

OTHER INCOME (EXPENSE)

The company reported a net $0.2 million other expense total for 2000. Most of
this expense was related to foreign exchange losses on cross-currency
intercompany transactions.

INCOME TAX EXPENSE

The company's overall effective tax rate for 2000 was 22%. This rate included
the $0.5 million net operating loss carryforward benefit from the merger of two
subsidiaries. Excluding the effect of this benefit, the company's effective tax
rate for 2000 was 28%, as compared with 26% for 1999. A higher effective tax
rate is expected for 2001 as a result of a larger portion of the company's
taxable income being derived from higher tax-rate jurisdictions.


                         LIQUIDITY AND CAPITAL RESOURCES

Sylvan evaluates its liquidity and capital resources position by comparing its
investment opportunities with its cash position, operating cash flow trends and
credit availability. Available credit under the company's $55.0 million
revolving credit agreement was $18.9 million as of December 30, 2001. The
agreement provides for a reduction of the total credit amount over a six-year
period, with the first reduction to $50.0 million effective August 6, 2003.

Net cash provided by operating activities was $10.7 million in 2001, as compared
with $9.7 million in 2000 and $13.0 million in 1999. The 2000 cash flows were
lower than in a typical year due to the timing of $1.0 million of construction
invoice payments. The unusually high 1999 cash flows included tax refunds
received from several jurisdictions, changes in the funding of certain employee
benefits and delayed construction payments pending final work to be completed to
Sylvan's satisfaction.

Approximately $0.6 million of the $0.8 million cash flow used by trade accounts
receivable in 2001 related to the Americas' spawn operations. In response to a
competitor offering extended payment terms, customers began to take longer to
pay their invoices.

Cash used by investing activities was $8.7 million for 2001, as compared with
$6.2 million and $12.2 million during 2000 and 1999, respectively. The higher
1999 level resulted from the expenditure of $4.6 million for the Swayne
acquisition. Capital expenditures, net of proceeds from the sale of assets,
totaled $8.6 million in 2001, $6.1 million in 2000 and $7.7 million in 1999.
Most of the increase in capital expenditures between 2001 and 2000 was related
to two business-growth projects: the satellite farms ($1.4 million) and the
Canadian spawn plant ($2.3 million). Maintenance capital for 2001 was $4.1
million.

Net capital expenditures in 2002 are expected to total between $4.0 million and
$6.0 million for existing operations, with additional expenditures as may be
required for acquisitions or new initiatives.

During 2001, cash of $1.8 million was used in financing activities, as compared
with $5.2 million used in financing activities and $1.4 million provided by
financing activities during 2000 and 1999, respectively. During 2001, the
company purchased 107,271 shares of Sylvan stock at an average price of $11.37
per share. By comparison, 215,235 and 716,900 shares were purchased at average
prices of $9.37 and $10.95 during 2000 and 1999, respectively. Management
expects to continue the purchase program during 2002, subject to price and share
availability conditions that make such purchases financially beneficial and
appropriate.


                                       12
<PAGE>

Term debt and revolving credit obligations decreased by $0.7 million in 2001,
compared with a decrease of $3.3 million in 2000 and an increase of $8.9 million
in 1999. The decrease in 2001 primarily related to foreign currency translation
reductions, while the decrease in 2000 primarily related to the positive cash
flows of operations in excess of capital additions and Sylvan share purchases.
Most of the increase in 1999 related to the acquisition of Swayne and the
purchase of Sylvan stock, offset by the positive cash flow of operations after
capital additions. The company routinely assesses its requirements for
additional capital investments as it experiences continued growth in its
operations. The revolving credit facility and net operating cash flows are
expected to provide sufficient funding for projected 2002 expenditures.

Sylvan has never paid cash dividends and currently has a policy of retaining its
earnings to fund operations, expansion and the purchase of treasury shares. The
company's revolving credit agreement contains financial covenants that permit,
but limit, the payment of dividends by Sylvan.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board issued SFAS No. 142,
"Goodwill and Other Intangible Assets." SFAS No. 142 eliminates amortization of
goodwill and amortization of indefinitely lived intangible assets and provides
for impairment tests to be performed at least annually. Sylvan adopted this
pronouncement on December 31, 2001, which was the first day of Sylvan's 2002
fiscal year. During January 2002, the company retained a professional services
firm to complete the initial assessment to test for transitional goodwill
impairment. Management does not believe that an initial impairment loss will
result. In compliance with SFAS No. 142, the first step of this assessment will
be completed by June 30, 2002. During the year ended December 30, 2001, the
company recorded goodwill amortization of approximately $0.5 million.

In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." Under its
provisions, all tangible long-lived assets, whether to be held and used or to be
disposed of by sale or other means, will be tested for recoverability whenever
events or changes in circumstances indicate the carrying amount may not be
recoverable. Sylvan adopted this pronouncement on December 31, 2001. The
adoption of this pronouncement did not have a material impact on the company.

EURO CURRENCY

A single currency, the euro, was introduced in Europe on January 1, 1999. Of the
15 member countries of the European Union, 11 agreed to adopt it as their legal
currency on that date. Fixed conversion rates between the existing currencies of
these 11 countries and the euro were established as of that date. The final
conversion to the euro on January 1, 2002 did not have a material impact on
Sylvan's business or financial condition.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The company is exposed to market risk from changes in foreign currency exchange
rates and interest rates. In order to manage this risk, the company enters into
various contracts and options. A discussion of accounting policies for
derivative instruments is included in Note 1 to Sylvan's consolidated financial
statements that are filed herewith.

Foreign Currency Exchange Rate Risk: Note 9 of the consolidated financial
statements sets forth revenues for three years based on the location of the
company's customers. Sylvan has foreign currency exposures related to buying,
selling, and financing in currencies other than the U.S. dollar. This exposes
the company's future earnings, assets, liabilities, cash flow and financial
instruments that are denominated in foreign currencies.

Sylvan believes that its most significant financial instrument rate exposure
relates to its activities in Europe. As of December 30, 2001, the net fair value
liability of euro denominated financial instruments was approximately $15.6
million. The potential fair value loss of a hypothetical 10% adverse change in
the currency exchange rate would be approximately $1.6 million.

Interest Rate Risk: The company is subject to market risk from exposure to
changes in interest rates based on its financing practices. This risk is managed
by entering into a variety of financial instruments to maintain a desired level
of exposure. The net fair value liability at December 30, 2001 of all financial
instruments subject to interest rate exposures was approximately $35.6 million.
The table below provides information about the company's financial instruments
that are sensitive to interest rates. For debt obligations, the table presents
principal cash flow and related weighted average interest rates according to


                                       13
<PAGE>


their expected maturity dates. For interest rate swaps, the table presents
notional amounts and weighted average interest rates according to their expected
maturity dates. Weighted average interest rates are based on the LIBOR rate in
effect at the reporting date. No future rate assumptions have been made. The
average received rate for interest rate swaps in 2000 was 6.62%, as compared
with 2.25% for 2001. This decrease was the result of market rate reductions.


<TABLE>
<CAPTION>
                                          Expected Maturity Date for Periods Ended December
                              ------------------------------------------------------------------------
                              2002        2003         2004         2005         2006       Thereafter     Total     Fair Value
                              ----        ----         ----         ----         ----       ----------     -----     ----------
(In thousands)
<S>                         <C>         <C>           <C>         <C>           <C>          <C>         <C>          <C>
Liabilities
Long-term debt
   Fixed rate                $2,430      $  168       $   66      $   448       $   53       $   447      $ 3,612      $ 3,612
   Average interest rate       5.31%       6.83%        6.61%        6.69%        6.20%         6.20%
   Variable rate                 --          --           --       36,073           --            --      $36,073      $35,550
   Average interest rate         --          --           --         3.42%          --            --
Interest rate swaps
   Fixed-to-variable rate    $5,000                                                          $10,000      $15,000      $  (641)
   Average pay rate            5.02%                                                            5.48%        5.33%
   Average receive rate        2.25%                                                            2.25%
</TABLE>


FORWARD-LOOKING AND CAUTIONARY STATEMENTS

From time to time in this annual report, references are made to expectations
regarding Sylvan's future financial performance, such as the impact of
competition in the U.S. spawn market, effective tax rate increases, the
continuation of the company's share purchase program, capital expenditures, and
the cash flows from operations and bank borrowings. Events could turn out to be
significantly different from what is expected. The following factors, among
others, in some cases have affected and in the future could affect the company's
financial performance and could cause actual results to differ materially from
those expressed or implied in such forward-looking statements:

o  pricing or product initiatives of the company's competitors;
o  changes in exchange risks with respect to currencies used in the company's
   markets;
o  the loss of key executives or other employees of the company;
o  failure to achieve production yield and quality expectations;
o  the loss of a major customer;
o  changes in a specific country's or region's political or economic
   conditions; and
o  acts of terrorism or war or concerns of the public about such acts or
   threats of such acts.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required is set forth as Exhibits beginning on page 23.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURE

None




                                       14
<PAGE>



                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information regarding directors required by this item is set forth
     under the caption "Election of Directors" in Sylvan's Proxy Statement to be
     filed pursuant to Regulation 14A and is incorporated herein by reference.

     The information regarding executive officers required by this item is set
     forth in Part I of this Form 10-K. The information required by Item 405 of
     Regulation S-K is set forth under the caption, "Section 16(a) Beneficial
     Ownership Reporting Compliance" in Sylvan's Proxy Statement and is
     incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

     The information required by this item is set forth under the caption
     "Management Compensation and Benefit Plans" in Sylvan's definitive Proxy
     Statement to be filed pursuant to Regulation 14A and is incorporated herein
     by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this item is set forth under the caption
     "Security Ownership of Certain Beneficial Owners and Management" in
     Sylvan's definitive Proxy Statement to be filed pursuant to Regulation 14A
     and is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The information required by this item is set forth under the caption
    "Transactions with the Company" in Sylvan's definitive Proxy Statement to be
    filed pursuant to Regulation 14A and is incorporated herein by reference.



                                       15
<PAGE>



                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

(A) (1) AND (2).  FINANCIAL STATEMENTS AND SCHEDULES

     The financial statements and financial statement schedule listed in the
     accompanying Index to Financial Statements, Schedules and Exhibits are
     filed as part of this annual report.

     (3).  EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K

     3.3       Articles of Incorporation of S. F. Nevada, Inc., previously filed
               as Exhibit 3.3 on November 12, 1999 with the company's Form 10-Q
               quarterly report for the period ended October 3, 1999 and
               incorporated herein by reference

     3.4       Articles of Merger of S. F. Nevada, Inc. and Sylvan Foods
               Holdings, Inc. with exhibit, previously filed as Exhibit 3.4 on
               November 12, 1999 with the company's Form 10-Q quarterly report
               for the period ended October 3, 1999 and incorporated herein by
               reference

     3.5       Bylaws, previously filed as Exhibit 3.5 on November 12, 1999 with
               the company's Form 10-Q quarterly report for the period ended
               October 3, 1999 and incorporated herein by reference

               Compensation Plans and Arrangements

     10.1.2    Sylvan Foods, Inc. Target Benefit Annuity Purchase Plan,
               previously filed as Exhibit 3.3.2 on April 2, 1993 with the
               company's Form 10-K annual report for the fiscal year ended
               January 3, 1993 and incorporated herein by reference

     10.1.3    Sylvan Foods Holdings, Inc. 1993 Stock Option Plan for
               Nonemployee Directors, previously filed on April 1, 1994 with the
               company's Form 10-K annual report for the fiscal year ended
               January 2, 1994 and incorporated herein by reference

     10.12     Sylvan Inc. 1990 Stock Option Plan (amended and restated),
               previously filed on November 12, 1999 with the company's Form
               10-Q quarterly report for the period ended October 3, 1999 and
               incorporated herein by reference

               Material Contracts

     10.2.1    Revolving Credit Agreement, dated as of August 6, 1998, by and
               among Sylvan Inc., a Nevada corporation, Sylvan Foods
               (Netherlands) B.V., a Dutch corporation, as Borrowers, the Banks
               party thereto from time to time and Mellon Bank, N.A., a national
               banking association, as issuing bank and as agent for the Banks
               thereunder, previously filed as Exhibit 10.1 on November 10, 1998
               with Sylvan's Form 10-Q quarterly report for the period ended
               September 27, 1998 and incorporated herein by reference

     10.2.2    Revolving Credit Note, dated August 6, 1998, payable to Mellon
               Bank, N.A. in the amount of $25,000,000, previously filed on
               November 10, 1998 as Exhibit 10.2 with the company's Form 10-Q
               quarterly report for the period ended September 27, 1998 and
               incorporated herein by reference

     10.2.3    Revolving Credit Note, dated August 6, 1998, payable to ABN AMRO
               Bank, Pittsburgh Branch, in the amount of $25,000,000, previously
               filed on November 10, 1998 as Exhibit 10.3 with the company's
               Form 10-Q quarterly report for the period ended September 27,
               1998 and incorporated herein by reference

     10.2.4    Promissory Note, dated August 6, 1998, payable to Mellon Bank,
               N.A. in the amount of $5,000,000, previously filed on November
               10, 1998 as Exhibit 10.4 with the company's Form 10-Q quarterly
               report for the period ended September 27, 1998 and incorporated
               herein by reference


                                       16
<PAGE>

     10.2.5    Mellon Global Cash Management ABS Agreement, dated August 6,
               1998, by and between Sylvan Inc. and Mellon Bank, N.A.,
               previously filed on November 10, 1998 as Exhibit 10.5 with the
               company's Form 10-Q quarterly report for the period ended
               September 27, 1998 and incorporated herein by reference

     10.2.6    Guaranty and Suretyship Agreement, dated August 6, 1998, by and
               between Sylvan Inc. and Mellon Bank, N.A., previously filed on
               November 10, 1998 as Exhibit 10.6 with the company's Form 10-Q
               quarterly report for the period ended September 27, 1998 and
               incorporated herein by reference

     10.2.7    Guaranty and Suretyship Agreement, dated August 6, 1998, by and
               between Sylvan Foods, Inc. and Mellon Bank, N.A., previously
               filed on November 10, 1998 as Exhibit 10.7 with the company's
               Form 10-Q quarterly report for the period ended September 27,
               1998 and incorporated herein by reference

     10.2.8    Guaranty and Suretyship Agreement, dated August 6, 1998, by and
               between Sylvan America, Inc. (a Pennsylvania corporation) and
               Mellon Bank, N.A., previously filed on November 10, 1998 as
               Exhibit 10.8 with the company's Form 10-Q quarterly report for
               the period ended September 27, 1998 and incorporated herein by
               reference

     10.2.9    Guaranty and Suretyship Agreement, dated August 6, 1998, by and
               between Sylvan America, Inc. (a Nevada corporation) and Mellon
               Bank, N.A., previously filed on November 10, 1998 as Exhibit 10.9
               with the company's Form 10-Q quarterly report for the period
               ended September 27, 1998 and incorporated herein by reference

     10.2.10   Guaranty and Suretyship Agreement, dated August 6, 1998, by and
               between Quincy Corporation and Mellon Bank, N.A., previously
               filed on November 10, 1998 as Exhibit 10.10 with the company's
               Form 10-Q quarterly report for the period ended September 27,
               1998 and incorporated herein by reference

     10.2.11   Index of Other Exhibits to the Revolving Credit Agreement,
               previously filed on November 10, 1998 as Exhibit 10.11 with
               Sylvan's Form 10-Q quarterly report for the period ended
               September 27, 1998 and incorporated herein by reference

     10.5.1    Agreement, dated January 14, 2000, by and between C And C
               Carriage Mushroom Co., t/a Modern Sales Company, and Quincy
               Corporation, previously filed on March 27, 2000 as Exhibit 10.5.1
               with the company's Form 10-K annual report for the fiscal year
               ended January 2, 2000 and incorporated herein by reference

     10.5.2    Index of Exhibits to the C And C Agreement referenced above,
               previously filed on March 27, 2000 with the company's Form 10-K
               annual report for the fiscal year ended January 2, 2000 and
               incorporated herein by reference

     10.40     Collective Bargaining Agreement, dated January 21, 2001, between
               Quincy Corporation and the United Farm Workers of America,
               AFL-CIO, previously filed on March 23, 2001 as Exhibit 10.40 with
               the company's Form 10-K annual report for the fiscal year ended
               December 31, 2000 and incorporated herein by reference

     10.41     Letter dated October 12, 2001 from Mellon Bank, advising the
               company of Mellon's assignment and transfer to Citizens Financial
               Group, Inc., or to a wholly owned banking subsidiary of Citizens,
               of all of Mellon's right, title and interest in and to the
               Revolving Credit Agreement, dated August 6, 1998, between the
               company and Mellon, referenced in Exhibits 10.2.1 through
               10.2.11, above

     11        Statement re computation of per share earnings is not required
               because the relevant computation can be clearly determined from
               the material contained in the financial statements included
               herein

     21        Subsidiaries of the Registrant

(B)  REPORTS ON FORM 8-K

None


                                       17
<PAGE>


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 20th day of March
2002.


                                               By   /s/ DENNIS C. ZENSEN
                                                  ---------------------------
                                                        Dennis C. Zensen
                                                        President and CEO


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 the capacities and on the dates indicated.

<TABLE>
<CAPTION>
              Signature                              Title                                 Date
              ---------                              -----                                 ----
<S>                                        <C>                                  <C>
   /s/   DENNIS C. ZENSEN                   Chairman of the Board of                    March 20, 2002
--------------------------------------      Directors, President and             ---------------------------
 Dennis C. Zensen                           Chief Executive Officer
                                            (Principal Executive Officer)


  /s/  DONALD A. SMITH                      Chief Financial Officer                     March 20, 2002
--------------------------------------      (Principal Financial and             ---------------------------
 Donald A. Smith                            Accounting Officer)


  /s/   WILLIAM L. BENNETT                  Director                                    March 20, 2002
--------------------------------------                                           ---------------------------
 William L. Bennett


  /s/   MONIR K. ELZALAKI                   President, Sylvan America, Inc.             March 20, 2002
--------------------------------------      Director                             ---------------------------
 Monir K. Elzalaki


   /s/   VIRGIL H. JURGENSMEYER             Director                                    March 20, 2002
--------------------------------------                                           ----------------------------
 Virgil H. Jurgensmeyer


  /s/   NELSON OBUS                         Director                                    March 20, 2002
--------------------------------------                                           ---------------------------
 Nelson Obus

</Table>


                                       18
<PAGE>




              INDEX TO FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS


<TABLE>
<CAPTION>
Exhibit No.                             Description                                              Page No.
-----------                             -----------                                              --------
<S>           <C>                                                                                <C>
              Consent of Independent Public Accountants                                             21

              Report of Independent Public Accountants                                              22

              Consolidated Balance Sheets at December 30, 2001 and December 31, 2000                23

              Consolidated Statements of Income for the Years Ended December 30, 2001,
              December 31, 2000 and January 2, 2000                                                 25

              Consolidated Statements of Changes in Shareholders' Equity for the
              Years Ended December 30, 2001, December 31, 2000 and January 2,
              2000                                                                                  26

              Consolidated Statements of Cash Flows for the Years Ended
              December 30, 2001, December 31, 2000 and January 2, 2000                              27

              Notes to Consolidated Financial Statements                                            28

              Schedule II - Valuation and Qualifying Accounts for the Years
              Ended December 30, 2001, December 31, 2000 and January 2, 2000                        43

              Report of Independent Public Accountants on Financial Statement
              Schedule                                                                              44

   3.3        Articles of Incorporation of S. F. Nevada, Inc.                                       (a)

   3.4        Articles of Merger of S. F. Nevada, Inc. and Sylvan Foods Holdings, Inc.
              with exhibit                                                                          (a)

   3.5        Bylaws                                                                                (a)

   10.1.2     Sylvan Foods, Inc. Target Benefit Annuity Purchase Plan                               (b)

   10.1.3     Sylvan Foods Holdings, Inc. 1993 Stock Option Plan for Nonemployee Directors          (c)

   10.12      Sylvan Inc. 1990 Stock Option Plan, as amended and restated                           (a)

   10.2.1     Revolving Credit Agreement, dated as of August 6, 1998, by and among Sylvan Inc.,
              a Nevada corporation, and Sylvan Foods (Netherlands) B.V., a Dutch
              corporation, as Borrowers; the Banks party thereto from time to time and Mellon
              Bank, N.A., a national banking association, as issuing bank and as agent for the
              Banks thereunder, together with various annexes, exhibits, and schedules              (d)

   10.2.2     Revolving Credit Note, dated August 6, 1998, payable to Mellon Bank, N.A. in the
              amount of $25,000,000                                                                 (d)

   10.2.3     Revolving Credit Note, dated August 6, 1998, payable to ABN AMRO Bank,
              Pittsburgh Branch, in the amount of $25,000,000                                       (d)

   10.2.4     Promissory Note, dated August 6, 1998, payable to Mellon Bank, N.A. in the
              amount of $5,000,000                                                                  (d)

</TABLE>


                                       19
<PAGE>
<TABLE>

<S>          <C>                                                                                <C>
   10.2.5     Mellon Global Cash Management ABS Agreement, dated August 6, 1998, by and
              between Sylvan Inc. and Mellon Bank, N.A.                                             (d)

   10.2.6     Guaranty and Suretyship Agreement, dated August 6, 1998, by and between
              Sylvan Inc. and Mellon Bank, N.A.                                                     (d)

   10.2.7     Guaranty and Suretyship Agreement, dated August 6, 1998, by and between
              Sylvan Foods, Inc. and Mellon Bank, N.A.                                              (d)

   10.2.8     Guaranty and Suretyship Agreement, dated August 6, 1998, by and between
              Sylvan America, Inc. (a Pennsylvania corporation) and Mellon Bank, N.A.               (d)

   10.2.9     Guaranty and Suretyship Agreement, dated August 6, 1998, by and between
              Sylvan America, Inc. (a Nevada corporation) and Mellon Bank, N.A.                     (d)

   10.2.10    Guaranty and Suretyship Agreement, dated August 6, 1998, by and between
              Quincy Corporation and Mellon Bank, N.A.                                              (d)

   10.2.11    Index of Other Exhibits to the Revolving Credit Agreement referenced in
              Exhibit 10.2.1                                                                        (d)

   10.5.1     Agreement, dated January 14, 2000, by and between C And C Carriage
              Mushroom Co., t/a Modern Sales Company and Quincy Corporation                         (e)

   10.5.2     Index of Exhibits to the Agreement referenced in Exhibit 10.5.1                       (e)

   10.40      Collective Bargaining Agreement, dated January 21, 2001, between Quincy
              Corporation and the United Farm Workers of America, AFL-CIO                           (f)

   10.41      Notification letter, dated October 12, 2001, regarding Mellon Bank's
              transfer to Citizens Financial Group, Inc. of its right, title and
              interest in the Revolving Credit Agreement, dated August 6, 1998                      45

   21         Subsidiaries of the Registrant                                                        52
</Table>
------------------

     (a)      This exhibit was previously filed on November 12, 1999 with the
              company's Form 10-Q quarterly report for the period ended October
              3, 1999 and is incorporated herein by reference.

     (b)      This exhibit was previously filed on April 2, 1993 with the
              company's Form 10-K annual report for the fiscal year ended
              January 3, 1993 and is incorporated herein by reference.

     (c)      This exhibit was previously filed on April 1, 1994 with the
              company's Form 10-K annual report for the fiscal year ended
              January 2, 1994 and is incorporated herein by reference.

     (d)      This exhibit was previously filed on November 10, 1998 as one of
              Exhibits 10.1 through 10.11 with the company's Form 10-Q quarterly
              report for the period ended September 27, 1998 and is incorporated
              herein by reference.

     (e)      This exhibit was previously filed on March 27, 2000 with the
              company's Form 10-K annual report for the fiscal year ended
              January 2, 2000 and is incorporated herein by reference.

     (f)      This exhibit was previously filed on March 23, 2001 with the
              company's Form 10-K annual report for the fiscal year ended
              December 31, 2001 and is incorporated herein by reference.



                                       20
<PAGE>


CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS


As independent public accountants, we hereby consent to the incorporation by
reference in Sylvan Inc.'s Form 10-K of our reports dated February 1, 2002
included or incorporated by reference in the Company's previously filed
registration statements on Form S-8 (No. 33-46797 and No. 33-86332), including
the prospectuses therein, relating to the Company's 1990 Stock Option Plan and
on Form S-8 (No. 33-83962), including the prospectus therein, relating to the
Company's 1993 Stock Option Plan for Nonemployee Directors.



                                                    /s/  ARTHUR ANDERSEN LLP


Pittsburgh, Pennsylvania,
March 20, 2002



                                       21
<PAGE>


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors and Shareholders of Sylvan Inc.:

We have audited the accompanying consolidated balance sheets of Sylvan Inc. (a
Nevada corporation) and Subsidiaries as of December 30, 2001 and December 31,
2000, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three fiscal years in the
period ended December 30, 2001. 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. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sylvan Inc. and
Subsidiaries as of December 30, 2001 and December 31, 2000, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended December 30, 2001, in conformity with accounting principles
generally accepted in the United States.

/s/ Arthur Andersen LLP


Pittsburgh, Pennsylvania
February 1, 2002



                                       22
<PAGE>


CONSOLIDATED BALANCE SHEETS
SYLVAN INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
ASSETS
--------------------------------------------------------------------------------------------------
IN THOUSANDS
                                                                 DEC. 30, 2001       DEC. 31, 2000
                                                                 -------------       -------------
<S>                                                              <C>                  <C>
Current Assets:
Cash and cash equivalents                                         $   5,072           $   5,371
Trade accounts receivable, net of allowance for doubtful
   accounts of $440 and $497, respectively                           13,133              12,740
Inventories                                                          10,119              10,398
Prepaid income taxes and other expenses                               1,437               1,420
Other current assets                                                  4,206               1,634
                                                                  ---------           ---------

TOTAL CURRENT ASSETS                                                 33,967              31,563
                                                                  ---------           ---------

Property, Plant and Equipment:
Land and improvements                                                 3,711               3,693
Buildings                                                            38,021              35,540
Equipment                                                            51,014              48,072
                                                                  ---------           ---------

                                                                     92,746              87,305

Less- Accumulated depreciation                                      (38,470)            (34,769)
                                                                  ---------           ---------

TOTAL PROPERTY, PLANT AND EQUIPMENT, NET                             54,276              52,536
                                                                  ---------           ---------

INTANGIBLE ASSETS, net of accumulated amortization
   of $4,078 and $3,404, respectively                                11,036              11,899

OTHER ASSETS, net of accumulated amortization
   of $491 and $407, respectively                                     7,811               9,776
                                                                  ---------           ---------

TOTAL ASSETS                                                      $ 107,090           $ 105,774
                                                                  ---------           ---------
</TABLE>






       The accompanying notes to consolidated financial statements are an
                       integral part of these statements.


                                       23
<PAGE>


CONSOLIDATED BALANCE SHEETS
SYLVAN INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------
IN THOUSANDS EXCEPT SHARE DATA
                                                                       DEC. 30, 2001       DEC. 31, 2000
                                                                       -------------       -------------
<S>                                                                     <C>                 <C>
Current Liabilities:
Current portion of long-term debt                                        $   2,430           $     192
Accounts payable - trade                                                     3,833               4,108
Accrued salaries, wages and employee benefits                                2,635               2,653
Other accrued liabilities                                                      905                 896
Income taxes payable                                                           942                 690
                                                                         ---------           ---------

TOTAL CURRENT LIABILITIES                                                   10,745               8,539
                                                                         ---------           ---------

LONG-TERM AND REVOLVING-TERM DEBT                                           37,255              39,871
                                                                         ---------           ---------

Other Long-Term Liabilities:
Other employee benefits                                                      1,362               1,056
Other                                                                        5,162               5,215
                                                                         ---------           ---------

TOTAL OTHER LONG-TERM LIABILITIES                                            6,524               6,271
                                                                         ---------           ---------

MINORITY INTEREST                                                            1,680               1,559

Shareholders' Equity:
Common stock, voting, par value $.001, 10,000,000 shares
    authorized, 6,694,272 and 6,681,601 shares issued in 2001
    and 2000, respectively                                                       7                   7
Additional paid-in capital                                                  17,055              16,885
Retained earnings                                                           60,296              54,467
Less-Treasury stock, at cost, 1,263,953 and 1,156,682 shares in
    2001 and 2000, respectively                                            (13,136)            (11,917)
                                                                         ---------           ---------
                                                                            64,222              59,442

Accumulated other comprehensive income                                     (13,336)             (9,908)
                                                                         ---------           ---------

TOTAL SHAREHOLDERS' EQUITY                                                  50,886              49,534
                                                                         ---------           ---------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                               $ 107,090           $ 105,774
                                                                         ---------           ---------

</TABLE>




       The accompanying notes to consolidated financial statements are an
                       integral part of these statements.


                                       24
<PAGE>


CONSOLIDATED STATEMENTS OF INCOME
SYLVAN INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS EXCEPT SHARE DATA
                                                                            2001                 2000                  1999
                                                                        -----------           -----------           -----------
<S>                                                                    <C>                <C>                <C>
NET SALES                                                               $    85,911           $    85,947           $    89,841
                                                                        -----------           -----------           -----------

Operating Costs and Expenses:
Cost of sales                                                                49,818                47,937                52,722
Selling and administrative                                                   18,006                19,500                19,474
Research and development                                                      1,721                 1,763                 1,583
Depreciation                                                                  5,375                 5,233                 5,506
                                                                        -----------           -----------           -----------
                                                                             74,920                74,433                79,285
                                                                        -----------           -----------           -----------

OPERATING INCOME                                                             10,991                11,514                10,556

INTEREST EXPENSE, NET                                                         2,532                 2,529                 2,231

OTHER INCOME (EXPENSE)                                                          (19)                 (155)                   (1)
                                                                        -----------           -----------           -----------
INCOME BEFORE INCOME TAXES                                                    8,440                 8,830                 8,324
                                                                        -----------           -----------           -----------
Provision for Income Taxes:
Current                                                                       2,216                 2,206                 1,823
Deferred                                                                        274                  (226)                  308
                                                                        -----------           -----------           -----------
                                                                              2,490                 1,980                 2,131
                                                                        -----------           -----------           -----------

INCOME BEFORE MINORITY INTEREST IN INCOME OF
   CONSOLIDATED SUBSIDIARIES                                                  5,950                 6,850                 6,193
                                                                        -----------           -----------           -----------
MINORITY INTEREST IN INCOME OF CONSOLIDATED
  SUBSIDIARIES                                                                  121                   168                    65
                                                                        -----------           -----------           -----------
NET INCOME                                                              $     5,829           $     6,682           $     6,128
                                                                        -----------           -----------           -----------

WEIGHTED AVERAGE NUMBER OF COMMON SHARES                                  5,500,799             5,658,860             6,112,007
                                                                        -----------           -----------           -----------
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
  EQUIVALENT SHARES                                                       5,551,673             5,665,974             6,130,694
                                                                        -----------           -----------           -----------
NET INCOME PER SHARE - BASIC                                            $      1.06           $      1.18           $      1.00
                                                                        -----------           -----------           -----------
NET INCOME PER SHARE - DILUTED                                          $      1.05           $      1.18           $      1.00
                                                                        -----------           -----------           -----------
</TABLE>



       The accompanying notes to consolidated financial statements are an
                       integral part of these statements.



                                       25
<PAGE>

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
SYLVAN INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS EXCEPT SHARE DATA
                                                                                                      ACCUMULATED
                                                                                                      OTHER           TOTAL
                                                       ADDITIONAL                                     COMPRE-         SHARE-
                                        COMMON         PAID-IN         RETAINED       TREASURY        HENSIVE         HOLDERS'
                                        STOCK          CAPITAL         EARNINGS       STOCK           INCOME          EQUITY
                                        ------         --------        --------       --------        ---------       --------
<S>                                    <C>            <C>             <C>            <C>             <C>             <C>
BALANCE, Jan. 3, 1999                   $      7       $ 16,443        $ 41,657       $ (2,318)       $ (5,525)       $ 50,264

Net income                                    --             --           6,128             --              --           6,128

Foreign currency translation
   adjustment                                 --             --              --             --          (5,081)         (5,081)
Minimum pension liability
   adjustment                                 --             --              --             --           3,403           3,403
                                        --------       --------        --------       --------        --------        --------
     Comprehensive income                                                                                                4,450
Exercise of 34,400 stock options,
   net of tax                                 --            358              --             --              --             358
Purchase of treasury stock                    --             --              --         (7,848)             --          (7,848)
                                        --------       --------        --------       --------        --------        --------

BALANCE, Jan. 2, 2000                          7         16,801          47,785        (10,166)         (7,203)         47,224

Net income                                    --             --           6,682             --              --           6,682

Foreign currency translation
   adjustment                                 --             --              --             --          (2,705)         (2,705)
                                        --------       --------        --------       --------        --------        --------
     Comprehensive income                                                                                                3,977
Exercise of 10,000 stock options
   and compensation expense, net
   of tax                                     --            104              --             53              --             157
Purchase of treasury stock                    --             --              --         (2,017)             --          (2,017)
Issuance of treasury stock                    --            (20)             --            213              --             193
                                        --------       --------        --------       --------        --------        --------

BALANCE, Dec. 31, 2000                         7         16,885          54,467        (11,917)         (9,908)         49,534

Net income                                    --             --           5,829             --              --           5,829

Foreign currency translation
   adjustment                                 --             --              --             --          (3,092)         (3,092)
Unrealized losses on derivatives
   designated and qualified as
   cash flow hedges, net of tax               --             --              --             --            (336)           (336)
                                        --------       --------        --------       --------        --------        --------
     Comprehensive income                                                                                                2,401
 Exercise of 12,671 stock
  options and compensation
  expense, net
    of tax                                    --            170              --             --              --             170
Purchase of treasury stock                    --             --              --         (1,219)             --          (1,219)
                                        --------       --------        --------       --------        --------        --------
BALANCE, DEC. 30, 2001                  $      7       $ 17,055        $ 60,296       $(13,136)       $(13,336)       $ 50,886
                                        --------       --------        --------       --------        --------        --------

</TABLE>


       The accompanying notes to consolidated financial statements are an
                       integral part of these statements.


                                       26
<PAGE>



CONSOLIDATED STATEMENTS OF CASH FLOWS
SYLVAN INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
IN THOUSANDS
                                                                    2001            2000            1999
                                                                  --------        --------        --------
<S>                                                               <C>             <C>             <C>
CASH FLOWS FROM OPERATIONS:
Net income                                                        $  5,829        $  6,682        $  6,128

Adjustments to reconcile net income to net cash provided by
operations:
Depreciation and amortization                                        6,114           5,998           6,226
Employee benefits                                                      373            (193)            706
Trade accounts receivable                                             (753)           (183)           (248)
Inventories                                                              1            (697)           (562)
Prepaid expenses and other assets                                     (852)           (900)           (427)
Accounts payable, accrued expenses and other liabilities               (35)         (1,072)           (860)
Minority interest                                                      157             319             111
Other                                                                 (155)           (212)          1,879
                                                                  --------        --------        --------
NET CASH PROVIDED BY OPERATIONS                                     10,679           9,742          12,953
                                                                  --------        --------        --------

CASH FLOWS FROM INVESTING:
Expenditures for property, plant and equipment                      (8,744)         (7,012)         (7,813)
Proceeds from sale of fixed assets                                     145             908             144
Payment for acquisition, net of cash acquired                           --              --          (4,574)
Earn-out payment on prior period acquisition                          (125)           (125)             --
                                                                  --------        --------        --------
NET CASH USED IN INVESTING                                          (8,724)         (6,229)        (12,243)
                                                                  --------        --------        --------

CASH FLOWS FROM FINANCING:
Principal payments on long-term debt                                  (285)            (72)           (823)
Proceeds from long-term debt borrowings                                 49             172              --
Net (repayments) borrowings under revolving credit loan               (509)         (3,350)          9,756
Proceeds from exercise of stock options                                134              87             293
Purchase of treasury shares                                         (1,219)         (2,017)         (7,848)
                                                                  --------        --------        --------
NET CASH (USED IN) PROVIDED BY FINANCING                            (1,830)         (5,180)          1,378
                                                                  --------        --------        --------
EFFECT OF EXCHANGE RATES ON CASH                                      (424)           (563)           (984)
                                                                  --------        --------        --------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                  (299)         (2,230)          1,104

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                       5,371           7,601           6,497
                                                                  --------        --------        --------
CASH AND CASH EQUIVALENTS, END OF PERIOD                          $  5,072        $  5,371        $  7,601
                                                                  --------        --------        --------

Supplemental Disclosure of Cash Flow Data:
Interest paid                                                     $  2,402        $  2,651        $  2,429
Income taxes paid                                                    2,394           2,153           1,190

Supplemental Schedule of Noncash Investing and Financial
  Activities:
Acquisition of Businesses:
Fair value of assets acquired                                     $     --        $     --        $  4,879
Cash paid for assets or capital stock                                   --              --          (4,574)
                                                                  --------        --------        --------

LIABILITIES ASSUMED                                               $     --        $     --        $    305
                                                                  --------        --------        --------
</TABLE>

       The accompanying notes to consolidated financial statements are an
                       integral part of these statements.



                                       27
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SYLVAN INC. AND SUBSIDIARIES


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

ACCOUNTING PERIOD

The company maintains its accounting records on a 52-53 week fiscal year ending
the Sunday nearest December 31. The 2001, 2000 and 1999 fiscal years were 52
weeks.

PRINCIPLES OF CONSOLIDATION

The accounts of majority-owned or controlled subsidiaries are included in the
company's statements only for the period subsequent to their acquisition. All
material intercompany transactions and balances have been eliminated in
consolidation.

BASIS OF PRESENTATION

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

All cash equivalents are stated at cost, which approximates market. The company
considers all highly liquid investments purchased with a maturity of three
months or less to be cash equivalents. In addition, the company maintains a
French-franc denominated cash balance of approximately FF16.2 million ($2.2
million) with a U.S. bank in support of a loan advanced by a European bank. This
balance is reported under "Other Current Assets" and "Other Assets" in the
accompanying consolidated balance sheets as of December 30, 2001 and December
31, 2000, respectively.

INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out method) or
market.

PROPERTY, PLANT AND EQUIPMENT

The company's property, plant and equipment are stated at cost and are
depreciated using the straight-line method over their estimated useful lives.

Upon disposal of property items, the asset and related accumulated depreciation
accounts are relieved of the amounts recorded therein for such items and any
resulting gain or loss is reflected in income.

For financial reporting purposes, the company considers its depreciable assets
to have the following useful lives:

                    Land improvements                      10-20 years
                    Buildings                              30-40 years
                    Equipment                               2-15 years


                                       28
<PAGE>

The company owns two satellite mushroom growing facilities, which have an
aggregate cost of $1.4 million and accumulated depreciation of $38,000, based on
a 20-year estimated useful life. Each of the facilities is leased to an
unrelated third party for $100,000 per year. The leases have an initial one-year
term and may be extended for an additional five years. The lessees have the
right to purchase the satellite assets at Sylvan's original cost of construction
after the completion of the first year's lease term.

RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred.

REVENUE RECOGNITION

The company recognizes revenue when the title and risk of loss of the goods sold
pass to the customer.

EARNINGS PER COMMON SHARE

Earnings per share were calculated using the weighted average number of shares
outstanding during the period and including the effect of stock options
outstanding.

The following table reflects the calculation of earnings per share:

<TABLE>
<CAPTION>
IN THOUSANDS EXCEPT SHARE DATA
                                                                YEAR ENDED
                                             ----------------------------------------------
                                             DEC. 30, 2001    DEC. 31, 2000    JAN. 2, 2000
                                             -------------    -------------    ------------
<S>                                           <C>              <C>              <C>
     Basic Earnings Per Share:
     Net income                               $    5,829       $    6,682       $    6,128
     Average shares outstanding                5,500,799        5,658,860        6,112,007
                                              ----------       ----------       ----------

     Earnings per share                       $     1.06       $     1.18       $     1.00
                                              ==========       ==========       ==========

     Diluted Earnings Per Share:
     Net income                               $    5,829       $    6,682       $    6,128
     Average shares outstanding                5,500,799        5,658,860        6,112,007
     Effect of stock options                      50,874            7,114           18,687
                                              ----------       ----------       ----------
     Diluted average shares outstanding        5,551,673        5,665,974        6,130,694
                                              ----------       ----------       ----------

     Earnings per share                       $     1.05       $     1.18       $     1.00
                                              ==========       ==========       ==========
</TABLE>

Options to purchase approximately 305,000, 638,000 and 570,000 shares of common
stock for the fiscal years ended 2001, 2000 and 1999, respectively, were
outstanding, but were not included in the computation of diluted earnings per
share because the options' exercise prices were greater than the average market
price of the company's common shares for the respective years.

FOREIGN CURRENCY TRANSLATION

The financial statements of all foreign operations are translated using the
standards established by Statement of Financial Accounting Standards (SFAS) No.
52, "Foreign Currency Translation." Assets and liabilities of non-U.S.
operations are translated into U.S. dollars using year-end exchange rates, while
revenues and expenses are translated at the average exchange rates for the year.
The resulting net translation adjustments are recorded as a separate component
of shareholders' equity. Transaction gains and losses are reflected in income.



                                       29
<PAGE>

FOREIGN CURRENCY EXCHANGE RISK MANAGEMENT

The company evaluates and hedges foreign currency exchange risk exposure on a
transaction-by-transaction basis. As of December 30, 2001, the company had no
outstanding foreign currency exchange contracts.

INTEREST RATE RISK MANAGEMENT

The company uses interest rate swap agreements to convert a portion of its
floating rate debt to a fixed-rate basis, thus reducing the impact of interest
rate changes on future results. The company has these agreements with its banks
as counterparties. The agreements replace the floating (euro rate) LIBOR basis
with a 90-day fixed LIBOR basis as described in the table below. At the end of
each 90-day period, the company and its counterparties make appropriate payments
to settle the difference between the floating rate LIBOR and the fixed rate
LIBOR. When the floating rate LIBOR exceeds the fixed rate LIBOR at the
beginning of a 90-day term, the counterparties will pay the difference between
the rates for the appropriate notional amount to the company. Conversely, when
the fixed rate exceeds the floating rate, the company will pay its
counterparties. Amounts receivable or payable under these swap agreements are
recorded as an adjustment to interest expense. The company's contractual swap
agreements as of December 30, 2001 are as follows:

<TABLE>
<CAPTION>
                                                                   FAIR                           LIBOR
NOTIONAL             EFFECTIVE               EXPIRATION            MARKET             FIXED       MAXIMUM
AMOUNT               DATE                    DATE                  VALUE              RATE        RATE
-------------        -----------------       ---------------       ----------         ----        -------
<C>                 <C>                     <C>                   <C>                <C>          <C>
$ 10,000,000         February 25, 2000       August 25, 2007       $ (443,238)        5.48%        7.00%
$  5,000,000           October 4, 1999       October 4, 2002         (140,074)        5.02%          --
</TABLE>


Additionally, the counterparty to the $5 million swap presented above has the
ability to extend the swap on October 4, 2002 for an additional one-year period.
The fair market value of this swaption as of December 30, 2001 was ($57,790).

On January 1, 2001, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was adopted by the company, resulting in the recording of
current assets of $68,000, long-term assets of $272,000, current liabilities of
$66,000, long-term liabilities of $190,000 and a decrease in accumulated other
comprehensive income of $56,000.

Floating-to-fixed interest rate swap agreements, designated as cash flow hedges,
hedge the company's floating rate debt and mature at various times through
August 2007. The fair value of these contracts, as determined by the
counterparties, is recorded in the balance sheet, with the offset to accumulated
other comprehensive loss, net of tax. The company expects to expense $36,000 in
2002 related to these derivative instruments, based on interest rates at
December 30, 2001.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is defined as the amount at which the instruments could be exchanged
in a transaction between willing parties. The carrying amount of cash and cash
equivalents approximates fair value because of the short maturity of these
instruments. Additionally, interest rate swaps are recorded at fair value in
accordance with SFAS No. 133.



                                       30
<PAGE>


Valuations for long-term debt are determined based on borrowing rates currently
available to the company for loans with similar terms, currencies and maturities
and were as follows:

<TABLE>
<CAPTION>
              IN THOUSANDS                DEC. 30, 2001         DEC. 31, 2000
                                          -------------         -------------
<S>                                         <C>                   <C>
              Fair Value                    $ 39,162              $ 39,506
              Carrying Amount                 39,685                40,063
</TABLE>


The company's financial instruments are not held for trading purposes.

COMPREHENSIVE INCOME

The components of accumulated other comprehensive income consisted of the
following:

<TABLE>
<CAPTION>
IN THOUSANDS                                                      DEC. 30, 2001        DEC. 31, 2000
                                                                  -------------        -------------
<S>                                                                 <C>                  <C>
Foreign currency translation adjustments                            $(13,000)            $ (9,908)
Unrealized losses on derivatives and qualified cash flow
  hedges, net of tax                                                    (336)                  --
                                                                    --------             --------
Total accumulated other comprehensive income                        $(13,336)            $ (9,908)
                                                                    ========             ========
</TABLE>

INTANGIBLE ASSETS

Intangible assets consist of the excess of cost over net assets of acquired
companies and are being amortized over 30 years or less. Subsequent to its
acquisitions, the company continually evaluates whether later events and
circumstances have occurred that indicate that the remaining estimated useful
life of intangible assets may warrant revision, or that the remaining balance of
intangible assets may not be recoverable. The company's evaluations have not
resulted in any revision to intangible assets or their related amortization
periods.

RECENT PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board issued SFAS No. 142,
"Goodwill and Other Intangible Assets." SFAS No. 142 eliminates amortization of
goodwill and amortization of indefinitely-lived intangible assets and provides
for impairment tests to be performed at least annually. Sylvan adopted this
pronouncement on December 31, 2001, which was the first day of Sylvan's 2002
fiscal year. During January 2002, the company retained a professional services
firm to complete the initial assessment to test for transitional goodwill
impairment. Management does not believe that an initial impairment loss will
result. In compliance with SFAS No. 142, the first step of this assessment will
be completed by June 30, 2002. During the year ended December 30, 2001, the
company recorded goodwill amortization of approximately $0.5 million.

In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." Under its
provisions, all tangible long-lived assets, whether to be held and used or to be
disposed of by sale or other means, will be tested for recoverability whenever
events or changes in circumstances indicate the carrying amount may not be
recoverable. Sylvan adopted this pronouncement on December 31, 2001. The
adoption of this pronouncement did not have a material impact on the company.



                                       31
<PAGE>

RECLASSIFICATIONS

Certain reclassifications have been made to the prior-year financial statements
to be consistent with the current-year presentation.

2.  ACQUISITIONS:

In November 1999, the company acquired most of the assets of the J.B. Swayne
Spawn Company of Kennett Square, Pennsylvania, a modern production facility that
distributed its product within North America. The purchase price, after two
contingent consideration payments of $125,000, was $4.8 million. This
acquisition has been accounted for as a purchase transaction in accordance with
APB No. 16. As a result of the two contingent payments and the completion of the
final purchase allocations, the purchase price exceeded the fair value of the
net assets acquired by $1.5 million. Had the acquisition taken place at the
beginning of 1999, the pro forma impact on sales, net income and diluted
earnings per share would not have been materially different from the amounts
reported.

3.  INVENTORIES:

Inventories are summarized as follows:

<TABLE>
<CAPTION>
IN THOUSANDS
                                           DEC. 30, 2001      DEC. 31, 2000
                                           -------------      -------------

<S>                                           <C>                <C>
Growing crops and compost material            $ 5,466            $ 5,521
Stores and other supplies                       1,493              1,410
Finished products                               3,160              3,467
                                              -------            -------
                                              $10,119            $10,398
                                              =======            =======
</TABLE>

4.  LONG-TERM DEBT, BORROWING AND LEASE ARRANGEMENTS:

The company has a Revolving Credit Agreement with two commercial banks, dated
August 6, 1998. It provides for revolving credit loans on which the aggregate
outstanding balance available to the company may not initially exceed $55.0
million. The average borrowings under this agreement were $37.3 million during
2002. This aggregate outstanding balance will decline over the life of the
agreement as follows:

                  PERIOD                      MAXIMUM AGGREGATE
                  BEGINNING                   OUTSTANDING BALANCE
                  --------------              -------------------
                  AUGUST 6, 2003                $  50.0 million
                  AUGUST 6, 2004                   45.0 million

Outstanding borrowings under the agreement bear interest at either the Prime
Rate or LIBOR (plus an applicable margin), at the company's option. On December
30, 2001, the company had outstanding borrowings under the agreement of $36.1
million. The revolving credit loans mature on August 5, 2005. The company
intends to extend the terms of the revolving credit agreement or secure a
similar arrangement through August 2007, which is concurrent with the expiration
date of the longest-term interest rate swap.



                                       32
<PAGE>

The agreement provides for the maintenance of various financial covenants and
includes limitations as to incurring additional indebtedness and the granting of
security interests to third parties. Obligations under the agreement are
guaranteed by certain wholly owned subsidiaries of the company.

In 1995, the company obtained Dutch guilder financing for the acquisition of
plant and machinery in the Netherlands. As of December 30, 2001, approximately
$0.7 million was outstanding on this loan, which has a term of 15 years and a
fixed rate of interest of 6.2%. The company has granted a security interest over
certain Dutch assets to secure these borrowings.

The company has a French-franc denominated loan of FF16.2 million ($2.2
million). Interest is payable based on a formula that utilizes a Paris Interbank
Offer Rate plus an applicable margin. Repayment was due in January 2002. As of
December 30, 2001, the loan was supported by a compensating cash balance
maintained at a U.S. bank.

The company incurred approximately $2.6 million in gross interest expense during
2001, including $132,000 of interest charges related to interest hedges
accounted for under SFAS No. 133. The weighted average interest rate was 6.7%.
The contractual principal payments due under the company's loan agreements are
as follows:

IN THOUSANDS
                2002                            $  2,430
                2003                                 168
                2004                                  66
                2005                              36,521
                2006                                  53
                Thereafter                           447
                                                --------
                TOTAL                           $ 39,685
                                                ========

The company has entered into various noncancelable operating leases expiring at
various dates through August 31, 2005, primarily for production and office
space. During the years ended December 30, 2001, December 31, 2000 and January
2, 2000, rental expense included in the statements of income was $590,000,
$567,000, and $432,000, respectively.

Future minimum lease commitments for all noncancelable leases are as follows:

IN THOUSANDS
                2002                            $  461
                2003                               121
                2004                                92
                2005                                44
                2006                                --
                Thereafter                          --
                                                ------
                TOTAL                           $  718
                                                ======


                                       33
<PAGE>


5.  ACCRUED SALARIES, WAGES AND EMPLOYEE BENEFITS:

Accrued salaries, wages and employee benefits were composed of the following:

<TABLE>
<CAPTION>
IN THOUSANDS
                             DEC. 30, 2001     DEC. 31, 2000
                             -------------     -------------
<S>                             <C>               <C>
Accrued compensation            $2,030            $1,798
Accrued vacation                   533               648
Other                               72               207
                                ------            ------

TOTAL                           $2,635            $2,653
                                ======            ======
</TABLE>


6.  INCOME TAXES:

The company  files a  consolidated  U.S.  federal  income tax return with its
wholly owned U.S.  subsidiaries.  The company does not provide for federal
income taxes on unremitted earnings of non-U.S. subsidiaries.

The amounts of income before income taxes attributable to domestic and foreign
operations were as follows:

<TABLE>
<CAPTION>
IN THOUSANDS
                                    YEAR ENDED
                 ------------------------------------------------
                 DEC. 30, 2001    DEC. 31, 2000      JAN. 2, 2000
                 -------------    -------------      ------------
<S>                 <C>               <C>               <C>
Domestic            $3,405            $3,308            $1,992
Foreign              5,035             5,522             6,332
                    ------            ------            ------

TOTAL               $8,440            $8,830            $8,324
                    ======            ======            ======
</TABLE>


The provision (benefit) for income taxes consisted of the following:

<TABLE>
<CAPTION>
IN THOUSANDS
                                                           YEAR ENDED
                                      ---------------------------------------------------
                                      DEC. 30, 2001      DEC. 31, 2000       JAN. 2, 2000
                                      -------------      -------------       ------------
<S>                                     <C>                <C>                 <C>
Current:
  Federal                                $   970            $   861             $   388
  State                                       23                (78)               (112)
  Foreign                                  1,223              1,423               1,547

Deferred                                     192                266                 407

Change in Valuation Allowance                 82               (492)                (99)
                                         -------            -------             -------
                                         $ 2,490            $ 1,980             $ 2,131
                                         =======            =======             =======
</TABLE>



                                       34
<PAGE>



A reconciliation between income taxes computed by applying the statutory U.S.
federal income tax rate to income before income taxes and the actual provision
for income taxes is as follows:

<TABLE>
<CAPTION>
IN THOUSANDS
                                                                                   YEAR ENDED
                                                              -----------------------------------------------------
                                                              DEC. 30, 2001       DEC. 31, 2000        JAN. 2, 2000
                                                              -------------       -------------        ------------
<S>                                                              <C>                 <C>                 <C>
Income tax at U.S. federal statutory rate                        $ 2,869             $ 3,002             $ 2,830
State income taxes, net of federal income tax benefit                 37                  (5)                (74)
Foreign taxes at rates other than effective U.S.
  rates                                                             (488)               (462)               (471)
Net (permanent benefits) nondeductible charges                       (24)                (67)                (34)
Change in tax valuation allowance                                     82                (492)                (99)
Other, net                                                            14                   4                 (21)
                                                                 -------             -------             -------
TOTAL PROVISION FOR INCOME TAXES                                 $ 2,490             $ 1,980             $ 2,131
                                                                 =======             =======             =======
</TABLE>

Temporary differences which generate significant portions of the company's
deferred tax assets and liabilities as of December 30, 2001 and December 31,
2000 were as follows:

<TABLE>
<CAPTION>
IN THOUSANDS
                                                    DEC. 30, 2001       DEC. 31, 2000
                                                    -------------       -------------
<S>                                                    <C>                 <C>
Postretirement benefits other than pensions            $  (344)            $  (371)
Depreciation                                             3,407               3,522
Prepaid pension asset                                    2,213               2,007
Net operating loss carryforwards                        (2,285)             (2,035)
Other, net                                                (247)               (489)
                                                       -------             -------
Total                                                    2,744               2,634
Less- Valuation allowance                                1,452               1,370
                                                       -------             -------

NET DEFERRED TAX LIABILITIES                           $ 4,196             $ 4,004
                                                       -------             -------
</TABLE>


Included in net deferred tax liabilities at December 30, 2001 are unrealized tax
benefits amounting to $2.3 million related to net operating loss carryforwards.
The realization of these tax benefits is contingent on future taxable net income
being generated by certain foreign and domestic operations. A $0.5 million state
tax benefit resulted from the merger of two of the company's subsidiaries in the
fourth quarter of 2000. The life of the carryforwards is determined by various
foreign and state taxation jurisdictions. Approximately $0.4 million of the net
operating losses has an indefinite carryforward period. The remaining $1.9
million of net operating losses will expire between 2002 and 2016. The company
has recognized a valuation allowance that reduces the carrying value of
unrealized net deferred tax benefits relating to net operating loss
carryforwards to offset the deferred tax benefits that may not be realized.



                                       35
<PAGE>




7.  STOCK OPTIONS:

In June 1991, the shareholders approved a stock option plan (the 1990 Plan) for
employees and others who perform substantial services for the company. In April
1999, the shareholders approved an amendment and restatement of the 1990 Plan to
provide for an increase to 1,700,000 in the number of shares of the company's
stock which are available for the granting of options. In June 1993, the
shareholders approved a stock option plan (the 1993 Plan) for nonemployee
directors of the company, covering 100,000 shares of common stock. The company
accounts for both plans under the Accounting Principles Board Opinion No. 25,
under which no compensation cost is recognized for options granted at fair
market value. Had compensation cost for these plans been determined in
accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," the
company's net income and earnings per share (EPS) would have been reduced to the
following pro forma amounts:

<TABLE>
<CAPTION>
IN THOUSANDS EXCEPT PER SHARE DATA
                                                        YEAR ENDED
                                          ---------------------------------------
                                            2001           2000            1999
                                          --------       ---------       --------
<S>                <C>                    <C>            <C>             <C>
Net Income:         As Reported           $  5,829       $   6,682       $  6,128
                    Pro Forma                5,024           5,964          5,500

Diluted EPS:        As Reported           $   1.05       $    1.18       $   1.00
                    Pro Forma                 0.91            1.05           0.90
</TABLE>

The company's Board of Directors, through its Stock Option and Compensation
Committee, may grant options under the 1990 Plan. Grants under the 1993 Plan are
nondiscretionary. The Committee has granted options (net of cancellations) for
1,289,083 shares through December 30, 2001 under the 1990 Plan and 87,000 shares
have been granted under the 1993 Plan. Under both plans, the option exercise
price equals the stock's market price on the date of grant. The 1990 Plan
options are exercisable one year from the grant date in installments over a
period of three years and expire after ten years. The 1993 Plan options are
exercisable six months from the grant date and expire ten years after the grant.

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 made in 2001, 2000 and 1999, respectively: risk-free
interest rates of 3.62%, 5.74% and 5.85%; no expected dividend yields; expected
lives of 8.0 years; expected volatility of 34%, 34% and 32%.


                                       36
<PAGE>




A summary of the status of the company's stock option plans at December 30,
2001, December 31, 2000, and January 2, 2000, and changes during the years then
ended, is presented in the table and narrative below:

<TABLE>
<CAPTION>
SHARES IN THOUSANDS
                                            2001                     2000                     1999
                                     -----------------        ------------------         ------------------
                                              WEIGHTED                  WEIGHTED                   WEIGHTED
                                              AVERAGE                   AVERAGE                    AVERAGE
                                              EXERCISE                  EXERCISE                   EXERCISE
                                     SHARES   PRICE           SHARES    PRICE            SHARES    PRICE
                                     ------   --------        ------    ---------        ------    --------
<S>                                   <C>     <C>               <C>     <C>               <C>      <C>
Outstanding at beginning of year      841     $ 11.21           859     $ 11.54           769      $ 11.69
Granted                                 3       12.50           132        8.75           136         9.99
Exercised                             (13)      10.05           (10)       8.75           (34)        8.53
Forfeited                              (4)      12.74          (140)      11.08           (12)       12.62
                                     ----     -------         -----     -------         -----      -------
OUTSTANDING AT END OF YEAR            827       11.22           841       11.21           859        11.54
                                     ----     -------         -----     -------         -----      -------
Exercisable at end of year            703       11.60           570       11.64           556        11.27
Weighted average fair value of
  options granted                             $  5.73                   $  4.50                    $  5.04

</TABLE>

As of December 30, 2001, the characteristics of the stock options under both
plans were as follows:

<TABLE>
<CAPTION>
                                                                        RANGES OF EXERCISE PRICES
                                                                 --------------------------------------
                                                                 $8.625-$12.875           $13.00-$15.00
                                                                 --------------           -------------
<S>                                                               <C>                      <C>
           Outstanding Options:
              Number                                                 632,270                  194,334
              Weighted Average Exercise Price                      $   10.40                $   13.92
              Weighted Average Remaining
              Contractual Life (in years)                                5.7                      6.6
           Exercisable Options:
              Number                                                 508,941                  194,334
              Weighted Average Exercise Price                      $   10.71                $   13.92
           Nonexercisable Options:
              Number                                                 123,329                       --
              Weighted Average Exercise Price                      $    9.11                $      --
</TABLE>


8.  EMPLOYEE BENEFITS:

The company has a noncontributory defined benefit pension plan covering
substantially all of the former employees of a former operation and certain
employees of Sylvan Foods, Inc. and Sylvan America, Inc., wholly owned
subsidiaries of the company. The company's funding policy is to contribute
annually an amount that satisfies the minimum funding requirement under the
Employee Retirement Income Security Act and that is also deductible for federal
income tax purposes.

The accumulated benefit obligations at December 30, 2001 and December 31, 2000
were $30.1 million and $30.3 million, respectively, all of which were fully
vested. The plan's assets consist primarily of U.S. government obligations,
temporary deposits, common stocks and corporate obligations.


                                       37
<PAGE>



The plan's funded status and amounts recognized in the company's consolidated
financial statements, together with certain accumulated postretirement medical
benefit obligations, are set forth in the following tables:

<TABLE>
<CAPTION>
IN THOUSANDS
                                              PENSION BENEFITS                                OTHER BENEFITS
                                 --------------------------------------------  -------------------------------------------
                                 DEC. 30, 2001   DEC. 31, 2000  JAN. 2, 2000   DEC. 30, 2001   DEC. 31, 2000  JAN. 2, 2000
                                 -------------   -------------  ------------   -------------   -------------  ------------
<S>                               <C>             <C>            <C>             <C>            <C>           <C>
Change in benefit obligation:
Benefit obligation at
  beginning of year                $ 30,252         $ 30,109      $ 33,886        $  985          $ 1,044       $    716
Interest cost                         2,174            2,176         2,132            69               71             71
Actuarial (gain) loss                    --              302        (3,595)          (17)             (41)           357
Benefits paid                        (2,341)          (2,335)       (2,314)         (106)             (89)          (100)
                                   ---------        --------      --------        ------          -------       --------
BENEFIT OBLIGATION AT END OF
  YEAR                             $ 30,085         $ 30,252      $ 30,109        $  931          $   985       $  1,044
                                   --------         --------      --------        ------          -------       --------


Change in plan assets:
Fair value of plan assets at
  beginning of year                $ 33,849         $ 34,362      $ 33,867        $   --          $    --       $     --
Actual return on plan assets         (1,288)           1,822         2,809            --               --             --
Employer contributions                   --               --            --           106               89            100
Benefits paid                        (2,341)          (2,335)       (2,314)         (106)             (89)          (100)
                                   --------        ---------      --------        ------          -------       --------
FAIR VALUE OF PLAN ASSETS AT
  END OF YEAR                      $ 30,220         $ 33,849      $ 34,362        $   --          $    --       $     --
                                   --------         --------      --------        -------         -------       --------

Reconciliation of funded
status:
Funded status                      $    135         $  3,597      $  4,253        $ (931)         $  (985)      $ (1,044)
Unrecognized net actuarial
  loss                                6,372            2,307         1,003            43               60            100
Unrecognized prior service
   cost                                  --               --            --           (49)             (56)           (61)
                                   --------        ---------       -------        ------          -------       --------
PREPAID (ACCRUED)
   BENEFIT LIABILITY               $  6,507         $  5,904      $  5,256        $ (937)         $  (981)      $ (1,005)
                                   --------        ---------      --------        ------          -------       --------
Weighted-average assumptions
as of October 31 of each
fiscal year:
Discount rate                          7.50%            7.50%         7.50%         7.50%            7.50%          7.50%
Expected return on plan assets         9.00%            9.00%         9.00%           --               --             --

Components of net periodic
pension cost (income):
Interest cost                      $  2,174       $   2,176       $  2,132        $   69          $    71       $     71
Expected return on plan assets       (2,778)         (2,824)        (2,755)           --               --             --
Amortization of prior service
  cost                                   --              --             --            (6)              (6)            (6)
Recognized net actuarial loss            --              --             52            --               --              5
                                   --------       ---------       --------        ------          -------       --------
NET PERIODIC
   BENEFIT COST
   (INCOME)                        $   (604)      $    (648)      $   (571)       $   63          $    65       $     70
                                   --------       ---------       --------        ------          -------       --------

</Table>


                                       38
<PAGE>




<TABLE>
<CAPTION>
IN THOUSANDS                                    PENSION BENEFITS                               OTHER BENEFITS
                                  --------------------------------------------- ---------------------------------------------

                                    DEC. 30,        DEC. 31,         JAN. 2,         DEC. 30,       DEC. 31,       JAN. 2,
                                      2001            2000            2000             2001           2000          2000
                                  --------------  -------------  --------------  -------------  -------------- --------------

<S>                               <C>             <C>            <C>               <C>             <C>             <C>
Assumed health care cost trend:
Initial trend rate                                                                  6.56%          6.95%           7.34%
Ultimate trend rate                                                                 5.00%          5.00%           5.00%
Year ultimate trend reached                                                         2005           2005            2005

</TABLE>

A  one-percentage-point change in the assumed health care cost trend rates would
   have the following effects:

<TABLE>
<CAPTION>
                                               ONE PERCENTAGE                  ONE PERCENTAGE
                                               POINT INCREASE                  POINT DECREASE
                                               --------------                  --------------
<S>                                             <C>
Effect on total of service and
   interest cost components
   for 2001                                         $  6                          $  (5)
Effect on 2001 postretirement
   benefit obligation                                 80                            (70)
</TABLE>


Additionally, during 1999 certain hourly-paid workers at the company's Quincy
Farms subsidiary became participants in a union-sponsored, collectively
bargained, multi-employer pension plan to which the company makes contributions
based on negotiated fixed amounts per hour per employee. Expenses recorded in
connection with this plan for fiscal years 2001, 2000 and 1999 were $38,000,
$30,000 and $33,000, respectively.

The collective bargaining agreement dated January 21, 2001 with the union
representing certain hourly workers of Quincy Farms contains a profit sharing
bonus provision. The contract covers the 2001, 2002 and 2003 fiscal years. The
bonus pool is calculated on Quincy's incremental operating income greater than
base amounts. Expense recorded for this plan during 2001 was $85,000.

9.  NATURE OF OPERATIONS AND BUSINESS SEGMENT INFORMATION:

Sylvan is a worldwide producer and distributor of products for the mushroom
industry, specializing in spawn (the equivalent of seed for mushrooms) and
spawn-related products and services, and is a major grower of fresh mushrooms in
the United States. The company has two reportable business segments: Spawn
Products, which includes spawn-related products, services and bioproducts, and
Fresh Mushrooms. Spawn-related products include casing inoculum, nutritional
supplements and disease-control agents. The Fresh Mushrooms Segment is comprised
of Quincy Farms, a large, regional producer of fresh mushrooms.

The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The company evaluates the
performance of each segment based on profit or loss from operations. The company
accounts for intersegment sales at a transfer price that approximates an
arms-length sale to an unrelated third party.

The company's reportable segments are strategic business units that offer
different products and serve different customers. They are managed separately
since each business requires different technology, techniques and marketing
strategies.



                                       39
<PAGE>

<TABLE>
<CAPTION>
IN THOUSANDS
                                                    SPAWN         FRESH         TOTAL
                                                    PRODUCTS      MUSHROOMS     REPORTABLE
                                                    SEGMENT       SEGMENT       SEGMENTS
                                                    --------      ---------     ----------
<S>                                       <C>       <C>           <C>           <C>
Total Revenues                            2001      $ 63,559      $ 23,621      $ 87,180
                                          2000        65,199        22,035        87,234
                                          1999        61,945        29,176        91,121

Intersegment Revenues                     2001      $  1,269      $    --       $  1,269
                                          2000         1,287           --          1,287
                                          1999         1,280           --          1,280

Depreciation Expense                      2001      $  3,793      $  1,549      $  5,342
                                          2000         3,578         1,623         5,201
                                          1999         3,824         1,624         5,448

Operating Income                          2001      $ 11,849      $  2,642      $ 14,491
                                          2000        13,368         2,135        15,503
                                          1999        12,930         1,425        14,355

Net Fixed Asset Expenditures              2001      $  6,330      $  2,236      $  8,566
                                          2000         5,191           911         6,102
                                          1999         7,171           487         7,658

Assets                                    2001      $ 79,700      $ 19,040      $ 98,740
                                          2000        76,462        21,565        98,027
                                          1999        79,166        23,385       102,551

</TABLE>



                                       40
<PAGE>



RECONCILIATION TO CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
IN THOUSANDS
                                                   2001             2000           1999
                                                 ---------       ---------       ---------
<S>                                             <C>             <C>             <C>
Revenues:
Total for reportable segments                    $  87,180       $  87,234       $  91,121
Elimination of intersegment revenues                (1,269)         (1,287)         (1,280)
                                                 ---------       ---------       ---------
TOTAL CONSOLIDATED REVENUES                      $  85,911       $  85,947       $  89,841
                                                 ---------       ---------       ---------

Depreciation Expense:
Total for reportable segments                    $   5,342       $   5,201       $   5,448
Unallocated corporate expenses                          33              32              58
                                                 ---------       ---------       ---------
TOTAL CONSOLIDATED DEPRECIATION
   EXPENSE                                       $   5,375       $   5,233       $   5,506
                                                 ---------       ---------       ---------

Operating Income:
Total for reportable segments                    $  14,491       $  15,503       $  14,355
Unallocated corporate expenses                      (3,500)         (3,989)         (3,799)
                                                 ---------       ---------       ---------
TOTAL CONSOLIDATED OPERATING
   INCOME                                        $  10,991       $  11,514       $  10,556
                                                 ---------       ---------       ---------

Net Fixed Asset Expenditures:
Total for reportable segments                    $   8,566       $   6,102       $   7,658
Unallocated corporate expenditures                      33               2              11
                                                 ---------       ---------       ---------
TOTAL CONSOLIDATED NET FIXED
   ASSET EXPENDITURES                            $   8,599       $   6,104       $   7,669
                                                 ---------       ---------       ---------

Assets:
Total for reportable segments                    $  98,740       $  98,027       $ 102,551
Prepaid pension asset from former operation          6,507           5,904           5,256
Unallocated corporate assets                         1,843           1,843           1,688
                                                 ---------       ---------       ---------
TOTAL CONSOLIDATED ASSETS                        $ 107,090       $ 105,774       $ 109,495
                                                 ---------       ---------       ---------
</TABLE>

GEOGRAPHIC ANALYSIS OF NET LONG-LIVED ASSETS

<TABLE>
<CAPTION>
IN THOUSANDS
                                                                 OTHER FOREIGN
                  UNITED STATES     FRANCE         NETHERLANDS   COUNTRIES       TOTAL
                  -------------     -------        -----------   -------------   --------
<S>                 <C>            <C>            <C>            <C>             <C>
      2001           $ 26,161       $ 9,219        $ 4,457       $ 14,439        $ 54,276
      2000             25,225         8,560          5,089         13,662          52,536
      1999             25,669         8,683          5,624         14,273          54,249

</TABLE>

                                       41
<PAGE>



GEOGRAPHIC ANALYSIS OF REVENUES BASED ON LOCATION OF CUSTOMER

<TABLE>
<CAPTION>
IN THOUSANDS
                                                                 OTHER FOREIGN
                  UNITED STATES     FRANCE         NETHERLANDS   COUNTRIES       TOTAL
                  -------------     -------        -----------   -------------   --------
<S>                 <C>            <C>            <C>            <C>             <C>
      2001           $ 40,660       $ 6,779        $ 8,880        $ 29,592       $ 85,911
      2000             41,703         7,440          8,778          28,026         85,947
      1999             43,543         8,037          9,822          28,439         89,841
</TABLE>

Most of Sylvan's Fresh Mushrooms Segment sales in 2001 and 2000 were to C And C
Carriage Mushroom Company. C And C began purchasing and marketing all of
Quincy's production in January 2000. The $23.0 million and $20.8 million of
fresh mushrooms purchased from Quincy represented 27% and 24% of Sylvan's
consolidated net sales in 2001 and 2000, respectively. C And C is not affiliated
with Sylvan or any of its subsidiaries and the purchase and marketing contract,
dated January 14, 2000, carries an initial term of five years.

No other single customer accounted for 10% or more of Sylvan's sales during the
years ended December 30, 2001, December 31, 2000 or January 2, 2000. The
majority of the company's $13.1 million in trade accounts receivable are from
regional mushroom growers and composters. Approximately $2.0 million of the
receivable is due from C And C and is partially secured by a letter of credit
for $1.25 million.

Sylvan sells its products to customers primarily in North America and Europe.
Credit sales are also made to customers in Australia, Asia, Africa and South
America. Many of these customers are privately held businesses with limited
capital resources. The company performs ongoing credit evaluations of customers,
and generally does not require collateral. Allowances are maintained for
potential credit losses and such losses have been within management's
expectations.

10.  RELATED-PARTY TRANSACTIONS:

During fiscal years 2001, 2000 and 1999, a nonemployee director's business
interests purchased spawn and spawn-related products at fair market value
totaling $589,000, $621,000 and $659,000, respectively. These business interests
purchased mushrooms and services at fair market value totaling $5,000 in 2001
and $83,000 in 1999 in trading with the company's subsidiaries.



                                       42

<PAGE>
                                                                     Sxhedule II

                   SYLVAN INC. AND SUBSIDIARIES (THE COMPANY)
                   ------------------------------------------

                        VALUATION AND QUALIFYING ACCOUNTS

            FOR THE YEARS ENDED DECEMBER 30, 2001, DECEMBER 31, 2000

                               AND JANUARY 2, 2000

                                 (In Thousands)

<TABLE>
<CAPTION>
                         ----------Additions-----------
                            Balance at       Charged to                        Deductions                           Balance
                            Beginning         Costs and                           from                              at End
Description                 of Period         Expenses       Recoveries        Reserves (a)      Other (b)         of Period
-----------------------------------------------------------------------------------------------------------------------------
<S>                         <C>              <C>              <C>               <C>               <C>               <C>
Year ended
   December 30,
   2001-
     Allowance for
     doubtful
     accounts                 $ 497            $ 107            $   0            $(125)            $ (39)            $ 440
                              =====            =====            =====            =====             =====             =====

Year ended
   December 31,
   2000-
     Allowance for
     doubtful
     accounts                 $ 826            $ 251            $   0            ($558)            ($ 22)            $ 497
                              =====            =====            =====            =====             =====             =====

Year ended
   January 2,
   2000-
     Allowance for
     doubtful
     accounts                 $ 710            $ 524            $   0            ($379)            ($ 29)            $ 826
                              =====            =====            =====            =====             =====             =====

</TABLE>


   (a)    Represents uncollected accounts charged against the allowance.

   (b)    Represents the effect of currency translation adjustments.



                                       43



<PAGE>



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and
Shareholders of Sylvan Inc.

We have audited, in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements included in Sylvan Inc.'s
annual report to shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 1, 2002. Our audits were made for
the purpose of forming an opinion on those statements taken as a whole. The
schedule listed in the index in Item 14(a)2 of this Form 10-K is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.


                                                   /s/  ARTHUR ANDERSEN LLP


Pittsburgh, Pennsylvania,
February 1, 2002



                                       44